A new analysis from Reason Foundation finds that mileage-based user fees currently cost 13.5% to 27% of revenue to collect at scale, far more than the fuel tax's 1-5% collection cost. The commentary examines why four states now running permanent mileage-based programs haven't yet achieved the collection cost targets needed to make these fees a viable replacement for eroding fuel tax revenue. As fuel economy rises and electric vehicles spread, states are exploring charging drivers per mile driven instead of per gallon purchased, but the administrative burden remains a major practical barrier.
The data show that collection costs vary dramatically based on scale and technology. At one million enrolled vehicles or more, third-party device-based programs cost 13.5% to 27% of revenue to administer, but that figure jumps to 30% to 61% for programs with 30,000 vehicles or fewer, according to cost analysis by WSP's Nate Bryer presented at the International Bridge, Tunnel & Turnpike Association's 2024 meeting. Programs that drop add-on devices and rely on odometer readings instead can hit collection costs below the 5% target, landing in a 3.3% to 6.7% band. Current state programs show mixed results: Utah's projections suggest proposed changes could bring costs down to just above 7%, while Hawaii's new program estimates costs at just $0.27 per vehicle per year. Oregon's OReGO program, launched in 2015, has only 800 enrolled vehicles, while Virginia runs the largest program but enrolls just 1% of eligible vehicles. Utah's projections show that with 17,000 customers, collection costs hit 56% of revenue, but at 50,000 enrolled vehicles, they fall to 7.5%.
The report identifies voluntary enrollment as a key enrollment killer. According to the analysis, designing a mandatory program from the start works better than launching a small voluntary program and hoping it grows. The Oregon Road User Fee Task Force has recommended that the state's program stop accepting on-board diagnostic devices as an eligible option since they're leading cost drivers. A presentation by Nikolaos Efstathopoulos of Arcadis estimated that original equipment manufacturer telematic usage—pre-installed systems made by car manufacturers—could lead to cost savings of up to 40% or higher in a larger-scale program compared to aftermarket hardware options.
The cost problem stems largely from fixed administrative expenses that don't shrink with fewer participants. Infrastructure needs like enrollment systems, mileage verification, billing, and support create a base cost that gets spread across more accounts as enrollment grows, which is why scale is critical. Third-party devices compound the issue—they're fragile, need installation, and are costly to replace. Utah has stopped supporting these devices entirely, calling the decision a major cost saver. Payment caps make things worse by setting a ceiling on revenue: Utah caps annual payments at $180, which encourages enrollment but means the state forgoes payment from high-mileage drivers to build a larger base. The Utah Department of Transportation estimates that making the program mandatory for electric vehicles and eliminating the cap would reduce collection costs to 7.8% of revenue, just above the target. Hawaii offers a glimpse of what works—by collecting odometer readings at pre-existing, periodic vehicle inspections, it implements its mileage fee as a replacement for an existing registration surcharge, piggybacking on established infrastructure drivers already use.
States crafting future mileage-based programs need to hit collection costs between 5% and 10% for these fees to replace the fuel tax in the near future. The report concludes that lessons like avoiding on-board diagnostic devices, prioritizing scalability, and eliminating annual payment caps will be key to keeping costs low. Until collection costs drop closer to the fuel tax's range, mileage-based fees remain a promising but not yet practical solution to shrinking highway revenue.