The case for a mileage fee in Minnesota

When former Minnesota Senate Transportation Chair Carol Flynn ultimately embraced using congestion pricing on Interstate 394 in 2002 (later named MnPass lanes), she wasn't exactly brimming with enthusiasm: "Well, everything else we've tried has failed," she said, "so we might as well give this a try."

Flynn's decision wasn't as big of a leap of faith as her somewhat tongue-in-cheek comment implied. For over a year, she had studied how congestion pricing worked in other states and countries as a member of a diverse stakeholder task force convened by the University of Minnesota's Humphrey School of Public Affairs. As a result, her confidence in the approach had slowly grown as she absorbed the latest findings.

The point: As Plato observed many centuries before Sen. Flynn, necessity is often the mother of invention. Innovative approaches emerge as the status quo becomes increasingly unworkable.

Now the type of necessity-driven pragmatism Flynn exhibited is needed to fix another, more sweeping transportation problem — an increasingly obsolete transportation financing system.

Minnesota's leaders still rely heavily on the gasoline tax to finance the state's transportation system. A central debate in this year's legislative session swirls around whether to double down on that traditional transportation funding mechanism by passing another gas tax increase. Many are opposed to that, even though nearly all agree that the state's infrastructure needs new investment.

Regardless of the outcome of that debate, with each new fuel-efficient and alternatively fueled vehicle that hits the road, our gas tax is becoming increasingly inequitable and inadequate.

Minnesota's gas tax system, in short, is running out of gas. The primary reason: Federal policies designed to control climate change-causing greenhouse gases and reduce dependence on foreign energy sources are requiring that our motor vehicle fleet use less gasoline and more non-gasoline alternatives.

Using less gasoline is a very good thing, but there is an unfortunate side effect of this necessary shift: As we use less gasoline, we collect less in gasoline taxes.

Minnesotans certainly won't shed any tears about paying less in gas taxes, but as gas tax revenues plummet, society loses its ability to finance a safe and efficient transportation infrastructure. This happens while people are, on average, driving just as many miles, or more to the point, using the roads just as much. Paying less for the same use is what is creating the problem. And if our transportation infrastructure becomes less safe and efficient, our quality of life and economic competitiveness will suffer.

Enter the mileage-based user fee, or road user charges. While the gasoline tax is calculated based on how much gasoline is used, road user charges are calculated based on how many miles have been driven, or to put it another way, how much a driver has used area roads and bridges.

Compared with the gas tax, there are several important benefits of road user charges. First, state revenue doesn't dry up as vehicle fleets become less gasoline-dependent. This allows transportation officials to maintain a safe, efficient and competitive transportation infrastructure into the future.

Second, road user charges are fairer than the gas tax to all kinds of users. All drivers contribute to the wear and tear of the roads and bridges they use, even drivers of alternatively fueled or high-­efficiency vehicles. Therefore, fairness dictates that drivers of all types of vehicles should help pay the costs associated with that wear and tear, not just drivers of vehicles that use more gasoline.

Finally, road user charges are extremely flexible. No one can know for certain whether the vehicles of the future will be powered by natural gas, electric batteries, the sun, the wind, hydrogen, biofuels, none of the above or all of the above. But a road user charge fits with any fuel technologies that emerge in the future.

For these reasons, states such as Oregon and California now are adopting large-scale tests of road user charges.

The Oregon Legislature has gone the furthest. Last year, it enacted a law that authorizes a new system that will launch on July 1. The 5,000 drivers of cars and light-duty commercial vehicles who volunteer for the so-called OReGO program will pay 1.5 cents for every mile they drive on public roads within Oregon. Then, they will get a gas tax credit to offset the gas tax they pay at the pump. This ensures that drivers aren't paying double taxes.

Oregonians will have choices for mileage reporting and payment, just as they do for other services such as cellphone plans, cable or satellite TV, and utility charges. One mileage reporting choice will be to report only odometer readings, but volunteers who want the convenience of easily avoiding taxation for driving out of state can opt to use a mileage reporting device that can identify taxable miles and nontaxable miles. The Oregon Department of Transportation (ODOT) has partnered with private vendors to manage volunteers' OReGO accounts — and to provide an ODOT-sponsored option. Volunteers will select a mileage-reporting device and service plan that works best for them.

Readings and billing will be managed by three private companies that are offering drivers a choice of several different types of service plans. One option will offer a bare-bones plan that will keep all mileage data strictly confidential and will offer no other services beyond measuring mileage and billing.

Other technology options that drivers can choose will be offered by companies and may include other services such as mileage-based car insurance, which may be advantageous for some types of drivers.

Each volunteer in the road user charge system can decide which of these approaches is best for them. These companies will compete against each other for business, so they will have a powerful market-based incentive to offer low prices for their tracking and billing services, to ensure privacy, to operate efficiently, to have excellent customer service, and to be accurate. After all, if they don't perform well in any of these areas, they could expect to lose business to the competing company and/or ultimately lose the state contract.

State and local governments will set rate structures. For instance, leaders may choose to set differential rates that reward drivers who use less damaging technologies and/or avoid travel during rush hours. On the other hand, legislators may choose a flatter rate system to keep things as simple as possible.

After learning from pilot programs in 2007 and 2012, the OReGO program that is starting this summer will no longer be a pilot. It will be an alternative system that drivers can choose. Oregon transportation officials expect to expand and refine the system over time.

Over the years, Minnesota has studied road user charges and even has done a small-scale pilot test. Road user charges are not simple to implement. There are dozens of policy, technological and logistical issues to resolve. That's why the Humphrey School has convened key stakeholders to study and deliberate over those issues.

A Minnesota legislator recently questioned why more public-policy convening, research and discussion is necessary. It's a fair question, and here's my answer: The nature of research is that it improves by building on past research. Research and pilot projects are exploring ways to do road user charges without requiring tracking of drivers and the privacy concerns that come along with that. Knowledge isn't static, particularly in an era when technology is rapidly evolving and other states are continually uncovering new insights.

Moreover, key stakeholders need time to absorb new concepts before they feel comfortable making an informed decision. Just as legislators frequently study and debate an issue over many years, or even decades, before they make a final decision, participants in Humphrey School public policy task forces also need time to build up their understanding based on ever-­evolving information.

"One and done" is not a wise mandate to place on research institutions, because knowledge evolves. For instance, the lessons flowing out of Oregon and California in the next few months will be critically important for Minnesota leaders to understand. Initial investigations are mainly concerned with replacing the gas tax, not adding a new charge on top of it. Future charges will be set by elected officials as gas taxes are today, but the initial need is to stop the erosion in funding for transportation infrastructure.

I'll be the first to admit that a road user charge system has its share of challenges that need to be addressed. But as Plato and Flynn pointed out, sometimes necessity — in this case a gas tax system that is clearly running out of gas — becomes the mother of invention.

Lee Munnich is a senior fellow at the University of Minnesota's Humphrey School of Public Affairs.