Like in most states, Oregon transportation officials are grappling with a long-term decline in the purchasing power of the gas tax and the erosion of its utility as a mechanism to generate highway funding, given the rise in more fuel-efficient vehicles, as well as electric and other vehicles that minimize or eliminate gasoline use altogether. Having been the first state to adopt a gas tax to fund transportation infrastructure nearly a century ago, Oregon has in recent years taken the lead among states with regard to advancing the concept that may ultimately replace the beleaguered gas tax—mileage-based road user charges.
The Oregon legislature approved the creation of a Road User Fee Task Force in 2001 to explore potential replacements for the gas tax, and since then the state has embarked on several successful pilot projects to demonstrate the viability of the mileage-based road user charge concept. The state is now preparing to embark on a larger-scale demonstration project in 2015 as authorized by Senate Bill 810, a law enacted last year. Senate Bill 810 created the Road Usage Charge Program, which authorizes the Oregon Department of Transportation (ODOT) to assess a charge of 1.5 cents per mile for up to 5,000 volunteer motorists participating in a road usage charge program, while giving them a refund on their gas taxes paid.
Reason Foundation director of government reform Leonard Gilroy recently interviewed James Whitty, manager of the ODOT’s Office of Innovative Partnerships and Alternative Funding, on what prompted Oregon policymakers to explore road user charges, the evolution of the state’s pilot programs, how Oregon has addressed the public’s concerns over protecting privacy, and much more.
Leonard Gilroy, Reason Foundation: Since the early 2000s, Oregon has been a pioneer in advancing the concept of road usage charges—also known as mileage-based user fees or vehicle-miles-traveled fees—as an alternative to the traditional fuel tax as a way to generate revenues for transportation infrastructure. Can you explain what’s prompted the interest in road usage charges?
James Whitty, Oregon Department of Transportation: Oregon was the first state to adopt the gas tax in 1919, and you could say that we were also the first state to notice it going awry. We had some legislators in the 2001 legislative session who were prescient. They had the opportunity to drive some concept-type vehicles early in the session—things like natural gas, fuel cell, electric and hybrid electric vehicles, which were just coming out then. They were excited about these new types of vehicles, but realized that if the marketplace decided to choose these vehicles as preferred models in the future, then they would not be tied to a gas tax very well—or not at all. And that’s the principal source of funding we have for our road system in Oregon. So they thought that we should prepare for this and put together a plan for resolving the problem before it becomes severe.
They passed a bill that year creating a Road User Fee Task Force with 12 members—four of them were state legislators, with one from each of the four caucuses—with the charge of creating a new revenue system. The task force came up with the per-mile charge as the most viable alternative to the gas tax.
Gilroy: For our readers who may not be familiar with them, can you briefly explain the rationale for road usage charges and how they work?
Whitty: The anticipation of the legislature is that the gas tax will not be a true user fee in the future for a number of reasons, but particularly because future vehicles—especially electrics—will not pay any gas tax. Electrics currently aren’t paying a user fee. If you own a Tesla, you’re not paying a gas tax.
But even more so, while the gas tax is a user fee, it is no longer a fair user fee because some vehicles pay a large amount per mile through a gas tax, and other users pay very little or hardly any in a gas tax per mile. A vehicle that gets, say, 12 miles per gallon is going to pay a lot more gas tax per mile than a vehicle that gets, say, 65 miles per gallon. Yet, both types of vehicles use the roadways, so the gas tax is no longer fair as a user fee.
Then the question becomes how do you collect a per-mile charge? Oregon’s original Road User Fee Task Force was interested collecting the mileage data through technology. They innocently chose a GPS device to identify whether a vehicle was inside or outside the state for the purposes of paying the user charges on only in-state miles. I say “innocently” because they didn’t realize that the public was going to be concerned about the use of a GPS device, which of course the task force later abandoned as a mandate. But at the time—back in 2002—the task force thought it was a great idea.
So we’ve been working in Oregon on getting the mileage data transferred electronically, but I want to be clear that the manual reporting approach could be viable in some states. The electronic reporting of miles driven is not required for per-mile road usage charges. For example, I believe that in Wisconsin, Texas and Hawaii, there’s an annual vehicle inspection, and they record mileage data then. That mileage number could be used for a road usage charge. Of course, there would be no differentiation of mileage based on location to identify miles driven out of state so they would not be charged—that’s a disadvantage of the manual approach, except in Hawaii, where people don’t drive out of state.
