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Virginia Governor Proposes Smoke & Mirrors Transportation Financing Plan

2 min readBy: Joseph Bishop-Henchman, Scott Drenkard

Virginia Gov. Bob McDonnell (R) has released his anticipated transportation financing plan (PDF), which would eliminate the state gasoline taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , raise the state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. from 5 percent to 5.8 percent, and increase car taxes:

Table: McDonnell Transportation Financing Proposal (dollars in millions)


5 Year Transportation Revenue Change

5 Year
Net Revenue Change

Repeal the 17.5 cent per gallon state gasoline tax, but retain the diesel tax



Raise the sales tax from 5.0% to 5.8%



Transfer more general fund revenue to transportation



Increase car registration fee by $15



Impose $100 alternative fuel vehicle fee



Receive congressional authorization to tax additional online sales






Total if congressional authorization to tax additional online sales does not occur



Source: Governor of Virginia website.

McDonnell states that his plan will generate $3.1 billion of additional funding for transportation. However, $812 million is existing money that will be diverted to transportation, raising the question of what will happen to whatever that money presently funds. An additional $1.1 billion will come from taxing online sales, although McDonnell admits this relies on federal congressional action that has been “likely” for a while but has yet to happen. Subtract those out and his plan actually raises only about $1.2 billion additionally over five years, less than half of what he claims.

There’s no doubt that Virginia transportation financing is a broken system. This year, Virginia will spend $4.9 billion on transportation. The gas and diesel taxes will raise just $961 million of that, and car and road taxes another $1.3 billion or so. If the state raised all its transportation spending from the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. , the rate would have to be 89 cents per gallon. Tolls are generally popular but highly unpopular among key players. Voters have rejected efforts to raise regional taxes for transportation.

But McDonnell's plan to move away from user-related taxes and fees towards general revenues is going in the wrong direction. When road funding comes from a mix of tolls and gas taxes, the people that use the roads bear the cost of them. By contrast, funding transportation out of general revenue makes roads “free,” and consequently, overused. Theory and past experience suggest McDonnell’s plan will result in further congestion and continual underfunding of transportation in Virginia. The next governor and legislature might see the reintroduction of the gas tax while retaining the higher sales tax. Virginia’s transportation problems are serious and require a serious plan.