13 March 2014 By a California Country Mile The Business Case for Road Usage Charging Matthew J. Dorfman and Travis P. Dunn D’Artagnan Consulting, LLP

13 March 2014© D’Artagnan Consulting LLP2 The Business Case for RUC in One Chart Source: Environmental Protection Agency 2025 CAFE: 36 MPG (sticker) 54.5 MPG (lab)

13 March 2014© D’Artagnan Consulting LLP3 Outline Business Case for One California Lane-Mile Why RUC? Why Now? How to RUC Conclusions

13 March 2014© D’Artagnan Consulting LLP4 California Miles 175k miles – 400k lane-miles – 900 million daily miles traveled

13 March 2014© D’Artagnan Consulting LLP5 One Average SCAG Lane-Mile in 2014 ItemValue Annual O&M Costs$7,000 Annual Capital Costs$42,000 Total Annual Costs$49,000 Daily Crossings3,300 Cost per Crossing4.1 cents

13 March 2014© D’Artagnan Consulting LLP6 One Average SCAG Lane-Mile in 2014 Direct Highway User Fees Revenue per crossing State Gas Tax2.3 cents Federal Gas Tax0.8 cents Registration0.4 cents Tolls0.2 cents Total3.8 cents Highway needs: 4.1 cents per mile traveled* *does not include mass transit or any other mode 0.3 cents deficit/crossing $4k deficit/year

13 March 2014© D’Artagnan Consulting LLP7 One Average SCAG Lane-Mile in 2025 Direct Highway User Fees Revenue per crossing State Gas Tax1.8 cents Federal Gas Tax0.7 cents Registration0.4 cents Tolls0.3 cents Total3.2 cents Highway needs: 4.1 cents per mile traveled* *does not include mass transit or any other mode 0.9 cents deficit/crossing $11k deficit/year

13 March 2014© D’Artagnan Consulting LLP8 One Average SCAG Lane-Mile in 2035 Direct Highway User Fees Revenue per crossing State Gas Tax1.5 cents Federal Gas Tax0.5 cents Registration0.4 cents Tolls0.4 cents Total2.8 cents Highway needs: 4.1 cents per mile traveled* *does not include mass transit or any other mode 1.3 cents deficit/crossing $15k deficit/year

13 March 2014© D’Artagnan Consulting LLP9 What it takes to eliminate the deficit Increase in gas tax required to eliminate deficit N/A+8 ¢/gal+26 ¢/gal+43 ¢/gal Total gas tax paid 2002 Ford Taurus for 12k miles $381$423$523$617 Total gas tax paid 2014 Toyota Prius for 12k miles $168$186$230$271 $0 $0 $0 $ Tesla for 12k miles

13 March 2014© D’Artagnan Consulting LLP10 Would you invest in this lane-mile?

13 March 2014© D’Artagnan Consulting LLP11 Outline Business Case for One California Lane-Mile Why RUC? Why Now? How to RUC Conclusions

13 March 2014© D’Artagnan Consulting LLP12 Alternatives for rescuing our lane-mile from permanent decline Alternative MPG) 2035 MPG) Raise gas tax+8 ¢/gal+26 ¢/gal+43 ¢/gal Registration+$42+$111+$152 Replace State + Federal gas tax with RUC 3.5 ¢/mile3.4 ¢/mile3.3 ¢/mile

13 March 2014© D’Artagnan Consulting LLP13 Why RUC? Stop Revenue Decline

13 March 2014© D’Artagnan Consulting LLP14 Why RUC? Set it and forget it  5 cents  2 cents  5 cents  3.5 cents

13 March 2014© D’Artagnan Consulting LLP15 Why Now? “Revenue neutral” RUC no longer meets transportation needs

13 March 2014© D’Artagnan Consulting LLP16 Outline Business Case for One California Lane-Mile Why RUC? Why Now? How to RUC Conclusions

13 March 2014© D’Artagnan Consulting LLP17 How to RUC: Operational Concepts Flat fee  Time permit Odometer charge  Annual odometer readings  Distance License  Smartphone camera + Bluetooth Automated mileage reporting devices  Non-location-based  Location-based  Switchable

13 March 2014© D’Artagnan Consulting LLP18 Flat Fee / Time Permit  Used on European highway systems  User buys a time permit for a RUC-liable vehicle  Annual, or shorter periods (month, quarter, half-year)  Physical or electronic permits  To be used in combination with other concepts

13 March 2014© D’Artagnan Consulting LLP19 Odometer Charge / Annual readings  Charge based on distance driven, no new technology required  User estimates annual mileage and purchases a permit to cover that many miles.  User reconciles actual number of miles driven at the end of the year.

13 March 2014© D’Artagnan Consulting LLP20 Odometer Charge / Distance License  Used in New Zealand RUC system for diesel cars and heavy commercial vehicles  Charge based on distance driven, no device  User pre-pays for a certain number of miles, registers odometer reading at start

13 March 2014© D’Artagnan Consulting LLP21 Automated Mileage Reporting Devices  Types:  Non-location-based  Location-based  Switchable: turn location data on/off Switch on device Switchable with Smartphone Vehicle Telematics system  Location-based devices allows user to pay for road usage only on public road network in California.  Typically post-pay  Requires extensive account and customer relations management

13 March 2014© D’Artagnan Consulting LLP22 RUC Cost Categories & Notional Relative Magnitudes

13 March 2014© D’Artagnan Consulting LLP23 Account Management  Costs:  Transactions costs  IT  Customer Service  Can be supported by private industry  Private companies can provide RUC account management at no or little cost to state  Could be insurance company, automaker, telecom, utility, tolling company new startup affiliated with one of the above. Cell phone bill excerpt:

13 March 2014© D’Artagnan Consulting LLP24 Evasion & Enforcement  Costs  Lost revenue  Compliance efforts  Enforcement  Collections How people will try to cheatDetection Method Not pay billAutomated Remove deviceAutomated Roll back odometerData Analysis

13 March 2014© D’Artagnan Consulting LLP25 Total Cost Comparison with Gas Tax  Cost of RUC is similar to Gas Tax at scale  Millions of vehicles in program  Cost of Gas Tax is often cited as ~1%, but that ignores:  Evasion (estimated: 2-4%)  Indirect costs passed on to customers in price of fuel  Invisible cost of staying with the gas tax  Less revenue due to erosion from increased fuel efficiency, the challenge of frequent tax increases

13 March 2014© D’Artagnan Consulting LLP26 Outline Business Case for One California Lane-Mile Why RUC? Why Now? How to RUC Conclusions

13 March 2014© D’Artagnan Consulting LLP27 Conclusions  Fuel economy is undermining the gas tax  Raising the gas tax can restore short term solvency but creates longer term equity challenges  A range of operational concepts are feasible to collect RUC  Drivers of RUC cost are account management and evasion  At scale, total costs of RUC are comparable to gas tax  Let’s RUC!

13 March 2014 Thank you! Matthew Dorfman Matthew Dorfman Travis Dunn Travis Dunn