Transportation Revenue Focus of Concern Again

U.S. retail gasoline prices adjusted for inflation. Source: EIA . The blue line is the adjusted price, looking back into the 1970s. Note the peak just about when Virginia thought it wiser to tax a percentage of price rather than a fixed tax per gallon. Find the interactive version here: https://www.eia.gov/outlooks/steo/realprices/

In the middle of a booming economy, with many state revenue sources surging, flat transportation revenues were the focus of warnings Monday in presentations by Virginia Secretary of Finance Aubrey Layne and Secretary of Transportation Shannon Valentine.

“I think we are heading for a cliff,” Layne told the House Appropriations Committee.  “For the first time in our history, we’re seeing no increase in fuel tax revenue while vehicle miles traveled goes up.”

With the transportation funding package of 2013, Virginia became less reliant on an excise tax, fixed cents-per-gallon gasoline approach and started using the sales tax, percent-of-average-price model.  Wholesale prices have fallen rapidly since.  The tax was 17.5 cents per gallon before 2013, and is now 16.2 cents.  The Department of Motor Vehicles tracks prices and adjusts it annually.

Adjusted for inflation, as tracked by the federal Energy Information Agency in the chart above, the real price of gas has moved little in four decades and if anything is now about as low as ever.

Flat gas tax revenue and rising vehicle miles traveled. Source: Secretary of Finance

Seriously, did anybody really expect to see gas prices in Virginia so far below $2 a gallon ever again?  Well, it was always a possibility.  There is a floor under the statewide tax, preventing a total collapse of the revenue stream, which Virginia is now standing on. The projection Layne shared seems to assume we stay at the floor for a while.  The growing use of non-combustion engines is adding to the fiscal pinch.

Motor fuel taxes are now third on the list of transportation revenue sources, behind the general sales and use tax and the sales tax on motor vehicle sales and transfers.  The $750 million being collected in tolls around the state annually is closing rapidly on the $900 million or so paid in fuel taxes.

Five years after that highly-touted package the Fiscal Year 2018 transportation revenues missed their forecast.  The forecast for this fiscal year was reduced by $43 million.  It seems the improved revenues from the general sales tax, shared with transportation, are preventing even deeper deficits.  Total revenue for this year is estimated at about $3.6 billion, excluding the tolls.

Valentine outlined the massive projects underway in the wake of the 2013 transportation revenue measure.  She talked about the Next Big Thing, a $2 billion plus set of projects to deal with overloaded Interstate 81, with the expectation that tolls will cover that cost.   At a projected 17 cents per mile for heavy trucks and about 11 cents per mile for autos, the 325-mile transit will be expensive for people making the full trip (not Virginians, mainly, which is the point.)

Once those tolls are in place, and the tolls for the expanded Hampton Roads Bridge Tunnel, will toll revenue pass gas tax revenue?  Very soon, Virginia, very soon.  It will be the third highest revenue source, then the second.  Virginia’s tax at the pump is getting smaller and smaller relative to other states.

Virginians – indeed any person driving an automobile or smaller truck, wherever they live – may be able to buy a pass good for a year of driving on I-81 for a relatively modest fee.  Valentine took great pains Monday to explain why that option works for the I-81 corridor, but not for the highly-tolled I-95 and Washington Beltway corridor.  If an I-81 annual pass does become part of the final approach, however, the demand for that idea elsewhere will be enormous.

The I-81 legislation has not been introduced.

I was a broken record on Bacon’s Rebellion for years, advocating for an increase in the basic fuel tax, hated though it is, and worrying that the change in approach would backfire.  That debate over high gas taxes continues in Washington as federal highway funds dwindle.  The debate is over in Virginia.  Tolls will be the default position now.

Valentine explained that with tolling revenue, the bonds to support the I-81 plan will likely have AAA rating.  A similar amount of revenue, using a 2.1 percent add on to the gas tax and an additional 0.7 percent on the general sales tax, would likely earn AA rating, meaning higher interest payments and fewer dollars for pavement and technology.

Who cares what the voters want, listen to Wall Street.  The gas tax is so 20th Century.   The underwriters know that the forces eroding its usefulness will grow, not abate, and the political will to hike it from time to time to keep up with general inflation is lacking, in Richmond or Washington.

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11 responses to “Transportation Revenue Focus of Concern Again

  1. re: ” Who cares what the voters want”

    well the voters are irrational in their expectations. They want MORE and MORE roads and transportation infrastructure but they have to this point threaten any elected with ouster if they support increased taxes….

    indeed – the last time, we saw this: “Virginia Governor Bob McDonnell Signs Largest Tax Hike in Virginia History into Law

    Governor Bob McDonnell, in one of his final acts as governor of the Commonwealth of Virginia, signed into law a $5.9 billion tax increase on Virginia families to fund light rail and transportation projects throughout the Commonwealth.”

    Now this kind of rhetoric – comes from the right and if they savaged McDonnell that way, guess how they’d treat a Dem govt!

    Oh.. and if you like that, the GOP in Congress wants to get rid of the Federal gas tax altogether and turn that job entirely over to the states!

    Just to clarify. 1/2 of transportation revenues go to maintenance and operations and in Virginia, typically to this point – they rely on State Revenues to pay for that and the Fed revenues pay primarily for new construction.

