Implementation and Evaluation of Self-Financing Highway Pricing Schemes

Abstract

With the current and projected shortfalls in revenue vis-à-vis increasing needs, many transportation agencies are increasingly seeking alternative funding sources to supplement income from the motor fuel tax. One promising alternative, the fee for vehicle miles traveled (VMT), entails payment by drivers on the basis of their actual share of facility usage. This paper uses economic theory and travel demand and highway expenditure data from the State of Indiana as a basis to establish efficient VMT fee rates under various expenditure and funding scenarios. The authors have found that a VMT fee of 2.9 cents per mile, plus federal aid, would cover current expenditures for state-administered highways in the absence of any other revenue source, and that a fee of 2.2 cents per mile would be sufficient if revenue from vehicle registration was maintained. To cover the expenditures supported only by state-generated funds, the fee would be 1.3 cents per mile with vehicle registration revenues and 2.0 cents per mile without. This paper also establishes equitable fee structures that ensure self-finance of each facility class, as well as an alternative uniform-rate fee structure that entails cross-subsidy across facility classes. For the latter, it was found that the urban highway system would subsidize the rural system, the rural Interstate system would subsidize the rural non-Interstate system, and the urban non-Interstate system would subsidize the urban Interstate system. Different VMT fee structures could be established on the basis of desired levels of equity across the facility or user classes and of the technical feasibility of the implementation of VMT fees.