Highway Trust Fund: Pilot Program Could Help Determine the Viability of Mileage Fees for Certain Vehicles

Federal funding to build and maintain the nation's highways and bridges comes primarily from highway users through federal fuel taxes. These revenues have eroded due to improvements in vehicle fuel efficiency and other factors contributing to shortfalls in the Highway Trust Fund. Experts have proposed alternative means of raising revenues by charging drivers fees based on their miles traveled. Several states have tested systems that gather vehicle mileage and location data, which has raised privacy concerns. GAO examined (1) the benefits and challenges of mileage fee initiatives in the United States and other selected nations, (2) mileage fee rates necessary to replace and supplement current Highway Trust Fund revenues and the effect these fees would have on users' costs, and (3) state DOTs' views on future revenue demands and mileage fees. GAO reviewed five domestic pilot projects and programs in Germany, New Zealand, and the Netherlands; modeled mileage fees for passenger vehicles and commercial trucks; and surveyed 51 state DOTs.

Mileage-based user fee initiatives in the United States and abroad show that such fees 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. Mileage fees for passenger vehicles, however, continue to face significant public concerns related to privacy as well as cost challenges. Privacy concerns are particularly acute when Global Positioning System (GPS) units are used to track the location of passenger vehicles. Reliable cost estimates for mileage fee systems are not available, but implementing a system to collect fees from 230 million U.S. passenger vehicles is likely to greatly exceed the costs of collecting fuel taxes. Commercial truck user fee systems in Germany and New Zealand have achieved substantial revenues and benefits such as reduced road damage and emissions with fewer privacy concerns, but ensuring compliance in a cost effective manner presents trade-offs. Few commercial truck mileage fee pilots have been conducted in the United States, but efforts in two states suggest such fees pose fewer privacy and cost challenges than passenger vehicle fees.

Mileage fee rates could be set to replace or supplement current Highway Trust Fund revenues. GAO calculated average mileage fee rates for passenger vehicles and commercial trucks needed to meet three federal revenue targets ranging from $34 billion (replace current federal fuel tax revenues) to $78 billion (increase spending to maintain existing system conditions and performance). To meet these targets, drivers of passenger vehicles with average fuel efficiency would pay $108 to $248 per year in mileage fees compared to the $96 these drivers currently pay in federal gasoline tax. These fees would affect users' costs differently based on each vehicle's fuel efficiency, because drivers of less efficient vehicles now pay more in fuel taxes than drivers of vehicles with greater fuel efficiency. However, like federal fuel taxes, mileage fees would comprise a small portion of users' overall fuel costs and thus only marginally increase users' overall transportation costs. A mileage fee for commercial trucks could also increase users' costs, particularly for larger trucks that log more miles. In 2000, the Federal Highway Administration (FHWA) estimated that heavy commercial trucks generally pay less in federal taxes than the road damage costs they impose. Adjusting mileage fee rates to account for vehicle road damage costs would increase rates for commercial truck users. However, FHWA's estimates may not reflect current conditions. Setting rates to cover these costs would require updated estimates of vehicles' responsibility for road damage.

State departments of transportation (DOT) recognize the need for an alternative funding mechanism to meet future revenue demands, and many would support federal actions to evaluate mileage fees. Few states reported that they are likely to introduce such fees in the next 10 years, but more than half would support federally-led field tests of mileage fees for commercial trucks and electric vehicles. Although few electric vehicles are on the roads today, their numbers are expected to increase, and they do not contribute to the Highway Trust Fund. Without a federal pilot program to evaluate (1) options to more accurately charge commercial trucks and electric vehicles for their road use and (2) the costs and benefits of such systems, Congress lacks critical information to assess whether mileage fees for these vehicles could be a viable and cost-effective tool to help address the nation's surface transportation funding challenges.

Should Congress further explore mileage fees, it should consider establishing a pilot program to test the viability of such fees for commercial trucks and electric vehicles. FHWA should update its estimates of road damages imposed by all vehicle types compared with the tax revenues generated by each. The Department of Transportation took no position on GAO’s recommendation but provided technical comments which GAO incorporated as appropriate.

The nation’s surface transportation system is critical to the economy and  affects the daily lives of most Americans. However, the 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. For  more than 50 years, federal funding to build and maintain the nation’s  vast network of highways and bridges has been collected primarily from  highway users through federal fuel taxes. This system is based on the  “user pays” principle in which the costs of government programs or  services, such as the construction and maintenance of roadways, are  paid by the individuals and firms that use and benefit from the service  through taxes or fees. For many years, user fees in the form of federal  fuel taxes and taxes on commercial trucks provided sufficient revenues to  the Highway Trust Fund, the primary source of federal funding for  highway and transit programs. However, revenues into the fund have  eroded over time, in part because federal fuel tax rates have not  increased since 1993 and in part because of improvements in vehicle fuel  efficiency. This trend will continue in the years ahead as more alternative  fuel vehicles take to the roads.