While the task force in Oregon was originally interested in electronic collection, we’ve changed the system since our original pilot project in 2006 and 2007—where we used a GPS box—to an open system where any type of mileage-reporting device that’s available in the marketplace could be chosen by a motorist as long as it met the requirements for our system. And the device wouldn’t have to have GPS capability at all. In fact, our second pilot of 2012 and 2013 had an option for reporting all miles driven, and there was no GPS in that device. We also had a flat-fee option where people could assume a maximum number of miles driven where they wouldn’t have to use any technology whatsoever.
So the new approach in Oregon is to have mileage reporting be electronic, but leave the choice to the motorist on how to report using technology already available in the marketplace and deciding who to get the mileage reporting technology from. Once those data are transferred, then the mileage charge processor—which could be the government, or it could be a private company under contract with the government to do the mileage charge processing—the bill would come in the mail or e-mail or any number of ways at the choice of the motorist. And the billing probably wouldn’t occur every month in most cases—instead most likely quarterly or semi-annually because the net billings are so small—and the motorist would simply pay it like paying any other bill. So it’s actually a fairly simple system.
Gilroy: You’ve been through several experiments in implementing road usage charges, starting with limited pilot programs in the mid-2000s that evolved into the latest program enacted by the legislature last year. Can you explain the evolution?
Whitty: Because the first pilot involved the use of a GPS box—and it also had payment occur at the fuel pump—a lot of people objected to it or found flaws in it, because it would have been expensive to outfit the fuel pump, and of course people were afraid for their privacy because of the use of the GPS system for reporting. So after defending that approach for years although we were not actually tracking anyone—we didn’t have an interest in doing so and we designed the system so it wouldn’t happen—we realized that perception of tracking was still important to people, so we started to design away from it.
We moved to the open system model, allowing the marketplace to provide the technologies and giving motorists choices for how they report their miles—not only choices of devices but also choices of methods. Some people could choose to report all of their miles without any kind of vehicle location capability, others could use GPS if they wanted to, or they could use a switchable back-and-forth methodology, or even a flat fee. In 2012 I spoke to about 25 to 30 private groups around the state prior to the 2013 legislative session, and choice mattered to them. The fact that we weren’t trying to push any particular kind of technology on them—and that the government wouldn’t be collecting any kind of location data—that really mattered, and it helped us move forward.
So it was that realization—that we couldn’t impose a particular kind of box, especially a GPS box, on the citizenry—that really helped us. The “ah ha moment” actually came when I tried to sell the idea of GPS to a group of architects at an Oregon design conference in 2010, where they actually agreed with the idea of a mileage fee but at the end they asked, “do we have to use a GPS?”
I was brokenhearted because I had been defending GPS reporting for so long, but I realized that I had to let it go. On the way home that night I looked in my passenger seat and saw my Blackberry and my iPhone, both of which had GPS in them. And I remembered a young man at a talk I had given a few years earlier. I had told him that he had a GPS in his hand right then—it was an iPhone—and he responded, “I chose this, but I did not choose your box.” That came back to me, and I realized that government couldn’t choose the technology—we had to let the motorists do it. That moment changed everything.
Gilroy: What kinds of technology options exist in the market today?
Whitty: There’s a robust marketplace of options today. The pay-as-you-drive insurance industry uses various types of what’s known as a “dongle.” It’s a very small mileage-reporting device that plugs into the car’s diagnostic port. It’s no bigger than an inkjet cartridge for your printer. We used dongles in our second pilot. Navigation units can also report miles. And then there’s in-vehicle telematics, which we’re seeing in a lot of higher-end and electric vehicles—in a showroom they’d call these “infotainment systems”—these can also report mileage. There are just a lot of ways for reporting miles already out there in the marketplace.
Gilroy: Though it had previously passed legislation to create a task force on the issue, in 2013 the state legislature passed Senate Bill 810 to create the Road Usage Charge Program. Can you explain this program?
Whitty: Senate Bill 810 demonstrates that the legislature is willing to go forward on this topic. They want one final demonstration with 5,000 volunteers, and when that works, they’ll be willing to go forward with mandatory mileage charges where people are obligated to pay. We are currently designing and implementing all of the systems and processes for the 5,000 volunteers to enter the system on July 1, 2015. It will look a lot like our second pilot, which means that there will be three types of mileage reporting. There will be the basic type, which is for all miles driven. The second type is advanced, which would have a GPS component. And there will be a switchable option—back and forth between basic and advanced at the preference of the driver. And there will be various market-provided devices in each of those three categories.
