Highway Trust Fund: Pilot Program Could Help Determine the Viability of Mileage Fees for Certain Vehicles
Released: 2013-01-08T00:00:00

Letter

Background

Financing of U.S. Surface Transportation Programs

Since Congress established the Highway Trust Fund in 1956 to fund the construction of the Interstate Highway System, the federal government has financed transportation projects primarily with revenues collected through federal fuel taxes. These taxes were established to make the federal-aid highway program self-financing—that is, paid for by the highway users who directly benefit from the program. From 1956 to 1993, Congress increased the federal gasoline tax from 3 cents per gallon to its current rate of 18.4 cents per gallon. The federal diesel tax rate was also last increased in 1993 and is currently set at 24.4 cents per gallon. In fiscal year 2010, 92.5 percent of almost $37 billion in user fee revenues deposited into the Highway Trust Fund were generated through federal fuel taxes. The remaining revenues were collected through several taxes on heavy commercial trucks. (See fig. 1.)

Over the past two decades, revenues from federal gasoline and diesel fuel taxes have steadily declined in purchasing power. These rates are not set to be adjusted for inflation on an annual basis, meaning that the 18.4 cents per-gallon tax on gasoline enacted in 1993 is effectively worth about 11.5 cents today. If federal gasoline taxes had been indexed to inflation since they were last increased, they would have risen from 18.4 cents per gallon in 1993 to approximately 29 cents per gallon in 2011; diesel taxes would have risen from 24.4 cents per gallon to 38 cents per gallon. In addition, as shown in figure 2, the amount of federal gasoline tax relative to the average retail price of gasoline decreased from 17 percent in 1993 to 5 percent in 2011.

Surface transportation programs face increasing shortfalls in year-to-year revenues over the next decade. CBO estimated in August 2012 that, to maintain current spending levels from 2012 to 2022, the Highway Trust Fund would require an additional $110 billion over what it is expected to take in during that period (see fig. 3). These shortfalls are expected to increase as passenger vehicle fuel economy improves and the amount of revenue generated per mile traveled decreases. When federal fuel taxes were last increased in 1993, the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy (CAFE) standards required newly manufactured passenger cars and light trucks to meet estimated average fuel economy levels of 27.5 miles per gallon (mpg) and 20.4 mpg, respectively. Current CAFE standards will require manufacturers’ new passenger cars and light trucks to have an estimated combined average fuel economy of 34.1 mpg by model year 2016, and as high as 54.5 mpg by 2025. We have previously reported that, over the long term, vehicles will become more fuel efficient and increasingly run on alternative fuels. Consequently, fuel taxes may not be a long-term source of transportation funding.

The amount of federal fuel taxes paid by drivers of passenger vehicles comprises only a small portion of these users’ overall fuel expenditures and varies based on fuel economy. More fuel-efficient passenger vehicles pay less in fuel taxes per mile because they require less fuel to travel the same distance as less efficient vehicles. The 2009 National Household Transportation Survey found that the average one-vehicle household Drivers of sedans with spends more than $1,400 annually on gasoline.average fuel efficiency (22 mpg) pay about $100 per year in federal fuel taxes. The driver of a sport utility vehicle (SUV) with a fuel efficiency of 16 mpg pays about $132 a year in federal fuel taxes (see fig. 4).

A single commercial truck contributes more to the Highway Trust Fund, on average, than a single passenger vehicle for several reasons. The federal diesel fuel tax is higher than the gasoline tax, and commercial trucks tend to travel more miles annually and are considerably less fuel efficient than passenger vehicles. According to FHWA highway statistics, the average commercial truck and trailer combination (combination truck) traveled nearly 70,000 miles in 2010 while the average passenger vehicle traveled about 11,000 miles. Also, while the average combination truck traveled about 6 miles per gallon of diesel fuel in 2010, the average passenger vehicle traveled about 22 miles per gallon of gasoline. There is also a great deal of variation in the amount of fuel taxes paid among different configurations of commercial trucks. As shown in figure 5, a combination truck with a fuel efficiency of 5 mpg would have paid more than 8 times as much in federal diesel fuel tax as a single-unit truck with a fuel efficiency of 8 mpg, a difference due primarily to combination trucks driving substantially more miles than smaller, single-unit trucks.

Although a single commercial truck generally contributes larger amounts to the Highway Trust Fund through federal diesel fuel and other taxes, FHWA has estimated that commercial trucks pay less than their share for their use of our nation’s roadways in relation to the road damage they impose. According to research conducted by the American Association of State Highway Transportation Officials (AASHTO), highway wear increases exponentially with the weight of a vehicle’s axle load. To evaluate the equity and efficiency of highway user fees, FHWA has compared the Highway Trust Fund contributions of different vehicle classes with the costs attributable to each class as part of its Highway Cost Allocation Study. FHWA completed its most recent cost allocation study in 1997 in response to a GAO recommendation and provided an updated addendum in 2000. This study found that in general, lighter vehicles pay more than their share of highway costs while heavier vehicles pay less than their share. For example, according to FHWA’s 2000 study, the heaviest combination trucks—those that weigh more than the federal interstate gross vehicle weight limit of 80,000 pounds—paid 50 cents for every dollar’s worth of damage they caused. According to the AASHTO study that is used as the basis for the organization’s pavement design guides, a commercial truck with five axles weighing 80,000 pounds imposes roadway damage equivalent to the damage imposed by 24,000 passenger cars.

Mileage-based User Fee Initiatives in the United States and Abroad

In recent years, the federal government and several states have taken steps to evaluate mileage fee systems, although none of these U.S.- based pilot projects has collected fees from drivers based on their road use: In 2005, Congress authorized $16.5 million for a field test for assessing highway use fees to vehicles based on their mileage driven and using satellite-enabled, on-board units. Led by researchers at the University of Iowa, the National Evaluation of Mileage-based Road User Charges (referred to as the “Iowa study” in this report) tested mileage fee systems in the vehicles of 2,600 volunteer study participants in 12 states.

In 2005 and 2006, respectively, the Puget Sound Regional Council— the metropolitan planning organization for the Seattle, Washington region—and the Oregon DOT each conducted pilot programs that were funded in part by FHWA’s Value Pricing Pilot Program. Similar to the Iowa study, both pilots tested GPS-based systems installed into the vehicles of paid volunteers to gather mileage data and calculate hypothetical user fees.

At the time of our review, the Minnesota and Nevada DOTs were testing different approaches to calculating mileage fees for passenger vehicles, discussed later in this report. The Oregon DOT also conducted field tests of a system to collect mileage fees from commercial trucks and has planned a new pilot project to examine mileage fees for electric passenger vehicles. For a summary of U.S.-based pilot projects, see appendix II.

Internationally, several countries have implemented distance-based user fee programs for commercial trucks, including Germany, New Zealand, Switzerland, Austria, the Czech Republic, and Slovakia. These programs were designed to address a variety of policy goals, including raising revenues and reducing harmful emissions. The New Zealand system also charges diesel-fueled passenger vehicles for distances traveled. The Netherlands attempted to implement a nationwide commercial truck and passenger vehicle mileage fee system scheduled to begin in 2012, but the program was suspended before it was implemented because of privacy concerns discussed later in this report.

Evaluating User Fees

Prior GAO work has found that the design of user fee programs can be evaluated based on several related criteria: efficiency, equity, revenue adequacy, and administrative burden, as discussed in appendix III. These criteria interact and are often in conflict with each other; as such, there are trade-offs to consider among the criteria when designing a fee. For example, the current method of collecting federal fuel taxes presents little administrative burden because these taxes are collected from a small number of companies that store or distribute fuel at the wholesale level. However, according to CBO, fuel taxes also raise efficiency and equity concerns in that they: (1) do little to promote the efficient use of the nation’s roadways because they provide minimal incentive for users to drive less and (2) tend to be regressive, in that they impose a larger relative burden on low-income than on high-income households. Consequently, every user fee design will have pluses and minuses, and no design will satisfy everyone on all dimensions.

See app. IV for information on the Fair Information Practices. of privacy laws and related policies in the United States, the European Union, Australia, and New Zealand.

Various Initiatives Demonstrate Mileage Fee Benefits, but Privacy Concerns and Cost Challenges Hinder Passenger Vehicle Systems

Mileage fee initiatives in the United States and abroad show that several approaches are available to gather mileage data and charge fees. Some approaches could lead to more equitable and efficient use of roadways; however, significant privacy-related concerns from the public and cost challenges have been raised in applying mileage fees to passenger vehicles. Reliable cost estimates for mileage fee systems are not available; but launching and operating a system to collect fees from 230 million U.S. passenger vehicles is expected to greatly exceed the current costs of collecting federal fuel taxes. Commercial truck user fee systems in Germany and New Zealand show that considerable revenues and other benefits can be achieved by charging these vehicles, but enforcing compliance in a cost-effective manner presents trade-offs. Only limited research has been done to evaluate commercial truck mileage fees in the United States. Recent efforts in two states suggest that charging mileage fees to commercial trucks presents several benefits over passenger vehicle fees, including fewer privacy-related concerns and cost challenges.