To maintain current spending levels and cover revenue shortfalls,  Congress transferred more than $34 billion in general revenues to the  Highway Trust Fund from fiscal year 2008 to 2010; in 2012, Congress  appropriated an additional $18.8 billion in general revenues for fiscal  years 2013 and 2014. This approach has effectively broken the link  between taxes paid and benefits received by users and may not be  sustainable given competing demands and the federal government’s  growing fiscal challenge. Although the President signed a 2-year surface  transportation authorization in July 2012, the Highway Trust Fund faces  significant shortfalls in the years ahead, beginning in fiscal year 2015, to  support current spending levels. 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. For this and other reasons, funding surface  transportation remains on GAO’s High-Risk List.

To address this growing funding problem, transportation experts and  economists have advocated developing an alternative revenue- generating system that preserves the user-pay principle by charging  vehicle owners based on the number of miles they drive—that is, by their  vehicle miles traveled. Such fees, commonly known as VMT fees or  mileage-based user fees, are referred to as “mileage fees” in this report.  Advocates of mileage fees argue that in addition to raising revenues,  such fees may offer other benefits that could lead to more efficient use of  the nation’s highways and result in reduced congestion for drivers. For  example, mileage fees and other forms of road pricing such as tolling  send clear price signals to road users, and provide incentives to drivers to  consider alternatives such as public transit or carpooling which can  reduce congestion, vehicle emissions, and overall spending on fossil  fuels. The Congressional Budget Office (CBO) reported that most drivers  currently pay much less than the full cost of their highway use, and that  mileage fees could provide a better incentive for efficient highway use  than fuel taxes do because the majority of highway costs are related to  miles driven. In addition, we have reported that if those who benefit from  a program do not bear the full social cost of the service, they may seek to  have the government provide more of the service than is economically  efficient. Furthermore, two national transportation commissions  established by Congress have reported that reforming highway financing  with a mileage fee system could provide a more viable, long-term source  of federal revenues than the current system of fuel and excise taxes.

In recent years, several states have conducted pilot projects to test  mileage fee systems and other countries have also evaluated or  implemented mileage fees for light passenger vehicles or heavy  commercial trucks. Efforts to evaluate mileage fees in the United States  have been met with concerns from the general public, including the fear  that installing Global Positioning System (GPS) technology into private  vehicles to gather mileage data could also potentially be used to  compromise drivers’ personal information, such as locations visited.

In light of these concerns, you asked us to review the issues surrounding  the possible use of a mileage-based user fee system to fund federal  surface transportation programs. In this report we examine:  1.  the benefits achieved and challenges faced in mileage fee initiatives  in the United States and selected other nations,  2.  the user fee rates necessary to replace and supplement current  revenues to the Highway Trust Fund and the effect these fees would  have on users’ costs, and  3.  the perspectives of state departments of transportation (DOT) on  addressing future revenue demands using mileage fees.

To examine these issues, we gathered information on the benefits and  challenges of several mileage fee pilot projects conducted in the United  States, including efforts in Oregon and Washington, and a national-level  evaluation conducted in 12 states that was authorized by the Safe,  Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for  Users (SAFETEA-LU). We also reviewed preliminary results from two  ongoing pilot projects in Minnesota and Nevada. We interviewed  transportation officials involved with all of these pilots. To gather  information on the benefits and challenges of international mileage fee  initiatives, we selected programs in Germany, New Zealand, and the  Netherlands based on criteria that included program objectives,  administration, and technologies used. We reviewed program documents  and interviewed transportation officials in these countries to gather  information on Germany’s Heavy Goods Vehicle user fee system, New  Zealand’s Road User Charge system, and a cancelled user fee program  in the Netherlands. To determine the mileage fee rates that would be  necessary to replace and supplement current Highway Trust Fund  revenues, we selected three revenue targets and simulated the user fee  rates for passenger vehicles and commercial trucks that would be  necessary to achieve those targets using fiscal year 2010 data. We also  simulated the mileage fees that would be required if all vehicles were  responsible for the road damage they caused according to Federal  Highway Administration (FHWA) estimates. To obtain 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 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. Our objectives,  scope, and methodology are discussed in more detail in appendix I.

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.

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.

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.

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.

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.

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.

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

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

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.

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)

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

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.)

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

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.

Question: What is the benefit of mileage-based user fees?

Answer: Mileage-based user fee initiatives in the United States and abroad show that such fees 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.

Question: What may make these fees difficult to establish?

Answer: Mileage fees for passenger vehicles, however, continue to face significant public concerns related to privacy as well as cost challenges.

Question: Why would such fees engender privacy concerns?

Answer: Privacy concerns are particularly acute when Global Positioning System (GPS) units are used to track the location of passenger vehicles.

Question: How would the expected costs of this system compare to costs of collecting fuel taxes?

Answer: Reliable cost estimates for mileage fee systems are not available, but implementing a system to collect fees from 230 million U.S. passenger vehicles is likely to greatly exceed the costs of collecting fuel taxes.

Question: What have other countries shown about user fee systems?

