Highway User Fees: Updated Data Needed to Determine Whether All Users Pay
Their Fair Share (Letter Report, 06/07/94, GAO/RCED-94-181).

The nation's deteriorating roads and highways impose billions of dollars
in additional costs to their users each year. In 1991, U.S. motorists
and truck drivers spent an estimated $17.4 billion on wasted fuel, added
tire wear, and extra vehicle repairs as a result of driving on roads in
poor condition. To build and maintain the nation's highway system, the
federal government collects user fees, mainly in the form of fuel taxes.
Concerns have arisen, however, that fuel taxes, along with other federal
user fees, may not be the fairest way to allocate highway costs because
such taxes bear no relation to the amount of road damage caused by
different vehicles. Highway wear increases exponentially with the weight
of a vehicle's axle load, and past studies have suggested that heavy
trucks, in particular, may not be paying their fair share of highway
costs. This report (1) summarizes the rationale for and the arguments
against assessing fees according to the wear that a driver causes to
highways, (2) evaluates the recent experiences of states that assess or
have rescinded wear-based fees, and (3) identifies potential approaches
that might be used to overcome the obstacles to implementing such fees.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-181
     TITLE:  Highway User Fees: Updated Data Needed to Determine Whether 
             All Users Pay Their Fair Share
      DATE:  06/07/94
   SUBJECT:  Highway research
             Highway planning
             Ground transportation operations
             Intergovernmental relations
             Use taxes
             Public roads or highways
             State-administered programs
             Administrative costs
             Fuel taxes
             Intergovernmental fiscal relations
IDENTIFIER:  Road Information Project
             FHwA Strategic Highway Research Program
             Heavy Vehicle Electronic License Plate Program
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Public Works and Transportation,
House of Representatives

June 1994

HIGHWAY USER FEES - UPDATED DATA
NEEDED TO DETERMINE WHETHER ALL
USERS PAY THEIR FAIR SHARE

GAO/RCED-94-181

Highway User Fees


Abbreviations
=============================================================== ABBREV

  AASHTO - American Association of State Highway and Transportation
     Officials
  ATA - American Trucking Associations
  AVI - automatic vehicle identification
  FHWA - Federal Highway Administration
  GAO - General Accounting Office
  HELP - Heavy Vehicle Electronic License Plate
  IVHS - Intelligent Vehicle Highway Systems
  WIM - weigh-in-motion

Letter
=============================================================== LETTER


B-256955

June 7, 1994

The Honorable Norman Y.  Mineta
Chairman, Committee on Public Works
 and Transportation
House of Representatives

Dear Mr.  Chairman: 

Each year, our nation's deteriorating roads and highways impose
billions of dollars in additional costs on their users.  The Road
Information Program estimates that in 1991, U.S.  motorists and truck
operators spent $17.4 billion in wasted fuel, added tire wear, and
extra vehicle repairs as a result of driving on roads and highways in
poor and fair condition.\1 Likewise, the Federal Highway
Administration (FHWA) estimates that the costs of driving on poor
pavement are at least 35 percent higher than the costs of driving on
pavements in good condition.  To develop and maintain highways for
use by the nation's 144.2 million automobiles and 45.5 million
trucks, the federal government collects user fees.  The largest share
of these fees, 89 percent, comes from fuel taxes. 

There is concern, however, that fuel taxes, combined with other
federal user fees, may not be the most equitable and efficient way to
allocate highway costs because such taxes do not sufficiently
correlate the charges that users pay with the damage that they
cause.\2 Highway wear increases exponentially with the weight of a
vehicle's axle load, and past studies have suggested that heavy
trucks may not be paying their fair share of highway costs.  In 1982,
for example, FHWA found that the largest trucks (over 75,000 pounds)
paid only 50 cents for every dollar's worth of highway damage they
caused, while the smallest trucks (under 26,000 pounds) paid $1.30
for every dollar's worth of highway damage they caused.  In light of
such findings, you asked us to (1) summarize the rationale for and
arguments against assessing fees explicitly according to the wear a
user causes to highways, (2) evaluate the recent experiences of the
states that assess or have rescinded wear-based fees, and (3)
identify potential approaches that might be used to overcome the
obstacles to implementing such fees. 


--------------------
\1 The Road Information Program is a nonprofit organization that
researches, evaluates, and distributes economic and technical data on
highway issues. 

\2 Other costs associated with highway use include congestion and
pollution.  However, federal highway programs primarily address
pavement costs.  As requested, this report therefore focuses on the
extent to which the current federal system charges highway users for
the wear they cause. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Charging users according to the wear they cause to highways is based
on the premise that such fees would increase both equity and
efficiency.  Proponents contend that the current fees do not capture
the key elements that cause highway wear:  a vehicle's weight per
axle and the miles traveled.  They argue that a user fee based on the
weight and distance traveled would more accurately charge heavy
trucks for the wear they cause and, in the long run, provide truck
operators with an incentive to use loading configurations and choose
truck designs that reduce pavement wear.  Opponents argue that such
wear-based fees are (1) unnecessary because heavy trucks are
currently paying their fair share, (2) costly to administer and
enforce, and (3) easy to evade.  It is difficult to determine whether
the current federal user fee system undercharges heavy trucks because
the last comprehensive FHWA study of this issue, done in 1982, is out
of date. 

The states' recent experiences with charging heavy trucks on the
basis of weight and distance have varied.  In 1989, 11 states
employed such fees; today, only 6 continue to do so.  Two states that
had attempted to charge on a per-trip basis abandoned their fees
because the administrative costs (i.e., data collection and
verification costs) consumed about 20 percent of the revenues
collected.  Another state rescinded its fee because of widespread
evasion.  Finally, two states rescinded their fees following legal
challenges that their systems favored intrastate truck operators over
interstate operators.  The Supreme Court has held that favoring
intrastate over interstate operations is unconstitutional.  Officials
from those two states, as well as the six states that currently
impose weight-distance user fees, emphasized that they efficiently
implemented such fees, spending only between 2 and 5 percent of the
revenues collected on administrative costs. 

