Rate Calculation (23)
Description:
Based on the RUC-enabling law, calculate the per-mile rate or rates (if the rate is not explicitly defined in the law). To date, the most common basis for determining the RUC rate is revenue-neutral with the gas tax at a specific date, though the legislature can set the rate as a percentage of the gas tax rate or any other way they desire. This building block may need to be completed before the passage of any RUC-enabling legislation, if legislators wish to set the rate in law.
Details:
Follow the guidance included in state law to set the RUC rate. If the guidance is to make RUC revenue-neutral with the gas tax for some portion of vehicles on some date, compute the average fuel economy of that portion of vehicles, and then divide the current gas tax by that value.
Primary Use:
Compute the RUC rate to be paid at the start of the program.
Best Practices/Lessons Learned:
- RUC rates may vary by vehicle type; however, thus far, RUC programs have featured a single rate for passenger vehicles because highway cost allocation studies generally group passenger vehicles together.
- It is likely not desirable to make RUC rates vary by other factors, such as location and time. Doing so requires the use of time- and location-determining technology, which could be perceived as intrusive. This could also conflate RUC with congestion charging, a policy more appropriate for the metropolitan level than the state level.
- RUC rates can track with inflation, rising construction costs, the motor fuel tax rate, or other measures as determined by the legislature. If RUC rates do not track with inflation or construction costs, the purchasing power will erode over time.
- Choosing an initial rate that is revenue-neutral with the gas tax could prevent discussion of tax increases or double taxation, but it may not provide enough funding if gas tax revenues are already insufficient. The cost of collection may be considered as part of the overall process for determining the revenue-neutral RUC rate. When computing the average fuel economy, use the harmonic mean, not the arithmetic mean (linear average), to correctly compute the average of different miles per gallon (MPG) calculations.
- Decisions about RUC prepayment versus post-payment of user fees must be made. Traditionally, the gas tax has been collected as a prepaid tax. Depending on how RUC is collected, there may be time-value costs to the dollars collected as the agency waits for payments to be made, including possible grace periods.
- If the RUC is paid instead of the fuel tax, and some vehicles still pay fuel tax, then fuel tax credits can be offered on any fuel taxes paid by RUC vehicles, until the fuel tax is phased out. Fuel tax credits do not affect the RUC rate but do appear on any statements of RUC owed. If drivers are given the choice to opt into the RUC program, it is rational to plan that drivers will choose the least expensive option. The state should not refund fuel taxes paid by interstate commercial motor carriers to other states under the International Fuel Tax Agreement mandate.
- Heavy-duty vehicle rates will likely differ from passenger vehicle rates. Heavy-duty vehicle fees could be set at a level to eliminate some flat fees paid by these carriers, reducing the number of fees paid by heavy-duty vehicles.
- Should the legislature include rate factors to mitigate impacts on rural and/or low-income motorists, such as mileage caps or income-based discounts, establish clear metrics and processes for calculating these rates on a recurring basis.
State Government Context and Assumptions:
The agency—most likely the lead RUC agency—that has been identified by the RUC-enabling law to conduct rate calculation will complete this task.