McDonnell Throws Virginia Transportation Policy into Reverse

Low point of the McDonnell governorship.

by James A. Bacon

Governor Bob McDonnell has submitted his proposal for overhauling the state’s antiquated transportation funding sources. Unfortunately, he has moved in precisely the wrong direction — rather than tightening the nexus between how much Virginians drive and how much they pay into the system, he would totally sever it.

According to a press release issued this afternoon, the proposed funding plan would add $1.8 billion more in highway construction funding over the next five years. McDonnell proposes to accomplish this by eliminating the state’s 17.5-cent-per-gallon gasoline tax and replacing it with an 0.8 percent increase to the Sales and Use Tax, diverting 0.25% from existing sales tax revenues, increasing vehicle registration fees, and then locking in the revenue streams by passing a separate constitutional amendment.

The package also would impose a $100-per-year fee on vehicles using alternative fuels and would dedicate an additional $15-per-year fee on vehicle registrations to intercity passenger rail and transit.

Stated McDonnell:

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. 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.

Other transportation-funding proposals have been floated in the run-up to the 2013 General Assembly session but McDonnell’s is the one to watch. Judging by the political figures quoted in the press release, he has lined up impressive support across the Republican Party. Backers include House speaker William J. Howell, R-Fredericksburg, Lieutenant Governor Bill Bolling, and Attorney General Ken Cucinelli, the presumptive Republican Party nominee for the 2013 gubernatorial race, as well as senior legislators like Tim Hugo, R-Centreville, and Sen. Steve Newman, R-Lynchburg. Barry Duval, president of the Virginia Chamber of Commerce, and Jeffrey Southard, executive vice president of the Virginia Transportation Construction Alliance, also have endorsed the package.

Bacon’s bottom line: There is no way to sugar-coat this: McDonnell’s transportation-funding package would be an unmitigated disaster. As it is, the governor has partially rolled back Kaine-era initiatives to coordinate transportation and land use planning, a prerequisite for creating a rational transportation system. Now, he proposes to obliterate the principle that those who use and benefit from the transportation system are the ones who should pay for it.

The principle is so simple and sound that even a politician should be able to understand it: Reducing the cost of driving by eliminating the gas tax only encourages more driving. Thus, while shifting the tax burden from the gasoline tax to a sales tax will raise more money, it will also worsen the congestion that the added tax revenues are supposed to address. A more sane approach would be to scrap all miscellaneous road-funding sources and increase the gas tax so that people paid for road usage in direct proportion to which they use it, thus creating an incentive to drive less.

McDonnell raises a legitimate point when he says that the motor fuels tax is stagnant, as people shift to more fuel-efficient cars and even to vehicles using alternate fuels. But the logical alternative is to institute a Vehicle Miles Driven tax, in which drivers pay a fee per mile regardless of what fuel they use.

It is an article of faith among free-market thinkers that taxes influence behavior. McDonnell’s proposal ignores this fundamental principle. Not only is his tax package intellectually unsound, it is unfair. The new tax would punish pedestrians, telecommuters, cyclists, carpoolers and mass transit riders, who are doing the virtuous thing of driving less, while subsidizing the voracious appetites of drivers.

As McDonnell’s press release notes, if this legislation is enacted, “Virginia will become the only state in the nation without a tax on gasoline.” Earth to McDonnell: There’s a reason why other states maintain their motor fuels taxes! Eliminating our gas tax would take us in the wrong direction. It’s not even as if you’re actually reducing the tax burden on citizens. You’re just shifting it to a different tax! Aargh! Aargh! Aargh!

15 Responses to McDonnell Throws Virginia Transportation Policy into Reverse

  1. I’m pretty conflicted on this also.

    If you look at the current sources of funding:

    http://www.dmv.virginia.gov/webdoc/pdf/tracking_oct12.pdf

    page 4

    you can see that the gas tax only funds about 25% of transportation now and it’s shrinking more and more.

    It’s also clear that VDOT has convinced him that they need a substantial and reliable source of funding and that the fuel tax is no longer it.

    there is one silver lining …..

    it’s quite easy to determine from the sales tax where it comes from geographically.

    other than that, I’d highly skeptical that this is going to pass the General Assembly…. but who knows?

