Fund roads through fees on miles driven, not gallons of gas purchased

Moving the state from the fuel tax to mileage-based user fees would be a better way to pay for Michigan’s roads and solve the problem of relying on gas and diesel taxes, according to a new study.

The novel idea of collecting revenue through mileage will become more appealing as increased fuel efficiency and use of electric vehicles reduce the amount states bring in through gas taxes. That’s according to Michigan’s Road Forward: Replacing the Fuel Tax with Mileage-Based User Fees, a report by Robert Poole Jr. and Christopher C. Douglas, released May 31 by the Mackinac Center for Public Policy and the Reason Foundation.

“The system Michigan has used for nearly a hundred years to pay for its roads—the per-gallon gas tax—is heading for a fall,” Poole says in an email. “Michigan’s roads are already in poor condition, and they will get much worse unless the state gets serious about coming up with a replacement and planning how to phase it in.”

The study estimates that by 2050, fuel tax revenue will give the state $1 billion to $2 billion less than what is needed to maintain roads. The shortfall will be caused by continued fuel efficiency improvements and a shift toward electric vehicles. Lawmakers increased the fuel tax in recent years and made sure it will increase along with inflation, but even that will be insufficient.

The study recommends charging motorists a per-mile fee rather than a per-gallon tax.

Mileage-based user fees seek to solve deficiencies of the current fuel tax. The tax cannot keep pace with future roadway needs and is not transparent in how it gets spent. Also, it applies equally to all drivers, regardless of the type of vehicle they drive or the roads they most frequently use.

“We need to raise the pool of revenue to maintain the roads. The roads have been in pretty lousy conditions, which I think is evidence that the current tax isn’t working,” says Douglas, a professor of economics at the University of Michigan-Flint and member of the Mackinac Center for Public Policy’s Board of Scholars. “We want to treat the roads like any other good or service, just like going to a baseball game or taking an airplane.”

A successful mileage-based fee must satisfy several conditions. It must charge different rates for different types of roads and vehicles. It also must reflect the cost of road maintenance and the damage a vehicle inflicts on a road. The fee needs to be transparent and subject to periodic increases when justified by increased operating and capital costs, but only through a public process. It also must be unaffected by changes to average fuel efficiency.

Poole and Douglas acknowledge that moving to a new system of funding road maintenance will not be easy.

“The biggest obstacle is that the general public is not aware of this looming crisis,” Poole says, referring to inadequate revenue for Michigan’s roads.

Concerns about driver privacy and lack of trust in public officials are two other barriers.

According to Poole, people fear that a mileage-based fee will result in Big Brother tracking them wherever they drive. They also worry that a fee will become an additional tax and not a replacement for the fuel tax.

About 23% of the federal Highway Trust Fund, which collects the federal portion of fuel taxes, is used for purposes other than roads. This, along with Michigan’s practice of imposing a sales tax on gas purchases in addition to the fuel excise tax, leads motorists to conclude that the fuel tax is just another tax to be paid, instead of a user fee.

“People have to trust that the price they pay will be used to maintain the roads rather than being diverted to other purposes,” Douglas says.

The report suggests that Michigan participate in a federally funded pilot project involving mileage fees. This will introduce a cross-section of the population to the idea of a mileage fee.

The pilot programs to date “have had a very positive impact for the thousand or two thousand who volunteer to participate in them,” Poole says.

By participating in pilot programs, motorists learn that there are alternative ways to report miles driven, and that their privacy can be protected. Most pilots programs send monthly statements to the participants, outlining what they paid in fuel taxes versus what they would have paid in a mileage fee.

According to Poole, some pilot programs have encouraged state legislators to learn alongside private citizens. They have also debunked the common fear that rural drivers will pay more in mileage fees because they drive longer distances. There is not a significant difference between urban and rural motorists in the number of miles driven. Rural motorists, however, tend to own vehicles that use more fuel per gallon

“These results have now been measured in a number of different states, and I am not aware of any cases where rural divers would pay more after a switch from per-gallon taxes to per-mile charges,” Poole says.