Since its inception, the Interstate Highway System has been universally revered for its scale and accessibility. But the primary funding mechanism which supports it, the federal gas tax, is inefficient and fiscally unsustainable. This past weekend, the Oregon House and Senate moved to craft a new system for generating revenue for the building and maintaining of the state’s roads. Senate Bill 810 would allow the collection of highway revenue based on vehicle-miles traveled (VMT).
This is occurring in a climate of uncertainty over the future federal involvement in highway funding. Currently, revenue for the federal Highway Trust Fund (HTF) is primarily generated from a tax of 18.4 cents on every gallon of gasoline sold for automobile consumption. While this system was built upon the idea that revenue collected from a state’s fuel consumption should directly go to maintaining its federal-aid highways, the reality is that the current system is highly redistributive. In 2005, Alaska received highway funding that was 6.44 times larger than the revenue it contributed to the HTF. Oregon on the other hand only received 95 percent of what it contributed into the HTF.
Other flaws in the system include a widening gap between the revenue generated from the gas tax and the cost of building and maintaining America’s highways. Since 1993, the fuel tax rates for both gasoline (18.4 cents per gallon) and diesel (24.4 cents per gallon) has remained the same while the annual cost of highway maintenance increased by 55 percent -- right as more highway segments reach the end of their 50-year lifespans. At the same time, the fuel efficiency of the average car has increased by 5 percent, reducing the revenue generated by the fuel tax. As the chart below illustrates, today’s fuel efficient cars are driving more than ever but are not generating the revenue necessary to expand road capacity or maintain existing infrastructure.
A tax on VMT would charge drivers a price that reflects the costs their driving levies on roads. Bill 810 would tax volunteering licensed drivers 1.5 cents per mile driven. Vehicles eligible for the program must be able to meet the following requirements:
- Vehicles must weigh 10,000 lbs. or less;
- The number of vehicles in the program cannot exceed 5,000;
- No more than 1,500 could achieve less than 17 miles per gallon; and
- Nor more than 1,500 could achieve between 17 miles and 22 miles per gallon.
Oregon was the first state in 1919 to institute a gas tax to fund its infrastructure needs. Once again the state is leading the nation in transportation funding innovations. This initiative begins to put a price on the wear and tear that drivers impose on the state’s roads. For the time being, the fuel tax will remain the primary source of highway revenue.
The new system will be far from perfect. While collecting revenue based on VMT moves away from the outdated volumetric funding philosophy that characterizes the fuel tax, Oregon's system does not price road usage, i.e., variable congestion pricing. Nor will the system allocate revenue to where driving takes place. The new regime will still leave the door open for revenue to be allocated to areas based on political motivations and to projects of dubious value such as bike paths and streetcars.
To further bring market discipline into the transportation sector, lawmakers should look into applying GPS or cellular technology that not only measures miles driven but the routes where the driving occurs throughout the day. Where and when a vehicle’s miles are logged will determine what roadways and routes would be the recipients of VMT revenue and allow highway managers to keep traffic flowing via variable road pricing.
Voters and lawmakers would be wise to watch Oregon as it undergoes the first statewide test of a VMT tax. Oregon will certainly not be the last state to move toward a VMT tax for highway funding.