    • For God’s sake Larry, it only pays 25% because it has not been indexed in 25 years, to account for inflation and new driving habits, other than that there is not a damn thing wrong with the gas tax. It is environmentally sound because it charges for mileage, weight, speed, and driving habits.

      There is no better source, if we would only use it.

      Having said that, the main purpose of driving is commerce, and a tax on commerce is as good as any way to fund transportation. However, I would include in commerce the act of driving to your job, and so I would include an income tax as part of the deal.

      I think this has no chance of passing, and the fallback position will be an increase inthe gas tax.

    • While you have a point, this also counts federal grants and contracts as a percentage, so the state’s total is only a little over two thirds it looks like.

  2. There’s both logic and wisdom in JAB’s post. However, there’s not the slightest chance, politically, that the General Assembly would approve a Mileage Tax/Fee. Eliminating the gas tax and substituting an increase in the sales tax reflects a policy position that all the residents of the Commonwealth benefit from improved transportation infrastructure. It is a rational decision. Whether it will pass, given some Rs aversion to any kind of tax, and some Ds aversion to anything an R proposes, remains to be seen. However, it is a strong, rational, take-the-lead proposal.

    • re: ” Whether it will pass, given some Rs aversion to any kind of tax, and some Ds aversion to anything an R proposes,”

      well you gotta admit – this is out of character for a GOPer these days. The others in his party are already calling this a job-killing tax increase. Imagine if the Dems had proposed this! It would have been declared DOA before the bits formed the words.

      I don’t think McDonnell is this smart myself. Someone on his staff or perhaps Connaughton has put this together and it my have a slightly better chance than the proverbial snowball but this is likely way too big a challenge for the stodgy GA of Va.

      But, give McDonnell credit for leading for sure. This a a big rock that will cause big ripples in the legislative pool and in all likelihood will shake things up and make it easier of consideration of other changes that in more isolation likely would have withered.

      Now, if McDonnell’s real agenda is much more modest but he purposely over-proffered in hopes of getting something substantiative (but less ambitious), then I’ll take back my comment about “smart”.

      but again – he has truly LED on transportation in Va. No question about it. The PPTA and Toll landscape in Va is forever changed if by nothing else, the debt we have taken on (and give Kaine credit for enabling it).

    • “Eliminating the gas tax and substituting an increase in the sales tax reflects a policy position that all the residents of the Commonwealth benefit from improved transportation infrastructure.”

      Logical fallacy. We are no longer in the stage that what’s good for GM is good for America.

      And even if improved transportation infrastructure is a common good that all residents benefit from, why is the solution a regressive tax that puts the burden on Virginia’s poorest? Why not eliminate the gas tax and fund transportation through an increase in the income tax for a new top brackets?

  3. A fule tax IS a mileage tax. Why would anyone in their right mind want to put in place an entirely new system with all the bureaucracy that goes with it, to replace what is esentially the same thing.

    It will still be a long time before cars operate without fuel, even if they operate with a lot les fuel. Just index the tax appropriately to cover the needs and be done with it.

    • re: ” to put in place an entirely new system with all the bureaucracy that goes with it”

      well.. bumping the sales tax RATE in an existing system won’t increase collection costs, eh?

      the separate “fee” might well fail but did anyone else notice how, in doing this, McDonnell has essentially separated rail and transit from the road funding? He’s effectively made the sales tax a revenue stream only for roads.

  4. If this proposal included one more provision — ending the sales tax exemption on gasoline — you would preserve the user fee component and also raise substantially more money. You’d still the political benefits of eliminating the gasoline tax, but some motor home heading to Florida wouldn’t be filling up tax free. That is the amendment to watch for.

    But imagine this. Virginia becomes the largest gasoline-selling state, everybody plans their trips on 95 and 85 and their vacations around filling up once when they enter the state and once as they leave….With some 5 gallon cans in the trunk (next to the low tax cigarettes). Wawa and Sheets and the gasoline retailers are going to love this. And think about how it makes tolls less objectionable. Harder to complain about tolls when you pay no state gas tax (but sell that Mercedes diesel!)

