Electric cars, hybrids and increasing fuel efficiency are leading to declining fuel tax revenue
Jack Opiola from
Oregon deserves its reputation as an environmentally friendly state and the combined ownership rate of hybrid, electric and plug-in hybrid vehicles is twice the national average. Economists expect this trend in fuel-efficient vehicle ownership to grow as automakers strive to meet EPA-mandated 54.5 mpg CAFE standards by 2025. The adoption of ever more fuel-efficient vehicles helps Oregon reduce its greenhouse gas emissions goals but reduces fuel tax revenues and thus harms traditional funding of transportation. Oregon policymakers have recognised that the improving fuel efficiency of the vehicle fleet threatens the viability of the nearly 100-year-old fuel tax, the state’s primary source of transportation revenue. The Oregon constitution requires that light and heavy vehicles pay their fair share for roads but the share that motorists currently pay depends on the fuel economy of their vehicles. The fuel tax was last increased to 30 cents per gallon in 2011. Despite the increase, the revenue threat is looming o
n the horizon: 2012 fuel consumption in Oregon was at its lowest level since 1997, at just over 1.6 billion gallons. Inflation-adjusted revenues are down 19% since 1997, while vehicle miles travelled (VMT) are up 8% over the same time frame. And from its most recent peak in 2006, fuel consumption has declined by 10%.
To address this dilemma, in 2001 Oregon’s legislature created the Road User Fee Task Force (RUFTF) to explore potential revenue mechanisms to address dwindling revenues and it ultimately settled on a distance-based road usage charge mechanism. After more than a decade of policy developments and refinements, public outreach, industry consultations, and two successful pilot tests, policymakers agreed that the time had come to begin the transition from fuel taxes to distance-based road usage charges and passed Senate Bill 810.
Senate Bill 810 directs the
Throughout the Legislative sessions and sub-committee meetings, the notion of road usage charging was not above doubt and criticism from policymakers and the public. Some expressed a natural hesitancy to depart from a time tested tax mechanism that the fuel excise tax has become, to political fears of raising taxes. Other concerns raised about road usage charging included the possibility of exchanging the easy and efficient management of a fuel surcharge for a complex, less efficient charge, and privacy concerns about government tracking personal driving mileage were also common condemnations. Oregon’s transition toward a road usage charge model is instructive for other states because of how officials dealt with each of these criticisms in an open and gradual way.
Oregon did not achieve this milestone by accident or coincidence. The State and the appointed RUFTF committee have been preparing the public for a per-mile road usage charge since 2001. It approved and directed two pilot programs, one in 2007 and an updated version earlier this year which leveraged the lessons learned from the previous pilot by doing the following:
1. bringing in commercial firms to handle the account processing (allowing private firms to handle user accounts, in addition to the public sector, in order to take advantage of private sector efficiencies);
2. employing an open system design including a ‘mileage message’ that defines how mileage information is communicated electron-cally to prevent vendor lock-in and encourage competition;
3. providing user choice of technology and payment systems (offering several different technologies for reporting miles travelled and offered check and credit card payment).
To ensure policymakers experienced the system after these updates, ODOT enlisted legislators and key decision makers to participate in a trial to experience the technology, billing, and actual collection of revenues to demonstrate the viability of a road usage charge. Participants will be rebated the State fuel duty they pay at the pump (but not the Federal fuel duty)
An independent evaluation of the pilot test results, coupled with extensive focus group testing around the state, suggests that the multiple mileage reporting technologies tested in the pilot—ranging from location-based devices and smartphone applications to simple mileage counting—are viable and commercially available. The evaluation concluded that providing users multiple options for account management and choice of mileage reporting technology options allayed the privacy and ‘big brother’ concerns from the earlier test where only GPS technology was employed.
Oregon’s innovative method of embracing basic commercial market principles and private industry, hands-on testing of technologies, independent evaluation of pilot tests and collecting focus group feedback enabled it to allay the public’s concerns toward road usage charging.
What’s next?
