Running on Empty

Does America’s transportation policy need an overhaul?
“The nation faces a crisis. Our surface transportation system has deteriorated to such a degree that our safety, economic competitiveness, and quality of life are at risk.” So begins the Feb. 2009 report of the National Surface Transportation Financing Commission (NSTFC), tasked by Congress to develop a new framework for funding America’s transportation system in the twenty-first century. State and federal fuel taxes, at least at current levels, are no longer enough. Last fall, Congress passed emergency legislation injecting $8 billion into the Highway Trust Fund, the program created by the 1956 Federal Aid-Highway Act to support the interstate highway system with taxes on gasoline, truck sales, and other items related to vehicle use. With revenues expected to drop even faster next year, a hike in the gas tax may be the only way to stave off further deficits. Although several states have moved in this direction, lawmakers may be more reluctant than usual to enact significant nationwide increases during the recession.
Falling fuel consumption, however, has ignited a debate about new ways to move financing forward. One of the Commission’s unanimous recommendations was a vehicle-miles-traveled (VMT) fee, which under one proposal would use satellite tracking to charge drivers based on when, where, and how far they drive, with the potential to integrate pricing for congestion and other social costs. The concept of charging by the mile enjoys broad support from transportation experts, a small but growing number in Congress, and even the new Secretary of Transportation, Ray LaHood. Specific proposals for implementation range in complexity from simple odometer-checking to the more controversial GPS-based pricing system envisioned by the financing commission.
Like so many innovative technologies, the VMT fee is in its political infancy. Though many experts view it as the most comprehensive way to adapt transportation financing to a less oil-dependent future, public acceptance and political endorsement will be contingent on continuing to provide incentives for environmentally friendly vehicles, demonstrating technical success, and assuaging key privacy concerns.
Seeing Red
Since the passage of the Highway Act over fifty years ago, the gas tax has served as the principal generator of revenue for building and maintaining America’s sprawling network of roads and highways. The depletion of the Highway Trust Fund can be traced to several converging trends that have undercut tax revenue in the past decade, including greater use of fuel-efficient vehicles, inflation, and the first national decline in driving since World War II. When Congress implemented it as a major funding mechanism in the 1950s, the federal gas tax was considered a convenient way to make drivers pay for road construction and maintenance. Clifford Winston, a transportation economist at the Brookings Institution, told the HPR that the tax was meant to embody a simple principle: “You use it, you pay for it.” When general tax revenue is used to fill the gap and to keep the trust fund solvent, the user-pay system falls apart.
Taxes on transportation, however, are notoriously unpopular in a country for which the car and the open highway evoke freedom, opportunity and adventure — the persistence of American frontier consciousness. The federal gas tax has not been increased since it was raised to 18.4 cents per gallon in 1993, and inflation has sapped its real value over the past fifteen years. Peter Van Doren, senior fellow at the CATO Institute, said in an interview with the HPR that talking about gasoline taxes has “always been contentious” in the United States. “Voters have gotten used to thinking of roads as free even though they’re not.” Van Doren recalled that several members of Congress may have lost their seats in the early ‘90s due to their support for the tax increase. Since then, said Van Doren, “members of Congress have viewed discussion of gas taxes as death.”
But Adie Tomer, research analyst at the Brookings Institution, told the HPR that raising the gas tax would be necessary to maintain the user-pay principle in the short term. “If you don’t increase the gas tax, you’re going to continue shifting money from general funds. Should our income taxes directly pay for building a highway in Kansas?”
Erich Muehlegger, professor of public policy at the Harvard Kennedy School, pointed to another downside of drawing from general revenue to fund infrastructure. “Infrastructure investment is then much more subject to political decisions about how much we need year to year.” The Highway Trust Fund, Muehlegger explained, “provides regularity.” Two congressionally created transportation panels, including the commission that released its report this year, have therefore called for raising the gas tax, tying it to inflation, and steering long-term policy toward more precise mileage-centered pricing.

New Horizons for Financing
The VMT proposal is on the table largely because trends like declining fuel consumption present more systemic challenges to transportation financing than the lack of political will to raise existing taxes. As Americans embrace more fuel-efficient vehicles and begin to drive less overall, policymakers are caught in a dilemma of clashing policy objectives. Lower gasoline consumption might reduce environmental impact and ease oil dependency, but it drains funding for important infrastructure. Gabriel Roth, research fellow at The Independent Institute, noted in an interview with the HPR that further decreases in fuel consumption and plans for higher fuel efficiency standards will only accelerate revenue shortages. “It is not a good idea to base your system for funding roads on a tax that is going to have a smaller and smaller base,” Roth explained.
