How to Leverage an Indexed Gas Tax

The state Senate has passed a budget bill, which must reconciled with the House of Delegaes budget bill, that seemingly does something right: It rejects Governor Bob McDonnell’s idea of diverting up to one-quarter of a percentage point from the state’s 4.5% sales tax from the General Fund to transportation. Transportation should be funded on a “user pays” basis to the greatest extent possible and should not compete with other core functions of government that lack a dedicated revenue source.

In place of that diversion, the Senate proposes indexing the motor fuels tax, now 17.5 cents per gallon, to the U.S. Department of Labor’s producer price index for non-residential construction. This provision recognizes that the gas tax, adjusted for inflation, has eroded so dramatically since 1986 that the state is fast running out of money for new construction.

Eventually, Americans will shift to alternate energy sources such as all-electric vehicles, propane, natural gas or even fuel cells. At that point, Virginia will have to give serious consideration to a Vehicle Miles Driven tax. But that day is years off.

A more immediate concern is that the Senate bill dumps more money into Virginia’s transportation system without reforming the way the money is spent. It is widely acknowledged that Virginia needs to align decision-making for transportation and land use at the same level of government. The McDonnell administration is inching closer to doing precisely that: devolving responsibility for secondary roads to local governments. The political sticking point is the localities’ fear that they’ll get get stuck with the expense without sufficient means to pay for it.

Added revenue from indexing the gas tax could make devolution more palatable politically if it were used to sweeten the pot for local government. As such, the tax should be tied to a fundamental reform of the transportation system, not part of a Business As Usual budget bill. Use the money to drive structural change that not only puts more money into road building/maintenance but encourages local government officials to make more responsible decisions about land use, which determines demand for roads and highways in the first place.

— JAB


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11 responses to “How to Leverage an Indexed Gas Tax”

  1. “A more immediate concern is that the Senate bill dumps more money into Virginia’s transportation system without reforming the way the money is spent. ” This amounts to no more than making the slush fund bigger. This is the Washington Post and land speculator position.
    A good friend of mine is president of the McLean Citizens Association. He wrote an op-ed in response to the numerous Washington Post editorials calling for higher taxes, but ignoring the need for reforms. The Post refused to publish it. The Paper does not accept debate when it is a matter of higher taxes.
    But the Fairfax Times did. http://www.fairfaxtimes.com/article/20120201/OPINION/702019312/1065/transportation-we-need-more-than-more-money&template=fairfaxTimes
    I think Jackson raised some good points, as does JAB. Reform and more money will make an improvement. But those used to a slush fund don’t want reform or real transportation improvements.

  2. DJRippert Avatar

    ” … Senate bill dumps more money into Virginia’s transportation system … ”

    I love the rhetoric.

    Anybody with even a high school understanding of economics would see a gas tax frozen in cents per gallon 25 years ago as a quarter century of taking money out of the system.

    Now, I’ve never heard anybody claim that the transportation system was swimming in money back in 1986 when the General Assembly decided that inflation didn’t count. So, the idea of accepting the economic reality of inflation is hardly “dumping money” into the system.

    If you don’t believe me – go back to your 1986 tax return and ask how reasonable it would be to accept the same job today at that same salary. Getting a raise today on your 1986 salary would hardly constitute “dumping money” into your wallet.

    Should there be more detailed and quantitative analysis of transportation projects? Yes, of course. Should the CTB be reorganized in order to reflect today’s demographics rather than the demographics of Virginia in 1932? Of course. However, the Clown Show has already voted on that and rejected it in this legislative session.

    I really have to wonder about people who demand that ALL of Virginia’s transportation issues be solved before ANY of them are addressed. That false hope assumes a state legislature far more competent than we have any reason to believe is true.

    Take the indexing this year. Get the ROI process next year. Get the CTB properly configured the year after that. De-volve local roads a year later.

    Waiting for a complete and well considered approach to transportation from our General Assembly is a fool’s errand.

  3. Don, If you increase taxes this year, the odds plummet that you’ll get the ROI process next year and devolution the year after that. Once the sense of crisis goes away, so does the impetus for structural reform. That’s why you have to tie the money to the reform.

