Alternative Methods for Funding Local Transportation: VMT tax

Bridge Construction on NE Side (image credit: Curt Ailes)
Bridge Construction on NE Side (image credit: Curt Ailes)

A recent front page story in the New York Times highlighted a pilot program in The Netherlands whereby personal automobiles were outfitted with a meter not unlike what you would find in a taxi cab. The meter was linked via GPS and tracked how many miles and what route were travelled and tabulated a charge based on these factors. The meter contained a readout, also much like a taxi cab meter, that displayed the charge that the driver would see in an end of the month bill. The service would operate much like cell phone service where you get charged for what you used.

The idea seems a novel one in that the meters represent government intrusion into private automobiles. On its face this seems socialistic but at the heart, the premise has validity; that being an honest charge to automobile owners for the amount of time they spend behind the wheel using public roadways. At issue is the notion that the ever growing fuel efficiency of automobiles being sold is driving down revenues being generated by federal and state gasoline taxes; taxes which are used to fund the upkeep and construction of new roadways, and public transportation, projects all across the nation. This gap will continue to grow as vehicles become more fuel efficient over the years driven by buyer demand as well as federal policy. Just this last week, a major announcement came from Washington stating that by 2025, the average passenger vehicle would be required to attain 50mpg.

A VMT tax would not only create a new method of financing public transportation infrastructure, but it would also calm the debate between roadway and public transit lobbyists who complain today that public transit funds are generated solely from gasoline taxes; a notion that is untrue and proven by an annual infusion of billions from the general operating fund to pay for transportation funding shortfalls; the overarching point being that our existing gasoline taxes cannot keep up with demand for roadways and transit.

Locally, could a VMT tax be implemented to help pay for transportation infrastructure? Indianapolis while not home to chronic traffic congestion observed in places like Los Angeles, San Francisco or New York IS home to a higher than average commute distances. I wrote about this late last year after a report was released comparing the major metro areas of the US and how far people were driving on average; Indianapolis averages 21 miles one way for workers commuting via personal automobile.

Construction on Virgina Ave in Fountain Square (image credit: Curt Ailes)
Construction on Virgina Ave in Fountain Square (image credit: Curt Ailes)

Given that the CBD of Indianapolis is the state’s largest concentration of employment, and that Marion County taxpayers are the ones on the hook to pay for road repairs while suburban workers flow in and out of the city every day without paying for public roadway upkeep, a VMT could represent a leveling of the playing field in finding ways to pay for roadway upkeep and construction. Indeed, the recently released long term transportation plan by the Indianapolis MPO cited a lack of sufficient funding to maintain our existing amount of roadways over the 25 year planning horizon let alone finance new roadway construction. Even given these constraints, new roadway & widening of existing roadways is planned with the result likely to be a lower quality of driving experience. This also creates additional user costs with wear and tear on vehicles suspensions and bodies that must be maintained to keep vehicles in good state of repair and gas mileage as high as possible.

For you normal readers, you must be wondering by now why I have not mentioned anything about how this could fund public transit improvements that have been brewing locally. The Indyconnect plan as it stands calls for a non-automobile based tax of some sort in the form of either a sales tax, income tax or other creative form of non-automobile based funding to construct passenger rail and improve the current bus service. To this end, a tax implemented solely for transit could stand on its own while funding collected from a VMT would be used to cover the roadway funding needs in a responsible and representative manner of the actual amount of usage occurring in the metro area. The same report I referenced above, even in the face of insufficient funding for existing roadways, recognizes the need for some of the existing funds being collected go towards mass transit funding and sets aside 10% of the 25 year plans budget to go towards capital expenditures for IndyGo, devoid of a dedicated tax for transit occurring in the next general session.

Could a VMT be implemented in Indianapolis? In my opinion this is a stretch given the overly conservative nature of residents of the region. Furthermore, something of this nature is likely to have to make its way through the state legislature; a body which has proven to be very conservative in nature highlighted by this past session’s attack on the state Public Mass Transit Fund (PMTF). Additionally, considering the rules for who would actually be on the hook for participating could be dicey. However, I believe that the conversation has some merit and is worthy of exploring as a means of funding local roadway needs. The way that Federal policy is headed, there is likely to be a LARGE drop off in government transportation dollars in coming years with the House GOP pushing a bill that would reduce Federal funding by 30% over current and already underfunded levels. There are many other factors that would have to be considered and how they would affect current travel patterns and funding for other subsidized programs but at the core, figuring out how to fairly pay for roadway construction demand is a conversation that needs to happen.

One last parting shot and I will open the floor for debate. In the NY Times article I referenced above, a participant of the program in The Netherlands commented that having the meter in his car and seeing the charge tick away like in a cab, caused him to immediately question his choice of transportation and he admitted that public transit would receive much more consideration for him in the future. I thought that was particularly interesting in that it transcends a notion that all transit advocates struggle to get over; that notion being how do you convince people to choose to use public transit. In this case, watching your money tick away at an agreed upon, and fair, rate to pay for your actual usage on the road. How fitting that a potential method for FAIRLY funding roadway upkeep and construction could cause someone to consider using public transit.

