What is Not Being Written about a Proposed Road Use Tax? 1


Camera Gantry in Germany Illustrative of ANPR Technology

State government transportation agencies are facing major changes in the way they have to fund road construction and maintenance. The model of taxing gasoline as a form of usage tax has, for some time now, been a flawed strategy in light of increasingly fuel-efficient vehicles. According to the Institute on Taxation and Economic Policy, revenue around the US dropped from $40.7B in 2004 to $37.9B in 2010 while road costs continue to increase. This problem is exacerbated by the recent popularity of plug-in hybrid and electric vehicles (EVs). In a knee-jerk response, several US states are now extracting registration fees from owners of these vehicles.

North Carolina, Washington, Colorado, and Nebraska have implemented annual registration fees for EVs ranging from $50 to $100. Virginia briefly implemented a $64 fee that was repealed this past January. Interestingly, Colorado’s $50 fee (the lowest of those states) includes $20 dedicated to funding the state’s EV charging infrastructure. The fees are roughly based around calculations of the average gasoline-powered car’s fuel mileage and miles driven in a year. While these fees can be justified and EV owners are still well ahead on annual fuel costs, it flies in the face of federal and state tax credit incentives to purchase EVs. This has EV owners outraged as they feel they have been singled out and the calculations really don’t account for the fewer miles EVs are likely driven given their limited range.

An interesting (but not new) alternative is emerging, spearheaded by Oregon, where road use taxing is being tested. Oregon is signing up 5000 volunteers to pilot the idea beginning in 2015. Their plan is a 1.5 cents per-mile tax on EVs and any vehicle that gets 55 MPG or better. Any gas expenditures incurred by hybrid owners will result in a credit on the gas tax portion. Other states, notably California and Maryland at the moment, will be closely eyeing the outcome in Oregon for possible implementation. Multiple technologies, including GPS and smart phone apps, are being considered to capture this data and some mix of them is sure to be implemented. Such technology is not without apprehension though; ranging from privacy concerns to operational costs. Much is being written on the issues as outspoken critics with a vested interest in killing the plan weigh in.

Not being referenced in these write-ups, however, is a 2010 study sponsored by the Department of Transportation that highlights successful implementations of road pricing across the globe. Through the International Technology Scanning Program of DOT’s Federal Highway Administration, road pricing models in Europe and Singapore were researched to understand how they might be translated to the states. Road pricing is a direct usage tax, most familiar in the form of tolls, and is implemented for two basic reasons. First, it manages demand hoping to reduce congestion and promote improved air quality. Several urban areas around the world have implemented a tax on gasoline-burning cars entering the city hoping to drive folks to mass transit and/or Zero Emission Vehicles (ZEVs). Second, and more germane to this article, it generates revenue for constructing and maintaining road infrastructure.

In the study, the FHA’s scan team learned that countries with clearly defined and well understood policy goals, combined with large-scale demonstration projects, were able to achieve targeted outcomes most effectively. In Stockholm, Sweden, a 7-month demonstration project began in January 2006 with only 25% of the population supporting the project. The project was concluded, as scheduled, at the end of July 2006 followed by a referendum where over 50% of the population were then in favor of reinstituting the tax. In this case, the proposed road use tax was aimed at reducing congestion in the city’s business district. Improvements to the public transportation system were made five months prior to the start of the demonstration but no changes in driver behavior occurred until after the tax was instituted.

Initially, multiple technologies were used to capture driver usage but, ultimately, it was decided that Automated Number Plate Recognition (ANPR) was sufficient. This technology uses digital cameras to capture license numbers (both front and back for redundancy and accuracy) of cars entering and exiting the city. The singular use of ANPR represented a significant operational cost reduction to the program. In 2009, those costs represented about 38% of revenues generated with plans to reduce it to 26% by 2011. Stockholm spent a considerable amount of money to insure a successful pilot, so there is a fair amount of cost reduction yet to be realized.

Case studies were also undertaken in London, Germany, Czech, and Singapore. Though Singapore has an entirely different situation from the US (given it’s a small island), it does offer one interesting concept. It has established a Land Transport Authority (LTA) Transportation Gallery, which is free to the public. The one hour tour takes them through six exhibits ranging from the history of transportation in Singapore to an interactive, multiplayer game that challenges visitors by putting them in the role of a transport planner. London’s program, though successful, is still a work in progress as operational costs are a healthy 50% of revenue despite having a relatively simple £8 per day fee. Germany and Czech are both aimed at taxing heavy vehicles as they sit at the crossroads of Europe and much freight is transported along their roads. Interestingly though, nowhere in the report are concerns regarding the privacy of driver’s comings and goings listed. The only privacy concern mentioned was how automated payment information of drivers was protected. The fact that public referendums turned out positive suggest a lack of major concern by drivers as to having their movements tracked.

Of particular interest in the report, was The Netherlands’ plans to implement an all-inclusive program to improve mobility, increase fairness, enhance the environment, and improve road safety. The plans were to begin distance-based fees for trucks starting in 2012 with the balance of vehicles similarly taxed by 2018. Unfortunately, following the collapse of a three-party majority coalition over the issue of the Dutch supporting Afghanistan in late 2010, the program’s fate remains in limbo. Should the program ever commence, we can be sure, as with Oregon, global eyes will be focused on its eventual outcome. Meanwhile, Oregon’s plans are progressing and it will be interesting to see if a successful outcome paves the way throughout the country for a more equitable and sustainable system of transportation taxes based on actual use as opposed to indirect taxes, which unfairly tax some and are subject to demand shifts as the current gas tax system is highlighting.

FHA Road Pricing Report – Dec. 2010

About Steve Yakshe

As President and CEO of a mid-sized technology company engaged in instrumentation to monitor the world’s water resources, I developed a passion for protecting and enhancing the environment we all share. Following the sale of that company, I’ve combined this with my passion for cars to research and promote the Next Generation Car that will transport us cleanly and without detriment to our world’s ecosystem.

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