Virginia Funding Proposal – Eliminate the Gas Tax and Raise the Sales Tax

Governor McDonnell Proposes Major Transportation Funding Overhaul to Inject $3.1 Billion into Virginia’s Highways, Rail and Transit Systems in Next 5 Years
– “Virginia’s Road to the Future” Plan: Makes Virginia First State in Nation to Eliminate Gas Tax; Ties Transportation Revenue to Sales Tax to Create Long-Term, Sustainable Transportation Funding Source That Accounts for Economic Growth
Plan Provides For $1.8 Billion More in Highway Construction Funding Over Next 5 Years and Eliminates State Maintenance Crossovers by 2019
Fact Sheet
RICHMOND – With legislators and transportation leaders by his side, Governor Bob McDonnell announced today a plan that would provide more than $3.1 billion in transportation funding for the Commonwealth over the next 5 years, tying transportation funding to economic growth and replacing the state’s outdated gas tax revenue model with a 0.8 percent increase in the state’s sales tax dedicated to transportation. The proposal would make Virginia the first state in the nation to eliminate the state tax on gasoline, allocates additional general funds to transportation, capitalizes on revenues being lost on out-of-state sales, and creates a long-term revenue system to fund Virginia’s highway, rail and transit needs. Virginia’s current transportation maintenance funding shortfall means that in FY 2013 $364 million must be transferred from the state’s construction account to pay for road maintenance. That transfer amount is anticipated to grow to $500 million by FY 2019 unless new funding is provided. In short, Virginia has to use money meant for construction for paving and potholes. The governor’s plan fixes the problem by generating $844 million in new funding per year for transportation by FY 2018, eliminating the state maintenance crossover and contributing to construction, rail, transit and other priorities. By eliminating crossover and with proposed revenue growth, this plan provides an additional $1.8 billion for highway construction over the next 5 years.
“Transportation is a core function of government. Children can’t get to school; parents waste too much time in traffic; and businesses can’t move their goods without an adequate and efficient transportation system,” Governor McDonnell said. “My 2013 transportation funding and reform package is intended to address the short and long-term transportation funding needs of the Commonwealth. Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth’s transportation program and the way it is funded. We simply cannot continue to do what we have always done and expect this problem to go away. The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state. In short, if we stick to the same old means of funding transportation, we will find ourselves having the same debates and facing the same revenue shortfalls over and over again as inflation slowly eats away at the gas tax, cars get better mileage to meet CAFÉ standards and more alternative fuel vehicles hit the streets. Market forces clearly dictate that we have to change how we fund transportation. This is a math problem. The current revenues numbers do not add up to a safe, efficient and sustainable transportation network. The time is now for an innovative and sustainable plan to meet our transportation needs and grow Virginia’s economy.”
The governor’s 2013 Transportation Plan proposes to make these fundamental changes:
• Eliminate the current 17.5 cents per gallon motor fuels tax on gasoline: The viability of the gas tax as the state’s primary revenue source for transportation has been eroded by greater vehicle fuel mileage, the introduction of alternative fuel vehicles and the impact of inflation. Once this provision is enacted, Virginia will become the only state in nation without a tax on gasoline and motorists will likely see a significant break in the price of gasoline at the pumps. The motor fuels tax on diesel will remain unchanged because heavy trucks have a disproportionately large impact on the deterioration of Virginia’s highways.
• Replace the current gas tax with a 0.8 cent increase to the Sales and Use Tax (SUT) dedicated to transportation: The SUT is a reliable, predicable and sustainable revenue source. For decades we have already had the policy that .5 cents of the sales tax goes to transportation. As the economy grows, the revenue from the SUT grows with it. As a percentage of the price of a product or service procured, the SUT inherently accounts for inflation. Virginia’s SUT will remain below its neighboring states. Under the governor’s plan, 85 percent of the increased SUT will go to the Highway Maintenance and Operations Fund and 15 percent will go to the Transportation Trust Fund.
• Dedicate an additional .25 cent of the state’s portion of the existing SUT to transportation: Transportation currently receives 0.5 cent of the SUT, and the governor proposes to phase in this share to 0.75 cent over five years. When combined with the 0.8 cent SUT increase, transportation will receive approximately one-quarter of SUT proceeds, thus ensuring a sustainable transportation revenue stream for the future. All of the revenues from the additional .25 cent will be dedicated to support maintenance and operations. During the first three years, however, up to $300 million will be committed to the Dulles Metrorail Extension Project, providing the reforms identified by the U.S. Department of Transportation Inspector General are implemented.
• Increase vehicle registration fees by $15 and dedicate the revenue to intercity passenger rail and transit: There is a strong and growing demand for public transportation in Virginia, both within and between the state’s regions. The successful passenger rail services to/from Washington, DC and Lynchburg, Richmond, and Norfolk, and the dramatic growth in transit in Virginia (especially in Northern Virginia and Hampton Roads) requires greater financial support from the Commonwealth. This need is anticipated to grow as passenger rail services are extended to Roanoke, light rail is extended to Virginia Beach, and Metrorail is opened to Dulles Airport and beyond. Revenues generated by the fee will be split between passenger rail and transit.
• Impose a $100 annual Alternative Fuel Vehicle Fee and dedicate the revenues to transit: The governor is a strong supporter of alternative fuel vehicles. He has directed that Virginia’s state fleet be converted to natural gas vehicles. And he knows that alternative fuel vehicles will only continue to grow in popularity and use in the years ahead. In fact, over the past four years, as gas prices have grown from less than $2 per gallon to as high as $4, more Virginians have turned to alternative fuel vehicles. There are over 91,000 of these vehicles currently registered in Virginia. This is a great development for energy security and conservation, but it does present a challenge to how transportation funding has been derived in America for the past century. Drivers of alternative fuel vehicles that use natural gas or electricity pay no motor fuels tax at the state or federal level and thus do not contribute to the primary means of funding roads. However, these vehicles still have the same impact on Virginia’s roadways as conventional fuel vehicles.
The governor also announced the following transportation reform and innovation proposals:
• Constitutional Lock Box on Transportation Funds: The governor supports legislation to send to the voters a constitutional amendment that will ensure that funds committed to the Commonwealth Transportation Fund are used solely for transportation purposes. This will help restore public trust that transportation dollars will be spent on transportation.
• Streamlining VDOT Business Operations: Legislation to reduce bureaucratic hurdles and increase efficiency by giving the commissioner and VDOT greater authority over administrative issues, operational issues that principally involve the practice of engineering, and expanding stakeholder outreach and involvement.
• Transit Funding Reform: If we are going to invest more funding in Virginia’s transit systems, we must ensure that our transit providers are operating as efficiently as possible. The current transit funding formula – in place since 1986 – is broken. The formula is based on one single factor: operating costs regardless of size, efficiency, or type of transit service provided. In other words, the more you spend, the more you get. Using two-year-old data, a transit providers’ funding is determined based on the proportion its costs bear to the total state transit operating costs. This system does not reward efficiency, and creates winners and losers by rewarding higher cost systems with more funding, while punishing those systems that achieve cost savings. The governor’s plan includes a new performance-based funding formula for transit. The formula will be based 50 percent on system size and 50 percent on performance factors.
• Improving the Competitiveness of the Port of Virginia: Finally, the governor’s transportation plan will continue efforts to grow Virginia’s economy and create jobs by implementing further reforms at the Port of Virginia. These reforms will focus on eliminating bureaucratic hurdles to better enable the VPA to compete with private companies in a highly competitive global marketplace. They will also expand the VPA’s ability to act as a catalyst for economic development across the Commonwealth.