People may also “overuse” highways as vehicles attain better fuel economy, contributing to wear and tear, congestion, and urban sprawl. “At the time the gas tax seemed like a sensible way to pay for the highway system,” said Winston. “The problems we have now weren’t apparent then.” Anthony Rufolo, professor of urban studies and planning at Portland State University, told the HPR that with declining fuel consumption the gas tax is “not likely to be a viable method of financing in the long run.” Although it remains a key funding mechanism at the moment, accounting for almost 90 percent of federal transportation revenue, doubts about the long-term viability of the tax and a desire to price road use more efficiently have thus led to increased interest in other revenue sources.
A vehicle-miles-traveled fee like the one endorsed by the financing commission would be less vulnerable to changes in fuel efficiency and driving habits, while maintaining the user-pay principle. “Vehicles with different fuel efficiency would be contributing more equitably to the road fund,” explained Rufolo, who served as an adviser to the financing commission and provided assistance to the Oregon Department of Transportation’s small-scale volunteer-only pilot program for the VMT fee. Crucially, the VMT fee would also be a more reliable revenue source than the gas tax. In a 2007 paper, Van Doren wrote that consumers respond to a fuel tax over the long run “by purchasing more fuel-efficient vehicles, not by driving less,” and argued that the ability of the gas tax to absorb externalities such as pollution and oil dependency is exaggerated. Advances in technology have also made the rationale of administrative convenience less compelling. “As technology changes so that it is not costly to have user charges [e.g. EZ-Pass, VMT fee, etc.], the need for a gasoline tax goes down,” said Van Doren.

Not Easy Being Green?
Critics of the VMT fee worry that it will not provide proper incentives for environmentally-friendly driving. Even Roth, who described himself as “very much in favor” of a mileage charge, was quick to acknowledge that it would not be as effective as the gas tax at encouraging use of alternative energy and fuel-efficient vehicles. But greater fuel efficiency may not reduce emissions much if motorists respond to lower costs by driving more. Even in the absence of a gas tax, per-mile pricing could be adjusted to take account of vehicle weight or emissions.
Under many proposals, vehicles with greater axle weight would be assessed at higher rates so that, for example, Hummers would be taxed more per mile than hybrid Priuses. In a similar vein, trucks that get better fuel efficiency but damage roads by using fewer axles would also pay a larger share. As a Washington Post editorial that came to the defense of LaHood’s suggestion pointed out, this flexibility is one of the main reasons that the VMT fee has attracted admirers at top environmental organizations such as the Environmental Defense Fund.
With satellite tracking, the mileage charge could become the centerpiece of a far more ambitious user fee system, accounting for the full array of social costs incurred by driving on a per-mile basis. In a time when 36 percent of the nation’s urban thoroughfares suffer from congestion, the GPS-based system also offers the advantage of pricing road use by time and place. “The gas tax does little to discourage congestion,” said Winston, “The key feature of congestion is that it varies by time of day.” Under the VMT fee, however, rates could be adjusted so that driving on a rural highway at night would cost less than driving through city centers during rush hour.
Feeding the Beast
In the United States, the main response to congestion has been to build more highways on the periphery, exacerbating urban sprawl and, according to Tomer, “feeding the beast” by actually inducing greater demand for transportation. Roth, a citizen of the United Kingdom, where space is less plentiful, noted, “In Europe they have to be intelligent to make the best use of the road system. In this country, the solution is to build more and throw more money at it. You can’t imagine the waste that happens here in transport,” said Roth.
Politically motivated earmarks have often made matters worse, generating costly projects with limited public utility. Rufolo remarked, “We think about something like the ‘Bridge to Nowhere’ being an anomaly, but it’s not.” One of the benefits of congestion pricing, he explained, is that it allows administrators to better manage existing roads, reducing the need — and the justification — for wasteful infrastructure spending.
Some proponents of the VMT fee believe that it would be more efficient to have revenue from user charges go to individual road owners, including private entities and state governments, than have it all sent to Washington, D.C. As Van Doren pointed out, however, that idea is unlikely to find friends in high places because it would detract from federal power and “legislatures like to give road contracts.” The VMT fee would probably function as a federal mileage tax, without any devolution of politically lucrative responsibilities. For that reason, the VMT fee is unlikely to end earmarked infrastructure spending, but it could make such spending more difficult to justify when GPS usage data reveal “Bridges to Nowhere” for what they are.