The passage of SB 810 is a watershed moment in transportation policy. It will spark a wave of policy studies in other States that will inevitably lead to paradigmatic changes in transportation policy, just as Oregon’s fuel tax did a century ago. Back then three decades passed before all 50 States implemented gas taxes and in 1943 the Federal gas tax was imposed. In the case of road usage charging, some jurisdictions will continue to ‘wait and see’ how Oregon’s systems and solutions progress. Others will opt for change sooner in an effort to stave off the now universally recognised declines in fuel tax revenues.Neighbouring Washington State has already made significant progress, employing a very pragmatic process of determining if and how Road Usage Charging fits its transportation policy needs. The next milestone will be the development of a detailed business case for road usage charging which will be provided to the legislature, as well as the newly elected Governor Jay Inslee and his new Secretary of Transportation Lynn Peterson. The impact of the passage of Oregon’s road usage charging legislation will further support the process in Washington State.
To the south, California’s Governor Brown has instituted a transportation commission to review transportation needs and make broad recommendations as there is a pressing need to address the State’s pending fiscal cliff of transportation funding that occurs in 2015. It would be difficult for California to ignore the developments in Oregon in its study of alternatives to provide the revenue necessary to address its growing transportation needs.
Several other States are addressing mileage-based policy discussions during the first part of 2013 including Florida, West Virginia, New Jersey, Massachusetts, Texas and Minnesota. Given the passage of SB810 in Oregon, these discussions might inspire and encourage these States to continue to research and develop future transportation policies and funding options. These States may partially model their approaches around factors that made Oregon successful, although each State faces unique challenges that will result in unique policy aspects. The ripples created by the Oregon pebble in the policy pond are reaching other shores. In the northwest, British Columbia, and especially metropolitan Vancouver, is wrestling with transportation funding for their mobility needs. Shortfalls from declining motor fuels taxes and the lure of inexpensive fuel across the border in Washington State have created a growing deficit in funding the transportation needs of Metro Vancouver. While tolling has recently been added to the transportation funding mix of the region (see pages 54 and 55), net tolling revenues are insufficient to meet the region’s growing transportation needs.
Lastly, Australia is investigating its transportation funding needs. A few years ago the reformation of its transport funding was a hot topic with the Henry Commission’s attempt to modernise and simplify all Australian tax measures. While the Henry Report was sidetracked and did not lead to any substantial legislative changes, current debates on transportation funding and reform of the system appear to have gained momentum.
As national elections in Australia draw closer the subject of transportation funding and changes to the existing system are being debated. Oregon’s example road usage charges for light vehicles, in addition to its long-standing weight-distance charges for commercial vehicles, provide stellar examples of sustainable transportation funding that may further advance the transformation of infrastructure funding in Australia.
Conclusion
Oregon introduced its one-cent fuel tax in 1919 and almost 100 years later fuel taxes have and are funding interstate highways, motorways and national road networks in most countries around the world. Fuel consumption was the proxy for road usage but the advent of hybrids and electric cars has broken the linkage between fuel consumption and roadway usage, eroding the quality of the fuel excise taxes as a proxy.The fuel tax is also increasingly inequitable, as lower-income families cannot afford new, more fuel-efficient vehicles and
are therefore compelled to pay more for their roadway usage than their wealthier neighbours driving hybrids and electric vehicles. Raising fuel tax might be a short-term funding solution for transportation but this widens the equity gap.
Forward thinking states like Oregon are in the vanguard of changing transportation funding policies to meet tomorrow’s needs. They are providing logical and practical approaches for other states to follow and emulate. Either wittingly or unwittingly, Oregon’s pioneering Road Usage Charging Legislation may be déjà vu—another bellwether policy measure. The small pebble it has tossed may make a big splash in meeting the current and future transportation needs in the USA and around the world.
• Jack Opiola is managing partner and president of D’Artagnan Consulting LLP. He and fellow partners and co-authors Steve Morello, Dr. Travis Dunn and Matthew Dorfman have seven decades of combined experience in the transportation sector.
