Tag Archives: gas

California Proposal for Mile Tax to replace Gas Tax – Part 3 – Tax Use of Roads not Fuel Purchased

26 Jan

This is Part 3 of “Exploring a Road Usage Charge as an Alternative to the Gasoline Tax” released by CalSTA (California State Transportation Agency).

Explore a Tax Structure to Reflect Use of the System, Not Fuel Purchased

Implementation of a road usage charge to replace the antiquated per-gallon excise tax would help to preserve transportation revenues for state and local governments. However, as highlighted by the experience in Oregon, the process to implement a road usage charge is long and challenging. A demonstration program will provide data to inform the conversation regarding a road usage charge as a viable user fee option for California and test participant reactions to the concept. The state should pursue a demonstration program to understand the challenges and best practices associated with a road usage charge program.

A conversion from a gasoline excise tax to a road usage charge would be an extensive process that would take considerable time. Exploration of the issues discussed above would enable the state to explore an important option for transportation funding without necessitating a change to the current tax structure, or to current statute.

The list of areas that should be investigated is wide-ranging, but some of the most prominent include:

  • Privacy
  • Public Education
  • Rural and Urban perceptions
  • Environmental justice
  • Technological hurdles
  • Practicality
  • Equity
  • Interoperability

Other States are Exploring the Road Usage Charge

The state of Oregon has been a national leader in the drive towards a road usage charge. It is currently the only state in the nation that has a permanent, albeit limited, road usage charge. Oregon started on this path in 2001, when the Oregon Legislature created Oregon’s Road User Fee Task Force (Task Force). The Task Force was created to develop a revenue collection design funded through user pay methods, acceptable and visible to the public, that ensures a flow of revenue sufficient to annually maintain, preserve and improve Oregon’s state, county and city highway and road system.

The Task Force researched and investigated more than two-dozen revenue options. After the Task Force determined that a road user fee based on miles driven had the most promise, it spearheaded a successful pilot in the Portland area that concluded in 2007. That 2007 pilot proved the concept of a per-mile fee was feasible and pinpointed areas that needed more research and testing.

In 2012, the Oregon Department of Transportation (ODOT) began a second road user fee pilot. The second pilot included new technologies that could report VMT without the use of a global positioning system (GPS), assuaging many privacy concerns. Notably, the second pilot gave volunteers several options, including the type of device used, and a choice of service provider. The pilot concluded in February 2013, and was the final proof of concept necessary to move forward into formal implementation.

A 2013 bill (Senate Bill 810) authorized the ODOT to set up a permanent road usage charge system for 5,000 volunteer motorists beginning July 1, 2015. ODOT may assess a charge of 1.5 cents per mile for up to 5,000 volunteer cars and light commercial vehicles and issue a gas tax refund to those participants.

Washington and other western states are exploring a road usage charge and have formed the Western Road Usage Charge Consortium to collaborate and pool valuable research and development dollars.

The Benefit of Exploring the Road Usage Charge

The word “sustainability” generally evokes thoughts related environmental quality. But sustainability is a much broader concept that includes, at its heart, a consideration for the long-term feasibility of any undertaking, including its financial feasibility. As currently structured and with advances in vehicle technologies, the current per-gallon tax on fuel is not sustainable as a long-term revenue source for transportation infrastructure funding. Therefore, California should consider the feasibility of other revenue sources.

The road usage charge is untested on a large scale in the United States, but may offer benefits as an alternative to the gasoline tax in terms of greater revenue sustainability to maintain bridges, roads and other transportation infrastructure; and in terms of a closer nexus between the payer and the service being consumed. A closer nexus between a road usage charge and miles traveled on roads and highways may additionally improve traveler information about the relative costs of car travel compared to other modes. Better consumer information on the cost of car trips may increase car pools, transit, and active transportation modes; resulting in co-benefits to the environment and public health.

When the possible benefits of a road usage charge detailed in the prior paragraph are coupled with the need to consider various options for privacy protection, technology, and other detail of a road usage charge system, the merit of a demonstration program comes into focus. This whitepaper does not recommend implementation of a road usage charge – rather it recommends exploration, through a demonstration program, to better understand the possible benefits and costs. Through future efforts, the CTIP Workgroup will additionally be looking at other pay-as-you-go revenue options to maintain transportation infrastructure.

California Proposal for Mile Tax to replace Gas Tax – Part 2 – Side-Effects of Fuel Economy and Inflation

26 Jan

This is Part 1 of “Exploring a Road Usage Charge as an Alternative to the Gasoline Tax” released by CalSTA (California State Transportation Agency).

Effects of Vehicle Fuel Economy

New Corporate Average Fuel Economy (CAFE) standards, alternative fuels, and the rise in the popularity of electric vehicles, combine to create a rapidly deteriorating funding situation. These are positive results from other statewide policy initiatives, but the primary state transportation revenue source for maintenance and operations has been the flat-rate excise tax of 18 cents placed on each gallon of gasoline sold. While sales tax (later replaced with a “price-based” excise tax) was shifted to transportation beginning in 2000, only the base 18 cents provides funding for “fix-it-first” activities including maintenance and rehabilitation of the state’s transportation system. The excise tax has long been used as a proxy for a user fee, but as vehicles become more efficient, this proxy is becoming less effective.

calsta - revenue loss due to increases in fuel economy

The emphasis on increased fuel economy is undeniably desirable. From an environmental and energy policy standpoint, decreased fuel consumption reduces greenhouse gasses and our dependence on a finite energy source. However, as we strive to reduce fuel consumption, we undercut the primary funding source for repair of the roads that all cars, trucks, and busses rely on – regardless of the energy source that they use, or how efficient the vehicle they drive is. There is no equitable means to mitigate these effects so long as we continue to rely on the antiquated per-gallon excise tax.

