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The State of Transportation Funding in NC: Understanding the Road User Charge

| Infrastructure

With a mediocre infrastructure rating and an outdated revenue formula, North Carolina is facing a transportation funding crisis. Fortunately, several groups in our state are working to provide strategic solutions to this crisis, including the NC FIRST Commission at the Department of Transportation. The NC Chamber is also engaged on transportation. We are leading an alliance of businesses and business-minded organizations, the Destination 2030 Coalition, to give job creators a strong, focused voice on this issue and to help us push for the bold solutions that will be needed to secure North Carolina’s transportation future. (If you have not already, click here to add your company to this fast-growing movement today.)

In this update – part three of a four-part series – we are diving deeper into the report released earlier this year by the NC Chamber Foundation, Modernizing North Carolina’s Infrastructure Through Sustainable and Diversified Revenue Streams. This report, which was conducted by experts with N.C. State’s Institute for Transportation Research and Education (ITRE), is one of several important resources laying the groundwork for the efforts of the Destination 2030 Coalition. In previous updates, we explained how the Foundation/ITRE report demonstrates the growing inadequacy of the motor fuels tax and identifies an enhanced Highway Use Tax as one of several more sustainable funding options. In this update, we’ll explore another promising financing option identified in the report: the introduction of a road user charge program.

A road user charge (RUC), also known as a mileage-based user fee (MBUF) or vehicle-miles traveled (VMT) tax, is a funding mechanism that charges motorists based on the number of miles they travel within a state. While a Highway Use Tax generates revenue by charging a fee on the sale of motor vehicles, and a motor fuels tax does so by taxing motorists on the amount of fuel they purchase in-state, an RUC is unique in that it is entirely based on each motorist’s direct usage of in-state roads. For this reason, RUCs have the advantage of distributing costs more equitably among road users. They are also a highly flexible option, able to be levied as a flat fee or variable fee based on conditions like time of day, congestion, road type, vehicle type and weight, emission levels, and the motorist’s ability to pay.

RUCs are not without their challenges, however, not the least of which are the administrative and technological hurdles that come with the introduction of a novel program requiring a new system of tracking road usage. RUC pilot programs in other states have also run up against public concerns about data privacy stemming from mileage tracking and a perception that RUCs unfairly tax rural residents for higher rates of travel. It is worth noting, however, that the Chamber Foundation/ITRE report found that the average rural household in North Carolina would actually pay $17 less in annual transportation costs under an RUC system compared to a motor fuels tax, while urban and suburban households would pay only slightly more. The report also notes that pilot programs in other states have successfully overcome administrative, privacy, and policy hurdles to create well-functioning RUC programs with high levels of public buy-in.

As it stands, only two states – Oregon and Utah – have active RUC programs. However, eight states have completed RUC pilot programs and nearly half of all states are actively monitoring RUCs as an option for diversifying transportation revenue. Compare this to 2015, when no states had active RUC programs, only two states were piloting them, and a mere nine states were exploring the option, and it is evident that interest in RUCs is skyrocketing. The Foundation/ITRE report outlines a path for North Carolina to introduce an RUC pilot program incorporating best practices from other states that could allow us to gradually solve the challenges of implementation over a multi-year period. The ultimate goal in this scenario would be the creation of an RUC program that raises funds for transportation projects to the tune of 2.0 – 4.0 cents for every mile traveled in the state.

Given the high level of interest in RUCs nationwide, we would be misguided to ignore the potential of an RUC or similar mechanism as one possible option for helping us build a more sustainable transportation financing portfolio for North Carolina. This is especially true since there has been discussion in recent years about the possibility of a federal RUC program that can track mileage across states and tax motorists accordingly. If this scenario were to ever become a reality, North Carolina might do well to be ahead of the curve in navigating the intricacies of RUC implementation.

A road user charge is just one of numerous routes our state might take to arrive at a more modernized transportation funding model. In the coming weeks, we will explore one additional option put forth in the Chamber Foundation’s report: the dedication of a portion of North Carolina’s statewide sales tax to transportation funding. In the meantime, it is important to remember that many options remain on the table. The NC Chamber and the Destination 2030 Coalition will be looking at a variety of resources as well as the recommendations of other groups, like the NC FIRST Commission, to inform the path we take on this issue. One thing is abundantly clear: The business community must go bold in 2021 if we want to help solve our state’s transportation funding crisis and claim North Carolina’s rightful title as the “Good Road State” once again.