Bloomberg/BNA: Virginia Transportation Proposal Signals Shift in National Funding Conversation

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January 10, 2013

by Heather Caygle

Key Development: Va. Gov. Bob McDonnell proposes eliminating state's gas tax and using additional dedicated sales tax revenue to fund transportation programs.

Next Steps: Federal and state governments will examine funding solutions for surface transportation programs in 2013.

A recent proposal by Virginia Gov. Bob McDonnell (R) to move away from a user-based fee system for surface transportation programs has broad implications and signals a shift in the national conversation about funding transportation, according to several stakeholders.

McDonnell's five-year plan, introduced Jan. 8, would replace the state's gas tax with a 0.8 percent sales tax increase dedicated to transportation funding. If approved, Virginia would be the first state in the nation to eliminate its gas tax.

While eliminating the state's 17.5 cents-per-gallon gas tax, the tax on diesel fuel would remain. The plan would also dedicate additional sales tax revenue to transportation, increase vehicle registration fees by $15, and impose an annual $100 fee on alternative fuel vehicles. The governor's office estimates the changes would generate more than $3 billion in transportation funding for the state over five years.

Transportation policy experts told BNA the proposal to move away from a user-based fee system and rely on other forms of revenue is an example of the ever-evolving national conversation on transportation programs as states and the federal government struggle to find a viable, long-term funding solution....

Carl Davis, a senior analyst at the nonpartisan Institute on Taxation and Economic Policy, said that while McDonnell understands the problem of lagging gas tax revenues, his decision to shift to sales tax revenue is not a good idea.

“Walking away from the gas tax entirely is fundamentally poor tax policy. He's shifting the responsibility away from frequent drivers, long-distance drivers, and commuters on to everybody else and then taking that money back and using it for roads,” Davis said....

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