Virginia conferees reach flawed transportation deal

Budget

Virginia conferees reach flawed transportation deal

by Trip Pollard • February 21, 2013 9:28 am

As the clock winds down on the 2013 Virginia General Assembly session, a conference committee has reached a deal to eliminate the gas tax, but impose a wholesale tax on gas, divert more general fund revenue to transportation, and charge a $100 per year fee on alternative fuel vehicles. Some of the new funding will go to transit and rail, but the lion's share will go to highway construction.

Photo by ervega on Flickr.

The conference committee deal would generate an estimated $3.5 billion in additional transportation funds over the next 5 years, roughly $900 million a year after that, and even more in future years. It includes some positive provisions to address our transportation challenges, but is a flawed deal, with a number of provisions that are cause for serious concern.

If approved, the deal will affect for decades how Virginians travel, how much we pay in fees and taxes, and how our tax dollars are spent.

Since Governor McDonnell unveiled his plan the day before session began, there have been plenty of twists and turns to the effort to pass the most significant transportation funding boost in the Commonwealth since 1986. Reflecting the deep disagreement over various proposals, the House and Senate each narrowly adopted a major package, with sharp differences between the two versions.

A conference committee met this week and hammered out the proposed deal that now must pass each chamber. The House and Senate could vote on it as early as today.

Where will the money come from?

The primary disagreement between the House and Senate has been over whether to raise revenues through the gas tax and other user fees or to take money from the general fund.

Gas tax: The governor's proposal and the House version of the transportation bill would have eliminated the current 17.5¢ per gallon state gasoline tax, which the Senate voted to raise it and index it for inflation. The conference committee version would eliminate the gas tax, and fill the resulting budget hole (over $4.5 billion in the next five years) by imposing a wholesale tax on gasoline and diesel and increasing the sales tax on vehicle purchases.

Eliminating the gas tax weakens the logical tie between transportation use and funding, and Virginians who use roads less will subsidize those who use the roads more. The compromise does retain elements of a user-pays approach through the wholesale fuels tax and sales tax on vehicle purchases, although it sends a weaker price signal.

A better alternative would have been to increase and/or index the gas tax, or apply the sales tax to gasoline purchases, as the Senate version did. These measures would properly tie fees and taxes to use of public infrastructure and allow revenues to grow with the price of gas. The governor is correct that the gas tax is a declining revenue source, but the main reason it is declining is that it doesn't rise with inflation and hasn't been increased since 1986.

General fund: If much of the proposed funding deal only brings us back to where we are today, where do the additional funds come from? The deal would divert a portion of the existing sales tax, increase the sales tax, and devote possible future online sales tax revenue to transportation.

Sales tax revenues typically go to the general fund. Although transportation is a core function of government, there are few or no other state dedicated revenue sources for education, health care, public safety, and conservation. The deal would divert an estimated $3 billion over the next 5 years that could have gone to other core services, at a time when Virginia ranks 35th in state investment in higher education, 38th in public K-12, and 46th in Medicaid spending.

Clean vehicle fees: The compromise also would impose a $100 fee on alternative fuel vehicles, as the governor had proposed. This "hybrid car tax" is particularly hard to justify when gas taxes are being cut, and it would create a disincentive for purchasing vehicles that help achieve critical goals such as reducing pollution and conserving energy.

Regional funding: The proposed deal also includes regional funding packages of approximately $300-350 million annually for Northern Virginia and $175-200 million annually for Hampton Roads. Funding is likely to come through local sales tax revenues but many details remain unclear.

Where will the money go?

Amid all the debate, a central issue has largely been ignored: how will the state spend these additional funds?

Highway construction: The General Assembly authorized almost $4 billion in additional transportation funds just 2 years ago. The administration has earmarked almost all of these funds for roads, and has spent much of the money on destructive projects that do not address pressing transportation needs.