  4. DJRippert Avatar

    Jim, tying the money to reform presumes that those you are asking to reform are sufficiently competent to see the benefit of reform. Please explain why the General Assembly refused to re-structure the CTB from 1932 demographics to today’s demographics when they had the chance in this legislative session.

    Waiting for comprehensive reform from our General Assembly is a fool’s errand.

    Take what you can get when you can get it.

    There is no chance in hell that the General Assembly could possibly conceive, consider, debate and enact a complete transportation reform package. No chance at all. You are wasting your time hoping for it.

    1. I agree that the General Assembly will never deliver a comprehensive transportation reform package in a single session. But it *has* demonstrated a capacity to get major pieces of reform passed.

      The McDonnell administration seems determined to push through some kind of devolution. To get the necessary political support, it will need to sweeten the pot for local governments, which, understandably, don’t want the responsibility for maintaining secondary roads without the means to pay for it. Thus, a devolution bill will have to be coupled with a money-raising bill. That is not beyond the capacity of the General Assembly to enact.

  5. ” Take the indexing this year. Get the ROI process next year”

    HA HA HA.. You’re a HOOT Dj! trust me, right?

    here’s my proposal.

    keep the sales tax idea but devote it to transit/rail and take the money current in the transpo budget dedicated to rail/transit and offer it as a bonus to countries to accept devolution and use the indexing for maintenance.

    Give the counties a really good starting deal – you know like the cable companies offer for the first year…. and see how many can’t resist it.

    the ROI process – require every new location road to have an investment grade toll analysis done and establish a benchmark for pass or fail.

    require that the future maintenance and operation costs of the new road be calculated and accounted for either through toll revenues or a clearly identified source of transpo funds.

  6. “Take the indexing this year. Get the ROI process next year”
    That is hilarious. It reminds me of the time when my kids were very small and my daughter tried to persuade her little brother to give her the dirty old dollar for a couple of shiny dimes. I am tired of subsidizing other people’s business plans.

  7. Vehicle Miles Driven Tax makes absolutely no sense, and it will unwind most of the environmental and conservation benefits of a fuels based tax.

    If and when significant numbers of autos shift to other fuels, then those fules should be included as part of the gas tax. Such taxes will take less infrastructure, less personnel to manage, and be far less expensive to collect than any Miles Driven idiocy.

  8. This is the Washington Post and land speculator position.

    =================================================
    The reason we build roads is to create benefits for the public. Why should that exclude land owners?

    It is true that the way we build commuter transit primarily benefits the job centers (and therefore landowners), yet we expect to pay for these roads from the USERS, not the beneficiaries.

    Once we focus on BENEFICIAIRES instead of USERS, and once we figure out how to allocate costs according to benefits recieved, we will have a fair balance of fuels taxes, real estate taxes, and sales taxes, each dedicated to maintaining and improeving the transportation SYSTEM, absent any predilections for or against, rail, bikes, or autos.

    Prejudicing this issue with a cheap verbal shot against land “speculators” gains us nothing. And neither does building expensive roads and then shutting the land owners out with archaic zoning regulation that ignore the nexus between transportation and land use.

  9. the ROI process – require every new location road to have an investment grade toll analysis done and establish a benchmark for pass or fail.

    ================================================
    Pass or fail is probably the wrong approach. What would be better would be a RANKING of projects based on similar analyses.

    The more important aspect of this is that is requires a life cycle analysis that considers the costs and benefits OVER TIME, and it means that we must select a common discount rate. Among other things this recognizes the benefits and the costs to the next generation of users and beneficiaries.

    But these kinds of anayses will also point out the deadly flaws in the “point in time” Cost of Community Services arguments that are used so destructively in thwarted needed and useful development. Properly done, such analyses will preclude damaging land speculation and yet allow valuable land appreciation.

  10. if there were such a process… where is it? we’ve been doing roads long enough that the folks who say there are “beneficiaries” …should be able to show some real life examples and have a defined process for quantifying the claims.

    Otherwise, it’s just another variation of “give us the money now and later on we’ll show you ROI”.

    trust but verify – ROI first…then we talk.

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