The organized regional and statewide business community applauds the NC General Assembly for continuing North Carolina’s transition to a simpler, fairer, and more stable “access user fee” framework for funding transportation
- September 21, 2023
- Posted by: Joe Milazzo II
- Category: Blog
The legislature’s bipartisan budget includes an increase in the existing, partial access user fee for electric vehicles (EVs) to $180 per year (up from the current rate of $140), and a new, partial access user fee for hybrid vehicles of $90 per year. These fees, like all “DMV” fees, will continue to index quadrennially for inflation.
These improvements continue North Carolina’s leadership in moving toward a simpler, fairer, and more stable transportation funding approach for our growing state, while helping rural residents and supporting workforce mobility.
The organized regional and statewide business community applauds the NC General Assembly for continuing North Carolina’s transition to a simpler, fairer, and more stable “access user fee” framework for funding transportation. RTA and the NC Chamber will continue to promote and support this vital effort for our economic and mobility future with other partners across the state.
The below provides additional information on the benefits of implementing access user fees and repealing the state gas tax.
The limitations of gas taxes
Gas taxes have served America for more than 100 years. However, the increasing disparity in fuel efficiency across the vehicle fleet and the rise in electric vehicles who do not and cannot pay fuel taxes – coupled with the inherent revenue instability of any travel-based funding source – has rendered the best days of the gas tax in the rear-view mirror.
Gas taxes are increasingly unfair to rural and low-income residents who travel further for work and other activities. Gas taxes cannot be raised much more due to fairness concerns, and a smaller proportion of vehicles pay gas taxes every day. The next economic downturn will reduce overall travel, which could crater revenues like in 2020 and delay more projects.
Continuing to rely on gas taxes, or any travel-based funding source, will leave us behind. Fortunately, there is a more stable and predictable way to fund transportation, that the state began implementing in 2013: an “access user fee” approach.
Access user fee – overview
An access fee is a constant amount per month or year, regardless of individual travel – analogous to a mobile phone bill, which doesn’t vary from month-to-month based on minutes used. An access fee is still a user fee – only registered vehicles pay – but not a usage fee. With an access fee, you are paying for 24/7 access to the non-toll state highway network.
The RTA business group in the Triangle commissioned a study by RTI International to calculate a revenue neutral access fee rate if the gas tax were simultaneously repealed. RTI determined that the average registered vehicle in 2023 contributes $251 in state gas taxes each year ($21/month), based on average miles traveled, fuel efficiency, and state gas tax rates.
Continued transition to an access user fee approach – by modernizing the rate and applying the rate to all non-diesel powered vehicles – will resolve many of the fairness, complexity, predictability, and revenue stability issues faced by either the gas tax or proposed miles-of-travel-based alternatives.
Access user fee – benefits
- A single, consistent access fee price for all vehicles would be simple, fair, transparent, equitable, resilient – and predictable and stable for both consumers and NCDOT, even if travel were to drop due to a recession or pandemic.
- A single price for all vehicles would benefit rural residents who have to travel further for work and other activities, as they would pay less in access user fees than either gas taxes or a possible fee on vehicle miles traveled.
- Since an access fee is simply a higher vehicle registration fee, the revenue from the fee is effectively prepaid, and the state won’t have to create a new revenue collection bureaucracy.
- Since the price would not vary by amount of travel – it is an access user fee, not a usage fee – North Carolinians won’t have to track vehicle miles traveled, or have their travel monitored for payment.
- A constant price access fee will eliminate the conflict between the policy objective of reducing mileage traveled while relying on a travel-based funding source like gas taxes or VMT fees.
- A constant price access fee – independent of the amount of travel – mitigates revenue risk from ongoing increases in fleet fuel economy as well as volatility in miles traveled due to the pandemic and economic cycles.
- Were an access fee fully in place since 2012, the state would have collected an additional $1.4 billion to $2.1 billion in cumulative revenue over the past decade to support long-needed transportation infrastructure projects.