The obstacles that prevented some states from efficiently
administering and enforcing weight-distance user fees--high
administrative costs and evasion rates--can be minimized. 
Intelligent Vehicle Highway Systems technologies now emerging, such
as weigh-in-motion and automatic vehicle identification systems, are
beginning to allow states to more efficiently collect data on vehicle
weight and miles traveled.  FHWA officials emphasized that the
efficient implementation of a national weight-distance user fee is
currently feasible.  They noted that new technologies could
facilitate the enforcement of such a fee and allow greater precision
in charging trucks on a weight-per-axle basis. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Damage to highway pavement, such as cracks and potholes, is caused by
a combination of weathering and use by vehicles.  Damage increases
exponentially as the weight carried on each axle of a vehicle
increases.  Between 1958 and 1960, the American Association of State
Highway Officials conducted road tests to determine the relationships
between axle weights and pavement wear.  The tests showed, for
example, that an axle weight of 30,000 pounds causes 8 times more
pavement damage than an axle weight of 18,000 pounds.  The
relationships developed from these tests are still used today to
attribute the pavement wear caused by various vehicles. 

To develop and maintain major highways, the federal government
collects user fees and disburses the funds to the states.  In fiscal
year 1993, the federal government collected over $18.5 billion from
four user fees:  fuel taxes (gasoline and diesel), a heavy vehicle
use tax, a new vehicle excise tax, and an excise tax on heavy tires. 
(App.  I provides additional information on these fees.) As figure 1
shows, fuel taxes are the largest source of revenue. 

   Figure 1:  Receipts From
   Federal Highway User Fees by
   Category, Fiscal Year 1993

   (See figure in printed
   edition.)

Source:  Based on data from FHWA. 

Concerned that under the federal fee structure, heavy trucks were not
paying their fair share relative to the wear they caused to the
nation's highways, the Congress mandated, as part of the Surface
Transportation Assistance Act of 1978, that FHWA conduct a formal
study of the equity of highway user fees.  After a 3-year review,
FHWA reported that there were sizable inequities in the federal
highway user fee system.  Specifically, FHWA found that the heaviest
trucks were underpaying their fair share of taxes by about 50
percent, lighter trucks were overpaying by between 30 and 70 percent
(depending on weight), and automobiles were overpaying by 10
percent.\3 To increase highway revenues and respond to the study, the
Congress passed the first major increase in federal highway use taxes
since 1956.  In the Surface Transportation Assistance Act of 1982,
the Congress raised gasoline and diesel taxes from 4 to 9 cents per
gallon to increase revenues.  To improve equity, the Congress also
mandated that the ceiling for the heavy vehicle use tax be increased
from $240 a year to $1,900 a year by 1989. 

In response to concerns of the trucking industry about the new tax
structure, the Congress again revised the system in 1984 with the
passage of the Deficit Reduction Act.  Under that act, the ceiling
for the heavy vehicle use tax was lowered from $1,900 to $550 a year. 
To ensure that this action was revenue neutral, the Congress raised
the tax on diesel fuel by 6 cents per gallon, from 9 cents to 15
cents per gallon.  The Congress also mandated that the Secretary of
Transportation (1) determine if vehicles weighing 80,000 pounds or
more were paying their fair share of highway costs and (2) study the
feasibility of a national user fee based on weight and distance that
would replace all federal highway user charges on trucks except fuel
taxes. 

Emphasizing that the results could not be compared with those of its
formal cost allocation study in 1982 because of methodological
differences and a more limited scope, FHWA reported to the Congress
in November 1988 that trucks weighing between 70,000 and 80,000
pounds were paying about 81 percent of their fair share of highway
costs relative to all other trucks but that those weighing between
80,000 and 90,000 pounds were paying only 49 percent of their
share.\4 In December 1988, FHWA also reported to the Congress that a
national highway user fee based on weight and the distance traveled
was feasible.\5 Since these reports, a national weight-distance user
fee has not been adopted, but federal user fees have increased:  the
gasoline tax from 9 cents to 18.4 cents per gallon; the diesel tax
from 15 cents to 24.4 cents per gallon; the new truck and trailer
sales tax from 10 percent of the wholesale price to 12 percent of the
retail price; and the heavy tire tax from 9.75 cents to 50 cents a
pound for tires over 90 pounds. 

In addition to receiving federal funds, the states charge user
fees--generally a combination of fuel taxes and registration fees--to
finance road construction and maintenance.  Six states--Arizona,
Idaho, Kentucky, New Mexico, New York, and Oregon--also impose user
fees based on weight and distance. 


--------------------
\3 Final Report on the Federal Highway Cost Allocation Study, U.S. 
Department of Transportation, FHWA (Washington, D.C.:  May 1982). 

\4 Heavy Vehicle Cost Responsibility Study, Department of
Transportation, FHWA (Washington, D.C.:  Nov.  1988).  Unlike the
1982 study, which examined whether all highway users pay their fair
share, the 1988 study examined only whether the heaviest trucks pay
their fair share relative to other trucks.  According to FHWA
officials, if all highway users had been considered, the 1988 study
would likely have shown heavy trucks paying an even smaller portion
of their fair share. 

\5 The Feasibility of a National Weight-Distance Tax, Department of
Transportation, FHWA (Washington, D.C.:  Dec.  1988). 


