Virginia Gov. Bob McDonnell has unveiled a potentially precedent-setting transportation plan that would eliminate the state gas tax in favor of higher sales taxes and other fees to fund highway and other projects.
McDonnell said the plan, announced Tuesday, would generate more than $3.1 billion for transportation over the next five years by dropping the state’s 17.5 cents per gallon gas tax and offsetting it with a 0.8 percent phased-in increase in the state’s general sales tax that would be dedicated to transportation. McDonnell’s plan also would increase vehicle registration fees by $15.
The plan would make Virginia the first state to completely eliminate its per-gallon tax on gasoline.
McDonnell echoed sentiments of other leaders who have opposed funding transportation with gas tax increases. More fuel efficient vehicles and inflation have weakened the power of gas taxes and the state and federal levels.
“The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state,” said McDonnell. “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.”
“This will be the single largest increase in dedicated funding for transportation in a generation, and will provide a true long-term sustainable and equitable solution to fund today’s transportation needs and to meet the future demands for a safe, efficient and economically viable transportation network,” said Virginia Secretary of Transportation Sean Connaughton.
The nonpartisan Washington, D.C.-based Tax Foundation was critical of the plan, labeling it “smoke and mirrors.”
“McDonnell states that his plan will generate $3.1 billion of additional funding for transportation,” said a release from the group. “However, $812 million is existing money that will be diverted to transportation, raising the question of what will happen to whatever that money presently funds.”
Also coming under fire was McDonnell’s plan to raise about $1 billion from taxing online sales, something reliant on pending federal legislation that is ultimately beyond his control. The Tax Foundation advocated a more user-fee based approach, saying McDonnell’s plan disproportionately burdens non-drivers and could lead to more congestion.
“If road funding comes from a mix of tolls and gas taxes, the people that use the roads bear the cost of them. Funding transportation out of general revenue makes roads ‘free,’ and consequently, overused,” said the group’s release.
Joung Lee, associate director for finance and business development at the American Association of State Highway and Transportation Officials said the plan would appear to move Virginia in a more “general taxing” direction unlike anything tried before. States have augmented gas tax with sales tax, but not completely swapped the two.
“I think it’s a pretty unique proposal,” Lee said.
Although he acknowledged the plan departs from the traditional “user pays” principle in transportation finance, Lee said the decision ultimately lies with individual states and that an argument could be made that transportation “underpins all economic activity.”
The Virginia General Assembly began meeting Wednesday and could act on the proposal any time between now and the end of February, when it adjourns.