In the proposed deal, although there is some good news for rail and transit, most of the funding again will go to road-building—at least $2.6 billion over the next 5 years alone. The ultimate impact of this deal depends on how wisely this money is spent.

Passenger rail funding: Passenger rail is a transportation success story, with record ridership last year. Without dedicated, sustainable funding, however, Virginia could lose its intercity services due to federal funding changes. A bright spot of the proposed deal is that it would provide roughly $50 million annually to preserve and expand passenger rail.

Transit funding and Dulles Rail: The deal would provide additional funding to transit as well. In addition, $300 million would go to Phase 2 of the Dulles Metrorail (Silver Line) project, which would help address the relatively small contribution Virginia has made to a project that could significantly enhance multimodal transportation in one of the nation's leading economic and employment corridors.

However, going forward, it appears transit will only receive about 1/6 of the funding devoted to roads, despite transit's benefits in reducing congestion, energy consumption, and pollution while providing better services for elderly, disabled, and low-income citizens.

The compromise before the General Assembly offers some meaningful benefits, but it has numerous shortcomings and does nothing to advance overdue policy reforms to help ensure that our transportation dollars are used wisely.

Virginia needs a more balanced, efficient, and cleaner transportation system. Time will tell how far this deal gets us.

29 comments

Tags: Bob McDonnell, budget, gas taxes, roads, taxes, transportation financing, Virginia, Virginia legislature

Trip Pollard directs the Southern Environmental Law Center's Land and Community Program, which works in Virginia and 5 other states to promote smarter growth and more sustainable transportation choices.

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Sometimes it's frustrating to be a Virginian.

by m2fc on Feb 21, 2013 9:43 am • link • report

so if its 3.5 billion over 5 years, thats 500 million a year, with one seventh to transit - so about 70 million a year to transit projects beyond the Silver Line? (thats less than a seventh, but some money is going to rail in a seperate pot). thats going to be split among NoVa, richmond, hampton roads (extending that LRT line?) and all the smaller places. Will NoVa get even 30 million a year for transit projects? Given the number of things on tap (beauregard transitway, CCPY transitway, fairfax transitways, and conventional bus needs) thats not a lot.

No money there for PikeRail (naturally) Orange line extension, or anything else thats big.

Am I reading this right?

note also - roads funding in theory COULD include complete streets projects, with bike/ped features. I dont suppose the funding bill addresses that.

by AWalkerInTheCity on Feb 21, 2013 10:03 am • link • report

What's the difference between the gas tax and a wholesale tax on gas? Did these people miss the day they taught tax incidence in high school?

by Michael Perkins on Feb 21, 2013 10:11 am • link • report

Let's see. A 3.5% wholesale tax on gas is 3.5 cents per dollar, so about 12 cents at current prices. (lets say 3.50) ANd now indexed for any future inflation as well. Not a bad deal. At 5 cents it would be exactly the same as now, but again with the possibility of inflation. I'd prefer the 5% rate over the 3.5 rate, but it is a workable compromise. Additional taxes on car sales also make sense.

ANd you've got the possibility of local sales tax increases.

So on the funding side, it looks like a pretty good package. Buys VA maybe 5 years. As I said they really need the 5% rate over 3.5 but that isn't much.

(And yes, that means if gas prices fall due to the US becoming the Saudi America of oil production we are in trouble. That is the problem with percentages.)

On the spending side, yes the Silver Line continues to destroy the future of transit in NOVA. Sorry, you get what you pay for.

by charlie on Feb 21, 2013 10:18 am • link • report

The $100 fee for hybrids represents a partial claw-back of the extra Personal Property Tax rebate hybrids receive. For assessed value between $3,000 and $20,000 they receive a 60% rebate of the tax owed, double the rebate available on other vehicles. In Arlington, where the PPT tax rate is 5%, that savings could be as much as $255.

by Paul on Feb 21, 2013 10:21 am • link • report

$300 million would go to Phase 2 of the Dulles Metrorail (Silver Line)

While technically true, I believe this money will actually be used to mitigate toll increases on the DTR. So, really one should count this as money spent on roads, not transit.