Several Different Passenger Vehicle Mileage Fee Approaches Exist

The five U.S.-based pilot projects that we reviewed and New Zealand’s passenger vehicle mileage fee program illustrate three general approaches that are currently available to gather mileage data and charge drivers user fees.of the mileage data collected as well as the procedures used to charge drivers fees. The three approaches are a GPS-based system; a pay-at- the-pump system; and a prepaid, manual system, as depicted in figure 6 and described in more detail below.

The approaches vary in terms of the specificity Thick-client systems transmit summary invoice. Thin-client systems work similarly, but rather than sending a summary of the mileage traveled to a central office, they send detailed vehicle location and time-of-day data. The central office uses the data to calculate and prepare the participant’s mileage fee invoices.

Two states, Nevada and Oregon, have designed mileage fee collection systems that resemble the way in which fuel taxes are currently paid—at the filling station. The Nevada DOT is currently conducting a pilot project that does not require an on-board GPS system and that estimates a driver’s mileage fee based on the fuel efficiency of the vehicle and the amount of fuel purchased at the pump. To do so, a wireless transponder is installed in the participant’s vehicle and connected to the vehicle’s on- board diagnostics unit to gather the total mileage of the vehicle. When a vehicle pulls up to a fuel pump at a gas station participating in the pilot, the transponder in the vehicle sends the vehicle’s mileage information to a transponder installed at the fuel pump. The vehicle’s mileage information is then transmitted to a central office where a mileage fee is calculated and transmitted back for inclusion in the price of fuel and shown on the participant’s fuel receipt. In 2006, the Oregon DOT tested a similar pay-at-the pump system, but its system also required a GPS in participant vehicles to charge drivers different fee rates receiver based on the jurisdiction of travel (in state, out of state, or within the Portland metropolitan area).

A prepaid manual system is a nonautomated mileage fee system where drivers purchase a license that permits them to drive for the purchased number of miles, as used in New Zealand’s Road User Charge (RUC) system. The RUC system was originally designed to collect user fees from commercial trucks, but it also applies to diesel-fueled passenger vehicles, which comprise 15 percent of all light vehicles in the country. New Zealand does not tax diesel fuel at the pump because a significant amount is used for off-road purposes that do not impose costs on public highways—such as agriculture, construction, fishing, and logging. Vehicle owners purchase a RUC license for a range of kilometers (such as 5,000 to 10,000 kilometers) based on their odometer reading, and the RUC license shows the distance the vehicle is permitted to drive. Vehicle owners must display the RUC license on the windshield to verify compliance during safety inspections or if a vehicle is pulled over for traffic a violation. RUC licenses are purchased in 1,000-kilometer increments at a variety of locations including post offices, some filling stations, and through the New Zealand Transport Agency, which manages the program. Unlike the pay-at-the-pump system, New Zealand’s RUC system can be used to collect mileage fees from electric and alternative fueled vehicles that do not visit fuel pumps but do use The RUC system was the only passenger vehicle system we roads.reviewed that collects actual revenues and the only national mileage fee system that applies to passenger vehicles.

Benefits and Challenges of Passenger Vehicle Mileage Fee Systems

The three approaches offer different benefits and challenges and present trade-offs to policymakers in evaluating mileage-based user fees. GPS- based systems can lead to more equitable and efficient use of roadways by charging drivers based on their actual road use and by providing pricing incentives to reduce road use. However, public perception of privacy risks raised by these systems significantly limits acceptance of the program. Conversely, because pay-at-the-pump and prepaid manual systems do not collect location data on drivers they present fewer privacy-related challenges, but the trade-offs are reductions in the efficiency and equity of the proposed systems. For example, they are unable to improve the efficiency of road use by charging drivers different rates for travel on specific roadways or during congested periods. Manual systems could also be subject to odometer fraud and evasion, with compliant drivers paying more than noncompliant drivers. Because reliable cost estimates for implementing any of these systems are not available, the ability to weigh the costs of implementing and operating a system is a challenge that applies across each of the options. See table 1 for a summary of the benefits and challenges.

Using a GPS device to charge passenger-vehicles mileage fees raises significant privacy-related concerns among the public. In the surveys conducted through the Iowa study, researchers found that after completing the pilot, 60 percent of the volunteer participants believed that the government would use the information collected to track their movements. In addition, state DOT officials conducting public outreach and opinion research in Minnesota, Texas, and Nevada found that the public expressed a variety of privacy-related concerns, including that the government would use a GPS system to track a driver’s movements and that the personal information collected could be vulnerable to security breaches or shared with law enforcement agencies and private companies. According to our survey of state DOTs, 45 of 51 officials reported that addressing privacy-related concerns would present a great challenge to developing a mileage fee program in their state. Several state DOT officials have proposed that using the private sector to manage mileage fee programs would alleviate public perception of privacy risks by limiting the government’s role in collecting and managing personal information. However, we have previously reported that by allowing private companies access to location data, users can be exposed to privacy risks, including disclosure of the location data to unknown third parties for unspecified uses, consumer tracking, identity theft, threats to physical safety, and surveillance.

The options include an on-board unit that does not use GPS and only collects and reports undifferentiated miles; a unit with a GPS receiver that reports miles by location; or a flat annual or biannual tax that does not require the collection of any mileage data and allows the driver to accumulate unlimited miles. available under that legislation to research or implement a system that would levy a fee on a vehicle user based on the distance traveled.

Pay-at-the-pump or prepaid manual systems address privacy-related concerns to some extent by not tracking a driver’s location; however, these systems can reduce some of the efficiency and equity benefits of mileage fee systems. For example, variable pricing programs that charge road users a higher rate during peak traffic times and a lower rate during times with light traffic can be facilitated through the use of GPS systems. In theory, GPS could also be used to charge drivers different rates based on the type of road or the location of travel, such as higher rates on urban Interstates and lower rates on rural roads. The system in place in New Zealand and the one being tested in Nevada only collect total mileage driven by the vehicle and are unable to apply different fees based on time and location. In addition, pay-at-the pump systems cannot charge electric fuel vehicles since they do not need to use gas stations to power their vehicles. Also, equity issues caused by odometer fraud exist in prepaid manual systems. For example, New Zealand officials reported that when a passenger vehicle is pulled over for a violation, the police have no way to determine whether an odometer has been disabled and that mileage is not being recorded. An independent review of the RUC program conducted in 2008 estimated that about $10 million (U.S.), or 6 percent of the light vehicle RUC revenue, was lost because of evasion.Zealand government officials noted that as a result, compliant drivers pay higher RUC rates than they otherwise would to replace the revenues lost from noncompliant drivers.

Reliable estimates for start-up and ongoing administrative costs of a passenger vehicle mileage fee system in the United States are currently unknown but are likely to be substantial.

Start-up costs: Installing on-board units in 230 million U.S. passenger vehicles would almost certainly be a significant cost challenge. Reliable estimates for the current cost of purchasing and installing on- board units for all U.S. passenger vehicles are not available, but such costs are likely to greatly exceed the current costs of collecting fuel taxes, estimated at about 1 percent of the revenues collected. A May 2009 study, prepared for U.S. Department of Transportation on the administrative costs of collecting highway revenues, found that the costs of purchasing and implementing a GPS-based mileage fee system could range from roughly 8 percent to 33 percent of the revenues generated over a 20-year period, depending on the type of system used. The German government estimated the current cost of the GPS-enabled on-board units used in its commercial truck user fee system to be about $240 per unit, with additional costs for installation. These start-up costs would likely be prohibitive if the goal of the fees is to replace current federal fuel tax revenues, which are about $100 per year for the driver of a sedan with average fuel efficiency. Similarly, retrofitting thousands of gas stations to support a pay-at-the pump system would be costly and challenging. For example, the Oregon and Nevada pay-at-the-pump pilot programs cited difficulties finding and recruiting gas stations to participate in their pilot programs.

Ongoing administrative costs: The costs of managing, maintaining, and enforcing any mileage fee system are also unknown but likely to be substantial. For example, a 2011 report analyzing cost estimates from the proposed mileage fee system in the Netherlands estimated the total operating costs to be about 7 percent of the revenues projected to be generated by that system. However, the report found that operating costs as a percentage of revenues could be substantially higher in the United States because U.S. drivers pay substantially less in transportation costs than drivers in the Netherlands. Furthermore, the ongoing maintenance of on-board units could be costly and present technical challenges. In the Iowa study, approximately 24 percent of the 2,600 participants experienced at least one study-related problem with their vehicle or installed equipment over the 2-year study period, and a total of 618 incidents required at least one service visit to correct. Of these incidents, 79 percent were due to a problem with the performance of installed on- board units. The principal researcher on the project stated that this level of error would have been “disastrous” and would have jeopardized the success of a national mileage fee rollout with millions of vehicles involved. The Iowa study recommended that the federal government should fund a larger, national mileage fee study that would generate the efficiencies needed to provide an accurate estimate for back-office operational costs.

