Alternate Ways to Fund U.S. Transportation System

For Release

February 10, 2010

Congress should take the opportunity provided by the pending reauthorization of the federal transportation bill to consider new ways to fund the U.S. transportation system, shifting from indirect fees such as fuel taxes to ones that charge drivers directly for the miles they travel, according to a report by RAND Corporation researchers.

The report, which focused on the strengths and limitations of alternate mechanisms for adopting mileage-based road use fees, was requested by the American Association of State Highway and Transportation Officials and prepared for the National Cooperative Highway Research Program of the Transportation Research Board, a division of the National Research Council.

"Failure to raise fuel taxes in recent years to keep pace with inflation and improved fuel economy has created significant transportation funding shortfalls at the federal and state levels," said Paul Sorensen, lead author of the report and an operations researcher at RAND, a nonprofit research organization.

"The prospect of more fuel-efficient conventional vehicles and alternative-fuel vehicles in the coming decades—though clearly beneficial in terms of the environment and energy security—threatens to make funding challenges worse," Sorensen said. "Shifting from fuel taxes to mileage-based road use fees would help to overcome this problem, and there are several promising options for implementing such a shift."

Currently, the United States charges various direct and indirect user fees such as fuel taxes, road tolls, vehicle registration fees and truck weight fees to build new roads, repair existing roads and make other necessary improvements. The idea is to charge more to those who benefit from the transportation system and those who also impose costs on the system by using it.

But the federal gasoline tax has not increased since 1993 and as vehicles become increasingly fuel-efficient, the amount of money needed to maintain the transportation system has fallen woefully short. Since 1980, the total number of vehicle miles traveled in the United States has doubled, but fuel consumption has only increased by 50 percent. Many state and federal officials now are looking to a more comprehensive system of direct user fees to replace the current revenue system.

One option being considered is to use technology to charge drivers on the basis of vehicle miles of travel (VMT). Oregon already has completed a VMT-fee system pilot project and the University of Iowa is managing ongoing trials in 12 cities across the United States.

While the principal goal of such a system would be to preserve or raise revenue, there are other potential advantages. Agencies could charge a higher per-mile rate for driving on crowded roads during peak hours, helping to reduce congestion by encouraging travelers to shift some of their trips to less congested roads or times of travel. Agencies also could charge different rates for different types of vehicles; for example, low-emissions vehicles could pay less per mile than highly polluting vehicles.

Most VMT-fee proposals envision the use of sophisticated in-vehicle metering equipment, which might be phased in as consumers buy new vehicles. Sorensen said most of the options he and his colleagues considered face one or more significant drawbacks or uncertainties that would argue against immediate implementation for all vehicles on a national scale. However, with some additional research and planning efforts, some options could be put into place starting in 2015 to help meet the nation's urgent transportation funding needs.

RAND researchers found three options offered the most promise: estimating mileage based on fuel consumption; metering mileage based on a device that combines cellular service and a connection to an on-board diagnostics port; and metering mileage based on a device featuring a global positioning system receiver. Systems that rely on self-reported odometer readings or annual odometer inspections were found to be unreliable and too difficult or expensive to administer and enforce.

The report suggests that real-world trials of these options could be funded now, to determine which system ultimately will have the best combination of accuracy, cost-effectiveness and ease of implementation.

Martin Wachs, director of the Transportation, Space, and Technology Program at RAND, said another major concern for policymakers will be privacy issues.

"Even though people's movements can now be tracked to some extent through their cellular phone records, law enforcement officials often need a court order to access that data," Wachs said. "Consumers will be understandably concerned about on-board devices tracking their vehicle's position and movement, and will want safeguards as to what kinds of data are recorded and who has access to that information."

Liisa Ecola, another co-author of the RAND report, said that there is no guarantee that instituting fees based on vehicle miles traveled or subsequent efforts to increase VMT fees to keep pace with inflation will be any less controversial than increasing fuel taxes. Also, the collection of VMT fees will likely be more costly and more burdensome than the collection of fuel taxes.

"However, it's clear that the present system isn't working and fees based on vehicle miles traveled, if properly implemented, could result not only in more money to support the nation's transportation system, but also spread the cost burden in a more fair and equitable way," Ecola said.

The report, "Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding," can be found at

Other authors of the study are Max Donath and Lee Munnich of the University of Minnesota and Betty Serian of Betty Serian Associates. The report was prepared for the National Cooperative Highway Research Program of the Transportation Research Board, under subcontract with ICF International.

The research was conducted by RAND's Transportation, Space & Technology Program, a part of the RAND Infrastructure, Safety and Environment division. The division's mission is to improve development, operation, use and protection of society's essential built and natural assets; and to enhance the related social assets of safety and security of individuals in transit and in their workplaces and communities.

About RAND

RAND is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous.