Transportation funding in the Unites States comes from a variety of
sources. These sources include taxes as well as charges collected by the
government from transportation (e.g. excise tax, charges or fees, car tax,
investment income, and fines or penalties etc.) and non-transportation (general
fund, sales tax, property tax, and private donations etc.) related activities (1).
An important component of this transportation funding is the motor fuel tax.
Fuel tax is a tax which is levied on the fuel available at the pump and is paid
by the consumers when they purchase the fuel. This fuel tax at federal level is deposited into the
Highway Trust Fund (HTF) which was developed in 1956 to finance the United
States’ Interstate Highway System and certain other roads.
the years, the HTF ran into surpluses because of low spending on transportation
(2). However, for various reasons, the trust fund is headed towards
bankruptcy. The enactment of
Transportation Equity Act for the 21st Century (TEA-21) and 2005
surface transportation authorization bill, the highway spending increased and
surpassed the balances of the HTF. A number of attempts has been made by the
congress to cover up the differences in the required spending and available
funds in HTF by transferring general funds from the U.S. Treasury (3).
Between 2008 and 2013, the congress transferred $41 billion of general funds
into the HTF (4). It is projected
that the HTF will be short of nearly $92 billion by 2025 (5). The
anticipated demise of the HTF is largely attributed to the following drawback
of the fuel tax implementation mechanism: (1) the tax is assessed on each
gallon of gasoline instead of the
actual usage of the road network by a user; (2) the fuel tax rates have not
been updated since 1993 and are not indexed to inflation. It is argued that if
the Unites States has to tackle the solvency of the HTF, either the current
fuel taxation mechanism needs to be updated with higher rates and inflation
indexing or an alternative funding mechanism is required that collects tax
based on actual usage of the road network instead of the amount of fuel
The objective of the
paper is to review the recent developments in the areas of proposed vehicle
miles traveled fee which might completely replace the current fuel tax system. The
vehicle mileage fee (also referred to as VMT fee) is a fee levied on every
miles traveled on the road network. It is proposed because it reflects a more
realistic road usage by individuals and has the potential to fund the future
transportation projects uninterruptedly.
This paper provides a discussion on the issues related to the current
fuel taxation system followed by a detailed review of the benefits, concerns, and
conducted pilot testing, proposed implementation methodology and identified
challenges. The structure
of this paper is as follows. Next section discusses the details of the
current fuel tax system including its drawbacks. Section 3 discussion the
proposed VMT fee system and its benefits. It is followed by discussion on
proposed implementation methods in section 4. Further, section 5 presents a
discussion on the concerns related to the VMT system and it is followed by a
discussion on value added benefits of the system in section 6. Then, section 7
present a review of pilots and studies done across Unites States and in foreign
countries. Section 8 identifies the challenges to be addressed to successfully
implement a nationwide VMT fee system and section 9 concludes the paper.
THE FUEL TAX IN
After the introduction of vehicles in 1900s, policy
makers started examining the ways to fund public infrastructure. One of first
such mechanism to fund transportation related projects was put forward by
Oregon, who levied a $ 0.05/gallon tax on gasoline sold in the state in 1919
and was soon followed by other states as well. Beginning of motor fuel taxes
from federal government side was done 1932 with the Revenue Act which levied a
tax of $ 0.01/gallon (6). Since
then, the federal fuel tax rates have been updated several times and attained
their present value in 1993. The current federal tax value is ¢ 18.3/gallon
for gasoline and ¢24.3/gallon for diesel. Apart from this, there is additional ¢
0.1/gallon tax which is levied to cover the fuel regulation expenses. These taxes are deposited into
two federal accounts: highway trust fund; and leaking underground storage tank
from the federal tax, all states have their own fuel tax, which changes
periodically. Figure 1 shows the gasoline tax (including federal tax) across
various states in the United States as per the data (8) from the
American Petroleum Institute (API). The rates are effective as of November 2017.
The gasoline tax is lowest in Alaska (¢ 30.61/gallon) and
highest in Pennsylvania (¢ 77.7/gallon) with the national average of ¢ 51.73/gallon
FIGURE 1 Gasoline Tax in
Various States in U.S. as of November, 2017 (8)
federal plus state fuel taxes are collected from the consumers at the point of
purchase (i.e. gas pumps). However, this is only a reimbursement mechanism. The
actual tax is collected directly from companies instead of the consumers. The
amount of tax collected depends upon the volume of the purchased fuel and is
already included in the price of the fuel. It is argued that the fuel tax
mechanism has issues as this tax in levied on the amount of fuel purchased
instead of the actual road usage. This was not much of a problem earlier but
the fuel efficiency of the cars has improved and the market penetration of
alternative fuel automobile has also increase, such vehicles end up paying much
less or no fuel tax. The problem is further magnified with the non-inflation
indexing of the fuel tax rate. As a matter of fact, the federal fuel tax rates
have not changed since 1993 due to multitude of reasons, political unwillingness
being one of them.