Commercial Truck User Fee Programs in Germany and New Zealand Have Raised Substantial Transportation Revenues and Produced Other Benefits

Revenues and Benefits from Germany’s Heavy Goods Vehicle User Fee System

Germany’s Heavy Goods Vehicle (HGV) system was implemented in January 2005 and is the first distance-based user fee system in Europe to use GPS technology. The program was developed through a public- private partnership between the German government and a private sector company, which manages and collects tolls for the German government. The HGV system charges all trucks weighing more than 12,000 kilograms (over 26,000 pounds), regardless of national origin, a per-kilometer fee to travel on the 12,700-kilometer (almost 8,000-mile) national motorway, or autobahn. Currently, about 700,000 trucks across Europe are equipped with GPS-based on-board units that meter all travel on the autobahn. The on-board units use cellular communications to transmit mileage data to the private toll operator, which is responsible for billing trucking firms and collecting the fees. Approximately 700,000 other commercial trucks without on-board units are charged user fees through a manual booking system maintained by the private toll operator. Users of this system must prepay for their travel through the Internet or at 3,500 electronic toll terminals located at various entry points and service areas across the autobahn.

The goals of the HGV system were to (1) raise transportation revenues through the user pays principle and to (2) reduce harmful emissions from commercial trucks. The program has generally achieved its goal of raising new revenues by ensuring that both foreign and domestic trucks on the autobahn are charged equitably for their travel. According to German transportation officials, foreign trucks account for more than 35 percent of the country’s truck travel. Prior to the launch of the HGV system, foreign trucks could purchase diesel fuel in neighboring countries to avoid Germany’s significant fuel taxes, and thus use German roadways without contributing revenues for their maintenance. The HGV tolling system addresses this by charging all trucks subject to the tolls, regardless of national origin, the same per-kilometer fees to travel on the autobahn. From fiscal year 2007 through 2011, the HGV system raised almost $25 billion (more than 20 billion euros) in dedicated surface transportation revenues from an estimated 1.4 million commercial truck users.

The program also achieved its second goal of creating incentives for operators to invest in lower emission vehicles, which has resulted in reduced emissions across the German and European trucking fleet. User fee rates are variable and based on the truck’s emission class, number of axles, and distance traveled on the roads subject to the fee. Trucks with lower emissions pay significantly less than trucks with higher emissions, with rates ranging from 28 to 57 U.S. cents per mile. The composition of the HGV trucking fleet has changed dramatically over the course of the program as a result of the variable pricing incentives. In 2005, the lowest emission commercial truck classes, known as the Euro 5 and enhanced environmentally-friendly vehicle emissions categories, comprised less than 1 percent of the commercial trucking fleet. By the end of 2011, those classes comprised about 70 percent of the commercial truck fleet. German transportation officials reported that while this outcome was a positive environmental benefit, the fast turnover of the vehicle fleet resulted in slightly lower-than-expected revenues because lower emission vehicles pay lower rates. Consequently, the German government reviewed and raised the rates across all categories while maintaining the incentives for lower emission vehicles.

The New Zealand RUC program was established in 1977 and requires that owners of vehicles over 3,500 kilograms (7,700 pounds), including trucks and their trailers, prepurchase a RUC license for all miles traveled on the nation’s 94,000-kilometer (58,000-mile) public roadway system. As with diesel passenger vehicles, commercial trucks purchase RUC licenses in 1,000-kilometer increments and must display the license and the kilometers permitted on their windshield. The government has provided an option for vehicle owners to install electronic RUC (E-RUC) systems that are provided by private sector firms certified by the New Zealand government to collect fees and remit revenues to the government. The E-RUC system uses on-board GPS units to keep track of the status of each vehicle’s RUC license and whether additional kilometers need to be purchased. Trucking firms that subscribe to the system can track their fleet’s RUC licenses online and may purchase additional applications enabled by GPS to track the location, speed, and fuel efficiency of their trucks. Commercial trucks, rather than passenger vehicles, are the vast majority of E-RUC users because of the higher cost of subscribing to E-RUC systems compared with lower costs of purchasing prepaid paper RUC licenses directly from retailers.

The primary goal of the RUC program is to generate surface transportation revenues from heavy vehicles by charging users fees that reflect the maintenance costs that these vehicles impose on the roadways. Because highway wear increases exponentially with the weight of a vehicle’s axle load, the RUC system uses variable pricing to charge higher rates to heavy trucks with fewer axles, and lower rates to heavy trucks with more axles. For example, a three-axle truck weighing more than 18 tons (almost 40,000 pounds) is charged almost 43 U.S. cents per mile, while a truck of the same weight with five or more axles is charged All miles for light passenger diesel vehicles are 35 U.S. cents per mile.charged at a flat rate of less than 6 U.S. cents per mile regardless of the actual vehicle weight. This is because an individual light vehicle causes only very limited amounts of wear on the road compared with heavy trucks, and the variation in wear among light vehicles of different weights is also minimal. From 2007 through 2011, the RUC system generated about $3.4 billion (U.S.) in dedicated surface transportation revenues, with 74 percent coming from heavy trucks and 26 percent from light passenger vehicles.

The New Zealand RUC program has achieved a related program benefit of promoting the use of trucks that cause less damage to roadways, an outcome that may reduce road maintenance costs. According to New Zealand government officials, the variable pricing incentives have influenced the composition of the commercial truck fleet so that trucks with more axles per vehicle weight represent a greater portion of the vehicle fleet than in most other countries. For example, according to 2010 New Zealand Transport Agency data, combination trucks with eight axles represented about 35 percent of all trucks on New Zealand roadways. In contrast, according to FHWA data, eight-axle combination trucks were estimated to account for less than 1 percent of the U.S. truck fleet in 2000. operators in New Zealand use trucks and trailers with as many as nine axles in combination in order to pay lower RUC fees. New Zealand government officials reported that this altered vehicle fleet is considered to reduce road maintenance costs due to reduced pavement damage, although no estimate is available for the overall value of the savings.

The different approaches taken by Germany and New Zealand illustrate the trade-offs involved in designing a mileage fee system for trucks that provides adequate enforcement in a cost-effective manner. The German system employs an extensive but costly roadside enforcement infrastructure; New Zealand’s RUC program does not, but it has higher estimated evasion rates and revenue leakages than the German system.

Federal Highway Administration, Comprehensive Truck Size and Weight Study, FHWA- PL-00-029 (Washington, D.C., August 2000). have registered for their travel. Each gantry is equipped with enforcement cameras and short-range, wireless devices that signal to each passing truck’s on-board unit to ensure it is activated and functioning properly. The German government staffs a fleet of 250 mobile enforcement vehicles equipped by the toll operator, which is used to patrol the autobahn and respond to suspected violations. (See fig. 7.) According to officials, this approach has resulted in an estimated evasion rate that is less than 1 percent, meaning that less than 1 percent of all HGVs on the system were out of compliance in 2011.

Although the German government reported that the HGV system experiences very little revenue leakage from evasion, the system is costly to implement. All of the start-up costs for implementing the HGV system were incurred by the toll operator, which owns the 700,000 on-board units installed across Europe, as well the roadside infrastructure and back- office equipment used to monitor and enforce the system. From fiscal years 2007 through 2011, the German government paid the system operator approximately $664 million per year to manage the system. These administrative costs averaged about 13 percent of the $5 billion in average revenues generated annually over that time period. The German government also spends almost $62 million per year to staff the mobile enforcement vehicles with German police. In addition, Germany allocates $740 million annually in HGV revenues for several programs to assist German trucking firms in complying with the system. Although these compliance programs are not considered to be part of the administrative costs of operating the HGV system, they further reduce the net revenues generated.

New Zealand’s RUC fees are collected and enforced manually with little roadside enforcement technology and lower costs than the HGV system, but with higher estimated evasion rates. The New Zealand national police enforce RUC compliance with eight inspection stations across the country, staffed with a total of 90 officers nationwide. Commercial trucks are required to stop at these stations, and police manually inspect and compare the mileage limit on the displayed RUC license with the vehicles’ current mileage on special odometers that are mounted on the hubs of trucks and trailers. According to the New Zealand trucking association, compliance with these manual inspections is inefficient and costly to operators because of time lost. The government reported that the costs of managing the RUC program are nearly $18 million (U.S.) per year, or 2.5 percent of the estimated $700 million (U.S.) generated annually by the system. Although these administrative costs are substantially lower than the 13 percent costs of the German system, implementing the RUC system comes with higher estimated evasion rates than the 1 percent of revenues estimated lost in Germany. According to the New Zealand Ministry of Transport, roughly 4 percent of the commercial truck revenues on average are lost annually because of evasion by trucks. This equates to an estimated loss of about $21 million (U.S.) per year from fiscal years 2007 to 2011, or slightly more than the amount that the New Zealand government spends annually to manage the program.

