Va. Gov. McDonnell: Use sales tax hike for transportation

Would replace 17.5 cents a gallon charge at pumps

RICHMOND — Virginia Gov. Bob McDonnell on Tuesday proposed a five-year, $3.1 billion transportation funding package that includes replacing the state’s gasoline tax with a sales tax increase of nearly a penny on the dollar.

The Republican governor unveiled his plan for roads and transit on the eve of the 2013 General Assembly. If lawmakers approve, Virginia would be the first state to drop its gasoline tax.

Mr. McDonnell said the gas tax is no longer a viable revenue source for maintaining and building highways because of inflation and more fuel-efficient vehicles. State officials said the purchasing power of the gasoline tax has declined by more than half since it was last increased, to 17.5 cents per gallon in 1986. Also, fuel economy improved from an average of 10.3 miles per gallon in 1986 to 27.3 mpg in 2011.

“That’s just an unsustainable trajectory,” Mr. McDonnell told reporters and scores of business representatives and lobbyists who packed a news conference.

While the gas tax has been stagnant, sales tax revenues have continued to grow with the economy, Mr. McDonnell said. His plan to increase the state’s 5 percent sales tax to 5.8 percent and dedicate all of the additional revenue to transportation would raise an additional $607 million over five years, he said. Eighty-five percent of the additional revenue would be spent on maintenance, the rest on construction.

The 17.5 percent tax on diesel fuel would remain unchanged because heavy trucks cause about 80 percent of the damage to Virginia’s highways, the governor said, and most of those vehicles come from out of state.

The plan also includes Mr. McDonnell’s previously announced proposal to increase the portion of the existing sales tax already earmarked for transportation. A half-cent already goes into the state’s highway fund. The governor’s proposal would increase that commitment to three-quarters of a cent over five years, generating an additional $811.5 million over that period.

When combined, the two sales tax changes would give transportation about one-quarter of sales tax proceeds.

Democrats have opposed proposals to allocate more of the sales tax for transportation, calling it a raid on public education and other priorities that are financed by the state’s general fund. Mr. McDonnell said the state has been increasing education funding and ending each year with surpluses, so it can afford to shift a little more general fund money to transportation.

Mr. McDonnell said his plan is “politically viable” but acknowledged it won’t be easy.

“There will be people up here who find some things they like, some things they don’t like,” Mr. McDonnell said of his proposal. “There has to be a series of tradeoffs.”

While Democrats have opposed using a greater share of the sales tax for transportation, Republicans have repeatedly shot down proposals to increase the gasoline tax.

“I hope that after a lot of posturing and a lot of failed attempts we can get something done,” Mr. McDonnell said.

The largest single item in Mr. McDonnell’s plan depends on action by Congress. According to the governor, Congress this year is expected to pass legislation giving states authority to collect sales taxes on out-of-state online and catalog sales. Taxpayers already are supposed to pay these taxes as a use tax on their income tax returns, but compliance is low. Mr. McDonnell proposes earmarking a portion of this revenue for transportation, raising just over $1.1 billion over five years.

The governor also wants to raise $547 million over five years by increasing vehicle registration fees by $15. An annual $100 fee on alternative fuel vehicles would raise an additional $66.6 million.

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