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

Executive Summary

This report presents the Federal Highway Administration (FHWA) independent evaluation results of Minnesota's Road Usage Charge (RUC) Program Enhancements to Improve Functionality, Public Acceptance, and Interoperability initiative. The State received fiscal year (FY) 2016 funding from the U.S. Department of Transportation's (USDOT's) Surface Transportation System Funding Alternatives (STSFA) program. There were seven project awards to State Departments of Transportation in California, Delaware, Minnesota, Missouri, Oregon (two), and Washington. The FY 2016 funding and associated grantee programs constitute the first phase of the STSFA program and are referred to throughout the document as "Phase I." The Minnesota Department of Transportation (MnDOT) is one of seven entities to engage in pilots that represent enhancements of independently funded pilots, or pre-pilot planning and development activities to explore options to demonstrate user-based alternative revenue mechanisms. In this instance, the term ‘alternative revenue mechanism' represents income generated from a source other than the gas tax that sustains the Highway Trust Fund.

Background

As vehicles are becoming more fuel efficient, the reliability and adequacy of the motor fuel tax (MFT) as a primary source for transportation infrastructure funding continues to decline. Recognizing this trend, the Fixing America's Surface Transportation (FAST) Act¹ established the STSFA program to provide grants to States or groups of States to demonstrate user-based alternative revenue mechanisms that employ a user fee structure to maintain the long-term solvency of the Highway Trust Fund. The objectives of this STFSA program are to:

• Test the design, acceptance, and implementation of two or more future user-based alternative revenue mechanisms.
• Improve the functionality of the user-based alternative revenue mechanisms.
• Conduct outreach to increase public awareness of 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.

The FHWA Office of Operations headquarters staff have the overall responsibility for administering the STSFA program and overseeing the independent evaluations. The FHWA Division office staff provide direct support by overseeing the program in participating States.

The U.S. Congress and the FHWA seek to understand whether a revenue mechanism that utilizes a user fee structure can help maintain the long-term solvency of the Highway Trust Fund and be implemented nationally in the future. As part of this endeavor, the FHWA conducted evaluations of the seven grantee sites that received funding in FY 2016.² The evaluation reports will inform the U.S. Secretary of Transportation and U.S. Congress of the progress that has been made, lessons learned from initial pilot and planning efforts, the role of education and outreach, the potential for any negative impacts on constituents, and initial findings on administrative fees, among others.

Minnesota Pre-Deployment Activities for a User-Based Fee Demonstration

MnDOT, along with the University of Minnesota's Humphrey School of Public Affairs (hereinafter "Minnesota"), proposed to design and ultimately deploy a user-based fee mechanism by partnering with a mobility-as-a-service (MaaS) provider (e.g., car-sharing services). Minnesota's concept is based on the premise that the future of personal travel is captured in the new and evolving MaaS business model, which is rapidly redefining personal transport around the world. MaaS includes a range of new travel forms that promise greater efficiency, safety, and mobility. It provides a platform to explore a practical and implementable path toward wider deployment of distance-based user fees (DBUFs). Additionally, this platform and model may be transferable to other fleet applications in the future.

The goal of Minnesota's DBUF project is to design and demonstrate a viable model to collect user-based fees on shared mobility provider fleets. Embedded technology onboard these fleets is becoming the standard on new vehicles and enables the efficient administration and collection of user fees while maintaining user privacy and data security. The project assumes retention of the fuel tax, but will demonstrate a means to backfill revenue lost due to increasing fleet efficiency.

Minnesota's foundational assumptions defined their STSFA Phase I efforts. The Minnesota project suppositions include the following:

• A DBUF should operate in parallel to existing surface transportation revenue collection mechanisms and not seek to replace currently efficient methods.
• The Minnesota DBUF approach should take advantage of the trend toward increasingly available onboard telematics in new vehicles, which is particularly true for the shared mobility fleet of vehicles. Telematics refers to remote communications that allow information from the vehicle to be transferred to another source.
• Electric, hybrid, alternatively fueled, and other highly efficient vehicles should be charged a proportionate share for use of the roads. Minnesota believes that, under the current fuel tax approach, these vehicles are not paying their fair share towards the maintenance and upkeep of the transportation system.

Phase I Vision and Goals

The vision for the Phase I activities was to strive to achieve broad public and consumer support; explore options for mileage fee rate setting to be rational and equitable, and capable of being adjusted to address vehicle type, roadway design, jurisdiction, time-of-day, and other factors; and for the model to be scalable to multiple service segments and exportable to other agencies.

Most critically, Minnesota's approach is to plan a migration to the new system that will be incremental, equitable, ensures privacy, and is cost effective.

Major Findings

The independent evaluation assessed the impacts of the STSFA-funded activities systematically across all sites. The key findings of the evaluation are summarized below.

Key Findings of the Minnesota Approach

Minnesota is approaching a user fee structure focused on efficiency. The Minnesota approach suggests that the fuel tax, despite its advantages and deficiencies, is likely to continue for a long time, primarily because of its simplicity and efficiency. The cost of collecting the fuel tax in Minnesota is less than 0.5 percent of the fees collected. Structuring a DBUF approach around the MaaS business model may afford a comparable level of efficiency to existing tax collection systems in the market, because onboard technology embedded in the MaaS vehicles is already used to collect trip and mileage data for the MaaS business. Minnesota aims to have DBUF collection costs fall between that of the fuel tax and sales tax.

Administrative costs. The expectation is that technology, operations, compliance, and enforcement costs will be lower in the Minnesota approach in comparison to some of the other pilot approaches. Several categories of potential changes to administrative costs attributable to the unique nature of distance-based fee collection processes will need to be accounted for in further research and exploration.

The user fee structure is premised on the convergence of potentially disruptive technologies, either in the market or on the horizon. Minnesota's proposed DBUF system is not a single technology or strategy but rather a series of agreements to collect mileage fees from commercial mobility operators. While the future of mobility remains uncertain, this approach allows for a high level of flexibility to adapt and expand. The DBUF system is a simple fee collection from a limited number of commercial mobility service operators and is neutral to the specific technologies deployed to measure vehicle mileage.

Minnesota's approach has the potential to enhance privacy and minimize security issues typically associated with RUC data collection by leveraging collected data using available technology. Minnesota conducted a survey of car-share members; 40 percent of the respondents had concerns related to DBUF, particularly regarding how their data will be protected. However, collecting mileage fees directly from the car-share company for the mileage driven for each vehicle does not necessitate the data or information collection about which driver has made a trip. The data collected can be based solely on the qualifying, fee-generating mileage for each specific vehicle, regardless of driver.