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CoC Report Suggests Surcharge on Hybrids, Eventual VMT Tax to Fund Highway Maintenance

US highway and bridge systems face a cumulative $0.5-trillion shortfall by 2015 to maintain the system and a $1.1-trillion shortfall to improve the system.

A report commissioned by the US Chamber of Commerce concludes that current revenues at all levels of government—Federal, state, and local—devoted to transportation investments are grossly insufficient to maintain, let alone improve, US highways and transit systems.

The report, Future Highway and Public Transportation Financing, recommends a variety of short- and long-term financing policy changes, including a special fee on hybrid and alternative-fueled vehicles and the eventual transition to a tax on vehicle miles travelled (VMT).

Federal funds for highway maintenance come largely from the Highway Trust Fund, which is funded by the federal motor fuel tax—a gallonage-based revenue system, rather than the proposed mileage-based system. Federal motor fuel tax rates are not indexed to inflation and have lost one-third of their purchasing power since their last adjustment in 1993.

This funding problem was not addressed in the mega transportation bill passed earlier this summer (which did include the now infamous “bridge to nowhere” in Alaska).

By the report’s analysis, the cumulative shortfall in funding required to maintain pavement, bridges and traffic levels of service at current levels through 2015 is $0.5 trillion. The estimated shortfall of funds required to improve the system through 2015 is an estimated $1.1 trillion.

The report offers a range of short-, medium- and long-term changes to address the shortfalls.

  • The short-term (2005–2010)

    • Indexing federal motor fuel taxes to inflation. This would have the most immediate impact.
    • Closing exemptions to the Highway Trust Fund (HTF) so that revenues dedicated to transportation are spent on transportation.
    • Recrediting interest to the HTF so that the HTF can reap the full benefit of the revenue paid into the fund by users.
    • Dedicating 10% of U.S. Customs import revenues to transportation to account for transportation&rsquuo;s contribution to the facilitation of international commerce.
    • Giving states and local governments more revenue and investment options by authorizing expanded use of tolling and by encouraging states to index their motor fuel taxes to account for inflation.
    • Stimulating greater use of innovative finance tools so that states can make transformative investments into their transportation infrastructure. These tools include federal loan guarantees, private activity bonds, tax-credit bond financing, and investment tax credits.

  • The medium-term (2010–2015)

    • Introduce a vehicle fee on hybrid and other alternative-fuel vehicles to compensate for the fuel tax revenue lost from decreased fuel consumption.
    • Ensure that any subsidies for the purchase of hybrid and nonpetroleum-powered vehicles come from the general fund as was done for ethanol fuel subsidies—not from the HTF.
    • Recommending that the recently authorized National Surface Transportation Infrastructure Financing Commission oversee a new cost allocation study, setting principles and guidelines for the efficient and equitable allocation of HTF fees.

  • The long-term (2015–2030)

    • Implementing a mileage-based transportation revenue system to help address long-term revenue shortfalls.
    • Adopting two vehicle miles of travel (VMT) fees: a state VMT fee as well as a local-option VMT fee to help ease metropolitan congestion.
    • Indexing VMT fees to inflation to help close the annual gap between transportation needs and revenues.
    • To consider varying the VMT by vehicle weight, fuel type and consumption, environmental impact, road system, and/or geography to account for different levels of use and impact and to ensure that all users of the system pay their fair share of infrastructure costs.

The report recommends that federal and state governments begin planning and developing a new mileage-based transportation revenue system immediately, with the states leading. (VMT tax schemes are already under trial in Oregon and under consideration in California. Earlier post.)

Between 2015 and 2020, the growth in fuel tax revenues will slow, and revenue yield will erode as alternative fuels and nonpetroleum-powered vehicles capture a larger share of the market. The federal and state governments should begin planning for a new mileage-based revenue system to offset the decline in gallonage-based fuel tax revenues.

It will take at least 10 to 15 years of significant experimentation to develop mileage-based revenue systems that can be tailored technically and politically to the needs of the states and cities.

Key factors that will influence the development and acceptance of state, and eventually federal, mileage-based fees are as follows:

  • Equity. The transition from a gallonage-based to a mileage-based revenue system will require careful examination and consideration of who benefits and who pays.

  • Privacy. The technologies that enable mileage-based revenue systems will cause privacy concerns.

  • Legal and administrative frameworks and enforcement strategies. Collecting mileage-based fees from all motorists will be much more complex than collecting fuel taxes from a limited number of wholesale fuel distributors. The states and the federal government will need time to develop and test efficient, cost-effective, and enforceable approaches.

  • Political and public acceptance. The current motor fuel tax system has been in place for more than 60 years. It will take time and a broad public education effort to explain the need for a new revenue system and to gain political and public acceptance.

The Chamber of Commerce has not yet endorsed the report.

(A hat-tip to Felix Kramer!)