Overall, Virginia is better off with no deal rather than this deal. This deal will encourage the sprawling development patterns that created much of the problem in the first place. By doing this, we will just be in the same situation again in a few years, looking once again to raise taxes to subsidize long commutes.

Better that you just leave things as-is. Sure, traffic will get worse but people will find ways to be innovative and work around that issue. Letting people figure out there own solutions is better than embracing a deeply flawed government solution.

by Falls Church on Feb 21, 2013 10:25 am • link • report

I'm less concerned with how the tax rate is implemented than what it would be. If the wholesale tax represents an increase that would be fine.

Gas prices are just not coming down. The whole ND oil thing is way overblown and has pretty much already been debunked. The only people pushing that are the oil execs and some officials they've fooled.

by Alan B. on Feb 21, 2013 10:28 am • link • report

Gotta love the VA-GOP thought process:
1. We need more $ for transportation!
2. OK, let's think up a new tax!
3. Monkey around with tax structure
4. Hey, this new tax plan doesn't actually raise any more $ for transportation!
5. ???
6. A job well done!

This isn't actually a "compromise" between any thoughtful parties; it's one group of idiots who want zero taxes demanding a tax cut and getting it.

by MLD on Feb 21, 2013 10:31 am • link • report

This will look great as Bob McDonnell can now say with a straight face that he cut taxes while raising money for transportation.

Granted this withers in the face of actually talking about whether it raises any real money or actually solves any problem but those can be spun away much easier and can be blamed on democrats somehow.

by drumz on Feb 21, 2013 10:41 am • link • report

The compromise is better than McDonnell's original proposal and the House bill, but not as good or balanced as the Senate bill. The good news is that VA will have more funding for transportation projects and transit. Yes, roads will get the lion's share, but there are road and highway projects that need funding too. And yes, there will be funds for bad highway sprawl inducing projects, but $5 or $6 a gallon gas will eventually bring them to a halt.

Looking at the proposed transit and rail funding from the additional revenues that McDonnell issued in January at the start of the process, the additional passenger rail funding would provide $102 million for Amtrak service extension to Roanoke, $79 million for 3 daily trains to Norfolk, and track improvements to Newport News and DC to Richmond. Outside of the $300 million for the Silver Line Phase 2, there would be about $100 million a year in additional funding for transit over the next 5 years over what is in the current 6 year budget plan. Look at the glass at being 1/2 full, not 1/2 empty.

Now if VA passing a tax increase for transportation can get MD to do the same, hopefully with a more balanced approach, the VA deal will have a positive secondary effect.

by AlanF on Feb 21, 2013 10:43 am • link • report

@drumz
I agree. Furthermore, it's disturbing that he's raiding the General Fund. Since politicians (especially of the conservative variety) don't have the courage to actually raise the revenue to pay for transportation they've been eyeing the General Fund for a while. Virginia is the first to actually put it's hands on it. Now we'll start seeing more and more of the General Fund being dedicated to transportation, and probably more and more of that to roads. It's not a good trend...

by dc denizen on Feb 21, 2013 10:45 am • link • report

"Hey, this new tax plan doesn't actually raise any more $ for transportation!"

not from taxes, but it also gets $$ from the general fund - IE by spending less for education, healthcare, etc. Which is a feature, not a bug for the Va GOP. And is something opposed by the Va Dems, whether autocentric or urbanist. The debate over Va's participation in the race to the bottom on social services is a big issue in Va, that is somewhat orthogonal to the mode/urbanism debates, even as its impacted by transportation funding.

by AWalkerInTheCity on Feb 21, 2013 10:47 am • link • report

As a few people have pointed out, the author of this story seems to have missed the point that the proposal keeps the gas tax pretty much the same by moving it from the retail level to the wholesale level and converting it to a sales tax rather than a per gallon tax. The tax is now a bit more hidden from the consumer, but the consumer will still pay it.

