Virginia Governor Proposes Eliminating State Gas Tax; Other States Consider 2013 Transportation Revenue Options

The big news on the transportation funding front this week comes from Virginia where Gov. Bob McDonnell is proposing eliminating the Commonwealth’s 17.5 cent-per-gallon gas tax and replacing it with a 0.8 cent increase in the sales and use tax, among other things. But there are plenty of other updates to my recent list of “States to Watch in 2013” as well as details on a few more that didn’t make my initial list.

  • Georgia: The Atlanta Journal-Constitution reported last week that despite the failure of the local option sales tax referendum in the Atlanta region last summer, a number of mass transit projects remain mostly on track. Ariel Hart writes that “A new streetcar line is under construction and likely to open in 2014. The planned rail component of the Beltline, far from sinking to oblivion after the T-SPLOST (Transportation Special Purpose Local Option Sales Tax), is the subject of intense talks for innovative private funding, and is even sprouting new proposed lines. Even the state, long stymied on transit, is taking the first steps toward a long-discussed transit hub downtown.” But in another AJC piece this week, Hart writes that Atlanta public transit shouldn’t count on much help from the Georgia Legislature in 2013: “The T-SPLOST, which failed in metro Atlanta, drained lawmakers’ energy and ideas on transportation, and they are facing $550 million in state budget cuts.”  While the sales tax increase to fund regional transportation projects failed in Atlanta, three of the states 12 voting regions approved the increase. For residents in the 46 Georgia counties that make up those three regions, the one percent sales tax went into effect on New Year’s Day, the Associated Press reported. A post on the Ryan Taylor Architects website over the holidays had a good breakdown of what happened with the T-SPLOST and where Georgia might go from here.
  • Indiana: In an op-ed for the Indianapolis Star last month, the President of the Indiana Fiscal Policy Institute John Ketzenberger wrote that “Indiana must create a comprehensive plan to build and maintain its transportation structure and create a long-term method to pay for it.” While the lease of the Indiana Toll Road allowed the state to finance a significant number of road projects in recent years as part of the Major Moves program, the $3.8 billion it produced has now been almost entirely spent or earmarked. Ketzenberger thinks the best lawmakers may be able to muster this year is a stopgap solution or series of them. “The need for comprehensive road planning and the money to do the projects will take time for legislators to digest,” he writes. “In the meantime, a plan floating in the Statehouse halls would stop diverting about $150 million of the gas tax to the operations of the Indiana State Police and the Bureau of Motor Vehicles. By making an allocation from the general fund, this would give the gas tax more road-buying power immediately, buying time until a comprehensive plan is ready. Another idea is to divert a portion of the state sales tax from gasoline sales away from the general fund and into transportation projects. Some remain convinced tolls are a good way to pay for roads. Influential Sen. Luke Kenley, R-Noblesville, recently told the Indianapolis Business Journal he favors a surcharge on license plate sales.” The Associated Press also had more recently on Kenley’s plan. Meanwhile Gov.-elect Mike Pence is reportedly exploring whether public-private partnerships might be used to help the state finish the 142-mile extension of Interstate 69 between Evansville and Indianapolis. Pence also said he intends to create a commission to study Indiana’s infrastructure and funding needs.
  • Iowa: State legislative leaders say they are seeing growing support for a gas tax increase if it’s part of a broader effort to reduce other taxes, such as commercial property taxes, Radio Iowa reported this month. While Gov. Terry Branstad has said he would sign a gas tax increase into law, he’s not asking legislators to pass one. The governor says he’s focused on reducing taxes and believes that anything that’s done has to be a net tax reduction. The Iowa Chamber Alliance, a group that represents Iowa’s larger urban areas, has expressed support for changing the formula that distributes state gas taxes to send a greater share to cities. But House Speaker Kraig Paulsen said recently that changing the distribution formula would kill any bid to raise the gas tax.
  • Maryland: The Maryland General Assembly may have only convened this week in Annapolis but Gov. Martin O’Malley was already expressing frustration late last year with lawmakers’ unwillingness to increase the gas tax to replenish the state’s Transportation Trust Fund, WTOP Radio reported. O’Malley has said the state needs to raise $700 to $800 million more in transportation revenue every year for mass transit projects and road maintenance. Last year, O’Malley proposed a one cent sales tax increase to fund transportation projects, which went nowhere in the legislature. He also has proposed phasing in a 6 percent sales tax on gasoline. The (Gaithersburg) Gazette and The Washington Post had more recently on how the debate in Maryland might take shape this winter and the hurdles the various transportation revenue plans are likely to face. The Washington Examiner reported that O’Malley told a Baltimore talk show this week that the General Assembly could consider indexing the gas tax to inflation or raising the 6 percent sales tax by a penny and applying those revenues to transportation.
  • Massachusetts: A delayed report is due next week from the Massachusetts Department of Transportation Board that is expected to outline the Commonwealth’s transportation needs and recommend revenue options, South Coast Today reported. The administration of Gov. Deval Patrick has estimated that there is a $1 billion-a-year gap between the needs and the available revenues. Patrick has supported a hike in the state’s gas tax in the past but now says he’s not certain that’s the best solution, the Associated Press and WBZ reported. In an article for Governing magazine this week, Charles Chieppo (who served in state government under Gov. Mitt Romney) examines the challenges the Commonwealth’s public transit system faces and why he believes maintenance should be the focus before embarking on expansion plans.   
