 the State of Clean Energy. I'm your host, Mitch Ewen. Our underwriter is the Hawaii Energy Policy Forum, which is a program of the Hawaii Natural Energy Institute. I'm very pleased to welcome our guest today, Dallas E. Gang. Dallas is a graduate assistant with the Hawaii Energy Policy Forum, who is graduating this month and already has a new job, probably because he's been working for HEPF all these, you know, for the last couple of years. We're gonna be talking story today about designing a road user funding system. Roads are not free, everyone needs to pay. And Dallas has been looking at this program. I think it was your, was that one of your thesis subjects, Dallas? Yep, it was actually my capstone paper, and it's a little bit shorter than a thesis, not as in-depth. What does a capstone mean? That's a good question. I don't know. Okay. Well, anyway, welcome to the show. And just to start this going, I mean, I thought roads were covered by a fuel tax. Is there a problem? That is true. Road taxes are, roads are covered by a fuel tax sum, which is a primary source for transportation funding here in the US. However, it's no longer gonna be a reliable source of funding because it hasn't kept up with largely because it hasn't kept up with inflation or improved fuel economy. So the gap between needs and revenues will continue to grow. So what's causing this gap? Oh, there's several factors for that. One is that again, it hasn't kept up with improved fuel economy, you know, with newer cars. Vehicles are becoming more fuel efficient. We're also moving towards, there's been a big push recently towards clean energy vehicles, which don't contribute to the fuel tax because they're electric vehicles. And then there's also inflation as well. We haven't increased the fuel tax in quite some time here at both at the state level and at the federal level as well. So there's a lot of different factors for that. What about people who work from home now? They're not on the road as much. That's true. So very similar, you know, like the fuel tax is a user fee based on a user fee principle. So, you know, if you're not using the roadways, you don't pay for anything, right? If your car sits in the garage, you shouldn't have to pay for anything, which is understandable. But, you know, you do get your mail delivered and other goods and services delivered to you. So, you know, those vehicles should pay for their fare for using the roadways. So what's, what's, what are some of the solutions? I've heard something about a road user charge. What, what in the world is that? What does that mean? So a road user charge system is based on a, it's basically a tax based on the miles that you drive. So basically, you know, the more you drive, the more you pay, very similar to your utilities at home. You know, if the more electricity you use or the more water you use, the more you're going to pay. So it's also, it's called a road user charge or also known as like a mileage based user fee or also a BMT tax or vehicle mileage tax as well. So there's different names for it, but again, it's all based on a user fee principle. Okay, so let's sort of flip to the next slide and let's talk a little bit about this slide. This is some of your investigations that you're reporting out. So tell us about this. Yeah, so just digging, looking back on how are, how we get our transportation funding. So prior to 1956, fuel taxes were directed to the general fund with no relationship between, you know, the funding that was provided for roadways and the fuel taxes that were collected. So as a result, the Highway Act of 1956 established the Highway Trust Fund, which directed fuel taxes to be used exclusively for roadway construction and maith moves. So is it actually used a lot that way? Or is it like typically becomes a slush fund for the political class to fund other projects? Or is it actually is dedicated to the roads? So this is actually dedicated, this is a dedicated source of funding specifically for roadways use, roadways and construction and maintenance. It's not like the general fund where you're competing with other spending programs and dependent on, you know, the allocations from Congress and whatnot. So this is a dedicated fund specifically for roadways and to my knowledge, I don't believe we can use it for anything else. Okay, so let's look at the next slide and we talk a little bit more about it. So, you know, your first bullet here says that these taxes don't cover the total cost of the roads. So how do we make up the difference? Yeah, so what I mean by that is that it's not linked to the type of road or the frequency of use. So for example, you know, the highways or freeways are getting much more usage than your common residential roadways, right? But yet you're not paying a different type of tax for that type of road that you're using. In addition to that, you know, frequency of use, you know, someone may drive only, you know, once a day for, whereas someone else may be on the road all day long, you know, someone driving Uber, for example, is gonna be on the road a lot more longer than someone who's just going to and from work or dropping off, you know, their kids at school. So right now it's not, the field tax is not really designed for that. And especially with the way all of our new vehicles are now where they're much more efficient. So basically you're penalized for having an older vehicle and those who have new vehicles are paying less into the system, right? So