As lawmakers in the Legislature continue negotiations for the state’s Fiscal Year 2025 budget, one addition specific to transportation involves a $5 million appropriation for a pilot program to assess replacing traditional fuel taxes with a mileage-based road usage fee.
This week’s Talking Michigan Transportation podcast features another conversation with Baruch Feigenbaum, senior managing director of transportation policy for the Reason Foundation. Feigenbaum has done extensive study on the need for long-term changes to funding policy for roads and bridges. He’s also testified before legislative committees at the federal level and in several states.
He recently told Michigan lawmakers that a fuel tax is akin to “a rock star on his farewell tour” as increased fuel efficiency diminishes returns on fuel taxes.
As lawmakers in the Legislature continue negotiations for the state’s Fiscal Year 2025 budget, one addition specific to transportation involves a $5 million appropriation for a pilot program to assess replacing traditional fuel taxes with a mileage-based road usage fee.
This week’s Talking Michigan Transportation podcast features another conversation with Baruch Feigenbaum, senior managing director of transportation policy for the Reason Foundation. Feigenbaum has done extensive study on the need for long-term changes to funding policy for roads and bridges. He’s also testified before legislative committees at the federal level and in several states.
He recently told Michigan lawmakers that a fuel tax is akin to “a rock star on his farewell tour” as increased fuel efficiency diminishes returns on fuel taxes.
Hello, welcome to the Talking Michigan Transportation Podcast. I'm Jeff Cranson. Lawmakers in the Michigan State House and Senate have added $5 million to budget bills for a pilot program to assess replacing traditional fuel taxes with a mileage-based road usage fee. These go by a lot of different names, but the end result would be that rather than paying for roads by tacking on a certain fuel tax addition the names vary but the end result would be that we would transition from paying through roads, through taxes on fuel, to paying based on how much each of us drives. Money for the pilot would come from the state general fund and would require the Michigan Department of Transportation to lead some kind of study on road usage charges. It's not clear yet what form that would take, what the tracking mechanisms might be, but it seems to have a real possibility of becoming law as part of the budget process.
Jeff Cranson:So today I spoke with Baruch Feigenbaum, who's the Senior Managing Director of Transportation Policy for the Reason Foundation. He's testified in committees across the country on road usage charges and been in Michigan where he's made his case. He's always interesting to talk to about these things. He has in-depth knowledge of various states and what they do to fund roads. So I hope you enjoy the conversation. So, Baruch Feigenbaum, thank you for a repeat visit to the podcast. We've talked in the past about tolling and other alternatives to traditional transportation funding, and I'm not sure that either one of us realized that we would move so quickly to a serious discussion in Michigan about vehicle miles traveled or road user charges or mileage-based user fees. Call it what you want, Use whatever acronym you want. It basically means the same thing. I tend to settle on RUC myself. Tell me what you're thinking about. The latest these days.
Baruch Feigenbaum:Well, thanks, Jeff, and thanks for having me on, and, just to confuse everyone who's listening, I may call it mileage-based user fees, just because it is one of those things where we haven't settled on a term yet, and so I think it's very encouraging that it's moving at the speed it is.
Baruch Feigenbaum:Look, we know that Michigan roadways have challenges in terms of condition, in terms of congestion in certain areas, and we know that the gas tax is just not getting it done, and for a variety of reasons I know I've said before, the gas tax is basically a rock star on his farewell tour.
Baruch Feigenbaum:It's been around for 100 years and it's been a great revenue source for 100 years, but because of the improvements in fuel efficiency of conventional vehicles and also the growing number of hybrids and electric vehicles, it's just not a fair way to fund roadways going forward.
Baruch Feigenbaum:And so I know the last couple of years there's been discussions in the legislature about mileage-based user fee, road usage charge, what it is, what can be done, and I know there was some discussions as to whether we should just move straight to a replacement for it, and my sense was that, well, we needed to go ahead and take it slow. Just make sure that we do it right and make sure that it's the right technology for Michigan, and so I think out of that, in this year's budget, has come a pilot proposal for the Department of Transportation to go ahead and conduct a comprehensive pilot that would look at mileage-based user fees, include people from all areas of the state, look at common issues in terms of privacy, in terms of security, in terms of cost of collection, in terms of other things that I can't even think of right now, to help determine whether this is the best technology moving forward.
