To VMT or Not to VMT

“Gasoline taxes are not generating enough revenue to pay for roads and bridges,” says USA Today, so some states are experimenting with vehicle-miles traveled (VMT) fees. Actually, as I show in my recent Cato paper on this subject, gas taxes are currently generating enough revenue to maintain roads and bridges, but that revenue is expected to decline as cars become more fuel-efficient.

Better arguments for replacing gas taxes with VMT fees, my paper shows, are that such fees can virtually eliminate traffic congestion and save local governments $30 billion a year in general funds that are now used to subsidize local roads and streets. However, as I relearned after Cato published my paper, proposals for vehicle-mile fees produce two strong, visceral reactions from the public.

First is a fear that VMT fees will allow the government to invade your privacy by tracking your location. Second is a worry that government will waste the revenues it collects from vehicle-mile fees by spending them on pork barrel or other foolish things. Both of these complaints are really about problems with government, not the user-fee proposal.

Every time you make a phone call, send an email, or even walk out of your house into the possible view of a closed-circuit camera, you are giving the government an opportunity to track your whereabouts. This doesn’t mean we should ban telephones, email, or people leaving their homes; it does mean that we should design our technologies and institutions in ways that will preserve people’s privacy. As I explained in my paper, the VMT fee systems tested in Oregon and Minnesota are designed to make it impossible for the government to know where people drove or when they drove there; the systems only transmit the amount of money people owe for using the street and road network.

Similarly, any revenue source can be abused, but we can design institutions that minimize or even completely avoid such abuse. My paper points to county toll road authorities in Texas and other states as model institutions for vehicle-mile fees. These authorities, while technically governmental, rely exclusively on their tolls for revenues, so they act like private businesses. Other elected officials have no say in how they spend their money, while the toll road authorities have to provide services people will use or they will collect no revenue, so the tolls provide sound incentives for both the agencies and the users.

My paper also points out that one of the side-effects of replacing gas taxes with VMT fees will be a devolution of transportation decisions from the federal to the local level. The only real justification for a federal gas tax is that it is cheap to collect (since it is collected directly from refineries and importers). As one of the people interviewed by USA Today observed, federal officials fear VMT fees because such fees will reduce if not eliminate federal involvement and power.

VMT fees will also offer opportunities for privatization that are lacking today. It would be hard for a private road owner to collect a share of gas taxes, but if fees are collected from everyone driving on all roads and streets, anyone – private companies, homeowner associations, non-profit groups – could take over a portion of the road network and start collecting fees to maintain those roads.

Due to declining gas tax revenues, VMT fees are almost inevitable. Rather than object to any change, fiscal conservatives should work to insure that such fees are designed to avoid the pork-barrel and other problems associated with gas taxes.

 

I also discuss the future of highway financing in this video from a May 17 Policy Forum: