Investing by the Mile Instead of by the Gallon

April 14, 2016 / Blogs

Metropolitan Planning Council (MPC) research shows that our state’s surface roads, bridges and transit systems need $43 billion in additional investment over the next ten years.

Unquestionably, we need new funding to support this. As we use less gasoline—or none at all—we need to consider a vehicle miles traveled fee, which would charge drivers based on how much they use the road. Ill. Sen. President John Cullerton (D-Chicago) introduced a bill that would implement a vehicle miles traveled program next year.

The vital need to invest in our state’s transportation network is finally receiving the attention it deserves. It’s been a quarter century since Illinois last raised its gas tax, which has been stuck at 19 cents since 1991. As a result, our roads, rails and bridges are in bad shape and getting worse by the day. The amount of the state’s roads in good condition has declined from about 90 percent to just 79 percent—and this figure will fall further to 62 percent in the next five years if funding is not augmented.

MPC found that $2.7 billion in new annual revenues are required to support the $43 billion 10-year investment, thanks to the power of bonding. Although we will be able to rely on vehicle miles traveled fees eventually, MPC believes we should use existing user fees to begin to invest more in the near term. One option that MPC offers to start the conversation is increasing the motor fuel tax by 30 cents a gallon and increasing vehicle registration fees by 50 percent, and indexing both to inflation.

Is the gas tax a long-term, sustainable source of revenue?

MPC’s proposal to meet the $43 billion need—introduced in a bill (SB 3279) sponsored by Ill. Sen. Heather Steans (D-Chicago)—uses the increase of existing user fees as an immediate measure in order to ensure that our state is able to invest more in transportation now instead of letting conditions continue to deteriorate. Because our state is used to collecting revenues via the motor fuels tax and vehicle registration fees, it makes sense to increase those fees now while we transition to vehicle miles traveled.

The average Illinoisans’ contribution to transportation funding via the motor fuel tax has declined by 40 percent since 1991, so increasing that fee now would help make up what we’ve lost to inflation. The cost to the average resident—about $12.25 a month according to MPC’s calculations—is relatively small compared to what most of us are already spending on transportation.

MPC is aware that the gas tax cannot be relied upon alone for long-term, sustainable funding—which is why SB 3279 also proposes that a vehicle miles traveled system be fully implemented up to nine years from now, in 2025. The primary reason is that the fuel economy of new cars and trucks has risen dramatically over the past decade. Thanks to federal government rules about gas consumption, the overall new car fleet’s average fuel economy has risen from about 20 miles per gallon in 2004 to 25 miles per gallon last year. Those figures are expected to continue to rise.

While that’s great news for drivers and the environment, it’s not such great news for states collecting motor fuel tax income. Indeed, that increase in mileage corresponds to a 20 percent decline in overall gallons of gas purchased and taxes paid, assuming a steady level of miles driven.

Moreover, cars are changing. Though electric cars—which pay no motor fuel taxes whatsoever—still account for a very small share of the overall car fleet, they can be expected to play an increasing role in the coming decades thanks to improving battery technology and the availability of charging stations.

In the long term, relying on the motor fuel tax to pay for transportation investments would be foolish: Even with continuous increases, it would fail to provide adequate revenues to support our transportation system. But in the short term, it remains a very useful and easy-to-administer mechanism to raise money for our roads.

How could a vehicle miles traveled fee work?

Given the long-term benefits of moving to a mileage-based fee to fund transportation, Sen. Cullerton’s legislation (SB 3267), which is similar to MPC’s but on a faster timeline, makes a lot of sense.

Both bills would implement a fee that allows drivers and car owners to choose how they want to pay a fee, and both recognize that drivers shouldn’t have to pay both the motor fuel tax and the vehicle miles traveled fee.

The bills would allow drivers to choose between three approaches to measuring the number of miles they’ve driven, based on the level of privacy they’d like. A “Smart Plan” would track customers using a GPS system and measure the exact number of miles they’ve driven on Illinois roads; a “Convenient Plan” would allow drivers to keep an odometer log, irrespective of where exactly they’ve driven; and a “Flat Rate Plan” would simply charge drivers a rate that assumes they’ve driven 30,000 miles a year.

The initial rate would be set at 1.5 cents per mile, which would mean a maximum of $450 in fees for each registered vehicle annually, but more like $195 for the average driver commuting 13,000 miles a year. The bills would not double charge drivers, since it would provide them a credit for any motor fuel taxes they have paid.

A similar approach has been implemented in Oregon, which is running a large vehicle miles traveled pilot called OReGO that was initiated last year. That program is not mandatory but allows up to 5,000 cars and trucks in that state to sign up. Its effectiveness remains to be demonstrated.

There’s no question, though, that if a mileage-based fee were implemented successfully, it could raise a lot of money to fund our state’s transportation infrastructure. Based on 2014’s rate of driving in Illinois—about 105 billion miles in total—a vehicle miles traveled fee could raise $1.58 billion, compared to the $1.21 billion raised by the motor fuel tax. Vehicle miles traveled offers the potential to invest more in our transportation network.

What are the challenges to vehicle miles traveled implementation?

MPC’s recommendation is to move gradually toward the implementation of this system, which is why our legislation proposes that it be fully implemented up to nine years from now, in 2025. The infrastructure for vehicle miles traveled will likely take years to create, and getting people in the state used to the system could take even longer.

Though pilot programs such as Oregon’s appear to be working successfully thus far, no state or even city has pursued a full-scale, mandatory implementation of a vehicle miles traveled fee just yet—so there is no precedent for making this work.

Moreover, there are several important and unresolved questions about how best to implement vehicle miles traveled that must be answered before a statewide system is put into play. For example, how would the environmental consequences of vehicle use be addressed? The motor fuel tax is indirectly placing a tax on carbon emissions for cars, since it taxes gas guzzlers more than hybrids. Do we want to create a tax system that treats SUVs and more efficient cars the same?

Similarly, how do we account for social equity? Should people who have to drive a lot in order to get to their jobs because their communities are isolated from employment be required to pay significantly more?

Finally, current vehicle miles traveled systems are expensive to administer. Recent estimates published by the Transportation Research Board suggest that these fees may cost more than seven times as much to collect than motor fuel taxes.

These issues and more must be addressed as an Illinois vehicle miles traveled system is designed and implemented. There’s a lot of work to be done, but it remains one of the most promising future ways to raise the essential revenues to pay for transportation.