One of the major currents in the river of last week’s discussion on interoperability is the subject of vehicle miles traveled charging, or VMT for short. The interoperability forum report suggests that establishing an overarching structure for nationwide interoperability could become the foundation to support a nationwide VMT charging program. However, not everyone agrees with this sentiment.
Both of the commissions that Congress established under SAFETEA-LU -- the Policy Commission and the Financing Commission -- recommended a short-term increase in the fuel tax and a long-term transition to VMT to fund America’s future highway needs. Both commissions said the fuel tax is unsustainable as a long-term mechanism to support highways because you’re taxing a commodity whose use you’re trying to discourage. The Bipartisan Policy Center, which issued its report in June 2009, also endorsed the concept that users and direct beneficiaries should bear the full costs of their use of the transportation system to the greatest extent possible, implying that VMT could be the way to go.
However, in the responses to last week’s blog question on interoperability, there was disagreement on the value of engaging in discussions of VMT. Marty Stone asked, “When did the toll industry become the spokesman for national VMT? And, why is national VMT one of the focuses of our interoperability development - especially when there is no guarantee that national VMT will ever overcome a laundry list of very challenging political hurdles?” João Bento said “interoperability does not imply VMT but the reverse does.” Dan Faust said, “We should not be the spokespersons for VMT, nor should we equate VMT with true, customer-focused interoperability.” In addition, in the interoperability forum report, Larry Yermack said, “the issue of VMT alone provides the greatest threat to the toll industry that it has seen in decades.”
What is the significance to the toll industry of the emergence of VMT charging as a concept and a reality? What if anything should the toll industry do to respond to this possibility?
Sunday, January 31, 2010
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This comment is from Robert Atkinson, Part 1 of 2.
ReplyDeleteRobert Atkinson is the founder and president of the Information Technology and Innovation Foundation, a Washington, DC-based technology policy think tank. He is also Chairman of the National Surface Transportation Infrastructure Financing Commission.
Ultimately, whether in five years or 25 years, Americans will be paying the costs of driving on roads through a vehicle miles traveled fee (VMT). VMT fee systems already represent an alternative to the current fuel taxes and other fees that many countries and states use to finance their transportation systems. Holland’s “Kilometerprijs” (price per kilometer) program is slated to be the world’s first nationwide VMT system implemented for both passenger vehicles and heavy vehicles. The Kilometerprijs program will replace fixed vehicle (ownership) taxes to charge Dutch citizens by their annual distances driven, differentiated by time, place, and environmental characteristics. The policy, which will begin with distance-based charging for freight transport in 2012, followed by passenger vehicles by 2016, will use advanced satellite technology coupled with an on-board vehicle telematics system to charge travelers based on mileage driven. Germany is already charging for freight transport on this basis. In the United States, the National Surface Transportation Infrastructure Financing Commission recommended in February 2009 moving to a VMT-type “user charge” fee system within a decade, and several states, including Oregon, Washington, and Hawaii, are considering doing so as well.
A VMT system brings at least two major benefits. First, it sustains revenue for the surface transportation system as vehicles use less and less liquid fuel (that is taxed by the gallon). Second, and more importantly it allows prices to send accurate signals about the real cost of driving. Currently, driving is subsidized by general fund revenues at all levels of government. Moreover, drivers don’t pay the full costs of congestion.
There have been a number of claims made against moving to a VMT. One is that it penalizes rural drivers who might drive long distances. In fact, assuming that rural drivers drive the same kind of cars in terms of mileage per gallon, raising funds from a VMT system imposes no different costs on people who drive more than a gas tax. If someone drives 100 miles to get to and from work and their car gets 20 miles per gallon, and the gas tax is 30 cents per gallon, they will pay $1.50 to get to work. If someone drives 20 miles to work, they will pay 30 cents. If the VMT rate is 1.5 cents per mile, the former will pay $1.50 and the latter 30 cents. No different.
A second criticism is that a VMT violates privacy. This is a common view, based on the belief that the satellite signal is a two-way one. In fact, just like millions of current GPS systems in vehicles let you know where you are, but don’t let the company selling you the service know where you are, a GPS-enabled VMT system would also only have a one-way signal to let the car know how many miles and on what roads it drove, not the government. As the Oregon VMT pilot program showed, these systems can and should be designed to be completely private.
Robert Atkinson
This comment is from Robert Atkinson, Part 2 of 2.
