The National Academies

NCHRP 19-08 [Completed]

Costs of Alternative Revenue-Generation Systems

  Project Data
Funds: $200,000
Research Agency: Battelle Memorial Institute
Principal Investigator: Patrick Balducci
Effective Date: 3/4/2009
Completion Date: 12/30/2010

The current system for generating the revenues that support federal-aid and state highways is based largely on federal and state fuel taxes. The distribution of revenue-generation responsibilities and activities are the result of several decades of public policy discussions, legislative actions, and executive decisions.  In most states, the agencies responsible for using the revenues to develop and operate the highways--typically a department of transportation (DOT)--are separate and distinct from the agencies responsible for raising the revenues.
There are costs associated with administering this revenue system, collecting the taxes, and ensuring compliance. Administrative costs accrue to operations of the government agency, private company, or independent authority that implements and oversees revenue-producing activities. Collection costs are associated with receiving tax payments, placing and operating the equipment for tolls, and other such activities. Compliance costs are the result of efforts to ensure that taxes and charges are paid when they are due, to reduce evasion, and to collect past-due amounts. These various costs are not documented in ways that enable easy comparison of alternative revenue-generation systems.  
For a variety of reasons, there is a growing interest in the United States in alternatives to fuel-tax-based means of generating revenues. Implementing a toll- or other usage-based system generally requires substantial capital investments and labor for collection, administration, and financial management. Even changing an existing toll-based system, for example by introducing electronic collection to replace direct payments at the toll booth, entails expenditures for new equipment and changes in administration and compliance practices. For example, one study of the switch to EZ Pass on New Jersey’s Garden State Parkway, an action motivated at least in part by an expectation of lower costs for the toll-authority, concluded that administrative cost increased (Peters and Kramer, Transportation Quarterly 57:3 (Summer 2003): pp 17-31).
Various proposals are being considered for variations and alternatives to fuel taxation, including tolls that vary over time, tolls that vary based on distance, area-based licensing, and charges based on vehicle-miles of travel (VMT). Each such scheme will have its own pattern of costs that will influence the amount of revenue ultimately available for highways. Research is needed to provide information to support discussions by state officials and other policymakers of the costs of implementing and administering alternatives to the motor-vehicle fuel tax as a revenue source for financing the highway system. The research should draw, to the extent possible, on practical experience of agencies in the United States and abroad, but necessarily will consider applications that exceed the scope and scale of current experience. The research should consider how evolving technology, administrative practices, scale of application, and other such factors will change the patterns of cost as alternative revenue-generating systems are adopted to supplement or replace current fuel-tax revenues.
The objective of this research was to develop a methodology that can be used to analyze and compare the administrative, collection, and compliance costs of systems for highway revenue generation and to apply that the methodology to a selected set of usage-based  revenue systems: cordon-pricing, tolling, VMT fees, and fuel taxes.  The final report has been published as NCHRP Report 689.

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