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

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49 6. ELEMENTS OF A VMT-FEE SYSTEM This chapter begins by considering the key functions – metering, billing, and enforcement – that must be supported within a VMT system. Next there is a brief consideration of the relevant technologies that may play a role in supporting these functions. This is followed by discussion principal options for each function: metering mileage, transmitting billing data and collecting revenue, and enforcing system compliance. The chapter closes by considering the potential roles that public, quasi-public, and private entities might play in supporting the various elements required in a national system of VMT fees. The next chapter considers how these elements may be combined with one another to form a fully integrated system. At that point it becomes possible to consider the relative strengths and weaknesses of the alternate configurations with greater specificity. 6.1. Core Functions in a VMT-Fee System VMT-fee systems are complex, and different authors have offered alternate categorizations of the key functional elements (see, for example, Whitty and Svadlenak 2009). Within the context of evaluating implementation mechanisms for this report, it is convenient to discuss three broad functional elements: • Metering. This function encompasses the determination of miles traveled as well as any additional data (e.g., weight of vehicle or time and location of travel) that may influence either the fees owed or the allocation of the revenue among different jurisdictions. • Billing. This function includes the communications of either mileage data or fees owed as well as a mechanism for issuing a bill and collecting the revenue. • Enforcement. This function focuses on ensuring that all motorists are being charged the correct amount and have paid the fees owed. 6.2. Enabling Technologies There are, not surprisingly, many technologies that could support different functions in a VMT- fee system. The following list defines those that appear to offer the greatest promise over the next several years. ANPR (Automated Number Plate Recognition). Combining digital cameras with optical character recognition software, this technology makes it possible to identify vehicles that pass a particular location based on their license plate numbers. AVI (Automated Vehicle Identification). This term describes technology that supports wireless identification of a particular vehicle (e.g., a vehicle passing by a particular checkpoint). Radio- frequency identification (RFID) tags are the most common example of this technology, but there are other methods as well.

50 Cellular communications. Cellular is often considered as an option to support necessary communications. It can also be used, however, to provide location information (by triangulating between nearby cell phone towers or simply identifying the closest cell phone tower). This potential role for cellular, not explored in prior road-pricing programs or trials, is discussed in recent concept paper developed by Max Donath and colleagues at the University of Minnesota (Donath et al. 2009). When discussing cellular technology, it is also commenting on “smart phones” – that is, phones designed with additional computation power and extra features such as GPS receivers, which account for a growing share of the mobile phone market. In principal, the capabilities of smart phones could provide many of the capabilities needed for an in-vehicle metering device. Even so, smart phones would not represent an ideal choice for a base metering technology configuration. To begin with, they provide far more computing power than would be needed, and thus do not represent the most cost-effective option. Additionally, despite their gain in market share, not everyone owns a smart phone, nor will over the relatively short timeframe considered in this study. Finally, to make use of a smart phone it would likely be necessary to plug it in to an onboard metering device; this creates additional enforcement challenges to ensure that the device is properly connected whenever the vehicle is operated, and may also be viewed as an inconvenience to users. Debit cards. In-vehicle metering equipment could be configured to accept pre-paid debit cards. As mileage fees are accrued, the fees would simply be deducted from the card; the user would then periodically add more money to the card (this approached is used in the Singapore road pricing program, and users can purchase or recharge their debit cards at such locations as banks and convenience stores – see Goh 2002). To allow for a smaller in-vehicle device, such debit cards would probably be smaller than ATM-style magnetic stripe cards and thus not interoperable with existing bank-issued cards. Digital maps. A GPS receiver (see below) can be used to determine the current latitude and longitude of a vehicle. These coordinates can then be checked against a digital map to determine, for example, the jurisdiction in which travel is occurring, or even the specific route of travel. For the latter, the digital road network maps must be quite precise to distinguish, for instance, between travel on a freeway and travel on an adjacent frontage road. DSRC (Dedicated Short Range Communications). DSRC enables wireless communication between AVI-equipped vehicles (e.g., vehicles with an RFID tag) and external infrastructure equipped with electronic readers. Using DSRC, it would be possible for a vehicle to communicate, for example, with readers mounted on overhead gantries when traveling on a particular facility or with readers installed at the pump when making fuel purchases. Note that term DSRC tends to be used differently in Europe than in the United States. In Europe, DSRC typically refers specifically to vehicle-to-infrastructure communications in support of electronic tolling; in the United States, DSRC also may describe vehicle-to-vehicle communications in support of intelligent transportation systems. Use the term “DSRC tolling” subsequently in this report refers to the European understanding of vehicle-to-infrastructure communication in support of electronic road pricing. GPS (Global Positioning System) receivers. GPS receivers triangulate between dedicated satellites to determine current latitude and longitude coordinates. Within the context of road use

