How to Increase Transportation Revenue without Raising Taxes

by James A. Bacon

NORFOLK–Declaring that transportation is a “core responsibility” of state government, Gov. Bob McDonnell outlined today a legislative package that would increase funding for roads, highways and transit from the General Fund. Traditionally, Virginia has paid for transportation projects primarily through dedicated revenue streams such as the motor fuels tax, a half percentage point of the sales tax, a tax on automobile registrations and other narrow-bore levies.

McDonnell’s plan would divert an additional one-quarter percentage point from the state sales tax, a bigger share of end-of-year budget surpluses, a full percentage point of the General Fund budget when revenue growth exceeds 5% in a year, and a Tax Increment Financing-like mechanism for capturing a share of state tax revenues made possible by state-funded infrastructure.

“Transportation and economic development and prosperity are inextricably linked,” said McDonnell, presenting his initiative to the Governor’s Transportation Conference in Norfolk. “Whether it’s the infrastructure needed to move people and goods, or certain transportation-related industries poised for major growth and job creation, we must continue to make progress in improving our transportation networks if Virginia is to remain economically competitive.” (Read the press release.)

The governor’s address was interrupted briefly by an outburst from a group identifying itself as Occupy Norfolk. The protesters employed the Occupy movement’s trademarked human microphone technique to greet him with, “Welcome Governor McDonnell.” That elicited a fleeting smile, but the protesters then proceeded to shout over the governor as he tried to address the audience.

The biggest chunk of new revenue would come from phasing in a one-quarter percentage point increase in the share of the state sales tax dedicated to transportation over eight years. If enacted, the plan will boost the share from one half percent (.50%) currently to .055%, or one-twentieth of a percent, sufficient to bolster transportation revenues by $110 million next budget. The governor provided no estimate of how much the other measures would generate, although he noted that over the past two years the state has transferred $100 million in surplus funds to transportation.

Last year, the General Assembly backed McDonnell’s proposal to accelerate borrowing — $4 billion during his administration — to take advantage of low interest rates and low construction costs. Interest will be repaid from sources traditionally dedicated to transportation. A potential sticking point with the new plan is that, by taking money from the General Fund, it may be perceived as funding transportation at the expense of priorities such as K-12 education, higher education, Medicaid and corrections, that rely upon the General Fund.

McDonnell deals with potential objections by limiting the circumstances in which the transfers to transportation would be made. The proposal to steer 75% of budget surpluses to transportation would apply only if the state runs a budget surplus. Taking a one-percent slice from the General Fund would apply only in years when revenues increase by more than 5%. It’s not clear how the Tax Increment Financing proposal would work, but the logic is that it would return to transportation a share of the revenues made possible by a transportation investment in the first place.

Another foreseeable objection is that the plan will focus on the fact that McDonnell’s emphasis is on raising more money for transportation rather than reprioritizing how the money is spent. A recent Sierra Club report accused the governor of borrowing billions of dollars to build “major, unneeded and destructive roadways” instead of funding transit, bike paths, carpooling and transit- and pedestrian-friendly land use.

In justifying the need for more revenue, the governor made two key points. First, the motor fuels tax, the primary source of transportation funds, will decline in the future. An increasing number of cars will shift to alternate fuels, and even those that don’t will get better gas mileage. “Add those two things together and you have a math problem,” the governor said. 

Secondly, transportation is vital to economic development. McDonnell cited a study by Chmura Economics & Analytics that found the 2011 transportation package will grow the Virginia economy by over $13 billion and sustain an additional 104,000 jobs. Among specific economic-related initiatives, the governor mentioned additional funding for the Mid-Atlantic Regional Spaceport, with the goal of making it the number one commercial space flight facility in the nation.

The governor also touted the  the I-85 Connector Economic Development and Promotion Zone, an initiative that is tied to the construction of a new, limited-access U.S. 460 between Petersburg (the northern terminus of I-85) and Suffolk. A southern route linking Hampton Roads to the national interstate highway network would provide an Interstate-quality alternative to the overloaded U.S. 64 and open up vast new acreage for industrial and warehousing development.

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10 responses to “How to Increase Transportation Revenue without Raising Taxes”

  1. occupyhotson Avatar

    To be correct, we said ‘WE WOULD LIKE TO INVITE YOU TO AN OCCUPY GENERAL ASSEMBLY.’ We are Occupy Norfolk. Not Occupy The General Assembly.

  2. We did not identify ourselves as “Occupy the General Assembly.” We invited Governor McDonnell to attend an Occupy General Assembly.

    Here is a transcript of what actually took place:

    Welcome Governor McDonnell!
    Your presence is requested
    at an Occupy General Assembly.
    So you can you witness and participate
    in direct democracy
    with your constituency
    who voted for you and your platform of transparency
    Meet us at Camp Boone in Richmond
    this weekend.
    We are the 99%
    We are everyone.

    Link to our stream of this event:

    Also, here is the iReport link from CNN:

    Thank you!

  3. excellent reporting… as good or better than the traditional print media!

    I got confused over these two:

    ” McDonnell’s plan would divert an additional one-quarter percentage point from the state sales tax”

    ” The biggest chunk of new revenue would come from boosting the share of the state sales tax dedicated to transportation by a total of one-quarter percent over eight years. If enacted, the plan will boost the share from one half percent (.50%) currently to .055%, or one-twentieth of a percent, sufficient to bolster transportation revenues by $110 million next fiscal year”

    oops.. I see now.. over 8 years… since the sales tax is on a percent basis – that’s, in effect, indexing …. which look like when fully phased in will generate an additional billion dollars a year.

    that’s not chump change anymore.

    and … technically, it’s not a tax increase…unless of course the total budget goes up by that amount rather than other agencies consumption of taxes goes down.

