Tuesday 6 October 2015

Oregon Road Usage Charge - some background

Often ignored in Europe and elsewhere, is the admirable progress made in the state of Oregon towards rolling out road user charging (called "road usage charging" to add to the lexicon of road pricing).  Oregon is, now, charging (some) cars, for using all of the roads across the state, by distance.  Only New Zealand, with the application of its weight and distance based Road User Charge has a parallel (as all diesel powered vehicles, including cars, prepay blocks of distance to use public roads there).  However, unlike New Zealand, which is a charge focused on heavy vehicles, which also captures light ones (because of the absence of diesel tax), Oregon is focused on light vehicles that have very high levels of fuel efficiency (including no consumption of fossil fuels).   It has its eyes very much on the future, as it sees this as replacing fuel tax.

The Mileage Based User Fee Alliance (MBUFA - yes "mileage based user fee" adds to the lexicon, unfortunately) has released its latest newsletter, which handily outlines what it calls the "myths" of the Oregon scheme.

Those on the mailing list for MBUFA got this, but it is unfortunately not accessible on MBUFA's website.   So I have replicated it below, in full (emphasis added where relevant).  Apologies for the US English, commentary follows.


The Oregon Department of Transportation is first in the nation to create a per-mile charging system (thanks to Oregon's 2013 Senate Bill 810) that will help fill the widening gap in transportation funding anticipated with declining fuel taxes and rising construction costs. The Road Usage Charge Program will assess a charge of 1.5 cents per mile for up to 5,000 cars and light commercial vehicles and issue a gas tax credit to those who volunteer to participate.

Opinions on this funding model vary, from generally positive to vehemently opposed. And there are many misperceptions about what the program will do. Reactions like these were considered carefully by ODOT and the Oregon Legislature before deciding to implement the program. Next time you come up against a myth about Oregon's Road Usage Charge Program, consider the following.

Myth: It's a new tax, on top of everything else the government charges.

Fact: The road charge works as a replacement for the gas tax, not an additional tax.

Participants in the Road Usage Charge Program will receive a credit of gas tax paid while they are in the program. The system will calculate gas consumed and gas tax paid as it also calculates the per-mile charge. If the two are equal, the motorist pays nothing. If the gas tax paid exceeds road charges billed, the driver will be eligible for a refund. And if the road charge exceeds what was paid in gas tax, the balance will be due from the motorist.

As it stands, the gas tax is becoming obsolete as vehicles consume less fuel. Over time, older vehicles will phase out and the entire fleet of vehicles will become highly fuel efficient, vaporizing the gas tax. Oregon's Road Usage Charge Program is a fair and sustainable funding model that will ensure our roads are maintained safely for every motorist well into the future.

Myth: State government will now track your whereabouts with GPS.

Fact: GPS is not required to participate in the program.

Senate Bill 810, which created the Road Usage Charge Program, does not require GPS. In fact, it demands that at least one mileage reporting option not use GPS, and that motorists be given choices for the devices and reporting services they will use.

With the advent of the smartphone in 2007, many consumers have become more comfortable with GPS technology because it gives them immediate information and services at their fingertips. They may like the convenience that a GPS-enabled device offers for road usage charging-no need to switch "on" or "off" when traveling out of state or on private roads; miles are automatically recognized as billable or not. Other folks are not as comfortable, and they will exercise their choice to not use location-determination technology. Whatever their choice, having options empowers participants to select the plan that best fits their lifestyle and driving habits.

Myth: It is a disincentive to owners of fuel-efficient vehicles.

Fact: These drivers favor the fairness of road use charging.

In ODOT's focus group research (2012-13), electric vehicle owners tended to be in favor of road use charging. They appreciated the fairness of the model as they voiced their concern for maintaining our roads (on which to drive their new vehicles). They agreed that motorists should fairly pay for the roads they use.

While a road charge would be a new bill for them to pay (instead of paying tax at the pump, as they did with their old car), savings in fuel consumption far outweighed the prospect of a road charge. They were just thrilled to not have to visit the pump anymore! Also, multiple incentives were known to be available for purchasing fuel-efficient vehicles, state and federal, which added up to thousands of dollars against the purchase price.

When faced with the realization that the gas tax places greater financial burden for maintaining our roads upon less affluent drivers who purchase vehicles in the secondary market (less fuel-efficient), the logic of a per-mile charge became clear. Some said, "I want to do my part."

