A VMT tax in Idaho? Lessons from our neighbor to the west

Did you know that in 1919, Oregon was the first state to institute a fuel tax? Now, in 2015, they are the first state to institute a vehicle miles of travel (VMT) tax – or, as they call it in Oregon, a road usage charge.

Within 10 years of instituting a fuel tax, every state in the nation had followed Oregon’s example. Will the nation again follow Oregon’s lead and establish a VMT tax? Will Idaho?

I honestly don’t know, but I do know that we need to revisit the way we fund our transportation system and a VMT tax is one way of doing that. The concept of a VMT tax is simple: drivers would be charged a fee based on the number of miles they drive, instead of (NOT in addition to) the amount of fuel they purchase. With this type of tax, everyone pays the same amount per mile, tying the amount paid in “transportation tax” directly to the amount of use.

Maureen Bock, Oregon Department of Transportation (ODOT), and Colleen Gants, PRR (a consultant working with ODOT), shared insight into Oregon’s new road usage charge – OReGO – as part of the COMPASS education series in September. I’d like to share a little of what they discussed – focusing on the “why” and “how” of the program.

Why? Oregon instituted its OReGO program to address declining gas tax revenues, a disparity between revenues and expenses, and social equity issues.

Declining gas tax revenues:

• Changes to the nation’s vehicle fleet
• The number of hybrids and electric vehicles on the road is increasing rapidly
• Less fuel (or no fuel at all!) is consumed by hybrid and electric vehicles than traditional gas/diesel-powered vehicles

• Stricter fuel efficiency standards
• Traditional gas/diesel vehicles are getting more and more fuel efficient
• As standards become even more strict, this trend will continue

• The bottom line: less fuel used means less fuel tax collected

Disparity between revenues and expenses:

• Fuel taxes are typically priced per gallon
• A price per gallon method of taxation doesn’t increase with inflation
• For example, the federal gas tax has been 18.4 cents per gallon since 1993. That 18.4 cents could buy much more in 1993 than it can today

• Construction costs are increasing

• The bottom line: stagnant or shrinking fuel tax revenue can’t keep up with costs

 Social equity:

• Middle- and upper income individuals benefit from increased fuel efficiency as they purchase new vehicles, while lower-income individuals tend to drive older, less fuel efficient vehicles

• The bottom line: lower income individuals pay more in fuel tax for the same usage than middle- and upper-income individuals

 How? How does the OReGO system work? Why was it set up as it was? 

• The OReGO program is voluntary and limited to 5,000 participants. Currently, about 1,000 are enrolled.

• To allow for flexibility and to address privacy concerns, participants have a choice in service providers – much as someone chooses their cell phone or cable provider. Different providers offer different types of service. For example, a participant can choose a provider that tracks miles only (no GPS to track where they drive) or they can choose a provider that collects more data and provides feedback to the driver. Regardless of the provider, all that ODOT ever sees is the total number of miles driven. The “extra” information is only shared with the participant

• Costs to the participant vary depending on the type of vehicle they drive. OReGO charges a flat rate of 1.5 cents per mile. Someone driving a gas guzzler will likely save money with OReGO, as they use more fuel per mile, and thus pay more in fuel tax, than the flat rate per mile charge. On the other hand, an owner of a hybrid likely will pay more with OReGO, as they use less fuel – and therefore pay less in fuel tax – than the flat rate per mile charge.

• As I said above, OReGO replaces fuel tax for participants…they are not double taxed. However, the way the program is currently set up, participants do pay fuel tax at the pump, then later the amount they paid in fuel tax is compared against the road usage charge and they are either invoiced or reimbursed the difference.

One big drawback of a VMT tax is the cost to administer the program. VMT taxes are collected from individual vehicle owners, while fuel taxes are collected from gas stations. More “users” (individuals vs gas stations) means more work to collect the taxes, which makes it more expensive. It’s unknown how many vehicles would need to be enrolled in a VMT program for it to make money, but the number is likely in the millions. For now, with 1,000 enrollees in Oregon’s voluntary program, it is far from breaking even.

Will a VMT tax solve our transportation funding woes? It’s hard to know, but the fact that Oregon – and others – are exploring how it works is a step in the right direction. Something needs to change. Our current method of paying for our transportation system is not keeping up with transportation costs or societal trends.

What do you think? Is a VMT tax worth exploring, or is Oregon wasting its time? Do you think Idahoans would jump on board if given the chance? Submit a comment below to share your views.

Want to learn more? Link to a video and slides of ODOT’s OReGO presentations at www.compassidaho.org/comm/publicevents_2015_ed_series.htm.