Perfect Storm: Electric Vehicles, Increasing Fuel Efficiency and the Impact on State Revenues
Jim Whitty, CDM Smith road pricing specialist, provided opening remarks regarding the current state of transportation revenue and funding in the U.S. He underscored that taxation of motor fuels is a major source of transportation funding in this country, paying for around half of all road spending nationwide. The electrification of America’s fleet of passenger vehicles and general improvement of fuel economy diminish the revenues generated based on fuel consumption while road usage continues to grow. Whitty emphasized the revenue lost to fuel efficiency and shared a few options states have to manage lost revenue: do nothing, frequently raise the gas tax, frequently raise other vehicle fees for registration or licensing, or implement road usage charging programs.
Whitty stated RUC systems in the U.S. are now viable for operation under two systems:
- A high technology option (uses an account for each vehicle to collect mileage data via automation, usually operated by the private sector).
- A low technology option (often builds on existing DMV systems, can involve manual reporting of odometer readings).
Concerns that have emerged about RUC systems include privacy protection, data security, exemptions and refunds, cost of administration, fleet management and user experience. Whitty explained privacy has been the biggest hurdle, and he identified five ways states can calm concerns: restrict government access to data, use account managers, strategic choice of data reporting, data protections and legal privacy and designs to protect data.
According to Whitty, next steps for states include joining a RUC research coalition; passing legislation for a RUC pilot or a voluntary RUC program; beginning transition planning; applying for federal grant funding; examining mileage data reporting at vehicle safety inspections; creating a coalition to engage automakers; and adopting the model RUC privacy protection act.
The Federal Role in Road Usage Charging
Ben Husch, director of NCSL’s Natural Resources and Infrastructure Committee, spoke on the role of the federal government in RUC programs across the nation. He gave a brief history of RUC and explained how NCSL has supported the exploration of alternatives to the gas tax. For example, NCSL efforts contributed to the establishment of the STSFA, the $95 million discretionary grant program funded through the Fixing America’s Surface Transportation Act (FAST Act). While the FAST Act does not represent the first grant program to award funds to explore RUC, STSFA represented the first grant program specifically dedicated to supporting the deployment of pilot demonstration projects focusing on alternatives to the gas tax.
Two new grant programs established under the Infrastructure Investment and Jobs Act (IIJA) of 2021 reflect Congress’ continued support for exploring RUC as a viable replacement to the gas tax. Section 13001, the Strategic Innovation for Revenue Collection repealed and replaced the STSFA program. While slightly less grant funding was provided, a total of $75 million over five years, the federal share provided by the federal government was increased from 50% to 80% for a new project. Section 13002 of the IIJA established The National Motor Vehicle Per-Mile User Fee Pilot. This program encouraged voluntary participation for studying road usage fees in all 50 states, providing $10 million annually over five years. He explained the bill also created an advisory board to help guide development of a national pilot that could lead to a federal program by providing recommendations on structure, scope and method.
State RUC Programs Overview
Angela Fogle, transportation specialist with the Federal Highway Administration, moderated a discussion on current state RUC programs (Virginia’s program launched on July 1, 2022). Maureen Bock, Oregon Department of Transportation chief innovation officer; Nathan Lee, Utah Department of Transportation director of technology; and Scott Cummings, Virginia Department of Motor Vehicles assistant financial commissioner participated in the discussion.
Bock opened by explaining that state transportation funding is old, as Oregon introduced the first state fuel tax, as well as the first RUC program in the nation in 2013. Lawmakers in Oregon recognized the current transportation funding system was in decline and would no longer be effective in the long-term due to declining purchasing power caused by increased fuel efficiency. She gave a brief Oregon legislative history, from the first RUC bill passed in 2013, the launch of the first operating RUC program in the country (OReGO) to the failed 2021 bill which would have created the first mandatory RUC program in the country. She stated that the policies underlying the statutes included that people would pay either the fuel tax or RUC fees, not both. The motor fuel tax should be credited but not refunded, medium duty vehicles should continue to pay the fuel tax for now and the RUC rate should be indexed to the fuel tax.
According to Bock, the OReGO program, as well as the completed enhancement studies conducted by ODOT demonstrate that people found the RUC program to be affordable, did not change their driving behavior and reinforced that education changes opinions about the program. The key lessons from Oregon’s experimentation with RUC are that transportation is important to the public, education matters, public experts should implement seamless delivery if possible, emerging technologies are disruptors and standards are being developed that enable road usage charging.
