Virginia’s complex transportation funding bill, HB2313, is headed to Governor McDonnell for his signature and potential amendments. The bill is a prime example of political sausage, seeking to satisfy Republican and Democrat, urban and rural, transit and road constituencies.

Photo by jimmywayne on Flickr.It also represents poor public policy by undermining the “user pays” principle, failing to reform VDOT spending, allocating far too little to transit in an urbanizing state, and off-loading responsibility for local roads to Northern Virginia and Hampton Roads.

Some political observers argue that the only way Northern Virginia and Hampton Roads could win rural legislators’ support for new revenues would be to place the burden on themselves. And they have, by increasing local sales taxes, recordation fees and transient occupancy (hotel) tax, and with a higher state sales tax, which derives heavily from the two regions.

Virginia’s smart growth and conservation community expressed concerns with the bill on Saturday.

While Northern Virginia and Hampton Roads will able to raise (tax themselves), keep, and allocate new transportation revenue, VDOT escapes responsibility for meeting the needs of the two most economically important parts of the Commonwealth. The bill frees VDOT to take more of the statewide sales tax revenues for highway construction outside the two regions.

Now that the bill has passed, and presuming the Governor signs it, it will be incumbent upon legislators, local elected officials and the public to watch-dog how the money is spent, starting with the next update of the state’s 6-year transportation plan, due in June. Setting the right priorities with the local money from and for Northern Virginia and Hampton Roads will be equally important.

Who voted for and against?

The 25 to 15 vote in the Senate included 17 Democrats and 8 Republicans voting yes, and 3 Democrats and 12 Republicans voting no. Northern Virginia yes votes were Senators George Barker, Charles Colgan Sr., Barbara Favola, Mark Herring, Janett Howell, Dave Marsden, Toddy Puller and Richard Saslaw, all Democrats. No votes were Democratic Senators Adam Ebbin and Chap Peterson, and Republican Senators Richard Black and Jill Holtzman Vogel.

The 60 to 40 vote in the House included 25 Democrats and 35 Republicans voting yes, and 4 Democrats and 36 Republicans voting no. Northern Virginia yes votes were Democratic Delegates Robert Brink, David Bulova, Eileen Filler-Corn, Charniele Herring, Patrick Hope, Mark Keam, Kaye Kory, Robert Krupicka, Alfonso Lopez, Kenneth Plum, James Scott, Mark Sickles, Luke Torian and Vivian Watts; and Republican Delegates David Albo, Mark Dudenhefer, Thomas Greason, James LeMunyon, Joseph May, Randall Minchew, and Thomas Rust.

Northern Virginia no votes came from Democratic Delegate Scott Surovell and Republicans Richard Anderson, Barbara Comstock, Timothy Hugo, Scott Lingamfelter, Robert Marshall, Jackson Miller, and David Ramadan.

The complete bill history can be found here.

Follow the money

The best source for tracking the new taxes and the funding allocations is the HB2313 Transportation Conference Report, but even this requires interpretation.

While the bill no longer eliminates all taxes on gasoline, it still reduces what road users will pay in daily operating costs. It eliminates the 17.5¢ retail gas tax and shifts to a wholesale sales tax on gas. This reduces user fees in 2014 by nearly one-third, and by 20% in 2018 assuming the receipts increase because of a rise in gas prices.

The bill makes up for reducing gas taxes primarily by increasing the sales tax on new car purchases, charging a $100 fee on alternative fuel vehicles like hybrids, and tapping statewide sales taxes on goods and services (but not food).

Day-to-day vehicle user costs will decline, and all taxpayers will pay more even if they drive little or not at all. Meanwhile, transit fares are likely to continue to climb in the absence of adequate state support for transit maintenance and operating costs.

VDOT is free to continue wasting money on unnecessary highway projects

The statewide portion of the bill is truly a highway bill: it directs $538 million (annually by 2018) to the highway maintenance accounts, but this will effectively free up an equal amount in highway construction funds, allowing the current administration to continue a pattern of funding rural highways with little traffic demand.

Just last week, VDOT announced it would allocate another $869 million in federal Garvee bonds to Route 460 and the Coalfields Expressway, two of the most wasteful, unnecessary projects in the history of Virginia. Four questionable projects—Route 460 ($1.4 billion), Coalfields Expressway ($2.8 billion), Charlottesville Bypass ($240 million), and the Outer Beltway in Northern Virginia (estimated $1 billion)—total a potential $5.5 billion in misallocated spending.

Many expect that Secretary Connnaughton intends to divert a substantial portion of the new statewide money to the controversial and sprawl-inducing Outer Beltway, rather than to the critical commuter corridor needs of the metro regions.

Just 21% of the statewide funds go to transit and passenger rail in 2018, although passenger rail advocates are rightly pleased that $44 million in 2014 and $56 million per year by 2018 will go to current Amtrak services for which Virginia is now responsible, and for capital investment in the passenger rail network. An existing funding source supports upgrades for freight rail.

The $84 million for public transit isn’t a lot of money when it must be shared among transit agencies across the state. The bill allocates a separate $300 million to Dulles Rail, but like some of the road money it’s coming from the existing state sales tax at the expense of General Fund needs like education and health care.

The bill fails to address the empty secondary and urban road capital accounts, unless the administration commits to use some of the freed-up road money in the Transportation Trust Fund for this purpose. Instead, the bill implicitly off-loads the cost of local roads to Northern Virginia and Hampton Roads through the local sales tax increases in those two regions. Shifting this responsibility allows VDOT to spend more money on rural highways.

