Bring highway funding up to speed
Fuel taxes give electric cars a free ride. Drivers should pay based on miles traveled.

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Article Highlights

  • Transportation policy has not kept pace with vehicle innovation or the energy that fuels them.

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  • Federal highway policy has created a "free rider" problem.

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  • A building's security guard, who commutes in a decade-old Buick, foots the road bill for the building's executives who drive Teslas.

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Washington, D.C's lone Tesla showroom is on K Street. Recently the sleek cars have piqued the interest of the lobbyists, lawyers and politicos nearby. These successful professionals are the typical Tesla buyers, as more than three-quarters of "Model S" purchasers earn more than $100,000 a year. Demand for the gas-less vehicles is growing, and the company is now planning a $5 billion battery manufacturing plant to keep up.

Transportation policy, however, has not kept pace with the innovative vehicles or the energy that fuels them. Federal highway policy has created a literal "free rider" problem that the government can fix by updating how we pay for highways.

Since 1956, the Interstate Highway System has relied on federal and state cents-per-gallon fossil fuel taxes to pay for maintenance and expansion. Such taxes have traditionally been viewed as user fees: Only those who drive on roads pay the levy.

Technology has upended that system. Electric vehicles burn no fuel and their drivers pay nothing to use most interstates. Most fuel-efficient hybrid drivers pay very little. Drivers of older and less fuel-efficient cars subsidize these green-friendly motorists. A building's security guard, who commutes in a decade-old Buick, foots the road bill for the building's executives who drive Priuses and Teslas.

The current shortfall in transportation funding makes this problem more pronounced. Since 2008, Congress has bailed out the Highway Trust Fund to the tune of $54 billion. The fund is expected to become insolvent again in late August, and is projected to spend $97 billion more than it brings in over the next decade.

Federal fuel-efficiency policies have hastened this trend. Aggressive Corporate Average Fuel Economy standards have pushed auto makers to manufacture more fuel-efficient cars, while lavish tax credits for electric vehicles have accelerated the adoption of the new technology. By encouraging the use of vehicles that burn little or no fuel, the federal government has made its funding shortfall worse.

Americans are also driving less. Vehicle miles traveled per person dropped for the ninth straight year in 2013, down 7% from its 2004 peak, according to federal highway data. This suggests a major shift in driving habits, not simply reduced travel as a result of the Great Recession.

Furthermore, revenue from the fuel tax buys much less than it once did. Inflation has eroded the purchasing power of the 18.4 cents-per-gallon federal gasoline tax by more than 30% since Congress last raised the tax in 1993.

A new policy of charging drivers based on the miles they travel would make the system more equitable and efficient. Mileage-based user fees, or MBUFs, reflect the basic principle that motorists who use roads should pay for them, regardless of what fuels the car. Just as Americans pay for electricity by kilowatt-hour, drivers would pay for road use with a per-mile charge.

There are many advantages to this plan. First, widely adopted MBUFs would unlock billions in new revenue that could be used to improve aging roadways. Electronic tolling technology would allow the change to be implemented without delay-inducing toll booths.

Second, if the tolls vary in price throughout the day based on traffic, they could be instrumental in reducing highway congestion. Motorists could save money by driving during off-peak hours or by choosing other travel means. Subway systems like the Washington, D.C., Metro already price for congestion. More roadways need to be brought up to speed.

Third, MBUFs would help direct investment dollars more efficiently, ensuring that funds are allocated to the projects where motorist demand is greatest-not to politicians' pet projects.

Finally, MBUFs would allow states and cities to deliver longer-lasting infrastructure with fewer federal dollars. The incentive to make a transportation facility perform well financially encourages states to adopt best practices in construction, maintenance and operation.

There's been positive movement toward mileage-based user fees. In May the Obama administration submitted to Congress the Grow America Act, which would eliminate a key barrier to MBUFs. The bill contains a provision that would grant states more latitude to price the use of highways than current federal law allows. The provision would spur job-creating investment in transportation infrastructure with no new federal spending, and empower states to modernize roads, tunnels and bridges.

This approach would be much more effective than raising the fuel tax or imposing a flat annual road use fee on electric vehicles, which Colorado, Nebraska and North Carolina are trying. Those strategies ignore the changing landscape of American transportation, and invite more government bailouts.

Current infrastructure policy relies on a funding model that is neither sustainable nor equitable. The federal government instead needs to encourage a funding system as innovative as the vehicles it regulates, rather than offering a select few a free trip.

Mr. Geddes is an associate professor at Cornell University, where he directs the Cornell Program in Infrastructure Policy. He is a visiting scholar at the American Enterprise Institute, where Mr. Wassink manages domestic policy research.





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About the Author


R. Richard
  • Rick Geddes is associate professor in the Department of Policy Analysis and Management at Cornell University. His research fields include private infrastructure investment through public-private partnerships, postal service policy, corporate governance, women's property rights, and antitrust policy. He is a Research Associate at the Mineta Transportation Institute, and a visiting scholar at the American Enterprise Institute. He was a Fulbright Senior Scholar at Australian National University in Canberra in the fall of 2009, and a Visiting Researcher at the Australian Government's Productivity Commission in the spring of 2010. His research focused on Australian public-private partnerships in both positions. Geddes teaches courses at Cornell on corporate governance and the regulation of industry.

    In addition to his teaching and research at Cornell, Geddes served as a commissioner on the National Surface Transportation Policy and Revenue Study Commission, which submitted its report to Congress in January 2008. He has held positions as a senior staff economist on the President's Council of Economic Advisers, Visiting Faculty Fellow at Yale Law School, and National Fellow at the Hoover Institution at Stanford University.

    In 2008, Geddes received the Kappa Omicron Nu/Human Ecology Alumni Association Student Advising Award. His published work has appeared in the American Economic Review, the Journal of Regulatory Economics, the Encyclopedia of Law and Economics, the Journal of Legal Studies, the Journal of Law, Economics, and Organization, the Journal of Law and Economics, the Journal of Law, Economics, and Policy, and Managerial and Decision Economics, among others.

  • Email: [email protected]

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