that's what I mean by so... Because the car is more efficient, they're not using as much gasoline. Yes. So what's on a sense per gallon? Can you give us some idea of what the current tax is when I go and buy a gallon of gasoline? Like I did last night and I took my $81 to fill my tank. I had shock, I was shocked. Yes, you and myself as well, and many others are feeling the pain at the pump right now with rising prices. So right now the fuel tax, you know, no matter how high gas prices have increased, it's a flat tax and it's not indexed to inflation or the price of fuel. So right now I think at the federal level, it's about 18 cents per gallon. And at the state level, it's another 16 cents per gallon. And I believe there's a sense or two, a couple of pennies or so that's going for the county fuel taxes as well. But all of it is a flat tax. And it's not, you know, again, not based on the price of gas right now at the pump or, you know, tied to inflation for that matter. And again, it hasn't increased in quite some time. So your third bullet says it doesn't account for other indirect costs, such as congestion, accidents, and air pollution. So where do we pay for those sorts of things if it's not coming out of the fuel taxes? So that's a great question. We actually don't pay for that right now. So, and that is a problem. And one of the problems with the current fuel taxes that we don't pay for that right now and some economic analysis by one of the economists, Perry, he actually estimated an additional tax of $2.10 per gallon, which would include about a dollar for congestion, 60 cents for accidents and another 40 cents pollution. So as you can see, taxes should be much higher than they really are. Is that why they pay so much for their fuel in Europe and other countries and we're getting a free ride? Or is that why our roads are like, you know, some roads are in really good shape. But I noticed the leaky leaky is on horrible shape. And it's just ripping the heck out of my tires, I've noticed. It's just like they've been through a buzz saw. Now, should I be talking to the county or is that a federal road? I believe that there might be a state roadway, I believe. The federal level would be mainly just, you know, the H1, H2, H3 here on Oahu. At the state level, I believe like leaky leaky and polyhighway, I believe those are state roadways. So, yeah. Yeah, it's getting pretty bad, especially with all the rain. When we get a lot of rain, it washes out all the small bits and you're left with the big chunks that in the roadway that rip up tires. So it's like unbelievable. I looked at my tires the other day and I couldn't believe it. Wow, gonna have to go and buy some new ones pretty soon. Well, let's flip over to the next slide. So in this, explain what I'm saying here, Dallas. Right, okay. So yes, I know that chart looks a little busy. So what we're looking at there is the federal fuel tax rate in the blue bars, which is not indexed inflation, which has gone up by almost 80% from 1993 to 2020 there. I know it's quite small, so I'm not sure if the viewers can see that. But the next green bars that you see, the next set of bars that you see are those green bars. And that's basically saying that if the federal fuel tax rate was indexed to inflation, it would be actually increasing over time and would be about 33 cents per gallon at the end in 2020. So as a result of not adjusting to inflation, the federal fuel tax revenues has decreased in purchasing power by about 45% or 44% over those same years, which you can see in that red line pointing down. So that's not a good thing then. No, it's not. Okay, let's link slide. So I used to live in England for many years, actually, and it was unbelievably expensive to buy fuel there. So talk to us about the US, I think we, yeah, you talked to this slide. I'm not the one giving the pitch here, so go ahead. Yeah, so you're absolutely right. So compared to other OECD countries, the United States actually has one of the lowest fuel tax rates in the world. And on the opposite end of that spectrum is the United Kingdom, and you're absolutely right, they actually have the highest tax, fuel tax rate when it compared to other OECD countries. So as a result, and largely this is because we haven't increased the tax rate in, like I mentioned on the slide before, it was 1993 was the last time we increased the federal fuel tax rate. So almost 20 years, and as a result of that, we have one of the lowest taxes in the world, yeah. Yeah, it makes your eyes water when you do a fill over in England, so people are very careful about how they use their cars. So I think we got hit, like what, six or seven years ago when oil was up over $140 a barrel, and it really changed everybody's driving habits. Instead of just going to the store willy-nilly to pick up a gallon of milk or something like that, people started planning their trips. And I think the vehicle miles traveled dropped like about 20 to 25%. And the interesting thing is the policy forum did a survey, and once oil went back to its normal price, it should be around $80 a barrel. Everybody started driving the way they did, but used to, but not all the way. So the net result was we dropped by about 10 to 15% in our vehicle miles traveled, so it didn't snap back right back the way it was. People learned the lesson about that. So if we go to the next slide, we can talk a little bit. I think you brought it up, you mentioned it, that the fuel efficiency, talk