   RATIONALE FOR AND ARGUMENTS
   AGAINST ASSESSING FEES
   EXPLICITLY ON THE BASIS OF THE
   WEAR A USER CAUSES
------------------------------------------------------------ Letter :3

Assessing highway user fees explicitly on the basis of the wear a
user causes to the highways is based on the premise that such fees
would increase both equity and efficiency.  According to proponents
of wear-based fees, the current user fees do not effectively capture
the key elements that cause wear on highways.  In their view, a user
fee based on weight and distance is a simple and accurate way to
charge heavy trucks for the wear they cause and, in the long run,
will provide truck operators with an incentive to choose truck
designs that minimize pavement wear.  Opponents argue that such a
wear-based fee is (1) unnecessary because heavy trucks currently pay
their fair share, (2) costly to administer and enforce, and (3) easy
to evade.  It is difficult to determine whether the current system
overcharges or undercharges heavy trucks because the last
comprehensive FHWA study to determine if all users pay their fair
share, which in 1982 found that heavy trucks were underpaying, is out
of date. 


      RATIONALE FOR USER FEES
      BASED ON WEIGHT AND DISTANCE
---------------------------------------------------------- Letter :3.1

FHWA officials, as well as representatives from the American
Association of State Highway and Transportation Officials (AASHTO),
the Automobile Association of America, and several states, maintained
that heavy trucks--particularly the approximately 500,000 combination
trucks that have gross weights over 75,000 pounds--continue to pay
far less in federal highway user fees than the costs they impose for
highway maintenance and repair.  According to these officials, the
current federal highway user fee structure continues to be
inequitable because it does not effectively capture the two key
components of travel that cause highway wear:  severity (the
vehicle's weight per axle) and amount (the miles traveled).  They
added that under a wear-based user fee that accounted for these
factors (i.e., a weight-distance user fee), heavy truck operators
would be charged more accurately for the highway wear they cause and
would, in the long run, have an incentive to use trucks designed to
reduce pavement wear.  Supporting this view, the Congressional Budget
Office found, in 1992, that the current federal highway user fee
structure is "not as efficient as it could be" and concluded that
charging users on the basis of "the damage caused by heavy loads on
each axle would encourage more efficient distribution of these loads
and reduce damage to roadways."\6

Although they emphasized that the agency has not conducted a formal
cost allocation study since 1982, FHWA officials told us that their
internal analyses have produced results similar to those of the 1982
study.  These officials stated, however, that these analyses are not
based on a formal study.  They also noted that the 1982 study is out
of date because it depended on data on highway wear from the 1958-60
road tests and data on highway costs from 1977. 

In addition to citing FHWA's 1982 study, proponents of a
weight-distance user fee also argue that fuel taxes (1) do not
adequately reflect the different amounts of pavement wear caused by
automobiles and trucks and (2) are subject to extensive evasion. 
Although heavier trucks consume more fuel and therefore pay more fuel
taxes, pavement repair costs rise more rapidly with a vehicle's
weight than do fuel taxes.  For example, according to AASHTO, an
80,000-pound, 4-axle truck typically does twice as much damage per
mile as a 50,000-pound, 4-axle truck but uses only 14 percent more
fuel.  As a result, the heavier truck is undercharged relative to the
damage caused while the lighter truck is overcharged. 

In addition, fuel taxes have been characterized by a high level of
evasion.  Evasion is possible because, under federal law, both
gasoline and diesel fuel can be purchased tax-free if the fuel will
be used for certain specified purposes (e.g., in farm vehicles or as
home heating oil).\7 Several evasion schemes have been used in the
past.  Under the most popular scheme, wholesale distributors purchase
the fuel tax-free and pass ownership--on paper only--through several
companies that are registered with the Internal Revenue Service to
possess tax-free fuel.  The fuel is then sold to an unregistered
company, such as a gas station, that sells it for a taxable use, such
as truck operations.  Although the unregistered company collects the
tax from truck operators, it does not remit the funds to the Internal
Revenue Service.  Given the numerous changes in the ownership of the
fuel in such cases, the Internal Revenue Service has difficulty
collecting the tax.  In June 1993, FHWA estimated that the level of
gasoline tax evasion was between 3 and 7 percent of the gallons
consumed and the level of diesel tax evasion was between 15 and 25
percent of the gallons consumed.\8 According to FHWA, evasion at
these levels translates into a loss of $1.3 billion in federal
revenues each year. 

Likewise, proponents of a weight-distance user fee argue that federal
efforts to make highway user fees more equitable through the heavy
vehicle use tax, new vehicle excise tax, and heavy tire tax have been
ineffective.  For example, they note that the heavy vehicle use tax
is relatively small and is capped at a low amount ($550) for trucks
weighing over 75,000 pounds.  As a result, it fails to charge for the
additional wear caused by the heaviest trucks on the highways. 
Proponents of a weight-distance user fee emphasize that funding
equity cannot be achieved by simply adjusting the fees charged under
the current system.  (App.  I provides additional discussion on the
strengths and weaknesses of the current federal highway user fees.)

In light of the shortcomings of the current system, proponents call
for the federal government to implement a new, wear-based method of
taxation.  Proponents claim that besides providing a fairer tax
system, federal highway user fees that reflect the damage caused by
heavy axle loads would encourage more efficient distribution of these
loads, discourage overloading, and eventually reduce the damage to
roadways.  Heavily loaded trucks would pay more, and lightly loaded
trucks or trucks spreading heavier weights over more axles would pay
less.  In the long run, adjustments would be likely because trucking
companies replacing old equipment with new would have an incentive to
increase the number of axles on their vehicles, use smaller trucks,
or urge vehicle manufacturers to develop truck designs that cause
less pavement damage. 

Furthermore, proponents state that a weight-distance user fee would
be most equitable if users were charged on the basis of the actual
operating weight per axle.  They note, however, that a system that
tracked the axle weights and mileage of every trip made by each truck
operator would be too burdensome to administrate for both the
trucking industry and the government.  Instead, they advocate a
system in which trucks are charged on the basis of their registered
maximum gross vehicle weight (the maximum a truck is licensed to
carry), the number of axles, and the number of miles traveled.  FHWA
officials noted that Oregon employs such a system for trucks with
registered weights exceeding 80,000 pounds.  These officials
emphasized that (1) Oregon's system could serve as a model for a
national weight-distance user fee and (2) most, if not all, states
already collect the data needed to administer such a fee through
their participation in the International Fuel Tax Agreement and the
International Registration Plan.\9 These officials and other
proponents contend that the increased equity and eventual reduction
in pavement wear that would result from such a user fee would come
with little increase in administrative and enforcement costs for the
government or compliance costs for the trucking industry.  Some
advocates also note that if such a wear-based fee replaced diesel
fuel taxes, the federal government's revenues would increase by
millions of dollars because of the reduced potential for evasion. 

