Long-Term Sustainable Surface Transportation Revenues: What is the Future?

As my colleague Mort Downey explains in his article (The Clock is Ticking... Again) in this issue of EFR, MAP-21 (Moving Ahead for Progress in the 21st Century) provided only enough funding to maintain a flat funding level for programs, which has kept highway and transit programs alive for two years. While this funding was essential, it fails to address two critical questions concerning future revenue.

First, how does the nation grow transportation infrastructure revenues that begin to tackle the massive backlog of infrastructure needs as documented by two national commissions (the National Surface Transportation Infrastructure Financing Commission and the National Surface Transportation Policy and Revenue Commission), the American Society of Civil Engineers, and many credible groups? And second, what new methods of user fee collections show promise to carry us effectively into the future?

The traditional user fee method, which, at the federal level, is primarily funded by gas and diesel fuel taxes, has not been increased in 20 years, and the increased CAFE (Corporate Average Fuel Economy) standards, according to the Congressional Budget Office, will lead to a 21-percent (or $57 billion) cumulative reduction in revenue by 2022 (Box 1).

The National Transportation Financing Commission provided a menu of revenue options, such as gas and diesel tax increase and indexing, annual driver’s license surcharge, container tax, etc.—there is no shortage of ideas for generating revenue. However, given the need to address new standards for fuel efficiency and new technology (e.g., electric or hybrid vehicles) and the need for fuel economy, a new concept has emerged: charging users for mileage actually driven. This article discusses this mileage-based approach.

The Concept Of Mileage-Based User Fees

The concept entails the use of mechanisms or reporting methods that assess and attribute the miles driven by individual drivers who then incur charges based on that mileage. The concept can take many forms for acquiring the necessary data to bill users. The US Government Accountability Office (GAO) issued a report1 in December 2012 that discusses a series of approaches and technologies that could be used to effect this collection of revenue. The following paragraphs are adapted from this report.

An on-board GPS system can be installed in the vehicle “to receive signals from a satellite to determine the vehicle’s location.” There are “two types of GPS-based systems that can be used to calculate mileage fees. One system has sufficient processing capability to calculate mileage fees in the vehicle (known as a ‘thick-client’); the other system (known as a ‘thin-client’) has less processing capability and sends the location data to a central office where mileage fees are calculated. Three of five US-based pilot projects” reviewed by GAO “tested on-board thick-client units, one used a thin-client unit, and one did not use GPS. Thick-client systems transmit summary information on the total miles driven by jurisdiction and the amount due to a central office, which then prepares the participant’s mileage fee invoice.” The thick-client system pilot projects included “the Iowa study, Minnesota DOT’s Road Use Test, and Oregon’s Road User Fee Pilot Program, which also used pay-at-the pump technology in conjunction with a GPS receiver. The Puget Sound Regional Council used a thin-client GPS system.”1

“Mileage-based 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” if segment or location-specific charges can be assessed; “however, significant privacy-related concerns from the public and cost challenges have been raised in applying mileage fees to passenger vehicles.”1

Costs of Collection

“Reliable cost estimates for mileage fee systems are not available; but launching and operating a system to collect fees from 230 million US 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.”1

“The five US-based pilot projects reviewed by GAO 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... a GPS-based system, a pay-at-the-pump system, and a prepaid, manual system.” (See Box 2 and 3 for more detail.) “The approaches vary in terms of the specificity of the mileage data collected as well as the procedures used to charge drivers fees.”1

The Rand Corporation in its study of mileage-based user fee approaches (Mileage-Based User Fees for Transportation Funding: A Primer for State and Local Decisionmakers) examined the various options for mileage-based user fee data collection and concluded that each of the leading methods has strengths and weaknesses that should be pilot tested to fully examine each method.


Congressman Earl Blumenauer (D-OR) has introduced legislation to establish a road user fee pilot program to make grants to entities to conduct pilot studies of payment, enforcement, and privacy protection approaches. An interim report would be due in two years from the date of enactment to Congress with a final report due four years from the enactment date. A number of states are to pilot a variety of methods for collecting this form of user fee.


If the federal surface transportation programs are to be a national priority than it is necessary to have a long-term, stable, predictable revenue source. Mileage-based user fees show the potential to be that source, subject to the development of mitigation measures for issues raised. To be effective, there will need to be cooperation between states and the federal government. Additional pilot studies will help develop the concept further.



  1. GAO-13-77 Highway Trust Fund: Pilot Program Could Help Determine Viability of Mileage Fees for Certain Vehicles


Image Header Source: Keith Kendrick (Creative Commons)

Geographies: United States
Sectors: Roads
Topics: Policy, Funding & Finance