Mileage-based fee can help if done right


Last week at the Yellowstone Business Partnership's annual meeting, Basil Barna talked about the need to reform the way we invest in our transportation system. Among other things, he mentioned the effort to move towards a mileage-based fee instead of a gas tax. Basil did not support this change because of the penalty on fuel-efficient vehicles when charged by miles instead of gas usage. I respect Basil's assessment, but I also recognize the need to pay for our  transportation system as we move towards more efficient gas-powered cars and cars powered by electricity, bio-fuels, and (maybe) hydrogen. Also, the gas tax does not allow for congestion pricing, either for charging drivers when they enter a congestion zone or charging higher use during congested peak hours.

Considering Basil's perspectives, today I took the time to look at a presentation, and related report,  about the Oregon Department of Transportation's mileage-based fee pilot study. I have concluded this structure can be effective in paying for our road system and addressing other policy issues. The study found success with congestion pricing: a 22% reduction in rush hour miles traveled among the people subject to congestion fees compared to those who were not, along with an overall reduction of miles traveled. It also discussed Basil's point:

"The most common issue raised about a flat mileage fee rate structure concerns removal of the incentive for motorists owning gas guzzling vehicles to trade up to fuel efficient vehicles. This point derives from distress about the environmental impact of driving for reasons of climate change and air quality. Considering the mileage fee rate issue from the perspective of environmental sensitivity alone, this point has some validity. Two counter arguments tend to soften the point."

"First, road charges imposed on vehicles—whether gas taxes or mileage fees—comprise only a minor portion of total fuel costs for operation. This counterpoint argues the change to a flat mileage fee rate would have a negligible impact—cost per mile driven—on vehicle choices. Recent research by Oregon State University provides evidence supporting this point.  This argument observes that people trade up for greater fuel efficiency primarily because of fuel cost not tax or fee cost."

“The second counterpoint argues for consideration of additional perspectives in creating the mileage fee rate structure, particularly the need for a sustainable road funding source. From the standpoint of establishing good public policy, all compelling policy perspectives should be taken into account when a legislature adopts the rate structure. Even so, the mileage fee rate structure might not be the best place to accommodate every valid policy perspective. A legislature may choose to address the road funding concern in the rate structure while addressing the environmental concern, or other concerns, in other tax or fee structures that do not directly relate to road funding.”

“ODOT has considered several rate structure alternatives to the flat rate for encouraging fuel efficiency. Most of these alternatives start with a flat rate for at least the more fuel efficient vehicles in order to ensure road revenues do not erode because of fuel efficiency improvements (like they do now with the gas tax). The alternatives generally involve stacking a second rate on top of the flat rate to allow rate variability for various policy reasons. For example, a fuel inefficiency penalty might be applied to a high fuel consuming vehicles in addition to the flat mileage fee rate but still collected at the pump. Another example is to apply the mileage fee to high fuel efficiency vehicles while maintaining the gas tax for low fuel efficiency vehicles.”