WASHINGTON — Virginia is poised to enact a funding bill that raises sales taxes but slashes fuel taxes to create $200 million of new transportation revenue each year that could be used to support bonding.
The plan is the result of a compromise between Republican Gov. Bob McDonnell’s unique overhaul proposal, which included a complete elimination of Virginia’s gas tax, and a state Senate proposal that included a tax increase. Though the GOP-controlled House passed McDonnell’s plan two weeks ago, it twice failed to gain support in the evenly-split Senate.
The new bill, which was expected to pass both chambers Friday after being churned out by a House-Senate conference committee over the previous several days to be eligible for McDonnell’s signature into law, would cut the commonwealth’s current 17.5 cents-per-gallon gas tax and replace it with a 3.5% wholesale tax paid by distributors, 6% on diesel. It would increase the general sales tax on Virginia purchases to 5.3% from 5% and impose several smaller fees and tax increases on other automotive transactions as well as diverting an extra sliver of a percent of general fund revenue to transportation as well.
All told, McDonnell’s office said the passage of the bill would raise about $200 million annually above existing transportation revenues, and another $200 million if Congress enacts an online sales tax law this session. McDonnell, who backs the proposal, had urged lawmakers to pass it.
“This is a recognition that transportation is vital to the future prosperity and economic well-being of the commonwealth, and it must be treated as such. It makes transportation a priority in Virginia’s budget,” McDonnell said. “I urge the members of the General Assembly to approve this bill.”
The agreement, if signed into law, would represent the first comprehensive transportation bill passed in Virginia in 27 years.
The bill includes a provision barring the proposed tolling of Interstate 95 south of Fredericksburg, which McDonnell’s office had earned preliminary approval from the Federal Highway Administration to do.
McDonnell and Virginia transportation secretary Sean Connaughton had said the I-95 tolling could raise $155 million over five years, going a long way towards maintenance on state-controlled roads and freeing up the state’s other transportation revenue for other bonding and pay-as-you-go projects.
Virginia municipal groups opposed the proposal and had retained legal counsel to fight it.
Ken Cucinelli, the Republican attorney general seeking the governorship in this year’s election, blasted the transportation bill.
“If reports are correct, this new bill contemplates a massive tax increase,” he said in a statement. “In these tough economic times, I do not believe Virginia’s middle class families can afford massive tax increases.”
McDonnell said his office would carefully review the bill once it passed both chambers Friday evening, and might make amendments.