The gas tax revenue will now float a bit with the wholesale price of gasoline. That is generally perceived to be a positive move.

by Mr. Transit on Feb 21, 2013 10:57 am • link • report

I second m2fc. Sigh. Sniff.

by Jasper on Feb 21, 2013 10:59 am • link • report

To me the real questions are moving people west to east and making safe the current ratty infrastructure. So how and where the shell game funds are to be spent is the issue. We don't need new roads running north/south when traffic drives west/east. We dont need roads going to Dulles for truck transportation via air cargo when the Dulles level of business is tiny. Oh sure, Virginia wealthy will want more then their share of the money but the people still need to get to work and back without the current nightmare. So where the money is spent is the key. Better west/eat roads and much better infrastructure update...both spell jobs and ease of travel.

by NotasleepinCatharpin on Feb 21, 2013 11:00 am • link • report

So Virginia is going to tax gasoline at a rate lower than they tax everything else - even though we actually want people to burn less gasoline?

And then to pay for the roads, they're going to tax everything else so that people pay for it even if they don't drive or drive often?

So this is just a big handout to trucking companies (and others who drive a lot) and the gasoline industry, right?

by David C on Feb 21, 2013 11:05 am • link • report

@Falls Church, I would consider the $300 million for the Silver Line as funds for transit, not roads. Yes, it would go to keeping the future tolls increases down on the Dulles Toll Road, but unless I'm mistaken, the $300 million will be used to reduce the amount of bond debt that would be taken on by the Phase 2 project. Having a major transit project completed with a smaller debt load to pay off over the next 20-30 years is a good thing. Keeps the DC Metro system in a better financial situation than the debt burden problems that MBTA and the NY MTA have.

by AlanF on Feb 21, 2013 11:26 am • link • report

@AlanF

They could just provide that anyways. We in NOVA only get back 40cents in transportation specific funding for the money we send to Richmond.

The deal is a buyout for the 300 million, but ultimately we in NOVA will dole out 50-60million more per year and likely will continue to see that spent elsewhere (because they will keep coming back to the, oh well we just gave you 300 million).

The whole thing is moot, the bill will never pass the senate, but if it did it would be very detrimental to NOVA.

If the state wants to be able to say it cut taxes I propose it

Reduce the gas tax to 3.5% on whole sale. Increase sales tax 0.05 cents for any jurisdiction who does not want capital funds from Richmond, and 0.25 cents for any jurisdiction that does want capital funds from Richmond.

Then allow each jurisdiction to levy any taxes they want that go towards local transportation funding.

End of story. Maintenance is funded state wide, NOVA still pays some money to get nothing back (but less than we currently do) and we remove archaic laws that dont let us control our own needs.

Would never pass of course, because NOVA is Richmonds coin purse to fund rural insolvent areas, and then go back and tell them that those damn parasites in Socialist NOVA is back at it again.

Isnt politics fun?

by Tysons Engineer on Feb 21, 2013 11:33 am • link • report

Hmmm,

"charge a $100 per year fee on alternative fuel vehicles..."

Does the term "alternative vehicles" include recumbent bicycles. What about those shoes with toes in them, horse-drawn carriages, dog carts, circus cannons?

by Helen Paul on Feb 21, 2013 11:48 am • link • report

@Tysons Engineer, the latest news is that McAuliffe and Bolling are supporting the compromise bill, so given the short time left to the VA Senate, I expect it will pass. McAuliffe may be thinking that he can fix the revenue side of the bill in a couple of years if he is elected Governor.

on the comments about how the Republicans may claim that the compromise is not a tax increase, no this is a tax increase. Can't hide a sales tax increase. The sales tax is about the most visible of all the taxes we pay. The switch to a wholesale tax on gasoline is going to be all but invisible in the now constant swings up and down in gas prices at the pump.