ReplyDeleteSo what should the federal government do? First, the Obama administration can retract its statement it made after DOT Secretary LaHood stated his support for a VMT system. The administration needs to say that VMT is not off the table and that research can and should go forward at this time. They don’t have to endorse a VMT system, but they do need to not oppose one. Second, in reauthorization Congress should authorize a comprehensive R&D agenda that includes investments in basic research, technology development, and pilot programs to begin moving the United States to a mileage-based user fee system (VMT system) by 2020. The research should be overseen by a multi-modal body within U.S. DOT that combines technology, policy, tax administration, and systems expertise. As the National Surface Transportation Infrastructure Financing Commission recommended the first set of studies should be wide-ranging and experimental, testing various self-selected VMT fee processes. Subsequent tests would be more prescriptive to facilitate the selection of a single, nationally interoperable system.
Robert Atkinson
This comment is from Steve Heminger, Executive Director of the Metropolitan Transportation Commission and Bay Area Toll Authority, Oakland, California. He is also a member of the National Surface Transportation Policy and Revenue Study Commission
ReplyDeleteI would probably contest the premise of the question. I don't think that VMT charging is "emerging" except to peak at its shadow like the groundhog in winter and scurry back underground. You need look no further than the White House scolding that Secretary Ray LaHood received merely for mentioning the idea of studying VMT charging.
The national policy commission on which I served did recommend a transition to VMT charging, but only after considerable political and technical issues are resolved. Our forecast was that VMT charging wouldn't be ready for prime time until 2025.
In the meantime, there are only two funding mechanisms that can raise the large sums on a national basis capable of digging the U.S. out of the infrastructure deficit we confront: the gas tax or the general fund. Pretending that there is a "middle way" between these two poles (whether it's VMT, PPP, or any other three-letter acronym) just diverts attention from the key funding choice.
Gas tax or general fund: which will it be?
Steve Heminger
This comment is from Larry Yermack, President, Telvent Transportation North America.
ReplyDeleteVMT might just pose the greatest threat to the very existence of a Toll Industry. Let me briefly explain. If the US adopts a system to charge everyone for their road usage, that usage will include a lot more than the few percent of roads that are currently tolled. It would include at a minimum the National Highway System but it could just as easily include all arterials and even the street network if it were truly to reflect how much someone drives and not just on what they drive. This would make the toll roads a minor partner in the enterprise
State DOTs would take the lead in establishing payment mechanisms and would just need to distribute to the toll roads their share. Perhaps that share would mirror current tolls. Perhaps not, but the toll roads would become not much more than another road maintenance group not unlike a State DOT Maintenance District
Pretty grim. However if the Toll Industry takes the lead in helping to define such a program, we have the opportunity to show the DOTs how to do it right and serve as the technical and operational core of any new national program. After all they have no experience with payment systems. All of that resides in this industry.
I know this is a very simplistic picture and that it is way more nuanced than I present but the basic idea is what I'd like to see us discuss. Do we lead, follow or get out of the way?
Larry Yermack
This comment by Tom Bamonte, General Counsel, Illinois Tollway
ReplyDeleteA shift from the gas tax to VMT tax may not have a dramatic impact on the toll industry. This is because the VMT tax rate will be set at the lowest possible level in order to meet transportation funding requirements. Just as with the gas tax today, why would fiscally constrained state and federal governments want to raise the VMT tax high enough to absorb the financial obligations of currently tolled facilities.
If anything, the federal government will encourage more tolling by states and metropolitan areas in order to reduce the extent of the federal obligations and hence the amount of a national VMT tax. Likewise, a VMT tax is unlikely to change the current political calculus in many states, where rural interests are quite happy with major roads and bridges in metropolitan areas being funded by user fees rather than taxes of general application and metropolitan areas are happy with having a funding source not subject to sometimes antediluvian state departments of transportation.
Through three initiatives--(i) interoperability, (ii) reducing the per transaction cost of toll collection and (iii) stressing the environmental benefits that can result from pricing roads--the tolling industry can make tolling a more attractive alternative to policy makers contemplating increases in taxes of general application, be it via an increase in the gas tax or a VMT charge.
(Views expressed are my own and not necessarily shared by my agency.)
This comment is from Steve Snider, General Manager and CEO of the Halifax Harbour Bridges and President of IBTTA.
ReplyDeleteWhile I have had discussions with many people concerning VMT, to sit down and put pen to paper -- or fingers to the keyboard -- forces a bit deeper thinking.
My sincere hope is that the question of VMT is “when” not “if.” My reason for this hope lies in my desire for a reduction in the burning of fossil fuels. And success in the reduction of fossil fuel consumption will drive the need for VMT.
I do not profess to understand GPS technology sufficiently to know if it alone could be the answer for being able to apply VMT charges and also be able to provide the finite precision to reasonably collect the tolls for our agencies. However my guess is that the GPS of today cannot fully serve the needs of the toll industry as it presently operates.