Jeff Cranson:Well, I definitely chuckled when you used that line about the rock star on his farewell tour in a committee meeting, especially because I think you can take your metaphor much farther, with so many rock stars who have done multiple farewell tours and it seems like this is one of those things that's going to drag on for some time. But tell me, as you've looked at other states and how they've gone into various studies and pilots on some kind of MBUF or VMT, how do you see the trajectory in Michigan against what you've seen elsewhere?
Baruch Feigenbaum:Well, I think Michigan is entering in maybe a better place because it's been able to learn from places like Oregon, places like Utah. Ohio is actually doing some preliminary research right now. Virginia had a very comprehensive pilot, and so it can really take some of the best lessons learned, and so the language that is in the budget try to incorporate sort of the best practices in terms of having as many people as possible in the pilot, looking at multiple issues, looking at some issues maybe that have not been studied, such as cross-border traffic. Obviously, Michigan, there's travel to Canada, some travel to Ohio and Indiana. That's an issue, and so, overall, I think what I've seen so far has been very promising. I think it will give the type of results that Michigan policymakers really need to decide how to move forward.
Jeff Cranson:So it's interesting you mention Ohio because, obviously, because it's close geographically, Michigan is so often compared to Ohio and Ohio has, you know, a gas tax that's eight cents higher. It seems like every time Michigan's went up a little bit, Ohio's went up more as they've tried to keep pace. And you know they have a separate turnpike authority that takes in three hundred and fifty million dollars a year, separate turnpike authority that takes in $350 million a year. If Michigan was able to toll just one road, let's say I-94, which is comparable to I-80 and 98 in Ohio, and you could set aside that $350 million to spend elsewhere, that would be nearly a quarter of our annual road and bridge program. What does it say that Ohio, which has historically funded roads better than Michigan, that even they're looking at this?
Baruch Feigenbaum:Yeah, I think it says that it's a problem really across the board, really regardless of what your fuel tax is. I mean, two of the highest fuel tax states in the country, california and Pennsylvania, are also both looking at this, and Pennsylvania also, of course, has a large turnpike with actually some extensions, and so it's really I don't want to go too far and say existential, but it's going to be a major problem in 10 to 15 years, and working on pilots now is really critical because, as bad as things might be now and as awful as the potholes on US- 23 might be at least in my experience things are just going to get worse because the revenue is simply not there.
Jeff Cranson:Well, that's exactly right. I think the fact that there's some bipartisan support for this bodes well. I've heard from lawmakers on both sides who are at least interested in it. Conversation gets a little more dicey when somebody says, yeah, I'd be willing to entertain that, as long as it's revenue neutral. Well, long term that doesn't solve anything either, but maybe just a conversation about a more sustainable system, which is what mileage-based user fees are, is a good thing. Tell me what you think about. You know all of the arguments about who's going to get hit the hardest and you know what's regressive and what's you know, from a social, economic justice standpoint, unfair to, you know, people on lower incomes.
Baruch Feigenbaum:Yeah, that's a great question and I will say, in terms of the revenue neutral aspect of it, we do recommend that when it's phased in, it's revenue neutral now. Obviously, over time, in order to take care of the roads properly, there needs to be appropriate indexing, and I think that's something that has not happened with the gas tax and is one of the challenges not being indexed to inflation or other improvements in technology. In terms of who's going to get hit, the answer is not what most people suspect. So rural drivers actually benefit from a mileage-based user fee, and the reason rural drivers benefit is because they tend to drive fuel-inefficient vehicles such as Ford F-150s, and so they're actually paying proportionally more to drive right now than suburban and central city drivers.
Baruch Feigenbaum:Suburban and central city drivers get penalized a little bit, but it's really very slight, just because there are more folks, at least in Michigan, who live in Detroit and Lansing and Grand Rapids, etc. And so the amount for each of those drivers is relatively small In terms of the lowest income folks. Those folks tend to either not have cars or not drive terribly often, and so they actually come out ahead because they are only being charged for the miles they drive and if they're taking a bus, for example, to get somewhere, to get to work, that's not anything that they're paying in terms of a mileage-based user fee. So it's actually rural drivers and lower income folks who come out the best in this type of system.