51 metering systems, GPS can be used to ascertain the location, or even the specific route, of travel. Note that GPS technology is available in different grades of accuracy, ranging from errors on the order of several meters to errors on the order of several centimeters. From the perspective of designing a system of road use fees, it is sufficient to distinguish between coarse-resolution GPS (offering less than one-to-two meter accuracy) and high-resolution (or differential) GPS (offering greater than one-to-two meter accuracy); either could determine the area or jurisdiction of travel, while only the latter (paired with highly accurate digital road network maps) could determine the specific route of travel. Higher-resolution GPS equipment is also more expensive. Odometer. The odometer, available on all vehicles, provides accurate mileage data. It does not, obviously, provide information about the time or location of travel. OBD II (On-Board Diagnostics, 2nd generation) port. Vehicles produced in 1996 or later are equipped with an OBD-II port that indicates, along with other information, vehicle speed. This can be integrated over time to estimate travel distance. OBU (on-board unit). More complex technical configurations will typically be integrated within a device that can be mounted in the vehicle. This is often referred to as an on-board unit, or OBU. RFID (radio-frequency identification). RFID technology is a common option for implementing AVI, as described above, and is often used to support DSRC applications. Costing just a few cents per unit, RFID tags could be embedded in license plates or even registration stickers. Though RFID tags do not require power, it is possible to integrate RFID tags with a small battery to increase their communication range; this leads to a modest increase in cost, however. “Smart cards” (small data storage chips): Smart cards allow for the transfer of electronic data between one computational device and another. One potential option for transmitting billing data (suggested in the initial University of Iowa study – see Forkenbrock and Kuhl 2002) would be to store road use data on a smart card inserted into an OBU; periodically, users would remove the smart card from the OBU and insert it in a home computer or other reader station (e.g., located at gas stations or convenience stores) connected to the internet to transfer payment information to a central billing agency. 6.3. Principle Metering Options To set up a nationwide system of VMT fees, several core metering options are possible. Following are brief descriptions of how each option would work. The next chapter discusses their strengths and limitations in greater detail. Odometer option. With this option, mileage data would be determined based on periodic readings of the odometer, and this would serve as the basis for issuing mileage fees. If desired, vehicle characteristics – weight, emissions class, fuel economy – could be factored in to the per- mile rate. This option would not provide information about either the time or location of travel, so these factors could not be included.