The volunteers will choose which one of those options they want to use and use the type of mileage reporting device they prefer. If the device is already in their car, they’ll activate it, and if the device is not, they’ll install it. In the 2012–13 pilot, people were able to install the pay-as-you-drive insurance dongles themselves—it was very simple to do. If it’s something like a navigation unit, they may have to have the dealer install it for them.
They’ll need to get set up with an account manager. That could be the government, or it could be a private sector account manager licensed by the government to provide this service. Then they will simply drive and get a bill in the mail or by email that they’ll pay, probably quarterly. They’ll be able to use all of the types of payment options that are available in the marketplace today.
They’ll also get an automatic fuel tax refund because the mileage reporting devices also read fuel consumption. With that, you can apply the gas tax rate to the amount of fuel consumed to calculate a fuel tax credit that will appear on the bill.
We’re envisioning a system down the road where there will be much more than 5,000 volunteers—there will be hundreds of thousands or millions of motorists requiring these services, and probably not just in Oregon, but also in other states.
We’re getting a lot of interest in Oregon’s system from other states right now. We’ve actually formed a group with Washington State called the Western Road Usage Charge Consortium for the western states, and so far seven states have agreed to put money into the system and work together on this topic, sharing knowledge and transferring information. All of the states know that they have to do something because the gas tax is failing, and they’re hoping that Oregon’s per-mile charge is the way to go.
Gilroy: What role do you see for the private sector in developing and implementing your system?
Whitty: We want to use the private sector to take on the bulk of the collection of the road user charges, as well as the account management services for the system. The reason is that over time, we can drive down system costs if we access the capabilities of the private sector. The private sector will be able to bundle the per-mile charge billing along with other types of services that also have billings. For example, the mileage charge could be included as part of someone’s communications billing for television, Internet and the like. When you’re able to allow the bundling of the collection of the per-mile charge with other types of services someone might want, then collection costs drop considerably since the mileage charge would not require an expensive stand-alone billing. We want to drive down system costs, because that will generate more revenue for the roads, will minimize administration costs, and will ultimately have lower costs for motorists too since it will minimize the portion of the per-mile charge that goes to administration costs.
That’s our strategy. We’ve tested the market on this twice. The first was in 2012 when we were preparing for the pilot project to start later that year, and we invited companies from around the world and saw 19 firms show up in Portland. We did a request for information and had 28 vendors respond. In our procurement, we found firms that could operate the pilot, so that was the first indication that the marketplace was willing to help us.
We just did a road usage charge summit in November 2013 in Portland because we wanted to tell the marketplace that we had a new effort with the 5,000 volunteers that would come online, and 38 vendor companies showed up for that. We had one-on-one meetings with 22 of those firms over the following two days, and because some of them were involved in the earlier pilot, those conversations were very practical because they knew our program.
I can tell you that there are going to be some firms very interested in providing the services that we will request. We will issue a request for proposals for the government side in the spring of this year, and a request for qualifications (RFQ) for the commercial side. The RFQ will not choose winners—applicants will simply meet our qualifications and they’ll be able to compete in the marketplace. We might not have a big group of firms to start with to compete with each other, but we think we’ll get what we’re asking for, and the system will work.
And once a contractor signs on to the Oregon system as a service provider, if another state wants to use Oregon’s platform to provide those services to taxpayers another state, they’ll be able to do so.
Gilroy: Can you explain the difference between the government side and the commercial side in terms of the three types of mileage reporting you mentioned as part of the current demonstration program?
Whitty: The government contract will be minimal, as we have no interest in competing with the commercial side. It will be the basic plan, with no GPS capabilities. That’s a nod toward the sensitivity of the public; they don’t want to have the government tracking them. So under the basic plan, the only information we want will be miles driven. And the government’s basic plan will not include other services, so we’re not going to provide services that connect to the car’s engine to report its health or that it’s time for new tires, for example. All of that will happen under the private sector plans, where contractors are working on all sorts of value-added services. But the government plan will be quite bare.
The government plan will most likely work only with those people who don’t fit in the marketplace for various reasons, maybe because they don’t pay their bills. But if there’s a mandate later on, then there has to be someplace for those people to go, so the government plan would be the one to serve them.
Gilroy: What have the results been from ODOT’s work on road usage charges thus far?
Whitty: First, I’d say that both of the systems that we’ve piloted so far have worked. The first pay-at-the-pump model was a bit more complicated technologically because it required a transfer of the mileage data several ways at the service stations.
