After I-81 Tax Compromise, Time to Talk VMT Tax

Interstate 81. Photo credit: Roanoke Times

The Commonwealth of Virginia has done some smart things in recent years regarding transportation policy. It has established the Smart Scale system for objectively ranking transportation projects. And it has reformed its Public Private Partnership process for attracting private-sector investment without giving away the store. But the assortment of taxes used to fund the state’s streets, roads, highways, and mass transit systems remains an incoherent hodgepodge of subsidies and cross subsidies that only remotely abide by the user-pays principle.

Governor Ralph Northam and the General Assembly kinda sorta took a step in the right direction yesterday by agreeing to new taxes to raise money for congestion-relief projects along Interstate 81, the transportation spine of western Virginia. But we can do better. It’s time for Virginia to seriously consider a Vehicle Miles Traveled (VMT) tax to cover the maintenance cost of the state’s roads, bridges and highways.

Under Northam’s amendments, tractor-trailer registration fees will increase later this year and the diesel tax will increase to 2.03% of the statewide average average wholesale price per gallon. That make sense. Freight carriers dominate traffic on I-81 and they account for disproportionate wear and tear on the highway. Also, according to the Roanoke Times, revenues will be distributed on the basis of truck miles traveled on Interstate highways between the I-81 Corridor Improvement Fund and other interstate projects around the state. Additionally, the gas and diesel tax will increase by way of a 2.1% wholesale tax in the I-81 corridor. All of those revenues will go directly to I-81 improvements. 

Of the total $280 million these amendments would raise annually, I-81 will receive about $150 million. The funding can be leveraged through bonds to support $2 billion in projects.

It’s not a perfect arrangement, but at least there is a rational nexus between where the money comes from and where it’s being spent.

We’ve been down the transportation-funding road before. Governor Bob McDonnell pushed through a major increase in transportation funding, relying heavily on a general sales tax, with the hope that it would be the last tax increase needed for a generation. That didn’t work out as expected. And you can be sure that yesterday’s tax increase won’t be the last time politicians say some new priority desperately needs funding and that we have to raise taxes again.

Transportation is a bottomless pit. One reason it is a bottomless pit is that, overall, there is only a tangential connection between what Virginians pay into the system and how much — and when — they drive. Everyone pays a sales tax, whether they ride bicycles, take the bus, or drive solo to work. Everyone pays a vehicle sales tax, whether they drive 5,000 miles a year or 25,000. Owners of newer fuel-efficient cars pay less gasoline tax per vehicle mile traveled than owners of old clunkers.

The other reason transportation is a bottomless pit is because Virginia localities continue to make irresponsible land use decisions knowing that, in most cases, the state is responsible for dealing with the traffic generated. Localities get extra tax revenue from real estate development; the state gets the liability of building and maintaining streets and roads.

And don’t get me started on mass transit funding, which, as far as I can see, hews to no known user-pays logic. If roads and highways are a bottomless pit, the Washington Metro system is a black hole.

A few days ago, I laid out some basic principles for funding I-81. Here, I would like to take those principles from the abstract to the concrete. One huge step toward an economically rational (and politically palatable) transportation funding system would be to scrap all the wholesale, retail, gasoline, and diesel taxes and replace it with a VMT tax dedicated to funding maintenance and operations.

Everyone can grasp, and see the fairness in, the principle that all vehicles should pay their share of the maintenance and operations of roads and highways. The more you drive, the more you pay. The heavier the vehicle, the more you pay. Money you pay into the maintenance fund stays in your region — it doesn’t get siphoned off to another part of the state. The tax per mile is determined by the cost of maintaining roads, bridges, and highways to a state of good condition. If the cost of maintenance goes up, the tax goes up commensurately. If the Virginia Department of Transportation can find ways to drive maintenance costs down, then the tax goes down commensurately.

That still leaves the issue of how we pay for new construction projects and how we reform land use. Those issues are more complex and warrant separate posts. But we can simplify that tangled mess if we take the maintenance factor out of the  picture. The fact that lawmakers adopted a quasi-user pays tax for I-81 is encouraging. One can only hope they will apply the same logic to the rest of Virginia’s transportation funding system.

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12 responses to “After I-81 Tax Compromise, Time to Talk VMT Tax”

  1. CrazyJD Avatar

    Re-: the gasoline/diesel tax. Whether this works may depend in part what is meant by “the I – 81 corridor”. As I understand it, most of these big rigs have two 50 gallon tanks for diesel fuel. They get around 5 miles to the gallon, so with full tanks they can go 500 miles. If, because of any fuel tax on diesel gasoline in Virginia, it’s cheaper to buy truck fuel in another state, they can easily get through Virginia, even going the length of I- 81. As for the gasoline tax, presumably on cars, one can avoid that easily enough, even in Virginia, by simply filling up sufficiently away from the “I 81 corridor”, whatever that means, before one gets on I 81. I generally fill up at that big Pilot center on the east side of I-81 just south of the I-64/I-81 interchange. That may cease.