52 Fuel-consumption option. The concept here is to combine fuel consumption with information about a vehicle’s fuel economy (based on make and model) to estimate mileage (see Whitty and Svadlenak 2009). For instance, if a vehicle’s expected fuel economy is 25 mile per gallon, then the purchase of 10 gallons of gas should translate to about 250 miles of travel. In determining the per-mile rate, here again it would be possible to factor in relevant vehicle traits. There would be no way, however, to determine either the time or location of travel. OBD II option. This option, used in many taxi meters as well as some PAYD programs, would involve the use of an OBU connected to the OBD II port. The device would read travel speed information from the port and then integrate that information over time to estimate travel distance. Here again, the per-mile rate might vary with vehicle characteristics, which could be stored in the OBU when the device is installed, but it would not be possible to meter travel by location. Note that the main advantage of this option, in comparison to simple odometer readings, is that the OBU could be equipped with wireless communications technologies (DSRC or cellular) to automate the billing function. OBD II/cellular option. For this metering option, discussed by Donath et al. (2009), the OBU would integrate a connection to the OBD II port with cellular communications. Mileage would be determined based on the speed signal from the OBD II port, while the cellular service would be used to determine the approximate location of travel (the information would be accurate enough to determine the jurisdiction or area of travel, but not the specific route of travel). The per-mile rate could also vary to account for relevant vehicle characteristics stored on the OBU. Note that this configuration has not been demonstrated in practice, but from a theoretical perspective it appears quite promising. Coarse-resolution GPS option. This option, used in the Oregon trial program discussed in Chapter 3, involves the installation of an OBU equipped with a coarse-resolution GPS receiver that would determine both the time and the area or jurisdiction of travel. It would also be possible, by interpolating between subsequent location points, to use the GPS data to determine travel distance. Because the GPS signal is not always available (it may be lost, for example, when traveling in canyons or between high buildings), the OBU may also be connected to the OBD II port to provide a redundant source of data for computing distance. In terms of metering, this offers the same options as the OBD II/cellular combination. High-resolution GPS option. This option is similar to the prior approach, but would rely on a differential GPS receiver connected to the OBU for sufficient accuracy (i.e., accurate within one to two meters) to determine the specific route of travel (again, travel distance could be measured either by GPS or via a connection to the OBD II port). This would enable the greatest flexibility in pricing; per-mile rates could vary by vehicle characteristics, by jurisdiction, by area within jurisdictions, by route, and by time. The ability to meter by route may be most useful for heavy trucks, in that the damage caused by truck travel varies considerably depending on the engineering quality of the road. It would also make it possible, however, to develop facility- based congestion tolls for all vehicles without needing to install gantries. (i.e., accurate within one to two meters).

53 DSRC tolling on a partial road network. With this option, all vehicles would be equipped with an AVI device (likely using an RFID tag) and gantries would be set up along the most heavily traveled segments of the road network to support facility-based tolls – either flat tolls or tolls that vary by time and location. This approach would not support tolling across the entire road network, as it would not be practical, let alone cost effective, to install gantries on lightly traveled road segments. On the other hand, this approach could be used to extend the metering capabilities for any of the options above that include either AVI or an OBU (which could be configured to include an AVI component). For instance, the OBD II / cellular combination could be used to meter mileage by jurisdiction, and the addition of gantries would then enable the addition of facility congestion tolls. Table 6.1 summarizes the metering capabilities offered by each of the options, and in turn the policy goals that they would be able to support. Note that all (save DSRC tolling) can meter by total mileage as well as vehicle characteristics. Key differences involve the ability to meter by location and time of travel, a requisite for several of the policy goals.

54 Table 6.1. Policy Goals Supported by Core Metering Options Supported Metering Capabilities and Policy Goals Core Metering Options Odometer Fuel-Consumption OBD II OBD II / Cellular Coarse Resolution GPS High Resolution GPS DSRC for Partial Road Network Metering Capabilities Accurate mileage X X X X X Full road network coverage X X X X X X Jurisdiction or area X X X Route or type of road X X Time of travel X X X X Fuel efficiency X X X X X Emissions X X X X X Weight X X X X X Policy Goals Preserve / augment revenue X X X X X X Accurately apportion revenue X X X Capture maintenance costs X Reduce congestion delays X X X X Reduce criteria pollutants X X X X X X Reduce greenhouse gases X X X X X X