  • Executive Summary: Future Highway and Public Transportation Finance Phase I: Current Outlook and Short-Term Solutions

  • Executive Summary: Future Highway and Public Transportation Finance Phase II


Mike Weindl

To introduce a special tax to fuel economic vehicles..?
Isn't this the worst thing to do..every other western country raises their tax on diesel and gas and compensates
it by waiving car taxes for economic and environment-
friendly vehicles.

Art Lewellan

"Closing exemptions to the Highway Trust Fund (HTF) so that revenues dedicated to highways are spent on highways". Call me a cynic, but this bullet-point summary statement may conceal a deceit.

Urban/suburban transportation consists of 4 basic modes: walking, bicycling, mass transit, cars/trucks. Where the automobile has become the dominant mode of travel, the other modes incur a severe impediment to their viability. As highways and freeways expand, inner-city streets and boulevards became too dangerous for walking and bicycling. As car-dependent cities sprawl over the countryside, transit cannot be practically arranged.

Thus, the limitation of HTF funds to highways only, will further impair the viability for other practical means of travel. If our state representatives continue to neglect the infrastructure for all means of travel, highway expansion and degradation will follow inevitably.

We can guess which industries lobbied for this foremost clause. The automobile is a Transportaton Monopoly, and a Constitutional Inequity.

Overdependence upon cars reminds me of the animated movie, "Jimmy Neutron". The parents of Jimmy's neighborhood were kidnapped by an "advanced alien civilization". So advanced on their planet, they had 'devolved' into amoebic blobs living 24-7 inside egg-shaped mobility devises. Get it? Our cars are turn us into amoebic blobs! Yeah! And the aliens had nasty tempers too - the kidnapped parents were to be religious sacrifices to their God, a giant, 3-eyed chicken-hawk.


Raise the gas tax by at least a dollar. Come back when you need more money. Then raise it again.


No the problem as they tell it and it is one is that non highway projects have been raiding the highway funds of far too much money leading to the highways deteriorating instead of improving.

The highways already have about enough funding from fuel taxes and licensing fees IF it were to stay put in highway projects but they raid it all the time.

Also mass transit is proping itself up too jmuch on that raided money and not properly raising rates to adjust for higher costs. Many mass transit systems are wasting money and fuel running low usage lines and again make up the huge losses incured by raiding highway funds.

And finaly alt fuel and low fuel cars are forcing a change in the very way we fund the highway system in the first place.

Jesse Jenkins

Oregon, my home state, is struggling with exactly the same thing and has recently commissioned a pilot project to test a VMT tax. A few dozen people in the Portland area will have their cars fitted with GPS radio transponders that keep track of VMT. They will only fill up at a few participating gas stations where the transponders will communicate with a reciever at the gas station and their gas tax will be waived and replaced with the VMT based tax. The equipment and program have already been tested at the small scale by employees of the state Department of Motor Vehicles working at the Salem (the capitol) headquarters.

Concerns about fitting GPS devices to cars and privacy issues have been raised as well as the concerns about how this will penalize those who drive fuel efficient vehicles. However, the fact that the gas tax IS designed to make people pay for road work proportional to the amount the drive and thus the amount of damage they do seems to mean that something like a VMT tax would be a fair way to solve that problem.

This is a tricky issue though: how do we fund our highways fairly - i.e. on a you use it you pay for it basis - while at the same time incenting the fuel efficient vehicles we want more and more Americans to drive? (personally I'm not to concerned about the privacy issues but others may take serious issue with this too).


Also mass transit is proping itself up too jmuch on that raided money and not properly raising rates to adjust for higher costs. Many mass transit systems are wasting money and fuel running low usage lines and again make up the huge losses incured by raiding highway funds.

Subsidizing mass transit is important for a variety of factors.
* It helps low income citizens maintain their productivity by making sure they can get to work, social functions, and commercial areas
* It helps Americans choose to not drive, thereby reducing the demand on oil (foreign and domestic) as well as the demand on the roads themselves, and their expansion
* It allows USians to live in more compact areas, which is far more efficient for all energy consumption, as well as land consumption.

Mass transit should be subsidized, because choosing the alternative (driving your own car) bears so many additional burdens on society.

little shop

The gas tax is the simplest and while not perfect best choice right now. Do we need added complexity of vmt tax? Its a waste of alot of effort to add vmt tracking to cars. Just raise the gas tax. It rewards smaller more efiecient cars which happen to wear out the roads less anyhow. A 4 ton suv puts more then 2x the road damage of two 2 ton cars.


Exactly! Vehicle tax should be computed according to their "contribution" to the road's depreciation. If surcharge/tax is placed on the vehicle regardless of the its effect on environment, it contradicts what President Bush mentioned earlier. He told the American citizens to conserve gas.


Doesnt matter if mass transit needs the funds the funds wont be comming out of the highway funds much longer because its screwing up the highway maintenance system.

As for vmt most likely it will adjust somewhat for car impact on roads.

