System Trials to Demonstrate Mileage-Based Road Use Charges (2010)

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xxxiii Table S.4. Summary of Options for Comprehensive System Trials (cont) Issues Frameworks State Federal Market Implementation and Phase-In Issues to Examine in Trials Integration with toll systems Yes Different vehicle classes If envisioned that retrofits would someday be mandated Charging foreign vehicles Optional Rebating fuel taxes If envisioned that VMT fees would replace rather than augment fuel taxes Voluntary adoption incentives Yes User Acceptance Issues to Examine in Trials Concept of VMT fees Yes Alternate fee structures Optional Alternate privacy protection Yes Privacy vs. auditability Optional Value-added services Optional Detailed Strategies for Implementing the Trials Interoperability standards Standards encompass accuracy requirements, privacy protection, support for preventing evasion, data storage and communication protocols, data security, and related functionality. Standards development involves device manufacturers and service providers, related industry consortia, the International Bridge, Tunnel, and Turnpike Association (IBBTA), ITS America, IntelliDrive program representatives, and academic institutions. Effort references ISO/CEN 17575 and related efforts as initial starting point. Privacy protection Privacy advocacy organization enrolled to verify privacy protection methods. Preventing evasion Firm with telecommunications and security expertise enrolled to probe for vulnerabilities related to fee evasion or system security. S.7. CONCLUSION While the trials envisioned in this study would require considerable investment, they would also play a critical role in helping to prepare for the potential implementation of VMT fees by states or at the federal level within the next five to ten years. The prospect of designing, implementing, and transitioning to a system of VMT fees poses numerous technical, institutional, and political challenges and there are many remaining uncertainties. The trials described in this study are explicitly intended to reduce or resolve such uncertainties in order to inform the policy debate and prepare for the possibility of subsequent implementation.

1 1. INTRODUCTION Current federal and state motor fuel excise taxes are beset with structural and political liabilities that have undermined their ability to raise sufficient transportation revenue over recent decades. In the coming years, expected increases in the fuel economy of conventional vehicles along with the adoption of alternative fuel vehicles are likely to further exacerbate this problem (TRB 2005). Against this backdrop, many analysts and decision makers have argued that the nation should transition from reliance on fuel taxes to a transportation finance system in which road use fees are charged on the basis of vehicle miles of travel, also known as VMT fees (see, for example, NSTIFC 2009, NSTPRSC 2007). In addition to providing a more sustainable revenue source, such a system could, through appropriately structured fees, help to reduce recurrent traffic congestion, harmful emissions, and excessive road wear. The system could also be designed to provide a range of in-vehicle services for the driver, including real-time traffic and incident alerts, alternate routing suggestions, pay-as-you-drive (PAYD) insurance, automated payment of parking fees, and the like. Finally, a VMT-fee system could provide a rich dataset of detailed travel data (stripped of specific driver or vehicle identification to protect privacy) to facilitate improved system planning and operations. Despite these advantages, implementing a system of VMT fees would be a complex undertaking, involving a daunting array of technical, institutional, and political challenges. Many observers thus assume that a transition to VMT fees would require at least ten to twenty years. Growing funding shortfalls in the federal Highway Trust Fund (HTF) and comparable state accounts, however, have prompted the question of whether it might be possible to implement VMT fees more quickly. In the recent National Cooperative Highway Research Program (NCHRP) 20- 24(69) study, Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding (Sorensen et al. 2009), the authors were asked to identify and evaluate potential options for implementing a national system of VMT fees within the next five years. The specific objectives outlined in the project statement were “to: (1) identify and evaluate possibly viable alternative mechanisms for assessing and collecting VMT fees that can be developed and implemented within the near term, 2010 through 2015; (2) propose a practical strategy—for example, considering political and institutional as well as economic and financial issues to be resolved—for implementing a mechanism that will have a high likelihood of sustainable success nationwide; (3) describe the immediate actions necessary to achieve implementation, and (4) identify a longer-term strategy for making a smooth and effective transition from the proposed immediately-implementable mechanism to a robust and sustainable system of VMT-based user fees and an approach to monitoring progress.” While the NCHRP 20-24(69) study identified several implementation mechanisms as promising in the near term, it also observed that remaining uncertainties related to system requirements, cost, institutional structure, and user acceptance would make it difficult to select a cost-effective and politically viable implementation option at this juncture. The report then outlined a set of