Germany and New Zealand officials reported they have safeguards in place to limit the collection and use of mileage data, and as a result, privacy concerns for commercial trucks are not a significant challenge. The officials reported that the respective laws that authorize these programs stipulate several data protection provisions consistent with internationally recognized Fair Information Practices. Both programs are required to clearly define and limit the data to be collected, the purpose for its collection, the limits for its use, as well as the security safeguards that are in place. For example, in Germany, the government and its contracted toll operators are permitted to collect, use, and process only limited information to enforce the tolls, including a picture of the vehicle, the place and time the tolled road was used, and features of the vehicle (number of axles) necessary to process the toll. This data must be deleted immediately after the toll is paid. Because of the legal safeguards in place, commercial trucking associations in Germany and New Zealand both reported that the invasion of personal privacy or the loss of proprietary business information are not significant concerns among their firms. Because the New Zealand RUC system is largely a prepaid manual system in which most users do not have an on-board unit, privacy-related concerns do not arise. Moreover, safeguards are in place to protect the data of the commercial truck fleet using the E-RUC system. According to New Zealand government officials, the private companies applying to become E-RUC providers are subjected to a stringent series of tests to ensure the security of data before the government approves them to act as agents for the RUC system. Tests include verification of the providers’ data security systems, the accuracy of the data collected, and their systems’ ability to identify efforts to tamper with E-RUC units.

Commercial Truck Mileage Fee Pilot Projects in the United States Also Suggest Benefits

Although U.S. initiatives to evaluate mileage fees have focused primarily on passenger vehicles, two recent efforts focused on fees for commercial trucks. Specifically, the Oregon DOT and several metropolitan planning organizations and a consulting firm in New York recently evaluated ways to electronically collect existing weight-distance taxes that apply to commercial trucks in those states.

In 2010, the Oregon Truck Road Use Electronics (TRUE) pilot project tested GPS-based units in 25 trucks operated by three trucking firms to automate the collection of Oregon’s truck weight-mile tax. Oregon officials reported that the devices successfully tracked the miles traveled in their state and sent the data to Oregon DOT to produce a monthly weight-mile tax statement for the trucking firms participating in the pilot, to facilitate their payment of the state’s weight-mile tax.

In a separate 2010 study, researchers collected GPS routing data provided by several trucking firms in New York to test the feasibility of using existing GPS-based technology to implement a truck mileage fee system that would replace existing state truck fees and taxes. The study found that a mileage fee system could more accurately track vehicle mileage than the current system, which relies on self- reported mileage from trucking firms, and could generate an additional $150 million in revenue annually that is estimated to be lost because of underreporting of mileage and weight.

The results of these U.S. pilots suggest that charging mileage-based user fees to commercial trucks presents several benefits over passenger vehicle fees:

Reduced privacy concerns. Some of the privacy-related concerns discussed previously with regard to using GPS-based systems for passenger vehicles may not be as troublesome if applied to commercial trucks because the right of privacy would belong to the company that owns the truck. Trucking companies can be required to meet reasonable conditions and pay appropriate taxes in exchange for using the public highways. They can also set the conditions of employment for their employees, who have limited privacy rights because employers may establish the policies that govern their workplaces and allow the monitoring of the use of any company assets, including trucks. Employers may also establish policies that inform employees about information collected as a condition of employment. The New York commercial truck mileage fee study reported that a significant portion of large trucks already have fleet management systems that include the GPS technology needed to support mileage fees. These fleet management systems are used by trucking firms to monitor mileage traveled, driver speed, estimated delivery times, and other business performance information.

Reduced implementation costs. First, because there are significantly fewer commercial trucks than passenger vehicles in the United States, the overall costs of implementing a truck mileage fee system would almost certainly be significantly lower for these vehicles. According to FHWA data, commercial trucks represent 4 percent of the U.S. vehicle fleet, with a total of about 10 million single-unit and combination vehicles on the roadways in fiscal year 2010. Equipping trucks with on-board units would be significantly less costly than equipping the 230 million passenger vehicles with the same equipment. In addition, because combination commercial trucks average significantly more miles per year (almost 70,000) than the average passenger vehicle (more than 11,000 miles), commercial truck mileage fee systems could generate significantly more revenue per vehicle than passenger vehicles systems. As such, the costs to the government to implement a commercial truck system could be recovered faster than costs of implementing a passenger vehicle system.

Reduced reporting burden on trucks. Mileage fees for commercial trucks could be designed to consolidate existing requirements for interstate commercial trucks to report their miles traveled in most states. Currently, companies registered in states that have established, maintained, or enforced the International Fuel Tax Agreement (IFTA), or in states participating in the International Registration Plan (IRP), are required to track and report their miles traveled in each state to their state of registry.for the distribution of state fuel and registration taxes among the contiguous 48 U.S. member states and all 10 Canadian provinces based on the number of miles driven by trucks in each state or province. According to Oregon DOT officials, the reporting requirements for these agreements can be administratively time- consuming, particularly for smaller firms that may not have GPS units on board to track their mileage by location. Furthermore, because states have different fuel tax rates, firms may inaccurately report their mileage traveled, particularly in states with higher fuel tax rates than other states. Oregon DOT officials reported that the system tested in that state, or other systems currently available on the commercial market, could be used to assess mileage fees and simplify IFTA and IRP reporting requirements for commercial trucks.

IFTA and IRP provide Despite the benefits, opponents of commercial-truck mileage fees in the United States reported that such fees would be burdensome on trucking firms, costly to collect, and difficult to enforce. Specifically, trucking firms would likely incur costs to install mileage fee technology in their vehicles. Trucking industry representatives reported that mileage fees would need to be collected from more than 500,000 firms operating trucks—90 percent of which operate six or fewer trucks—and the cost of compliance could be particularly burdensome to smaller firms. In addition, fees based primarily on self-reported data can be difficult to verify, particularly if the data is not collected electronically. Such fees would also require the state or federal government to monitor and audit trucking firms to ensure the fees reflect the actual mileage logged by each vehicle. Furthermore, trucking industry representatives reported that taxes, such as mileage fees, that require the government to keep proprietary business data without rigorous data protection safeguards in place would be unacceptably intrusive. Commercial truck mileage fee opponents also reported that the fees could result in inequities among trucking firms, with compliant firms paying more than their share of the fees because of any noncompliant competitors.

Mileage Fees Could Generate Highway Trust Fund Revenues and Would Affect Users Differently

We modeled the average mileage fee rates that would be needed for passenger vehicles and commercial trucks to meet three illustrative Highway Trust Fund revenue targets ranging from about $34 billion to $78.4 billion per year. To meet these targets, a driver of a passenger vehicle with average fuel efficiency would pay from $108 to $248 per year in mileage fees compared to the $96 they currently pay annually in federal gasoline tax. However, these results do not include the initial start- up or ongoing administrative costs of a national mileage fee system in the United States, which are unknown. Mileage fees, like federal fuel taxes, would comprise a small portion of users’ overall fuel costs and thus would only marginally increase users’ overall transportation costs. For example, drivers of passenger vehicles with average fuel efficiency would pay 7 percent more than their current costs to achieve the highest revenue target of $78.4 billion. Such a change to the fee system, however, would affect users’ costs differently based on their vehicle’s fuel efficiency, because drivers of less efficient vehicles currently pay more in fuel taxes than drivers of vehicles with greater fuel efficiency. Mileage fees for commercial trucks would also affect users differently because larger trucks tend to be driven more miles and smaller trucks are marginally more fuel efficient. Currently, heavier commercial trucks generally contribute less to the Highway Trust Fund than the costs of their road use. Adjusting the illustrative mileage fee rates to reflect the road damage caused by different vehicles would notably increase commercial truck rates and modestly decrease passenger vehicle rates. However, setting rates that reflect the current costs that different users impose on the system would require up-to-date estimates of vehicles’ responsibility for road damage, which are not available.

Using Mileage Fees to Generate Highway Trust Fund Revenues

We modeled three scenarios of average mileage fee rates for passenger vehicles and commercial trucks to replace or augment the Highway Trust Fund revenues currently generated through federal fuel taxes. These scenarios assume that the other federal taxes paid by commercial trucks remain in place and do not include start-up or ongoing administrative costs: 1. Replace federal gasoline and diesel fuel tax receipts: In fiscal year 2010, the latest year for which complete data were available, federal gasoline and diesel fuel tax receipts produced nearly $34 billion in revenue. 2. Meet current spending levels: Highway Trust Fund user fee revenues have been insufficient to meet authorized spending levels since 2008, and further shortfalls are expected in the years ahead. Using fiscal year 2010 as an example—a year in which Congress augmented the fund with $19.5 billion in general revenues—this scenario models mileage fee rates that could support $53.5 billion in spending. This revenue target is also roughly equivalent to the average annual authorizations for highway and transit programs provided in MAP- 21. 3. Maintain existing conditions and performance levels: According to the National Surface Transportation Infrastructure Financing Commission, current funding levels will result in further deterioration of the nation’s roadways and transit infrastructure. The commission estimated that maintaining the existing infrastructure would require an annual federal contribution of about $78.4 billion for highways and transit.