And no they cant stick with a gas tax after all they alresdy know in 10-15 years alot of cars wont use gas and might not use fuel of any kind as a result they have to start now.


We haven't even dealt with the issue of large commercial trucks. Are they paying their fair share?

If you're going to use the VMT, which I oppose, yes, make the charge not only proportional to the miles traveled but the weight and other damaging characteristics of the vehicle.

With respect to mass transit, if its trollies and other vehicles not using the road system, then consider the fact that while subsidized from the highway fund, they are reducing the impacts on the roadways of the passengers involved.

As long as we're expressing our concerns about impacts, how about taxing automobiles for their full impact, including air pollution, global warming, water pollution, urban sprawl, destruction of the wilderness, on and on and on.

When cars and trucks start paying their way to include their full external costs, then we can talk about the equity of diverting some funds from the highway trust fund.

In this state, Colorado, we have spent billions in general funds to finance "improvements" to the Denver area highway system. Was the highway lobby concerned about taxing everyone to subsidize those who use that system?

In the last election, we had an opportunity to spend more billions on so called maintenance of the road system. This was rejected. The people have spoken.

lance Funston

Road improvements should be funded by a combo of gas taxes and fees levied by vehicle weight. This is farirest way to do it since heavier vehicle=more road wear.

Taxing hybrids over other vehicles: if this is what I understand this proposal is about, it s the most idiotic thing I've ever heard.

Doug Hawley

So, tax the hybrids and give rebates to the gas hogs and Hummers for paying more per mile ? Duh....


No what happened was professionals were for various reasons assumed to be using suvs for bis reasons and if you can say you are you get a big fat tax dedux. Why you dont get a tax deuct for any car you use mostly for bis I duno. Prolly some agreement between bis and tax people and gov and blah blah blah.

I can understand if your running your plumbing bis out of suvs or running your house to house ferret washing service from an suv... but why not other cars and trucks?

Daryl Elliott

A tax based on miles driven that would replace a tax based on gallons of gas used would reduce the cost of gas, which is a big part of the incentive to get higher miles per gallon. Is the oil industry behind this bill? Who else would support this tax besides big oil or the inane?

I support increasing gas taxes to bring gas to $5.00 a gallon retail. That would get people thinking about their MPG and alternative vehicles would become more cost effective.

Art Lewellan (11 entries) above has the right idea.


here's something: how would a vmt help congested areas, such as LA? a lot of people here don't drive that much, but because they are stuck in traffic they still waste gas by idling. take a look at the 101 freeway during rush hour. the average speed on that sucker is probably about 5 mph.
switching to a vmt would only decrease the highway funds available to an already dilpadating system.


also mike, there's a small error in the caption. it reads
US highway and bridge systems face a cumulative $0.5-trillion shortfall by 2015 to improve the system and a $1.1-trillion shortfall to improve the system.
i'm assuming the first number is to maintain, rather than improve the system, no?


Ooops! Much appreciated,thank you.

little shop

If they need more money, increase the gas tax. While I dont want to pay more $ for gas, its still the best way. It taxes SUV's fairly, and since smaller cars use less gas, it effects the small car owner less. A nice reward for conserving.


When electric and plug-in hybrids are a significant portion of the automotive population they will have to find a way to include them in the road maintenance tax system, but until there's that kind of competition in the mobile fuel market I don't think taxing normal hybrids extra is going to help, and will certainly hinder the goal of moving towards efficiency in transportation. Following that logic we should tax a 4 cylinder option extra over the V6? That really doesn't make a lot of sense. Increasing the gasoline tax should be the first, most straightforward thing they could do to both increase the funds for maintenance and encourage efficiency.


Higher taxes will just reward inefficiency, and yes, I don't think adding a hybrid tax is fair to anyone. If the state and federal governments actually used the money that they collect in the name of trasportation funding, for, drumroll please, transportation, we wouldn't be in this fix.

Kevin Cameron

Why stop at gasoline? Clearly, people who don't drink or smoke are depriving the states of needed tax revenue. To be consistent, the states should apply additional taxes those deadbeats, too.

tom deplume

The Chamber of Commerce has a long history of anti-working family ideas. There has always been a form of VMT in America. They're called toll roads.

Alan E.

The simplest and best solution is to raise the gas tax (per gallon) and to restrict the highway trust funds from being raided by Congress to used for general fund expenses to balance the budget (or reduce the perceived size of the deficit). Bigger vehicles using more gas CAUSE more damage and should pay more. The gas tax is an incredibly efficient tax to collect. Taxing hybrids who use less gas is really stupid. ALL taxes should be eliminated on alternative fuels (inluding the highway tax) for the next 20 years. An additional alternative fuels tax on gas and diesel should subsidize the higher cost of alternative fuels like natural gas, biodiesel, ethanal, and hydrogen. The more SOME people use alternative fuels, the more gas and diesel there is for the rest of us - that means cheaper prices. More taxes should mean the same net price or less to us consumers, and less profits for the oil companies.

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