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By Kenyatta Lovett
The spring thaw brings the opportunity to deal with winter’s potholes. All can agree on the idea of fixing them, but there is much debate about who pays for it.
The electric car is at the center of this discussion, given that fuel taxes are a major source of state funding for road maintenance and construction. The Green Car Reports estimates that electric car sales topped 100,000 units in 2013, doubling the previous year. Growth in this sector can be attributed to affordable electric cars, combined with state and federal incentives.
Aside from the environmental and economic benefits of less fuel consumption, state transportation agencies are experiencing new challenges with the absence of a method to assess taxes on electric cars’ road use. The transportation policy community is well aware of the issue of lower consumption of gasoline, including the urgent need to create a new fee mechanism to account for electric cars. Any solution, however, must effectively address matters related to horizontal and vertical equity. Several states have begun exploring ways to address this growing public problem.
One of the more basic assessment strategies comes from North Carolina. Their approach to assessing taxes for electric cars is an annual fee of $100 for each vehicle. To place this measure in the context of the tax burden for gasoline-based vehicles, the average rate for gasoline tax in the country is just shy of 50 cents per gallon, according to the American Petroleum Institute, 32 cents per gallon being the state portion. Assuming an average annual mileage rate of 15,000 in a car producing 30 miles per gallon, electric vehicles will likely realize one-fifth of the usage fees to travel on roads in North Carolina. While this strategy is a fairly straightforward way to deal with the road-use payment inequities, an overly simple approach makes this form of an assessment more difficult to modify in the future.
The other approach is an assessment mechanism based on pay per-use fees for road usage. Oregon is the first state to establish policy to create a road usage charge program. The state legislature passed a bill to begin a pay per-use fee structure for 5,000 vehicles of all types, starting in July 2015. Indiana has passed an identical measure, pending the governor’s signature. For both states, a fee would be assessed at 1.5 cents for each mile traveled by participating vehicles. Referring back to the previous mention of average taxes for gasoline use, gasoline-based cars fair much better than electric cars. But, the administrative challenges may far outweigh Oregon’s attempt at addressing equity in road usage.
The Oregon tax assessment model will leverage partnerships with private sector service providers to capture vehicle road usage. The primary means for collecting this information for each car is through global positioning systems. However, the state has placed a provision in the policy to allow for a non-GPS based option for citizens. In order to create several options for GPS-based tax assessments for road usage, the state is working with several companies to develop business rules and requirements to build the certification framework, leveraging open market competition to provide cost, innovation, and choice benefits to citizens. I could be wrong, but most policies merging private sector partnerships with personally identifiable citizen data throw off red flags about citizen privacy. The state, in response to these concerns, has developed a comprehensive list of provisions to mitigate the risk of citizen-privacy infringement, including the removal of the data 30 days after fees have been assessed. Michelle Godfrey, Oregon Department of Transporation Public Information Officer, mentioned in a brief phone interview how the growing use of GPS technology has improved the acceptance of tracking devices in vehicles. However, she believes citizens do want choices when it comes to GPS technology. I might add that travelers accustomed to toll roads may also be less alarmed by such a concept, which in turn places questions on the future of toll roads given the possibilities of technology.
There are important concerns for state administrators in the transportation sector involved with matters such as Oregon’s new program. We are now faced with tax revenue channel far different than existing streams leveraging commerce structures through the local gas stations. In thinking of how this would actually work, I can imagine a few major administrative challenges, and opportunities, created by this more accurate pay per-use policy.
Auditing Businesses, and Citizens
This new world of pay per-use means tax assessment streams are now dispersed throughout the state to all citizens owning and driving cars. This also requires new auditing practices to ensure all parties are in compliance with road-usage policies. For the existing mechanism of assessing taxes based on fuel usage, the audit controls are leveraged by several sources of consumption at the retail and corporate level. There are many regulations in place to control the flow and distribution of petroleum-based fuel. There are also controls enforced by store managers and corporate head quarters to accurately account for every drop of gasoline sold. On the other hand, the creation of data is much more difficult to account for, much less audit, especially when most activity is only observable through GPS devices. The relationship between state transportation agencies and the companies providing the data to assess relevant fees is paramount. It will require administrators to possess new skills with technology to develop sound auditing practices for both the partnering businesses and the citizens.
Stealing Gas versus Suppressing Data
What if the audit controls can be perfectly developed? There still lies the question about enforcement. Are the laws for avoiding taxes for fuel applicable to crimes related to tampering with data? The regulations established for fuel commerce and consumption will need to be transferred and translated to deal with the new context of data. Oregon has incorporated provisions in their policy to address both auditing and enforcement, but investigating data crimes are often a costly endeavor requiring much more technical expertise. Dwight Denison and Robert Eger examined motor fuel tax evasion in their 2000 Public Administration Review article and highlight both the complexity of detecting evasion and the costs associated with compliance and enforcement. Moving from chemical and transaction-based detection to a data-only context will no doubt create a more complex enforcement environment for administrators.
Forecasting Consumption versus Usage
Fuel prices and trend reports on road usage serve as a stable means to understand how public revenue would look in the near future for state departments of transportation. Pay per-use strategies are of a different sort. GPS-based measures of assessments now allow for charges based on actual use of local, state or federal roads. The more accurate means of assessment creates a much more volatile scenario for those forecasting revenues. The projected use of roads will require forecasting techniques much more sophisticated than economics-based measures of supply and demand. Forecasting user-traveling preferences will need to factor other social phenomenon to account for changing trends, which demands new skills in understanding a more dynamic view of citizen travel. However, the availability of such a rich source of data may produce benefits from lowering the costs of road-usage studies and other planning initiatives to understand where best to dedicate public resources for transportation.
I am sure many of these questions will be answered from Oregon’s forward-thinking pilot project. It may also reveal clues in understanding how this approach can be scaled to serve as the sole means of tax assessment for vehicles, as well as the potential of other states to adopt this model. Their approach definitely shows promise for dealing with equity. Regardless of the outcome, we will always agree that potholes are a public nuisance. But, how do we make them smaller and fewer in the future?
Author: Kenyatta Lovett is a public administration doctoral student at Tennessee State University’s College of Public-Service and Urban Affairs.