Governor McDonnell's transportation plan includes eliminating gas tax, increasing state sales tax

Governor Bob McDonnell is proposing a major overhaul of transportation funding that would do away with the state’s gas tax, and increase the state sales tax by almost a penny.

The Governor’s office says the plan would generate more than $3 billion for roads over the next five years, and could speed the return of passenger rail to Roanoke.

The problem, Governor McDonnell's aides say, is that gas tax revenues are flat. Inflation has taken its toll, and so has the increasing fuel efficiency of American automobiles.

Virginia would be the first state in the nation to eliminate the gas tax. The Governor’s aides describe this as” a very bold step” that would preserve the viability of the state's transportation system. 

The plan would:

- Replace the gas tax of 17.5 cents per gallon with a .8 percent increase in the state sales tax.

- Dedicate another quarter percent of the existing sales tax to transportaion.

- Increase vehicle registration fees by $15.

- Impose a $100 annual fee on alternative fuel vehicles

- Collect sales tax on out-of-state purchases

The plan would also generate additional funding for passenger rail, and aides to the Governor say it would include enough money to extend service from Lynchburg to Roanoke.

Here is the news release from the Governor's office:

With legislators and transportation leaders by his side, Governor Bob McDonnell announced today a plan that would provide more than $3.1 billion in transportation funding for the Commonwealth over the next 5 years, tying transportation funding to economic growth and replacing the state’s outdated gas tax revenue model with a 0.8 percent increase in the state’s sales tax dedicated to transportation. The proposal would make Virginia the first state in the nation to eliminate the state tax on gasoline, allocates additional general funds to transportation, capitalizes on revenues being lost on out-of-state sales, and creates a long-term revenue system to fund Virginia’s highway, rail and transit needs. Virginia’s current transportation maintenance funding shortfall means that in FY 2013 $364 million must be transferred from the state’s construction account to pay for road maintenance. That transfer amount is anticipated to grow to $500 million by FY 2019 unless new funding is provided. In short, Virginia has to use money meant for construction for paving and potholes. The governor’s plan fixes the problem by generating $844 million in new funding per year for transportation by FY 2018, eliminating the state maintenance crossover and contributing to construction, rail, transit and other priorities. By eliminating crossover and with proposed revenue growth, this plan provides an additional $1.8 billion for highway construction over the next 5 years.

“Transportation is a core function of government. Children can’t get to school; parents waste too much time in traffic; and businesses can’t move their goods without an adequate and efficient transportation system,” Governor McDonnell said. “My 2013 transportation funding and reform package is intended to address the short and long-term transportation funding needs of the Commonwealth. Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth’s transportation program and the way it is funded. We simply cannot continue to do what we have always done and expect this problem to go away. The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state. In short, if we stick to the same old means of funding transportation, we will find ourselves having the same debates and facing the same revenue shortfalls over and over again as inflation slowly eats away at the gas tax, cars get better mileage to meet CAFÉ standards and more alternative fuel vehicles hit the streets. Market forces clearly dictate that we have to change how we fund transportation. This is a math problem. The current revenues numbers do not add up to a safe, efficient and sustainable transportation network. The time is now for an innovative and sustainable plan to meet our transportation needs and grow Virginia’s economy.”

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.