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: SB 1077 (DESAULNIER) Page 2 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 SB 1077 (DESAULNIER) Page 3 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 SB 1077 (DESAULNIER) Page 4 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. SB 1077 (DESAULNIER) Page 5 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 SB 1077 (DESAULNIER) Page 6 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. SB 1077 (DESAULNIER) Page 7 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.