Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding (2009)

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118 APPENDIX C. EXPERT PANEL WORKSHOP As part of the process for gathering expert input on user-based fee mechanisms, the project team held a day-long workshop on April 23, 2009 at AASHTO headquarters in Washington, DC. The purpose was to elicit opinions and suggestions on earlier phases of the research from a variety of stakeholders, as well as understand other concerns. Comments from the workshop are summarized by theme below; however, these comments should be considered in the wider context of this report. A list of the workshop participants is provided at the end of the appendix. C.1. Workshop Themes Responses to Proposed Approach • The two most important policy goals for the short-term are to preserve overall revenue and ensure accurate apportionment of revenue by state. The other goals are not unimportant, but they could be implemented later. It is also important to build flexibility (of both technology and privacy options) into any system. • The two suggested options (OBD/cellular and pay at the pump) in the near term are considered the most promising, but GPS should not automatically be ruled out as a possible strategy in the near term for some choice users. Why Change to VMT Fee • Gas taxes will not work well in a situation of increasing differentials of fuel efficiency. • VMT fee would likely keep better pace with inflation. Technology • It is important to have an open system, to avoid getting locked in to one particular option. • Consumer acceptance may be spurred by having devices that provide additional benefits to drivers: for example, the ability to get an insurance discount through PAYD insurance, to know where a free parking space is, or to know how bad congestion will be if they leave at a certain time. • However, while this was not discussed in detail at the workshop, there is an inverse relationship between the number of applications and the security of the system. The more applications are added, the more difficult it is to ensure “hacker-proof” communications. • PAYD insurance will likely become more popular; the current low penetration rates (one insurance industry representative thought there were perhaps 50,000 policies in the U.S.) is probably not a predictor of future use. The main obstacle is the cost of technology. • It would be a good idea to have federal technology standards, primarily to ensure interoperability. But it is too early to create such standards at this point. • There are ways to provide in-vehicle information to drivers so that they know how much they are paying for a trip.

119 • The available technologies are sufficiently flexible that they can be deployed to meet specific policy objectives. • Debit cards could be made to work with any option. They could be removable and drivers could re-load them with additional money. • Since it would not be practical to have a car stop in the middle of the road when the payment runs out, enforcement would need to be linked to registration. • Systems that are simple for users to understand are preferable to those that are complex. • At some point all vehicles will be equipped with GPS. • While OBD ports are not entirely standardized, for the purposes of implementing an OBD- based system the standardization is probably sufficient. Privacy • Privacy is the top public acceptance concern. • GPS is not synonymous with privacy concerns. Privacy can be a concern with any technology that seems intrusive or can determine drivers’ location to a certain degree of specificity. • The higher the resolution of location information (being able to place a driver on a certain road or at a certain intersections), the greater the privacy concern. • Full privacy and full auditability are possible in the same system, but building in both capabilities will be expensive. • There is probably no way to fully convince the public that their privacy will be protected. Acceptance has to come through personal experience—as people sign up for the system and do not experience any violation of privacy, they will become more accepting. EZPass and the Western Hemisphere Travel Initiative are good examples of this—they are both voluntary. • Private companies have an incentive to protect consumer privacy because consumers can take their business elsewhere if they feel their privacy has been violated. But this may not be relevant if there is only one contractor for the system. • It is important to provide opt-in and opt-out provisions. While “opt-out” was not precisely defined at the workshop, it suggested that drivers could pay fees through a paper-based system, or continue to pay the gas tax. • Even if only a few people choose the opt-out provision, it may “take the wind out of the sails” regarding opposition based on privacy concerns. • There are different ideas about privacy: privacy by design, privacy by policy, and provisions to opt-in or opt-out. • It may be advisable to consult with a privacy expert.