However, if VMT is achieved through GPS and it can also be used to collect tolls on the existing facilities, I believe that the tolling industry could see significant change to our revenue collection side of the business. Our roll in the collection side could be reduced to simply receiving our revenue from the VMT system operator. However we will still continue to exist. There are three reasons for this line of thought:
1. More of our toll facilities are being operated on a concession basis structured through long term agreements, thus negating the ability to quickly absorb them into a state or national VMT system
2. Most public toll entities have a long term debt structure that requires the continuance of these entities
3. Switching to VMT pricing will not be a miracle cure for the lack of maintenance and capital dollars for our transportation system….no one will want to give up the toll revenue, or the continuing ability to establish toll facilities for the big infrastructure projects.
If VMT is deemed to be best achieved with transponders or with my first preference, electronic license plates, I believe this could either increase the toll industry’s opportunity to play a significant role or reduce our opportunities depending on our state of readiness for interoperability through say regional clearinghouses when the time comes. No doubt we will still need to build, operate, and maintain our facilities. However, if we are not able to reduce our backroom costs by developing a more efficient and fully interoperable business model, the DOTs in conjunction with financial services providers will build their own. Many have said that the DOTs don’t have the expertise to do so. My guess is that they will contract out the development and operation. And whoever they contract with will hire the expertise away from our industry.
VMT will either provide opportunities or challenges largely depending on how well we as an industry do in developing a low cost and efficient business model for interoperability.
Steve Snider
This comment is from Jack Opiola.
ReplyDeleteVehicle Miles Travelled (VMT) charges are a new and transformational concept for changing our current road user charges derived from fuel consumption. Fuel excise tax was never the best choice; it was always considered the second best alternative to tolling and charging for actual road use. At the time we adopted it – a 35+ year time span in the United States – it was crude, inaccurate and blunt means to recover user costs and pay for the necessary infrastructure needed to build the United States into the global economic power that it has become. Our transportation infrastructure paid for by motorists using the infrastructure and consuming fuel, returned a tremendous benefit in terms of opening new markets and concepts, providing greater competition that lowered consumer costs for goods and allowed the development of land and cities for people to realize their own version of the Great American Dream. The negatives of environmental impacts, congestion that steals our time, accidents and incidents that take our lives or lives of loved ones – was always muted by the drum beat of progress and profits. But, times and circumstances change.
It is recognized that the current fuel excise tax is deficient as a funding source to fund our current and future transportation infrastructure needs. Conservative projections done in the USA and overseas suggest a 24% to 35% further decrease in fuel excise taxes due to higher efficiency drive trains, Hybrid engines, alternate fuel sources and electric drive cars. The creative drive of automotive engineers is producing innovative measures to squeeze every BTU of energy from the fuel and transfer it to propulsion. We have hybrid engines and electric drives that are more efficient than our carbon based drive trains. We have new alternates to gasoline and diesel that change the equation. Fuel based tax collection is no longer viable and no longer the second best choice. We have to change with the times and transform our thinking. After all, technology that exists today – RFID, GPS, Cashless Payment Systems, Wireless Communications, Computer Processors – makes mobile collection of fees for use of transportation assets, not only possible, but practical, efficient and enforceable. As the time and circumstances change – so must we.
No one can tell us exactly how, what, when and where VMT will be implemented. It is a concept that has been let out of the bottle and many brilliant minds are addressing each of those questions. The lack of answers, clear-cut diagrams, implementation details and time lines, make us uneasy. Change always is messy. Transformation is painful. Fighting change due to our fears of these unanswered questions isn’t going to make it go away, but it may make our industry as we know it today, disappear. We need to embrace the transportation transformation and help guide it, assist it and contribute our industry knowledge if we are to be part of the change. If we take a “wait and see” position, or hide in the corner of the market and hope this concept goes away, or fight the change, the toll industry will become a historic footnote in years to come. Change will happen and the industry will transform.
Jack Opiola
Senior Partner
D’Artagnan Consulting LLC
Regan comment Part 1
ReplyDeleteThere is a certain inevitability to the conversion from a “per-gallon” basis of taxation in transportation to a “per-mile” basis; we will move off the gas tax at some point in the future. At the same time, as several others have suggested, there are a number of hurdles (and common misconceptions) that must be overcome before we do it. Hence, it will be sometime in the next 5-25 years, most likely 10-15.
What would VMT charging mean to the toll industry? That is highly dependent on what role the toll industry, itself, chooses to play in shaping our future VMT charging system. VMT is likely to come whether the toll industry supports it or not. However, if the toll industry is not at the table when the national system is designed, it could lose out on enormous potential benefits and increased efficiencies.