Nathan Lee continued the discussion by underscoring that Utah also found that periodic gas tax increases were not working, and in 2015 the state began looking for alternatives to the gas tax. Mr. Lee explained that the current voluntary RUC system that is operating in Utah is growing, and the key to enrollment is simplicity. The most recent bill passed in Utah, 2021 HB 186, aimed to further accelerate enrollment by decreasing the per mile rate. A key point made by Mr. Lee was that no matter how enrollment looks, it has to be synchronized with DMV systems. He underscored that 35 states use the same vehicle interface DMV software, making the path to implementation straightforward for those states.
Scott Cummings wrapped up the discussion by detailing Virginia’s journey towards a RUC program. Scott explained that Virginia implemented a workgroup to study transportation funding losses. The findings projected declines in future fuel tax revenue due to fuel economy improvements, electric vehicles and hybrids. The study found that addressing electric vehicles alone would not address the problem. Virginia then implemented a voluntary mileage use program in which users pay a per mile rate rather than a compulsory flat “mileage choice” fee. The state uses the same commercial account manager as Oregon and California that relies upon, using a pre-paid wallet tied to customer cards with the option of using non-GPS devices for privacy purposes. Cummings stated that education and outreach were also key aspects of Virginia’s “mileage choice” program, aiming to get the word out and test the public’s responses to outreach.
RUC Payment and Reporting Options for Drivers
The fourth session of the summit was a conversation moderated by Minnesota Representative Steve Elkins (DFL) between Travis Dunn, RUC discipline leader at CDM Smith and Mark Muriello, policy and government affairs director at the International Bridge, Tunnel and Turnpike Association (IBTTA) about payment and recording logistics for RUC programs.
Travis Dunn identified the nine essential functions of a RUC system:
- Identify subject vehicle & owner/lessee–connect with vehicle registry & set up account.
- Generate road usage data for subject vehicle over designated time–report data.
- Access road usage data–receive reporting of road usage data.
- Apply per-mile charging rates–process data to determine amount of charges.
- Provide invoice to owner/lessee–issue notice of the charge.
- Collect payment–provide one or more ways to pay.
- Issue acknowledgement of payment–create a receipt.
- Enforce payment–apply mechanisms for ensuring everyone pays.
- Remit revenue to appropriate fund–integrate revenue collection with financial systems.
He noted that state agencies already have significant experience with seven of the nine essential functions of a RUC system but lack experience regarding collecting and reporting on mileage data, specifically generating road usage data for a subject vehicle over a designated time and receiving reporting of road usage data.
Dunn explained the options for mileage reporting and their considerations, including privacy, cost, simplicity, compliance, accessibility, interoperability and ease of administration. The first option Dunn explained was odometer reporting. The pros are that it is low in cost, on par with vehicle registration, is simple for vehicle owners and works easily with DMV systems. According to CDM Smith and NCSL research, 15 states already collect annual odometer readings. Challenges exist related to odometer reporting, including the potential for fraud, long payment intervals and inability to distinguish miles by location, such as miles driven out-of-state or on private roads.
Another option for payment and reporting is smartphone apps, although they are not quite operational yet. A smartphone app would satisfy interoperability and accessibility goals; however, it would be susceptible to gaps in reporting and would require short payment intervals and a smartphone. In-vehicle devices are another option which provide user control over privacy, can distinguish miles by location, prevent fraud and are not dependent on vehicle registration. The final option discussed by Dunn was automaker telematics, for which there is not enough information to know about the outcomes of concern yet. Dunn recommended when contracting for RUC reporting and payment to not pick a single technology or a single vendor for long contracts, do not wait for the federal government to figure out how to proceed and to work with other states.
Mark Muriello from IBTTA, which represents toll operators in 20 countries across the world, said the key to overcoming RUC challenges is gaining political support and public acceptance. It is also important to clearly determine basic functions and roles, which are very similar to tolls—so RUC programs should leverage information from the 30+ years of electronic tolling. The issue of interoperability in RUC could be solved using similar mechanisms to those used by tolling systems, such as using a single technological standard and private account managers.
Muriello explained that customer expectations are growing, and people expect more speed of delivery and more choices, which really favors a single platform. He also said partnerships will be critical to RUC success, to use technology already in development and to manage options and flexibility. Technology is not the obstacle, as 97% of cars sold in the U.S. this year come with GPS units and cellular modem, so mileage data is available, but it is currently owned by car companies.