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Reason Foundation

Funding Transportation With User Fees

Testimony Before the Subcommittee on Highways and Transit, U.S. House Transportation and Infrastructure Committee

Adrian Moore
April 7, 2011

I will not belabor you with the nth detailed analysis of the increasing frailty of fuel taxes as the primary user fees for funding transportation programs. Suffice it to say that national energy and environmental policies, the market for gasoline and diesel, and technological advancements in automaking are leading to more people purchasing more fuel efficient vehicles. Since more fuel efficient vehicles use the same amount of infrastructure but pay less in user fees through fuel taxes, the system is increasingly unsustainable. One consequence already witnessed is the transfer of roughly $30 billion in general funds to backfill transportation spending not covered by highway trust fund revenues.

I do not join the great majority of those you will hear from at this hearing who argue that the federal government needs to spend more on transportation. User fee levels of recent years are adequate to fund a federal transportation program focused on the system directly serving the genuine national interest of promoting interstate commerce. It is not sufficient, however, to fund the state and local transportation programs that have increasingly come to rely upon it. It is long past time we recognize that most of the current need to invest more in transportation systems is at the state and local level, and those levels of government should solve those problems themselves with user fees, and not look to the federal government to bail them out yet again. Instead, Congress should strive to remove any barriers that exist for state and local governments pursuing known solutions, and in some areas partnering with them to discover and develop new ones.

User fees are financially and economically superior means of paying for services compared to taxes and indirect charges. Our transportation system has traditionally been funded overwhelmingly by user fees, and this has served us well. As fuel taxes become a less effective form of user fee, we should be seeking a replacement that is even better.

I was honored to serve on the National Surface Transportation Infrastructure Finance Commission created by Congess in the last transportation authorization. We invested the majority of our time as a commission considering all possible mechanisms for funding the federal transportation program. No suprise, we confirmed that there are no silver bullets—they all have advantages and disadvantages. Our report provides a detailed analysis of our comparison of mechanisms. But we unanimously concluded that one mechanism, according to all of our criteria, clearly had the most promise for the future. That mechanism is mileage-based user fees. They can be more effective, economically sustainable, and flexible than the current system, and at least as equitable.

But mileage-based user fees need some time to develope as a viable way to pay for transportation. And right now Congress is focused on prioritizing transportation spending to fit within anticipated revenues as part of dealing with the deficit, not with reworking the federal transportation user fee system. But a number of states are interested in working on mileage-based user fees as potential future funding mechanisms for their states. And following up on the work of the Finance Commission, I and Reason Foundation, are part of the Mileage-Based User Fee Alliance, created to advance the state of the practice of mileage-based user fees and consisting of a number of state agencies and other transportation groups and companies. In this reauthorization Congress can, and should, make a modest investment in helping to develop the next generation of user fees for funding transportation.

Specific Recommendations

In this authorization, Congress should partner with state and local governments to conduct large-scale trials of mileage based user fees and evaluate those trials as well as direct research to be conducted to advance our understanding of the technical, administrative, and financial feasibility of mileage-based user fees.

a. Mileage-Based User Fee Trials

Arguably the most important next step to understanding if mileage-based user fees will work is large-scale trials. The federal government should work with state and local governments, universities, and private firms to conduct a few such trials. Ideally teams led by state or local governments would compete for federal grants to conduct these trials. The Department of Transportation should ensure the trials are of high quality, that everyone benefits from what is learned from them, and that key national interests such as interoperability, protection of privacy, and protection of interstate commerce are preserved.

NCHRP Web Only Document 161: System Trials to Demonstrate Mileage-Based Road Use Charges National Cooperative Highway Research Program, authored by a team from Rand, provides the best current assessment of how to conduct such trials and should be a resource for setting them up.

The trials should focus on answering identified questions about mileage-based user fees and exploring options for their use rather than focusing on narrow mechanisms or specific technologies. They should test different technologies and administrative architectures, and include a variety of geographic and demographic participants.

The point of the trials is to answer the many questions about mileage-based user fees. The biggest concern people have is the protection of privacy and security of information. It is crucial that the trials put an emphasis on these issues. The selection process for choosing which trials to fund should emphasize effective trials that answer as many questions as possible, including:

Evaluation of all that is learned from the trials must be thorough and objective and widely disseminated.

b.  Research and Development

Some of the questions and concerns about mileage-based user fees can be best addressed by research and development rather than trials. Research should complement the trials. Some key research and development topics include:

Conclusion

This authorization period is a chance for Congress to preserve the user fee principle of funding transportation, empower state and local governments to take the lead in developing means of making these user fees work, and take significant steps towards making the next generation of user fees viable in time to replace fuel taxes before the current system becomes untenable.


Adrian Moore is Vice President, Policy


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