Governor proposes dumping state gasoline tax

Published January 8, 2013 by Robert Powell, III

Gov. Bob McDonnell today proposed replacing the commonwealth’s 17.5 cent gasoline tax with a 0.8 percent increase in the state sales tax.

The sales tax increase would raise Virginia’s total rate to 5.8 percent.

The change is part of a plan to generate $3.1 billion in funding for transportation over the next five years. The governor’s office said the proposal would make Virginia the first state in the nation to eliminate its gasoline tax.

Virginia’s gas tax has not been increased since 1986 despite repeated efforts in the General Assembly to raise it or to index it to inflation in recent years.

The commonwealth’s current transportation maintenance funding shortfall would result in $364 million being transferred from its construction account to pay for road maintenance during fiscal year 2013,

The amount of money being transferred is expected to grow to $500 million by fiscal year 2019 unless new funding is provided. “In short, Virginia has to use money meant for construction for paving and potholes,” the governor’s office said in a statement.

McDonnell expects his plan to generate $844 million per year for transportation by fiscal year 2018, eliminating the need to use construction funding for maintenance.

He said his plan will provide an additional $1.8 billion for highway construction during the next five years. 

“We simply cannot continue to do what we have always done and expect this problem to go away,” McDonnell said in a statement. He noted that inflation and the introduction of more fuel-efficient vehicles already have eroded the value of the gasoline tax.

“This is a math problem,” the governor said. “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 elements of the McDonnell’s transportation plan include:

•      Elimination of the current 17.5 cents per gallon motor fuels tax: The motor fuels tax on diesel will remain unchanged because heavy trucks have a disproportionately large impact on the deterioration of Virginia’s highways, the governor’s office said.

•      Replacing the gas tax with an 0.8 cent increase to the sales and use tax (SUT) dedicated to transportation: Currently, 0.5 cents of the sales tax has gone to transportation. McDonnell says that, as the economy grows, the revenue from the SUT grows with it. 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.

•      Dedicating another 0.25 cent of the state’s portion of the existing SUT to transportation: With the current half cent of the SUT, the governor proposes to phase in this share to a total of 0.75 cent over five years. When combined with the 0.8 cent SUT increase, transportation will receive approximately one quarter of SUT proceeds.  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, provided reforms identified by the U.S. Department of Transportation Inspector General are implemented.

•      Increase vehicle registration fees by $15 and dedicate the revenue to intercity passenger rail and transit: The governor’s office said there is a growing demand for public transportation in Virginia, including passenger rail services to and from Washington, Lynchburg, Richmond and Norfolk. Demand is expected to grow as passenger rail services are extended to Roanoke, light rail is extended to Virginia Beach, and Metrorail is opened to Dulles Airport and beyond. Revenues generated by the fee will be split between passenger rail and transit.

•      Impose a $100 annual Alternative Fuel Vehicle Fee and dedicate the revenues to transit: There are more than 91,000 alternative fuel vehicles currently registered in Virginia. The governor’s office said that drivers of alternative fuel vehicles using natural gas or electricity pay no motor fuels tax at the state or federal level and thus do not contribute to the primary means of funding roads.

McDonnell’s plan received a quick endorsement from the Hampton Roads Chamber of Commerce

“Current levels of congestion outside and within our region have placed business growth, tourism, port growth and our military facilities at risk,” Jack Hornbeck, the president and CEO of the organization, said in a statement.  “The Hampton Roads Chamber of Commerce applauds Governor McDonnell’s leadership in offering legislation that from our perspective will address what has been the Chamber’s top legislative priority for many years. “