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No more free rides? Oregon pay-as-you-go plan could one day fund highways

By and   /   July 16, 2015  /   News  /   No Comments

By Eric Boehm and Grayson Quay | Watchdog.org

Drivers using electric or hybrid cars might be helping the environment, but they’re also getting a break from taxes used to maintain roads and bridges.

Oregon is set to become the first state to ask those drivers to chip in — voluntarily, for now — to maintain its highways.

Photo courtesy of Flickr.

FAIR SHARE?: Drivers of electric cars do not pay fuel taxes to pay for the roads they use. Oregon is putting forth a novel approach to make sure they do: the state is experimenting with a per-mile driving tax that could, someday, replace the gasoline tax.

The Legislature has created a pilot program for a new per-mile driving tax that could one day replace gasoline taxes as the primary form of revenue for the state’s highway fund. It’s entirely voluntary in the first year: Sign up and you’ll get reimbursed for any gasoline taxes you pay at the pump.

You’ll owe the state 1.5 cents for every mile you drive, though.

The per-mile tax amounts to a net revenue loss for Oregon in the first year, but the Department of Transportation sees it as an experiment.

“The current system of funding maintenance and preservation of roads and bridges is unsustainable,” said Art James, project director at the Oregon Department of Transportation’s Office of Innovative Partnerships. “If you look at your water, power and other utility bills, you pay by how much you use. Transportation funding should operate the same way.”

Oregon wants 5,000 people to sign up for the pilot program this year, but it’s not close to that number.

New taxes — especially ones described as “temporary” — could make fiscal conservatives again shake their heads at Oregon.

Some, fiscal conservatives.

“I strongly support it. The state asked for volunteers starting this morning and I immediately signed up,” Oregon resident Randal O’Toole told Watchdog.org.

BACKING THE TAX: Randall O'Toole, a senior fellow at the Cato Institute, says he supports the new per-mile tax structure because it's more like a user fee. An Oregon resident, he's already signed up for the program.

BACKING THE TAX: Randall O’Toole, a senior fellow at the Cato Institute, says he supports the new per-mile tax structure because it’s more like a user fee. An Oregon resident, he’s already signed up for the program.

O’Toole is a senior fellow and policy analyst for the Cato Institute, a libertarian think tank. He makes his living pointing out wasteful transportation spending, but he’s on board with the per-mile tax because it’s more like a user fee.

“When I drive to the nearest airport or grocery store, I drive on a private road, a Forest Service road, a county road, a state highway, and city streets,” he told Watchdog. “Eventually, the Oregon user fee system will work so that my 1.5-cent-per-mile fee will go to the owner of whatever road I drive on. That’s the way it should be.”

Oregon has 70,000 miles of public roads. Like other states, it’s dealing with the problem of maintaining existing roadways and adding capacity for an increasing population — all against the backdrop of declining federal aid for state highway funds and decreasing revenue from the gas tax.

The state has borrowed about $3 billion in the past 15 years to repair bridges and build new infrastructure, but payments on that debt consume one in five dollars the agency spends, according to the state Department of Transportation.

Gasoline tax revenue peaked in 2006, and the decline continued even after lawmakers in 2009 increased the state gas tax to its current level — 30 cents per gallon.

Part of the reason for the decline is the sharp increase in the use of electric vehicles — Oregon was the fifth-highest all-electric car market in the U.S. in 2014; as of July 1,the state had 6,103 electric cars.

James argued “electric vehicles drive on the same roads as gasoline-powered vehicles, so they should contribute to maintaining that infrastructure.”

In 2011, the average Oregon vehicle got 21.61 miles to the gallon, according to ODOT.

According to the Tax Foundation, the break-even point between the two methods of taxing comes at about 20 miles per gallon. If your car gets more, you’re better off paying the gas tax. Get worse mileage and you’ll save a few bucks by paying per-mile.

Critics of the per-mile tax predict it won’t close the revenue shortfall it’s intended to address because the 1.5 cents-per-mile tax rate isn’t indexed to inflation.

Image via Wiki Commons

RIVERS AND ROADS: Oregon has 70,000 miles of public roadways. Like other states, it is dealing with the difficult problem of maintaining existing roadways and adding capacity for an increasing population against the backdrop of declining federal aid for state highway funds and decreasing revenue from the gasoline tax.

“If infrastructure costs rise by a modest 2 percent a year, the tax will lose 18 percent of its value within a decade, leaving the state facing the same long-run imbalance it does today,” said Carl Davis, research director for the Institute on Taxation and Economic Policy, a think tank.

There are other reasons for concern. Environmentalists might wonder about the bizarre incentives created by the new tax — essentially penalizing people who drive more fuel-efficient cars.

“People can do that math. If you own a Prius, you’d be crazy to sign up—you’ll pay more. If you own a Hummer, you should sign up… They are incentivizing gas-guzzling, road-damaging vehicles,” Joe Cortright, an economist with the Portland consulting group Impresa, said.

Then there’s the issue of government surveillance in the form of a device that tracks mileage.

Tom Fuller, a spokesman for ODOT, told Watchdog that many of these concerns are premature. “We’re working hard to clear up the misconception that this is the final program,” he said, adding the final program may apply only to fuel-efficient vehicles and electric cars.

Fuller said “any location information” gathered by the mileage reporting devices “is not transmitted to the Department of Transportation” but remains with a private-sector vendor and is deleted at the end of each month.

Recently, several states have tried to address the highway funding problem by raising gasoline taxes.

Massachusetts raised its gasoline tax in 2013, from 21 cents per gallon to 24 cents per gallon, with automatic future increases based on inflation. Public backlash against the increase resulted in a ballot measure in 2014 asking residents if they wanted to return to the old rate. Not surprisingly, it passed with more than 53 percent support.

Oregon’s idea is different because it gives drivers a choice in how they pay for the roads — at least for now. It could become mandatory by 2019, if the Legislature acts.

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Eric is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed list-icle. Follow him on Twitter @EricBoehm87.