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Compromise Would Lower Virginia Gas Tax, Raises Sales Tax

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The Virginia legislative session ends on Saturday, lending urgency to the push for the passage of a transportation deal.
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The Virginia legislative session ends on Saturday, lending urgency to the push for the passage of a transportation deal.

Negotiators in the Virginia House and Senate struck a deal on Wednesday on a compromise that includes Gov. Bob McDonnell's proposal to eliminate the state gas tax at the pump. The plan calls for it to be replaced by both a hike in the state sales tax, as well as a new tax paid by distributors on the wholesale price of gasoline — which means it could still be passed to consumers.

The compromise plan differs in significant ways from the sweeping package of reforms offered by McDonnell in early January, but it does keep intact his proposal to eliminate the state's 17.5 cents per gallon gas tax, replacing it with a 3.5 percent wholesale tax.

The deal also raises the state sales tax to pay for roads, but not by as much as the governor wanted.  The sales tax would increase from 5 to 5.3 percent under the deal reached by a conference of ten legislators. A $100 registration fee for hybrid and electronic vehicles is also included.

Deal still has to clear Senate Democrats

The deal now heads to the House and Senate for floor votes by the end of the week. While passage in the Republican-led House seems certain, the deal may run into trouble in the Senate, where Democrats and Republicans each hold 20 seats. Some Democrats remain unhappy with the plan to use revenue from the general fund to pay for transportation.

"The reduction in the gas tax makes no sense to me," said Sen. Chap Petersen (D-Fairfax). "Obviously I want to raise money for transportation... but it's a little bit of a shell game, quite frankly. Historically we've used sales tax for education and this is a major step in the other direction."

Petersen calls the $100 registration fee for alternative fuel vehicles "asinine."

"We want people to drive fuel efficient vehicles. Why would we penalize them?" he said.

Impacts for the Silver Line

To appease Northern Virginia lawmakers, the negotiators included McDonnell's proposal to use $300 million in increased sales tax revenue to finance the Silver Line rail extension to Dulles Airport.

The $5.5 billion Silver Line project is managed by the Metropolitan Washington Airports Authority, which has lobbied Richmond for funding in order to offset projected toll rate increases on the Dulles Toll Road. Those tolls are supposed to pay for 75 percent of Phase II of the Silver Line's construction cost under the current financing arrangement.

"When it comes to the Silver Line the $300 is vital to future toll mitigation," said MWAA chief executive Jack Potter.  "I would hate to think this opportunity would be lost."

Compromise creates Silver Line snafu

The negotiators' deal created an unexpected potential difficulty for the Silver Line extension. The agreement requires that Loudoun County approve a countywide commercial and industrial tax in order to be eligible for state transportation dollars for local projects. However, the county in 2012 created two special tax districts around its future Silver Line station stops.  

Supervisor Matt Letourneau (R-Dulles District) says an additional C&I tax would make the county uncompetitive with surrounding jurisdictions in attracting businesses.

"If the Legislature moves forward with this proposal it would force us to reexamine our funding mechanism for Metro [Silver Line] and create a great deal of doubt," Letourneau said.

Loudoun's participation in the Silver Line project is vital to eventually extending rail to Dulles International Airport.

In addition to the special tax districts for the coming commuter rail, Loudoun's Board of Supervisors has in place a special tax district for businesses along its busy Rt. 28 corridor. A C&I tax of 12.5 cents per $100 assessed property value would render the county at a steep disadvantage to neighboring Fairfax, Letourneau said.

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