In supporting their position, advocates of a weight-distance user fee
also cite the results of the congressionally mandated study released
in December 1988 on the feasibility of a national weight-distance
fee.  In that study, FHWA reported to the Congress that (1) current
federal highway user fees created "glaring inequities" between the
different users, (2) a national weight-distance user fee could
substantially reduce these inequities and also protect highways from
pavement damage caused by trucks with heavy axle weights, and (3) a
national fee was feasible in part because "administrative and
compliance costs .  .  .  would not be prohibitive, nor would there
be significant adverse impacts on interstate commerce."

Finally, advocates of a weight-distance user fee note that other
countries impose such fees and that the European Union has recently
taken action to implement them.  For example, New Zealand has charged
heavy trucks on the basis of weight and distance since 1978.  And, in
October 1993, the Council of the European Communities directed member
countries, by January 1995, to charge all trucks over 12 metric tons
(approximately 26,400 pounds) at least a minimum fee based on weight,
the number of axles, and the distance traveled. 

In February 1992, in a formal policy statement, AASHTO reiterated its
support for a national fee of this type: 

     "A federal weight-distance tax should be considered by Congress
     as a substitute for the heavy vehicle use tax and all other
     federal user fees on trucks except for a federal fuel tax levied
     at the same rate as on all other vehicle classes.  The truck tax
     structure should be designed to yield revenues at least equal to
     the existing structure of taxes and to achieve as much equity as
     possible both between and within different truck classes."


--------------------
\6 Paying for Highways, Airways, and Waterways:  How Can Users Be
Charged?, Congressional Budget Office (Washington, D.C.:  May 1992). 

\7 For a fuller discussion of fuel tax evasion, see Tax
Administration:  Status of Efforts to Curb Motor Fuel Tax Evasion
(GAO/GGD-92-67, May 12, 1992). 

\8 The Joint Federal/State Motor Fuel Tax Compliance Project:  Fiscal
Year 1992 Status Report, Department of Transportation, FHWA
(Washington, D.C.:  June 1993). 

\9 The International Fuel Tax Agreement is an interstate agreement
for the collection and distribution of fuel taxes.  The International
Registration Plan is an interstate agreement for the apportionment of
registration fees.  The Intermodal Surface Transportation and
Efficiency Act of 1991 encouraged states to participate in these
agreements.  The act (1) prevents states not participating in the
agreements from limiting the operations of truck operators from
participating states and (2) requires that state laws on the
collection of fuel taxes from interstate truck operators conform to
these agreements by Sept.  30, 1996.  As of May 1994, 47 states were
participating in the registration agreement, and 27 states were
participating in the fuel tax agreement.  Under these agreements,
states collect data on the miles that truck operators travel in their
state and on registered truck weights. 


      ARGUMENTS AGAINST
      WEIGHT-DISTANCE USER FEES
---------------------------------------------------------- Letter :3.2

The U.S.  trucking industry vehemently opposes weight-distance user
fees.  Specifically, representatives of the American Trucking
Associations (ATA) and the National Private Truck Council, as well as
representatives we interviewed from several trucking companies,
emphasized that they believe weight-distance user fees to be (1)
unnecessary, (2) inequitable in both theory and practice, (3)
difficult and costly for governments to administer and truck
operators to comply with, and (4) vulnerable to more evasion than
current user fees.  Finally, they noted that the relationships
between axle weight and pavement damage established in the 1958-60
road tests, on which most highway cost allocation studies are based,
are out of date. 

First, these trucking representatives believe that one of the
premises underlying weight-distance user fees--that large truck
operators are not paying their fair share of highway costs--is
erroneous.  Acknowledging that highway users should pay their fair
share relative to pavement wear, they stated that the current federal
user fee system adequately captures weight and distance factors and
that because of several federal tax increases since the 1982 FHWA
study, heavy trucks are now paying their fair share.  They argue that
the current system of registration fees and fuel taxes is a good
theoretical surrogate for a weight-distance fee and that these fees
are easier to collect and administer.  They contend that registration
fees take vehicle weight into account and that fuel-tax liability
increases with both vehicle weight and miles traveled.  ATA officials
also emphasized that several recent state studies have found that
heavy trucks are paying their fair share of highway costs.  Although
these officials did not endorse a new cost allocation study by FHWA,
they believe that such a study would confirm their position.  They
noted that FHWA's 1988 Heavy Vehicle Cost Responsibility Study found
that trucks weighing between 70,000 and 80,000 pounds paid 81 percent
of their fair share of highway costs relative to other trucks. 

Second, trucking representatives held that weight-distance user fees
are inequitable in both theory and practice.  Noting that pavement
wear increases exponentially as the weight per axle (not the total
weight) increases, these officials emphasized that to approximate
actual highway costs, a weight-distance user fee must be based on a
truck's axle weight, not on the gross weight.  They note that to
date, only Oregon has implemented a user fee (for trucks weighing
over 80,000 pounds) designed to account for the weight per axle and
distance traveled.  They emphasized that such a fee would be costly
to implement and administer on a full scale.  Other states that have
implemented weight-distance user fees have based their fees on the
registered maximum gross weight of the trucks. 

Fees imposed according to the registered gross vehicle weights do not
take adequate account of the trips a vehicle may make when it is only
partially loaded or when it is empty.  In some kinds of trucking
businesses, such as tank-truck operations, vehicles operate empty
nearly half the time.  Numerous other trucks operate most or all of
the time at a weight less than their registered weight.  According to
trucking representatives, a fee that does not take into account these
variations in weight is less equitable than the current fees. 