Jeff Cranson:Yeah, that's very interesting I think I've heard you talk about that before and the kinds of vehicles that people tend to drive in rural areas and that it makes a lot of sense. So I guess, what do you feel like when you're knocking down myths and testifying before committees, and not just in Michigan but in other states, and making a case for sustainable infrastructure, which, you know, the Reason Foundation has embraced this for a long time, and I think that you and I have talked about why that is, and it's because you kind of you and your colleagues kind of view this as, like the base of the Maslow Pyramid right, like if we don't get this right, then everything else that goes on top of that is only a bonus. First of all, we've got to, you know, rebuild our literal foundation and make sure that it can withstand what we need to do for commerce and industry. Is that a fair assessment?
Baruch Feigenbaum:Yeah, I think that's absolutely correct, and I think it's also true that we are a big supporter of the user's pay principle, which is what the fuel tax was based on. You drive more, you pay more. You drive less, you pay less. You don't drive, you don't pay, and this is the most perfect for lack of a better word solution or I shouldn't say solution replacement for the gas tax, because this is this type of system, and in fact, you're actually paying certain roadways, interstates, for example. We've talked before about whether tolling some of the interstates makes sense. You could pay more on that type of road than you would on a local road, and so it's an even better approach than the gas tax. It's just something that in the past we didn't need to do. Number one and number two was not technologically feasible. And that brings me to probably a very common misconception that comes up about privacy, and so oftentimes one of the biggest opposition groups we hear are folks who are very concerned with privacy, and we obviously are concerned with privacy too. There's been leaks, government leaks, private sector data that's gotten into the wrong hands, but a mileage-based user fee.
Baruch Feigenbaum:There are multiple different ways to do it, so the way that most people think of it is. They think of a GPS-based system that keeps track of where you drive and when you drive, and there are some advantages to that in terms of pricing of roadways, in terms of being able to better manage congestion and in terms of giving knowledge to decision makers in terms of when and where to wind highways. But there is no state in the country, either through a permanent program or a pilot program, that has done only that option. Most states have done at least three options, and the other common ones are a GPS system that does not have any type of mileage recording option, so basically all it knows is it's keeping track of the mileage that you're driving, but not when you're driving it or where you're driving it, and so there's no intrusion into your privacy because there's no monitoring of location or anything else. Other states have done a simple odometer reading that might be taken at the time you have your vehicle serviced by a mechanic. All it is is just a reading of the odometer that is done once a year or twice a year. It's just a reading of the odometer that is done once a year or twice a year and there, of course, there's no privacy concerns, because nobody other than the mechanic who already knows how many miles you're driving because that's why you're servicing your car has access to that data. And other states offer the option for just a flat fee for paying.
Baruch Feigenbaum:I'm not such a big proponent of that because it's not really a mileage system, but it does get us on the pathway. So I mentioned that because there's sort of all of these misconceptions about this kind of big brother tracking, and the reality is that's not true at all. And the one thing I will add is, even with a GPS-based system, the GPS needs to be paired with another device in order to actually be used for tracking, and there's no states in the country that currently do that and there's, honestly, no decision maker in their right mind who would do that. So again, this idea that somehow this is going to be used for recording of your personal information is just not accurate.
Jeff Cranson:No, I'm glad you. I was going to ask you about that, so I'm really glad you made that point, because that does come up so often and you know, setting aside all those very reasonable points that you made about how this would actually be implemented, I just think the people that bring that up must not carry a cell phone or an iPad or any one of a number of other devices which we actually benefit from the GPS features that they involve, whether it's Waze or Google Maps or many other things that we have on our apps, our technology. If we're going to be tracked, if there's some nefarious plot by the government or anybody else, then they've got a lot of ways to do it already. We'll be right back. Stay tuned.
Baruch Feigenbaum:Know before you go. Head on over to MiDrive to check out the latest on road construction and possible delays along your route. For a detailed map, head over to michigan. gov/ drive.
Jeff Cranson:What else do you hear a lot like when you talk to people in other states and testifying committees? The kinds of questions you get Besides that. I mean, you've talked about two of them now, and that's whether it's regressive and unfair to poor people, but also the privacy concerns. What else do you feel like is part of the challenges in educating about this?