    All that being said, it may still be cheaper to buy fuel in Virginia than in the People’s Republics of Maryland, Pennsylvania, or New York State, or even Tennessee, which could rescue the legislators’ bacon. No pun intended.

  2. I-81 is an interesting political topic, because as DJR mentioned, we know how NoVA was treated: zero Va. tax dollars to the HOT lanes projects and mega-tolls on the road users. Clearly I-81 is a project that it would be more justified to use NoVA tax dollars to build, and skip the inconvenient tolls. But of course, I am making a joke above.

    Conservatives are absolutely hung up on per gallon gaso taxes. Conservatives cannot stand the idea that someone could buy a high MPG Prius hybrid and escape per gallon fuel taxes. But it costs the buyer about $4000 extra to buy a hybrid, and in Virginia, up to thousands of dollars extra in annual car taxes, just to buy the darn hybrid.

    And then in addition to all those extra fees for the hybrid vehcile, consrvatives demand an added “punishment tax” for motorists driving hybrids. In the last several years, many Red states have added punishment taxes on hybrids. Ohio just yesterday added $100/yr fee on hybrids, which is completely unfair and abhorrent.

    I see nothing wrong with higher per gallon gaso taxes, except it is unacceptable to conservatives. Interesting to see if the Dems take over the White House in 2020, if the Dems go along with VMT tax just to try get infrastructure funding cooperation from conservatives. Otherwise just simply increase gaso taxes per gallon and give the cars with greater MPG some compensation for paying extra for greener vehicles.

    Electric vehicles are a different story, they do need to be charged a little more to compensate for not paying gaso taxes. But if you are a liberal, you would give electric vehicles a free pass, and free HOV, and other incentives, anyways.

    1. LarrytheG Avatar

      It is NOT TRUE that Virginia did not put money towards the HOT lanes in NoVa. In fact, the folks that don’t like the HOT lanes use that argument against the HOT lanes – that the State helped to pay for them.

      In terms of Prius and other fuel efficient cars – what is a FAIR way to charge them for their fair share of the road use?

      I don’t think Virginia’s road tax structure is a “hodgepodge” either. I see it as DIVERSE – with a percentage tax on fuel that DOES address inflation, a significant tax on new cars, GENERAL sales taxes which now compromise fully a third of the budget, tax on vehicle insurance and tolls.

      But the problem with a flat tax on miles traveled is that the “cost” actually varies with geography and time of day and SOV/HOV.

      If you want to travel solo in NoVa and Hampton at peak hour commuting times – that’s a different cost than traveling HOV or time-shifting to the shoulders of peak hour or even off peak hour.

      That’s what dynamic tolls do – they charge according to congestion level. Some folks don’t like that – but it’s very same logic that airlines use. Wanna fly at peak hour at the busiest airports? It’s gonna cost you. Wanna fly outside of peak hour – much cheaper.

      So HOT lanes are not about collecting revenues, HOT is used to “shape” congestion. It’s the default “plan” in NoVa and Hampton.

      It COULD be on I-81 and I-64 but they have hesitated because of opposition – the same folks who oppose HOT in general also in NoVa and Hampton.

      So the VMT idea won’t fix congestion levels like dynamic tolls will unless the VMT “varies” according to congestion levels and whether you are SOV or HOV.

      I bet that VDOT will tell you that also. HOT vs VMT – no contest. HOT wins.

      1. As far as hybrid cars and tax fairness, the only thing that is unfair is to say a hybrid owes more money for punishment. For example, a Toyota Highlander Hybrid gets about 25 MPG and alumunum Ford F150 also gets 25 MPG. Why the heck does it make any sense to punish the hybrid Highlander driver with extra taxes, who is paying the same amount of gaso tax for the same amount of fuel at the pump? It is blatant unfair racism applied to vehciles, is what it amounts to.

        Now then, if you want to say *all* vehicles over 25 MPG owe extra taxes, proportional to vehciles EPA MPG rating over 25 MPG, then that is fair. Why go there? But that is basically what VMT tax is, and is how one state was proposing to do it.

        1. LarrytheG Avatar

          Well I agree if that is the current regime. Are we specifically charging extra for some cars in Virginia?

          Are you sure? I see this:

          ” The annual license tax applies only to vehicles solely powered by electric and is not refundable upon cancellation of registration. If the vehicle is registered for a period other than one year, the license tax is multiplied by the number of years or fraction thereof that the vehicle will be registered. For example, if renewing registration for a two-year period, the annual license tax will be $128 in addition to registration fees.

