DALLAS – The failure of Virginia's sales tax on gasoline to meet expectations is due primarily to a sustained drop in fuel prices, according to latest revenue report from the Virginia Department of Transportation.
John Lawson, chief financial officer at VDOT, told the Commonwealth Transportation Board last week that the 2013 law (HB 2313) that eliminated the state gasoline and diesel taxes of 17.5 cents per gallon in favor of a sales tax has generated $3 billion since it took effect, but that's $1 billion less than expected when it was passed.
"We expected an additional $4 billion but we've lost $1 billion of that," Lawson said.
The legislation, passed by the Virginia General Assembly in February 2013, replaced the volume-based fuel excise taxes with a 3.5% sales tax on the wholesale price of gasoline and a 6% tax on diesel fuel. It also raised the commonwealth's sales and use tax to 5.3% from 5% and increased vehicle title fees. The additional revenue from both levies was dedicated to Virginia's transportation trust fund.
When the fuel tax bill was passed in 2013, the average pump price of gasoline in Virginia was $3.57 per gallon. The current price is less than $2 per gallon.
"The intent was to capture some of the anticipated increases in gasoline prices and what we got was deflation," said Virginia Transportation Secretary Aubrey Layne.
"There's this misconception that everyone's paying much more and we've got all this money, and that is just not accurate," Layne said. "To say otherwise is just not being truthful with the people. We have to deal with reality here."
The 2013 transportation funding changes were expected to generate an additional $3.9 billion in revenues through fiscal 2019. Transportation-dedicated revenues were expected to total $20.25 billion over the period, up from the $16.3 billion that would have been generated by the pre-2013 funding system.
The latest forecasts calls for total revenues of $19.3 billion through 2019, a drop of $918 million, Lawson said. A new revenue forecast is expected by the end of the week.
Most of the revenue decline can be attributed to a $670.8 million drop in expected fuel tax collections through 2019, Lawson said.
Revenue from the fuels tax is now expected to total $4.72 billion from fiscal 2014 through 2019, he said, down from the original prediction in 2013 of $5.46 billion. The per-gallon tax had been expected to generate $5.44 billion over the same period.
Collections from the transportation taxes during the first six months of fiscal 2016 are 2% higher than expected, Lawson said.
Bonds currently are not an option for additional highway funding because no new debt is available right now, Layne said.
The General Assembly authorized a total issue of $3 billion of capital projects revenue bonds for transportation infrastructure, but a 2011 law accelerated the bond sales to front-load the funding for highway projects in the final two years of former Gov. Bob McDonnell's tenure.
"The 2007 bonds have been fully utilized and there are no more proceeds available for highway projects," said deputy transportation secretary Nick Donahue.
VDOT's previous six-year financing plan included $1.65 billion of bond proceeds, including $1.13 billion for roads and $519 million for rail, Donahue said. The current financial plan, which extends through fiscal 2021, provides $480 million of bond proceeds for rail projects but none for roads.
Gov. Terry McAuliffe "would be agreeable" to amending the transportation finance laws when the General Assembly convenes in January but lawmakers may be reluctant to approve more bonds, Layne said.
"The General Assembly last year did not seem to have much appetite for new debt," he said.
McAuliffe proposed a $2.4 billion infrastructure bond program last week for research and economic infrastructure projects. He is expected to announce a transportation bond proposal on Friday when he releases his budget plan for 2018.
The Commonwealth Transportation Board's outstanding bonds are rated AA-plus by Standard & Poor's and Fitch, and Aa1 by Moody's Investors Service.