Baruch Feigenbaum:I would say the one point that we get that is a little bit legitimate is the cost of collection, because the fuel tax is very low to collect. When you look at all of the diversions and revenue that does not get collected, they're somewhere between 2% and 5%, but that's still really really low, whereas a mileage-based user fee initially would be above 5% and perhaps closer to 10%. But what we've told folks is one, as you scale it, the costs are going to get lower, and so scaling is important. It's going to take some time. Obviously, the pilot is going to be a pilot with the small sample. It's not going to be everyone.
Baruch Feigenbaum:And two, there are some new technologies that are coming online every day to help make these costs of collection lower, whether that is using an odometer system, whether that's you know. You just mentioned the smartphone and the fact that you know Google or Apple know where you are, whether it's some type of smartphone-paired device. So that is something that comes up that is a little bit more legitimate than some of the other concerns, but is something that most states are working at, and several states have actually found a way to get cost of collection down slightly below 10 percent and decreasing, which we think is really promising.
Jeff Cranson:Can you talk about that? Why it is that the administration and cost of collection is higher for that kind of technology?
Baruch Feigenbaum:Sure.
Baruch Feigenbaum:So I think it gets to the reality that the fuel tax is collected at the pump and in many cases at the wholesale level, by a very limited number of suppliers, and so the overall administrative costs for just those I don't want to say it's a handful of suppliers, and so the overall administrative costs for just those I don't want to say it's a handful of suppliers, but it's a small number is very low, whereas a mileage-based user fee requires some type of back-office solution, some type of technology, typically a private provider that has a contract to do it, and they have to do it for each individual user as opposed to for just a small collection of distributors, and so that tends to increase the cost.
Baruch Feigenbaum:And what has increased the cost, particularly, you know, initially, is that there just weren't many private sector vendors or state DOTs who are capable of doing this. Now, as anything, as it scales, as we get more people who are involved, the costs are coming down, but it's going to be a little while, just because of economies of scale, until we get close to where the gas tax is.
Jeff Cranson:In your view of how these things work. I mean, I don't want to say that the money that was spent on a tolling study and all the education efforts and all the time and committee was wasted a few years ago, but how does that overlap or what I guess? What foundation did we build from that? What benefits from that conversation? Transfer to a road user charge discussion. Sure, transfer to a road user charge discussion.
Baruch Feigenbaum:Sure. So I actually think they're closer tolling and a mileage-based user fee or road usage charge than most people think, in that the interstate tolling study looked at per-mile tolling on several of the busiest interstates and freeways in the state, like I-94. And the concept of per mile tolling is the same as a mileage-based user fee and that you're paying per mile. And I think the challenge there with the tolling studies is which road do we toll? Politically, how do we do it first? How do we make sure that there's not equity issues in different areas of the state?
Baruch Feigenbaum:And I think what a mileage-based user fee can do is it can be implemented across the entire state. Instead of being an addition to the fuel tax, it can be a replacement to the fuel tax. However, for those interstates, you would set a higher mileage-based fee than you would for your state and local roads, which is basically the same idea that the tolling study was getting at. So I think they can work in tandem. I think we just need to make sure we're explaining to the public exactly what we're doing here and it doesn't look like a bait and switch, because I think the two biggest political sort of opposition points I heard coming out of the tolling study was why are you tolling this road and not this road? And I'm going to have to pay twice? And those, of course, are sensitive issues that are understandable.
Jeff Cranson:That leads me to, I guess, maybe a little more in-depth discussion about something you touched on earlier, dealing with whether or not we can do this as a long-term strategy, knowing that people are switching to. I should say, whether we can keep the fuel tax as a long-term strategy, knowing that people are transitioning to higher mileage vehicles and EVs. What is your policy, research and instincts? What is your policy, research and instincts? What do your instincts tell you about how quickly we really will move to EVs and EV adoption?
Baruch Feigenbaum:Yeah, it's a good question. I think it's increased considerably as the number of manufacturers and the number of EV vehicles for sale has increased pretty dramatically across the country. It's not just Teslas, so to speak. But obviously there are some challenges with EVs charging in the winter, folks who drive long distances and whether there's charging stations, and so I think we're talking about, realistically, a 10-year process to get a number of EVs, and I even hesitate as to what a number is, but that's simply because, one, we need to see some improvements in the battery life and, two, we need to build out the charging network. And there's some challenges with building out the charging network.
