The continued viability of fuel taxes as a source for a large share of highway funding is threatened by improvements in fuel economy and the prospect of increased electric vehicle adoption. Revenue collected per mile driven has been declining for years and the increasing diversity of the vehicle fleet makes fuel taxation less efficient and equitable.
Congress has responded to these trends by authorizing grants to fund the testing and implementation of mileage-based user fees (MBUFs) as a propulsion-neutral alternative to fuel-user taxes, most recently with the Strategic Innovation for Revenue Collection (SIRC) competitive grant program contained in the Infrastructure Investment and Jobs Act (IIJA) of 2021 at Sec. 13001.
Unfortunately, SIRC grant awards have been criticized among would-be project sponsors and other observers for the U.S. Department of Transportation’s slow rollout and questionable selections. Yet the declining utility of per-gallon motor fuel taxes as the dominant source of highway revenue remains the largest transportation fiscal challenge faced in generations, and the need to identify and implement a viable alternative is more urgent than ever.
To signal Congress’ commitment to identifying a durable solution to the fuel tax problem, lawmakers could reestablish SIRC as an apportionment (formula) program under the Highway Trust Fund, rather than a competitive grant program funded through a set-aside from the Highway Trust Fund’s Highway Research and Development Program. This approach offers several advantages:
- All states would be guaranteed funding for eligible projects;
- Apportionments give states more funding predictability;
- Guaranteed apportionments would allow states to better scope contracts related to studies, pilot programs, government information technology modernization, and other related activities;
- The administrative burden would be significantly lower for the U.S. Department of Transportation; and
- The negative impact of competing policy and political priorities that lead to delayed and competitive grant award selection would be minimized.
Establishing SIRC 2.0 as an apportionment program raises the immediate question of whether the computed per-state funding amounts would be sufficient to encourage states to test and eventually implement MBUFs. SIRC’s predecessor program, Surface Transportation System Funding Alternatives (STSFA), was modest in size, with awardees receiving from $250,000 (Wyoming) to $18 million (Eastern Transportation Coalition multistate: Connecticut, Delaware, New Hampshire, Pennsylvania, and Vermont) over the five-year life of the program.
STSFA helped spur nationwide interest in per-mile road usage charging among the states. It also played a significant role in leading four states—Hawaii, Oregon, Utah, and Virginia—to establish permanent MBUF programs.
In comparison, assuming a $500 million five-year SIRC 2.0 authorization ($100 million per year) and using FHWA’s FY 2025 computation of apportionments among states & programs table, the lowest apportionment share—excluding the District of Columbia—would be $417,100 per year for New Hampshire ($2.06 million over five years). The highest would be $9.26 million per year for California ($46.32 million over five years).
To narrow these apportionment disparities between states, these amounts could be further adjusted by setting a minimum annual allocation. For instance, if the computation formula was adjusted to set a $500,000 minimum apportionment, New Hampshire would instead yield $810,700 per year ($4.05 million over five years) and California would be allocated $7.4 million per year ($37.01 million over five years).
These predictable annual funding levels to examine, and potentially implement, new MBUF programs would provide states a stronger incentive than the existing SIRC or legacy STSFA competitive grant programs. Beyond converting SIRC into an apportionment program under the Highway Trust Fund, Congress should pay close attention to the following elements.
Eligible entities: The original SIRC competitive grant program allowed local governments and metropolitan planning organizations (MPOs) to apply. While these units of government undoubtedly have areas of expertise that could be relevant to future road-usage charging programs, the central problem facing existing road-user tax systems is at the state and federal levels. This apportionment program, like others authorized under 23 U.S.C. § 104, should flow directly to the states. States may wish to partner with their local units of government and MPOs as part of activities funded under SIRC 2.0 apportionments.
Eligible projects: SIRC was originally focused on encouraging the creation of pilot projects. This goal should be maintained. However, four states have now established permanent MBUF programs (and a fifth is under development), a number expected to increase in the coming years. As such, SIRC 2.0 should encourage both new pilots and the establishment of permanent programs.
From the limited permanent program sample, we have learned that startup capital costs can be significant and fixed operating costs are large. For instance, many state motor vehicle and revenue departments presently lack the necessary information technology infrastructure to implement a pilot or permanent program. In addition, contracts with third-party account managers require upfront customization before any users are enrolled. As enrollment increases, fixed operating costs will be spread across more users, and states should realize economies of scale in their variable operating costs. To support states through the initial implementation cost “sticker shock,” both capital and operating costs should be eligible for funding.
Reporting: A central goal of the original SIRC program was to evaluate various approaches to and aspects of per-mile road charging, results of which were to be reported to the Department of Transportation. The Secretary of Transportation, in coordination with the Secretary of the Treasury and Federal System Funding Alternative Advisory Board, were to summarize SIRC pilot program results and make recommendations to House and Senate authorizing committees. The original SIRC program’s IIJA Sec. 13002 National Motor Vehicle Per-Mile User Fee Pilot, was not implemented and therefore failed to collect timely results and recommendations to inform the upcoming surface transportation reauthorization, as Congress had intended.
To ensure Congress is provided with timely information necessary to make informed decisions about mileage-based highway revenue mechanisms, any state seeking reimbursement from the SIRC 2.0 apportionment program should be required to submit an annual report to the Department of Transportation by Sept. 30. The Department of Transportation should be required to submit an annual report to House and Senate authorizing committees by March 31 summarizing the annual SIRC 2.0 program activities in the states and making recommendations to Congress that the department deems appropriate.
Duration: A SIRC 2.0 apportionment program is designed to facilitate the transition to propulsion-neutral highway revenue collection methods. As such, if enacted, Congress should reevaluate the necessity of this program in advance of the subsequent reauthorizations. This program is not meant to provide a permanent federal subsidy to state highway revenue-collection activities and should be eliminated when adequate solutions have been developed and implemented.
As part of its upcoming surface transportation reauthorization, Congress should build upon its past work of supporting propulsion-neutral alternatives to fuel taxes. The SIRC 2.0 apportionment program approach outlined here offers the greatest promise of success.