First, I would like to suggest that the pending conversion to a VMT system is not a substitute for the robust interoperability discussions which took place last week. The toll industry needs to make major advances toward interoperability well in advance of the deployment of VMT. However, this does not mean that the toll industry should “have only its own interoperability;” and allow the VMT systems of the future to go their own way. It is crucial that the toll industry be actively involved at the table when the ubiquitous, national pricing system of the future is developed.
In response to some previous blog comments, the toll industry does not need to be the “spokesman for national VMT.” However, it does need to contribute to the system planning and design, or we will be left with what somebody else provides.
To the broader question of what VMT would mean for tolling, on balance it should have significant positive impacts in my view. The most obvious is a dramatic increase in the efficiency of the toll collection process itself. Today, the toll industry is rapidly moving toward full cashless all electronic tolling. To accommodate this, complex video tolling is being used to handle those vehicles not equipped with ETC. When a national VMT system is in place, and if the system is designed to also meet the needs of the toll industry, every vehicle will be “equipped” and the need for expensive video tolling and billing would disappear.
Regan Part 2
ReplyDeleteA national pricing system would also provide a very efficient means for revenue transfer between national accounts and individual toll operators. This would dramatically reduce the requirements for billing and collections. It is likely that toll agencies would simply be able to tap into a “national” system, and pay a nominal per-transaction fee of, say, $0.05-$0.10. This fee would likely be much less than the cost of continuing traditional toll collection and complex AET systems. As importantly, fees generated by third party users of the VMT system, such as toll agencies, parking garages and others, would go a long way toward offsetting the costs associated with moving to a national VMT charging program.
I do not believe that a VMT system would substantially alter the role of traditional toll agencies. Most toll agencies are created as a financing mechanism for a particular revenue producing facility. Those financing mechanisms will still be needed, regardless of the means of collecting revenue for road use. To the contrary, a national pricing system would make it so much easier to use tolling as a financing mechanism that VMT will likely greatly increase the use of tolls and probably the number of toll agencies or private operators.
Under VMT, all roads essentially become toll roads. This will have a favorable impact on the competitive balance between tolled and “non-tolled” facilities. For example, a toll road today assesses tolls at $0.10 per-mile, while alternative routes are toll-free. In the future, its competitive position would be improved when a fee of, say, $0.03 per mile was assessed on all other routes.
Finally, the establishment of a national VMT pricing system and the equipping of all vehicles for use on this system have the potential of eliminating double taxation, since vehicles would not be charged a tax on the fuel they burn while driving on toll facilities. More importantly, the use of a consistent, fully electronic method for pricing will simplify the means by which toll charges can be passed by truckers to their customers and thereby reduce opposition to tolling among the trucking industry.
VMT is coming. If we want to be able to use the system for tolling, and all the other benefits which will accrue to our customers, the toll industry needs to have a significant role in shaping that system.
Ed Regan
Executive Vice President
Wilbur Smith Associates
Posted by Robert Poole, Reason Foundation
ReplyDeleteA national move to VMT charging could be a threat or an opportunity; it depends on which of two scenarios is followed.
Scenario One: In this approach, the VMT tax would be implemented as social policy. The charge would be based on numerous factors, including engine size, CO2 output, noise, number of occupants plus congestion, type of road, etc. The goals would be to reduce highway use by cars and trucks and to maximize revenue for other modes.
Scenario Two: VMT charge is defined as a payment to the road owner for use of the road, aimed at recovering the life-cycle cost of the roadway and managing it properly in the interests of its customers. Under this scenario, externalities would be handled via separate externality taxes (e.g., on CO2).
Scenario One would be devastating for toll roads--and all roads. But there is already a serious constituency for this version among those advocating a switch from fuel taxes to VMT taxes.
Scenario Two is probably the implicit view among most people in the toll roads industry--and is the version we should be arguing for. It envisions not just current toll roads but all roads (or at least limited-access roads) as network utilities, analogous to electricity, telecommunications, pipelines, etc.
We have the advantage of lead time, since the transition from fuel taxes is still likely several decades away. And the toll industry can be a leader in debates on this subject, as the experts on direct charging, interoperability, etc.
In the near term, I suggest we ally with highway customer groups in the current battle over federal reauthorization, to restore fuel taxes to their original purpose as highway use fees, reversing the steady diversion of these funds to non-highway purposes. That way, when it comes time for the shift, we will be replacing one form or user-pays for another.
