Washington, Take Note: California Experiments with Highway Funding

Continued improvements in vehicle fuel efficiency are significantly reducing government revenues generated from the gasoline tax. In response to this decline, California is now considering replacing its gasoline tax with a vehicle-miles-traveled (VMT) charge to fund highway maintenance and construction. With this innovation comes an opportunity for additional reform.

By setting VMT charges higher during peak traffic times or in certain, traffic-dense locales, California could finally reduce highway congestion that has plagued the state for so many years — and without changing any infrastructure. Drivers would benefit from reduced congestion and taxpayers would avoid the expense of building additional highway capacity. But for states to take full advantage of the potential highway efficiency gains generated by a variable VMT system, Congress would need to end federal tolling restrictions on interstate highways.

In a recent poll by the Public Policy Institute of California, 64 percent of likely California voters agreed that traffic congestion is a major problem. This should come as no surprise since the Texas A&M Transportation Institute ranks Los Angeles, San Francisco, and San Diego among the 15 most congested cities in the nation. The Institute estimates that in 2014 congestion in these three cities cost drivers about $18 billion annually in time lost.

In 2014, Governor Brown signed SB 1077, which outlines steps for a “road charge” that would generate revenues comparable to the current gasoline tax. This summer, based on recommendations from a technical advisory committee, the California State Transportation Agency is moving forward with a demonstration program to assess the workability of a VMT tax. Five thousand volunteers — I will be one of them — will receive a simulated bill based on miles driven.

Drivers will have a number of options for tracking vehicle miles. One option is to have monthly odometer readings taken at a specified location. Alternatively, this procedure could be automated using a GPS tracking system. In order to reduce privacy concerns, the technology and data management will be controlled by private firms rather than the government.

On its own, a tax on miles driven could have some impact on reducing congestion. But a flat road charge doesn’t distinguish between, say, a driver on a residential street at three in the morning and a driver on a highly congested highway during rush hour. Raising the VMT tax for highway drivers during peak drive times would create an incentive for some individuals to adjust their drive times to avoid the higher tax. This would require integrating the VMT system with GPS tracking. To protect privacy, travel information could be stored in the car’s system and deleted after drivers pay their bills.

A common concern with a variable charge system is that it affects low-income drivers disproportionately. But the same criticism can be lodged against the current gasoline tax. A variable-congestion-charge system’s impact on the poor would be no more regressive than the current system of funding highways.

Federal law governs the use of variable tolls on highways built with federal funds. Before 1991, tolls were prohibited. Reforms since then allow for a limited use of tolling as long as the number of toll-free lanes is not reduced. The result is that newly constructed lanes on interstate highways may use tolls. This exemption has been used to toll solo-driven vehicles in car pool lanes, as on the I-15 highway in San Diego.

Federal restrictions on tolling impede efforts to deal with serious congestion problems, particularly in urban areas. Congress could ease or eliminate these rules. This simple fix would allow innovations in tolling that would improve our transportation system significantly.

The public generally responds negatively to the notion of variable charges or tolls on highways, but they should know that highway tolls are not just another tax. Most taxes discourage economic activity, whereas highway tolls reduce congestion and can actually save taxpayers money on the construction of unnecessary additional highway capacity. Evidence from London and Sweden suggests that drivers’ attitudes toward variable charges change once they experience the resulting decline in congestion.

As California moves to a VMT tax, state officials shouldn’t be satisfied with a simple, flat-road charge. Taking advantage of GPS tracking to raise the cost of driving on congested highways during peak traffic times would go a long way toward solving the state’s serious and costly congestion problems. Washington could help California — and, indeed, every state — capture these gains by eliminating tolling restrictions on highways that receive federal funding.