UM study: Fuel taxes unsustainable

Mileage-based user fees are a better long-term option than gas tax

Funding News AASHTO Journal August 24, 2011
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Fuel taxes are not sustainable for funding the nation's surface transportation system, but mileage-based user fees would be, concludes a recently released report from the Center for Transportation Studies at the University of Minnesota.

The report assesses whether the current use of fuel taxes to fund the transportation system should be replaced with a new distance-based approach of user fees.

"While there have been discussions among many transportation leaders regarding why fuel taxes are no longer a good way of funding the transportation system, there is by no means a public understanding of why this is so," according to the report. "The public assumes that the taxes they pay at the pump are paying for the system and that if funding problems exist, they are due to waste and inefficiency."

The report sets forth five transportation finance principles to help gauge the attributes of fuel taxes as well as vehicle-miles-traveled (VMT) user fees.

Those principles include:

  • Efficiency (how well a funding method encourages productive user behavior, investment and land use);
  • Equity (how much individuals pay both in proportion to their amount of use and the costs they impose on the system);
  • Revenue adequacy and sustainability (whether sufficient revenue is or can be provided for surface transportation expenses and how viable that source will remain over the long haul);
  • Environmental sustainability (both environmentally favorable outcomes and the extent to which those responsible for pollution pay for resultant damages); and
  • Feasibility (in terms of public and political support as well as implementation, operation, enforcement and compliance costs).

Gas taxes—while strong in feasibility—are moderate when it comes to equity, revenue adequacy and sustainability, and environmental sustainability; and weak in terms of efficiency, the report states. VMT fees, on the other hand, rank strong in efficiency, equity and revenue adequacy and sustainability. VMT fees were deemed moderate in environmental sustainability, but the report outlines how it could fare better in that area if higher rates were applied to high-polluting and less fuel-efficient vehicles.

But VMT fees, also known as "mileage-based user fees," in contrast to fuel taxes, received a weak rating from the university as far as administrative and political feasibility are concerned.

Mileage-based user fees "have a major hurdle to overcome when it comes to gaining the public's trust, especially when it comes to privacy," according to the report. "In terms of implementation, operation, enforcement and compliance costs, [VMT fees] are viewed as inferior to current fuel tax system."

One way to address this perception would be to ensure that the costs involved—the main component of administrative feasibility—are kept at acceptable levels, the report asserts.

Researchers touch upon several technology options—including onboard diagnostic units and fine-resolution GPS—that are available for consideration for mileage-based user fees. The report, in light of such factors as the recommendation of VMT fees by two national commissions established by Congress, also includes an action plan for implementation of that funding alternative.

"For [VMT fee] implementation to move forward, it is important that policy-makers understand the shortcomings of fuel taxes and how unsustainable they are in the long run," according to the report. "It is equally important that proponents of [mileage-based user fees] understand, first, the difficult transitional issues and questions involved and, second, the education and outreach effort that will be needed if the public and policy-makers are to support implementation of" VMT fees.

The 91-page report, "From Fuel Taxes to Mileage-Based User Fees: Rationale, Technology, and Transitional Issues," is available at

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