In addition, these representatives argue that a weight- distance user
fee levied according to the registered gross vehicle weight does not
factor in the weight of each axle, which is the key factor in
pavement wear.  For example, an 80,000-pound, 5-axle truck (with a
heaviest axle weight of 17,000 pounds) will cause far less pavement
damage than a 80,000-pound, 3-axle truck (with a heaviest axle weight
of 35,000 pounds).  However, under most weight-distance fees as
currently designed, the 5-axle truck is charged the same as the
3-axle truck even though the 3-axle truck does more damage.  Trucking
representatives noted that the only truly equitable fee would be one
that takes into account the axle weight per mile of operation.  They
emphasized, however, that such a user fee would be impossible to
administer and enforce at a reasonable cost. 

Similarly, trucking representatives noted that most heavy trucks
spend most of their time on rural Interstate and primary highways and
very little on the high-cost urban or secondary roads that do not
generate sufficient highway user revenue to support themselves. 
Weight-distance fees, they argue, thus shift the tax burden for roads
as a whole largely to interstate heavy truck traffic.  Support for
urban and secondary roads should come instead, they believe, from
broadly shared tax sources, such as registration fees, fuel taxes,
and property taxes. 

Third, trucking representatives assert that a weight-distance user
fee of any kind is difficult for the government to administer and
truck operators to comply with.  To administer the fee, states must
collect, maintain, and verify truck operators' reports of the miles
traveled and registered vehicle weight.  They believe that this need
would entail the creation of new government bureaucracies.  Such
record-keeping and enforcement, they argue, would entail much higher
costs than the current system.  In addition, trucking representatives
say that they incur higher costs when they operate in states that
have such fees because of the additional record-keeping and the
checking required at the ports of entry into those states.  They
note, for example, that New York and New Jersey carriers report
spending as much or more to collect the information necessary to pay
the New York weight-distance user fee as they pay in actual fees. 

Fourth, trucking representatives argue that weight-distance user fees
are more susceptible to evasion than other taxes.  They assert that
the tax is regarded as an unfair tax by those who are expected to pay
it and that, other things being equal, an unpopular tax is more
likely to be evaded than more acceptable taxes.  They also say that
such fees are easy to evade because of the extensive record-keeping
required and the limited auditing conducted.  This ease of evasion
would give a carrier that could avoid paying a weight-distance user
fee a considerable advantage over its more honest competitors.  Thus,
trucking representatives contend, honest truckers will face the
choice of leaving the road or evading the tax. 

Finally, trucking representatives stated that the pavement damage
relationships derived by the American Association of State Highway
Officials (now AASHTO) from the 1958-60 road tests are out of date. 
These relationships do not reflect the numerous changes that have
occurred since the early 1960s in pavement design and trucks'
operating characteristics.  For example, the road tests did not
include any pavements with special drainage layers and pipes, which
are commonly used today.  Adequate drainage is now considered
critical in reducing pavement damage during wet seasons.  In
addition, many trucks now use radial tires and new suspension
systems, which are less damaging to pavement surfaces.  Trucking
representatives and AASHTO officials noted, however, that a study of
long-term pavement performance currently being conducted by the
Strategic Highway Research Program will provide updated data on the
relationships between pavement damage and axle weights.\10 These data
could be used as a part of a new FHWA cost allocation study. 


--------------------
\10 The Strategic Highway Research Program was created by the
Congress in 1987 to conduct research, development, and technology
transfer activities that the Secretary of Transportation determines
to be strategically important to the national highway transportation
system. 


   STATES' RECENT EXPERIENCES WITH
   WEIGHT-DISTANCE USER FEES
------------------------------------------------------------ Letter :4

The states' recent experiences with charging heavy trucks on the
basis of weight and distance have varied, depending largely on the
type of system employed.  Those states that attempted to charge on a
per-trip basis abandoned their fees because of high administrative
costs.  Other states have implemented less precise weight-distance
user fees.  According to officials in those states, they have been
able to efficiently collect such fees and increase funding equity
among users. 

Only six states currently charge heavy trucks on the basis of their
weight and the distance traveled.  Between 1989 and 1991, five states
repealed their weight-distance fees--two because of legal challenges
and three because of high administrative costs and/or compliance
problems.  Our discussions with state officials and trucking
representatives and our review of relevant studies from the (1) six
states that currently have weight-distance fees and (2) five states
that have recently repealed their fees indicate that these states
have had differing experiences.  The 11 states we examined are shown
in figure 2.\11

   Figure 2:  States That Have
   Weight-Distance User Fees and
   States That Have Recently
   Rescinded Such Fees

   (See figure in printed
   edition.)

   Source:  Survey of states by
   The Road Information Program
   for GAO.

   (See figure in printed
   edition.)

Highway officials in all 11 states said that their weight-distance
user fee involved a trade-off between equity (all highway users
paying their fair share) and administrative and enforcement costs. 
Officials in 8 of the 11 states told us, however, that their user fee
had increased equity at a relatively low level of administrative and
enforcement costs.  Highway officials in the other three states
provided a much different perspective:  For them, the administrative
costs and/or the rate of noncompliance had been unacceptably high. 

Of the 11 states, officials in Arizona, Arkansas, Idaho, Kentucky,
Nevada, New Mexico, New York, and Oregon stated that they have
increased equity with a relatively small increase in administrative
and enforcement costs.  In states with a relatively simple fee
structure, such costs were extremely low (2.8 percent of the revenues
collected in Arkansas and 2.2 percent in Nevada).  The simple fee
structure in Arkansas, for example, consisted of an annual charge of
2.5 cents per loaded mile for trucks weighing over 73,280 pounds.  In
states with a more complex fee structure, administrative and
enforcement costs were somewhat higher.  For example, Oregon collects
a fee based on a graduated scale for trucks over 26,000 pounds and an
axle-based weight-distance charge for trucks over 80,000 pounds. 
Oregon officials placed administrative and enforcement costs at
between 3.8 and 4.4 percent of total collections.  These officials
emphasized that such costs were acceptable given the high level of
highway funding equity among users that Oregon has achieved. 