The second pilot was much simpler, and is more a product of the age we’re in with iPhones, Wi-Fi, 4G and cloud-based computing. It is simple because it relies on machine-to-machine communications. Hopping on the “internet of things” is essentially what it is, and that’s more acceptable to people. They understand it, they’re using it now with their current personal technologies, and they require choice with regard to what type of device to use and who to manage their account. Those concepts work, and the second pilot was very successful. We learned some things operationally, but those were easy things to fix. For the most part, it worked perfectly.
We even had some state legislators participating in the pilot, because we wanted them to understand the system before they voted on the legislation in 2013. That part worked because they didn’t have any problems; they simply got an invoice that was accurate, and they paid it online or by check. So overall, we learned that the second pilot’s approach was the way to go forward.
We did have Nevada and Washington motorists participate in that pilot too as a way to demonstrate a multi-state system, and my understanding is that it worked for them quite well.
Gilroy: What kinds of challenges have you run into along the way, both in terms of the politics and public acceptance? Privacy is a commonly cited concern with regard to road usage charges, with some fearing “black boxes” with ubiquitous tracking that can create massive historical databases of one’s personal travel. How does Oregon’s Road Usage Charge Program address privacy issues?
Whitty: Politics and public acceptance are almost the same thing in this case. Legislators both in Oregon and across the country—I’ve spoken on this in a number of states—can understand intellectually what we’re doing along the way, but they want to know what the public thinks. Anyone who just jumps out on this issue without doing their homework learns quickly the public tends to react quickly and negatively toward the idea, largely because they are apprehensive about the idea of government tracking them. Once we demonstrated that the government wouldn’t be tracking them and that they had choices to avoid anything like that, then it calmed everything down.
When the legislation was worked on in the Oregon House of Representatives and we sat down to work out the protection of personally identifiable information provisions of the bill—with the American Civil Liberties Union agreeing to them—that really calmed the issue down. The ACLU said that the provisions protecting personally identifiable information met their requirements.
We had worked out some privacy provisions for a different tolling bill in 2011 that never got through the legislature, and we pulled those provisions out and adjusted them for the per-mile charge for the 2013 legislation. At the first hearing on the bill, the ACLU stepped forward and opposed the bill on the grounds that the privacy provisions were not good enough. The chairman of that committee told me that I should go talk to the ACLU and see if we could work something out. We had several meetings with them, and it actually became very easy to work on these adjustments because ODOT recognized that we have no problem at all protecting personally identifiable information—we just had to make sure the system was operational. The ACLU was very practical and understood that we had a legitimate objective.
It turns out that though we made a number of tweaks, the most important tweak was that they wanted the destruction of the mileage data within 30 days. We worked out that it had to be 30 days after payment, dispute resolution or noncompliance investigation, whichever is later. Once we resolved that, the ACLU agreed that we had good privacy language in the bill. Having their endorsement of the privacy language was a big deal in terms of helping the bill move forward. The legislators then realized that they could actually pass legislation to prove that the system would work with the 5,000 volunteers. But for the agreement with ACLU, we would still be stuck on the privacy issue.
Privacy is both the biggest public concern across the country and the chief political conundrum to solve—it’s what stops this issue from going forward across the country. Everyone has to abandon a GPS mandate if they want to see the per-mile charge become policy across the country—the public won’t accept a GPS mandate. But if we abandon a GPS mandate and go with motorist choice instead, under an open system, you can go forward with policy on this topic. Now that we’ve addressed the privacy issue here, we’re able to move on to assess whether the system is viable economically, which is where we are now.
Gilroy: What’s been the public reaction? People aren’t used to seeing what they actually pay in gas taxes today since it’s not shown on gas receipts, and the shift is to a system where what people pay to use the transportation system becomes very transparent. How have the people involved in the pilot programs thus far responded to the concept?
Whitty: There are some members of the public who would prefer to not know what they pay, which is very interesting, and I’ve not heard any member of the public think of making user fees transparent as an advantage. Policymakers certainly see it as an advantage—some are philosophically inclined towards transparency.
One of the biggest problems with transportation funding in this nation is that people actually don’t know what they pay for road use. I’ve read about surveys where people guess what they pay in gas taxes, and they’re usually very high—on the order of $1,000 per year. That’s far higher by an order of magnitude than they’re actually paying. The idea is that if they had a mileage charge, they would know what they’re paying, would know that it’s small, and might be willing to support periodic increases in the mileage charges because they see that the increase will be a small amount and that they will get something for it.
Transparency works on a number of levels. It works to inform the motorist, and it may work to increase transportation funding in the United States.
