Estimating Revenue-Neutral Mileage-Based Fees for Urban and Rural Households in Eight Western States

Abstract

This paper focuses on one alternative source of revenue—a mileage-based user fee—as a potential substitute for the current gasoline excise tax. It examines one of many questions that arise when this source of funding is considered—the potential for differential financial effects on urban and rural households. The issue has been characterized as one of “equity,” and more specifically whether rural households will pay a disproportionately greater share of the costs if states transition from a fuel-consumption-based to a mileage-based funding system. This paper presents an approach to address this question using existing sources of data and a set of assumptions designed to assess a “revenue-neutral” substitution of mileage-based charges for the current gasoline excise tax. Based on the methods used in this paper, it appears that rural households may, in fact, benefit from introduction of a mileage-based fee because they will pay less than under the current system in all states investigated for this study.