However, three states have abandoned weight-distance user fees
because of high administrative costs and/or widespread evasion. 
Wyoming and Colorado--states that attempted to achieve more exact
equity by charging on the basis of actual weight and mileage per
trip--experienced very high administrative costs.  Officials from
both states estimated that administrative costs were about 20 percent
of the revenues collected, causing both states to repeal their fee in
1989.  In addition, the rate of evasion was high in both states.  In
Wyoming, a 1981 state-sponsored study reported that state and
trucking officials' estimates of evasion ranged from 10 to 40 percent
of the revenues collected.  In Colorado, a 1982 state auditor's
report found that evasion could be as high as 31 percent of the
revenues collected.  Finally, Ohio, where administrative costs were
relatively low, experienced widespread evasion, in part because the
state only employed five full-time staff to enforce the fee.  Ohio
highway officials also noted that the fee was unpopular because it
actually encouraged increased pavement wear in that it charged truck
operators more if they used a greater number of axles.  A study by
Cleveland State University in 1982 for the Ohio Department of
Taxation estimated the evasion rate at 45 percent of the revenues
collected.  As a result, Ohio repealed its fee in 1991. 

Estimates of evasion in the other states varied greatly.  In Oregon,
state officials estimated that collections totaled at least 95
percent of the fees due, resulting in a 5-percent evasion rate.  In
Nevada, officials stated that the state collected 93.2 percent of the
taxes due, resulting in a 6.8 percent evasion rate.  However, in
Arizona, a 1993 study by Sydec, Inc., for the Arizona Department of
Transportation estimated that the evasion rate could be as high as 35
percent of the revenues collected.  In 1994, using the same
methodology, Sydec concluded that there was "relatively little
evasion" of Idaho's weight-distance fee. 

Although Arkansas and Nevada had positive experiences implementing a
weight-distance user fee, officials in those states told us that the
states repealed their fee because of legal challenges.  Both states
had provisions granting exemptions for some intrastate truckers or
allowing intrastate truckers to pay a lower fee than interstate
truckers.  After 1987--when the U.S.  Supreme Court invalidated
Pennsylvania's fee structure because it placed an unconstitutional
burden on interstate commerce by favoring intrastate over interstate
truckers--Arkansas and Nevada rescinded their weight-distance fee.\12
However, officials from Nevada and Arkansas emphasized that before
rescinding these fees, they had positive experiences in administering
them. 

Finally, trucking representatives we interviewed noted that the truck
operators' costs of compliance rose as the complexity of the fee
structure increased.  In Wyoming and Colorado, for example, trucking
representatives estimated that truck operators' costs for
record-keeping, stopping longer at ports of entry for verification of
information, and other activities actually exceeded the amount the
operators paid in fees.  However, in Arkansas--where the fee
structure was much simpler--the President of the state's Motor
Carrier Association told us that the costs of compliance were
minimal. 


--------------------
\11 Since the 1920s, 22 states have implemented--in varying
forms--user fees on heavy trucks based on their weight and the
distance traveled.  In examining recent state experiences, we focused
on the 6 states currently charging such fees and the 5 states that
have repealed them since 1989 because the other 11 states abandoned
their fees between the 1920s and the 1970s. 

\12 American Trucking Assoc.  v.  Scheiner, 483 U.S.  266 (1987). 


   NEW TECHNOLOGIES COULD REDUCE
   ADMINISTRATIVE AND COMPLIANCE
   COSTS OF WEIGHT-DISTANCE USER
   FEES
------------------------------------------------------------ Letter :5

Advances in technology offer the promise of improving the collection
and enforcement of a more precise weight-distance user fee.  Two
Intelligent Vehicle Highway Systems (IVHS) technologies--automatic
vehicle identification (AVI) and weigh-in-motion (WIM)--are
increasingly being employed by states to capture, among other things,
information on vehicle weights and to document highway users'
presence in the state.\13 FHWA officials emphasized that the
efficient implementation of a national weight-distance user fee is
currently feasible, and they noted that AVI and WIM could facilitate
the enforcement of such a fee and allow for greater precision in
charging trucks on the basis of their weight per axle.  However,
trucking representatives disagreed with FHWA's conclusion about the
feasibility of a national fee and stated that they were skeptical
about the potential benefits of IVHS technologies in implementing
such a fee. 

Several states currently employ AVI and WIM to facilitate the safe
and efficient passage of trucks over state lines and to gather
information to, among other things, assist in tax administration. 
AVI equipment enables a vehicle fitted with a transponder to be
identified as it passes specific points on the highway.  Once a
vehicle is identified, a computer located centrally or in a weigh
station can determine whether the vehicle--as it continues moving
down the highway--is registered and whether it has had a recent
safety inspection.  WIM equipment can obtain and record information
on the axle weights and gross weight of a moving vehicle when it
drives over in-pavement sensors.  Oregon currently uses AVI and WIM
technologies to help administer and enforce the state's axle-based
weight-distance user fee.  According to Oregon officials, these
technologies have been a key factor in minimizing that state's
administrative costs and the compliance costs. 

The most visible of the states' efforts employing AVI and WIM is the
Heavy Vehicle Electronic License Plate (HELP) Program, initiated in
1984.  HELP is a developmental research effort designed to improve
safety and increase the efficiency and effectiveness of the
operations of state law enforcement and taxation agencies and thereby
improve the productivity of the motor carrier industry by reducing
trucks' delays at state ports of entry and weigh stations.  In this
program, AVI transponders are placed on trucks to provide electronic
data on their credentials (e.g., registration, date of last safety
inspection, etc.).  In addition, WIM sensors are placed along the
highway to record the axle weights and gross weight of each truck. 
These technologies, in combination with automatic vehicle
classification technology, are designed to facilitate the efficient
movement of trucks, with minimal paper records, because information
about a truck's weight, configuration, and registration is
automatically verified and recorded.  The HELP project allows
participating trucks to travel with minimal stops along an interstate
highway route from British Columbia, Canada through six western
states--Washington, Oregon, California, Arizona, New Mexico, and
Texas. 