Beyond that, Oregon’s original pilot program had a congestion pricing component built in to it, and we did see some evidence that it changed people’s travel behavior in terms of times of day for driving and that sort of thing. Our second pilot did not have congestion pricing, and we didn’t see any difference in travel behavior there. The demonstration program we are developing now also does not have a congestion pricing component. The state of Oregon decided to focus only on revenue generation at the moment, and congestion pricing is something that may be considered later. But that’s a separate policy, and there’s more support for revenue generation as opposed to congestion pricing in the Oregon legislature right now.
Gilroy: Do you see this program expanding in the future? Will road user charges ultimately replace fuel taxes in some foreseeable future?
Whitty: I believe they will, but it will take many years. The legislature would not have passed the 5,000 volunteer bill unless they considered this the last step before implementing a mandate for some motorists to pay the mileage charge. The next question will be: how would the legislature start with a mandate? There’s reason to believe that they would start with a small group. The legislature considered another bill last session—House Bill 2453—as an alternative to Senate Bill 810, that nearly passed. That bill would have imposed a mileage charge for vehicles rated at 55 miles per gallon and above—this was the group the legislature was considering starting with.
Going into the future, I can see the legislature choosing a group like that, or perhaps even starting with a vehicle model year. They may even decide that the least efficient vehicles—those under 22 miles per gallon, for example—should just continue paying the gas tax, only switching vehicles above 22 miles per gallon to the mileage charge. But I don’t see the legislature imposing the system on every motorist in the first instance. That would be too complicated and difficult. I think the legislature would rather phase the per-mile charge in over time.
Legislatures have a lot of options in how to proceed, and I think that over decades they’ll make a switch from the gas tax to the mileage charge.
Gilroy: Other states are starting to explore similar concepts. What are some of the lessons learned from Oregon’s experience that you would share with peers in other states looking to implement road usage charges?
Whitty: They have to realize that this is a policy decision. The legislature has to understand the issues at hand, so I suggest a policy body like Oregon had with its Road User Fee Task Force that can work through the issues. And if you have legislators on that policy body, then they can take those concepts back to the legislature to help policy development.
I also think that doing a demonstration pilot project is worthwhile because the legislature needs to know that the department of transportation has the institutional chops to pull it off. A successful pilot program will help demonstrate that.
I would also suggest that if a state wants to make progress quickly, a state could just access the Oregon platform because the system we’re putting together is entirely scalable and flexible, as well as geographically unlimited. In the first pilot, it took Oregon three years and $3 million to develop and operate the pilot, and it took Minnesota five years and $5 million to put their pilot together and operate it. But our last pilot in 2012–13 took us less than a year—10 months—and it cost us about $1 million, and that included all of the procurement costs. So states can run pilot programs a lot less expensively now than they could back then if they’re willing to use the Oregon platform.
One thing I’m excited about moving forward is that we’re going to be able to develop a communications program for the public on this topic. Because the legislature has now adopted this as policy, legislators now expect ODOT to advocate that policy. Up to this point, we haven’t been able to sell the program to the public. What that means is that before, we may have been out there talking about it without knowing the proper language to use and arguments to make to be effective in communicating. Now we’ll be able to understand what the questions are in, say, an urban area versus a rural area and address those questions directly in a way that people understand. Being able to use precision communications will help us moving forward.
James Whitty is the Manager of the Oregon Department of Transportation’s Office of Innovative Partnerships and Alternative Funding. By leading Oregon’s efforts to develop and implement a new revenue system based on vehicle-miles traveled, Mr. Whitty has achieved recognition as a national leader on road use charging policy and system development in the United States. His work in this field culminated in the successful completion of two per-mile charge pilot programs completed in 2007 and 2013 that led to the passage of road use charging legislation in Oregon in 2013 enacting implementation of a road usage charge system for 5,000 volunteers.
Mr. Whitty currently oversees development of a permanently operational road use charging program which will deploy cutting-edge approaches to road use charging under an open technology platform with motorist choice and implementation through public private partnerships as central features.
Mr. Whitty is a co-founder of the Western Road Usage Charge Consortium consisting of states engaging in road usage charge information transfer and joint research on the topic of mileage charging. Mr. Whitty is a co-founder and vice chairman of the Mileage Based User Fee Alliance, an entity with a mission of educating policymakers on road use charging and headquartered in Washington DC.
Mr. Whitty brings a private sector perspective to his role in transportation policy. His prior experience includes 10 years working with transportation finance and environmental public policies for Associated Oregon Industries, the Portland Chamber of Commerce and six years in private law practice. He obtained his bachelor’s degree and Juris Doctorate from the University of Oregon.
Other articles in Reason Foundation's Innovators in Action 2014 series are available online here.