Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
106 NCHRP Report 377: Alternatives to Motor Fuel Taxes for Financing Surface Transportation Improvements and subse- quent studies have pointed out that continued improvements in fuel efficiency will likely diminish the effectiveness of motor fuel taxes as a method for financing highways. In addition, higher fuel prices, increased congestion, and telecommuting have resulted in shifting patterns of behavior, causing individ- uals to either drive less or switch to alternative modes. Inflation also continues to erode the buying power of the motor fuel tax. As a result of these trends, the motor fuel tax system, which forms the backbone of the nationâs transportation funding structure, faces long-term instability and uncertainty. In todayâs environment, it is in the publicâs best interest to look beyond existing revenue-generation systems and more closely examine the feasibility of alternative approaches. How- ever, there is no clear indication of which approach will suc- ceed in the long term. As a result, it is likely that transportation agencies will implement existing and innovative approaches in combination to maximize funding and achieve mobility and connectivity objectives in the near and medium terms. In order to provide a better understanding of the poten- tial implementation costs, it is essential to analyze and com- pare collection, administrative, and enforcement costs for existing and alternative revenue-generation systems. Thus, this report presents cost estimates relating to the administra- tive, collection, and enforcement costs for the following rev- enue systems used to finance road infrastructure: motor fuel taxes, tolling, VMT fees, cordon/congestion pricing, and parking pricing. 6.1 Overview of Existing and Alternative Revenue Generation This section presents general observations regarding each of the five revenue systems examined in this report. Conclu- sions regarding collection, administrative, and enforcement costs are presented in Section 6.2. 6.1.1 Motor Fuel Taxes Revenues from motor fuel taxes represent the primary fund- ing source supporting the nationâs highway programs. In recent years, however, the financial limitations of the current system have become evident as revenues have failed to keep pace with the demands for highway investment. Furthermore, a number of constraints could collectively limit the long-term viability of the motor fuel tax as a major funding source, including increased fuel efficiency, market penetration of alternative fuels, price inflation, and volatility with respect to motor fuel prices. In addition to these revenue constraints, there is evi- dence to suggest that motor fuel taxes have historically suffered from a persistent problem with evasion. Historic changes in administrative and enforcement practices designed to address the evasion issues (e.g., dyed fuel testing, taxation of kerosene and other alternative fuels, enhanced auditing practices, mov- ing the point of taxation up the distribution chain) have increased revenues deposited in highway funds across the nation; however, the long-term viability of the motor fuel tax remains uncertain. 6.1.2 Tolling In the last 10 to 20 years, several practices and major trends have dramatically affected toll road operations: â¢ The change in the governance structures of toll agencies, including the establishment of multimodal agencies and the introduction of private equity capital; â¢ The adoption of ETC systems, which permit the free flow of traffic at toll gantries and can improve traffic flow conditions due to higher throughput; â¢ Congestion management and the introduction of variable pricing schedules; â¢ The use of leakage rates to measure the rate of driver non- payment; and C H A P T E R 6 Conclusions
107 â¢ The charging of administrative fees and/or the criminaliza- tion of toll violations. These practices and ongoing trends will continue to have an impact on the costs of toll collection, administration, and enforcement. 6.1.3 VMT Fees With VMT systems, there are substantial trade-offs between system capabilities, cost, and complexity. The simple systems just keep track of total miles traveled. Somewhat more complex systems keep track of mileage by geographic area. The most complex systems are those that also require identification of class of road. Aside from the need for more detailed infor- mation, the potential for error in identifying roads typically requires additional capabilities to improve accuracy. Any system to collect revenue will be subject to evasion and avoidance behavior. Both may be relevant in terms of evaluat- ing a VMT system. Some systems will be designed to induce avoidance (e.g., congestion pricing systems), but others may induce inefficient behavior. For example, a system like that proposed in Oregon, which charges by the mile in state but has no charge for out-of-state mileage, could induce a driver to make a long trip on the other side of the Washington border. This would reduce the amount of the mileage fee owed to Ore- gon without affecting the gas tax rebate. Evasion is a larger problem. With a GPS-based system, this might be accom- plished by blocking the antenna to prevent signal acquisition. Since signals may be problematic