Government Affairs

General Assembly Update

January 9, 2013

GOVERNOR ANNOUNCES TRANSPORTATION FUNDING INITIATIVE

Flanked by senior legislators and speaking to a packed room, Governor McDonnell announced a transportation funding proposal that would add $3.1 billion in new revenue to transportation over the next five years.

The governor’s 2013 Transportation Plan proposes to make these fundamental changes:

• Eliminate the current 17.5 cents per gallon motor fuels tax on gasoline:The viability of the gas tax as the state’s primary revenue source for transportation has been eroded by greater vehicle fuel mileage, the introduction of alternative fuel vehicles and the impact of inflation. Once this provision is enacted, Virginia will become the only state in nation without a tax on gasoline and motorists will likely see a significant break in the price of gasoline at the pumps. The motor fuels tax on diesel will remain unchanged because heavy trucks have a disproportionately large impact on the deterioration of Virginia’s highways.
• Replace the current gas tax with a 0.8 cent increase to the Sales and Use Tax (SUT) dedicated to transportation: The SUT is a reliable, predicable and sustainable revenue source. For decades we have already had the policy that .5 cents of the sales tax goes to transportation. As the economy grows, the revenue from the SUT grows with it. As a percentage of the price of a product or service procured, the SUT inherently accounts for inflation. Virginia’s SUT will remain below its neighboring states. Under the governor’s plan, 85 percent of the increased SUT will go to the Highway Maintenance and Operations Fund and 15 percent will go to the Transportation Trust Fund.
• Dedicate an additional .25 cent of the state’s portion of the existing SUT to transportation: Transportation currently receives 0.5 cent of the SUT, and the governor proposes to phase in this share to 0.75 cent over five years. When combined with the 0.8 cent SUT increase, transportation will receive approximately one-quarter of SUT proceeds, thus ensuring a sustainable transportation revenue stream for the future. All of the revenues from the additional .25 cent will be dedicated to support maintenance and operations. During the first three years, however, up to $300 million will be committed to the Dulles Metrorail Extension Project, providing the reforms identified by the U.S. Department of Transportation Inspector General are implemented.
• Increase vehicle registration fees by $15 and dedicate the revenue to intercity passenger rail and transit: There is a strong and growing demand for public transportation in Virginia, both within and between the state’s regions. The successful passenger rail services to/from Washington, DC and Lynchburg, Richmond, and Norfolk, and the dramatic growth in transit in Virginia (especially in Northern Virginia and Hampton Roads) requires greater financial support from the Commonwealth. This need is anticipated to grow as passenger rail services are extended to Roanoke, light rail is extended to Virginia Beach, and Metrorail is opened to Dulles Airport and beyond. Revenues generated by the fee will be split between passenger rail and transit.
• Impose a $100 annual Alternative Fuel Vehicle Fee and dedicate the revenues to transit: The governor is a strong supporter of alternative fuel vehicles. He has directed that Virginia’s state fleet be converted to natural gas vehicles. And he knows that alternative fuel vehicles will only continue to grow in popularity and use in the years ahead. In fact, over the past four years, as gas prices have grown from less than $2 per gallon to as high as $4, more Virginians have turned to alternative fuel vehicles. There are over 91,000 of these vehicles currently registered in Virginia. This is a great development for energy security and conservation, but it does present a challenge to how transportation funding has been derived in America for the past century. Drivers of alternative fuel vehicles that use natural gas or electricity pay no motor fuels tax at the state or federal level and thus do not contribute to the primary means of funding roads. However, these vehicles still have the same impact on Virginia’s roadways as conventional fuel vehicles.

While the governor’s plan will eliminate the Virginia gasoline tax, the federal gas tax of 18.4 cents will remain and with more alternative fuel vehicles on the road, the less of a share Virginia will get of those federal gas tax revenues. Therefore, the governor’s plan proposes an additional $100 fee for alternative fuel vehicles to ensure that these drivers continue to contribute something to Virginia’s transportation networks, which they use every day. The revenues generated by this fee will be dedicated to the Commonwealth Mass Transit Fund to help fund the growing demand for transit and reduce congestion. Legislation passed during the 2012 session already required a fee for electric vehicles, and this measure applies the increased fee to all alternative fuel vehicles.

• Adopt the Marketplace Equity Act now and dedicate projected revenues to transportation and education: The 113th Congress will consider the Marketplace Equity Act, which would grant states the legal authority to collect out-of-state sales taxes. This is a tax that is already imposed and required by law to be paid as a use tax on the taxpayer’s income tax return. Unfortunately, compliance is very low and these are dollars we should be collecting. This proposal would conform the Code of Virginia to any changes in federal law, contingent upon the Marketplace Equity Act being adopted by Congress. Potential revenues will be dedicated to transportation, public education and localities. Governor McDonnell’s 2013 Transportation Funding Plan will allocate a portion of these revenues not only to transportation, but also to other critical areas of need. First, 1.125 cents of the 5.8 percent sales tax will be dedicated to public education ($310 million over 5 years). Second, 0.5 cents of the 5.8 percent sales tax will be given back to the localities to use at their discretion ($138 million over 5 years). Third, 0.5 cents of the 5.8 percent sales tax will be given back to the localities for local transportation priorities ($138 million over 5 years). Finally, 3.675 cents of the 5.8 percent sales tax will be provided to the Transportation Trust Fund ($1.02 billion over 5 years). In conversations with Congressional leaders, it is likely that this bill passes in congress. The bill has support from the National Governor’s Association and both online and bricks-and-mortar retailers.

To see a chart on the various revenue streams go to: Funding Fact Sheet

To read the Governor’s Press release in its entirety, go to: Governor’s Press Release