BILL ANALYSIS                                                                                                                                                                                                    Ó






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: Sb 1077
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  desaulnier
                                                         VERSION: 4/21/14
          Analysis by:  Eric Thronson                    FISCAL:  yes
          Hearing date:  April 29, 2014



          SUBJECT:

          Mileage-based fee pilot program

          DESCRIPTION:

          This bill requires the Transportation Agency to develop a pilot  
          program by January 1, 2016, to explore various methods for using  
          a mileage-based fee (MBF) to replace the state's existing fuel  
          excise tax.  

          ANALYSIS:

          The state derives its transportation funding primarily from a  
          variety of excise and sales taxes on gasoline and diesel fuel.   
          Existing law requires that the state spend the revenue from the  
          base 18-cent-per-gallon fuel excise tax to maintain and operate  
          the state highway system.  Excise tax revenue from gasoline  
          above the base revenue is used primarily for local streets and  
          roads as well as new capacity projects.  A statewide sales tax  
          on diesel is dedicated to supporting transit operations in the  
          state.

          In addition, existing law establishes in state government the  
          Transportation Agency, which oversees and directs policy for a  
          number of transportation-related departments, including the  
          California Highway Patrol, the Department of Motor Vehicles  
          (DMV), and the Department of Transportation (Caltrans).

          Section 1 of Article I of the California Constitution declares  
          that all people have certain inalienable rights, including but  
          not limited to the right to individual privacy.

           This bill  requires the Transportation Agency to develop a pilot  
          program by January 1, 2016, to explore various methods for using  
          an MBF to replace the state's existing fuel excise tax.  The  
          bill requires the agency, at a minimum, to assess the following  
          issues related to implementing an MBF in California:




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                 Different methods for calculating mileage and collecting  
               road usage information that include alternatives to using  
               electronic vehicle location data.  Any methods considered  
               shall collect the minimum amount of personal information  
               necessary to accomplish the goals of the MBF.

                 Processes for managing, storing, transmitting, and  
               destroying data to protect the integrity of the data and  
               ensure the privacy of drivers.

                 Types of equipment that may be required of the state and  
               of drivers in order to implement an MBF, including a  
               discussion of the advantages and disadvantages of the  
               equipment, the privacy implications of the equipment, and  
               contingencies in the event of equipment failure.

                 Estimated costs, both public and private, associated  
               with the initial implementation and ongoing operation of an  
               MBF system.

                 Processes and security measures necessary to minimize  
               fraud and tax evasion rates.

                 The appropriate government entities to collect data and  
               handle revenue collection, and the frequency at which  
               charges should be billed or collected.

          In addition, the bill requires that the Transportation Agency  
          consult with entities such as DMV, Caltrans, the Institute of  
          Transportation Studies at the University of California, or any  
          other entity that has expertise in automotive technology,  
          revenue collection, and protecting the public's private  
          information.

          Finally, the bill requires the Transportation Agency to submit a  
          report of its findings to the Legislature no later than June 30,  
          2017.  The report shall include, but not be limited to, all of  
          the following elements:

                 Recommendations regarding how to best implement an MBF  
               in a manner that minimizes confusion and inconvenience to  
               California's drivers while also providing safeguards that  
               ensure their privacy.

                 Recommendations regarding public and private agency  




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               access, including law enforcement access, to the data  
               collected and stored for purposes of the MBF that ensures  
               individual privacy rights as protected by Section 1 of  
               Article I of the California Constitution.

                 Given the technological and institutional demands  
               associated with implementing an MBF, a discussion of  
               different processes that may be used to transition from the  
               fuel tax to an MBF over time.

                 A discussion of issues the Legislature may wish to  
               consider when evaluating whether and how to implement an  
               MBF, including the potential impact of new, rapidly  
               changing technology, such as cars electronically connected  
               to each other and the infrastructure around them, which  
               could provide new and possibly more efficient options for  
               collecting mileage data while protecting the privacy of  
               drivers.

                 With the transition from a fuel tax to an MBF, a  
               discussion of protections and safeguards that can be put in  
               place to ensure that the MBF has at least the same level of  
               protection from being diverted and used for  
               non-transportation purposes and the same eligible uses as  
               the fuel taxes being replaced, including consideration of  
               voter approval.

          This bill sunsets on January 1, 2018.
          

          COMMENTS:

           1.Purpose  .  According to the author, today's funding mechanism  
            for our transportation system, the excise tax on fuels, is  
            unsustainable.  In order to address this challenge, other  
            states have been considering various ways to replace the gas  
            tax with something that more closely aligns with a fee for  
            use.  The author contends that this bill is a critical first  
            step toward California considering an MBF as an alternative to  
            the excise tax on fuels.


           2.Why do we need to replace the fuel excise tax  ?  The excise tax  
            on fuels was originally created in the early 20th century to  
            serve as a substitute user fee for the construction,  
            maintenance, and operation of the transportation system.  At  




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            the time, it was technologically very difficult to track  
            actual usage of the roadway by vehicle, but most vehicles on  
            the road were very similar and experienced similar mileage.   
            Therefore, a tax on fuels served as a suitable stand-in for  
            usage.


