WASHINGTON — Moody’s Investors Service has given its stamp of approval to Virginia’s new transportation funding plan, calling it a credit positive for the commonwealth at a time when it is highly exposed to risks from federal downsizing.
“The legislation makes the Commonwealth of Virginia the first state to address stagnant gas tax collections that have been increasingly insufficient to meet transportation funding needs, a problem faced by many states as they, consumers and automakers embrace higher fuel efficiency standards,” Moody’s said.
The legislation, passed by the Virginia General Assembly Feb. 23, replaces the current 17.5 cents-per-gallon gasoline excise tax with a 3.5% wholesale gas tax and a 6% wholesale diesel fuel tax. It also raises the commonwealth’s sales and use tax to 5.3% from 5% and dedicates the extra revenue to fund transportation projects.
These measures are projected to create an extra $200 million in fiscal 2014 alone, and perhaps more than $1 billion over the next five years. If Congress acts on an online sales tax bill allowing states to collect tax revenues from internet sellers, it could double the money created by the new plan.
As originally proposed by Gov. Bob McDonnell, the overhaul would have completely eliminated the gas tax, but Virginia Senate Democrats rebelled against the idea and countered with their own plan to increase the gas tax. The final bill, which McDonnell’s office is currently reviewing and which could be signed into law this month, came from a bipartisan compromise achieved just hours before the General Assembly adjourned for the session.
It also attempted to address the most congested areas of Virginia, levying some extra taxes in Northern Virginia and the Hampton Roads area.
“The total of all regional components is projected to bring in as much as $2.6 billion in transportation funds to those areas over the next five years, in addition to the statewide $3.5 billion,” said Moody’s.
The positive analysis from Moody’s is a boost for triple-A Virginia. Moody’s has Virginia on negative outlook due to its close economic ties to the federal government, which include large numbers of federal employees living in the commonwealth.
“The dedicated transportation funds come at a time when Virginia’s economy is highly exposed to federal downsizing,” the Moody’s report states. “Defense cuts included in sequestration in particular would have an a adverse impact on the commonwealth and its ability to address its transportation needs.”