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McDonnell proposes sweeping changes to transportation funding

BY CHELYEN DAVIS

RICHMOND—Gov. Bob McDonnell is proposing a sweeping reform of how Virginia raises money to pay for roads, offering to entirely eliminate the state tax on gas in exchange for a higher statewide sales tax and higher registration fees.

McDonnell’s proposal could generate up to $3 billion over five years in new money for roads and transit, he said, calling it a “game-changing investment.”

At a press conference in Richmond, McDonnell said his plan is “politically viable,” although it remains to be seen whether he can win over both anti-tax conservatives and Democrats who oppose using more general fund money for transportation.

By offering both a tax increase and an additional shift of general fund money to transportation, McDonnell hopes to provide both sides with something they can like in the bill.

McDonnell would eliminate the state’s 17.5-cents-per-gallon gas tax, although it retains that tax on diesel fuel. He would replace the revenue by raising the state’s sales and use tax an additional 0.8 percent, to 5.8 percent from the current 5.0 percent, and dedicating that money to transportation. Food would remain exempt from the sales tax, as would gasoline, which in Virginia is not subject to the sales tax.

According to the governor’s staff, Virginia would be the first state to abandon a state gas tax.

For weeks McDonnell has been promising a comprehensive transportation funding reform proposal. He says the state has “a math problem,” noting that the buying power of the gas tax—which has been unchanged at 17.5 cents per gallon since 1986—is now half of what it originally was. Cars now get better mileage—or don’t rely on gasoline at all—and McDonnell expects that will continue, making the gas tax an ever-decreasing source of revenue while the costs to maintain and build roads increase.

Virginia law requires transportation money to first go toward maintenance of existing roads, and that will soon eat up all the money that could go to new construction. McDonnell has made it a priority in this, his last General Assembly session, to reform transportation funding. His proposal would generate enough money to eliminate the crossover between maintenance and construction, he said.

While he wants to eliminate the gas tax, McDonnell’s plan keeps the 17.5-cent tax on diesel fuel. Staffers said that interstate trucking traffic accounts for 68 percent of the diesel fuel tax revenues in Virginia, and that trucks create 80 percent of the deterioration of state roads.

McDonnell’s proposal would gradually increase the percentage of the existing sales tax that goes to transportation, from the current 0.5 percent to 0.75 percent during the next five years.

McDonnell also would raise the annual vehicle registration fee by $15, from its current $40.75 for passenger vehicles, and add a $100-per-year fee for alternative fuel vehicles (although not hybrids) on top of the regular registration fee. The alternative-fuel fee, said McDonnell staffers, is included because there is still a federal gas tax, which is not paid by those who drive alternative-fuel vehicles. There are about 91,000 alternative fuel vehicles registered in Virginia, and McDonnell is shifting the state’s own fleet of vehicles to alternative fuel vehicles.

The governor’s proposal also anticipates passage of a federal bill that would allow states to collect sales taxes from online retailers. Current rules, based on a years-old court ruling, bar states from collecting sales tax from retailers without a “physical presence” in their states. Most states—including Virginia—require state residents to send to the state the sales tax they should owe on purchases made on the Internet. But most people don’t do that. Virginia and other states say they’re losing out on millions of dollars in tax revenue that should be collected; McDonnell’s proposal anticipates that the state could collect more than $1 billion during the next five years if it could collect sales tax on Internet sales.

All told, McDonnell proposal would generate more than $3 billion in new money for roads over the next five years if the federal bill passes, and about $600 million per year if it doesn’t. It would be revenue-neutral at first, but McDonnell anticipates that over the years, the sales tax revenue would grow, and grow at a larger pace than the gas tax would have.

He said the sales tax is a more appealing tax than gas, because it’s more likely to grow.

“It grows with economic activity, unlike the gasoline tax,” McDonnell said.

House Speaker Bill Howell, R–Stafford, is a co-sponsor of McDonnell’s transportation bill. Howell had said last month that he didn’t think there was time in a short session to enact a major overhaul of state transportation funding.

Howell told reporters that while he was indeed dubious that all the legwork to craft a viable plan could be done by the start of the legislative session tomorrow, he is satisfied with the result.

“I thought it was a good, balanced plan,” Howell said.

He said he likes converting from the gas tax—which he called a “dinosaur tax”—to a sales tax.

Howell said he can’t say how his House Republican caucus feels about the bill, as they were only briefed shortly before the press conference.

“I really hope we’ll be able to convince the majority,” he said.

Those anti-taxers who listen to Americans for Tax Reform’s Grover Norquist may not be convinced: Norquist put out a statement Tuesday afternoon saying the sales tax increase is too much and there isn’t enough shift from the general fund for transportation.

Norquist also wants to see the plan eliminate the diesel fuel tax as well, and call the new car registration fees “taxes” and include an accompanying tax cut.

A number of business organizations, like the state Chamber of Commerce, attended McDonnell’s press conference and are supporting his bill. Business groups have been pushing for transportation reform for years, arguing that congestion in Northern Virginia and Hampton Roads are hampering economic development.

“We can’t wait another year, we’ve got to act now,” said state chamber president Barry DuVal.

Del. Vivian Watts, D–Annandale, told reporters after the press conference that McDonnell’s bill may provide statewide transportation help but does nothing for the regions—like Northern Virginia—with true transportation problems.

She would like to see additional regional proposals, she said.

“It’s not enough money,” Watts added, saying that under McDonnell’s proposal, Virginians will bear more of the burden of transportation costs, instead of out-of-state visitors.

 

 Chelyen Davis:  540/368-5028

cdavis@freelancestar.com

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