Turns out, every driver wants good and safe roads to drive on, no matter what car they drive.

Myth: It's unfair to rural Oregonians who drive longer distances.

Fact: Every driver is different, with no significant net difference between rural and urban.

Some say it would be unfair for rural drivers to pay a road usage charge because they must drive longer distances to do basic things such as go to work, school, medical appointments and the grocery store. While this may be true for some rural drivers, nearly all Oregon motorists already pay a distance-based tax-the fuel tax.

But the fuel tax is not a perfect proxy for road use because it imposes a higher cost per mile on people who drive less fuel-efficient vehicles. Some drivers-for example, those with working vehicles such as pickup trucks-pay much more per mile than others. Someone driving a Ford F250 15,000 miles a year pays $410 in Oregon fuel taxes whereas a Toyota Prius driver pays $90 for traveling the same total distance.

Recent ODOT surveys found no consistent theme for rural driving. Rural drivers are actually quite diverse and have many travel behaviors. Some live in towns or close to them while others live far away on working properties. Some drive short distances and less than urban drivers while others drive longer distances and more than urban drivers.

Bottom line, extremely rural Oregonians reported driving much longer distances for medical appointments and shopping, but that was offset by less frequent trips than their urban counterparts. The net difference? Not much. 

Myth: A government-run system is certain to be problematic and cost a lot of money.

Fact: The program uses private sector vendors to provide high performance at low cost in a competitive, open-market system.

It's true that the cost to collect Oregon fuel taxes averages about 0.5% of revenue-a real bargain! That figure reflects a fully operational, mature program with three million vehicles. And it excludes capital costs associated with establishing the system back in 1919 (Oregon was the first in the country to implement the gas tax, too.)

Operating costs for the Road Usage Charge Program will start out high but using private vendors to manage collection will reduce system costs over time. ODOT expects vendors will use the per-mile charging system as a platform for marketing other products and services, such as pay-as-you-drive insurance, tolling, and travel concierge-or perhaps those services would serve as a platform for the road charge. Many of the costs of system implementation and operation would be borne by the industry, and their customers could benefit from value-added services, discounts, and open-market innovation and upgrades.

It's worth the investment. As the number of program participants grows and the market for value-added services expands, costs will decline substantially. ODOT estimates when the number of road usage charge payers reaches one million, operating costs will drop to below five percent of gross revenues per month.

What's more, by enlisting private sector companies to provide technology and billing service options, program participants will benefit from innovation that is naturally driven by the open market (versus a "closed" system entirely run by the government).

The "connected car" is becoming reality. Many vehicles already have factory-installed telematics systems that could be used to wirelessly report miles driven. In time, motorists may be able to simply drive and receive a bill by email that is bundled with other services, such as insurance, cable, parking or mobile phone charges. They would pay online via smartphone and roll on!

Looking Ahead

Years from now, the road usage charge model could transform the way Oregon drivers pay for the roads they use every day. It offers a way to equitably assess fees based on the value a motorist gets from the public infrastructure. And because technology is advancing so quickly, the system can maintain privacy even while delivering higher levels of service and more seamless ease of use.

No solution, not even Oregon's, can address every set of circumstances. Still, Oregonians are proud to be blazing a new trail-high-tech, responsive and practical-keeping alive our tradition of innovation that stretches back to the days of sputtering Model-Ts, roads of mud, and the nation's first gasoline tax.

My commentary

Let's be clear about what Oregon is not.   It is not a congestion charge and there is no sense that this will be a precursor to charging by time of day or location (although in the long term it is possible to conceive of pathways towards that).   What it is doing is shifting from payment of roads through fuel tax to paying for them directly, by actual use.  It demonstrates a path forward for jurisdictions that wish to transition from fuel tax (or indeed could do so with vehicle ownership/licensing taxes) to usage based charging.

Yes the Oregon scheme has a limitation, with a cap of 5,000 vehicles allowed to move onto this system.  Hopefully, the politics behind this will mean that the cap can be removed in due course, and there can be some expansion of the programme further.

Washington State and California are both watching Oregon closely, and have been undertaking their own work to develop charging programmes.  It is far from inconceivable that both will move forward in broadly similar ways, and if the entire Pacific seaboard of the United States is starting to charge cars by their actual use of the roads, maybe it will be time for other countries to catch up?