    And if we actually “listened” to the taxpayers – they don’t like tolls or taxes and our transportation network would go to hell in a handbasket. If they think things are bad now………..

    One other thing that folks in Virginia do not realize and that is that because Virginia is but one of four states where the state DOT maintains county roads it has the 3rd largest road system in the country – larger than California!

    One way that VDOT could do better is by turning responsibility for county roads over to the counties – like has been done for Henrico and Arlington and all the counties in 46 other states.

    The other thing, they have already done – SMARTSCALE – which is a metric-based rating system for new roads. Pretty much has crushed developer roads, good riddance.

    Let Fairfax County be responsible for it’s own local roads ( VDOT would still be responsible for Interstate and Primary). Let Fairfax be responsible for subdivision and 600 series roads including dealing with cut-through traffic and other primarily local issues where local voters can hold local elected accountable.

  2. I love how this system picks some related older posts at random, and there was this as part of the one it chose from 2005. (You can also see my comments about the gas tax from those days, when I lobbied for the VA Chamber of Commerce.)

    “GOPHokie |
    September 1, 2005 at 11:24 pm
    Yes I have been to Hokieland lately, I am here right now. I realize some people don’t like traffic, but 81 is not a problem. Unless there is a wreck or major construction, it moves and at the speed limit from Hburg to Cburg. I know some of you out there think we should have 5 cars in sight of each other at a time, but its not really that bad. Perhaps I just don’t travel it when its heavy, but NOVA people would call 81 a walk in the park compared to what they have.”

    Well, that was then and this is now!

    Larry – people who voted for McDonnell’s bill can now brag they voted to CUT taxes!

  3. re: ” people who voted for McDonnell’s bill can now brag they voted to CUT taxes”

    Oh they can , could, but they’re too busy keeping their heads down on any talk of higher taxes!

    “complicated” things like Transporation and health care, the public is all over the map. Few really understand and most don’t want to hear facts when talking about costs and how to pay.

    Over and over, voters are asked HOW they want to pay for roads and over and over their response is “NOT TAXES AND NOT TOLLS”. And then they vow to “get” any politician who votes for tolls or taxes!

    For instance, for the last few years – voters in Nova have gone after any politician who supported or supports HOT lanes and their predominate view is that they are getting cheated out of their tax revenues by VDOT giving them to other localities… no facts mind you… just beliefs…. but don’t let that get in the way………

    I-81 is an unholy disaster… no two ways about it – and it’s that way in no small part because those in the I-81 corridor think just like NoVa folks do when it comes to paying – no taxes and no tolls… let others pay.

  4. I would like to see some benchmarking of Virginia against other states. One parameter to look at would be how much tax Virginia takes in from other states, via tolls etc. I feel like Virginia must be very low on that parameter, because our strategy is to tax NoVA when we need money. Our fuel tax should be higher too.

  5. All I can say is, I told you so. The stagnation of gas tax revenue is one of the world’s most easily foreseeable problems. Like Steve, I harped on that issue back when McDonnell was pushing his transportation tax passage through the General Assembly.

    Electric vehicles are becoming a reality — still a small percentage of the automotive fleet, but a fast-growing percentage. EVs need to pay their fair share of building and maintaining roads. That’s why we need a Vehicle Miles Traveled tax.

    • People don’t like a meter on their vehicle. It would be better to handle VMT with a plan that had a block rate. To make up a plan, vehicles driving fewer than 10,000 miles would pay $A. Between 10 and 15 K, $B. Between 15-20 $C. Etc. This is not unlike how insurance companies rate drivers based on why and how far they drive. My wife just got a rate cut when she retired from the federal government. She’s now a pleasure driver only. I still am rated as a commuter, albeit a very low-mileage commuter.

      And we also need to have a substantial increase on the fees paid by very heavy vehicles that truly damage roads and bridges.

      • The problem with a block rate is that it assumes that the costs of all driving are the same. Driving down a rarely used road in southwest Virginia might cost a whole lot more per mile than driving down a heavily used road with adequate capacity in an area within the “urban crescent”. Why should the urban crescent drivers subsidize the rural drivers. In addition, the taxes collected in one region of the state should be spent in that region of the state – perhaps even on the specific road itself.

        People won’t like meters in their cars. They didn’t like safety inspections, 55 mph speed limits, emission inspections, daytime headlight zones, arbitrary tolling of some roads, seat belt alarms and many other things. They’ll get over it.

        I am convinced that the only way to solve Virginia’s transportation problems is a VMT for every Virginian tied to the actual roads taken.

  6. Here’s the bottom line.

    Whether it’s NoVa or Hampton Roads or the I-81 corridor – the people in those regions cannot agree much less support a path forward to pay for infrastructure – and VDOT and other leaders have to make the decision then suffer the ire of the same folks who could not/would not agree to do something.

    And the really funny thing is – that for all the talk about “socialism” these days, nothing is more socialistic than public roads where the government kicks people off their land to build roads and taxes everyone to pay for them and everyone is ENTITLED to use them for “free but talk about that for health care and all heck breaks loose!!!!

    • Larry, Article 1, Section 8 of the U.S. Constitution gives Congress authority to establish post offices and post roads. It says nothing about health care.

  7. Gee, DJ..a funding source that collects more when you are idling in traffic than when you are cruising at the most efficient speed. That would be the gas tax. Or do you want it the other way around?

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