2 activities that might be funded, possibly in the next surface transportation bill, to resolve uncertainties and prepare for possible deployment in the 2015 to 2020 timeframe. The identified activities included planning and policy guidance, analytic studies, technical research and development (R&D), expanded system trials, and education and outreach efforts. This report presents findings from a follow-on study to the earlier NCHRP 20-24(69) effort. The specific goal in this study is to examine the types of system trials that would be helpful to conduct in order to inform the public policy debate and further explore and refine the potential options for implementing VMT fees. Several underlying assumptions within the study merit brief discussion. • Federal leadership and support. The envisioned magnitude of the trials would almost certainly require federal support. The study therefore assesses options for funding and scoping the trials within a context of substantial federal-government involvement. • Federal or state implementation. It would certainly be possible to implement a national system of VMT fees to replace or augment current federal fuel taxes; states that were interested could use such a system to levy their own VMT fees as well. Another possibility would be for states interested in VMT fees to develop their own systems, in which case it would be beneficial to develop national standards to ensure interoperability among different state systems. The preceding NCHRP 20-24(69) focused specifically on the development of a national system. This study, in contrast, accommodates either possibility; that is, the trials might be structured to help develop a national VMT-fee system, or they might be structured to help states develop their own systems that would be interoperable with one another and would set the groundwork for the potential development of a national system at a later date. • Comprehensive trials. Several pilot tests of distance-based road use charging have already been conducted in the United States, including efforts in Oregon (Whitty 2007, ODOT 2010), in Puget Sound (PSRC 2008), and at the University of Iowa (Kuhl 2007). These prior efforts have focused on demonstrating the technical feasibility of certain implementation options, examining driver perceptions of distance-based road use charges, and evaluating driver response to alternate fee structures. They have not, in contrast, examined many of the detailed implementation issues that would be required in a fully operational system, such as actual revenue collection, enforcement, and system security. The assumption in this study is that the intent of an expanded set of system trials, in addition to informing the public policy debate, would be to set the stage for potential implementation by addressing all critical issues associated with designing, deploying, and operating a system of VMT fees. This would necessitate careful attention to a much broader range of questions; in short, the trials would likely need to be larger in scale, more comprehensive in scope, and longer that previous U.S. pilot tests. • Coordinated effort. As a corollary to the preceding point, the study also assumes that the trials, if funded, might be conducted within the context of a broader, coordinated effort to assess and prepare for the potential implementation of VMT fees. The report therefore considers how the trials might complement related activities in the areas of planning and policy development, analytic studies, technical R&D, and education and outreach.

3 Before proceeding further, it is also worth adding a brief comment on terminology. Specifically, this report uses the term “trials” to describe a set of activities that involves (a) setting up alternate technical and institutional configurations for implementing a system of VMT fees; (b) enrolling participants to test out the different options; (c) gathering data to characterize the advantages and limitations of the different configurations, including information related to technical feasibility, cost, administrative complexity, driver response, and public perceptions; and (d) synthesizing the results to inform policy debate and support the planning and implementation of a feasible and cost-effective system of VMT fees. Various experts contacted during the course of the research have suggested alternate terms, such as “pilots,” “experiments,” “test deployments,” or “initial deployments.” In the experience of the authors, these terms appear to imply subtle distinctions to different individuals, but there is little consistency in their use or understanding. As a matter of convenience, we have therefore adopted the term “trials” to describe the activities outlined above. The remaining sections in this introductory chapter summarize the methodological approach employed in the study, highlight some of the identified options for the trials, and describe the organization of this report. 1.1. METHODOLOGY The approach in this study can be summarized as follows: • Review the results of prior distance-based road use charging studies, trials, and program implementation efforts in the United States and abroad • Enumerate and characterize potential VMT-fee implementation concepts (i.e., approaches to metering mileage, collecting fees, preventing evasion, and the like) • Develop and apply criteria for identifying the most promising VMT-fee implementation concepts to evaluate in the trials • Identify the set of uncertainties that would need to be resolved in order to develop a technically feasible, politically viable, and cost-effective system of VMT fees • Determine which of these uncertainties could be resolved or illuminated through suitably structured trials • Solicit input from stakeholder and subject matter experts, through a series of interviews followed by a one-day workshop, regarding: o Which of the uncertainties would be most critical to examine through trials o How the trials might be structured to address the critical uncertainties • Conduct additional research, where helpful and possible, to augment the input received from stakeholders and subject matter experts • Synthesize findings to suggest potential options for funding, organizing, structuring, managing and conducting the trials The results of the study, largely reliant on the informed input of stakeholders and subject matter experts, might best be viewed as an initial assessment of the many questions that would need to