--------------------
\13 IVHS technologies are a group of highly interdisciplinary
systems, such as advanced traffic management, vehicle control
systems, and roadside monitors, whose purpose is to save lives, time,
and money on roads and highways.  See Smart Highways:  An Assessment
of Their Potential to Improve Travel (GAO/PEMD-91-18, May 1, 1991). 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

A strong economic rationale exists for charging highway users
explicitly according to the wear they cause to the nation's highways. 
The potential long-term benefits of replacing some or all of the
current federal highway user fees with a weight-distance fee could be
substantial in terms of additional revenues and reduced pavement
wear, especially if heavy trucks are only paying 50 percent of their
fair share, as FHWA found in 1982.  However, the data on which this
calculation is based are out of date.  Over the last 12 years,
federal taxes on heavy trucks have been increased, in part to provide
greater equity between heavy trucks and other highway users.  In a
more limited analysis in 1988, FHWA found that some heavy trucks were
paying about 80 percent of their fair share relative to other trucks. 
Given (1) the tax increases since 1982; (2) FHWA's findings in 1988;
(3) the effort under the Strategic Highway Research Program, which
will provide new data on the relationship between axle loads and
pavement damage; and (4) the intense disagreements surrounding
weight-distance user fees, we believe that it is now time for FHWA to
conduct another formal cost allocation study. 

As a practical matter, however, a trade-off exists in weight-distance
user fee structures between increased funding equity and increased
administrative and compliance costs.  The experiences of Colorado and
Wyoming demonstrate that charging users on the basis of the actual
weight and mileage per trip results in an administrative quagmire. 
Other states with less ambitious programs have achieved better
results.  Oregon's fee, which takes into account a vehicle's
registered weight, number of axles, and the miles traveled,
demonstrates that surrogates for more precise fees can be designed. 
In addition, with the emergence of IVHS technologies, the trade-off
between increased equity and increased administrative and compliance
costs may be reduced significantly over the next several years. 

Finally, the preferential treatment that some states have accorded
intrastate truck operators over interstate operators has blunted the
states' efforts to increase equity.  However, if a weight-distance
user fee were national, this problem would not arise.  In 1988, FHWA
reported to the Congress that such a national fee was feasible, and
during our review, FHWA officials emphasized that the emergence of
IVHS technologies has served to further support the agency's original
conclusion. 


   RECOMMENDATION
------------------------------------------------------------ Letter :7

To determine whether all highway users are paying their fair share of
federal highway costs and to ensure that FHWA and the Congress have
up-to-date information when making future decisions affecting federal
highway user fees, we recommend that the Secretary of Transportation
direct the Administrator, FHWA, to conduct a formal cost allocation
study, with appropriate input from the affected parties.  In
conducting this study, the Administrator should utilize, to the
extent possible, the data currently being developed by the Strategic
Highway Research Program on the relationship between axle loads and
pavement damage. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
------------------------------------------------------------ Letter :8

If the results of FHWA's study indicate that certain highway users
underpay their share of highway costs, the Congress should consider
examining policy options, including a national weight-distance user
fee, that would increase equity and promote a more efficient use of
the nation's highways. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

We discussed our findings and recommendation with FHWA's Chief,
Systems Analysis Branch, and Chief, Highway Revenue Analysis Branch,
in the Office of Policy Development.  These officials generally
agreed with the information presented and concurred with our
recommendation for a new study.  These officials noted that, in their
view, the time had come for an updated cost allocation study.  They
said that since the last study in 1982, both the quality of data and
analytical methods have improved.  They also stated that such a study
would not impose an undue burden on the agency.  These officials
suggested several revisions to our report, which we incorporated
where appropriate.  However, as requested, we did not obtain written
comments from the Department of Transportation on a draft of this
report.  Finally, we provided AASHTO's Executive Director and ATA
officials with appropriate sections of a draft of this report.  They
generally agreed with the information presented but suggested several
wording revisions, which we incorporated where appropriate. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

To examine the rationale for and arguments against wear-based user
fees, we reviewed past studies by the Congressional Budget Office,
FHWA, AASHTO, ATA, and the states.  In addition, we interviewed FHWA
headquarters officials, as well as representatives of AASHTO, ATA,
the National Private Truck Council, the Owner-Operator Independent
Drivers Association, The Road Information Program, the Highway Users
Federation, and the Automobile Association of America.  We also
interviewed officials from three private trucking firms--Ryder
Trucks, Georgia Pacific, and Frito-Lay.  These firms were suggested
by the National Private Truck Council as having extensive knowledge
of and experience with weight-distance user fees.  To supplement this
information, we interviewed academic experts in highway finance, as
well as representatives of Cambridge Systematics, Systems Design
Engineering, and the Strategic Highway Research Program.  Each of
these organizations has conducted or is conducting studies relevant
to the issues examined during our review. 

To evaluate the states' recent experiences with such fees, we
interviewed state highway officials and trucking representatives from
11 states that have weight-distance fees or have recently rescinded
them.  We reviewed available studies conducted on the experiences of
these 11 states.  In addition, to document the states' experiences
and opinions concerning weight-distance user fees, The Road
Information Program, at our request, included several questions on
weight-distance fees in its annual survey of all 50 states. 

To examine the obstacles that have prevented the implementation of
such fees and assess the potential approaches to overcoming them, we
interviewed FHWA officials responsible for promoting commercial
applications of IVHS technologies.  We also interviewed
representatives of the International Bridge, Tunnel & Turnpike
Association about current technological advances that allow the
collection of data on vehicles' operating weight and the distance
traveled.  Finally, we interviewed representatives from highway
programs currently implementing IVHS technologies, including the HELP
and Advantage I-75 projects.  We conducted our work from January
through May 1994 in accordance with generally accepted government
auditing standards. 