In the near term, VMT fees should be positive for toll roads, since there would no longer be “free” roads for the traveler to compare with toll roads. Traffic shifts toward current toll roads could be significant.
ReplyDeleteIn the longer term, the impact depends on how VMT fees are implemented. One problem with VMT fees is that they attract people with secondary objectives rather than simply raising money. These range from congestion pricing to all sorts of social rather than transportation goals (Bob Poole’s Scenario number one). In this case, VMT fees may be used to override current toll structures.
I am an optimist and lean towards Bob’s Scenario number two, which calls for a more business-like approach. In this case, there is still a need for someone to operate and maintain the roads and thus a logical role for toll authorities. But, they may have to modify their toll structures to be more competitive (what if demand at current rates exceeds capacity and the quality of service drops?).
A lot depends on institutional issues. Who runs the VMT fee system? An existing public agency? a new public entity? A private third party? Does the new structure incorporate the toll road system (taking over responsibility for outstanding bonds in the process)?
While some of the technologies used for VMT fees may resemble technology used by some toll authorities, the scale is so different, that I suspect the toll industry will serve as advisors to the new VMT operators – but I have a hard time seeing the industry in general taking over this business. I can imagine, however, certain members of the industry changing their jerseys and working to manage the new VMT system.
I am an advocate of VMT fees. I also hear many of the well-meaning advocates for VMT fees call for complex systems, with variation by type of vehicle, location, region, time of day etc. I worry that no matter how elegant these systems might be, they may also create a backlash if the average driver has a hard time figuring them out.
The tone of this blog is that of course no logical choice exists other than VMT fees for the future financing of transportation. Other, simpler, options do exist, however. John Heminger says the real debate today is over general funds rather versus traditional user fees. I could see a case being made for dedicating a portion of the corporate income tax.
The group of advocates for VMT fees is still a relatively small number of “insiders” who spend most of their time talking to each other. The toll industry can play a small but important role in trying to help us break out of this circle, but much more is needed before VMT begins to happen. In particular, we need to make a political case for the complex system of VMT fees rather than the simpler ones of relying on current taxes. The federal and state deficits may be our biggest allies.
This is from Victoria Kelly, Director of Tunnels, Bridges & Terminals for The Port Authority of NY & NJ. These are my personal views, not necessarily the views of my agency.
ReplyDeleteI think Joao Bento and Ed Regan are correctly focused on interoperability rather than VMT per se since, as they note, interoperability does not imply VMT charging, but if the goal is VMT, then interoperability is a necessary precursor. And interoperabilty by itself, is a goal we should be embracing, for its customer service benefits as well as its potential to reduce electronic toll processing costs. VMT pricing, whether it's ultimately adopted or not, will play out at the national level with many agencies, companies, organizations, elected officials, etc.,etc. weighing in. I would suggest that we focus on interoperability and how to achieve it. True interoperability would serve our customers today, and position us well for the national discussion, when and if VMT becomes policy. But I think we're diverting attention from the important issue (interoperability) as we debate the future of VMT. And I note that reference to OmniAir is absent in any discussions of interoperability. We should be focusing both on ways to increase interoperability today, as well as on how to make it work more effectively in the future by supporting OmniAir's work. And then, as others have noted, we need to ensure that the toll industry is well-represented in national discussions on both interoperability as well as VMT, when and if VMT gains some traction. But for the short term, let's focus on what we can influence now, what we can do within our own industry, that helps both the customer as well as our individual agencies and companies.
VMT charging would mean to toll every vehicle (or commercial ones only? it would ease the introduction) for every mile/km but...who will be the "toll charger"? Someone will have to be the toll collector, but roads are Federal, State and so on owned. Assumed that a unique on board unit will be the standard equipment there must be some way to give the right amount of money to the right tolling authority.
ReplyDeleteIt could be done by means of a centralized onesize-fits-all nightmarish orwellian system or otherwise. At any event those already in the tolling business do have at least some clues on the possible implications, those outside the tolling business might think they know it all, but only because they cannot yet see it all.
The important issue, often neglected, is that when you toll it must be in place a tolling authority that takes care of the road, be it an agency, concessionaire, DoT or other. Even with VMT in place I do not think anyone could impose to a State or to a County (can Counties operate their own roads? I am from Europe, not sure) how to operate the road, whether directly of through an agency or a private company etc.; the choice should be left to the road "owner", that could find more effective a solution or another.
In conclusion, someone has to operate the road (so spending the VMT money), someone has to make and sell the OBUs, someone has to deal with the backoffice....not such different from now, but much larger and complex, if achievable at all.
For sure, current industry actors cannot ignore what is going on, always better to know and be there then to sit and wait things to happen.