By 2030, as much as half of the revenue that could have been collected will be lost to fuel efficiency. If that sounds farfetched, consider that 20 years ago in 1994, the average fuel economy of cars on the road in the United States was just around 20 miles per gallon (MPG); today the average efficiency of new cars sold exceeds 35 MPG. By comparison, 35 MPG was the average fuel economy of all passenger cars sold in the European Union (EU) in 2001, and by 2011 it had increased to 42 MPG, with average highway ratings exceeding 50 MPG. As new, more efficient, cars replace the older models, the effect on consumption and average fuel economy of the fleet will increase rapidly. On the other hand, revenue from the gas tax will decline dramatically. Estimates suggest that the decrease in revenue due to fuel efficiency will soon outpace even the negative impact of inflation.

Complicating the issue somewhat is the interaction of increased fuel economy with the use of diesel fuel that is taxed at a lower rate than gasoline. The market share of diesel passenger vehicles in the United States is currently around 1 percent. Based on experiences in the 1980s drivers in the United States have been soured on diesel cars, viewing them as noisy, dirty, and unreliable. But modern diesel systems are touted as clean, powerful, and fuel-efficient. In the EU, 55 percent of passenger cars sold in 2011 were diesel-powered. Because modern diesel cars are more fuel efficient than gasoline-powered equivalents, this move to diesel power has helped the EU to achieve outstanding average fuel efficiency and commensurate greenhouse gas reductions.

Recent years have seen the marginally successful re-entry of diesel passenger cars into the United States market, and estimates by some expert sources indicate that the market share of new diesel passenger cars sold could increase to 10 percent by 2020. But, because diesel excise tax was reduced to 10 cents per gallon (from 18), a shift in fuel source would negatively impact transportation revenues available under the existing tax structure.

Effects of Inflation

Even absent changes in tax revenue due to fuel efficiency, the state faces another losing proposition in the excise tax: inflation. The base excise tax, which provides the funding for the maintenance of our highways and local roads, has remained unchanged since 1994. This rate has been in place for 20 years, despite significant increases in project construction costs. Since that time, despite the economic crisis of 2008, the buying power of the tax has decreased about 42 percent in terms of construction costs. To flip that around, if the base 18 cents-per gallon tax had been indexed to inflation back in 1994, it would be about 31 cents per-gallon today.

calsta - what is the gas tax worth

The chart above illustrates how inflation has reduced the purchasing power of 1994’s 18 cent gas excise tax to the equivalent of a 10.5 cent tax. A further adjustment for increased VMT would reduce the purchasing power to the equivalent of 9.0 cents per gallon (half the value).

The effects of inflation must be addressed if California is to be successful in both improving the condition of transportation infrastructure and maintaining the improved condition. The means of doing so is tie the tax to an index that changes with the cost of goods and services. The Consumer Price Index may be the most well known, but the Producer Price Index, or even the California Highway Construction Cost Index are more consistent with construction price changes.

The gasoline excise tax was raised multiple times between its initiation in 1923 and the last increase in 1994 to account for the effects of inflation. Indexing annually for inflation can alternatively be authorized and reduces the purchasing power erosion between longer-term adjustments. Regardless of the type of long-term solution implemented to provide appropriate funding for transportation, the effects of inflation must be surmounted and annual indexing considered.

California Proposal for Mile Tax to replace Gas Tax – Part 1 – Current Transportation Charges

26 Jan

This is Part 1 of “Exploring a Road Usage Charge as an Alternative to the Gasoline Tax” released by CalSTA (California State Transportation Agency).


Gas taxes pay for highways, local roads, bridges, busses, trains, and even active transportation. However, the current per-gallon tax structure is untenable in the long-term as fuel efficiency increases.  Although total Vehicle Miles Traveled (VMT) are expected to increase over time, the projected sale of gasoline is expected to decrease dramatically due to increasing fuel efficiency of the vehicle fleet.  One alternative funding approach to this problem is a Road Usage Charge, which is charged on the number of vehicle miles traveled.  This may be a more logical and fairer method of paying for state highway needs in light of high fuel economy and electric drive vehicles.  It is also a direct charge for usage of the transportation system with a clearer nexus between payment and use.  As a new and widely untested alternative funding approach, many questions must be answered prior to any wide-scale changes.  This whitepaper describes the need for a stable revenue source that will address the twin funding problems of inflation and increasing vehicle fuel economy, and some of the challenges therein.

Transportation Infrastructure Charges Relative to Other Services

With perhaps the notable exception of Warren Buffett, nobody publicly admits to wanting to pay more taxes.  Nonetheless, the state’s transportation infrastructure represents an essential component of modern life, and its existence and function relies on some sort of user payment. The transport of people, food, and consumer goods – not to mention vital emergency services – would not be possible without the state’s integrated transportation system.  Though no official number exists, it is roughly estimated that the transportation system in the state is valued in the neighborhood of several trillion dollars; yet users of the system generally pay far less for use of the system than for many daily luxuries.

calsta - average annual cost of select items

The average driver pays just $368 annually in gasoline taxes, including all state, local and federal taxes. Yet, consumers would likely be surprised to find that their annualized payments for use of highways and roads are only about one-third of the cost of their cable bill. This lack of perspective makes it very difficult to engage in any conversation about paying for infrastructure.

The current tax system is a consumption tax.  It is constructed in such a way that leads consumers to think of the taxes on gasoline as a tax for the purchase of gasoline, not on the usage of the roadway network. This somewhat circular logic is perpetuated by the fact that the taxes on gasoline are just a proxy for a tax on the use of the transportation system.  The direct link between use of the system and paying for that system does not exist.  A useful means of guiding this discussion is to shift the focus from a tax, to a charge for use of a crucial utility, just as people think about their use of electricity, water and internet access.