about the fuel efficiency of passing your cars where we're going. Yep, so this chart here that we're looking at is the corporate average fuel economy standard for passenger vehicles. Yeah, as you just mentioned, we did talk about this a little bit briefly earlier about how fuel efficiency of new cars are going up. So what do you see there in the last several years, you could see that it went up from, it was flat from about just under 30 miles per gallon for quite some time. And then all of a sudden, if you look at the most recent year, it's all the way up to about 44 miles per gallon. So as a result of this improved fuel efficiency and no tax increase to keep up with inflation, again, that gap between revenue and needs continues to widen. And like you mentioned just earlier, how vehicles miles traveled hasn't really quite picked up too. So as a result of that, that means there's less revenue going into the system. So as a result of these kinds of things, these different factors, Congress has to help in order to cover the shortfall, Congress actually has to make annual transfers from the US Treasury General Fund into the Highway Trust Fund each year just to make up for that funding difference. So how hard are we hurting? How bad are we hurting? I mean, is this now really getting onerous? I mean, are people starting to panic a little bit at the federal and state agencies who manage this funding? Yes, I don't know if panic is the right word because at the federal level, they have done some studies about this a few years ago and then many states are starting to study that now at the state level. So we are aware of the funding situation. So I don't know if, yeah, we're not really panicking just yet, but what is a concern is that as we move towards a clean energy future and you're hearing about a lot of the met car manufacturers that are no longer making gas combustion vehicles anymore, they committed to making clean energy vehicles by 2030 as an example, that is a concern for our long-term future. Short-term wise, we can probably find different ways to make up for the funding, but long-term wise, it's gonna potentially be a problem for us or likely be a problem for us. But let's talk about solutions. I think you have some, we'd start talking about it in your next slide. Our federal government has been aware of this problem for quite some time and in 2005, they established the National Surface Transportation Infrastructure Financing Commission, which assessed the future investment needs and they wanted to evaluate the future of that high trust fund and explore different funding mechanisms. So as a result of this study, a road user charge system emerged as a consensus choice of the future because it ensures all users will pay the fair share for using the system. So you can see there on that side, a lot of some of the key advantages, such as collecting adequate revenues from fuel-efficient vehicles and implementing variable pricing based on actual costs imposed on the transportation system. So this is something that I talked about earlier, how you can adjust the pricing based on the type of road that you're using or the frequency as well of using that system. Let's talk about social justice and our lower income people can't afford to buy a brand new car every year that's the most efficient. So aren't they getting hammered by this? I mean, first of all, they have to seek a cheaper accommodation which is further away from the city core and probably further away from where their actual job is. So they actually have quite a long way to commute. So they're gonna have to pay additional money for their gas. And then a road user fee is gonna come in is gonna make it even more expensive for them. So how do we address that? How do we accommodate the lower income groups who don't have an efficient car? They have an old banger that's very inefficient. So they're using more fuel than they need to. And they're living far away but they still have to commute to their jobs. So how can we help them? And what kind of schemes are in place to try to address that? Yes, that's a great question. And you're absolutely right. Right now in the current system with the field tax the rural and folks that use older vehicles are actually being penalized quite a bit because as a proportion of their income they're paying more into the system because if they're driving an older vehicle it's less efficient. They've got to put more gas into their cars more frequently. And on top of that too, if you're driving further if you're live further away then you're driving more then that means you're also gonna have to put gas in it. So they're contributing a lot more into the system than somebody who has a new car. So there has been some studies done about this particular issue. And what they found was that while rural drivers have longer trips they make them less frequent whereas urban drivers tend to make shorter trips but make them more frequently. So overall they're both urban and rural drivers are driving about the same distance. And then as you mentioned earlier about low income drivers and rural drivers driving older vehicles these are much less fuel efficient. So they're actually paying more into the system as well. So by moving to a road user charge system it would actually be paying less in that same system than what they're currently paying right now. So when you were doing your thesis or your capstone project it's not reflected in these slides but