The Return of the VMT

by Reihan Salam

Ben O’Neil of The Next City describes the latest iteration of Oregon’s vehicle miles traveled (VMT) tax:

Drivers in the new program, which for now will remain voluntary and capped at 5,000 cars, will pay 1.5 cents per mile. Since these drivers are paying for VMT instead of Oregon’s 30-cent-per-gallon gas tax, they will be reimbursed whenever they fill up at an Oregon gas station. Participants in the program will continue to pay the federal 18.4-cent federal gasoline tax.

The new program is the latest development in Oregon’s decade-long plan to find a replacement for the gas tax. In the early 2000s, the state began exploring alternatives to fuel taxes. Since then it two pilot programs among state employees and legislators that were almost identical to the current system.

While the advent of more fuel efficient vehicles has been eating into gas tax revenues, a VMT tax revenues are likely to prove fairly stable. O’Neil observes that “don’t incentivize people to drive fuel-efficient cars, for instance, nor do they discourage the use of heavy vehicles that cause increased wear on highways,” but the latter deficiency can be addressed by varying the VMT tax by the weight of the vehicle, with heavier vehicles paying a higher per mile rate. A weight-based VMT tax would also indirectly reward fuel-efficiency. 

The Oregon Department of Transportation has gone to great lengths to allay concerns about privacy:

If uncomfortable with the DoT having too much knowledge of their driving habits, Oregonians will be able to opt out of the program entirely by paying a flat monthly tax. They can also install in their cars an odometer-like device that tracks the total number of miles driven and then reports that number to the state — however, these drivers will continue to be charged the VMT tax when traveling outside Oregon or on private roads. To fix the problem, some sort of GPS technology could tally number of miles driven only on in-state public roads.

One unfortunate consequence of efforts to address privacy concerns going forward is that it limits the potential of VMT systems going forward. In 2010, Felix Salmon described the virtues of Skymeter, a device that allows for a wide range of GPS-enabled road pricing schemes:

The idea behind Skymeter is that they use what they call financial-grade GPS: devices in your car which are much more accurate than the GPS devices found in navigation devices or cellphones. They can tell where you are to within a few centimeters, and once you can do that, all manner of possibilities open up in terms of charging not just to get into a city center, but rather to charge by the mile or by the minute on specific streets. Raise prices where congestion is worst, keep them low where it isn’t a problem, and solve lots of other problems at the same time — like easy charging for parking (you just park your car on the side of the road and pay for however long it’s parked there) and for pay-by-the-mile insurance. Or transform the economics of something like Zipcar, which currently just charges by the hour even when charging by a combination of hours and miles would make more economic sense.

Skymeter also allows for negative tariffs, e.g., Salmon suggests that local officials could pay drivers not to use their vehicles on certain days – a very effective tool for reducing congestion. Oregon has shrewdly given drivers many options, and the key to spurring the adoption of the VMT tax is to make it substantially more attractive than the gas tax and other alternatives, like a flat monthly tax.

Eric Jaffe has more on how VMT taxes can incorporate other anti-congestion elements, like higher mileage fees within metropolitan areas during peak hours, a concept that the Oregon Department of Transportation tested in its third VMT trial with great success.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.