Mileage fee rates for passenger vehicles and commercial trucks would vary based on the amount of revenue they are set to generate. To meet the federal revenue targets set under the three scenarios we modeled, the average passenger vehicle mileage fee rate would range from less than 1 cent to more than 2 cents per mile and the average commercial truck rate would range from greater than 3 cents to more than 8 cents per mile (see table 2). Converting these mileage fee rates to per-gallon charges to illustrate their approximate relation to current federal fuel tax rates shows that significantly higher fuel taxes would be needed to generate the revenue targets we modeled. For example, converting the mileage fee rates needed to meet current spending levels ($53.5 billion) would translate to a federal gasoline tax of nearly 32 cents per gallon and a federal diesel fuel tax of almost 35 cents per gallon, increases of roughly 72 percent and 43 percent, respectively. For technical details on our modeling, see appendix V.

These results do not include the initial start-up or ongoing administrative costs of a national mileage fee system in the United States, which are unknown but would result in increased rates. To estimate how such costs would affect mileage fees, we modeled rates that assumed annual fixed costs of 5 percent and 20 percent of current federal fuel tax receipts We found that the percentage increase in mileage across all scenarios.fee rates required to account for costs of implementation is greater with a lower revenue target than with a higher revenue target. For example, assuming 20 percent administrative costs, mileage fee rates for passenger vehicles would need to increase by 27 percent (from 0.9 cents to 1.2 cents per mile) to generate $34 billion and by 13 percent (from 2.2 cents to 2.4 cents per mile) to generate $78.4 billion.

Effects of Mileage Fees on Users

Passenger Vehicles

Mileage fees for passenger vehicles would affect users differently based on their vehicle’s fuel efficiency because drivers of less fuel efficient vehicles currently pay more in fuel taxes, as they have to purchase more gasoline to travel the same distance as more efficient vehicles. A system that charges all passenger vehicles the same rate would lead to drivers of more fuel efficient vehicles paying proportionately more in mileage fees than they currently pay in federal fuel taxes. As illustrated in figure 8, a driver of a hybrid with a fuel efficiency of 40 mpg would pay twice as much in mileage fees under the scenario to replace fuel tax receipts and over 4 times as much under the scenario to augment Highway Trust Fund revenues to maintain current conditions and performance. In contrast, a driver of an SUV with a fuel efficiency of 16 mpg would pay less in mileage fees under the scenario to replace federal fuel tax receipts and less than twice as much (88 percent more) under the scenario to augment Highway Trust Fund revenues to maintain current conditions and performance.

Although cost increases for passenger vehicle users appear significant under some mileage fee scenarios, increases in their overall transportation costs would be relatively minor because fuel taxes comprise a small portion of the amount that they spend on fuel. For example, under the scenario to maintain current conditions and performance, the owner of a sedan that averages 22 mpg would pay 158 percent more in mileage fees than they pay currently in federal gasoline taxes. However, this represents a relatively small (7 percent) increase in this user’s overall transportation costs. Although cost increases under a change to mileage fees are greater for users of more fuel efficient vehicles, a hybrid owner would pay $128 less per month for the combined cost of fuel and mileage fees than the owner of a less efficient SUV in the scenario to meet current conditions and performance, as shown in figure 9. As such, mileage fees would not negate the economic incentives to drive a more fuel efficient vehicle since users would have significantly lower overall fuel costs.

A flat-rate mileage fee for commercial trucks could also increase users’ costs compared with current diesel fuel taxes but would affect users differently, in part, because larger (combination) trucks are less fuel efficient than smaller (single-unit) trucks. Similar to the passenger vehicle simulation, less fuel efficient combination trucks would pay considerably (35 percent) less under the scenario to replace current federal fuel tax receipts; more fuel efficient single-unit trucks would pay slightly (4 percent) more than they currently pay in federal diesel taxes. In the other two scenarios, single-unit truck costs would increase between 78 percent and 176 percent, while users of combination trucks would pay from 11 percent to 72 percent more. However, just as combination trucks pay far more in diesel fuel taxes in absolute terms, they would pay more in mileage fees than single-unit trucks because they tend to travel significantly more miles annually (see fig. 10).

Similar to passenger vehicles, drivers of commercial trucks would likely pay more in mileage fees than they currently pay in fuel taxes; however, these cost increases represent a smaller portion of their overall costs. For example, while a driver of an average combination truck would pay 72 percent more in mileage fees than he or she currently pays in federal diesel taxes under the scenario to maintain current conditions and performance, this represents a small (4 percent) increase in the driver’s monthly costs (see fig. 11).

Although mileage fees could increase costs for owners of commercial truck users, these users would have the ability to defray some of these increases by building the fees into the cost of their services. For example, officials from a German trucking association and a small trucking firm reported that the introduction of HGV tolls has not negatively affected trucking firms because the cost of tolls can be passed along to the consumers of the firm’s services. In prior work, we noted that user fees should be charged to the direct user, even if that payer then passes the cost of the fee on to others. We have also noted that, to the extent that costs are not covered by taxes or fees levied on freight providers or consumers, governments would be providing a subsidy to the industry, which is paid by other taxpayers.cost of shipping goods, they could, if set at a rate that reflects the cost of road use, promote economic efficiency and minimize the need for the federal government to subsidize transportation funding.

Adjusting Mileage Fees to Account for the Damage Users Impose on Roadways

Although commercial trucks represent 4 percent of the U.S. vehicle fleet, they are responsible for 40 percent of the costs that the federal government spends on highway preservation and maintenance, according to FHWA’s Highway Cost Allocation Study, published in 2000. However, commercial trucks contributed less than 33 percent of Highway Trust Fund user fee revenues in fiscal year 2010 through federal diesel fuel and other truck taxes. We have previously reported that the current federal highway user fee structure is considered inequitable because it does not effectively capture vehicles’ weight per axle or number of miles traveled, the two key components of travel that cause damage. Heavier trucks generally pay less than their share of damage costs because the current federal tax structure does not fully account for the increased road wear caused by heavy trucks based on their miles traveled and weight.The federal diesel fuel tax—the primary source of commercial trucks’ Highway Trust Fund contributions—charges all trucks the same rate of 24.4 cents per gallon, regardless of vehicle weight or number of axles. Additionally, the federal heavy vehicle use tax is capped at $550 for trucks weighing more than 75,000 pounds, meaning that all trucks above this weight pay the same fee despite the increased damage costs the heavier trucks impose. In 1994, we recommended that Congress consider a national weight-distance user fee to increase equity and promote a more efficient use of the nation’s highways.FHWA’s 2000 estimates, commercial trucks would need to contribute 40 percent of the revenues deposited in the Highway Trust Fund—as opposed to less than 33 percent in fiscal year 2010—to cover the costs they impose on the nation’s roadways, leaving passenger vehicles to contribute about 60 percent.

Adjusting the illustrative mileage fee rates so that users’ contributions to the Highway Trust Fund reflect FHWA’s 2000 cost estimates would result in substantial rate increases for commercial trucks and modest decreases for passenger vehicles. As shown in figure 12, adjusted commercial truck rates would range from approximately 4 cents to 11 cents per mile, compared with the original range of about 3 cents to 8 cents per mile— increases of approximately 30 percent in each scenario. These rate increases are large because the increase in Highway Trust Fund contributions would be spread across 10 million commercial trucks, or 4 percent of the U.S. vehicle fleet. Conversely, the adjusted passenger vehicle mileage fee rates would decrease modestly because the savings would be spread across the U.S. fleet of 230 million passenger vehicles. The adjusted rates account for the $2.8 billion paid in fiscal year 2010 by commercial trucks in federal truck taxes, which would still be needed to ensure that trucks contribute 40 percent of Highway Trust Fund revenues. Mileage fees would continue to represent a small portion of users’ overall transportation costs.

Establishing user fee rates that reflect the current costs that different users impose on the system would require up-to-date estimates of vehicles’ responsibility for road damage. FHWA conducted its most recent full revision of its Highway Cost Allocation Study in 1997 in response to a and it issued an addendum to the study in 2000 GAO recommendation,with updated results. However, FHWA officials reported that it is likely that the estimated share of commercial trucks’ responsibility for road damage has changed over the last 12 years because of increases in miles traveled by heavy trucks relative to smaller trucks and cars, shifts in federal spending, and other factors. In addition, trucking industry representatives told us that an updated Highway Cost Allocation Study would better reflect current conditions and show that commercial truck revenues to the Highway Trust Fund have increased in recent years relative to passenger vehicle revenues. This is because of improvements in passenger vehicles’ fuel efficiency, while commercial truck fuel efficiency has remained flat. Moreover, some states have been granted waivers to permit larger and heavier commercial trucks to travel on Interstate highways, which could increase the amount of damage caused by the vehicles. Prior GAO work has shown that designing a user fee system with unreliable cost information can skew fee-setting decisions. Furthermore, up-to-date information on the on the costs imposed by different users in relation to the revenues they contribute to the Highway Trust Fund could be used to evaluate whether the rates paid by users through federal motor fuel or truck taxes are sufficient. FHWA officials said they do not periodically update the Highway Cost Allocation Study and have no plans to resume work on a new study at this time.

