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01/09/2013 08:19 am ET Updated Mar 11, 2013

Bob McDonnell Gas Tax Proposal Would Fund Virginia Roads With Higher Sales Tax Instead

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On the eve of the 2013 General Assembly session, Gov. Bob McDonnell proposed increasing the state's sales tax and eliminating the gasoline tax in an overhaul of how the state funds transportation.

He wants to increase the state and local sales tax to 5.8 percent from 5 percent and permanently shift the revenue source for transportation to a tax with rising revenue, from one with diminishing buying power.

If lawmakers approve the plan, Virginia would be the first state in the country without a gas tax.

In the last full session of his term McDonnell is seeking a solution to the road-funding problem that has vexed Virginia lawmakers for decades. Overall, McDonnell says the plan would raise $3.2 billion in additional funding over the next five years, or through 2018.

The multicomponent plan would increase the annual motor vehicle registration fees by $15 on average, add a $100 fee for alternative fuel vehicles and capture more Internet sales taxes -- the latter pending congressional action.

McDonnell's administration estimates that by 2018, if all pieces of the plan were passed, it would generate $844 million annually in new funding and stop the shift of money from new construction to maintenance costs, and allow new construction of roads, rail and transit.

In addition to the 0.8 percent addition to the sales tax, which would be dedicated to roads, McDonnell wants to increase the portion of the sales tax currently dedicated to roads to 0.75 percent from 0.5 percent over five years.

A tax of 17.5 cents per gallon would remain on diesel.

Virginia's gas tax of 17.5 cents per gallon accounts for more than 30 percent of dedicated state transportation revenues. The tax has not been increased since 1986 and is not indexed to inflation. It's a declining revenue source because of vehicles' increasing fuel-efficiency and an increased use of alternative fuels.

Because state law requires legislators to fund road maintenance before new construction, transportation maintenance costs have been draining millions from the funds budgeted for new roads.

Since 2002, the General Assembly has transferred $3 billion from the road-construction fund to maintenance.

McDonnell called his plan a conservative bill that makes a "game-changing investment" in transportation. The legislation will be carried by the powerful Speaker of the House William J. Howell, R-Stafford, who previously questioned whether there would be enough time to make a major push on transportation in the 46-day session.

"When the discussion opened up on transportation not that long ago I was dubious about being able to put it all together," said Howell, who joined McDonnell at the news conference. "But there's been a lot of meetings, a lot of people meeting together, thrashing things out and I think we've got a good package."

He called it a "good, balanced plan" and said he has thought the gas tax was a "dinosaur tax."

"We've taken this uncertain, unsustainable form of revenue for transportation infrastructure and substituted it with a sales tax which is going to grow with the economy, be a broader base."

Also sponsoring the legislation are Del. Timothy D. Hugo, R-Fairfax, in the House of Delegates and Sen. Stephen D. Newman, R-Lynchburg, in the Senate.

The approach incorporates new revenues and more money from the general fund, two starkly different approaches. Republicans have argued that roads are a core function of government and should be funded through the general fund. They have opposed attempts to increase the gas tax.

Democrats have supported a gas tax increase but rejected attempts to shift to transportation additional dollars from the general fund, which is used to pay for schools, police and other programs.

"For us to get a bill that is economically sound, that fixes the problem and that will pass, there has to be a series of tradeoffs," McDonnell said at a news conference in Richmond Tuesday.

Criticism of McDonnell's plan came from both sides.

"I don't know of a single Democrat who is going to support this," said Sen. Richard L. Saslaw, D-Fairfax, the Senate Democratic leader.

"You talk about lunacy -- you're giving a free ride to all of the people -- 30 percent of our roads are used by out-of-state people -- and they're now going to get a free ride."

Americans for Tax Reform, the Grover Norquist-led anti-tax group, said the plan "as it stands now fails in its goal to prioritize transportation spending while avoiding tax increases."

And, it added, "At the same time, there is the danger that this plan could become an even worse deal for Virginia taxpayers as it moves through the legislative process."

Del. Benjamin L. Cline, R-Rockbridge, chairman of the Conservative Caucus, commended McDonnell for focusing attention on the issue.

He said his group stands ready to work with McDonnell on transportation reform "provided that a transportation 'Lock Box' is put in place to secure future revenues for transportation purposes, excessive fees are not imposed on Virginia motorists, and any reforms to the tax code are revenue neutral for Virginia taxpayers."

House Minority Leader Del. David J. Toscano, D-Charlottesville, said, "The governor's proposal has too many moving parts that require careful examination.

"Our test will be two-fold," he said. "First, does the plan raise sufficient revenue, both in the short-term and long-run, to meet our transportation needs for maintenance, construction, transit, and rail. Second, does the proposal take money away from critical portions of the budget, such as education, health, and public safety, that are essential to the viability of our economy and the protection of life quality."

McDonnell's approach would bea major shift in the way the roads would be funded, some noted.

George Hoffer, a University of Richmond economics professor specializing in the automobile industry, said the governor's approach in essence breaks the historical basis of funding highways with user fees, as McDonnell is proposing to shift the tax liability to a sales tax that the general public pays.

And, he said, drivers with large cars that get poor mileage are beneficiaries of the governor's plan.

"This is a major, major break" from the way it has been done, he said.

omeola@timesdispatch.com

(804) 649-6812

Reporter Jim Nolan contributed

to this report. ___

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