Surface Transportation System Funding Alternatives Phase I Evaluation: Pre-Deployment Activities for a User-Based Fee Demonstration by the Minnesota Department of Transportation

Chapter 2. Surface Transportation System Funding Alternatives Program

Fixing America's Surface Transportation (FAST) Act of 2015⁸ authorizes the U.S. Secretary of Transportation "to establish a program to provide grants to States to demonstrate user-based alternative revenue mechanisms that utilize a user fee structure to maintain the long-term solvency of the Highway Trust Fund." The FAST Act provides that $15 million in fiscal year (FY) 2016 and $20 million annually from FY 2017 through FY 2020 be made available for grants for demonstration projects. Section 6020 provides express authority to enter into a grant agreement with a State or groups of States, with no more than 50 percent of total proposed project costs being Federal funds and the remainder coming from non-Federal sources.

The stated goals of the Surface Transportation System Funding Alternatives (STSFA) program are to:

• Test the design, acceptance, and implementation of two or more future user-based alternative mechanisms.
• Improve the functionality of the user-based alternative revenue mechanisms.
• Conduct outreach to increase public awareness regarding the need for alternative funding sources for surface transportation programs and to provide information on possible approaches.
• Provide recommendations regarding adoption and implementation of user-based alternative revenue mechanisms.
• Minimize the administrative cost of any potential user-based alternative revenue mechanisms.

Program Purpose

The real power and importance of the STSFA program is that it funds States that will deploy a pilot of an alternative revenue mechanism. Deployments allow the U.S. Department of Transportation (USDOT) to gather information on what works and what does not, and to identify important lessons learned.

Program Approach

Per the SFTSA application requirements, the candidate projects must address or describe how the proposed demonstration addresses the following:

• Implementation, interoperability, public acceptance, and potential hurdles to adoption of the demonstrated user-based alternative revenue mechanism: A number of logistical, technological, and societal issues will need to be addressed in any alternative to the current user fee structure. These range from potential additional logistical burdens imposed by the mechanism to explaining to the public why the current fuel tax is no longer a sustainable funding source. While, to date, some demonstrations of the effectiveness of alternative funding mechanisms have focused on light vehicles, the consideration of the impacts on heavy vehicles is also of interest.
• Privacy protection: The current system provides almost total privacy protection. Any new mechanism would have to provide the same level of protection, either perceived or real, or employ mitigating strategies that reduce the risk to acceptable levels. This extends into the area of data security and access beyond the requirements of the user fee collection.
• Use of independent and private third-party vendors: The use of private-sector third party vendors to administer and operate a system could reduce such costs, offset administrative costs by offering value-added services, or alleviate privacy concerns generated by government administration of the user fee collection process. However, other concerns could be raised, depending on the degree of private sector involvement envisioned.
• Congestion mitigation impacts: To the extent market forces or governmental incentives under the mechanism might positively or negatively impact roadway congestion or be used to leverage congestion reduction strategies, those impacts should be addressed in the proposal.
• Equity concerns (including impacts on differing income groups, various geographic areas, and relative burdens on rural and urban drivers): The implementation of alternative user-based revenue mechanisms may alter the distribution of cost burdens among different classes of users relative to those imposed by current mechanisms for funding surface transportation. Those burdens could result from both changes in the basis of assessing user fees (such as from fuel consumption to miles traveled) and new administrative processes for collecting fees (such as purchasing the necessary technology and reporting vehicle use). Of particular concern are changes that could increase the relative cost burdens on economically disadvantaged populations, who would be least able to afford such a change. New mechanisms could also shift the relative costs paid by drivers in different regions of a State, particularly between urban and rural areas.
• Ease of user compliance: The current collection system for fuel taxes (the predominant source of highway user-based fees) is almost completely transparent to the user, does not require any additional action beyond fuel purchasing, and is relatively invulnerable to avoidance by consumers. Any new mechanism would need to carefully consider and evaluate how compliance can be enforced without imposing undue costs or other burdens on different classes of users.
• Reliability and security on the use of technology: Threats to the success of the mechanism can be both malicious (e.g., hacking attacks) and non-malicious (e.g., equipment failures). Any system should address the robustness of the technology and processes to withstand and/or recover from such events.

The application may also address:

• Flexibility and user choice: Providing multiple payment and fulfillment paths for the user may mitigate a number of issues previously stated, increase public acceptance, and ensure better compliance. For example, providing various mechanisms and technologies for data collection and method or timing of payment.
• Cost of administering the system: The cost of the current approach of collecting the Federal user fee at the bulk storage facility through other existing tax collection processes is minimal in comparison to the amount of revenue that is raised. As a result, alternatives to the current collection system would be expected to increase these costs. The mechanism proposed should identify these additional costs, methods to minimize and offset them, and the impact on funds generated to support surface transportation investment. There is interest in capital and operating costs as well as costs associated with the initial deployment and the long-term implications of those costs.
• Auditing and compliance/enforcement: Part of public acceptance of any strategy is the perception that the majority of users are complying. The mechanism should, by design, contain the ability to audit and disclose results, assure a high level of compliance, and provide effective and reasonable enforcement approaches.

If a State has previously proved the viability of an alternative revenue mechanism in a limited capacity through its own research, it may still be a candidate for funding under the STSFA program. Applications from such States could include methods for improving on the approach through such features as:

• Improving the functionality of the existing system.
• Expanding the demonstration in terms of numbers of vehicles involved or jurisdictions (e.g., other States).
• Enhancing public acceptance.

Eligible Activities

Through this grant program, Congress is most interested in funding larger scale pilots rather than smaller scale proof-of-concept projects. It is also interested in awarding funds to both single State and multi-State pilots. However, States wishing to pilot projects of any size and scope may seek funding. Further, the 2016 Notice of Funding Opportunity⁹ clarified that States that had not initiated a demonstration pilot project or were not prepared to advance a working alternative revenue mechanism were also eligible to submit applications for pre-deployment activities, such as:

• Defining in detail the mechanism to be demonstrated.
• Pursuing necessary enabling legislation.
• Defining in detail the issues to be addressed.
• Planning the deployment timeline and milestones.
• Budgeting for deployment and identifying non-Federal funding sources.
• Organizing partnerships internally within the State, externally with other States, and with other external partners such as private third-party vendors.

The independent evaluation assessed the impacts of the STSFA-funded activities in a systematic manner across all sites. The objective was to document the applicability, motivation, and impediments to implementing alternative user-based fee mechanisms such as RUC in the future at a regional and potentially national level.