Equitable and Progressive Distance-Based User Charge:Design and Evaluation of Income-Based Mileage Fees in Maryland

As a result of the declining purchasing power of fuel tax revenue, the Highway Trust Fund (HTF) is insufficient to operate and maintain the surface transportation system in the U.S. Alternative sources of revenue, other than the fuel tax, should be considered to address the insolvency of the funding system. Mileage fees and value pricing have long been attractive options to researchers and decision-makers, but they often raise equity concerns. This paper aims to design and evaluate equitable and progressive distance-based user charge policies, and focuses specifically on income-based fee rate structures. In addition to equity, policy design criteria also include practicality, simplicity, revenue generation, and impact on surrounding jurisdictions. Three variable-rate vehicle-miles traveled (VMT) fee scenarios with respect to income are introduced: Ramsey pricing, fixed interval, and fixed percentage structures; and all policy scenarios are tested with a statewide transportation model in Maryland. Results show that income-based VMT fees can well protect lower-income households while generating more revenue. However, a standard fee structure based on Ramsey pricing, also known as inverse-elasticity rule, does not work as well as the fixed-percentage incremental fee structure. The latter is progressive across all income groups while ensuring that equity and revenue goals are met. From a practical implementation point of view, while it may be difficult to directly charge variable rates based on income, empirical evidence shows that total vehicle miles traveled has a strong positive correlation with income and therefore could be used to implement income-based mileage fees.