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The $1T Infrastructure Deal Seeks to Establish Pilot Programs in States to Study a ‘Pay-Per-Mile' Vehicle Road Use Fee

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【Summary】The $1 trillion infrastructure deal signed by President Biden this week seeks to establish pilot programs to study the feasibility of a “national motor vehicle per-mile user fee”. It would charge drivers a small fee based on how many miles they travel on U.S. roads to make up for any potential loss revenue from fuel taxes.

Eric Walz    Nov 17, 2021 11:15 AM PT
The $1T Infrastructure Deal Seeks to Establish Pilot Programs in States to Study a ‘Pay-Per-Mile' Vehicle Road Use Fee
Fuel tax revenue is used to fund various highway construction and maintenance projects in the U.S.

The federal government collects billions of dollars each year from gasoline taxes, this is on top of the state taxes on gas that drivers have to pay, which varies from state to state. The revenue collected from fuel taxes is used by the Highway Trust Fund to fund various highway construction and maintenance projects in the U.S. In 2018, that figure was over $36 billion.

But as the auto industry transitions towards electrification and gas-powered vehicles become much more fuel efficient, the demand for gas will eventually decrease, which can lead to billions of dollars of lost revenue in taxes. 

With this in mind, the massive infrastructure deal seeks to establish pilot programs to study the feasibility of a "national motor vehicle per-mile user fee pilot". It would charge drivers a small fee based on how many miles they travel on U.S. roads to make up for any potential loss revenue from fuel taxes. 

Those that drive more than the average of 12,000 miles per year will have to pay more. The money will go towards road repairs and maintenance, just like its does now.

Sec. 13001 of the infrastructure plan is titled "Strategic Innovation for Revenue Collection". As part of the plan, the Department of Transportation will approve and provide grants to carry out the various pilot projects to study the feasibility.

Although zero emissions electric vehicles are great for the environment, they don't use gas. For diesel-powered commercial trucks, the taxes collected with each fillup are significant.

As of July 1, 2021, the federal government collects an excise tax of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel. This is in addition to state taxes, which are even higher. 

Average state taxes are 30.6 cents per gallon for regular gas and 32.3 cents per gallon for diesel, and the taxes vary from state to state, as does the cost of gas. 

In California, the state with the country's higher EV adoption rate, drivers of gas-powered vehicles pay a state tax of 51 cents per gallon of gas. When combined with the federal tax, drivers of gas-powered vehicles in California pay roughly 77 cents per gallon in taxes for each gallon of gas. If everyone in the state drove an electric car, there would be a big loss of revenue for both the federal government and for California.

Although California has the highest EV adoption rate in the U.S., the state has one of the highest gas prices in the nation with an average cost of $4.63 per gallon.

The intended goal of any pay-per-mile road use fee seeks to to help maintain the long-term solvency of the Highway Trust Fund, through pilot projects at the state, local, and regional level. 

The fees would be levied on passenger motor vehicles, light trucks, medium- and heavy-duty trucks and will vary depending on vehicle types and weight classes. It will also help determine the estimated impacts on infrastructure, safety, congestion and the environment based on where these vehicles travel.

The federal government seeks to solicit volunteer participants from all 50 states, including the District of Columbia, and Puerto Rico, to ensure an equitable geographic distribution by population among the participants, including drivers of commercial and passenger vehicles.

The actual miles traveled by each vehicle will be gathered electronically from a vehicle's on-board diagnostic (OBD) connector, smartphone apps, telemetric data collected by automakers and vehicle data obtained by car insurance companies.

 The big challenge for the government is selling the proposal to the public. The bill directs states to "conduct public education and outreach to increase public awareness regarding the need for user-based alternative revenue mechanisms."

For drivers of electric vehicles who don't have to purchase gas the fees may be added at charging stations. The plan gives states at least a year to study the "potential for revenue collection along a network of alternative fueling stations."

Over the years, the Highway Trust Fund has needed significant transfers of cash to remain solvent. Between 2008 to 2010, Congress authorized the transfer of $35 billion from the General Fund of the U.S. Treasury to keep it afloat.

During the recession of 2008, the fund required $8 billion from the U.S. Treasury's general revenue funds to cover a shortage. Additional cash transfers of $7 billion and an additional $19.5 billion were made in 2009 and 2010 to maintain solvency. 

The shortage was due to lower gas consumption as a result of the recession and higher gas prices, which is similar to what's happening today.

With dwindling revenues from gas taxes predicted in the future, the fund will likely need to be bailed out again unless the shortfall can be recouped via other means.

With the new pilot projects proposed in the infrastructure bill, the federal government is already looking for ways to make up for lost fuel tax revenue as the passenger EV adoption rate in the country slowly ticks upward.

The rollout of fully-electric and fuel cell Class-8 commercial trucks however, could potentially lead to significant reduction in the excise taxes collected on diesel fuel. Long-haul trucks carry an average of 125 to 300 gallons of diesel fuel, so with each fillup the government collects between $30 and $72.90 in taxes.

So without a pay-per-mile road use fee, the question is where will the money come from to keep the Highway Trust Fund solvent in a future where millions of EVs are on the road? For now, we just don't know.

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