Autonomous Vehicles: Does federal preemption shut down the laboratories of democracy?

Congress is currently considering the AV START bill, which would be the first federal law to regulate automated vehicles (AVs). By most accounts, the bill has largely been crafted by industry leaders and looks to streamline and accelerate the introduction of AVs to American roads. There are many potential benefits to AV technology, but the bill includes an insidious clause that is sure to make everything worse: it preempts states and cities from providing any oversight, public information, or policy direction when AVs hit their streets.

It is a good rule of thumb that for every person dreaming up good policy at City Hall or an academic think tank, there are ten industry lawyers thinking about how to eliminate their authority. It may be helpful to look retrospectively at another example of preemption to understand how enormous the long-term impacts of preemption can be.

In 1994, online shopping was a glimmer in the eye of Jeff Bezos, who was founding a startup company called Amazon in Seattle. People were still excited about email, and browsers were just emerging to make it possible to “surf the web.” No one would have imagined that the most important legislation being discussed at that time was the Federal Aviation Administration Authorization Act. The primary objective of the law was to deregulate the package delivery business, ushering in our current era of competitive service from FedEx and UPS.

The FAA Authorization Act also included a preemption clause with long-lasting impact. It provided that no state may:

…enact or enforce a law, regulation, or other provision having the force and effect of a law related to price, route, or service of an air carrier when such a carrier is transporting property by aircraft or by motor vehicle.

The last three words were a coup for industry, effectively preventing any local taxation of package delivery. Although the full impact of preemption would not be understood for twenty years, some things were immediately clear. The law specifically included the Commonwealth of Puerto Rico, which had an existing excise tax on package deliver to the island. In May 2002, after a lengthy court battle, the Federal District Court granted summary judgement in favor of UPS under the FAA Authorization Act, effectively overriding the local statutory and regulatory scheme and preempting any similar taxes in other states.

The playing field was further tilted in favor of industry with the 1998 Internet Tax Freedom Act, signed into law by President Clinton to “promote and preserve the commercial, educational, and informational potential of the Internet.” To this end, the law prevented federal, state, and local governments from taxing electronic commerce transactions. With the industry in its infancy, the notion was that online retailers should not be subject to more sales tax than existing brick and mortar businesses.

Fast forward to 2017. Last year, e-commerce sales in the United States grew by over 11 percent for a total of $373 billion, and are projected to reach more than $500 billion by 2020. Amazon alone accounted for around 60 percent of that growth, for a total share of over 40 percent of online sales. The effects can be felt in every community as major retailers shut their doors while Amazon opens new distribution facilities around the country. There is nothing inherently better about big box shopping, but this presents a major disruption in public finance.

Traditional retail establishments support public infrastructure and human services through payroll, income, property, and business licensing tax. In most states, consumers also pay sales tax. Many of these sources effectively disappear in online sales and the resulting business efficiencies, and companies are able to operate as free-riders on existing public infrastructure, pocketing the competitive advantage as profits. Although Amazon has committed to honoring local sales tax requirements, collecting these revenues remains a challenge for many states and is irrelevant for states like Oregon with no sales tax (ironically, Oregon Senator Ron Wyden was one of the sponsors of the Internet Freedom Act).

As roads, transit, and a variety of other public services bear the burden of a new real-time freight delivery system, they face a financial death spiral in maintaining those systems. The logical thing to do would be to tax e-commerce or package delivery to offset the loss of revenue from traditional retail establishments. Unfortunately, this was entirely preempted in 1994, the same year Jeff Bezos started selling books.

We would do well to keep this in mind as Congress considers the AV START bill. Automated vehicles could help us reduce carbon emissions, free up parking lots for public parks and housing development, and make personal car ownership a thing of the past. If they dramatically reduce the cost of driving, they could trigger additional demand and increase congestion, add to carbon emissions (if not electric), undermine public transit, and exacerbate inequities in the transportation system. The advent of AVs is the likely to be the greatest transformation of our cities since the introduction of the automobile, and it is far too early to preclude local innovation from figuring out the right set of policies to make sure that new technologies and business models serve the public interest.

A recent report from the University of Oregon’s Sustainable Cities Initiative cautions that there are also major implications for public finance. There is a scenario in which AVs are electric and are free to circulate on our roads without having to park. This would completely eliminate existing revenues from gas and parking that currently support our road infrastructure. Analysts at Deloitte also predict an increase in mobile retail, a trend that is already emerging with companies like Moby and Starship Technologies. This could further erode property taxes and add to urban congestion if left completely unregulated.

There are solutions to these dilemmas. As covered previously in City Observatory, ride-hailing companies Uber and Lyft have both expressed support for congestion pricing in cities. This is significant as both companies are looking to operate AV fleets in the near future, and they understand the need to shift our system from a consumption tax on fuel to a user fee for space on the roads. This could be calibrated to the time of day, level of congestion, the number of people in the vehicle, or the amount of space it takes up on the road.

These revenues would ultimately benefit companies like Amazon, Google, FedEx and UPS by maintaining core infrastructure, providing transportation alternatives to minimize congestion, and incentivizing and accelerating the transition to new and cleaner technologies. One seamless way to do this would be to integrate pricing technologies and into the new AVs from the very start, and to allow cities to design policies that deliver the best overall systems performance.

It is a not a radical idea to allow cities and local governments to lead on transportation policy and technological disruption. Before the advent of the automobile, roads were generally financed by local property taxes. When cars became ubiquitous, state and local governments adopted vehicle registration fees, fuel and weight mile taxes, and parking meters to help pay for and regulate automobiles and their externalities. All of this predated the federal gas tax and the interstate highway system. It is likely that local governments will need to foster a similar kind of innovation to cope with (and pay for) AVs.

These are the kinds of conversations about the public (and private) good that are in danger of being preempted by the current version of the AV START bill. This is a once-in-a-century opportunity to bring everyone together to reimagine what our cities could be, and we currently have a critical window of opportunity to get it right. Congress shouldn’t undermine this opportunity by preempting local innovation in favor of maximizing short-term profits. We can dream bigger.

This article was originally published in City Observatory.