Alternatives to Fuel Tax: a State Level Perspective

Abstract

The current and imminent revenue shortfall of the highway financing system, which is currently based on motor fuel taxes, has been widely diagnosed both at the national and state levels. A 2005 needs study assessing highway needs and future revenue during 2006-2020 for Indiana concluded that the annual funding gap during this period would be $0.86-1.12 billion. Under the current fuel-tax-based system, it is predicted that the shortfall would grow larger in the future, primarily because the current fuel tax rate is fixed per gallon while vehicle fuel economy is improving and the use of alternative fuels is increasing. The growing funding gap indicates that there is an urgent need to improve the current structure of the highway financing mechanism or to develop a new financing strategy. In this regard, establishing new highway pricing schemes are needed that satisfactorily attain goals such as adequacy in revenue, efficiency of the highway system, equity between highway users, and technological and financial feasibility. The study explored and evaluated alternative financing options in order to provide the most recommendable strategy to resolve the current and future highway funding problem of Indiana. FindingsIn order to search for alternatives to the current fuel-tax-based state highway funding system, several types of user charging schemes that have been demonstrated or implemented in other states and countries were examined. The examples were studied to understand financing concepts, impacts on users and transportation systems, and caveats in their implementations. Based on that, possible guidelines for pricing implementation were drawn for several aspects, such as design of the pricing scheme, technology issues, legal and institutional issues, and public acceptability.By synthesizing previous studies that evaluated pricing schemes, a methodological framework for evaluation of alternative user charging schemes was established. Evaluation criteria included: (i) revenue adequacy (sufficiency, stability, and accountability), (ii) system efficiency, (iii) equity between users, (iv) cost of implementation, (v) public acceptability, and (vi) policy alignment. For each criterion, definitions and measurement methods were provided.On the basis of the current and projected financing situation and highway demand of Indiana, the following alternative financing schemes were developed: (1) enhancement of the current tax system; (2) addition of new funding sources to supplement the current system; and (3) replacement of the current system with new financing schemes. The analyses include, for alternative (2), forecast of annual toll revenue of a typical new interstate for various toll rate scenarios, which was estimated to range from $40 million to $90 million, using the Indiana Statewide Travel Demand Model (ISTDM). For alternative (3), a distance-based pricing scheme that charges on average 2.9 cents for each vehicle-mile-traveled was suggested. Separate fee rates were also found by road functional class, with which each of...

Forecasting of Highway Revenues Under Various Options

“…These concerns are legitimate and recent studies (Oh and Sinha, 2008;Sorensen and Taylor, 2005;Whitty, 2003) have shown that the concerns can be addressed. For instance, privacy protection could be implemented through both technological and legal means.…”

“…Furthermore, the study (TRB, 2006) concluded that cost allocation studies should be used to estimate the user fee for each vehicle class based on the damage done on the highways and finally, charging road users for vehicle miles of travel would allow for equity. Possible alternative revenue sources identified from studies (Oh and Sinha, 2008;Sisiopiku et al, 2006;Sorensen and Taylor, 2005;Whitty, 2003;Verhoef, 1997;Giuliano, 1994) include: vehicle miles of travel fees, weight-distance truck fees, tolling and congestion pricing (cordon pricing, high occupancy toll (HOT) lanes, etc).…”

“…Forecasted highway revenues from the updated models pointed to the fact that there was a need to identify alternative highway revenue sources which would be sustainable, adequate and equitable to road users. A recent study (Oh and Sinha, 2008) identified the need for Indiana to gradually move from the traditional unstable highway revenue sources (such as motor fuel tax) to alternative highway revenue sources (such as VMT fees).…”

“…The study (Oh and Sinha, 2008) proposed increasing or indexing of the existing motor fuel tax rates in the short-term, while introducing alternative revenue sources, such as VMT fees, in the longterm.…”

“…For tolling, unlike for other revenue sources, the VMT elasticity values developed by Oh and Sinha (2008) for interstates were adopted. In the present study, the VMT elasticity values (Table 5.2) used were the average of the minimum and maximum elasticity values developed by Oh and Sinha (2008).…”