Part of the future depends on a bill in Congress

Part of the bill also depends on the federal Marketplace Equity Act, a bill in Congress which would let states charge sales tax on Internet purchases. If that does not pass by January 2015, the sales tax on gas will rise another 1.7 percentage points to make up for the expected revenue from the MEA. This would bring gas taxes back to a level comparable to where they are today, if not a little higher at current per-gallon prices.

The Washington Post also reports that Senator Janet Howell (D-Fairfax) secured another provision that would kick in if the MEA does not pass. In that case, the amount of general fund revenue directed to transportation would drop from $200 million a year to $60 million a year.

More taxes rise in NoVa and Hampton Roads

The bill would raise between $300 and $350 million per year in and for Northern Virginia by 2018. It does so by increasing the sales tax in northern Virginia by 0.7 percentage points on top of the statewide 0.3 point increase, for a new total of 6%.

There’s also a 0.25% recordation tax on recorded deeds and a 3% transient occupancy (hotel) tax. The bill retains the existing local 2.1% tax on fuel. 70% of the funds will go to “regional” projects and 30% to local projects in the locality where the money is raised. The funds can go to roads or transit, and the Northern Virginia Transportation Authority will decide how to allocate the money.

For Hampton Roads, the bill would raise $219 million in 2018, using a local sales tax increase of 0.7 percentage points and a 2.1% local tax on fuel. However, the legislation directs these funds only for roads, despite the great need for transit and widespread support for light rail in the region.

Following the success of “The Tide” light rail in Norfolk, 62% of voters in Virginia Beach’s referendum last November supported extending light rail to the beach. The Navy has also expressed its strong support for extending light rail to Norfolk Naval Station.

In a final example of VDOT off-loading costs onto the two metro regions, the bill failed to allocate state funds to Hampton Roads’ Midtown/Downtown Tunnel project which local officials want. Instead, the authors of the bill say that localities should use the new regional funding sources if they want to buy down the costs of the tolls, even as VDOT diverts $1.12 billion of state and federal funds to the unnecessary Route 460 over the objections of many in the region.

Photo courtesy of jimmywayne on Flickr

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While not everyone’s in Gov. Bob McDonnell’s corner when it comes to his vast transportation proposal, the list of Northern Virginia groups praising the plan is continuing to grow.

Addressing a friendly audience this afternoon at the Commonwealth Transportation Board, Governor Bob McDonnell plugged his transportation financing plan, arguing that it was “economically sound, politically viable” and will “fix the problem.”

“Our problem is a math problem,” the governor said. “Revenues are on a downward path and the cost of asphalt is on an upward path.” Within a few years, $500 million a year will be diverted from the state’s construction fund to pay for maintenance.

“I’ve used every asset I can find” that the General Assembly has made available to him, McDonnell said. He has audited VDOT four times. He has issued bonds. He has tapped the General Fund budget surplus. He has leveraged state dollars through tolled Public Private Transportation projects. Now the options are exhausted and the state needs new revenue.

McDonnell has proposed a five-point plan: (1) scrapping the motor fuels tax (except on diesel) and boosting the sales tax by 0.8%, a revenue source that will increase as the economy grows; (2) diverting 0.25% of existing sales tax revenue from the General Fund to transportation; (3) charging an extra $15 per year for vehicle registrations; and (4) charging alternative-fuel vehicles $100 per year, and (5) collecting taxes on online sales.

As people shift to more fuel-efficient automobiles and alternate-fuel vehicles, the governor said, the gasoline tax is not a viable long-term revenue source. “Relying on the state gas tax will only make the funding situation worse because the gas tax buying power has greatly depleted over the years.  Switching to the state sales tax is the reasonable and logical solution to fund projects.”

Underlining the governor’s remarks, John Lawson, chief financial officer of the Virginia Department of Transportation (VDOT) told the CTB that his five-year revenue forecast had become significantly more pessimistic over the past year. Compared to last year’s five year forecast (2013-2018), the amount of revenue available to VDOT over the next five years (2014-2019) is $766 million less. State revenue is expected to decline $218 million while federal revenue will plummet $548 million. Those numbers do not take into account added revenues from the governor’s tax plan, which, in enacted, would raise an estimated $1.8 billion over the same period.

Between direct funding reductions and a delay to bond issues, that means the state will have $700 million less to spend on new roads, bridges and highways than expected. Even previous to Lawson’s revelation, the McDonnell administration had been saying that the state would run out of state construction funding within four to five years.

Touting the sales tax component of his plan as a first for the country, McDonnell said. The sales tax “is predictable, it’s reliable and it grows.”

A wide array of business and labor groups have endorsed McDonnell’s plan, as have key Republican legislators. Democrats have been relatively quiet, although some have expressed concerns about the idea of siphoning money from the General Fund, which would come at the expense of schools, health care and other priorities. Conservatives have expressed suspicion of anything resembling a tax increase. Free-market advocates have argued that the shift away from the user-pays gas tax would subsidize driving.  And smart growth advocates have slammed the bill for that reason and others.

Before approving another $1.8 billion in spending over the next five  years, said Stewart Schwartz, executive director of the Coalition for Smarter Growth, in response to the governor’s remarks, the General Assembly should take a close look at how McDonnell is spending the $3 billion it authorized for to borrow. The U.S. 460 Connector between Suffolk and Petersburg, costing more than $1 billion in public dollars, has a very low cost-benefit ratio compared to projects going begging in other parts of the state, he said. What assurance is there, he asked, that new tax revenues won’t be similarly wasted?

Read the original story at Bacon’s Rebellion >>

Photo courtesy of James Bacon.