55 6.4. Billing and Collections Options From a review of existing programs and proposals, there emerge four main options for assessing and collecting VMT fees. Two of these – pay with registration and pay at the pump – would involve modifying or expanding existing revenue systems. The other two – a central billing agency and debit cards – would require the development of new institutions. While there are potential economies that may result from the use of existing revenue collection systems, particularly in the near term, each of the four options has its own advantages and limitations. Pay with registration. With this option, mileage fees would be tacked on to annual vehicle registration fees. This most obvious application of this approach would be for odometer-based metering. Each year, motorists would be required to report annual mileage (either self-reported or based on an authorized odometer inspection) to the state DMV or MVA, and the registration fee would be augmented accordingly. States would then pass along the revenue (minus, perhaps, an administrative fee) to the federal government. In evaluating this option, it is crucial to observe that all states would need to participate for a successful national program. Based on interviews with state officials, discussed in Chapter 4, as well as comments from some project panel members, it is quite clear that not all states would welcome such a requirement or be able to implement it quickly. Pay at the pump. For this mechanism, applied in the Oregon trials and further discussed by Whitty and Svadlenak (2009), mileage fees would be added, and fuel taxes subtracted, when motorists make fuel purchases. To accomplish this, fuel stations would be equipped with electronic readers at each pump to communicate with in-vehicle equipment. For the option of estimating mileage based on fuel consumption, the readers would communicate with the AVI device to determine the vehicle’s identification and, in turn, its fuel economy rating; mileage estimates and corresponding fees would then be computed based on the quantity of fuel purchased. For options involving more sophisticated in-vehicle metering equipment (the OBD II, OBD II/cellular, and coarse- and high-resolution GPS options), the OBU would transmit current mileage fee information to the readers so that it could be included in the bill. Note that at the expert workshop conducted for this project, concerns were raised that the process of reconciling VMT fees and fuel taxes at the retail station level could prove administratively cumbersome for tax collection agencies; while this did not prove to be a problem in the Oregon trials, that experiment involved only two stations and a few hundred vehicles. Central billing agency. Under this model, a new nationwide central billing agency would be established to collect fees from users and distribute the revenue to participating jurisdictions (at minimum, for a national system, the federal government, but possibly including states or even local areas that choose to opt in to the system and levy their own mileage-based fees). This would be a suitable billing and collections model for any of the options that involve an OBU. Although different communication channels would be possible, the most likely approach would be to include cellular service within the OBU. On a periodic basis, the OBU would communicate with the central billing agency to record fees owed; motorists might then be issued a monthly billing, which could be paid manually or – for greater efficiency – via automated some form of automated payment.

56 Debit cards. This approach, used in the Singapore electronic road pricing program (Goh 2002), would also be applicable for metering approaches involving the use of an OBU. Motorists would purchase pre-loaded debit cards that could be inserted into the OBU, and road use charges would then be subtracted from the debit card balance as mileage accrues. As the existing balance nears zero, motorists would need to add more money to the card balance; in the Singapore example, this can be done at banks, convenience stores, fueling stations, and the like. Within the context of developing a nationwide system of road use charges for the United States, it is not clear that debit cards would be a sensible choice as the sole means of paying for road use, as this would result in an increased burden on the user (i.e., the need to periodically purchase or refresh debit cards). A stronger case can be made, however, for considering pre-paid debit cards as an option for paying road use charges. If a pre-paid debit card were inserted into the metering equipment, there would be no need to store such information as time or location of travel for future billing because the corresponding charges could be immediately debited from the card. This could be viewed as a valuable option for those with heightened concerns regarding privacy. Note that to support the goal of accurate apportionment of revenue while preserving privacy, the in-vehicle technology could be configured to report, for any user relying on debit card payment, the breakdown of miles by jurisdiction on an anonymous basis; funds would then be distributed accordingly from the pool of revenue received from all debit card purchases. 6.5. Enforcement Options As with billing and collection mechanisms, suitable verification and enforcement options are heavily dependent on the metering approach adopted. It is useful, in particular, to distinguish between enforcement for odometer-based metering, for estimates based on fuel consumption, and for metering that involves an OBU. Enforcement options for the odometer. For odometer-based metering, the only option for enforcement is a certified odometer inspection (this may also be the way that odometer data is collected, though self-reporting is also possible). This is inherently problematic in that the odometer provides the only record of mileage – no redundancy checks are possible – and odometer fraud is already a non-trivial problem (NHTSA 2002). States without existing inspection programs would have to develop mechanisms for odometer inspections, and most states do not currently store vehicle odometer readings in their registration databases. Enforcement options for mileage estimates based on fuel consumption. Enforcement is not a significant challenge for this metering option (Whitty and Svadlenak 2009). If the AVI device on a vehicle is not functioning, the driver will simply be charged fuel taxes instead of mileage fees, so revenue will still be collected. For highly fuel-efficient vehicles, of course, fuel taxes could be considerably lower than mileage fees, so there still might be an incentive to disable the AVI. If this proves to be a problem over time, the fuel tax could be raised high enough to discourage efforts to avoid mileage charges (at that point, most domestic vehicles would have properly functioning AVI devices and pay mileage fees rather than fuel taxes; the fuel taxes would be left in place largely as a means for collecting road use revenue from foreign cars). Enforcement options for OBU metering devices. For metering approaches involving the use of an OBU, the key challenge is to make sure that drivers do not disable, even temporarily, the in- vehicle equipment to avoid road use charges. Several distinct, and potentially complementary,