120 Obstacles • State legislation will be required for almost any system. The willingness of state legislatures to pass such legislation may vary from state to state. • Although an increase in VMT is predicted, AASHTO has been pursuing policies to reduce VMT growth. If they are successful, VMT may grow more slowly. • Capital and operating cost estimates are not well-enough developed to make decisions or do benefit-cost analysis. It may be helpful to present ranges of costs, since there is a high degree of uncertainty. • In particular, there was disagreement about how expensive the pay-at-the-pump system would be. The Treasury representative thought that the reconciliation between the IRS and fuel retailers would be cumbersome and expensive, and more open to fraud, but the Oregon trials seemed to suggest this was not a major obstacle. • Nobody was aware of reliable cost studies that might throw more light on this subject. States do not always know what it costs them to collect fuel taxes, but one participant said his state had measured costs at about 1% of total collections. • Past experience with emissions testing programs has shown that cost estimates can be far too low for equipment and consumer pricing. • Any costs borne by retailers (service stations) will likely be passed on to customers. • Since current GPS devices are removable from vehicles and easy to turn on and off, it is necessary to have an enforcement mechanism that ensures that drivers keep them in continuous operation. Phase-In/Implementation • There are major trade-offs with regard to short-term implementation. Even if it were possible to adopt a system right now—like the flat VMT fee with an odometer-based adjustment— there are serious concerns that it might “poison the well” for future attempts at more sophisticated options, if a selected technology and billing plan do not work as well as promised. • If there is a major need for short-term revenue, it is not clear how implementing a poorly thought-out VMT fee is superior to raising the gas tax. There is a lot of room to raise the gas tax without affecting behavior, and best time to have done so would have been when gas was much more expensive (since it would have constituted a small percentage increase). However, Congress seems very focused on what they can do besides raise the gas tax, such as implement a flat VMT fee based on average mileage. • Another short-term option is the “pseudo-VMT tax.” This would increase the gas tax annually based on the amount of VMT, so that gas tax revenues keep pace with VMT increases. • It is not a good idea to change systems with each reauthorization bill.

121 Large-scale Trials • The group favored several trial programs, to be operated in different states. The best type would be a full-scale trial, of perhaps tens of thousands of vehicles, that incorporates real- world issues of revenue collection, police enforcement, multi-state boundaries, and various partnerships. The number of vehicles should be based on some percentage of the vehicles within a metropolitan area, county, or state to be meaningful. • Some trials should incorporate incentives to cheat so that detection and enforcement mechanisms can be tested. Other trials might incorporate financial incentive to comply, to determine what type of incentive drivers need to switch from a gas-tax based system to a VMT-fee based one. • Trials could test various concepts of operations, with different policies and degrees of privacy. • One participant thought these trials would cost $100 million/year. • The U.S. should conduct its own trials, not rely on developments in other countries. However, U. S. policy makers should monitor what other countries are doing. For example, Singapore is moving to “ERP 2” (a second generation of electronic road pricing) • IBM is conducting some trials in Europe in support of the Netherlands project. The University of Iowa trials are about half completed. These will eventually include 2,700 vehicles at six sites. They have a specific focus on user attitudes and acceptance. Interest in participating was high; they had 40,000 applicants for 1,200 initial slots, mostly recruited through media campaigns. • It is probably not possible to combine the Intellidrive trial with a VMT trial, even though there is some overlap in the technology. The two avenues have different goals (Intellidrive is focused on safety and requires a considerable amount of roadside infrastructure.) • A federal commission could be created with this reauthorization that could oversee the trials and make recommendations for the next reauthorization. These trials should be more focused than those from the value pricing program. • The trucking industry might support a trial if revenues were directed to specific corridors (such as I-95). • Trials could be conducted with fleet vehicles (such as rental cars or government fleets), since it would be easy to instrument them with the technology being tested. However, this would not yield good information about driver behavior since it is not capturing average drivers using their own vehicles. • It is probably not a good idea to start with electric vehicles, as there are other policy reasons to encourage wider adoption of them. Program Administration • States are very concerned with program administration, particularly with which agencies will be responsible for fee collection and enforcement. These issues need to be resolved for successful implementation.

