VMT fees, per-mile insurance make headway

By Robbie Webber

Although several states have considered VMT fees as an alternative to the gas tax, none have yet instituted them. But recent news articles show that interest is still high, and some states may be inching toward this model. Insurance billed on a per-mile basis is also beginning to appear.

As fuel efficiency increases, and electric or other alternative-fuel cars become more widely available and cost competitive, using gasoline and diesel taxes to fund transportation costs will become less reliable. The GAO issued a report in late 2012 suggesting that the federal government undertake a pilot study of VMT taxes and mechanisms for collecting them.  The report estimates that collecting a VMT tax would cost more than the current gas tax but that the additional and more reliable revenue collected would make the higher administrative costs worthwhile.

The GAO also acknowledged citizen concerns about privacy if GPS-based mileage tracking units are used to collect the fees. However, these units offer some advantages that may outweigh the concerns, such as the ability to not charge drivers for out-of-state miles or those driven on private roads. Variable pricing is also an option with GPS-based tracking. Minnesota studied variable pricing of miles driven, based on time of day or location of road. Participants were given the option of flat-fee pricing or a variable rate using a GPS-based tracking unit. After assurances that their privacy would be safeguarded, and a reminder that their cell phones were already tracking them, most participants opted for the variable rates.

Other states continue to weigh VMT options, with Oregon advancing the farthest. The state recently completed its second study of VMT fees, and some legislators favor moving ahead with legislation. Wisconsin floated the idea in mid-2012, and in Washington state, a panel of transportation experts have considered mileage-based taxes.

While use of a mileage-based tax to replace or supplement the gas tax is still in the discussion stages, one company has begun to offer insurance on a pay-as-you-drive basis. Instead of a flat fee, or discounts for driving fewer miles than average or being a good driver, Metromile offers true per-mile insurance. In addition to a base monthly fee, drivers pay for each mile they drive. The company estimates that this offers savings in particular for urban drivers, who use transit, walk, or bike for many trips. Although the insurance is currently only available in Oregon, the Redwood City, CA-based company hopes to expand to other states soon.

Robbie Webber is a Senior Associate at SSTI.