did you look at the effect of public transportation because if we had a great, a really great transportation system and a public transport I know the Oahu transportation system is a pretty good system. I think they consistently went awards and are rated very highly but how does that affect the fuel tax or the collections for the fuel tax? So I did not look at the impact from public transportation and you're right. Yeah, Hawaii historically has had one of the better public transportation systems in the US that's won some awards and whatnot. So I can't really speak to that per se but anytime you can get less people on the roadways and using mass transit that's always a positive thing from a public perspective I guess but from a revenue perspective that means there's less revenue going into the system. So it's one of those trade-offs, right? It's like, okay, that means there's less people driving it's great for the environment it's great for congestion but then that means there's less revenue going into the system. So that's a area that I did not explore. Okay, well maybe it's something you do when you go for your PhD. So what about other countries if you have our next slide up on road user charges? So what have you discovered? Do any other countries have a solution to this that's working? So to date, no country has developed a comprehensive system to charge user fees for all vehicles and roadways. There's some countries like New Zealand, for example that have a road user fee for heavy trucks but no country has it at the comprehensive system for all vehicles I guess. So recently in the US they began studying road user charge fees through that program that I mentioned on the slide before I believe and they have funded about 24 pilot programs in 10 different states. So in 2015, Oregon became the first state to implement a voluntary road user charge system followed by Utah in 2020. Oregon's program is open to all vehicles while Utah's program is available only to electric and hybrid vehicles. And it basically serves as a replacement for that alternative fuel vehicle fee which is something we also have here in Hawaii. And then as of 2022, these are the only two states that have implemented a statewide program. And what was the response from the community? Was it accepted? Like everybody just throws up their hands and say, okay, I guess I have to pay this or what was kind of the response? So I think the approach, that's a really good question. And I think the approach that they use is really important and key for states as we start to, or as we think about implementing this is that they made it voluntary. So for Oregon, for example, they started off with the program limited to 5,000 vehicles in the first initial years. And then they expanded it to all vehicles because of the popularity. So I think that kind of speaks for itself about how popular it was. But they also conducted pilot programs to help educate the public. They also conducted outreach. So it wasn't all that new when they actually decided to roll it out to the public. But again, the key is that, given people an option, hey, you can either pay your current fuel taxes or you can use this road user fee system and give it a try. And I think what they also did was they also made it so it's revenue and neutral so that they look at your, for states that record your mileage like here in Hawaii as part of your annual vehicle inspection, they know how much you're driving each year. So as a result of that, you can calculate how much you're paying in fuel taxes. So by making it revenue-neutral, you can say, hey, I'm gonna charge your road user fee up until that fixed amount and anything more than that, I won't charge you anything more. So that's another way to get people to buy into the new system as well. Because all we wanna do at this point is just preserve revenue, right? We don't wanna, we've seen some of the charts before where revenue is declining. So we just wanna stop the bleeding effectively, right? So if you can just keep it neutral and revenue at flat, then I think that's a win for now in the short term. When you go to your PhD, your next phase of your education, what sort of research questions are you gonna be looking at? For my paper, I looked at these three different research questions and the center basically around like, how can it be best to implement the foster policy, the variety of policy goals? What are the major limitations? And then what are the strategies that can be used to gain public support? So those last two questions, we kind of touched on a little bit, right? The concerns that we talked about, like rural and low income drivers and some of the strategies, like making it voluntary, also making it capping it so that you don't pay no more than what you're currently paying right now. So those are some of the things that I looked at. And then going forward, further research is still needed to, right now a lot of these states have been these pilot programs. They just looked at it from a perspective of preserving revenue. Future pilot programs need to look at, how it can change behavior, like you mentioned, like, hey, using public transportation, what are the impacts to that? And also using like that variable fee that I kind of briefly touched on as well, setting the different rates based on the type of road that you're using. You can also use it for congestion pricing. For example, like what we see like in London and I think it's also rolling out in