4 be considered in designing and implementing an expanded set of VMT-fee trials. Though the study included thorough background research and some supporting analysis, the scope did not support highly detailed evaluation of each individual topic. It should thus be stressed that certain issues, such as the estimated cost of the trials and the number of participants to include, would benefit from additional research attention. Note that the first three elements in the outlined methodology involve reviewing potential mechanisms for implementing VMT fees and identifying those that would be helpful to examine further through system trials. A similar assessment of VMT-fee implementation options was conducted in the initial NCHRP 20-24(69) study. In the initial study, however, the goal was to identify potentially promising options from the perspective of implementing a national system of VMT fees in the timeframe of 2010 to 2015. A decision to fund expanded system trials would likely delay any effort to deploy VMT fees until at least 2015 to 2020. Additionally, a possible outcome of the trials is that participating states might choose to develop their own VMT-fee systems if the federal government, on the basis of trial experiences, chooses not to implement a national system. These two shifts—the longer timeframe and the possibility of state-level implementation—make it appropriate to revisit the assessment of implementation options that might be examined in the trials. 1.2. OPTIONS FOR THE TRIALS Through extensive input from stakeholders and subject matter experts, supplemented with relevant background research, it was possible to outline several options for scoping and structuring the trials. This section briefly previews some of the key elements. 1.2.1. Frameworks for the Trials For many of the questions posed to interview and workshop participants, there was a fair degree of consistency in the responses. Some questions, however, generated wildly divergent answers. Opinions about the number of drivers that should participate in the trials, for example, varied from a few thousand to more than a million. Through follow-on questions and further discussion during the interviews, it became clear that variations in answers about how to scope and structure the trials often stemmed from disparate views regarding the manner and timeframe in which a transition to VMT might unfold. In particular, experts and stakeholders expressed differing perspectives for such questions as: • Would it be either more likely or more desirable for the initial implementation of VMT fees to occur at the state level or at the federal level? • Could VMT fees be implemented in just a few years, or would it take a decade or more? • Should the plan for transitioning to VMT fees include a period of incentivized voluntary adoption to help overcome public acceptance challenges? Different views on these questions suggest different pathways to implementation, and these in turn imply alternate goals and structures for the trials. Building on this insight, the research team outlined three conceptual “frameworks,” or visions, about how the transition to VMT fees might

5 be pursued, and in turn how the trials could be scoped and organized to support that vision. The three frameworks can be summarized as follows: • Help states help themselves (state framework). In this framework, the trials would be aimed at helping interested states or groups of adjacent states develop their own systems. The federal government might then develop a national system at a later date based on the lessons learned in state programs. In addition to funding, a key federal role in this framework would be to foster the development of interoperability standards and a certifications process to ensure that systems developed in different states could interact with one another. The federal government might also encourage states to examine specific options that could later be extended to implement a national system. • Carefully plan a national system (federal framework). In this framework, the goal of the trials would be to provide the federal government with sufficient information to plan a cost- effective national system of VMT fees. By design, the system would be flexible enough to allow simultaneous collection and apportionment of federal, state, and even local VMT fees. While the trials would still be conducted in states interested in adopting their own VMT fees, the effort would be more carefully coordinated to examine issues involved in setting up a national system. Following the trials, and subject to political debate, efforts to plan and implement the system would commence. • Foster a market for in-vehicle travel services (market framework). The market framework represents the greatest departure from conventional thinking about implementing and transitioning to VMT fees, seeking in parallel to overcome current public acceptance challenges through voluntary opt-in strategies, to implement a fully operational (if initially voluntary) national system of VMT fees as quickly as possible, and to reduce the cost to government of collecting VMT fees. It envisions, and would seek to foster, the emergence of a market for in-vehicle metering devices capable of levying VMT fees and providing a range of additional value-added services. Firms (e.g., device manufacturers, systems integrators, telecommunications providers, tolling operators, etc.) would compete to provide the devices and services, thereby stimulating innovation and driving down system costs, and their ability to collect fees for other services would reduce the amount that they would need to charge the government for collecting VMT fees. The main goal of the trials in this framework would be to support the emergence of this market, which would require a broad range of public and private participation. To do so, the trials would separately fund or subsidize technology providers, states, cities, and insurers for their respective roles in the trials, and the intent would be for the trials to evolve directly to system implementation. Trial participants that valued the additional services would become the initial adopters, and additional drivers would be able to adopt the in-vehicle equipment on a voluntary basis as well. After several more years, once it had been demonstrated that the system provides appropriate privacy protection and can be enforced effectively, the government might mandate the adoption of VMT fees for all vehicles. As described later in this study, each of these frameworks offers both advantages and potential limitations, and there is no inherently “right” answer. Rather, the selection of a framework for the trials (or potentially the selection of elements drawn from several frameworks) would be a