in some areas, such as those with large buildings or forests, it may be difficult to determine whether there has been purposeful interference or a natural problem. There must be a mechanism for audit and reconciliation if there are differences between the amount that the system charges a motorist and his or her view of what the charge should be. 6.1.4 Cordon Pricing In the implementation of cordon pricing systems, the largest single roadblock has typically involved political rather than technological concerns. A number of the systems considered in this report began as pilot programs and were later adopted (e.g., Stockholm) or discarded (e.g., Hong Kong) after public sentiment was considered. The major issues that have been raised to date include user costs, capital costs, fairness, enforce- ment, and privacy concerns. Cordon charge systems have generated considerable debate, especially in regard to the fee assessed on local residents living within the zone compared with the fee imposed on nonresidents living in suburban areas who travel into the congestion price zone during peak hours for work, education, or shopping. The general trend among the systems examined has been a temporary reduction in conges- tion that has typically returned to historical levels over time. With the reduction in traffic, there has been a related decline in vehicle emissions. Given the recent implementation of these systems, it is too early to determine whether this is a sustain- able trend or merely a short-term effect. Another potential issue is the economic impact of cordon price zones, particu- larly on retailers within the zone who rely on outside traffic for business. In studies conducted by the operating agencies, it has generally been found that the implementation of the cordon zone areas have not had a negative impact. 6.1.5 Parking Pricing Each of the three systems presented in Chapter 2 illustrates a different approach to parking price management: â¢ In Westminster, the municipal government manages park- ing directly; â¢ In San Francisco, a partnership of agencies led by SFMTA is managing the parking pricing system; and â¢ In Chicago, the responsibility for parking management has been handed over to a private party. In some regions (e.g., Westminster), parking pricing sys- tems have been combined with cordon or congestion pric- ing to provide support to congestion management. Drivers heading into a city with cordon tolls not only must pay the toll to enter the city but must additionally pay parking rates that reflect the demand for the space chosen. When faced with congestion and parking charges, drivers may consider the trade-offs of public transit versus the personal vehicle, potentially creating a synergistic effect that reduces conges- tion in urban areas. Therefore, this approach may affect the amount of revenues generated from parking systems due to reduced demand for private vehicles entering into the city and using its parking areas. The impact of combin- ing congestion management techniques would need to be carefully analyzed for any city or other jurisdiction consid- ering implementation. 6.2 Costs to Administer the Current and Alternative Revenue-Generation Systems Examined in This Report Based on the methodology outlined in Chapter 4 of this report, the following conclusions have been drawn regarding the compliance, administrative, and enforcement costs asso- ciated with motor fuel taxes, tolling, VMT fees, congestion/ cordon pricing, and parking pricing.
108 â¢ The fuel tax system is the most cost-effective revenue system among those examined and has the lowest operating cost for all unit measurements. The operating cost for fuel taxes is only approximately 1% of tax revenue and averages approx- imately $1.20 per vehicle to operate and manage. â¢ Although the annual operating cost may reach $75 per vehi- cle, the cost for the proposed VMT system in the Nether- lands is still reasonable when measured by the share of cost to revenue, which is approximately 7%. It would be a larger share of typical revenues in the United States. Further, the capital cost would be quite high if the system must be installed for the collection of VMT fees. â¢ Although it may cost only $0.54 per transaction to operate and maintain the tolling systems, tolling agencies spent nearly 33.5% of revenues for toll collection, administra- tion, and enforcement activities in 2007. Among the sys- tems examined for this study, the operating costs for tolling and cordon pricing are comparable at 33.5% and 38.7%, respectively. â¢ The costs to operate the Westminster parking pricing system are 56.6% of total revenue. Thus, of the five revenue systems explored in this report, parking pricing was the most expen- sive to operate based on the very limited data collected. â¢ For VMT fee systems, the biggest spending item is adminis- tration cost, which may reach 3.4% of revenue. Compara- tively, collection and enforcement costs for maintaining a VMT fee system are relative small. They may be near or less than 1% of revenue. Collection costs for tolling systems are much larger than administration and enforcement costs. The evidence from the tolling agencies examined indicates that approximately 20% of revenue may be spent on collect- ing tolls. 