All these issues have
led to an increased imbalance among the required and available transportation
funding and this has given rise of an ongoing debate on the need for an
alternative/improved funding mechanism of transportation infrastructure
developments. Once possible solution is to update the current fuel tax system.
Specially, the fuel tax rates, which are stagnant since 1993, need to be updated
periodically and probably should be inflation indexed as well. An advantage of
this updating is minimal disruption to the current tax mechanism and nearly not
new infrastructural requirements. But as the efficiency of the cars increase
and there is more and more penetration of the alternate fuel technologies,
updating the fuel tax rates is not
going to be much effective. Further, as the tax levied on the fuel does not
reflects the actual usage of the road usage, there is an unequivocal tax
evasion by many actual users of the roadway system. Another prospective mechanism is a vehicle
miles traveled (VMT) fee, which is sometimes also known as vehicles miles fee.
This alternative mechanism will charge the user on a basis of the number of
miles traveled on the roads instead of the number of gallons of fuel consumed. Next
section presents a detailed discussion on this new tax mechanism following by
other relevant information on it.
There are a number of proposed mechanism that
can be used to charge the VMT fee (8). Some of these methods are
not-so-sophisticated odometer based methods and some are more technologically
advanced methods like global positioning systems based tracking. This section
reviews the available alternatives for implementing the VMT-fee system. As
listed in (8), there are currently eight following prospective
Under this mechanism, a driver is supposed to
report her/his current mileage during the annual registration process. Based on
this mileage, assessment of mileage fee will be done a state DMV. The assessed
fee will be added to the annual registration fee or a monthly installment option
call also be given. Further, the transfer of the federal component of the fee
will be done by the state after deducting some administrative charge.
Annual Odometer Inspections
This mechanism is similar to the above option
with the distinction that the readings will be submitted by the drivers at some
certified stations annually. One drawback of the odometer based mechanism is
the tempering possibility of the odometers.
Assumed Annual Mileage with Optional Odometer Inspections
In this approach, road users will pay
according to an estimated mileage for their vehicle class. User who prefer to
get their odometers read will still have that option, however, those who do not
want to do so would be paying using the estimated mileage. This means that the
states will still have to set up the infrastructure required for collecting the
Fuel Consumption Based Mileage Estimates
In this approach, a vehicle’s fuel
consumption will serve as the method to determine its VMT fee. The automated
vehicle identifiers installed in the vehicles will transmit vehicle’s
fuel-economy rating to the readers installed at the pumps. This information
will be used to estimate the expected mileage of a vehicle and will be used to
charge the fees. Drawbacks of this system include a significant infrastructural
expansion as well difficulty to collect taxes from vehicles will do not use
fuel at all (e.g. electric vehicles).
OBD II Based Mileage
In this approach, vehicles will have an
on-board unit connected to the on-board diagnostic port available in all
vehicle manufactured after 1996. The on-board unit will act as a mileage
metering device and the collected information could be submitted to the pumps
as described earlier; or could be transmitted to a central agency via cellular
II/ Cellular Based Mileage Metering
Under this approach, the on-board unit will
also have a cellular communication device while will allow to estimate the
rough location of the vehicle using cell phone tower triangulation. Using this
configuration, it is possible to face a differential rating mechanism that vary
by location and time of day type. One drawback of this mechanism is related to
the privacy of the drivers.
Resolution GPS-Based Mileage Metering
This option is similar to the above option
but is different because it used an on-board coarse-resolution GPS receiver
instead of a cellular device. The device can measure traveled distance, present
location etc. for differential pricing. Similar to OBU II/cellular based
metering, this option also poses a privacy concern among the drivers.
Resolution GPS-Based Mileage Metering
This option is very similar to the above
option but used a high-resolution GPS device which allows accurate location
determination. This means that now pricing mechanism could be more dynamic and
could be based on time of day (peak/non-peak hours), location-specific etc.
Apart of the VMT fee benefits, this option also have a number of other
advantages and are discussed in a separate section of this paper. However, this
mechanism also poses a greater threat of the privacy of the drivers as accuracy
of such high-resolution GPS devices is generally within 1 meter.
