Virginia: Birthplace of Precedents

Virginia: Birthplace of Precedents

July 26, 2013  | Carter Templeton

ERIC PETERSON
Transportation Policy Consultant, Eno Board of Advisors

In January 2013, it was hard to imagine how the ambition of Virginia governor Robert McDonnell to deliver a comprehensive proposal to reshape the way transportation is funded and managed would be realized.

So different was the governor’s proposal from anything offered by Maryland’s governor Martin O’Malley, or by the daring governors of a handful of other states who were willing to put their political capital on the line in order to address the deficiencies of their states’ transportation systems. At its core, the Virginia governor’s proposal walked away from the principle that the users of the transportation system pay for the system’s use. The proposal offered to eliminate the per/cents per/gallon gas tax on automobile gasoline, bet on a yet unrealized federal law that would allow states to collect sales taxes on on-line merchandise purchases made by their residents, sought a tax on hybrid automobiles, and directed the use of general revenue to address transportation needs.

By contrast, Maryland’s governor, and the governors of Pennsylvania, Minnesota, Texas, Massachusetts, Wisconsin, and even Wyoming took the leap and made adjustments to their gas tax formulas. But in each of these states the core principle of “user pays” remained pretty much intact.

In the case of Maryland, for example, Governor O’Malley proposed to:

  • Index the gas tax to inflation starting immediately (with a ceiling of 5 cents maximum increase in any given year.);
  • Add a three percent sales tax at the gasoline pump, phasing that in over a period of three years starting this summer;
  • There are other provisions that could change the sales tax rate on gasoline that have to do with Internet sales tax. In short, if Congress allows states to tax Internet sales, Maryland will devote that revenue to transportation. If not, they’ll raise the sales tax on gas to five percent; and,
  • Raise $4.4 billion for transportation over six years (including the ability to borrow against increased future revenues.).

In its final form, the bill signed into law by Governor O’Malley provides $3.4 billion in new revenue by imposing:

  • A 1 percent sales tax on the retail price of gas beginning July 1, 2013. The sales tax will increase to 2 percent on January 1, 2015, and to 3 percent on July 1, 2015, and beyond. The sales tax will be based on the average retail price for regular unleaded gas over the previous 12 months. The state’s 23.5 cents-per-gallon excise tax will remain in place;
  • If federal Internet sales tax legislation is passed, 4 percent of total sales tax revenues from Internet sales will go to the state Transportation Trust Fund. If federal legislation is not enacted by December 1, 2015, the sales tax on gas will increase to 4 percent in January 2016 and 5 percent in July 2016;
  • A lockbox provision that requires lawmakers to pass legislation by a three-fifths majority in both the house of delegates and the state senate in order to transfer any proceeds from the transportation fund to the general fund;
  • A protection that transferred funds may only be used for “defense or relief purposes” and only if a major catastrophe occurs and the governor declares a state of emergency. No transfer can occur if it would jeopardize the rating of the Maryland Department of Transportation’s (MDOT) bonds, and any transferred funds must begin to be repaid to the transportation trust fund in the next fiscal year and must be fully repaid within five years;
  • A requirement that beginning in fiscal 2015, Maryland Transit Administration fares be increased every two years by the same percentage as the Consumer Price Index. Commuter bus and commuter rail service fares must be increased in 2015 and every five years as indexed to the CPI;
  • A vehicle surcharge increase from $13.50 to $17, with the revenue from the additional surcharge going to the Maryland Emergency Medical System Operations Fund for purposes including purchase of communications equipment and hiring additional state police pilots, and;
  • A requirement that the governor seeks an annual appropriation for the state highway administration for use in complying with runoff control requirements in the state’s Watershed Improvement Plan, beginning with $45 million in FY 2015 and increasing incrementally to $100 million in 2019.