States Recognize That Alternative Transportation Revenues Are Needed, and Many Would Support Federal Actions to Evaluate Mileage Fee Systems

Fifty of the 51 state DOTs we surveyed agreed that it is important that an alternative federal funding mechanism be identified in the next 10 years in However, only 8 of order to meet surface transportation revenue needs.the 51 states reported that they are likely to introduce some type of mileage fee program in the next 10 years. Of these, 7 reported that they are likely to introduce mileage fees for electric vehicles in the next decade and fewer reported that they are likely to introduce programs for passenger vehicles (4) or commercial trucks (3). Although such efforts could produce transportation revenues for these states, they would not generate federal revenues for the Highway Trust Fund. However, more than half of all states responded that they would support federally-led field tests to evaluate mileage fees. There are currently no federal pilot programs or other efforts to evaluate the viability and cost of implementing such a system in the United States.

The majority of state DOTs responded that they would support federal field tests of mileage fees for electric vehicles and commercial trucks. Proponents of mileage fees have suggested that charging drivers of these vehicles for their road use could improve the equity and sustainability of Highway Trust Fund revenues:

Electric vehicles. Two-thirds of state DOTs (34 of 51) reported they would support federally-led field tests of mileage fees for electric vehicles; none reported that they would be opposed to field tests for these vehicles. Electric vehicles can help achieve important policy goals to reduce emissions and limit U.S. dependence on foreign oil; however, these vehicles do not use gasoline or diesel fuel or contribute to the Highway Trust Fund through any other federal fees or taxes. The Department of Energy estimated that there were fewer than 60,000 electric vehicles in the United States in 2010. Although charging electric vehicle mileage fees would produce minimal revenues in the immediate future, the Department of Energy estimates that more than 1.2 million electric vehicles may be produced by 2015. In focus groups conducted by the Texas Transportation Institute, participants recognized that a potentially large segment of the future vehicle fleet may pay nothing aside from state vehicle registration and title fees for their road use and strongly preferred mileage fees for this class of vehicles. An Oregon DOT official reported that the state is planning to introduce legislation to pilot user fees for electric vehicles in 2013.

Commercial trucks. Almost 60 percent of state DOTs (30 of 51) reported that they would support federally-led field tests of mileage fees for commercial trucks. To date, very few states have evaluated mileage fees for commercial trucks. In a March 2011 report to Congress, FHWA reported that additional technical research would be required to assess methods to charge heavy trucks based on their infrastructure wear. According to FHWA, charging trucks based on weight and distance traveled has been recognized as the best way to reflect the road damages caused by different types of trucks.Although the trucking industry has resisted weight-distance taxes, FHWA reported that many of their objections, including administrative burden, can be overcome if linked with a mileage fee system. However, other technological issues would need to be resolved, such as how to measure the weight of combination vehicles that pull different types and numbers of trailers. FHWA reported that the federal government has a leadership role to play to prevent different systems from being established across states that later could not be reconciled into a national mileage fee. Such a role could include field tests to determine how and whether a mileage fee system should be implemented, including at least one trial for commercial trucks, and the evaluation of the costs and benefits of various approaches.

While states broadly supported federal actions to explore mileage fees, more states placed a high priority on increasing federal fuel taxes to meet surface transportation revenue needs. As shown in figure 13, 23 states reported that they place a high level of priority on increasing federal fuel taxes; 21 states place a high priority on introducing a federally-led mileage fee. Prior GAO work has shown that a higher gasoline tax could encourage drivers to reduce fuel consumption by driving less, reduce the nation’s dependence on oil, relieve highway congestion, and decrease emissions of gases that pollute the air. However, as vehicles become more fuel efficient and increasingly run on alternative fuels, fuel taxes may not be a long-term source of transportation funding.

Conclusions

The nation’s surface transportation system is under growing strain, and the costs of repairs and upgrades to meet current and future demands are estimated in the hundreds of billions of dollars. The ongoing erosion of federal fuel tax revenues will worsen in the years ahead with the introduction and adoption of more fuel efficient and alternative fuel vehicles. Users of the surface transportation system pay less for their use of roadways in federal fuel taxes and user fees than the federal government now spends to maintain and improve the system. The use of general revenues to cover Highway Trust Fund spending breaks the link between highway taxes paid and benefits received by users and may not be a sustainable strategy, given competing demands for federal funds and the federal government’s growing fiscal challenge.

Technologies are currently available to gather mileage data and charge users mileage fees, should Congress wish to explore such fees as a means to help address shortfalls in surface transportation funding. However, the perception that these technologies will be used to track privately-owned vehicles and infringe upon individual privacy currently appears to be an insurmountable challenge. Because the public perception of privacy risks would be particularly acute in mileage fee systems that mandate the use of GPS technologies, the widespread implementation of such a system to cover all U.S. passenger vehicles appears unlikely at this time. Although technology evolves rapidly and public perception can change over time, it may be impractical for the federal government to pursue mileage fees for all vehicles through a system that collects and reports information on people’s movements for the purpose of assessing taxes.

Nonetheless, there may be opportunities to evaluate mileage fees for certain types of vehicles that could improve the equity of highway funding and begin to address Highway Trust Fund shortfalls. The current U.S. fuel tax system does not reflect the costs of road use and the anticipated future changes in the U.S. vehicle fleet. Germany and New Zealand have demonstrated that variable rate, distance-based user fees for commercial trucks can generate substantial revenues linked to road damage costs and help reduce emissions while posing fewer privacy concerns than passenger vehicle systems. In the United States, commercial trucks’ contributions to the Highway Trust Fund through federal diesel fuel and related truck taxes do not reflect the relationship between truck weight and road damage. In addition, although few alternative fuel vehicles are on the roads today, their numbers are expected to increase significantly in the coming years, which could provide environmental and foreign policy benefits to the country by reducing U.S. dependence on foreign oil. However, drivers of these vehicles do not currently contribute to the Highway Trust Fund through user fees or fuel taxes for their road use. State DOTs reported broad support for federal initiatives to evaluate federal mileage fees, including federally-led field tests for electric vehicles and commercial trucks. State pilot programs have shown the feasibility of assessing mileage fees, but the programs have not shed light on how mileage fees could be implemented in an integrated fashion across states to provide revenues to the federal Highway Trust Fund. Furthermore, state efforts to evaluate mileage fees for commercial trucks have yet to determine the best approaches to address trucking industry concerns regarding administrative burden and compliance costs. A federal pilot program provides the opportunity to assess balancing those concerns with the goal of ensuring that federal fees cover the costs of users’ road use. In the absence of any current federal pilot programs or efforts to evaluate (1) options to more accurately charge commercial trucks and electric vehicles for their road use and (2) the cost to launch and administer such systems, Congress lacks critical information to assess whether mileage fees for these vehicles could be a viable and cost- effective tool to begin to address federal surface transportation funding challenges.

Congress and the Administration have yet to develop a long-term plan for funding surface transportation; ultimately, increased surface transportation revenues, reduced transportation spending levels, or both will be needed to bring revenues and spending into balance. Consideration of new revenues—whether through mileage fees, fuel taxes, or other fees—would benefit from accurate and up-to-date information on the damage different vehicles impose on the roadways and whether all vehicles are currently paying their fair share. The most recent FHWA estimates from 2000 suggest that many commercial trucks underpay, but these estimates may not reflect current conditions. In the absence of periodically updated estimates from FHWA, Congress lacks the information necessary to determine whether revenues collected from different users are sufficient to cover the costs of their road use. Should Congress wish to explore mileage fees, or other sources of revenue, updated information would allow it to consider the costs imposed by different users in setting appropriate rates.

Matters for Congressional Consideration

Should Congress wish to explore mileage fees as a mechanism for funding surface transportation, it should consider establishing a pilot program to evaluate the viability, costs, and benefits of mileage fee systems for: commercial trucks—to ensure that fees paid by the owners of these vehicles cover the costs of their use of the nation’s roads and bridges, and electric vehicles—to develop a mechanism through which the owners of these vehicles can contribute to the Highway Trust Fund for their use of the nation’s roadways.

Recommendation for Executive Action

To ensure that up-to-date data are available on the road damages imposed by all vehicles types compared with the revenues each contributes to the Highway Trust Fund, we recommend that the Secretary of Transportation direct the FHWA Administrator to revise and publish the agency’s Highway Cost Allocation Study and update it periodically as warranted.

Agency Comments

We submitted a draft of this report to the Department of Transportation for review and comment. The department did not take a position on our recommendation to revise and publish the Highway Cost Allocation Study and update it periodically as warranted. The department provided technical comments via email which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to congressional committees with responsibilities for surface transportation issues and the Secretary of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made significant contributions to this report are listed in appendix VII.

