Legislators Cobble together Transportation Funding Compromise

House and Senate negotiators agreed upon a transportation funding package that will raise $860 million a year for roads, bridges, rail and mass transit when fully implemented. Governor Bob McDonnell hailed the agreement, implying that he would sign the legislation if approved by the both legislative bodies.

The package includes the following key elements:

  • Elimination of the fixed 17.5-cent-per-gallon gas tax, to be replaced by a 3.5% wholesale tax that will increase revenues as gas prices head higher.
  • A 0.3 percentage-point increase in the sales tax.
  • Diversion of $200 million a year in existing General Fund revenues on the logic that transportation is a “core function of government.”
  • Imposition of a $100 million annual fee on alternative-fuel vehicles to ensure that they contribute toward the construction and maintenance of roads.
  • A one percentage point increase in the sales tax on automobile sales, which currently enjoys a discount off the sales and use tax.
  • The levying of a 6% wholesale tax on diesel.
  • Designation of revenue, should it materialize, from the Marketplace Fairness Act, which would require online sellers to collect states’ retail sales tax.
  • Creation of a dedicated revenue stream (not clear what as of this writing) for Northern Virginia and Hampton Roads transportation needs.

The tax restructuring would be revenue neutral to Virginians in the first year but would increase revenues gradually in pace with rising gasoline prices and increased volume of retail sales, thus addressing the stagnating revenues from the gasoline tax. The compromise also establishes a precedent for McDonnell’s contention that transportation is a “core function of government” that will in the future compete with education, health care, corrections and other General Fund budgetary priorities.

Bacon’s bottom line: In the round robin of congratulatory press releases from the Governor, Lieutenant Governor Bill Bolling and House Speaker William J. Howell, there is no indication that there is any unfinished business to take care of. In other words, there is nothing wrong with transportation policy in Virginia that more tax dollars won’t solve.

Guided by the essentially socialist principle that, hey, everyone benefits from roads, so everyone should help pay for them, the compromise makes a hash of the user-pays principle for transportation funding.

The only consolation that a believer in fiscal conservatism and free markets can extract from this atrocious piece of legislation is the knowledge that, yes, we do need more transportation funding and this bill will provide it. But there is absolutely no assurance that the money will be well spent. Virginia still has no objective criteria for prioritizing projects on the basis of Return on Investment. The McDonnell administration has done absolutely nothing, zip, zilch, nada, to tie transportation planning to land use planning. No one has lifted a finger to improve the transparency and accountability of the Public-Private Partnership process. Furthermore, there is no justification in economic theory or as a matter of fairness to ask Virginians who do not drive (or drive very little) to subsidize those who do.

These are first impressions. I will have more to say in future posts.

– JAB

4 Responses to Legislators Cobble together Transportation Funding Compromise

  1. This is RICH! If the Dems had proposed such a thing the GOP would have collectively tossed their cookies.

    but this once again proves my theory. If legislation opposed by one side is going to pass – they are the only ones who can do it.

    So McDonnell pounded Creigh Deeds for daring to suggest that we index the gas tax and/or do SOMETHING to deal with the lost value of a fixed tax.

    So McDonnell drop-kicks Deeds and proceed to not only do what Deeds was advocating but doubled down on it.

    You gotta admit – if you are going to be hypocritical – do it with chutzpah.

    the other thing? Poor old DJ is finally going to have to admit that the Clown Show did something he likes… Gee I wonder what it means when the GA does something DJ likes and Bacon hates?

    but I bet this… Bacon will not disavow his beloved GOP… they’re just naughty boys … but they are still his boys.

  2. to give some perspective here….

    800 billion a year is about $100 per person.

    it likely means about 200 million more for NOVA not including the separate 300 million carve out for METRO.

    200 million is not chump change but it ain’t going to buy many miles of new roads either… One significant interchange can cost 200 million. One mile of urban freeway can cost 100 million.

    If NOVA and METRO get the additional 300 million, I have two questions:

    1. – does this offset the money that flows from NOVA to rural schools?

    2. – If METRO is Smart Growth – does this mean all Virginians are helping to pay for NOVA’s “smart growth”?

    bonus – now that Bacon has had a night to sleep on it.. I’d like to hear his thoughts… especially those about fiscal conservatism in the GOP…..

  3. JAB, these are excellent comments that put to shame the thoughtless cheerleading of the Washington Post editorial today. The proposal trashes user payment approaches and ignores revenue benefits of out of state drivers (while perhaps discouraging diesel fill-ups in Virginia). And the dismissal of land use-transportation links promises more senseless ranking of highway investment needs leading to such unneeded and expensive investments as the outer beltway through Loudoun County.

  4. 59.5% That’s the percentage Tysons landowners and developers are required to pay for non-rail transportation infrastructure, in exchange for rezoning. Every landowner and developer in Virginia should be forced to make the same level of payments when they want rezoning. When the development is small (profits too), the payment will be relatively small. But when rezoning brings huge increases in density (and corresponding profits), the payments will be big. What’s sauce for the goose is sauce for the gander.

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