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Virginia’s transportation plan under the microscope
Posted By Eileen Norcross On January 14, 2013 @ 12:51 pm In Balanced Budget,City Life,Environment,Federalism,Infrastructure,Public Goods,Transit and Transportation | Comments Disabled
Last week Virginia Governor Bob McDonnell shared his plan  to address the state’s transportation needs. The big news is that the Governor wants to eliminate Virginia’s gas tax of 17.5 cents/gallon. This revenue would be replaced with an increase in the state’s sales tax from 5 percent to 5.8 percent. This along with a transfer of $812 million from the general fund, a $15 increase in the car registration fee, a $100 fee on alternative fuel vehicles and the promise of federal revenues should Congress pass legislation to tax online sales  brings the total amount of revenue projected to fund Virginia’s transportation to $3.1 billion.
As the Tax Foundation  points out, more than half of this relies on a transfer from the state’s general fund, and on Congressional legislation that has not yet passed.
Virginia plans to spend $4.9 billion on transportation. As currently structured, the gas tax only brings in $961 million. There are a few reasons why. First, Virginia hasn’t indexed the gas tax to inflation since 1986. It’s currently worth 40 cents on the dollar. In today’s dollars 17.5 cents is worth about 8 cents. Secondly, while there are more drivers in Virginia, cars are also more fuel efficient and more of those cars (91,000) are alternative fuel. In 2013, the gas tax isn’t bringing in the same amount of revenue as it once did.
But that doesn’t mean that switching from a user-based tax to a general tax isn’t problematic . Two concerns are transparency and fairness. Switching from (an imperfect) user-based fee to a broader tax breaks the link between those who use the roads and those who pay, shorting an important feedback mechanism. Another issue is fairness. Moving from a gas tax to a sales tax leads to cross-subsidization. Those who don’t drive pay for others’ road usage.
The proposal has received a fair amount of criticism with other approaches suggested. Randal O’Toole at Cato likes the idea of Vehicle Miles Travelled (VMT)  which would track the number of miles driven via an EZ-Pass type technology billing the user directly for road usage. It would probably take at least a decade to fully implement. And, some have strong libertarian objections . Joseph Henchman at the Tax Foundation proposes a mix of indexing the gas tax to inflation, increased tolls, and levying a local transportation sales tax on NOVA drivers. 
The plan opens up Virginia’s 2013 legislative session  and is sure to receive a fair amount of discussion among legislators.
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URL to article: http://neighborhoodeffects.mercatus.org/2013/01/14/virginias-transportation-plan-under-the-microscope/
URLs in this post:
 shared his plan: http://www.governor.virginia.gov/utility/docs/Transportation%20funding%20fact%20sheet.pdf
 big news : http://transportation.nationaljournal.com/2013/01/mcdonnells-cheeky-move-on-the.php
 tax online sales: http://www.washingtontimes.com/news/2012/dec/2/congress-eyes-online-sales-tax/?page=all
 Tax Foundation: http://taxfoundation.org/blog/virginia-governor-proposes-smoke-mirrors-transportation-financing-plan
 problematic: http://www.washingtonpost.com/local/bob-mcdonnells-virginia-road-tax-evasions/2013/01/12/8c84355a-5c6a-11e2-beee-6e38f5215402_story.html
 breaks the link : http://www.theatlantic.com/business/archive/2013/01/why-does-virginias-governor-want-to-tax-prius-drivers-and-shoppers-and-not-gas-guzzlers/266987/
 received a fair amount of criticism : http://www.nacsonline.com/NACS/News/Daily/Pages/ND0114134.aspx
 Vehicle Miles Travelled (VMT): http://ti.org/antiplanner/?p=7333
 libertarian objections: http://www.cato.org/blog/vmt-or-not-vmt
 local transportation sales tax on NOVA drivers.: http://taxfoundation.org/blog/virginia-regional-divides-lurk-behind-transportation-financing-debate
 opens up Virginia’s 2013 legislative session: http://www.bizjournals.com/washington/blog/2013/01/crystal-ball-on-mcdonnells.html?page=all
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