Answer: Commercial truck user fee systems in Germany and New Zealand have achieved substantial revenues and benefits such as reduced road damage and emissions with fewer privacy concerns, but ensuring compliance in a cost effective manner presents trade-offs.

Question: What have similar efforts in the U.S suggested?

Answer: Few commercial truck mileage fee pilots have been conducted in the United States, but efforts in two states suggest such fees pose fewer privacy and cost challenges than passenger vehicle fees.

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

Benefits and Challenges of Passenger Vehicle Mileage Fee Systems

Question: What might mileage fee rates replace?

Answer: Mileage fee rates could be set to replace or supplement current Highway Trust Fund revenues.

Question: What did GAO study about such fees?

Answer: GAO calculated average mileage fee rates for passenger vehicles and commercial trucks needed to meet three federal revenue targets ranging from $34 billion (replace current federal fuel tax revenues) to $78 billion (increase spending to maintain existing system conditions and performance).

Question: What impact would these fees have on drivers?

Answer: To meet these targets, drivers of passenger vehicles with average fuel efficiency would pay $108 to $248 per year in mileage fees compared to the $96 these drivers currently pay in federal gasoline tax.

Question: Why would these changes differ across users?

Answer: These fees would affect users' costs differently based on each vehicle's fuel efficiency, because drivers of less efficient vehicles now pay more in fuel taxes than drivers of vehicles with greater fuel efficiency.

Question: How would this change affect users' overall transportation costs?

Answer: However, like federal fuel taxes, mileage fees would comprise a small portion of users' overall fuel costs and thus only marginally increase users' overall transportation costs.

Question: How would commercial truck users' costs be affected by the fee?

Answer: A mileage fee for commercial trucks could also increase users' costs, particularly for larger trucks that log more miles.

Question: Why might it be reasonable to increase their costs?

Answer: In 2000, the Federal Highway Administration (FHWA) estimated that heavy commercial trucks generally pay less in federal taxes than the road damage costs they impose. Adjusting mileage fee rates to account for vehicle road damage costs would increase rates for commercial truck users.

Question: What is a limitation of the FHWA's estimations?

Answer: However, FHWA's estimates may not reflect current conditions. Setting rates to cover these costs would require updated estimates of vehicles' responsibility for road damage.

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

Using Mileage Fees to Generate Highway Trust Fund Revenues

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

Question: What is the stance of state DOTs regarding mileage fees?

Answer: State departments of transportation (DOT) recognize the need for an alternative funding mechanism to meet future revenue demands, and many would support federal actions to evaluate mileage fees.

Question: What particular legislation would they support?

Answer: Few states reported that they are likely to introduce such fees in the next 10 years, but more than half would support federally-led field tests of mileage fees for commercial trucks and electric vehicles.

Question: What is the relevance of a specific focus on electric vehicles?

Answer: Although few electric vehicles are on the roads today, their numbers are expected to increase, and they do not contribute to the Highway Trust Fund.

Question: What is the importance of a federal pilot program for mileage fees?

Answer: Without a federal pilot program to evaluate (1) options to more accurately charge commercial trucks and electric vehicles for their road use and (2) the costs and benefits of such systems, Congress lacks critical information to assess whether mileage fees for these vehicles could be a viable and cost-effective tool to help address the nation's surface transportation funding challenges.

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

Question: What is the main source of federal funding for highway maintenance?

Answer: Federal funding to build and maintain the nation's highways and bridges comes primarily from highway users through federal fuel taxes.

Question: How has the level of funding changed?

Answer: These revenues have eroded due to improvements in vehicle fuel efficiency and other factors contributing to shortfalls in the Highway Trust Fund.

Question: How have stakeholders responded to the erosion of these funds?

Answer: Experts have proposed alternative means of raising revenues by charging drivers fees based on their miles traveled. Several states have tested systems that gather vehicle mileage and location data, which has raised privacy concerns.

Question: What did GAO analyze in their study of feasibility and implementation of this pilot program?

Answer: GAO examined (1) the benefits and challenges of mileage fee initiatives in the United States and other selected nations, (2) mileage fee rates necessary to replace and supplement current Highway Trust Fund revenues and the effect these fees would have on users' costs, and (3) state DOTs' views on future revenue demands and mileage fees.

Question: Whatcountries did GAO review outside of the U.S?

Answer: GAO reviewed five domestic pilot projects and programs in Germany, New Zealand, and the Netherlands; modeled mileage fees for passenger vehicles and commercial trucks; and surveyed 51 state DOTs.

Financing of U.S. Surface Transportation Programs

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

Several Different Passenger Vehicle Mileage Fee Approaches Exist

Question: What action should Congress take in order to further explore mileage fees?

Answer: Should Congress further explore mileage fees, it should consider establishing a pilot program to test the viability of such fees for commercial trucks and electric vehicles.

Question: How should FHWA contribute to this effort?

Answer: FHWA should update its estimates of road damages imposed by all vehicle types compared with the tax revenues generated by each.

Question: How did the DOT respond to GAO's recommendation?

Answer: The Department of Transportation took no position on GAO’s recommendation but provided technical comments which GAO incorporated as appropriate.