As always, I now open the floor to debate by the readers.

Comments 19

  • It may be viewed as an intrusion from a political viewpoint, but economically speaking this is the optimum solution. The Netherlands will see a lot of benefits by showing people how much impact they have on their transportation system.

  • VMT = something something Tax?

    Several problems with the idea

    1. It would kill the family vacation by car unless the GPS ‘bounds’ the area in which it counts mileage
    2. Could I buy a motorcycle and use the meter in my Suburban?
    3. I could shield the GPS so it doesn’t see me drive
    4. There would no doubt be a flat fee charged for ‘equipment and basic service’
    5. Theft of the device.
    6. Failure of the device
    7. Registering the vehicle outside the region and avoiding tax ala John Kerry
    8. Millions of dollars in implementation and administrative costs
    9. Big Brother tracking my every movement

    All in all it sounds like throwing technology at a issue to ‘solve’ it but creating a bigger problem.

  • Those are all valid points John. I wont take issue with them point by point but I will ask what you would suggest we do in the face of decling gas tax revenues and a toxic anti-tax party trying to eliminate all forms of federal taxation? This is more of a sounding board for suggestions. The VMT story in the NY Times just got me thinking about it. As I said in the story, there are many hurdles and chief among them I think is your point about BIG BROTHER looking at where you are. I suppose that has validity, but people dont balk at having GM OnStar in their vehicle where private and un-governed corporations outsource your location to someone in India to track and provide assistance. Other GPS mapping devices fall under the same comment….

  • I like this sound of this since I live and work downtown and could easily walk or bike to work. Here are a couple of issues I can think of:

    1) The big brother thing. The best way to work this out would be to have the source code for the device open to anyone. That way you can see exactly what data is being transmitted. Ideal, the only data would be the straight-line distance driven and your device would be hooked to a database using the device’s unique id so they knew what car you drove and what rate to charge. Date and time would be good too, but I could see law enforcement or any number of other people wanting that data, so I would prefer to avoid that.

    The downside to this: Given what a huge government contract this would be, you can be damn well sure that whoever was chosen would do their best to protect the source code and who knows what would be in there.

    2) It would HAVE to have a display of the mileage and charges. If it doesn’t (and this is mentioned in the article), it loses nearly all of its psychological effect. Seeing the “cab fare” ticking up is a huge part of this and keeping it hidden just makes it another bill at the end of the month.

  • Discussing this as though it could actually be implemented in the United States is a supreme waste of time.

  • VMT = vehicle miles traveled, John.
    This would have to be a federal mandate alongside the CAFE regulations, and it would need to completely replace federal and state fuel taxes. That way, a state could capture fees from out-of-state drivers crossing or visiting their territory. The Feds could get completely out of the transportation-funding business.
    This is like a VAT-to-replace-income-tax idea: great in theory, but there is no guarantee that it would actually replace the tax it’s supposed to replace. Canada, for instance, has both provincial and federal VAT…and income taxes. (VAT=value added tax, similar to a sales tax)

  • I failed to point out the “economist’s dream” value of the VMT: everyone pays as they go. If the tax is set at a level that funds capital (new road) and expense (maintenance), then it’s fair and transparent.
    But we’d have to meter bicycles, scooters, and motorcycles, too.

  • Initially I could see the constant rise of fuel prices forcing travelers to use transit, but with the new push of electric vehicles (coal-based vehicles), this would be offset, causing concern within the planning community (Allowing these vehicles to be traveling further and further distances without penalty at the pump (just their electricity bills)). This idea however of basing a tax on VMT is very intriguing, and it makes people not only think of the mode of choice but their choice of where they live, work, play, etc.

  • What would I do as an alternative?

    I would be more selective in the things I fund. I contend there is plenty of tax money out there already without more taxes. It’s become the norm that we have to hand out/grease palms millions of dollars for things that should be entirely privately financed. That should stop.


    We seem to have trained all architects and construction companies that they only have to pitch an idea and the government will drop a truckload of money at their doorstep. They risk almost nothing in exchange for taxpayer dollars, all in the name of ‘progress.’

    We had lots of progress for over a century before this new way of doing business took hold. So it can be done. The private sector should decide whether a project is viable or not, not a CIB that is only concerned with one-upping some other city.

    Heck, the interurban lines started out as priivate operations. They may have had some tax support, I don’t know. But they were built by entreprenuers, not welfare seekers.

    And as long as we continue to throw billions into ever-widening interstae routes, we will continue to make the mass transit issue worse. That’s because it (a) encourages people to spread farther out, decreasing population density and (b) sucks up tax dollars that COULD HAVE gone to improving transit options.