122 • States require the option of implementing their own fees on top of any federal fee. It is important to remember that some states have additional taxes on fuel besides the per-gallon excise tax. • There could be one payment mechanism that both the federal governments and states utilize. This could be based on the IRP/IFTA model, which has been quite effective and has won states’ trust. • If the point of tax collection is moved from the terminal rack to individual drivers it will be important that efforts be made to minimize opportunities for fraud. (The terminal rack is the point at which fuel is transferred from pipelines to tanker trucks for distribution.) IRS tax collection was moved to the rack for this reason, and it was successful in increasing collections. • IRS would probably not condone the use of a private entity collecting taxes, even though this has been implemented in other countries. This issue is that whoever is liable for the tax interacts directly with the IRS. (Many taxes are passed on to consumers, even when another entity is responsible for the tax; for example, retail stores are liable for sales taxes, even though they pass them on to consumers.) • Minnesota uses a private contractor, Cofiroute, to administer its MnPASS program, but participation is voluntary. Driver can use the HOT lane only if they have a credit card. • There may need to be provisions for low-income drivers for whom in-vehicle equipment is prohibitively expensive. (Not mentioned at workshop: statistics suggest that 10% of adults do not have a bank account, and about 20% of households do not have a credit card (Parkany, 2005). This must be factored in to any collection mechanism.) • There are no good data on the percentage of gasoline sold to, and therefore fuel tax pad by, foreign vehicles. • It might be necessary to raise the gas tax to convince people to adopt VMT fees, if the system allows this as a choice. Outreach and Education • State legislatures may be a good starting point for outreach. Many are interested in the topic and can help constituents better understand the concept. • It is important for elected officials and staff to have basic information before they are targeted by opponents of VMT fees. • Elected officials may be more receptive to language about “preserving revenue” than “increasing revenue.” • Support and opposition is not divided along party lines. • It may be helpful to tie the VMT fee to specific spending measures, rather than just saying, “the system needs more money.” This has been effective with regards to the California county sales taxes that provide revenue for transportation. • The public tends to oppose taxes on the grounds that current revenues are spent wastefully.

123 • People generally do not know how much they pay in gas taxes (on average about $10 per month). Many guess the number is much higher. • The general public tends to know only a few things about VMT fees, and makes assumptions about the other details. Criticisms tend to be focused on those assumptions. It may be important to have the details in place before beginning a public outreach campaign. • Some members of the public will react strongly (negatively) to a flat VMT fee, because of the perceived disconnect from other environmental initiatives. • On the other hand, rural areas may be opposed on the grounds that they have few alternatives to long trips. • Language comparing the highway system to other public utilities, which charge users for the amount they use, has been effective in convincing people that VMT fees are acceptable. • AAA does not yet have a position on this, but is contemplating doing focus groups with members to better understand public’s concerns. • It is a difficult topic to convey accurately in a one-page article. • There might be some opportunity in converting other fixed fees to variable VMT fees as well.

124 • C.2. List of Workshop Participants and Affiliations Project Team: Paul Sorensen, Martin Wachs, and Liisa Ecola, RAND Corporation Max Donath and Lee Munnich, University of Minnesota Betty Serian, Betty Serian Associates Representatives from the NCHRP Project Panel: Andrew Lemer, NCHRP/TRB Neil Schuster, Cian Cashin, and Ian Grossman, American Association of Motor Vehicle Administrators (AAMVA) James Whitty, Oregon DOT Roberta Broeker, Missouri DOT Lynn Weiskopf, New York State DOT Joung Lee, Tony Kane, and Jack Basso, AASHTO Patrick Harrison, Virginia DMV Ralph Davis, Deputy Secretary of Transportation, Virginia Expert Invitees/Participants: Jon Kuhl, University of Iowa Naveen Lamba, IBM Shelley Row, US DOT, Research and Innovative Technology Administration Jill Ingrassia, American Automobile Association (National) Tim Lynch, American Trucking Association David Huber, California State Automobile Association Jim March, US DOT, Federal Highway Administration Allen Greenberg, US DOT, Federal Highway Administration Susan Binder, Senate Environment and Public Works Committee Anne Teigen, Nick Farber, National Conference of State Legislatures Richard Prisinzano, Laura Konda, U.S. Department of the Treasury Observers: Steve Lockwood, Parsons Brinckerhoff Greg Hatcher, Noblis