If Congress cannot or will not levy new taxes to fund the nation’s freeways and bridges, it is likely that states will have no choice but to raise their taxes on vehicles. Higher automobile sales and transfer taxes seem inevitable, and it’s easy to imagine that an entirely new robotaxi industry will be taxed at the point of sale by the states, with some form of revenue sharing for local governments.
The lowest-hanging fruit for financing roads will simply be annual vehicle fees and odometer readings that state DMVs can use to assess user fees that they share with local governments, probably using formulas quite similar to those in place today for allocating fuel tax revenues. In fact, more than half the states already charge EV drivers an extra fee, and many — most notably Oregon — are testing, piloting or creating programs to charge EV drivers by the mile.
For states, that’s the easy way out. Whether local governments will take a more aggressive posture to collect revenues of their own is yet to be seen. Scattered reports of cities charging fees for local vehicular deliveries of food and merchandise would suggest that mayors and public works directors are awakening to the need and potential opportunity to collect localized fees for use and maintenance of local roads and streets.
Fortunately for localities, there are technology trends working in their favor that can be channeled for purposes of financing local surface transportation networks. One of them is the ever-expanding capabilities of satellite GPS monitors. There is also the 5G telecommunications network being built out by major carriers so that vehicle locations can be identified readily at a granular level without overloading GPS systems.
The importance of 5G telecom tech here is not so much its signal speed as its vast and ever-growing network of signal stations to capture movements of less than one mile that will be easy to register and thereby employed to charge a user fee specific to the local jurisdiction. Artificial intelligence systems should be able to connect the dots between recorded drive-bys, down to the level of individual city blocks.
It’s technologically foreseeable that both freeways and major state and county roads will eventually become mini toll roads, charging by the mile. Similarly, cities and towns can readily collect a few pennies for each trip to grocery stores, shopping malls, offices and commuter train stations. Transponders of various kinds now used by toll roads and bridges, or something similar, will become ubiquitous. It’s just a question of which and how such technology will be deployed.
For new vehicles, at some point the manufacturing industry will almost certainly be required to incorporate both odometer-reading and location sensors that can communicate with state and local highway departments and toll facilities. Whether this involves uniform federal or piecemeal state legislation is almost immaterial, as states will ultimately have ways to penalize non-compliance.
For pre-transition vehicles, both electrified and gasoline-powered, locator devices such as license plate readers, transponders or software patches to a car’s navigation system will be feasible measures. Dealerships can be required to assure compliance at the point of sale as a condition for licensing and registration, as could smog check and auto repair shops. Scofflaws who fail or decline to get with the program for retrofitting older vehicles can be surcharged by the state DMV on their vehicle registration fees, with revenues shared with the owner’s residential jurisdictions.
No doubt there are private- and public-sector technologists already thinking about the best ways to engineer micro-locators on vehicles for the purpose of assessing governmental user fees. The ideal systems would be statewide combinations of privacy-controlled, integrated sensory networks combined with multijurisdictional consumer billing. Once it becomes clear how state and local policymakers will be thinking about what, where and how to tax vehicle usage — and distribute the revenues — the private sector will engineer competitive solutions in the search of profitable data collection and revenue management systems.
Staking a Claim
Local government associations would be wise to engage proactively and early in this innovation process so that the new tolling systems capture granular local road use data. Otherwise, they will be stuck with nothing more than hand-me-down state dollars assigned to them by conventional population and road-mile formulas. Now is the best time for cities, towns and counties and their finance teams to start staking a claim on the revenue stream and make reasonable demands for granular data capture that can be used to assess user fees to fund local streets and roads.
That’s because the evolving sensor and data technologies that work easiest for state DMVs and transportation departments will not be optimal for local government revenue capture. The billing systems needed for that will be more complex. And integrating the state versus local dimensions of this riddle is both a technological and political challenge.
Even if local governments ultimately accept a statewide revenue collection system with formulaic allocations to localities, it’s likely that many of them will still find it necessary to levy their own separate, additional user fees based on mileage driven within their jurisdictions. It’s not unlike the collection of voter-approved “piggyback” sales taxes that are commonplace in many local jurisdictions. The beauty of modern technology is that electrons are cheap, so the incremental cost of accurately capturing individual trip data for each vehicle is negligible and would be unobtrusive once a measurement system is set up.
Street-specific usage data will also be immensely helpful to local public works departments as they plan their capital improvement programs for street maintenance and repairs. It’s one thing for a mayor to receive a check from the state treasurer based on citywide vehicle registrations and quite another for the public works director to know exactly which streets are getting the heaviest use and by what vehicle classes. Undoubtedly, law enforcement agencies will also favor efforts to glean granular, time-punched data from vehicle movements — though given the Big Brother and privacy issues that raises, precautions are obviously necessary.
Optimizing Local Revenues
Whatever technologies ultimately prevail, a centralized and coordinated state-level tolling system would be most efficient, with local governments’ shares determined by a combination of revenue sharing and location-specific actual use fees. No driver wants to receive separate bills from dozens of jurisdictions; computers can readily handle the data compilation and billing processes. And isolated, disjointed local systems independently collecting micro-tolls for street usage would be too easy for local drivers to evade.
It’s unlikely that all local governments would need or want to charge user fees on their own, beyond what a statewide system would allocate to them. That’s just one of several reasons we don’t typically have local gas taxes today. But for those with serious revenue shortfalls in their public works budgets, there may be no better alternative.
The takeaway for local officials here is that state municipal leagues, public works departments, financial professionals and their national umbrella organizations must begin now to engage actively at the state level in the formulation of next-generation revenue strategies and systems to fund their local streets and road work. Without active efforts by these groups to build their case, state officials will largely ignore the special needs and interests of America’s largest cities, which are the most likely entities to draw the short straws in statewide road-revenue allocations.
At the very least, state laws should not pre-empt local governments’ authority to extract user fees. The sooner local officials and their associations open a legislative dialogue in the state capitals, the better their chances will be to influence the technology to be used and the way funds will be distributed.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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