Transition to Distance-Based Fees: Where do we go from here?

This article was originally published in Catalyst, August 2021.

As vehicles switch from gas-fueled to electric and revenues from the gas tax begin to decline, experts in the transportation industry are looking for alternative ways to fund roadways. Distance-based user fees (DBUFs) have been gaining political traction as a possibility.

Researchers, state transportation leaders, and policy leaders discussed next steps for DBUFs during a “Rethinking Transportation Finance Roundtable” held in June. The event was the third in a series of roundtables offered as part of U of M research funded by the Minnesota Department of Transportation (MnDOT).

“Our revenues will start declining,” said Margaret Anderson Kelliher, MnDOT commissioner, in her welcoming remarks. “Our prediction is 1 to 2 percent per year… People are driving more than they ever were, but we are collecting less.” Still, she says, the roadway system must be maintained: “We need to find a way to politically come around on the issue: What’s going to replace the gas tax, eventually?”

MnDOT has studied alternative transportation finance methods for decades. The most recent effort is a pilot demonstration of DBUFs in shared mobility fleets—the first-ever study focused solely on usage in such fleets. For the pilot, MnDOT partnered with service providers HOURCAR and Zipcar as well the U’s Humphrey School of Public Affairs and the Minnesota Department of Revenue.

MnDOT’s Chris Berrens, deputy project manager for the pilot, said the use of shared mobility fleets could allow for a gradual introduction of DBUFs, increasing public comfort with the concept and easing privacy concerns. The built-in technology for reporting customers’ mileage was found to be an efficient way to collect the fees, he added.

U researchers have focused on the equity aspects of DBUFs. A flat, per-mile fee, for example, is similar to the gas tax, said Frank Douma, director of state and local policy and outreach at the Humphrey School’s Institute for Urban and Regional Infrastructure Finance. Both approaches are relatively simple to administer but have regressive equity effects. “Those who make less will pay more out of their income to travel the same distance as someone who makes more,” Douma said.

Other equity considerations include the different impacts for rural and urban areas and the different costs of various modes (sizes, types, and uses). Somewhat surprisingly, Douma said, research into this issue indicates that DBUFs—if applied as a flat, per-mile fee—would be more cost-efficient than the gas tax for rural residents driving long distances. However, if DBUFs are structured to charge big, fuel-inefficient vehicles for the additional costs they impose on the system, some rural residents could end up paying more.

“The ultimate lesson here is that there is not necessarily going to be one silver bullet,” Douma said. Legislators can structure DBUFs to account for the impacts on different demographics, modes, or geographic areas.

Barbara Rohde, a Humphrey School researcher and the executive director of the Mileage-Based User Fee Alliance (MBUFA), reviewed activities across the nation. Rohde said nearly half the states are involved in the transition to DBUFs in some way. In addition, two federal DBUF bills—one in the House and one in the Senate—have been gaining bipartisan support.

At the state level, Minnesota House Rep. Steve Elkins said an incremental, multi-strategy approach will likely be the most effective way of handling the transition from the gas tax to DBUFs.

“We should be experimenting with MBUF technology now, when there are only about 10,000 electric vehicles in the state,” Elkins said. “Let’s get the kinks out of the system before we start seeing electric vehicles used at scale.”

Elkins has introduced a bill, HF523, that would replace the current $75 EV registration surcharge with an MBUF. He says it would yield about the same amount of revenue, per vehicle, as an equivalent gasoline-powered vehicle driven the same number of miles, relying on the same technology already in use in Oregon and Utah.

Other roundtable panelists represented engineering firms and the National Conference of State Legislatures. Roundtable cosponsors were MBUFA, the Humphrey School, and CTS.

More information about MnDOT’s DBUF efforts are available on the agency’s website. The final report of the U’s research is planned for publication late this year.

Writer: Sophie Koch

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