57 approaches have been proposed to date, and the best option is not yet clear. It is likely, in fact, that a VMT-fee system reliant on an OBU would employ several redundant verification and enforcement strategies. • Redundancy checks. The idea here would be to check mileage counts from the OBU against some other measure of travel and ensure that they are consistent. A simple option would be to compare the OBU with the odometer. This could be performed for all vehicles on an annual basis (obviously entailing high ongoing labor costs), or perhaps performed via random checks. Another option, possible with the pay-at-the-pump collection model, would be to keep an ongoing record of both mileage fees and fuel purchases for each vehicle and verify, through some sort of automated audit check, that they are roughly consistent. • Tamper-resistant OBU. A second approach is to design the OBU in such a manner that it would be difficult for a motorist to temporarily disable the device to avoid mileage fees without this being subsequently detected. One option would be to use some type of seal, affixed when the unit is installed, designed such that the unit could not be disabled without breaking the seal. The seal could then be periodically inspected to ensure that the device has not been tampered with. Another potential option would be to design the OBU to send out a wireless alert to the central billing agency or enforcement authority if the unit detects that it has been disconnected. • External OBU checks. Yet another approach is to rely on external infrastructure to query the OBU and verify that it is functioning as intended. This could be achieved by setting up check points combining DSRC and ANPR technology – either in fixed or random positions – across the road network. The DSRC device would send a signal to the OBU to confirm that it is functioning; if it is unable to communicate with the OBU, then ANPR would be used to capture the vehicle’s license plate number, which would trigger further enforcement action (e.g., mailing the owner a summons to bring the vehicle in for manual inspection). A second option would be for the central billing agency to periodically query, via cellular transmission, the OBU. If multiple queries fail, the owner would again be requested to bring the vehicle in for a manual inspection. 6.6. Public and Private Roles Developing, operating, and administering a VMT fee system will require a broad range of tasks. Some are ideally suited to public entities, while others clearly fall in the private domain. Finally, some activities could be led by either the public or private sector. This section considers the suitability of public and private actors for different aspects of a VMT-fee system, beginning with several high-level observations regarding public and private participation and then focus more specifically on relevant roles in the areas of technology procurement, system integration, system operations, billing and collections, enforcement, and oversight. Public administration issues. For public sector administration, there are two important questions to consider. First, should responsibility for the operational administration of a national system of VMT fees reside at the federal level or instead be distributed among the states? While the latter may be more complex from the perspective of intergovernmental interactions, it is also the case that most existing transportation revenue mechanisms are currently implemented at the state (or local) level.