New York. So there's a lot more research that needs to be done. And in addition to these, there's also things like, we haven't really looked, there hasn't been too many studies done on commercial vehicles as well, from delivery trucks to heavy trucks to tour buses here in Hawaii. And even, look at all of our city buses that are now electric, right? So there needs to be more research done at the commercial level as well. But I know for those vehicles, they do pay other types of taxes, like a higher tax as well. So, and that's something that I did not explore in my research. That's something that you can do for your PhD, right? Yeah. So let's look at the methods you would use. That's the next slide coming up. So I just looked at, I did like a systematic review of the five different pilot programs in California, Washington, Oregon, Colorado and also here in Hawaii, believe it or not. And the reason I chose these five programs was because they were the only states that completed the programs using both manual and automated reporting options. So a manual reporting option is basically just taking a photo of your domino reading. Or here in Hawaii, we capture that information already as part of the annual vehicle inspection, right? And then the automated option would be using like a little smartphone app that can record, you know, that's GPS based that would record the number of miles as you drive or also like a plugin device that goes into like your OBD2 system into your car that automatically records the mileage. I can report it back to the state. So based on those five different pilot programs, I created a Rubik to look at the different policy goals based on the different capabilities of each of these mileage reporting options. And then I also looked at like some of the limitations from secondary research to come up with a few recommendations. Okay, so we're closing in to going towards the end of the show here. So what kind of concerns should we be concerned about or have been expressed? Yep, so the biggest one is privacy. You know, anytime you have a GPS based device people are always worried about tracking. So that's been the number one concern based on my research that I've seen. But the thing to remember with this new system is that, you know, again, one is voluntary and two, we're allowing because we're giving people different options to report their mileage, you know using manual and automated options. You know, people have a choice. They don't have to use the GPS based device. That, you know, if you're not comfortable with that, that's fine. Just do like the abdominal reading and you can report it, you know you don't even have to report it here when you, if you live here in Hawaii because it's already been captured. So there's different ways around that privacy issue as well. But that's been the big one. The rural and low income drivers we did talk about that earlier on the show. Electric vehicles, you know some of concern that it's gonna be higher cost for EVs because right now, you know they only pay a flat fee for an EV. They're not paying any gas taxes, gas taxes. But again, based on what we talked about earlier, you know hey, everyone needs to pay their fair share for using the roadway, you know just, you know not everyone can afford an electric vehicle. And right now, you know those people who have the electric vehicles are not paying anything into the system. And then finally, the last one is about a double taxation. Some people worry about, you know you're gonna pay both a fuel tax and a mileage based tax when that's not true. You know, the road user charge fee would basically be a replacement to the fuel tax. Not, it's not gonna be a double tax. So that also needs to be made clear as well. Conclusions, we're down to our last slide. So what were your conclusions from based on your study, Dallas? So based on my study, as I kind of mentioned you know, the road user charge system is a promising alternative for the fuel tax as it not only offers a more stable source of funding but can also support additional policy goals. You know, the state pilot programs using a fixed fee proof that's feasible and it can at least preserve revenue. However, you know more researchers still needed to understand, you know a variable fee per mile and how it can be used to change travel behavior. So right now, you know in the short term, gaining public support or replacing the fuel tax with a road user charge system is probably the most important right now in the near term. Yeah, I think most reasonable people will understand that you know, if you don't pay the roads are gonna really turn into a horrible mess and it affects the maintenance on their cars because they're gonna have to buy new tires like me. So I really like to thank you, Dallas for all the work you've done to get this started. And I hope that you continue your studies and help all of us have better roads here in Hawaii. And so I've been talking with Dallas E. Gay and we've been talking story about paying for Hawaii's roads the problems and what options we have to make sure everyone pays their fair share. Thank you so much Dallas for all your good work and good luck in your new career. Thank you for having me. And thanks to our viewers for tuning in on Mitch Ewan. We'll be back in two weeks with another edition of Hawaii, the state of clean energy. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram, Twitter and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.