6 matter for policy judgment. Based on the selection of a particular framework, questions on how to scope and structure the trials would then become less ambiguous. 1.2.2. Highlights of the Identified Options for Trials The following summarizes some of the specific options for overseeing, managing, funding, scoping, structuring, and conducting the trials that emerged from the study. Though alternate designs for the trials might also be possible, the options outlined in the study are intended to: (a) comprehensively address the broad set of issues and uncertainties associated with the prospects for designing and implementing VMT fees; (b) reflect frequently offered perspectives and well- reasoned insights from the interview and workshop participants, supplemented with additional analysis where helpful; and (c) support alternate potential pathways for implementing and transitioning to VMT fees, as embodied in the state, federal, and market frameworks. • Strategic guidance for the trials: Decision makers would designate an oversight panel to provide strategic guidance on the trials and related activities. The panel would ideally include, at minimum, representation from the U.S. Department of Treasury (Treasury), the U.S. Department of Transportation (USDOT), the Federal Highway Administration (FHWA), the American Association of State Highway and Transportation Officials (AASHTO), and individual states. • Managing the trials: Decision makers would also designate an entity to manage the trials and related activities. The management role, under guidance from the oversight panel, would involve writing and issuing requests for proposals (RFPs), evaluating proposals, awarding funding, managing contracts, and the like. The Transportation Research Board (TRB) was cited by many respondents as a promising candidate for this role, though other options would also be possible. • Awarding trial funding: Funding for the trials would be awarded on a competitive basis. Subject to meeting certain required elements for participation, competitive criteria for evaluating proposals might include cost, number of participants, capacity of the proposing entity, intent to examine the provision of value-added services, intent to explore the use of anonymous travel data to improve system planning, intent to test out more advanced forms of pricing, intent to collect actual revenue, and (for the state framework) a plan for how the trial results would support subsequent efforts to design and implement VMT fees. • Number and location of trials: There would be a small number of trials—perhaps three to six—in different states or groups of states, providing social, demographic, geographic, and regional diversity. The trials would also include at least one multi-state configuration. • Participation in the trials: In the state or federal frameworks, the trials would ideally involve tens of thousands of participants (perhaps 10,000 to 20,000 per trial, and 50,000 to 100,000 in total) to examine system cost and feasibility issues. In the market framework, it would be helpful to include hundreds of thousands of participants (perhaps 100,000 to 200,000 per trial, and 500,000 to 1,000,000 in total). This would motivate the private sector to provide innovative service offerings and create a large base of initial voluntary adopters at the conclusion of the trials. Given the relationship between the number of participants and the cost of the trials, additional research on this issue would be valuable.

