California Pay-Per-Mile Program Will Fail if Inflation is Ignored


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The following comment was submitted to the California Road Charge Technical Advisory Committee.  The committee is advising the California Transportation Agency as it prepares to launch a pilot program taxing volunteer drivers based on each mile that they drive.

Studying the feasibility of a vehicle miles traveled tax (VMT tax) in California is a worthwhile endeavor.  If we are headed toward a future where many vehicles will use little or no gasoline, then eventually the gasoline tax will cease being a reliable way of charging drivers for their use of the roads.

The legislation creating this committee, and the committee’s online materials, both reference Oregon as a leader in VMT tax experimentation.  While this is true, it is also important to note that Oregon’s VMT tax program (called OReGO) contains a serious flaw that sharply limits its ability to raise revenue in a sustainable manner.  That flaw is a lack of planning for inflation.

Under OReGO, the tax rate applied to each mile driven is a flat 1.5 cents-per-mile.  As Oregon’s law is currently written, drivers participating in the program a decade from now will be charged the same 1.5 cent-per-mile tax that they are being charged today.  This is despite the fact that asphalt, concrete, machinery, and other construction materials are virtually guaranteed to become more expensive in the years ahead.

If construction costs grow by a modest 2 percent per year, the OReGO system’s 1.5 cent tax rate will have lost nearly a fifth of its purchasing power within the next decade.  Offsetting this loss will require raising the tax rate to 1.8 cents per mile.

The most efficient and seamless way of allowing the OReGO tax rate to keep pace with inflation is to rewrite the law so that the rate automatically updates each year according to a formula that takes inflation into consideration.  Such formulas already exist in the gas tax laws of states such as Florida, Georgia, Maryland, Rhode Island, and Utah.  And similar inflation indexing provisions are well tested in the income taxes levied by California, Oregon, and numerous other states.

The goal of a VMT tax pilot project is to find a sustainable way of funding transportation in the long-term.  If California moves ahead with a VMT tax system that does not take the inevitable impact of inflation into account, then it will have failed to achieve this goal.

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