Appendix I: Objectives, Scope, and Methodology

To assess the benefits achieved and challenges faced in mileage-based user fee (mileage fee) initiatives in the United States and selected other nations, we reviewed academic literature to identify the range of mileage fee pilot projects conducted in the United States and distance-based user fee programs introduced internationally. We interviewed the lead researchers and reviewed the reported results of all U.S.-based mileage fee pilot projects conducted as of June 2012 including: (1) a National Evaluation of Mileage‐based Road User Charges, conducted in 12 states from 2008 to 2010 by the University of Iowa, as authorized by Congress through the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU); (2) the Oregon Road User Fee Pilot Program Oregon, conducted by the Oregon Department of Transportation (DOT) from 2006 to 2007; and (3) the Traffic Choices Study, conducted by the Puget Sound Regional Council in Washington state from 2005 to 2006. We also reviewed preliminary results from two on-going pilot projects conducted by the Minnesota DOT and Nevada DOT and interviewed transportation officials involved in these pilots.

Through our literature review, we identified distance-based user fee initiatives in Germany, New Zealand, the Czech Republic, Switzerland, Austria, Slovakia, and the Netherlands. We selected three international programs for our review: (1) the German Heavy Goods Vehicle (HGV) Tolling system, which charges commercial trucks over 26,000 pounds a distance-based fee for travel on the national motorway, or autobahn; (2) the New Zealand Road User Charge (RUC) system, which charges all commercial trucks over 7,700 pounds and all diesel-fueled passenger vehicles for distances traveled on that nation’s public roadways; and (3) a proposed user fee initiative in the Netherlands that was suspended before it was implemented that would have charged all commercial trucks and passenger vehicles distance-based fees. We selected these programs using criteria that included the primary objectives of each program as described in the literature, the types of technology used, the classes of vehicles covered, and the administration of the program, such as the use of the private sector to implement the system. We included the suspended initiative in the Netherlands in our review to assess the challenges of implementing a national user fee program. Because we used a nongeneralizable sample to select the programs to review, our findings are not representative of all countries with distance-based user fee programs. We reviewed data on the benefits achieved by these programs, including revenues raised, and the challenges faced in the programs, including their costs of implementation. We conducted a site visit in Berlin, Germany and interviewed government officials and private sector representatives from New Zealand and the Netherlands via teleconference.

To determine the mileage fee rates necessary to replace and supplement current fuel tax revenues deposited in the Highway Trust Fund and the effect these fees would have on users’ costs, we conducted an economic simulation to produce illustrative rates for passenger vehicles and commercial trucks, an approach that is commonly used in relevant existing studies. To estimate the mileage fee rates, we focused the hypothetical scenarios on three target levels of revenue, namely: (1) scenario 1, in which mileage fee revenues would simply replace federal gasoline and diesel fuel tax receipts deposited in the Highway Trust Fund ($34 billion in fiscal year 2010); (2) scenario 2, in which mileage fees would generate revenues sufficient to meet current spending levels ($53.5 billion in fiscal year 2010); and (3) scenario 3, in which mileage fees would generate the $78.4 billion necessary to maintain existing level of conditions and performance, assuming a 2 percent inflation rate going forward. In all three scenarios, we assume that the federal heavy vehicle use tax and the federal tire, truck and trailer excise taxes paid by commercial trucks ($2.8 billion in fiscal year 2010) would remain in place.

We also simulated mileage fee rates that assumed ongoing administrative costs of 5 percent of revenues and 20 percent of revenues. To do so, we increased the revenue target in scenario 1 by 5 percent ($1.7 billion) and 20 percent ($6.8 billion) and simulated mileage fee rates using the same process described in this appendix and in appendix V. We then applied the same cost assumptions—$1.7 billion and $6.8 billion—to the revenue targets in scenarios 2 and 3 so that the ongoing administrative costs would be fixed in all scenarios and simulated mileage fee rates using the same process described above.

The target revenues in scenario 1 were based on fiscal year 2010 federal gasoline and diesel fuel tax receipts as reported in the Federal Highway Administration’s (FHWA) Highway Statistics 2010 report, the most current available data at the time of our review. In 2010, Congress directed $19.5 billion from the General Fund to the Highway Trust Fund and we used this to compute the $53.5 billion revenue target in scenario 2. For scenario 3, we relied on a forecast estimate by the National Surface Transportation Infrastructure Financing Commission (NSTIFC) report that $78.4 billion in federal revenues (in 2008 dollars) would be required to maintain the existing conditions and performance of the nation’s highway and transit system. Using NSTIFC’s assumption of a constant inflation rate of 2 percent, we estimated it would have required approximately $81.2 billion to maintain the existing conditions and performance of the nation’s highway and transit system in fiscal year 2010. To be consistent with the first two scenarios, in which we excluded the $2.8 billion of federal heavy vehicle use tax and the federal tire, and truck and trailer excise taxes paid by commercial trucks in fiscal year 2010 from the revenue targets, we subtracted $2.8 billion from the forecast revenue ($81.2 billion) to obtain a final target revenue of $78.4 billion.

To determine the respective shares of mileage fee revenues that passenger vehicles and commercial trucks would need to contribute, we looked to the amount each group contributed in federal fuel taxes in fiscal year 2010. First, we added the $2.8 billion that commercial trucks paid in the federal heavy vehicle use tax and the federal tire, and truck and trailer excise taxes in fiscal year 2010 to the federal diesel fuel tax revenues in the revenue targets to reflect the total amount of federal taxes these vehicles pay for their road use. Doing so temporarily increased the revenue targets to $36.7 billion in scenario 1, $56.2 billion in scenario 2, and $81.2 billion in scenario 3. Next, because the $36.7 billion deposited in the Highway Trust Fund in 2010 was comprised of $24.8 billion (67.6 percent) of federal gasoline tax revenues and $11.9 billion (32.4 percent) of federal diesel fuel tax revenues and other commercial truck taxes, we applied a ratio of 67.6 percent (passenger vehicles) and 32.4 percent (commercial trucks) to the overall revenue targets in scenarios 2 and 3. We then subtracted $2.8 billion from the resultant commercial truck figures to arrive at their revenue contribution, producing the following total revenue targets: $34 billion in scenario 1, $53.5 billion in scenario 2, and $78.4 billion in scenario 3. This final step ensured that the $2.8 billion in non-diesel tax revenues that commercial trucks contribute to the Highway Trust Fund are not considered in our simulation. Our results are intended to illustrate the average mileage fees that would be needed to replace federal fuel tax receipts and we assume that all other federal commercial truck taxes remain in place.

In theory, it would be possible to set mileage user fee rates to vary within different classes of vehicles and by location, time of day, or type of road. Targeted, variable mileage user fees could provide financial incentives for users to change their existing behavior to reduce what economists call externality costs, such as traffic congestion and vehicle emissions. If designed appropriately, finely targeted mileage fees could also maintain or even augment the incentive for motorists to buy more fuel efficient vehicles if less efficient vehicles were charged greater rates. However, as a result of our decision to consider only two general types of vehicles, our simulation model only generates two flat mileage fee rates that represent an average rate across each of the two vehicle types in each revenue scenario: one for passenger vehicles and one for commercial trucks.

To adjust our simulation’s illustrative mileage fees for passenger vehicles and commercial trucks to reflect the respective road damage costs they impose, we used the cost responsibility ratio from the 2000 update to the 1997 Highway Cost Allocation Study compiled by FHWA to adjust each scenario’s revenue targets for passenger vehicles and commercial trucks. FHWA’s cost responsibility ratio measures the responsibility of different vehicle classes for highway program costs paid from the Highway Trust Fund to the federal user fees paid by the different vehicle classes. To adjust the revenue targets for passenger vehicles and commercial trucks in each of the 3 scenarios, we first added back the federal tire tax, truck and trailer excise tax, and heavy vehicle use tax ($2.8 billion in total) to the commercial truck revenue targets to reflect the amount of federal taxes that these vehicles pay, in total, for their road use. This increased the overall revenue targets to $36.7 billion in scenario 1, $56.2 billion in scenario 2, and $81.2 billion in scenario 3. We then applied FHWA’s cost responsibility ratios of 59.7 percent (passenger vehicles) and 40.3 percent (commercial trucks) to the each scenario’s overall revenue target to obtain the total amount of Highway Trust Fund revenues that would be required from each group. This ensured that the amount commercial trucks paid in federal taxes in addition to federal diesel fuel tax revenues in fiscal year 2010 were considered as part of their overall contribution. We then subtracted $2.8 billion from the resultant figures for trucks to identify their revenue contribution through only federal diesel fuel tax and arrive at the adjusted revenue targets. Adding $2.8 billion to any of the three commercial truck revenue targets would then result in this group’s total contribution equaling 40.3 percent of each scenario’s overall revenue target; each corresponding passenger vehicle revenue target would comprise the other 59.7 percent of each scenario’s overall target. We recognize that the 40.3 percent cost responsibility ratio is an average across all commercial truck configurations and weights. To more accurately charge trucks fees that reflect the damages they impose, variable mileage fees would need to be applied based on vehicle weight and number of axles.