    This is interesting. It has the support of the Speaker, which is essential to actually passing the House. No matter what your position, the session just got very interesting. I do give the Governor major points for creativity, and for starting with a House bill. I suspect the 51 votes in the House are already pledged or the Speaker would not have been there. The game is in the Senate.

  5. Thanks for an excellent post. You were probably too polite, way too polite. Let’s encourage massive gas-guzzling SUV’s and pay for their environmental and road damage by taxing poor people who don’t own cars?! Gee, in what universe does that pass the fairness test? I am amazed by whatever convoluted logic the governor used to reach this decision. Who will write the back-story about how this public policy stink bomb came into being (what are the special interests greasing this bill)? This is really really bad.

    • What about the many people who use transit and are not paying fares that cover costs? While I am not ready to endorse the Governor’s proposal, it would end the argument about the unfairness of moving money from the gas tax to transit.

      Also, SUVs don’t cause road damage. Heavy trucks cause the overwhelming amount of damage to roads and bridges. A big bus causes more damage than multiple SUVs.

  6. From Yesterdays RT-D: More from Barley’s Soapbox. Please feel free to share this with family and friends.

    Governor McDonnell’s proposal for road funding, and most of us realize that it is not his proposal as much as he is simply the point man, just does not do what is needed to adequately address the issue. The Governor is quoted in this article as saying his plan is “politically viable.” I take that as code for crony capitalism versus best management practices. Most of the proposals being floated are distraction tactics perpetrated on the public with as many sweeteners as the politicians dare put in them to benefit special interests.

    One can speculate as to who all the cronies are, but the tactic is to externalize as much as possible the cost of doing business. This entails, like most all of the current proposals on the table, putting the lion’s share of the load on the average taxpayer. A forthright plan of dedicated user’s fees, the Vehicle Mileage Tax and the Weight-Distance Tax, in concert with an increase in the Fuels Tax would spread the load across the spectrum of those who use our roads in relation to how they utilize the roads. This would cover alternative fuel, as well as out-of-state, vehicles.

    The role of commercial vehicles received some surprising recognition from the Governor, who in the same breath effectively downplayed their role. “The 17.5 percent tax on diesel fuel would remain unchanged because heavy trucks cause about 80 percent of the damage to Virginia’s highways, the governor said, and most of those vehicles come from out of state.” How about that? The Governor acknowledged what highway engineers have known for decades, but is not really including commercial vehicles in the solution by leaving the tax on diesel fuel at 17.5 cents per gallon. Four other states include a weight-distance tax for all commercial rigs that drive on their highways. I have read projections that increase the number of commercial rigs from 5,000 to 6,000 per day in Virginia when the container traffic increases in Hampton Roads. This will occur when the modifications to the Panama Canal are finished in 2014. Does this means commercial rigs will cause more than 80 percent of the wear on some of our roads?

    Simply saying, “Just raise the @*#&@%# gas tax,” does not really address the funding issue. Nor do we need to reinvent the wheel. There are people who have specialized in the study of transportation. Their findings are closer to best management practices than just shooting from the hip. The chances of everyone being happy with how we fund are roads is unrealistic. However, practical, realistic solutions are available to us. Do we want them?

  7. Excellent, clear-headed post, that puts to shame this morning’s Washington Post reason- muddled editorial, albeit critical of the Governor’s proposal. Keep it simple, make users pay the cost of their use. And actually pay the cost, by raising the gas tax and attacking our transportation mess.

  8. Ermm…don’t non-drivers also benefit from roads and highways? Cyclists and bus riders need surfaces to cycle and bus upon. Everybody buys things that are delivered to stores by trucks. Vans and pickups bring workmen to your home, whether you drive or not. Still use snail mail? It travels by road.

    Moving to a tax on essentially everyone to pay for roads and bridges is a fine idea. Kudos is due Governor McDonnell for sticking his neck out.

    Virginia leads the way!

  9. ah.. perhaps I underestimated the Gov. Is it possible he proposed this plan as a cockamamie stunt to make people hate it so much that they’ll DEMAND an increase in the gas tax?

    ;-)

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