6.3 Policy Implications This report examines the administrative, collection, and enforcement costs associated with several alternative revenue- generation systems. This section explores the policy implica- tions of these findings and identifies a number of considerations that policy makers should take into account when implement- ing revenue-generation systems: â¢ A good accounting system is necessary to accurately separate out administrative, collection, and enforcement costs. A bet- ter understanding of the cost of each activity can permit a more accurate assessment of efficiency and efficacy with and across revenue-generation systems. â¢ The technology selected for revenue collection strongly affects collection and enforcement costs, and the cost of each alternative revenue-generation system depends to some extent on the cost of the technology required to imple- ment it. For example, the OBU will be a major cost of a VMT system, with the cost estimate for the Dutch system rang- ing from 785 to 7140 ($106 to $175). While the technology costs are significant with these alternative revenue-genera- tion systems, there is widespread expectation that technol- ogy costs will continue to decline. Most of the companies responding with cost estimates for the Dutch VMT system projected lower cost per unit at future times due to techno- logical advances. â¢ Privacy and security measures are also key considerations for the alternative revenue-generation systems that require the tracking of vehicles and establishment/monitoring of accounts for the purpose of revenue collection. The failure of such systems would result in additional costs and other consequences. â¢ The technology selected for revenue collection will generate different user perceptions, depending on the use of data col- lected, privacy concerns, costs to the user, and the relative invasiveness of the technology used. This can have both a revenue and cost impact. â¢ Administrative, collection, and enforcement cost estimates for existing systems are subject to great uncertainty, so the estimates for proposed systems will be even more open to debate. While the Dutch cost estimates included a 15% con- tingency allowance, cost overruns for many projects far exceed this amount. â¢ While technology advancement requires capital expen- ditures, these investments often lower administrative and operations costs over the long-term. For example, there are a number of facilities that have implemented AETC systems, including the 183A (Austin, Texas), the 407 ETR, and the recently converted E-470 (Denver) and President George Bush Turnpike (Dallas). In contrast, other toll agencies are still transitioning from cash collection to electronic tolling. For these agencies, technology costs are a function of the implementation rate, the use of off-the-shelf technologies versus customized products, and the amount of time the technology being implemented has been on the market. Pol- icy analysts should consider the long-term financial impli- cations of alternative investments in new technologies prior to making them. â¢ There are trade-offs between the costs of enhanced enforce- ment and increased collections through reduced evasion. For example, enhanced motor fuel tax enforcement efforts have been found to net positive returns on investment. FHWA reported that it receives $10 to $20 for each dollar spent on audits and criminal prosecutions (FHWA, 1999), and a state-level study estimated that diesel tax revenues were enhanced at the rate of $321 per auditing hour (CSG & CGPA, 1996). â¢ The administrative, collection, and enforcement costs pre- sented in this report vary significantly between facilities and jurisdictions. When implementing revenue-generation
109 systems, charges may vary by jurisdiction. There may also be overlapping jurisdictions or different charges based on class of road, time of day, or other criteria. Each of these fac- tors greatly affects costs. 6.4 Implementation Plan These research results provide information needed not only to promote a better understanding of the costs associ- ated with each of the revenue-generation systems but also to assist public- and private-sector decision makers and stake- holders in the formulation of policies. The primary potential users of the research results, therefore, are FHWA, state DOTs, state departments of taxation/revenue, MPOs, toll authorities, academia, energy providers, and consultants. 6.4.1 Potential Impediments Limitations inherent in preparing cost estimates for alter- native revenue-generation systems could be viewed as imped- iments to implementation. Except for the fuel tax and toll systems, all other revenue-generation systems in this report are nascent, and there is limited experience in quantifying economies of scale for them in practice. Further, the financial performance of systems that are not currently deployed is sub- ject to a degree of uncertainty relative to those of more mature systems. When some of these systems enter the stage of imple- mentation, more data will become available and adjustments in the cost estimates will be expected. The research results pre- sented in this report should be considered as a step forward to understanding the costs associated with other non-fuel-tax revenue-generation systems.