    Pretty darn CLEVER!

    the only real downside that I can see here is if the Cooch takes over after McDonnell and runs the Commonwealth to the ground pursuing social and ideological issues instead of the important ones.

  4. Occupy people: Thanks for the correction. I have amended the original post to reflect the information.

  5. LarryG, I did not express the concept clearly but you figured out what I meant to say. I have re-written the original post to make it easier for other readers.

  6. “Transportation and economic development and prosperity are inextricably linked,” said McDonnell.

    End of story.

  7. Groveton Avatar

    Occupy People:

    I am one of the 1%. I’ve done the math, looked at the stats – I am in the 1%.

    Perhaps surprisingly, I am on your side. I am not willing to just hand over the money I’ve made over a lifetime of hard work but I think you guys have a point. Let’s talk turkey.

    Here’s the dilemma – US government, at all levels, has never spent as much of the US GDP as it spends now (other than during WWI and WWII). So, it’s hard to imagine that our problems come from a lack of government spending. The government spends and spends but the problems just get worse.

    Here’s the second dilemma – Despite a record number of Americans paying no federal income tax the wealth and income gulfs just keep getting bigger. This is obviously not sustainable.

    I think the problem is twofold. Our government is incompetent and corrupt at pretty much every level. Special interests reign supreme. Sloth, waste and stupidity are rampant. Meanwhile, the wealthy pay too little in taxes. Maybe almost everybody pays too little in taxes but the wealthy definitely pay too little.

    So, it seems to me that we need two actions. First, the Democraps and Republiclowns both need to be thrown out of office. We need an independent party that puts the people, voters and taxpayers first. Personally, I like Ron Paul. However, I’ll consider almost anything that purges the status quo.

    We need competent government. In conjunction, we need those who have a lot of money to kick back some of that money to get America back on track. Not everything, not even most of their wealth – just more. Reversing the Bush tax policy would be a good start.

    The issue is a chicken and egg problem. Most of us one percenters would agree to pay more taxes if it seemed that the extra money would be put to good use. To be candid, you could reverse the Bush tax cuts on me, get America back to a Clinton or Reagan economy and I’d still be ahead. For me, higher taxes don’t necessarily mean less wealth.

    A good economy trumps higher tax rates – especially for the one percenters. However, our government is corrupt and incompetent. So, why pay more in taxes when it won’t make a difference?

    I applaud Occupy Norfolk. However, I think there should be an Occupy General Assembly. I have long substituted Clown Show in Richmond for General Assembly. Therefore, I’d suggest “Occupy Clown Show in Richmond” as a good name for a new “Occupy” Group. In fact, if you adopt that name while protesting in Richmond – observably and in a serious way – I’ll send you a contribution of $1,000. The decision as to whether you are serious and observable is mine to make. But, I’ll give you a hint – protesting the General Assembly while in Richmond wearing clown suits would pretty much guarantee the donation.

    If you think this is a ruse – just read through my blog posts and comments over the last many years on this site. You guys have nothing on me with regard to disdain for the Virginia General Assembly.

    I hope you continue to post comments on this blog. As a contributor to the blog, I am willing to offer you an edited guest column. I say edited because I can’t abide vulgarity, personal attacks on individuals or nonsensical diatribe. I rather doubt you’d that but, from an abundance of caution, I feel that I need to make the point. Beyond those points, whatever you want to write will be fine by me. You can contact me via Groveton@GMail.Com.

    Best of luck and God speed (yes, I am religious) in your quest to right the wrongs of our increasingly bizarre society.

    Founding member: Occupy Clown Show in Richmond.

  8. I’m mostly on board with Groveton’s rant here…..

    Listen to the more honest of the elected in Washington including those who are leaving and they say that everything they do is measured by how it might affect their election fund raising which is necessary for their re-election.

    Of all the decisions made by SCOTUS – the one that delivered the coup de grace to representative government was the one that said money is free speech.

    I’m not as gloom & doom on all of this. I see examples of good govt. Take the NTSB or the seals that got OBL or our drone program… or the interstate highway system….. or FDIC….

    I see someone like McDonnell and while I’m no aficionado of the smoke and mirror budgeting that he has engaged in with respect to claiming surplus while siphoning pension funds…. I have to respect his commitment and ability to do something about transportation AND to at least demonstrate that it’s not a zero sum game with regard to a tax increase.

    (whether or not the GA will make balancing cuts to existing use of the sales tax revenues is still in question – and in theory with the changing political ownership of the GA – possible). There is not much doubt that the cuts will have to come from education and LE.

    with regard to 47% not paying Fed Income Tax – what I’d like to see is a listing of what each tax break “costs” and how it reduces the 47% tax liabilities.

    I’m pretty sure that it’s the deductions, exemptions and credits for kids.

    I’m also pretty sure that our entitlement problems with MedicAid is 1/3 to 1/2 – kids.

    Food stamps – ditto.

    subsidized school lunches – ditto.

    Our policies basically say if you have a kid – we hold you harmless financially and it becomes the obligation of other taxpayers.

    I don’t think the Occupy folks are great dodgers of taxes and tax breaks.

  9. Traffic will not get better unless demand is addressed. If a town’s population stays the same, and road capacity is added, traffic congestion is reduced. But if the population also increases, adding more road capacity will not necessarily improve anything. We need more tax revenue and an adequate public facilities law that defers development when the roads cannot handle the growth.
    Otherwise, taxpayers are funding projects that don’t bring them relief.

  10. one of the questions not often asked much less answered is – network congestion as opposed to congestion on on road in the network.

    when a road is improved in an urban area – what often happens is that the congestion does not really go away – it just gets moved to another place and then that place is said to be in need of “improvement”.

    so to a certain extent – we really don’t reduce congestion – we just spread it around….

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