            Today, a trifecta of circumstances is combining to undermine  
            the sustainability of the fuel excise tax.  First, the fuel  
            excise tax is not indexed to inflation, and therefore its  
            value erodes over time.  The last increase to the base fuel  
            excise tax was in 1994; due to inflation, a dollar in 1995 is  
            only worth 55 cents today.  Second, both state and federal  
            governments have adopted policies requiring vehicles to become  
            significantly more fuel efficient over time.  Simply speaking,  
            this means that as vehicles drive farther on less fuel, they  
            do more damage to the roadway system per dollar available to  
            maintain that system.  Third, demographic trends and state  
            policies are encouraging Californians to drive fewer miles per  
            capita.  With fewer miles driven in more fuel-efficient cars,  
            less fuel is purchased.  The dire result of this combination  
            of factors is that government is left with dwindling resources  
            to address growing transportation problems.



            Not only is the fuel excise tax unsustainable, but today's  
            varied vehicle marketplace is leading to significant  
            distortions in the market.  Many drivers today travel  
            exceedingly long distances on a gallon of fuel, or without  
            purchasing any fuel at all, and therefore contribute little or  
            nothing to the maintenance of the road system necessary for  
            that travel.  Further, nearly all of these highly efficient  
            vehicles are new models and relatively expensive, suggesting  
            that high-income individuals are more able to use public  
            infrastructure without contributing requisite tax revenue.   
            Meanwhile, many of the least efficient vehicles on the road  
            are older, less-expensive models typically driven by  
            lower-income individuals.  This often means that those who can  
            least afford to are increasingly shouldering the burden of  
            funding the maintenance and operation of the public roadway  
            system.  If the state were to increase the fuel excise tax to  
            try and slow down the diminishing buying power of today's  
            principle funding mechanism, it might only exacerbate this  
            regressive tax situation.





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            Due to technological advances, the state can address this  
            downward pressure on the fuel excise tax by shifting to some  
            other fee that more accurately measures usage.  Many states  
            are exploring, and advocates argue, that some sort of MBF  
            would effectively and fairly replace the fuel excise tax.  It  
            seems reasonable that California explore the potential  
            benefits and challenges of replacing the fuel excise tax with  
            some version of this true user fee.



           3.Recent studies raise and address potential issues with an MBF  .  
             As the funding realities have become increasingly apparent, a  
            number of states and entities have conducted studies  
            concerning the challenges of implementing an MBF to replace  
            existing funding revenues.  Some of the primary issues these  
            studies have raised and addressed include:



                 Privacy issues.  One of the primary impediments to  
               implementing an MBF has been the concerns raised about the  
               government being able to track one's driving behavior and  
               movement.  Studies suggest that four basic approaches are  
               available to help alleviate these concerns: (1) relying on  
               metering options that provide no information about the  
               location of travel, such as a flat annual fee; (2) relying  
               on a trusted third party as a clearinghouse to protect and  
               secure private data from governmental review; (3) designing  
               the metering technology with built-in privacy safeguards,  
               if possible; (4) establishing privacy legislation that  
               clearly distinguishes between permissible and impermissible  
               uses of personal travel data.  The State of Oregon has  
               applied many of these options jointly and has been so  
               successful in its efforts that its program has earned the  
               endorsement of the ACLU for its privacy protections.  This  
               bill seems focused on ways to replicate Oregon's success  
               with finding solutions to these privacy concerns.



                 Urban vs rural drivers.  One central concern of  
               implementing an MBF is the notion that rural residents  
               drive longer distances and will therefore suffer an unfair  




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               burden from mileage charges.  Research suggests, however,  
               that on average there is no significant difference in the  
               distance driven per year between urban and rural residents.  
                This is because, although rural residents tend to drive  
               longer distances for typical errands, they also tend to  
               engage in such activities less frequently than their urban  
               counterparts and are much more likely to combine trips.  In  
               fact, when looking strictly at miles driven on public  
               roads, rural households on average drive significantly  
               fewer miles than urban drivers, according to recent  
               research.  It is reasonable to assume the pilot program  
               created by this bill will consider the issue of fairness  
               for all drivers in the state.


                 Administrative costs.  One significant advantage of the  
               fuel excise tax is that, because it is collected from a  
               small number of fuel wholesalers around the country, it is  
               relatively inexpensive to administer.  An MBF, in contrast,  
               could involve collecting a fee from each individual driver  
               or vehicle owner, which would be inherently more  
               complicated to administer.  The state expends roughly one  
               percent of the revenue to collect the fuel excise tax.   
               Recent evidence and modeling suggests that a state-level  
               MBF system could cost around five percent of the incoming  
               revenue.  It is important to remember that even with  
               greater administrative costs, however, an MBF may yield far  
               more net revenue over the coming decades than the fuel  
               excise tax given the shifts toward higher fuel economy and  
               alternative-fueled vehicles.  The pilot program imagined in  
               this bill needs to consider this particular challenge and  
               adequately justify any increased costs with data supporting  
               the switch to an MBF.



           1.Previous legislation  .  In 2010, this committee heard SB 1299  
            (Lowenthal), which would have required DMV to implement a  
            similar vehicle-miles-traveled pilot program.  That bill  
            passed this committee with a vote of 7-1 on April 13, 2010,  
            but the Senate Appropriations Committee held it on its  
            suspense calendar.








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          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             April 23,  
          2014.)

               SUPPORT:  Transportation California (sponsor)
                         American Council of Engineering Companies of  
          California
                         American Planning Association, California Chapter
                         Associated General Contractors
                         California Asphalt Pavement Association
                         League of California Cities

               OPPOSED:  None received.