          NOTE: Effective July 1, 2014, hybrid vehicles are no longer subject to the $64 annual license tax. For more information about the repeal, see the 2014 legislative news release.

          1. Correct, Virginia no longer taxes hybrids extra, but many (Red) states are starting to do so, which is unfair. It is only the new blueness of Virginia that saved us from that hybrid tax.

            But VMT tax as proposed in this article is basically saying we need to move away from per gallon tax because conservatives feel per gallon gaso tax gives favortism to higher MPG cars. But VMT tax is hard to implement and what’s wrong with existing per gallon tax system encouraging less fuel use?

  3. A better approach to mitigating the drop in gas tax revenue is to raise the gas tax by inflation and adding an additional factor to address fuel efficency improvements. The state can add a tax on electricity for owners of electric vehicles. It should be easy to link car registrations and electric bills. This will help provide the transportation office a steady funding outlook to plan improvements.

  4. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    As the above comments point out, there are many holes to MPG tax, and there are also many ways for our corrupt political class to abuse that system. In addition roads provide huge benefits to all citizens, irrespective how often each of them may or may not use a road per week, per month or whatever. There is too much myopic thinking going on about roads, how to design, build and purpose them.

    For instance, how does food get to our tables for dinner? Why do we have a job at all, or friends that can visit for a dinner or weekend? How do all those Amazon packages end up on our doorstep? Everyone needs to pay for these roads.

    S0 what we really need to be thinking about is how to make these roads work better for our communities, and all who use those roads. How can we vastly increase the wealth those communities, and whoever uses them, can spin off by reason of how those roads now are newly designed and built to create wealth, instead of destroying the wealth and social capital in our communities like was done in Northern Virginia, and will surely happen to Shenandoah Valley unless we radical change how we think about, finance, and build roads.

  5. LarrytheG Avatar

    VMT WOULD more fairly charge for road use so that the gas mileage of the vehicle was not relevant but VMT still does not charge for congestion which is too many vehicles for the carrying capacity of the road at different times of time. HOT lane tolls do that – the roll varies explicitly according to demand – AND there are still “free” lanes who prefer to pay with time delays instead of dollars.

    This is THE problem in NoVa and Hampton and really is a similar problem on I-81 and I-64. If tolls were charged that varied according to congestion levels – some folks would travel at the less congested times. VMT can’t fix that but HOT can.

    1. Yes, but good luck re-inventing the nation’s gaso taxation system. While you’re at it, my request is that Congress needs to kill the old blue law that forbids shwoing the gaso tax on the receipt. Let’s be honest and tell people the tax paid when they fill up.

      1. LarrytheG Avatar

        Well.. it’s ALREADY been “re-invented” in Virginia if you think about it. It’s NO LONGER a tax per gallon but instead a percentage tax on the total purchase amount and that tax is just 1/3 of our revenues now.

        The other two thirds come from sales taxes on other products other than fuel.

        The stand-alone per gallon fuel tax no longer brings in enough revenues to fund the roads and the Conservatives refuse to increase it. In fact – Congress wants to abolish the 17 cents per gallon Federal tax and let the states decide if they want to continue it because it’s revenues are steadily decreasing and it’s now running a deficit and requires general revenue subsidies to stay afloat.

        I believe the nexus between road use and the user paying for that use has been substantially by two things.

        First cars have gotten increasingly more efficient and that means that not everyone is paying the same for road use anymore.

        Second is geographic density and time of day – i.e. peak commuting hours near urbanized places. Those places require much more infrastructure to support the intensity of peak hour traffic.

        Beltways and 6-8 lane freeways being built from uber expensive right of way – result in one mile of urban interstate costing 10-20 times what one mile of rural interstate costs.

        Even though there are more cars using those urban roads – it’s not spread out evenly over the day – it occurs in two peak times per day which results in more cars than the roads can carry – called VC – volume to capacity. On many non-urban roads this number is .5 or less even during peak hour but in urban areas this number goes over 1 and the result is huge backups on a daily basis that transforms into gridlock when there is an accident or road construction.

        There is just more cars than the road can carry at rush hour and there is no realistic way to add more roads in those urban areas without tearing down neighborhoods and existing commercial properties.

        The answer to that problem is congestion tolling – i.e. dynamic tolling where the toll varies according to how much traffic demand it is. The point of these tolls is not just to collect revenue but to discourage use – for those who can do what they need to do – at other times – outside of prime rush hour OR travel HOV.

        There is no other fix for this right now. Nothing else works.

        sorry about your mouse! been there, done that..

    2. duplicate for some reason…my mouse is acting up…it does 2 clicks when I do one click, and apparently my mouse is faster than the web site’s ability to block duplicate posts

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