--------------------------------------------------------- Letter :10.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to the Secretary of Transportation; the Administrator,
FHWA; the Director, Office of Management and Budget; and other
interested parties.  We will also make copies available to others on
request. 

This work was performed under the direction of Kenneth M.  Mead,
Director, Transportation Issues, who can be reached on (202)
512-2834.  Major contributors to this report are listed in appendix
III. 

Sincerely yours,

Keith O.  Fultz
Assistant Comptroller General


ADDITIONAL INFORMATION ON FEDERAL
HIGHWAY FUNDING, FISCAL YEAR 1993
=========================================================== Appendix I

The federal government currently collects four main highway user
fees.  Several weaknesses in these fees affect their ability to
assess users on the basis of vehicle weight and distance traveled. 
Specifically: 

  The federal gasoline tax is 18.4 cents a gallon, and the diesel
     fuel tax is 24.4 cents a gallon.\14 As discussed in this report,
     fuel taxes have been subject to high levels of evasion. 
     Likewise, fuel taxes do not adequately charge users according to
     the increasing weights of their vehicles. 

  The new vehicle excise tax is a 12-percent excise tax on the retail
     price of trucks weighing over 33,000 pounds.  Overall, this
     one-time fee scores poorly on equity.  While there may be some
     correlation between the weight of a vehicle and its price, this
     correlation is weak.  Likewise, a vehicle's price correlates
     poorly with its total lifetime mileage and the aggregate highway
     costs occasioned by that mileage. 

  The heavy vehicle use tax is an annual tax on heavy motor vehicles. 
     For vehicles with gross weights of 55,000 to 75,000 pounds, the
     tax is $100 plus $22 per 1,000 pounds over 55,000 pounds; for
     vehicles over 75,000 pounds, the tax is capped at $550. 
     Therefore, under this fee, vehicles weighing 75,000 pounds are
     charged the same amount as heavier vehicles that may cause more
     highway wear.  This fee also does not factor in the number of
     axles.  In addition, this fee is relatively small and does not
     relate the wear caused to the distance traveled. 

  New tires are taxed at 15 cents for each pound between 40 and 70,
     and $4.50 plus 30 cents for each pound between 70 and 90.  Tires
     heavier than 90 pounds are taxed at $10.50 plus 50 cents for
     each pound over 90 pounds.  While tire wear may be considered a
     surrogate for distance, this substitution is inexact.  Moreover,
     retreaded tires are not subject to this tax.  As a result,
     vehicles equipped with retreaded tires cause pavement wear but
     do not pay the heavy tire excise tax. 

In fiscal year 1993, the federal government collected over $18.5
billion from these user fees, as shown in table I.1. 



                          Table I.1
           
              Federal Highway User Fee Receipts,
                       Fiscal Year 1993

Category                                    Amount collected
------------------------------  ----------------------------
Fuel tax
------------------------------------------------------------
Gasoline                                     $12,249,017,600
Diesel                                         3,554,045,000
Other                                            576,374,000
New vehicle excise tax                         1,199,291,000
Heavy vehicle use tax                            630,401,000
Heavy tire excise tax                            304,482,000
============================================================
Total                                        $18,513,610,600
------------------------------------------------------------
Source:  FHWA. 


--------------------
\14 Of the 18.4-cents-per-gallon gasoline tax, 6.8 cents is allocated
to the general fund for deficit reduction.  Of the
24.4-cents-per-gallon diesel tax, 6.8 cents is allocated to deficit
reduction.  In 1995, the amount set aside from both fees for deficit
reduction will be lowered to 4.3 cents per gallon. 


RESULTS OF THE 1982 FEDERAL
HIGHWAY COST ALLOCATION STUDY
========================================================== Appendix II

As mandated by section 506 of the Surface Transportation Assistance
Act of 1978, FHWA conducted a study of the equity of federal highway
user fees.  In May 1982, FHWA released its Final Report on the
Federal Highway Cost Allocation Study, in which it found that certain
users underpaid and others overpaid their fair share of highway
costs.  Table II.1 summarizes these results. 



                          Table II.1
           
             Ratio of User Fees Paid to Allocated
                   Costs, by Vehicle Class

                                  Ratio of fees paid to cost
Vehicle class                                 responsibility
------------------------------  ----------------------------
Passenger vehicles
------------------------------------------------------------
Large automobiles                                        1.2
Small automobiles                                        0.7
Motorcycles                                              0.5
Intercity buses                                          1.2
Other buses                                              0.3
Pickups/vans                                             1.2
All passenger vehicles                                 (1.1)

Trucks
------------------------------------------------------------
Single unit trucks under                                 1.3
 26,000 pounds
Single unit trucks over 26,000                           1.7
 pounds
Combination trucks under                                 0.8
 50,000 pounds
Combination trucks, 50,000-                              0.9
 70,000 pounds
Combination trucks, 70,000-                              0.6
 75,000 pounds
Combination trucks over 75,000                           0.5
 pounds
All trucks                                             (0.8)
All vehicles                                             1.0
------------------------------------------------------------
Note:  A ratio greater than 1.0 indicates that a vehicle class is
overpaying its fair share, and a ratio less than 1.0 indicates that
it is underpaying its fair share relative to the pavement wear that
category causes.  The total cost responsibilities of all vehicles
were assumed to equal the total user charge payments, in order to
illuminate relative differences between the cost responsibilities and
tax payments among the vehicle classes. 

Source:  FHWA. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Barry T.  Hill, Associate Director
Francis P.  Mulvey, Assistant Director
Timothy F.  Hannegan, Assignment Manager
Daniel G.  Williams, Senior Economist

CHICAGO REGIONAL OFFICE

Sarah R.  Brandt, Evaluator-in-Charge