On the $300 to $350 million in regional funding to NoVA. Will the NoVA governments be allowed to direct more of the money to transit project - Orange or Blue line extensions, Metro projects, streetcar or light rail - if they want to?

by AlanF on Feb 21, 2013 12:15 pm • link • report

the author of this story seems to have missed the point that the proposal keeps the gas tax pretty much the same by moving it from the retail level to the wholesale level and converting it to a sales tax rather than a per gallon tax

No, the proposal reduces the gas tax by 1/3. The current 17.5 cents per gallon will be replaced with a wholesale tax that's equivalent to 12 cents per gallon.

by Falls Church on Feb 21, 2013 12:23 pm • link • report

@AlanF

I talked to a couple people in state legislature, this bill wont pass the senate. Democrats in the senate can and will block this bill because of the hybrid tax as well as the amount of money coming from general funds.

I dont care if a prospective future democratic governor candidate, and a republican who has been snubbed by his party say other wise. They likely dont know any of the details.

Add on to this the fact that 2 republican senators from Loudoun may bail on voting yes because of the C&I tax necessary in any county receiving transit funds, annnnnnd you have yourself a bogus bill.

Id be happy to provide you names of who I have talked to off line, but it wont be passing, so we might as well talk about other alternatives.

by Tysons Engineer on Feb 21, 2013 12:28 pm • link • report

For anyone that wants to see the effective tax rates annualized I created a graph yesterday

by Tysons Engineer on Feb 21, 2013 12:29 pm • link • report

Hard to believe the tax on alternative fuel vehicles. A gift to the oil industry perhaps?

by Chris on Feb 21, 2013 12:33 pm • link • report

Just bitterness towards NOVA (In Arlington and Fairfax you are 5 times more likely to own a hybrid/alt vehicle than other parts of Virginia and 20 times less likely to own a truck)

Add into it that the GOP has effectively painted this as a Democrat tax plan, by having Cooch come out against it, even though the committee that came up with this idea was 8-2 republican, and you have the makings of some seriously hilarious Fox agendas

by Tysons Engineer on Feb 21, 2013 12:50 pm • link • report

Oh I forgot to mention why its politically a win win for VA GOP. If the democrats (and by if I mean when) in the senate block this one again it will be painted as if the democrats are unfairly and partisanly objecting to the plan and that it will "hurt transportation sustainability"

Haha, because the GOP is all about sustainable infrastructure and transportation funding

Good times good times

That is why the gas tax repeal was added as part of a transpo plan, victory through obfuscation

by Tysons Engineer on Feb 21, 2013 12:57 pm • link • report

This bill is garbage, better to do nothing than pass this thing. Here is hoping you are right Tysons, McDonnell will have to wear this one. He ran on finally fixing transportation, and the biggest thing he wound up passing was state mandated rape.

by Kyle-W on Feb 21, 2013 2:00 pm • link • report

So much for Tysons Engineer's insistence that the compromise bill would not pass the Senate. The Senate just voted 25-15 to send the bill on to the governor.

I for one am glad to see Republicans and Democrats working together to solve a problem. The fact that all of the left-wing folks on this blog and all of the right-wing folks on the Tea Party blogs hate this bill tells me that it's probably decent policy. Not perfect, but a good compromise. Governor McDonnell has shown real leadership on this issue and deserves better treatment than he gets from this blog.

by Chris on Feb 23, 2013 2:53 pm • link • report

After some last minute threats and drama over the compromise bill due to Medicaid and Cuccinelli trying to throw a wrench into the works, it passed the Senate. I agree it is a flawed bill, with the $100 tax on alternative fuel and EV vehicles probably the single worse part. But it is what it is.

However, it is also a very complicated bill with a bunch of provisions and new taxes and fees. Might be useful for GGW to post a comprehensive summary of what was in the final bill so people can figure out what it may mean for transit and rail funding down the road.

by AlanF on Feb 23, 2013 11:26 pm • link • report