Aiming to shore up long-standing shortfalls in the state's transportation budget, Virginia Gov. Bob McDonnell unveiled a sweeping plan to change the way the state pays for transportation infrastructure last week, proposing to axe Virginia's gas tax in favor of a sales-tax increase.
The plan eliminates the 17.5-cent-per-gallon gas tax and increases the state's sales tax from 5 to 5.8 percent, the idea being that as Virginia's population and economy grows, so will the sales tax receipts to help fund public works projects. The plan also proposes increasing vehicle-registration fees and adds an annual $100 charge for drivers of alternative-fuel cars.
The new revenue structure would raise an additional $3.1 billion over five years to help pay for badly-needed road work and infrastructure expansion in Old Dominion, home to some of the most traffic-clogged roadways in the country, according to the Texas A&M Transportation Institute.
The General Assembly is expected to consider McDonnell's proposal during this year's legislative session, which began Wednesday. If the measure passes, Virginia would be the first state to eliminate its gas tax, though drivers would still be subject to the federal levy of 18.4 cents per gallon.
States have long depended on the gas tax to fund infrastructure projects, but with increasingly fuel-efficient vehicles and the rise of alternative fuels, gas taxes are falling short of providing the necessary funds to pay for transportation infrastructure maintenance. "The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state," McDonnell said. "This is a math problem. The current revenue numbers do not add up to a safe, efficient and sustainable transportation network."
But McDonnell's ambitious proposal has riled up its fair share of critics, some of whom say the plan overlooks a secondary purpose of the gas tax: placing a heavier cost burden on residents who drive the most. "Yes, the gas tax is eroding as a source of revenue, but there's another reason for it: to make people realize that there are externalities and costs to driving," says Kim Rueben, senior fellow at the Tax Policy Center. "You don't recover that by just having higher registration costs—you want to vary that cost by usage."
Others have a more optimistic view of the plan, arguing that whether or not residents drive cars they still benefit from the transportation infrastructure maintained by the state. "If you buy groceries at a supermarket, transportation allows that to happen, and it makes sense for the cost to be shared as fairly as possible," says Gregg Laskoski, senior petroleum analyst at GasBuddy.com.
Despite the concerns over the governor's plan, even critics say there are pieces to the bill that could work if tweaked. One argument is that fuel, currently exempted from sales tax in the state, should be subject to sales tax. "That would be a fine swap," Rueben concedes.
All eyes will be on Virginia as the landmark proposal makes its way through the legislative process, and other states let the Old Dominion do the trial run on nixing the gas tax.