To ensure that the key assumptions we made were reasonable, we calibrated the simulation using existing literature and data from government or other credible sources. We used data on vehicle miles traveled (VMT), fuel consumption, and federal gasoline and diesel tax receipts from FHWA Highway Statistics 2010 report, and utilized 2010 data on the average retail gasoline and diesel fuel price compiled by the U.S. Department of Energy’s Energy Information Agency.

Table 3 provides the key parameters used in our simulation as well as all passenger vehicle and commercial truck revenue targets, including those adjusted to reflect cost responsibility.

To conduct our analysis, we made a few simplifying assumptions: 1. All the light duty vehicles reported in FHWA’s Highway Statistics 2010 are passenger vehicles to facilitate comparison with FHWA’s Highway Cost Allocation Study; 2. All federal gasoline tax receipts are generated by passenger vehicles; 3. All federal diesel fuel tax receipts are generated by commercial 4. If implemented, all users would pay the mileage fees (no evasion).

We anticipated the effects of these assumptions on revenues and mileage fee rates to be small. For example, according to the Environmental Protection Agency, only 0.74 percent of all model year 2010 light duty vehicles in the United States ran on diesel fuel and, as result, the amount of federal diesel fuel tax receipts contributed to the Highway Trust Fund by passenger vehicles is minimal.

To ensure that the simulation analysis generated reasonable results, we conducted a sensitivity analysis to examine how the mileage fees would have changed with respect to three key parameters: (1) fuel price, (2) VMT elasticity to fuel price, and (3) average vehicle fuel efficiency. The results of the analysis do not indicate any unexpected or significant changes in mileage fees within the examined range of parameter values.

In addition, we compared our analysis results with findings from other existing studies of mileage fees and found our results to be consistent with the existing literature.description of the simulation analysis and its limitations.

Please refer to appendix V for a detailed To examine the effect that the illustrative mileage fee rates produced by our simulation would have on users’ costs, we compared the annual costs that average drivers of passenger vehicles and commercial trucks currently pay in federal fuel taxes with the costs each would expect to pay in each of the three revenue scenarios. For passenger vehicles, we first divided the federal gasoline tax of 18.4 cents per gallon by varying levels of vehicle fuel economy to establish different users’ effective mileage fee rates under the current system. We then multiplied each of these rates— as well as the illustrative mileage fee rates from our simulation—by the average number of miles driven annually by a passenger vehicle (11,489) to determine the average amount different users would pay in federal fuel taxes under the current system or in mileage fees in the three revenue scenarios. In addition, we also divided the average number of miles driven annually by varying levels of vehicle fuel economy to determine how many gallons of gasoline different users would expect to purchase each year. We then multiplied this number by $3.57 to calculate users’ average fuel costs without federal taxes or mileage fees, having assumed a retail price of gasoline of $3.75 and subtracted the federal gasoline tax of 18.4 cents. To examine the effect of mileage fees for drivers of commercial trucks, we repeated the same steps using the federal diesel tax rate of 24.4 cents per gallon; the commercial truck mileage fee rates produced by our simulation; estimates for fuel economy and number of miles driven annually for single-unit trucks (8 mpg; 13,469 miles per year) and combination trucks (5 mpg; 68,907 miles per year) from the National Academy of Sciencesan assumed retail diesel fuel price of $4.00 per gallon. and FHWA’s Highway Statistics 2010 report; and To identify states’ views on addressing future revenue demands using mileage fees, we surveyed the DOTs in all 50 states and the District of Columbia and received a 100 percent response rate. We pretested the survey with officials from four state departments of transportation and obtained feedback from FHWA officials to ensure that questions were clear, unbiased, comprehensive, and that terminology was used correctly. We made changes to the content of the questions in response to the pretests and FHWA review. Because we administered the survey to the complete universe of potential respondents, there are no sampling errors. However, the practical difficulties of conducting any survey may introduce errors, commonly referred to as non-sampling errors. For example, difficulties in how a particular question is interpreted, in the sources of information that are available to respondents, or in how the data is entered into a database or analyzed can introduce unwanted variability into the survey results. To minimize these types of errors, we employed recognized survey design practices in developing the questionnaire during pretesting and throughout the collection, processing, and analysis of the survey data. For example, in reviewing the survey data, we performed checks to identify missing or ambiguous responses and we addressed these errors by contacting the officials involved to clarify their responses. We conducted our survey from March 22 through April 24, 2012. See Appendix VI for a summary of survey results.

We conducted this performance audit from December 2011 through December 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: U.S.-based Pilot Projects on Mileage-based User Fees

Appendix III: User Fee Design Criteria

Prior GAO work has found that the design of user fee programs can be evaluated based on several related criteria: efficiency, equity, revenue adequacy, and administrative burden. These criteria interact and are often in conflict with each other; as such, there are trade-offs to consider among the criteria when designing a fee (See Table 5.)

Appendix IV: The Fair Information Practices

The following Fair Information Practices, with some variation, are used by organizations to address privacy considerations in their business practices and are also the basis of privacy laws and related policies in the United States, the European Union, and countries including Australia and New Zealand. These practices are not precise legal requirements. Rather, they provide a framework of principles for balancing the need for privacy with other public policy interests, such as national security, law enforcement, and administrative efficiency.

Appendix V: Mileage-based User Fee Simulation Model

An Overview

This appendix describes the algorithm of the simulation model that we used to estimate mileage-based user fees (mileage fees) for various hypothetical scenarios with different target revenues.

Methodology

The simulation model comprises four parameters and four variables (see table 7), and the algorithm of the simulation mainly involves repetition of three steps of computation until a desired target revenue is achieved. While the values of the parameters do not change, the variables in the model change from step to step. As described in appendix I, we calibrated the four parameters using existing literature, government data or other credible data sources. We then computed values of variables as formulated in the following equations. For expositional purpose, the algorithm and its steps are shown as a flow chart in figure 14.

Step One: We first computed the mileage fee rates for passenger vehicles and commercial trucks using the pre-determined target revenue (Ω*) and VMT. For example, for the first iteration of the first scenario to replace the fuel tax revenue in 2010, we computed the initial mileage fee rates (Φ) using gasoline and diesel tax receipts (Ω* = Ω) and total number of vehicle miles traveled in 2010 (VMTEquation (1a) ). Since fuel price is expressed on a per gallon basis, we converted the mileage fee (Φ) into a new per-gallon fuel tax (mathematically, this can be expressed as (Φ) from the 2010 fuel price and added back the new per-gallon fuel tax (Φ*FE) to get to the new fuel retail price. For example, using the retail fuel price for 2010, the new retail fuel price was computed as follows: Equation (1b)

P –(t -Φ) computed in step one to compute the number of total miles traveled (VMT was derived as follows: Equation (2)

VMT *(1+β*(P-P)

Step Three: Lastly, we computed the fuel tax revenue (Ω and mileage fee (Φ) as follows.

Equation (3)

Appendix VI: Results of GAO Survey of State Departments of Transportation about Mileage Fees

To identify states’ views on addressing future revenue demands using mileage fees, also known as vehicle miles traveled (VMT) user fees, we surveyed the departments of transportation in all 50 states and the District of Columbia from March 22 through April 24, 2012 and received a 100 percent response rate.

VMT User Fee Evaluation Efforts and Potential Challenges 1. Has your state DOT taken or planned to take any of the following steps to evaluate VMT user fees? (Check one per row.)

2. Did your state legislature, governor, or transportation commission direct your state DOT to evaluate VMT user fees? (Check one per row.)

Question d. Other

3. How much of a challenge might the following issues present to developing a VMT user fee program in your state? (Check one per row.)

Potential Federal Actions to Develop VMT User Fee Programs 4. To what extent would your state DOT support or oppose the federal government taking the following actions toward the development of future VMT user fee systems? (Check one per row.)

5. Would your state DOT support or oppose federally-led field tests to evaluate VMT user fees for the following types of vehicles? (Check one per row.)

6. How important or unimportant is it that the following options are included in future VMT field tests? (Check one per row.)

Identifying Additional Surface Transportation Revenue Sources 7. How important or unimportant is it that an alternative funding mechanism be identified by either your state or the federal government to meet surface transportation revenue needs in the next ten years? (Check one per row.)

8. What level of priority should be placed on the following funding mechanisms to meet future surface transportation revenue needs? (Check one per row.)

9. How likely or unlikely is it that your state will introduce a VMT user fee program for the following types of vehicles in the next ten years? (Check one per row.)

10. What additional comments do you have on VMT user fees? 11. What is the name, title, telephone number, and e-mail address of the person who primarily completed this survey? We might contact this person if we have follow-up questions. 12. Please check one of the options below. Clicking on “Completed” indicates that your answers are official and final.

Your answers will not be used unless you have done this. (Check one.)

Appendix VII: GAO Contact and Staff Acknowledgments

Contact

Acknowledgments

In addition to the contact named above, Steve Cohen, Assistant Director; Matt Barranca; Richard Bulman; Colin Fallon; Bert Japikse; Terence Lam; Jean McSween; Faye Morrison; Josh Ormond; Namita Bhatia Sabharwal; and Chad Williams made key contributions to this report.