A vehicle registration-based “access user fee”: A simpler, fairer way to modernize highway funding
- May 20, 2021
- Posted by: Joe Milazzo II
- Category: Blog
Fuel taxes are increasingly unfair — the less fuel efficient your vehicle is, the more you end up subsidizing the travel of others. In addition, fuel taxes are increasingly unable to provide sufficient funding for transportation in our growing state as electrification and overall fuel efficiency increases.
The regional business community is promoting a vehicle registration-based “access” user fee for cars and light trucks as a simpler, fairer solution to help modernize the highway revenue business model for North Carolina.
Currently North Carolina has an annual electric vehicle fee in lieu of fuel taxes — in other words, an access fee — of about $140. Unfortunately, that fee is only equivalent to about 60% of the annual fuel tax paid by the average North Carolina driver ($237), which means electric vehicles owners receive an effective annual user fee subsidy of around $100.
Implementation of the access user fee concept for all vehicles is straightforward. North Carolina would simply raise the electric vehicle fee to align with what the average driver pays in fuel taxes … and then charge all vehicles that same “access fee” amount, on an annual or monthly basis, while simultaneously eliminating state fuel taxes.
There are several benefits and opportunities for the access user fee approach, and a few challenges. First, the benefits:
- Equitable – Everyone would pay the same amount per year in annual transportation fees per vehicle, regardless of how fuel-efficient their vehicle is, or whether they use gasoline or diesel at all
- Reasonable, revenue neutral pricing – As noted above, the annual fuel tax paid by the average North Carolina driver is currently around $237 per vehicle; this amount would be the annual revenue neutral access fee in lieu of state fuel taxes, and it would correspond to a monthly access fee of just under $20 if state fuel taxes were eliminated
- Predictable and consumer friendly – While not as automatic (and unavoidable) as a motor fuel tax, an access fee could be paid on a monthly or annual basis; as the amount would not vary from month to month, it would be predictable for families
- Resilient to changes in travel or economic downturns – Unlike travel-based user fees like fuel taxes or “vehicle miles traveled” (VMT) taxes, an access user fee does not vary when significant variations in travel occur due to a pandemic or other economic situations
- Independent of changes in vehicle fleet mix – It doesn’t matter what proportion of cars or light trucks use internal combustion engines, hydrogen fuel cells, or electricity — all vehicles are charged exactly the same
- Benefits rural North Carolina – Individuals who have to travel further for work or health care, particularly in rural areas, won’t have to pay more in monthly or annual transportation taxes, as the access fee will not vary based on travel, unlike fuel taxes or mileage-based fees
- Ready for growth – North Carolina already indexes our vehicle registration fees, so those index rates could simply be applied or modified as need be under a vehicle registration-based access fee approach
- Scalable for legislative implementation – An access user fee could be implemented in steps, by first reducing the motor fuels tax rather than completely eliminating it, and simply matching the decreased fuel tax with an access fee for revenue neutrality
- Avoids privacy concerns – There is no need to track mileage or incremental travel, within North Carolina or elsewhere, when the entire fee is independent of travel
- Uses existing revenue collection infrastructure – We already have vehicle registration fees, and electric vehicle fees, so we do not need to create new administrative, data collection, or revenue infrastructure
- Benefits retailers, and the state as a whole – As our fuel taxes drop, our fuel prices will drop, which will make our filling stations more competitive vs. adjacent states, which means ancillary retail sales will also increase, and so will sales taxes from those purchases
- Simple, familiar and fair revenue model – An access user fee approach is analogous to a typical mobile phone plan, which costs the same per month regardless of minutes used — the reason is that you are not paying for incremental use (either talk time or travel miles), the user fee in both cases is to receive “access to a reliable network whenever you need it”
While an “access user fee” is a different approach than a “travel user fee” framework such as fuel taxes and “VMT” fees, it is consistent with actual costs to the state, and value for the user — or at a minimum, it may do as well as other measures that add more complexity.
The NCDOT FIRST Commission final report noted that it takes 9,000+ passenger cars to equal the impact of a single tractor semi-trailer. Reflecting further on this, it is clear that “horizontal” construction costs (e.g., number of roadway lanes) are primarily caused by cars in congested areas, while “vertical” construction costs (e.g., pavement depths) are designed to accommodate heavy trucks. As a result, a driver who rarely travels in congestion may give rise to near zero incremental costs to the state, regardless of daily travel — but they, like all drivers, would value consistent, reliable access to the entire statewide road network.
To be clear: it is a fair observation that unlike an access fee, various travel-based measures such as a vehicle miles traveled tax, and our existing fuel taxes for that matter, both incorporate a measure of marginal usage. However, neither of the “passive” versions of those taxes (i.e., either the pre-paid fuel taxes paid at the pump in advance of travel, or the post-paid odometer readings after travel over a period of time) reflect whether any travel was actually in congestion. To know that, you would need to know where and when the mileage occurred, and to do that you would need to track it on a mile-by-mile basis — and doing so would involve a host of additional data collection and security/privacy costs and concerns.
An access fee obviously cannot track mileage either, and it doesn’t attempt to. However, an additional aspect of the aspect fee approach is that rural drivers, who might currently travel longer distances, would pay less under an access fee versus the current fuel tax system or a vehicle miles traveled framework. Conversely, metropolitan drivers, who have shorter travel distances, would pay somewhat more via an access fee instead of a travel-based revenue measure — and this is reasonable, since metro areas are where the congestion is and where the additional roadway costs arise.
While the access fee is not a travel-based measure at all, no existing or proposed measure captures travel in congestion, which is what gives rise to needed roadway width. It is certainly possible to envision a combination of an access fee with a travel-based measure — i.e., a fixed + variable cost method, similar to electric or natural gas bills — as long as the revenue “juice” is worth the “squeeze” of added complexity, and as long as the added complexity from the variable component provides an accurate measure of both value to the user and costs to the state.
Regarding out-of-state drivers, who would not pay annual or monthly North Carolina access fees, there are several possible approaches to deal with this concern:
- As North Carolina filling stations become more competitive due to lower fuel prices, we could allocate to transportation a portion of the resulting increase in state sales tax receipts from increased ancillary retail purchases of other goods
- We could charge visitors a weekly access fee at the border using electronic toll collection technology — this would be about $5 for a week of access to our statewide roadway network
- We could retain a small fuel tax; if the amount were kept very small, we would still avoid distortions from real or perceived lower prices in neighboring states, such that both in-state and out-of-state motorists would still be increasingly likely to stop for fuel and related purchases in North Carolina
Of course, it might be simplest to convince our neighboring states to also adopt an access user fee approach. Then, the out-of-state revenue question won’t matter, because we won’t pay their access fees and they won’t pay ours.
The regional business community believes that a vehicle registration-based “access” user fee for cars and light trucks could serve as an important component of an approach to modernize transportation funding. It is a simpler, fairer solution to help modernize the highway revenue business model for North Carolina.
Let’s get moving,
Joe Milazzo II, PE
Executive Director, Regional Transportation Alliance
RTA is the voice of the regional business community on transportation in the Research Triangle area.
RTA represents more than 100 leading businesses and 25 member chambers of commerce in central and eastern North Carolina.