Oregon’s successful mileage tax experiment

Written by adam


Recently I’ve been flogging the concept of a mileage tax, a system of per-mile road usage fees that over time can replace our dysfunctional gasoline tax as a way of funding transportation infrastructure. Although people have raised a lot of interesting objections, I’d like for now to skip ahead and simply describe Oregon’s successful experiment with a mileage tax. A single real-world example can be a lot more illuminating than an entire internet’s worth of abstract debate.

Way back in 2001, Oregon recognized the problem that many state legislatures are now staring down: gas tax revenue is falling inexorably as vehicles become more fuel-efficient, threatening transportation budgets. The state launched a task force that investigated 28 alternative funding mechanisms before selecting a mileage tax as the one that best met a wide range of criteria: fairness, efficacy, ease of implementation, public acceptance, enforceability, privacy protection, etc.

In 2006, the state recruited 299 volunteers for participation in a year-long trial of a prototype system. Because any real-world mileage tax will be phased in over a long period of time, it has to harmonize with the existing gas tax. The Oregon experiment neatly solved this problem with a pay-at-the-pump system:

* A small GPS receiver in participants’ cars tracked miles driven.
* When participants went to the gas station to fill up, a wireless scanner at the pump detected the GPS receiver and recorded the car’s current mileage, which was then sent to a central database to determine miles driven since the last payment. No specific location data was transmitted.
* The payment system at the gas station applied either the standard gas tax (for cars that didn’t have a GPS system) or the mileage tax (for participating cars). The experiment was designed to be revenue neutral, so fees were about the same in either case.

The Oregon Department of Transportation (ODOT) has compiled a 100-page report on the experiment (pdf) that covers a lot of ground, but basically describes the trial as a roaring success. Note several features of this system:

* Overhead is low. Because the mileage tax piggybacks on the existing gas tax collection system, it’s easy and cheap for the state to administer.
* Payment is simple. From the driver’s perspective, the mileage tax differs little from the gas tax, other than the fact that their gas station receipts contain interesting information on miles driven.
* Privacy is protected. The state only gets odometer information, not information about vehicle location.
* Evasion is difficult. Even if you tamper with the GPS receiver, you’re still going to pay the gas tax.
* Phased implementation is possible. Oregon doesn’t foresee a complete changeover to mileage taxes happening until 2040. This is a bit too slow for my taste (I really hope gas stations don’t exist in 2040), but the point is that gas taxes and mileage taxes can happily coexist as the vehicle fleet turns over.

Technically, the system worked. Just as importantly, public acceptance was high. 91% of test participants preferred the system to paying gas taxes. Obviously this was a self-selected group of people, but the broader public response was equally telling. Before the experiment began, media portrayals of the system were almost uniformly negative — and inaccurate. By the middle of 2006, media coverage ranged from neutral to positive, and were far more accurate. Citizen comment reflected this broader trend. ODOT concludes, “Effective communication can lead to public acceptance.”

Perhaps most exciting from an environmental perspective are the ancillary benefits that such a system can provide. Halfway through the experiment, ODOT divided participants into two groups (plus a control group). One group paid a flat per-mile fee. The other paid a congestion fee of 10 cents per mile during peak driving times in the Portland metropolitan area. The congestion fee was separately itemized on participants’ fuel receipts.

It turns out that all participants reduced their driving relative to the control group — a somewhat surprising finding, because the mileage tax was designed to be revenue neutral. Anecdotally, many participants reported changing their driving habits in response to the GPS mileage displays in their cars. “One person commented that she began walking to neighborhood places when she realized by looking at the display how short the distance from her home actually was. Other people said they began organizing short trips from home to consolidate to one trip.”

The results among the congestion-fee group were even more dramatic. These participants dropped their peak hour driving by 22% compared to the control. And this group also reduced their total driving by more than the flat-fee group, indicating that they didn’t just shift their driving to other times.

These results are preliminary, but suggestive. And they only scratch the surface of the possibilities opened up by a mileage-based pricing system. As the report notes, the system could provide a powerful tool to “metropolitan planning organizations (MPOs) looking for fair and stable means to fund regional plans, manage growth, contain air pollution and support better land use decisions.”

Oregon currently faces a $10 billion dollar revenue shortfall for transportation financing. Earlier this year, the governor of Oregon called for state-wide implementation of a mileage tax.

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1 Comment

  1. Mort (Detroit)

    I guess my environmental credentials aren’t what I thought they were. I think that this is a ludicrous idea. I’d love to see insurance based on miles driven (and how they were driven). But taxing miles rather than (or in addition to) gallons of gas does nothing to encourage people out of their 12 mpg SUVs.
    Reading the comments, people are shooting off into all sorts of different fees and taxes. I think we should make it simple: increase the federal gas tax by a dime every four months for the next five years, or longer. Any faster and we’ll risk both inflation and making the economic picture worse. I also think that something like London’s congestion charge makes sense in urban areas plagued with congestion and pollution. Anything more becomes too complicated and will make the large majority of Americans (who do care about the environment) think environmentalists are a bunch of tree-hugging elitist wackos who don’t understand the difficult (read rural poverty, among other things) lives people lead.
    A gradually phased-in gas tax (rather than a mileage tax) will both discourage unnecessary driving (hopefully encouraging mass transit usage) and encourage people to drive more efficient cars. I think that’s our answer.
    As to the weight tax; I don’t know how many states do this, but Michigan’s annual registration fee is based in part on weight. It wouldn’t be a bad idea to weigh weight more heavily, as long as some consideration is given to the poor people who are stuck driving a 30 year old 2-ton car 20 miles to the nearest store for a loaf of bread.