Bruce Starr spotted the problem right away: The hydrogen-powered cars General Motors was showing off on the Oregon Capitol grounds wouldn’t need gas. And if they didn’t need gas, drivers wouldn’t be paying gas taxes that fund the state’s roads.
It was 2001, and the problem seemed urgent. GM predicted the cars would be on the market in a few years. Starr, then a Republican state representative, created a task force to figure out the future of transportation funding.
“There’s no asphalt fairy out there that sprinkles asphalt in the night on our roadways,” he said recently.
Widespread production of hydrogen-powered cars has not come to pass, but GM is eyeing an all-electric fleet by 2035 with the backing of the Biden administration. That has lawmakers in state capitals across the country and in Washington increasingly confronting the question that troubled Starr two decades ago.
Many have settled on an answer: charging drivers a penny or two for each mile behind the wheel. But while such a system would bring in tax dollars for roads, it also would present a new set of obstacles.
States are leading the way, with Oregon and Utah launching the first programs and several others running pilots to test technology and build public support. The approach has bipartisan support in Washington, and Transportation Secretary Pete Buttigieg has signaled his openness.
But existing programs operate on a small scale, and a national system would mean tracking millions of vehicles. Supporters are pushing for the quick adoption of proposals to maintain funding of the nation’s crumbling infrastructure, while opponents, including environmental advocates, argue the shift is premature at a time when electric vehicles are a fraction of cars on the road. New fees also would slow their adoption, they say.
The Oregon task force put the state at the forefront of the new approach, known as a road-user charge or a vehicle miles-traveled (VMT) tax. The state launched a voluntary program in 2015. Legislators in Salem are considering a bill that would make the program mandatory for new vehicles with a fuel economy rating of 30 miles per gallon or higher starting in 2026.
State Rep. John Lively (D), the bill’s sponsor, said the state has demonstrated that a program can work and that it is time to take the next step.
“If we don’t get the date set certain, we’re never going to get there,” he said.
Utah’s program was launched last year and has enrolled more drivers than Oregon’s. A dozen states are considering legislation this year to update, launch or study programs, including California — where the governor wants to end sales of gas-powered cars by 2035 — and Wyoming.
“We’re in the beginning, the very beginnings of the tangible transitions to this now,” said Douglas Shinkle, transportation project director at the National Conference of State Legislatures. “There’s a lot of palpable excitement.”
At the federal level, the idea of taxing mileage has gained traction in both parties as leaders promise an infusion of spending on transportation infrastructure, even as lawmakers disagree on how to pay the bill.
The federal government has issued tens of millions of dollars in grants to back state projects exploring mileage-based tax programs. A bill that passed the House last year would have set up a national pilot program to tax vehicles by miles driven, and a Senate committee endorsed the idea. The Federal Highway Administration is beginning to explore how a pilot program might work, a spokeswoman said.
Sales of electric vehicles account for about 2 percent of annual new-car sales, with some forecasts projecting that number to grow rapidly.
The 18.4-cent federal gas tax was last raised in 1993. By 2008, Congress was shifting other money into the Highway Trust Fund to make up for shortfalls.
The gas tax brought in about $26 billion and a tax on diesel an additional $10 billion in 2019, before the coronavirus pandemic pushed down the number of miles Americans drove. The Congressional Budget Office forecast in May that gas-tax revenue would decline about 1 percent each year as fuel economy improved and growth slowed in the number of miles driven. At the same time, it projected that transportation-related spending would increase in line with inflation, leaving the highway fund increasingly out of balance.
Rep. Sam Graves (R-Mo.), the top Republican on the House Transportation Committee, said the switch to a miles-driven tax could take place quickly to shore up funding for the nation’s infrastructure.
“The trust fund is going broke,” he said. “We have to do something. Continuing to kick this can down the road is the absolute wrong approach.”
The hurdles to launching a new system are significant, starting with how to collect the tax.
The gas tax is cheap to collect, levied on a small number of wholesalers rather than customers, while taxing mileage would require tracking millions of drivers. The Federal Highway Administration pegged the collection costs at between 5 and 18 percent of the revenue the programs bring in.
