Virginia Governor Proposes Smoke & Mirrors Transportation Financing Plan

Virginia Gov. Bob McDonnell (R) has released his anticipated transportation financing plan (PDF), which would eliminate the state gasoline tax, raise the state sales tax from 5 percent to 5.8 percent, and increase car taxes:

Table: McDonnell Transportation Financing Proposal (dollars in millions)

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 tax, 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.