ADVANTAGES OF VMT
The proposed VMT fee system offers a number of
advantages over its predecessor. Some of these advantages are listed below:
Revenue Generation Potential:
The VMT fee system has the potential to generate a lot of revenue. This
system can easily alleviate the issues associated with the fuel tax system
while failed in the recent past to meet the financial demands of the
Revenue Stability: Apart
from having a potential to generate revenue, the VMT fee system is likely to provide
stability to the highway trust fund. The only factor on which the revenue will
depend will be the vehicle miles traveled. As the nation wide VMT will
increase, so will the transportation spending as well as generated revenue.
Cost Distribution Equity:
The VMT fee system is going to be more cost equitable than the present
system. In the present system, the number of actual users of the system end up
not paying for it. The VMT system will fix this as only the actual users of the
systems will be charged.
Revenue Distribution Equity: The VMT
based system will be more equitable in terms of revenue distribution as well.
This is because in the new system the revenue can be easily distributed in
terms of jurisdiction of the travel.
As in the previous fuel tax system the price
paid by the consumer is hidden in the fuel cost, it is generally not seen by
the drivers. But in the new system, the cost of travel will be clearly visible
to the driver. It is anticipated that drivers might significantly change their
travel behavior and might end up traveling less. This will lead to reduced
overall travel and less congestion on the roads.
PILOT EFFORTS AND STUDIES
The concept of VMT-fee has been round for
over a decade now and a lot of studies and pilots have be conducted across
United States. This section summaries some of the major studies and pilots done
of VMT-fee across Unites States and some foreign countries. A detailed review
of the studies in the VMT fee area can be found at (9).
and Waid (10) studied the feasibility of the VMT-fee system in Alabama.
They argued that as the vehicles become more efficient, it is important for the
state to identify, evaluate, and adopt an alternate solution for highway
funding. They evaluated possibility of using VMT fee as an alternate revenue
source from a revenue potential, equity, efficiency, and political efficiency
standpoint. Deakin et al. (11) assessed the impact of various pricing
strategies including VMT fee on travel characteristics of the Los Angeles, Bay
Area, San Diego, and Sacramento areas. They
used advanced travel demand models and concluded that such strategies can not
only reduce congestion but can also raise revenues. Oh et al. (12) used
economic theory and travel demand & highway expenditure data from Indiana
to establish VMT fee rates. The calculated value by them was 2.9 cents per
mile. Kuhl and Hanley (13) did an extensive 4 year study involving FHWA,
and 15 state DOTs. The study involves 6 test sites and nearly 2700 participants.
The participants are provided with questionnaires to track their reactions to
the VMT changes over time. Ryan and Stinson (14) conducted a study and
modeled impact of VMT fee on the monthly budgets of the various households. Porter
et al. (15) developed and tested various prototype of technology configurations
for VMT fee collection and found out that the fee collect using radio frequency
communications are a technologically feasible solution. Porter et al. (16)
studied the performance of an RFID based VMT fee collection system and documented
the lessons learned in design and development of the system. Whitty et al. (17)
documents the experience of the Oregon’s DOT in terms of public
involvement. The document that there are both supports as well as opponents of
the technology. The opponents are concerned about the privacy issues and
reduced benefit of an efficient car. McMullen et al. (18) conducted a
study to develop tools to assess distributional effect of VMT fees. They
developed various statistical models like regression, discrete-continuous
choice model etc. to understand the impact of VMT fee on vehicle choice
Even though the proposed VMT system has a lot
of benefits, there are a lot of challenges which need to be addressed before a
nation wide implementation of the system can be done (19). Few of the identified challenges are:
Inflation Indexing: One
important point to note while designing the VMT system is that the per mile
rates should be indexed to inflation. This was a major drawback of the fuel tax
system and should not be ignored in the VMT fee system.
Capital Investment: The
proposed overhaul requires a significant capital investment. This investment is
going to be a big obstacle.
Fee Evasion: The
proposed system is not foolproof. There are chances that some individuals might
try to evade VMT fee by system tempering. Hence, technologically reliable
systems need to be developed.
Framework: The institutional framework for the proposed VMT
fee system not clear as of now. It is unclear that how the fee will be collected,
distributed and who will be responsible for it.
Timeframe: As the proposed
system requires significant infrastructural improvements, it is important to
have a phased implementation approach. Technology implementation in new
vehicles is certainly not an issue but older vehicles still need to be integrated
with the proposed technology. It is important that a timeframe is design so
that there is a smooth transition from older to newer system.
Privacy Issues: As the proposed
system is likely to have some form of location tracking of the drivers, privacy
related concerns among the drivers need to be resolved before a successful
Issues: As the VMT fee is likely to take away incentives associated with a more
efficient cars, it is likely that it will face some criticism from the environmental
advocates. This issue needs to be addressed by the policy makers.
SUMMARY AND CONCLUSIONS