Surveys of drivers involved in pilot programs revealed questions of privacy and data security as top concerns. Many environmentalists also are opposed, saying that taxing gasoline also is also an effective tax on carbon dioxide emissions. Under a miles-driven system, the highest-emission vehicles stand to gain a tax break.
Max Baumhefner, a lawyer at the Natural Resources Defense Council, said there that is no reason to think the gas tax is fundamentally broken and that its weaknesses could be overcome by indexing it to measures of inflation and fuel efficiency.
“More than 30 states in the last decade have raised or reformed their gas taxes in one way or another,” Baumhefner said. “It’s not easy, but we do it all the time.”
Environmentalists opposed a bill in Utah designed to encourage more drivers to sign up for the mileage-charge program. It would have raised flat fees on electric vehicles to the highest level in the nation and given drivers the option of avoiding them by opting to pay by the mile instead.
“EVs are not really the problem,” said Nick Schou of Western Resource Advocates, which advocates for environmental causes in seven Western states. “These are really massive, draconian fees.”
Utah State Rep. Jeff Stenquist (R) acknowledged the competing issues at play but said that the state’s road-usage charge already faced significant political head winds and that waiting would only make the problem worse. He said the state needed to provide drivers with a financial incentive to pay by the mile.
“It’s easier if we do that now when the market is small than when it grows,” he said.
The bill advanced in a committee vote but fell short on the Utah House floor. A bill under consideration in Minnesota includes a hybrid system with a fee weighted by fuel efficiency.
Lively, the Oregon legislator, said environmental objections should be addressed but should not be a reason to put the brakes on rolling out the state’s system.
Officials in Oregon say objections can be overcome as the public becomes more familiar with the new systems and research debunks concerns that some drivers, especially those in rural areas, will be disproportionately affected.
Participants in the state have three ways to sign up — two privately run systems and one administered by the state Department of Transportation. The private companies send drivers a device that logs where and how much they drive or pull the data directly from vehicles. Then they send out bills and turn over the revenue to the state. Drivers get reimbursed for gas taxes they pay at the pump.
The companies keep drivers’ data for 30 days, and participants have options that include not sharing information about their locations.
Nate Bryer, executive vice president at Azuga, one of the companies that works on the Oregon program, said the technology that currently serves a few hundred vehicles will soon be ready for millions.
“Could I today? No,” Bryer said. “Could I with a little engineering and reworking? Yes.”
Oregon’s tax rate of 1.8 cents per mile is equivalent to the 36-cent gas tax paid by a vehicle that gets 20 miles per gallon. Someone driving about 11,500 miles a year would pay about $207. That leaves owners of hybrids paying more than they otherwise would. It would be a good deal for drivers of large SUVs or pickup trucks, but in 2019, the legislature limited enrollment of new vehicles to those that get at least 20 miles per gallon.
Michelle Godfrey, a spokeswoman for Oregon’s program, said despite the tax burden shifting to the most fuel-efficient vehicles, drivers have been receptive to the idea when the need to fund construction and maintenance is spelled out.
“That’s the whole crux of our outreach,” she said.
Buttigieg, who talked up the mileage-based approach as a presidential candidate, said recently that Congress is weighing its options for funding infrastructure spending and did not lend his support to any particular method. But if lawmakers remain wedded to the idea of drivers paying for roads, Buttigieg said at a virtual meeting of state highway officials last month that means a mileage tax will be necessary.
“We know the gas tax is not a long-term solution anyway, given what’s happening with fuel economy and electrification, so I don’t think that’s where the energy is going to be in Washington,” he said.
Nancy Singer, the Federal Highway Administration spokeswoman, said the agency’s study would look to see “how a potential national pilot mileage-based user fee system could even, if at all, be carried out.”
The pilot program set out in the House bill was designed to bring in roughly the same revenue as the existing gas tax. But ultimately, having more money to spend on infrastructure would mean asking drivers to pay more.
Bill Sullivan, executive vice president for advocacy at the American Trucking Associations, said if the idea continues to gather support at the federal level, he could see disagreements arising. Sullivan’s group supports boosting the gas tax before turning to a new way of raising money, but that idea has little traction in Congress.
“VMT has one thing going for it,” he said, “and that’s that it’s not the gas tax.”