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McDonnell preparing own transportation funding plan, considering indexing gas tax

Gov. Bob McDonnell told reporters today 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 long-standing 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.

“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.”