    • Id be happy to see roadway spending throttled back. As soon as you can convince all of our suburban towns and counties to stop doing it, Im all ears.
      Good luck

    • Oh, John, really. One man’s “waste and fraud” is another man’s essential service. And it’s not new. The US economy has always been a mixed economy; it has never been the libertarian fantasy “free market”. The government has been picking and funding winners for longer than you acknowledge.
      Over the past 150-200 years, the US and state governments gave away billions and billions of dollars worth of land, minerals, irrigation water, flood and channel control and timber to the rich and well-connected “entrepreneurs” as “incentives” to build the railroads, mines, ranches, farms, barge lines and mills west of the Alleghenies. (Not to mention the tax advantages.)
      Right here at home, the state went broke digging canals to get products to eastern markets. The PRIVATE streetcar businesses ran on PUBLIC rights of way. And so it goes.

  • I like the closing comment you quoted from the gentleman about public transit. When we are presented with data about the choices we make it often causes changes in behavior. This is a simple concept that probably holds more potential than might be imagined: what data and in what forms might yield significant shifts in consumption, etc.?

  • It’s worth noting that it failed (politically) in more tax/environmentally friendly Europe, so it has little chance in US. However, it’s an interesting idea. In a sense, it is a lot more “free market” than the current system of govt. subsidies. I think it would have a huge impact on where people live and work.

    Couple of additional comments:

    1. Privacy – I’m not a techie, but it seems to me that this is not much different than having a smartphone. I would think there are ways to regulate this. Per article, one proposal in Oregon suggested that the GPS device would not reveal the location (but still measure miles traveled).

    2. Politics – it would be very hard to implement unless you can show dollar for dollar offset of an increase in VMT with a reduction in gas tax/registration/other tax. If informed, most (or enough) people would choose what’s fair. Of course, it would take years of pilot programs and public education.

  • I am only addressing the point of commuters using Marion County infrastructure. While suburban commuters like myself use Marion County roadways, we are also big spenders in the Marion County economy. We frequent the zoo, sports arenas, restaurants, museums, etc…. several times a year. If I were forced to pay this B.S. tax to use Marion County roads, I know I would also rethink where I spend my recreation dollars as well. The county rakes in millions in tax funds from the doughnut counties and I think this would cause friction whether the state, federal, or local level proposed such a tax. Whatever wear and tear created by my car is more than made up for in recreational taxes I pay yearly to Marion County. And yes it is more Big Government nonsense.

    • Todd,
      I think the point is that if they charged a VMT, it would encourage those who work in the burbs to live in the burbs. It would encourage those who work downtown to live downtown. As for visiting the zoo, sports areans, restaurants, museums, etc, my guess is you would still visit them just as regularly and the VMT would just be part of your budget for doing so. My guess is it would actually be a small part of the budget if going to a Colts game.
      And you are still ignoring the fact that if this were implemented, it would increase demand for public transit from places like Carmel and Greenwood to downtown, creating a cost-effective way to get here. Nothing about this proposal would happen in a vacuum.
      Also, Kevin posted this a few days ago on Twitter and it is a good read:

  • Personally if they are going to tax us for driving in our cars i want the difference taken off the gasoline prices. so lets say i have to give away 1-2 cents per mile driven. that should take the price off gasoline by 15 cents to offset some of it. Otherwise i am just paying another outrageous tax and people are moving to Indy cause of our low cost of living and tax structure. The best way to fund mass transit in my opinion is send a small fund from the rainy day fund our state has to a bank for Mass Transit and add it where its really needed. i would say 10-50M per year added to this bank and when the city of Indy needs to add transit they withdrawl from the bank and add the transit thats needed BUT if its not needed the money drawls interest slowly and it just sits there until needed. I would recommend a cap of money stored of 200M so it doesn’t come a richmans pot.

  • Regarding some tax related comments — let’s say they institute VMT at the rate that will cover all road maintenance and the new construction. Then let’s say they cancel all the dedicated taxes for road spending. Would they exactly offset? Probably not. Maybe the two would not be even close. I mean we are running huge deficits, so we are obviously not paying for all of our current bills as we go.
    At the same time, I think the VMT would be more fair and free market like. Now, if we want to keep the VMT at the very low rate, that is fine, but that’s the choice between a) do you want better infrastructure or b) do you want lower taxes. What I like about this idea is to tie the tax & user activity to actual spending.

  • ahow628,

    Great article — thanks for sharing. FYI, I don’t necessarily share that ideology (to privatize everything), but as I was reading comments on NY Times, I was dumbfounded by people who argue against any tax increases and that the government is always inefficient (aka hobbits), but then when presented with something that’s closer to the “free market alternative”, they don’t want any part of it.

    Again, in my opinion, the VMT option is the closest thing to the free market alternative (not always a good thing). If we were to privatize every road in the US, the operators would probably not build bunch of toll booths, but they would do exactly this — the GPS tracking fee system. As I said, this is an interesting idea that can’t be automatically dismissed or characterized as “another tax increase = bad policy”. I was hoping we would get more into the conversation how would this change our cities, impact the environment, restrict our freedoms, impact on rich vs. poor, etc.

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