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Business Observer Friday, Aug. 14, 2015 7 years ago

Gas Tax: Out of Gas

Fuel-efficient cars are shrinking the state's gas-tax collections and the funds for roads. The answer: paying by the miles you drive.

Everyone wants to use less gasoline — to save money, to reduce greenhouse gas emissions, or to lessen our dependence on oil. So technological improvements in fuel efficiency are in general a good thing.

But there's a wrinkle: Our system for paying for transportation infrastructure depends heavily on per-gallon fuel taxes, so more-efficient vehicles tend to reduce the amount we pay per mile. But the cost of providing a mile of road doesn't go down at the same time. Moreover, fuel-efficient and electric cars require just as much road building and maintenance as any other car does.

Think of it this way: Most years I drive about 15,000 miles, and in 2020 I expect I'll drive about the same miles. But in 2020 my car will probably get twice as many miles per gallon as my car in 2000 did. That means I will be using half the gas, and paying half the gas tax, for driving the same number of miles.

This is true for everyone. Average fuel-efficiency standards are increasing dramatically over time. And think about the trucks that move all the goods we buy. Our economy is still growing, and the amount of trucks using the roads is projected to rise rapidly in the coming years. Soon we'll all be using a lot less gas, which is good, and thus paying a lot less in gas taxes — also good, but still using the roads just as much.

The Florida Transportation Commission estimates that by 2020 rising fuel efficiency will reduce Florida's state fuel-tax revenue by about 20% — meaning $500 million less in revenue that year. The impact locally will be large as well. On the West Coast of Florida, counties from Citrus down to Monroe charge their own gas tax ranging from 7 to 12 cents per gallon, and those local fuel tax revenues will be falling precipitously as well.

This raises a real challenge. We all want to continue to have good roads, enough of them for our own travel and for trucks hauling goods, providing good connectivity for the tourists that fuel much of Florida's economy and connecting the commerce that is crucial to statewide job growth. But because rising fuel economy drives down fuel taxes, Florida transportation agencies will have a hard time building and maintaining those roads.

What to do? One option: Raise the gas tax. But that is unpopular, ineffective and inefficient. The average Floridian pays $333.16 per year in federal, state and local fuel taxes and tag fees. But technology is making the gas tax obsolete. You can't pay for infrastructure by taxing something that economic forces are reducing.

It is time to look for a replacement. And one of the ideas gaining increasing attention is to shift from paying by the gallon of gas to paying by the miles you drive.

A slew of national commissions and reports on the future of transportation funding have recommended this approach, and a few states have done pilot projects.

The first and most important issue facing this idea is privacy. We don't want a system where the government is tracking where everyone drives to charge them a fee for it. State-of-the-art privacy protection in a mileage-fee system means consumers must have a choice of method of assessing the fee.

For instance, you can choose to pay a flat annual fee, or have odometer readings taken, which generates no location data. You can choose a modest level of technology whereby your own onboard computer keeps track of where you go and what fees you owe, but you only have to provide the government with an authentication code and the amount you owe, so the data are private. Or you can choose full tracking technology, in which an onboard device reports where you drove and how much you owe.

Also crucial to protect privacy are new laws governing the use and storage of data. Data must be destroyed after a short time and government agencies only allowed access with a specific court order. And all of the technology options should be operated by a private third party. That way you have recourse to the law if the private company abuses the data in any way.

In pilot projects, many participants who were worried about privacy and tracking were much happier after they tried the system and saw how they could control and protect their data, or work with the private vendors to get additional services in return for being tracked, like automatically calling 911 if they get in an accident.

Another crucial thing that needs to be worked out with mileage-based fees is the costs. This should not be a new way to charge drivers more money. The mileage-based fee system should replace, not add on to, the fuel tax. At the same time, the cost of collecting a mileage fee has been falling rapidly, but it needs to get down to the same level as collecting fuel taxes. Collection costs should not cut more into revenue for infrastructure.

The mileage-fee system must be fair. That means designing the charges so they don't charge any one group, say rural drivers or older drivers, unfairly. Everyone should pay for the roads according to their use — as they do with gas taxes. And in Florida the system would have to deal with tourists effectively. A mileage-fee system would have to charge the millions who drive into Florida to visit each year for their road use, too.

If we wait and do nothing, falling fuel-tax revenue will soon preclude Florida transportation agencies from maintaining existing infrastructure, let alone building anything new. Changing to a sustainable fee for using roads then will be much harder and more expensive than if we don't start adapting now.

The Florida Transportation Commission and FDOT should study state-of-the-art approaches to mileage-based fees and conduct their own trials and pilot projects to be ready for the change.

Dr. Adrian Moore is vice president of Reason Foundation and lives in Sarasota. He is an economist and co-author of the book “Mobility First: A New Vision for Transportation in a Globally Competitive Twenty-First Century.”

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