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Mileage Based User Fees

01/04/2012

From Barb Thoman, Executive Director

Revenues from Minnesota’s gas tax (now at 28 cents per gallon) are not increasing as they once were, raising concerns about the state’s future ability to pay for roads and bridges. As the fleet of vehicles on the road becomes more fuel-efficient and as more electric vehicles are sold, annual gas tax revenues are expected to level off and possibly fall. The most talked-about alternative to the gas tax is a Mileage Based User Fee (MBUF), a fee on the number of miles a vehicle is driven.

In 2011, MnDOT created a task force to evaluate a mileage fee concept and the legislature funded a pilot study test the in-vehicle technology that would collect mileage data. I was a member of the 25 member task force, which released a report in December.

The report finds that a mileage based fee would be feasible, would ensure that all vehicles are charged, and could be adjusted for time of day and estimated vehicle fuel economy. The report also raises concerns: a mileage tax is much more expensive to collect than the gas tax, and there are issues of privacy and complexity, among other concerns. The report acknowledges that implementation of such a system could be a decade or more away and might need to be national rather than state by state.  

Three members of the task force (Senator Dibble, Representative Hornstein, and I) disagreed with one recommendation of the Task Force - that any revenue from a future mileage fee be dedicated to “roadway purposes.”  We proposed instead that any future MBUF revenues be available for any surface transportation purpose, to allow for greater flexibility in investment.  

Transit for Livable Communities believes that language in Minnesota’s Constitution directing $1.5 billion in annual state transportation spending to “highway purposes” has resulted in an overbuilt highway system, too many local roads in poor condition, and under developed transit, bicycle, and pedestrian networks.  

While some interests have concerns about hybrid and electric vehicles not paying their “fair share,” others, including Ethan Fawley from Fresh Energy, believe that many hybrid and electric vehicles will actually pay MORE in taxes than some comparable gas-powered cars.  The higher purchase price of hybrid and especially electric vehicles results in higher sales taxes at the time of purchase and higher annual vehicle license tab fees than the taxes paid by the owners of fully gasoline-powered vehicles. These higher taxes and fees may offset lost state gas tax revenue, although federal taxes will be lower for hybrid, electric, and other more fuel-efficient vehicles.

A future MBUF could vary by time of day and could be an effective application of congestion pricing (i.e. charging higher fees at peak periods) something that Minnesota can now do only on two highway segments in the region. A wider application of congestion pricing would encourage more off-peak trips, higher transit use, and greater bicycling – reducing the need for costly highway expansion projects.

The report on Mileage-Based User Fees was written under a contract between MnDOT and the Humphrey School of Public Affairs and reflects the views of the Mileage-Based User Fee Task Force. The full report can be found here

In 2011, MnDOT also conducted a $5 million demonstration project with 500 people from Hennepin and Wright counties to test MBUF technology. Those results will be released in 2012.

Notes:   In FY2010, the state gas tax contributed half the revenue, or $823 million, into Minnesota’s Highway User Fund. The remainder of the revenue came from a sales tax on new and used cars and vehicle license tab fees. Federal funding also provides a fourth major revenue source for roads. 

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Comments

The MBUF is just the latest example of the increasingly regressive nature of MN taxation policy. The decline in gas tax revenues was predictable, but progressive alternatives to the gas tax were ignored. Rather than actually implement a strategy that is fair, progressive, and honest, we see more efforts to continue policies that have, and continue, to fail.

I really hate fees like this. Makes me sick to my stomach, blah...

There is still an enormous amount to be done in figuring out how to transition from fuel taxes to mileage-based user fees. What I urge transportation researchers to do is to reconsider the prevailing view that one high-tech system must be defined and imposed, to solve all highway funding, congestion, and externality problems. That path most likely leads to political failure. But by separating the problem into its component parts, I think we can address each of them in ways that are both cost-effective and politically do-able.

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