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Governor considers gas tax indexing


Gov. Bob McDonnell told reporters Monday that he’s working on a transportation funding plan for the 2013 session, and said one of the things he’s considering is indexing the gas tax to inflation.

McDonnell was talking about transportation because last week, Sen. John Watkins, R–Powhatan, announced a transportation funding proposal that would apply a sales tax to gasoline, eliminate several tax exemptions and lower some income tax brackets.

Watkins’ plan is expected to be just one of several in the General Assembly session that starts in January, as lawmakers look to address the longstanding problem of decreasing transportation revenue and increasing costs and needs for roads. Already the state’s road maintenance needs are sucking money out of the budget for new road construction, and it’s projected that in a few years, all of the state’s road funding will be devoted to maintenance unless something is changed.

McDonnell said he will push lawmakers to make changes this year, and said indexing the gas tax to inflation is on the table.

The gas tax brings in about 30 percent of the revenue for the transportation fund, McDonnell said. The gas tax is a flat rate of 17.5 cents a gallon, a rate set in 1986 and unchanged since.

In the intervening years, more fuel-efficient vehicles and the rising price of construction materials mean that the tax revenue buys a lot less than it did in 1986—less than half, according to McDonnell, who said the gas tax is now worth about 45 cents to the dollar it was worth in 1986. The idea behind indexing the tax to inflation is that it would help the gas tax revenue maintain its purchasing power.

“We have a transportation funding problem because gas prices aren’t indexed to inflation, because people are getting far more miles per gallon  and because we’re using alternative fuels,” McDonnell said. “People are buying less gas and therefore we have less revenues coming in.  We have a math problem. We’ve got dramatically less gas tax revenue coming in than we did five, 10, 15 years ago.”

Because the gas tax is a flat rate, it hasn’t changed over time, McDonnell said, unlike percentage-based taxes.

“I can tell you that every other major tax   all fluctuate with economic activity, because they’re a percentage of income or sales or corporate income, so they continue to grow with economic activity,” McDonnell said. “We’re looking at whether or not it makes sense, even though it’s a declining revenue source anyway  whether or not, if we’re going to keep it, whether or not it should fluctuate with economic activity, like every other tax in Virginia. So that’s one of the things that we’re evaluating, along with several other alternatives.”

McDonnell said he’s not in favor of broad-based tax increases. But he plans to push for some kind of reform in the upcoming session, saying it’s time the legislature tackled the issue.

“The status quo is unacceptable,” McDonnell said. “I’m going to be fairly adamant with the General Assembly this year that we’ve got to stop kicking the can down the road. The buck has got to stop here. We have to have a transportation funding plan that addresses this maintenance crossover, or we’re going to look back in five or six years and have virtually no money left for construction, and that is unacceptable.  It’s a serious problem, it’s going to take some significant money, and I’m going to come up with a reasonable, conservative approach that I believe can pass the General Assembly, so once and for all we will create a sustainable way of dealing with transportation maintenance.”

 Chelyen Davis:  540/368-5028

Questions about Congress impede Va. budget

RICHMOND—Every year around this time, Virginia’s governor starts putting together budget amendment proposals for the next year and assessing the state’s expected revenue.

This year, that process is made more difficult by uncertainty over Congressional action, said Gov. Bob McDonnell Monday.

McDonnell met with a group of economic advisers and legislators Monday morning, and told reporters afterward that the budget process between December and the legislative session could change more than it normally does because of federal issues.

Those issues are sequestration and the “fiscal cliff.” Sequestration is the shorthand name for $1.2 trillion in budget cuts that are set to begin in January if lawmakers don’t act to stop them, while the fiscal cliff is the term for the expiration of a number of tax credits that will also start in December and January if Congress doesn’t act to extend them.

Both could have a significant impact on Virginia’s economy in the long-term—about half of the sequestration cuts would be to defense programs, which would affect federal contractors in Virginia. Studies estimate Virginia could lose up to 200,000 direct jobs if those cuts were to go forward. That would result in less revenue from sales tax and income taxes.

Congress is expected to at least try to stop both the sequestration cuts and the fiscal cliff, but whether they succeed isn’t likely to be known when McDonnell has to present his proposed amendments to the two-year state budget on Dec. 17.

McDonnell said he has told state legislators that no matter what he proposes on that day, things could change.

“There could be a lot of things happening in Washington  any number of things that will perhaps change our view,” McDonnell said. “We may have to make some more significant adjustments than we’ve made in the past, simply because the federal landscape is changing so quickly.”

Federal budget issues were the biggest topic of conversation and concern among the businessmen, economic advisers and legislators at Monday’s meeting, McDonnell said.

He said he has always budgeted cautiously and plans to continue to do so, taking “a cautious and conservative approach to budgeting to account for these uncertainties in Washington.”

McDonnell already asked state agencies to submit proposals to cut their budgets by 4 percent, in case Congress isn’t able to reach an agreement on the sequestration and fiscal cliff issues.

He said Monday that the fallout from sequestration and the fiscal cliff would take some time to filter down to Virginia, and would have a greater impact on the state’s 2014 budget, which starts in July 2013.

 Chelyen Davis:  540/368-5028