58 Second, how do the new administrative requirements relate to the functions of existing agencies? The answer may lead to one of four approaches: (1) tapping an agency that already operates a similar revenue program (e.g., collecting vehicle registration fees or fuel taxes) to administer the mileage fees; (2) significantly expanding the duties of an existing agency (e.g., a department of transportation) that does not currently perform similar duties; (3) creating a new agency; or (4) creating some type of intergovernmental joint-powers authority. The strongest case for public administration can be made for the first of these alternatives, where only minor modifications to existing procedures need to be made. In the latter three cases, the potential for private rather than public administration merits consideration. Private administration issues. An argument commonly offered in favor of private administration is that the private sector is capable of delivering services faster and more efficiently. Debate over this issue is rife with ideological overtones, and this research is not meant either to support or dispute the argument. The programmatic implementation and administration of a system of VMT-based road-use fees will require a range of tasks and duties, and it does seem reasonable to expect that private actors may be well-suited (if not exclusively so) to accomplish some of the necessary activities. It has also been argued that the privacy concerns associated with metering road use (most prevalent when GPS is involved) can be mitigated to some extent if the data is transmitted to private firms rather than the government. Given that individuals routinely entrust, for example, cell phone providers and credit card companies with sensitive private data, the argument may have merit. On the other hand, data in those instances is exchanged in a market where consumers have other options; a cell phone provider can lose customers if it does not respect their privacy. If program administration is contracted to a single firm or consortium, this potential advantage would be diminished. Several potential options exist for private participation in developing and administering a system of distance-based road use fees. First, a private, not-for-profit entity could be created to administer a particular function. Such an entity might be governed by a combination of public stakeholders, e.g. states, in which case it might instead be viewed as a quasi-public institution. Examples of this may be seen with IRP and IFTA. As another alternative, the entity could be governed by some combination of public and private actors. Second, an individual for-profit firm (or consortium of firms) could compete to be the sole provider of a service. The consortium that developed and operates the Toll Collect weight- distance truck toll program in Germany is an example of this arrangement. Third, multiple firms could simultaneously provide a service, competing for customers (motorists) on the basis of price and/or added functionality. This could be the approach taken, for example, if developing a network of certified stations to perform annual odometer checks to serve as a basis for implementing mileage fees. Procuring in-vehicle technology. The private sector is best positioned to fulfill the technology development role. Two models are possible. First, the government could create a set of specifications for the in-vehicle equipment that providers would need to meet to be certified. Providers could then offer additional “value-added” features (e.g., in-vehicle navigation or

59 roadside assistance) and compete for customers on the basis of price and functionality. This is the approach envisioned in the current Netherlands proposal. A key advantage here would be the function of competition in driving down costs. Second, the government could contract with a sole provider to develop the technology for all vehicles, as was the case in the German Toll Collect program. The principal argument for this arrangement is that it ensures that the technology will in fact be developed (under the multi-firm option, it is possible that no firms would choose to compete in the sector). As illustrated by the delay in launching the Toll Collect program, however, there is no guarantee that the sole provider will deliver the technology according to schedule or within a pre-determined budget. System integration. This category includes development and integration of the technical components (hardware and software) that facilitate such functions as data communications and billing. Here again, the private sector offers the greatest expertise. The logical option here would be to let firms (or consortiums) bid to be the sole provider of this service. System operations. The precise nature of the operations function depends on the metering strategy employed, but this category generally includes such tasks as installing and maintaining equipment or inspecting odometers. These tasks could be performed by public agencies, by a non-profit entity, by an individual private firm (or consortium), or by multiple private firms in competition with one another. Billing and collections. Billing and collecting, and in turn disbursing, road use revenue is a centralized function. It thus makes the most sense that this be managed by a single entity, although that entity could be public, non-profit, or private. Enforcement. Private industry could participate in enforcement, for instance by certifying that OBUs have not been tampered with. Ultimately, though, this function requires the ability to issue and enforce fines or other penalties, so the involvement of law enforcement is a requisite. Oversight. Roads in the United States, with few exceptions, are publicly provided and maintained, and transportation finance is a matter of public policy. Accordingly, it can be argued that the oversight function – e.g., setting fare policy, determining appropriate allocation of revenue, etc. – falls squarely within the public domain. Table 6.2 summarizes the potential public and private roles for various system development and administrative functions, as just discussed.

60 Table 6.2. Potential Public and Private Roles in System Development and Administration System Development and Administrative Functions Public / Private Options Public Sector Not-for-Profit Entity Private Firm or Consortium Multiple Competing Firms In-vehicle Technology X X System Integration X System Operations X X X X Billing and Collections X X X Enforcement X Oversight X