The measure that passed the Virginia General Assembly and recently signed into law by Governor McDonnell provides over $3.1 billion above existing revenue over the next five years by stepping back from the traditional concept of “user pays” by way of a per-cents per-gallon gas tax, and replaces it with a complex revenue stream that includes:

  • Wholesale sales tax on gas
  • 5 cent per gallon tax on diesel fuel
  • .8 cent increase in the sales tax on goods excluding food
  • $15 increase in auto registration fees
  • $64 fee increase on hybrid autos
  • Revenue anticipated to come to states and local governments if Congress passes a measure allowing the collection nationwide of sales tax on goods sold via the internet;
  • The transfer of $300 million in state funds to support the Washington Metro Rail extension to Dulles International Airport and beyond
  • The authority for certain areas of the state to raise the sales tax to fund local transportation projects.

Additionally, the measure establishes an equally complex set of accountability requirements that ensure maintenance of effort and local participation in the selection and prioritization of transportation projects with a heavy emphasis on those projects that have a significant impact on relieving congestion.

For transportation advocates who argued that the commonwealth had fallen behind and needed somewhere between $500 million to $1 billion annually to meet the state’s on-going maintenance and capacity expansion needs the 2013 Transportation Funding and Reform Package meets their needs. Additionally, the legislation is multi-modal in its orientation, ensuring that pedestrian, mass transit, highways, and intercity passenger rail all have viability for funding opportunities.

At a time when the gridlock in Washington is so severe that its hard to understand why congress and the administration are not rated in the Texas A&M Transportation Institute’s “Annual Urban Mobility Report,” as the most congested places in the nation, it is heartening to see that in the case of Virginia the governor and the general assembly were willing to take a gamble and set a precedent that may point to the way all transportation may be funded and managed in the future.

For Maryland and the other states that were at least willing to demonstrate the courage to raise revenue, albeit in the traditional form, to address their transportation needs, they deserve great credit too.

The common thread that runs through all of these states, and the lesson for congress and the administration is that with strong leadership in the executive branch and bi-partisan cooperation in the legislative branch, combined with a high level of accountability and transparency there is a brighter future for America’s transportation system.

Indeed, when Governor McDonnell put forward his proposal in his state of the state address to the Virginia General Assembly on January 9, he challenged the assembly telling them: “If we are remembered at all, we will all be remembered for what we actually got done. Not what we promised to do.”

Developing a perspective on the sustainability of the Virginia Precedent

Below are nine questions policy makers may ponder regarding the long-term sustainability of the measure enacted by Virginia.

  1. What was the rationale for moving away from the cents per gallon gas tax to fund transportation?
  2. Does this shift away from the cents per gallon gas tax mean that the “user pays” formula for funding transportation is now obsolete?
  3. At the same time the state is moving away from the “user pays” formula vis-à-vis the gas tax, it continues to press for toll roads. Isn’t there a contradiction here?
  4. Some critics of the measure charge that using sales and other tax revenue for transportation deprives necessary funding for education and other public needs. This suggests that in the future indeed there may well be a serious conflict between transportation and other public needs with transportation being the loser. If that proves to be the case, could the state again be faced with massive infrastructure needs and no way to pay for them?
  5. While stating that he does not intend to seek repeal of the transportation funding and reform package, one of the candidates in this year’s gubernatorial race in Virginia proposes to cut taxes by $1.4 billion annually. In arguing for the transportation funding and reform package, its advocates said that there was not enough revenue available to address all of the state’s needs including its transportation system. If the gubernatorial candidate proposing the $1.4 billion annual tax cuts gets elected, won’t the state be back in the same dilemma from which it just seems to have been extracted?
  6. The transportation funding and reform package contains provisions that require performance measures on how effectively money generated by this legislation improves the performance of the state’s transportation system. Specifically, what will those performance measures be, and who will administer them?
  7. A portion of the money generated by the measure is to be sent back to the jurisdictions from where it was collected. Will local jurisdictions be required to administer the same performance measures in making their spending decisions that the state will be? How will local jurisdictions be held accountable?
  8. In Virginia’s model for funding transportation, is there a lesson for other states and/or the federal government for addressing their transportation needs?
  9. Having achieved a winning compromise that seems to have satisfied enough members of the general assembly from both urban and rural areas, what lessons have been learned that might enable future governors and general assemblies to address other seemingly unsolvable challenges facing the state? Likewise, what are the lessons for other states and the federal government?

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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