Potholes Ahead
But the GPS-based proposal faces bigger bumps on the road to acceptance than this debate over where charges would go, such as the technical challenges of introducing the system in the first place and the inevitable privacy concerns about tracking drivers by satellite. Although the cost of GPS technology is expected to drop significantly over the next several years, states may decide that introducing an advanced VMT fee is not worthwhile unless auto manufacturers are compelled to include the technology in every vehicle. In its mostly favorable 2007 report on the state’s VMT pilot program, the Oregon Department of Transportation cautioned that retrofitting vehicles with satellite tracking technology may be too expensive to be a feasible option. Indeed, some proposals for the VMT count on incentives such as a temporary increase in the gas tax to encourage people to switch to the GPS-based fee during a protracted, voluntary transition period.
But privacy advocates worry that governments will require or otherwise induce manufacturers to begin on-vehicle installation in order to accelerate the transition and capitalize on the efficiency of broad implementation. David Fidanque, executive director of the Oregon branch of the ACLU, told the HPR that the extent of his concerns would depend on the specific technology implemented, but that any centralized collection of sensitive information about driving habits would put privacy at risk. “Law enforcement would love to have the capacity to track an individual with the approval of a court or with legislative authorization,” said Fidanque. “Under the U.S. Supreme Court’s interpretation of the Fourth Amendment, Americans are only entitled to the privacy they expect. If there’s no expectation of privacy regarding your movements, then governments and corporations and other people can track your movements without any sort of legislative or judicial authority.”
Many VMT proposals, however, demonstrate an acute awareness of this privacy risk and seek to prevent the transfer of time, location, or distance data identifiable with drivers while allowing for customer validation of expenses. Under one proposal, pricing calculations could be done in-vehicle and downloaded to a pay station at a fuel pump, much like the system tested in the Oregon experiment. Roth, who has co-authored his own VMT proposal, said that safeguarding privacy “is absolutely essential” and saw “no incompatibility” with privacy because detailed travel information would not leave the vehicle.
Roth advocates a design similar to the one of the financing commission’s own recommendations, which would use on-board pricing calculations but send data through a privacy shield by anonymous proxy to road providers and other relevant entities (e.g. insurance companies if Pay-As-You-Drive fees are integrated). To gain trust and public acceptance, however, assurances about technological protection may not be enough. “There’s going to be tremendous pressure for law enforcement and commercial interests to have access to that information whenever they want it, with or without the knowledge of individual motorists,” warned Fidanque. Legislation that explicitly outlaws the kind of corporate or government intrusion that worries Fidanque and other privacy advocates might be a prerequisite for public and political acceptance of GPS-based pricing, particularly if it involves broad scale pre-installation.
Gaining Political Traction
The VMT fee has already been the source of some controversy. It piqued media attention in February following a peculiar rhetorical scuffle among top policymakers. When LaHood suggested in an AP interview that a mileage charge might be necessary, the proposal drew an emphatic rebuke from the White House press secretary. “It is not and will not be the policy of the Obama administration,” Robert Gibbs told reporters. This episode prompted Rep. James Oberstar (D-Minn.), whose committee is drafting a $500 billion transportation financing bill due for completion in June, to enter the fray by remarking that transportation policy is “not going to be written in the newsroom of the White House.” Oberstar, echoing the financing commission report, recently called for a temporary increase in the gas tax to address immediate infrastructure needs and allocation of funds to investigate transitioning to a VMT fee.
The depletion of the Highway Trust Fund comes at a time when many experts are more concerned than ever about the state of the nation’s roads, highways, and bridges. Policymakers must keep up with the demands of an aging but expanding surface transportation infrastructure, much of which was built in the 1950s and 1960s. And not much has changed since the Minnesota bridge collapse highlighted systemic safety problems in 2007: the Federal Highway Administration estimates that more than a quarter of the nation’s 600,000 bridges are still “structurally deficient.” Oberstar, who chairs the House committee on transportation and infrastructure, cites the incident as evidence of the need to stray from political comfort zones and explore ways to improve financing.
What motivated Gibbs’ response and how much it reflects the views of the man in the Oval Office is still unclear, but it is unlikely that Oberstar and other powerful members of Congress will cede their policymaking turf so easily. Sen. Barbara Boxer (D-CA) has voiced support for a simple mileage-based fee, if not the more sophisticated satellite tracking proposal, and the leading Republican on the House transportation committee has joined Oberstar in defense of LaHood’s suggestion. Indeed, the mileage-based charge will likely continue to gain traction among lawmakers as deficits accumulate and dwindling revenues highlight the need of a more flexible, long-term financing system for America’s vital transportation infrastructure. If policymakers take note, the current funding shortfall may be an opportunity to begin laying the groundwork for a safe, competitive, and sustainable transportation policy for the twenty-first century.