Oregon to Test Plan that Taxes Motorists by Miles Driven

Published April 1, 2005

Several states are considering shifting from per-gallon fuel taxes to mile-based tax systems, none more seriously than Oregon. The Oregon Department of Transportation (ODOT) is preparing to test a global positioning system capable of tracking a vehicle’s location, recording in-state miles driven, and calculating a mileage-based tax payable at the gas pump.

The six-year project, launched in 2001, is being funded with a $2.1 million grant from the Federal Highway Administration and $771,000 in state funds. Highway testing could begin this fall. A vehicle miles traveled (VMT) fee could be implemented in 2007, according to ODOT officials.

The ODOT is currently recruiting drivers and service stations to participate in the test.

State fuel taxes calculated on a per-gallon basis are currently the primary source of funding for state road maintenance and construction. On average, fuel taxes cover 65 to 85 percent of road use costs, according to the ODOT.

Included at the pump in the price per gallon, fuel taxes are easy to collect and virtually fraud-free. The more miles one drives, the more gasoline one uses, the more tax one pays.

However, as increasingly fuel-efficient vehicles and gas-electric hybrids hit the highways, more miles per gallon means less revenue for state governments.

Gas Tax Revenues Flattening

Although more drivers are on the road than ever before and more miles are being driven, increased fuel efficiency of vehicles has virtually flattened fuel tax revenues. As more alternative-fuel vehicles are added to the current mix of better fuel efficiency of standard vehicles and market penetration by hybrid vehicles, Oregon officials predict fuel tax revenues will begin declining by 2014.

Oregon’s current tax, 24 cents per gallon, funds about 70 percent of its road maintenance and construction costs. The tax rate hasn’t changed since 1991. As in other states, Oregon lawmakers are reluctant to incur the wrath of taxpayers by raising the gas tax, especially given the recent run-up in prices at the pump.

Less revenue and reluctance to raise the fuel tax change the fuel-tax equation further. More miles driven means more wear and tear on the roads, which leaves states looking at more costs and less revenue, even without taking into account inflationary pressures.

The Oregon Road User Fee Task Force, created by legislation in 2001, looked at some two dozen proposals for increasing revenue before deciding a VMT system would provide sufficient additional revenue and was technologically feasible.

“The VMT fee is a replacement tax,” said Jack Svadlenak, transportation economist with the ODOT. “If a VMT fee is implemented, drivers paying the fee would not pay the per-gallon tax.”

Fuel Efficiency Avoids Taxes

Before high-mileage imports made a significant and lasting impact on the domestic auto market, average fuel efficiency was approximately 12 miles per gallon. Today, the average mileage is almost 20 miles per gallon.

Not all vehicles get “average” mileage. At the suggested tax rate of 1.25 cents per mile, a vehicle averaging 20 miles per gallon would pay roughly the same amount in tax in a mileage-based system as under the current fuel tax system at 24 cents per gallon.

A Toyota Prius, which combines electric and gasoline power for maximum fuel efficiency, has an EPA mileage rating of 55 miles per gallon, whereas a Chevy Suburban logs in at about 12 miles per gallon. Under the current tax-per-gallon system, a 1,000-mile trip in the Suburban produces about $20 in tax revenue, compared to roughly $4.36 for the Prius.

In a VMT fee system, both drivers would pay a tax of $12.50, reflecting equal use of the roads. If gas prices motivate consumers to purchase higher-mileage vehicles, the state can only maintain its tax revenue stream by switching to a system in which taxes are based on miles of travel.

Many people have questioned whether a VMT fee would be a disincentive to the buying of fuel-efficient cars. Betsy Imholt, alternative funding administrator with the ODOT, said a flat-rate fee is only one alternative.

“The technology allows setting different fees for different vehicles,” Imholt said. “It’s possible to set a higher rate per mile for a heavier vehicle. The final rate is a policy decision, not a technical limitation.”

Breaking the link between fuel purchases and tax revenues with a mileage-based system would ensure the state a steady if not increasing revenue stream.

Technology Is Being Developed

Oregon is now working on developing the technology required to implement a VMT fee system, in conjunction with Oregon State University. Two systems are being tested. One is a simple global positioning system (GPS); the other involves an electronic sensor connected to a vehicle’s odometer.

Either device would eliminate out-of-state mileage when calculating the tax.

It works as follows. When a driver pulls in to a service station to purchase fuel, mileage data is wirelessly downloaded to a reader on or near the station pump. Current plans call for the tax to be calculated and the driver to pay at the pump.

Implementation Will Be Costly

Eventually, of course, all cars would have to be equipped with GPS devices and gas pumps with the ability to read mileage data and transmit the information to a central database, where the tax would be recorded and calculated.

Oregon officials estimate providing the onboard devices could cost as much as $225 per vehicle. In addition, oil companies are not thrilled about using their gas station computer systems to collect state taxes. Custom equipment for the Oregon test costs about $300 per vehicle.

Imholt noted, though, that implementation of a VMT fee would not occur before 2007 and “there’s no telling how technology will develop by then.”

Retrofitting all vehicles is likely to be impractical, and the system also will have to allow for out-of-state cars. A dual tax system will be required unless and until some multistate or national standardization is achieved.

The current timetable calls for a 400-vehicle/five service station technology test to be conducted in Eugene beginning this fall.

System Could Undermine Privacy

For the pilot program, each vehicle will be equipped with a digital readout device that shows miles driven in four categories: in-state miles, out-of-state miles, congestion-rated miles (some participants), and no signal. Drivers will pay a 1.2-cent VMT fee for all in-state miles driven. “No signal” miles are an error rate test of the system and will not be charged.

In the congestion rate model, specific high-traffic zones at specific high-traffic times will be designated “congestion areas” and a higher VMT fee will be charged.

Initially, the GPS devices will only store the number of miles traveled, and they will only register whether a vehicle is inside or outside Oregon or in a congestion zone. Authorities will not be able to track in real time where a vehicle is or reconstruct where it has been.

Those limitations provide little reassurance, however, to privacy advocates such as David Sobel of the Electronic Privacy Information Center (EPIC), a public interest research center in Washington, DC. “Once technology is in place,” he said, “it’s virtually impossible to resist finding ways to use it.”

The idea of “congestion pricing”–charging drivers a higher mileage fee during peak travel times or when driving through high-traffic areas–is a part of the test plans. Congestion pricing necessarily requires narrow location tracking correlated with time of day.

Invasive Potential Worrisome

Sobel cites some possible concerns.

Once the technology is in place, he noted, law enforcement officers will want to use it. “There are some real privacy issues when government has the ability to track where people go,” Sobel said.

Sobel cautions that however the system plays out, the individual should always be in control of his or her data. For example, in a pay-at-the-pump model, if the individual accepts the tax calculation as correct, he or she should have the option of purging the record from the system.

Craig Westover ([email protected]) is a Minnesota-based freelance reporter and columnist.