Baruch Feigenbaum:In terms of, we've looked at whether it can be done on rest areas, and currently there is a federal prohibition on commercial services at rest areas, and so that would need to get changed in order for it to be economically, you know, realistic for private companies to build these. Obviously, michigan is looking at building charging stations as well, but realistically, the state is not going to be able to build enough charging stations, given the number of interstate miles and the number of freeway miles as well in the state. So I would say 10 years for widespread EV adoption. But when we look at the mileage-based user fees, we're probably talking about a good 10 years as we transition to a permanent program as well. So neither of these things is going to happen quickly.
Jeff Cranson:Yeah, if there's anything I've learned, you know working in transportation, it's that the people in planning or implementing, you know, policy changes have to be very patient, that's for sure. So that makes me wonder when you say that about EVs if you think that I mean whether you guys have taken an official stand, you and your colleagues, or not do you feel like it's clouded in the debates in DC about partnering with Chinese firms and all those things? Is that just background noise or are there legitimate concerns there?
Baruch Feigenbaum:Yeah, that's a good question. I tend to think, and I would say we tend to think, that this country should be more open to EVs from across the globe. If there are legitimate national security concerns, that's obviously something that should be reviewed, and we have federal agencies that review them. But in terms of being able to manufacture all of the EVs in this country, even if we're looking beyond just the big three US automakers, it's going to be challenging, and so I think we need to make a decision sort of what the priority is. If the priority is we want to transition to, you know, more EVs, I think we need to be a little bit more open to some of these international automakers. If that's something we feel like we're not comfortable with, you know, that's a decision we can make, but it is going to slow down that transition for better or for worse.
Jeff Cranson:Talk about what's going on in Texas. This relates to the transition from tolling, or maybe evolving from tolling, into VMT or MBUF. I know you've talked before about that. Texas 10 to 15 years ago was all about this, but now enthusiasm there has waned for tolling, so does that factor into your thinking about road user charges?
Baruch Feigenbaum:I would say, first of all, texas is Texas. I hesitate to even make comparisons even to other southern states. Hesitate to even make comparisons even to other southern states. And you know you're talking to someone who went to Georgia Tech, so is familiar with how. You know. Maybe things are approached differently in the South than in some other regions.
Baruch Feigenbaum:But Texas was very, very aggressive with P3s and toll roads, perhaps too aggressive, and I think folks just got frustrated. They felt like every road was a toll road. They felt that maybe there wasn't enough oversight of P3s and so it's been scaled back considerably. There's what they call regional mobility authorities in Dallas, houston and Austin that can still do tolling and still do P3s, and they do. In terms of mileage-based user fees. The Senate Transportation Chair in Texas is actually interested in mileage-based user fees as a solution to, as a replacement for, the gas tax, and he has talked about that openly. He actually sponsored a bill last year and so the two do not seem to be linked. I think the challenge with tolling and this would be true in Michigan as well is the rates have to be proportional. People have to feel that they're getting a benefit and there can't be this feeling of double taxation, and those were some of the problems that happened in Texas.
Jeff Cranson:Yeah, I think that's a really good point and I know that you know. Ohio, a few years back, bonded against the Turnpike Authority to get some money on the street, literally, and get some things fixed. And if you do make one of these transitions you better show results right away. So that's part of the challenge too. Baruch, thanks, as always. I know we'll talk more about this as this makes its way through the legislature. This week. It's actually being discussed in the House and probably in the Senate too at the end of the week, and then we'll see where we come out as these bills make it to the governor's desk. But, as always, I really appreciate your insights.
Baruch Feigenbaum:Well, absolutely and always great to speak with you, Jeff.
Jeff Cranson:I'd like to thank you once more for tuning in to Talking Michigan Transportation. You can find show notes and more on Apple Podcasts or Buzzsprout. I also want to acknowledge the talented people who help make this a reality each week, starting with Randy Debler, who skillfully edits the audio, Jesse Ball, who proofs the content, Courtney Bates, who posts the podcast to various platforms, and Jacke Salinas, who transcribes the audio to make it accessible to all.