- North Carolina has had a partial access user fee in place for electric vehicles since 2013. To continue implementation, we will need to modernize the rate, apply it to all non-diesel vehicles, and simultaneously repeal the gas tax.
- Access user fees would then automatically index due to inflation every four years based on existing law.
Scalable implementation framework for access user fees in North Carolina (2013-present)
Completed or imminent steps
- Access user fee for electric vehicles (EVs) – The implementation of access fees in North Carolina began in 2013 with a fee on EVs at $100/year. The current rate is $140 [see N.C.G.S 20-87 (13)], and will go to $180 (i.e., 72% of full $251 implementation for 2023) upon state budget passage. As there is no gas tax to repeal for EVs, the full access fee rate can be implemented any time.
- Access user fee for hybrid vehicles – This year’s state budget activates a partial access fee of $90 for hybrid vehicles. Since hybrids also pay some gas taxes, the full access fee rate cannot be implemented until the gas tax is repealed.
- Incorporation of inflation indexing – All existing and future access user fees are already automatically indexed for inflation every four years based on existing law. The next indexing will occur in 2024.
- Full implementation of an access user fee approach for all non-diesel powered vehicles requires three basic steps:
- Modernize the access user fee rate for EVs (i.e., to $251 for 2023),
- Apply the access fee rate equally to all non-diesel powered vehicles, and
- Simultaneously repeal the state gas tax.
- Access user fee for gasoline vehicles – Gas-powered vehicles are the majority of the vehicle fleet; full implementation can only occur concurrently with full repeal of the state gas tax. An access fee for gas vehicles is not in this year’s state budget; the far larger number of these vehicles will require time to prepare for transition.
- Access user fee for other non-diesel vehicles – Full access fee implementation for hydrogen, natural gas, and other methods of non-diesel propulsion would be simultaneous with that of gasoline powered vehicles.
- Access fee implementation working group – North Carolina can create a working group involving NCDOT, DMV, Department of Revenue, and the Attorney General’s office to vet opportunities and risks associated with full, non-diesel, access fee implementation and state gas tax repeal, focused on a targeted date; e.g., July 1st of a fiscal year.
- Working group focus areas could include customer communication, monthly or annual payment options, the potential for partial transitional rebates for low income users who previously had limited travel, and so on.
- The group could also analyze expected increases in sales tax revenue due to gas tax repeal and resulting increases in associated retail sales.
- Completion of transition to access user fee approach – Full access user fee implementation occurs when the state gas tax is repealed and all non-diesel powered vehicles are paying an identical, full access fee rate ($251 in 2023), indexed for inflation. The access user fees will be separate from existing vehicle registration fees ($38.75 in 2023).
Limitations of the access user fee approach – does not apply to diesel vehicles
An access fee is not appropriate for the majority of diesel-powered vehicles (e.g., predominantly heavy trucks) since the amount of travel of heavier vehicles does impact the cost of providing and maintaining the infrastructure. This means that the diesel fuel tax would remain, and other options for modernized revenue would be explored for those vehicles.
Fortunately, non-diesel powered vehicles represent around 90% of the vehicle fleet in North Carolina, so the transition to an access fee approach would still address a significant proportion of the states’ revenue stability challenge.
Final thoughts on the validity of a simplified, access user fee approach for transportation funding in North Carolina
- It is both simpler and inherently fair for everyone to pay the same, predictable monthly access fee price. While some vehicles may travel more than others in a given month, every registered vehicle has the same access to the network.
- It is also reasonable to charge all non-diesel vehicles the same monthly access fee. Automobiles cause negligible road damage, regardless of miles driven, compared with larger trucks.
- While miles driven in congestion can give rise to the need for more lanes, there is no way to know which miles were traveled under congested conditions without tracking the where/when of all travel. Even if this were possible and acceptable, it would still leave our transportation funding vulnerable to ongoing volatility from economic downturns.