Per-Mile Charges Could Counter Highway Funding Skepticism

The transition from per-gallon taxes to per-mile charges has long been talked about in the United States. The Reason Foundation’s Robert Poole sees the prospect as a return to true user fees.

“The emergence of viable methods of charging per mile…makes it feasible to depoliticize highways and reorganize them along the same lines as the other public utilities on which our economy depends,” Poole argues in a recent post for Public Works Financing. “If we are going to go through the great effort it will take to change the method of paying for highways, let’s at least attempt to fix all the flaws that are now evident with today’s fuel tax model.”

The Way It Was: Gas Tax as User Fee

There was a time when the gas tax was seen as a user fee, Poole contends. That’s because drivers knew it was essentially a tax in name only.

“Highway users readily accepted gas taxes when they began at the state level in 1919, because they were sure that although it was called a tax, it actually operated as a pure user fee: all the revenues were deposited into a dedicated state highway fund, so the users-pay/users-benefit principle was visible and widely understood,” he writes.

“But in the second half of the 20th century, that principle was eroded, bit by bit, as state highway departments became state transportation departments.” Congress did the same, and too often, the funds supported an array of transportation modes. So “while users-pay has been retailed, the users-benefit part of the deal has been seriously undercut.”

Just Another Utility

The beauty of a per-mile fee, Poole says, is that it brings transportation back to a classic service where customers pay for what they use—as they would expect to do with any other utility. It’s an approach that can work around and under the sustained opposition that comes up whenever a gas tax increase is on the table.

“That kind of battle does not, for the most part, occur when your cell phone company increases rates in order to add more cell towers to give you better reception. Nor does it occur when your electric company replaces an aging coal-fired power plant,” he says.

“In these and other cases, what you pay is clearly a user fee—one that meets the users-pay/users-benefit principle,” he adds. Whether the utility is run by a city or state or owned by investors, “you are charged based on how much or what category of service you use, and you pay the provider, not the government. The only case where this is true in the highway sector is toll roads (whether private or public).”

Poole says mileage-based usage fees are the path to solve some fundamental problems with the gas tax: it isn’t indexed to inflation (though he sees that as the easiest part of the problem to solve), the users-pay/users-benefit principle “has been seriously breached” and fuel taxes are no longer seen as usage charges. In his post, he briefly traces the last five years of MBUF experiments, pointing to the value of offering customers multiple options for having their usage reported.

Learn more about next-generation strategies to pay for highway infrastructure. Register today for IBTTA’s Summit on Finance & Policy, July 22-24, 2018 in Portland, OR.