November 14, 2017

Disruptive Technology Drives Adaptive Public Policies

black car with Uber logo

While technology can be transformative and improve lives, it can also be very disruptive. Some technologies have the potential to change societal norms, norms that we have maintained for decades or even longer. Take the case of Uber, for example, which has completely disrupted the traditional taxi industry. Likewise, Airbnb has been giving the traditional hotel industry a run for its money, and autonomous cars, though still in their infancy, promise to disrupt government tax revenue as we know it. Even though society tends to adapt fairly rapidly to changing norms, governments are still struggling with their responses to these changes. These technological disruptions have the potential for a two-pronged impact — they can both reduce government revenues but also save governments money. So what will governments do or what can they do? Can both governments and society leverage these changes to their advantage?

The city of Los Angeles, for example, generated about $161 million from parking violations in 2014 and millions in towing fees, which in turn pays for public services such as infrastructure and maintenance, public schools, conservation programs, various advocacy services, etc. The inability to generate these funds as autonomous vehicles gain traction will strain states’ financial resources, many of which are already struggling in a stressful fiscal environment. Autonomous vehicles can potentially improve driver safety and consequently reduce revenue generated from traffic violations and DUIs. Additionally, our preferences and consumer behaviors are changing as a society. Millennials are choosing not to buy vehicles and instead relying on public transit, biking, and car sharing especially in metropolitan areas, and this trend has already reduced car registration revenue for many cities. This trend, coupled with autonomous vehicle carpooling, will reduce revenues from parking fees. So what are governments to do? Can they embrace these new trends while also maintaining their revenue sources? Some state governments have already started to experiment with creative revenue generation strategies.

The state of Colorado is implementing a new pilot program to increase its fuel tax revenues, which have been stagnant for the past decade. Instead of charging 22 cents per gallon, the state will charge 1.2 cents per mile. Since the new hybrids and electric cars are giving more mileage per gallon, this is an attempt to think about new ways to generate fuel tax revenues. The program is a 100-person volunteer program, called “Road Usage Charge Program.” Similarly, Oregon has already experimented with vehicles-miles travelled (VMT) in the last decade. It ran two pilot programs before launching OReGO, which requires drivers to pay 1.5 cents per mile instead of 30 cents per gallon. The program is also voluntary and most of the participants in the program are owners or drivers of fuel-efficient cars that are keen on paying their share of taxes to maintain good roads to drive on.

California is the next state to experiment with cents per mileage, with a program that has seen volunteer enrollment of 8,000, exceeding its 5,000 target. The interest in such an experiment in California is very encouraging. The state is likely to lose as much as half of its revenues by 2030 if the gas tax is not increased or if no alternative is found. Other ways that some cities and states are looking to compensate for loss of revenue include user charges, such as tax per unit of electricity consumed for electric vehicles, flat service charges, and increase in tolls. These are all steps in the right direction, and it is prudent for governments to start devising creative alternatives now before it’s too late. Increase in tolls and gas tax per gallon has proven unpopular in many states and cities, however tax per mileage has had encouraging results, although it is important to note that these pilot programs have been relatively small.

Traditionally, governments have been slow to adjust to changes in technology, but good public policy can create opportunities for the government to exploit these technological changes, save public funds, and also earn additional revenues through alternative taxation or fee arrangements. The reality is, autonomous vehicles are almost here and they will very quickly become part of our social ecosystem just as the iPhone, Fitbit, and Uber have become an inseparable part of our daily life. Governments will have to move quickly to leverage these changes in order to better serve a very adaptive public.

The views expressed in the Government Innovators Network blog are those of the individual author(s) and do not necessarily reflect those of the Ash Center for Democratic Governance and Innovation, the John F. Kennedy School of Government, or of Harvard University.

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