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General Assembly Update

January 28, 2013

New Study Confirms Benefits of Governor’s “Virginia’s Road to the Future” Transportation Plan

Governor Bob McDonnell today released the results of a new study on the economic impacts of his comprehensive, long-term transportation funding plan – “Virginia’s Road to the Future” - which is currently before the Virginia General Assembly (HB 2313/SB 1355).  The study was conducted by Chmura Economics and Analytics of Richmond.

Speaking about the study, Governor McDonnell remarked, “When I was elected, I pledged to find a workable, long-term, sustainable fix to Virginia’s transportation challenges. Earlier this month I announced our ‘Virginia’s Road to the Future’ transportation funding and reform package to invest more than $3.1 billion in Virginia’s transportation network over the next five years. This plan will restructure Virginia’s archaic transportation funding sources and put in place a system that will grow with economic activity and permanently address the long-term structural deficiencies of relying on the gas tax.  This study concludes the plan is revenue neutral and will result in lower gas prices for Virginia consumers. This is the plan that solves that Virginia’s longstanding transportation funding challenges, and I look forward to continuing to work with legislators from both parties to see it passed this session.”

The Governor’s transportation package: eliminates Virginia’s 17.5 cents per gallon tax on gasoline, saving Virginians millions at the pump starting this year; increases Virginia’s sales and use tax - a reliable, predictable and sustainable revenue source - by 0.8 percentage points and dedicates to transportation the additional sales tax revenue generated solely by growth in economic activity; increases Virginia’s existing sales tax commitment to transportation from 0.5 percent to 0.75 percent over the next five years; and, increases motor vehicle registration fees by $15 and includes a $100 alternative fuel vehicle fee, to offset lost federal gas tax revenue, to help fund Virginia’s strong and growing demand for passenger rail and transit.

Among the findings made by the Chmura Economics & Analytics study:

  • Competitive pressure of the gasoline retail market implies that when the gasoline tax is removed, retail prices will come down. Research indicates when the cost of gasoline is reduced by 10 cents, the retail price would be reduced by 9.5 cents.  Based on these findings, it is assumed that if the Virginia gasoline tax is removed, the retail price for gasoline could be reduced by 16.6 cents, or 95% of the 17.5 cents per gallon eliminated gasoline tax.
  • Using available data, the fiscal impact of the Governor’s proposal is essentially revenue-neutral considering its impact on the combined General Fund and Transportation Fund.
  • The new proposal will generate more revenue for transportation in the future, as transportation revenue—tied to sales tax—is expected to grow faster than the current motor fuel tax revenue.
  • The gasoline tax is more regressive than the sales tax. As a result, removing the gasoline tax will create a less-regressive tax structure than existing law, benefiting low-income households.
  • With the elimination of the gasoline tax, it is estimated that the overall sales of gasoline in Virginia will increase total sales at gasoline stations by $123.0 million.