From fuel taxes to mileage-based user fees : rationale, technology, and transitional issues.

Coyle, David D.; Robinson, Ferrol O.; Zhao, Zhirong (Jerry); Munnich, Lee W.; Lari, Adeel Z. · 2011 · ROSA P / University of Minnesota. Intelligent Transportation Systems Institute

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Summary

This report addresses the growing inadequacy of motor fuel taxes as the primary mechanism for funding surface transportation in the United States. Motivated by recommendations from two national commissions established by the U.S. Congress, the study evaluates the rationale for transitioning to mileage-based user fees (MBUFs), also known as vehicle-miles traveled (VMT) fees. The authors aim to clarify the shortcomings of the current system for policymakers and the public, who often lack understanding of why fuel taxes are no longer sustainable, and to lay the groundwork for public outreach and policy discussion. The analysis employs a comparative framework, evaluating both fuel taxes and MBUFs against five transportation finance principles: efficiency, equity, revenue adequacy and sustainability, environmental sustainability, and feasibility. The report reviews existing pilot projects, including Oregon’s gas-pump payment system, University of Iowa GPS-based tests, and Minnesota’s smartphone-based trials, to assess technological viability. It further examines eight specific technology options for implementing MBUFs, such as On-board Diagnostic (OBD II) units and fine-resolution GPS, analyzing their ability to meet the five finance principles. The findings indicate that fuel taxes perform weakly in efficiency, moderately in equity, revenue adequacy, and environmental sustainability, and strongly in feasibility. In contrast, MBUFs score strongly in efficiency, equity, and revenue adequacy, moderately in environmental sustainability, but weakly in feasibility due to administrative and political challenges. Technologically, OBD II combined with cellular networks offers a strong balance across most principles, while fine-resolution GPS provides very strong efficiency and equity but weak feasibility. The report concludes that fuel taxes are unsustainable because they fail to capture the true cost of road use, leading to congestion and revenue shortfalls, whereas MBUFs offer a more efficient and equitable alternative. The significance of this work lies in its proposed transitional action plan for implementing MBUFs. The authors recommend a hybrid funding structure consisting of a reduced base fuel tax for baseline needs, a federal and state-level mileage-based charge for reconstruction and expansion, and a local-option mileage charge to replace local sales taxes. This approach allows for a gradual transition, accommodating the coexistence of fuel taxes and MBUFs. The report emphasizes that successful implementation requires addressing difficult transitional issues, including system design, revenue allocation, and extensive public education to overcome political and administrative feasibility barriers.

Key finding

Mileage-based user fees outperform fuel taxes in efficiency, equity, and revenue sustainability, while fuel taxes are deemed unsustainable and inefficient for long-term transportation funding.

Methodology

review

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