McDonnell Proposes Higher Sales Tax To Replace Gas Tax

Virginia would become the first state to eliminate its gasoline tax if a major transportation funding plan proposed by Gov. Bob McDonnell is approved by the General Assembly.

To fund ongoing maintenance and new transportation projects, McDonnell is asking lawmakers to do away with the 17.5-cent state gas tax — which was last increased in 1986 — and replace it by raising the state sales tax from 5 to 5.8 percent.

The governor's proposal also calls for increasing by 50 percent the amount of sales tax revenue already dedicated to transportation, mainly to fund road maintenance. During the first three years, however, that tax hike would provide $300 million for the Silver Line rail project — the $5.5 billion rail line to Dulles Airport that has only received $150 million in state funding thus far.

“My transportation funding and reform package is intended to address the short and long-term transportation funding needs of the Commonwealth," McDonnell said during a press conference Tuesday. "Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth’s transportation program."

The gas tax, which currently accounts for about one-third of the state’s transportation fund, has lost 55 percent of its purchasing power when adjusted for inflation, McDonnell said.

The governor is also asking the General Assembly to approve a $15 increase in vehicle registration fees and a $100 charge to register an electric or natural gas car. McDonnell hopes to generate $844 million in annual new revenue by 2019 through these policies, which would mean $3.1 billion over the next five years for transportation projects.

"Those vehicles do not pay any gasoline tax, at the state or the federal level, but they use the roads the same amount as any other gasoline powered vehicle," McDonnell says. "So it is an equitably change to ask alternative fuel vehicles to fund part of the infrastructure needs."

A primary aim of the funding package is to stop the yearly transfer of construction dollars from the Commonwealth Transportation Fund to required maintenance projects, a process that will leave the fund empty by the end of the decade.

But McDonnell's plan abandons a fundamental transportation funding premise: that those who use the roads pay for the roads in the form of taxes.

"It's a dramatic proposal to shift funding from the gas tax to the sales tax, and we're going to have to look at what it means when you disconnect the tax from the actual use of the roadways, and what signal that sends,"says Stewart Schwartz of the Coalition for Smarter Growth, which favors developing public transit instead of road building. "We will also have to look at whether this generates sufficient money for the transit needs of the state."

Advocates of new roads and highways are also concerned about the possible elimination of the gas tax.

"If this were adopted, it would mean there would be no relationship to the extent to which people use the transportation network and what they actually pay for it," says Bob Chase of the Northern Virginia Transportation Alliance, which advocates road building.

McDonnell's plan also includes a constitutional amendment creating a constitutional requirement on transportation funding, which would have to be approved by voters. But the General Assembly has for years avoided injecting significant new tax revenue into transportation. While many agree the state needs billions of dollars of investment, there has been no consensus on the best way forward.