7 • Duration of the trials: The trials would last four to six years, including one to two years for initial preparation and planning, two to three years of actual trials, and a final year for evaluation. • Cost of the trials: Preliminary evaluation suggests that the trials would cost roughly $2,000 to $4,000 per vehicle, including about $1,000 for the metering and billing services over a three year period plus an additional $1,000 to $3,000 for additional trial activities (planning, management, analysis, interaction with participants, and the like). Assuming 50,000 to 100,000 total participants (for the state and federal frameworks), the trials might cost $100 million to $400 million. Assuming 500,000 to 1,000,000 total participants (for the market framework), the trials might cost $1 billion to $4 billion. These estimates hinge on several inherent uncertainties; additional research on this issue would be valuable. • Pricing policies to examine in the trials: Pricing policies to examine would include VMT fees across the entire public road network, VMT fees for both cars and trucks, and parallel collection of federal, state, and perhaps local VMT fees. Many interview and workshop participants viewed the inclusion of variable pricing structures (e.g., congestion tolls) as desirable but also highly controversial, and therefore optional within the trials. • Technical issues to examine in the trials: Priority technical issues to examine under any of the frameworks would include alternate means of collecting fees, preventing evasion, and protecting privacy. The set of technical issues might be expanded to include interoperability standards in the state framework, or to include interoperability standards along with additional uses of real-time travel data in the market framework. • Institutional issues to examine in the trials: Priority institutional issues to examine under any of the frameworks would include simultaneous collection and apportionment of VMT fees in different jurisdictions and at different levels of government (e.g., federal, state, and potentially local VMT fees) and alternate institutional configurations for billing and account management. The set of institutional issues might be expanded to include the collection of actual revenue in the state framework, or to include the collection of actual revenue along with multiple technology vendors operating in parallel in the market framework. • Other implementation and phase-in issues to examine in the trials: Other priority implementation and phase-in issues to examine would include integration with existing tolling systems and the exploration of incentives for voluntary adoption. Contingent on certain system design choices, it might also be helpful to examine mechanisms for rebating fuel taxes and to test metering equipment on both older and newer vehicles. • User acceptance issues to examine in the trials: Priority user acceptance issues to examine would include user understanding and support for distance-based road use charges and user perceptions of alternate privacy protection mechanisms. 1.3. ORGANIZATION OF THE REPORT The remainder of this report is organized as follows. Chapters 2, 3, and 4 present the results of the background research conducted for the study. Chapter 2 sets forth the possible motivations for transitioning to a system of VMT fees and enumerates the policy goals that such a system might be designed to address. The potential benefits are viewed by many as compelling, and as a result the concept of VMT fees has received increasing attention over the past decade. Chapter 3

8 begins with a brief review of prior and ongoing trials and programs involving distance-based road use charges, both in the United States and abroad. Drawing upon this material, it then identifies a spectrum of VMT-fee implementation concepts—including options for metering mileage, collecting payment, preventing evasion, and protecting privacy—and considers their relative strengths, limitations, and uncertainties. Against that backdrop, Chapter 4 reviews and applies a set of criteria, based on recommendations from the National Surface Transportation Infrastructure Finance Commission report (NSTIFC, 2009), for identifying the potential implementation mechanisms that would be most valuable to evaluate via trials. Next, chapters 5, 6, and 7 describe the structure and intent of the interviews and workshop and summarize their results. Chapter 5 begins by enumerating a comprehensive set of uncertainties that would be helpful to resolve to inform policy and plan for full-scale implementation of VMT fees. It then describes the role of the interviews and workshop in soliciting input from key stakeholders and subject matter experts on: (a) which of the uncertainties would be most important to examine through trials, and (b) how the trials might be funded, structured, and conducted to help resolve these high-priority issues. Chapter 6 describes general themes that emerged from the interviews and workshop. It also discusses the significant degree of variation in the responses for some of the interview questions, which in turn led to the development of the three potential frameworks for structuring the trials and facilitating the transition to VMT fees. Chapter 7 then summarizes the responses of interview and workshop participants, along with any supplementary analysis by the research team, for more specific questions about how to best scope and structure the trials Chapter 8 synthesizes the study results, outlining several integrated options for funding, organizing, managing, and conducting the trials. It also identifies issues that might be helpful to address in the context of related efforts in the areas of planning, analysis, technical R&D, and education and outreach. Following the concluding chapter, Appendix A provides a more detailed review of the prior trials and programs introduced in Chapter 2. Appendix B enumerates the set of interview questions, while Appendix C lists those who participated in the interviews and workshop. Finally, Appendix D offers a more detailed presentation of the material summarized in Chapter 7, including discussions during the interviews and workshop along with any supporting analysis conducted by the research team.