  • Michigan: Road funding is expected to be a focus of Gov. Rick Snyder’s State of the State address next week, The Detroit News reported. Snyder is expected to expand upon an October 2011 speech during which he called for spending $1.4 billion more annually for transportation infrastructure and suggested restructuring the state gas tax to make such spending possible and prevent further erosion of revenues. Snyder has also suggested motor vehicle registration rates could be increased by $120 a year to generate $1 billion annually. Funding proposals failed to gain traction in the legislature last year.  
  • Missouri: The Blue Ribbon Citizens Committee on Missouri’s Transportation Needs is out with its final report which says the state needs to invest an additional $600 million to $1 billion annually in transportation in order to address critical transportation needs. Instead of recommending one solution, the Missouri committee highlighted several revenue options for lawmakers to consider, including: general fund revenues, bonding, tolling and public-private partnerships, license and registration fee increases, increasing the state sales tax or raising the gas tax. The committee estimated that while the fuel tax would need to be increased by 20 to 30 cents to provide the needed additional revenues, a 1-cent sales tax increase could generate $700 million annually. The panel also recommended that whatever lawmakers decide to do, any new revenue should be dedicated to transportation so that taxpayers can feel confident that the resources are spent as intended and not diverted to other uses.
  • Ohio: A recent Fitch Ratings report said Gov. John Kasich’s plan to issue $1.45 billion in new bonds through the Ohio Turnpike Commission to fund Northern Ohio transportation projects is “not expected to negatively impact the quality of existing OTC debt.” But Peter Samuel of Tollroads News writes that Fitch is “utterly wrong” in that assessment. “No mature asset in a slow growth business making a modest return on investment like the Ohio Turnpike Commission can add $1.5 billion in new debt to fund projects that add not a single little cent to its cash flow, be subjected to promises not to hike tolls or make layoffs, and not be financially weakened,” Samuel writes.
  • Oregon: Ryan Holeywell of Governing magazine reported on Oregon’s latest vehicle miles traveled pilot late last month. The first phase of the latest pilot, which offers motorists a range of options for how VMT charges are collected, is wrapping up this month. But a second round, which will include participants from Washington state and Nevada, will continue into February. The state legislature is expected to consider a bill this spring to institute a VMT fee on high fuel efficiency vehicles. In an editorial this week, The Oregonian editorial board examines three caution lights that could stand in the way of getting the legislation passed: concerns about privacy, concerns the fee could discourage the purchase of fuel efficient vehicles and concerns that the legislation would create a new tax. Of the latter, the editorial argues that the debate is actually about a new way of applying a tax not about creating a new one and not about increasing revenues on the back of a still struggling economy. For those new to the VMT issue, CNBC.com had an easy to understand article about why it could be the future of transportation funding and what’s going on out West.
  • South Carolina: A group called the South Carolina Alliance to Fix Our Roads is pushing for an increase in the state’s 16-cent-a-gallon gas tax (the nation’s third-lowest), The Charlotte Observer reported late last month. The state faces a nearly $30 billion shortfall in statewide transportation needs through 2033, a South Carolina Department of Transportation task force reported last month. But the alliance will likely face opposition from the Republican-controlled legislature and from Gov. Nikki Haley, who has come out against a gas tax increase as part of her executive budget proposal. An editorial in The (Charleston) Post and Courier this week argued that the alliance is correct in arguing that road users should pay for road maintenance and construction and that an increase in the gas tax is called for. “Fiscal conservatism is an important element of a responsible Legislature,” the editorial reads. “But it has to be based on fiscal reality. Merely saying no to an increase in the gas tax fails to recognize the false savings inherent in delaying road projects indefinitely. The longer that basic maintenance is deferred, the more costly it ultimately becomes.” The editorial also argues that since nearly 40 percent of gas tax revenues come from non-resident drivers passing through the Palmetto State, an increase should be a no-brainer. “It’s hard to understand why any elected official wouldn’t support a gas tax hike,” the editorial board writes. “Having as much as 40 percent of the state’s road needs taken care of by non-residents is a deal too good to pass up, considering the need for road improvements. And considering that those motorists contribute to the wear and tear of South Carolina’s roadways.” Meanwhile, The Greenville News reported this week that the state may look at dissolving its State Transportation Infrastructure Bank and placing its functions under the state department of transportation. South Carolina’s bank was one of several featured in my June 2011 Capitol Research brief on “State Infrastructure Banks.”
  • Virginia: Gov. Bob McDonnell this week proposed a plan he hopes would provide more than $3 billion in transportation funding for Virginia over the next five years. The governor’s plan would eliminate the current 17.5 cents-per-gallon gas tax, replace it with a 0.8 cent increase in the sales and use tax, dedicate an addition .25 cents of the existing sales tax to transportation, increase vehicle registration fees by $15 and dedicate the revenue to intercity passenger rail and transit, and impose a $100 annual Alternative Fuel Vehicle Fee with revenues dedicated to transit. In announcing the plan, McDonnell said “We simply cannot continue to do what we have always done and expect this problem to go away,” The Washington Post reported Tuesday. “If we stick to the old means of funding transportation, we will find ourselves having the same debates and facing the same revenue shortfalls over and over again.” In his State of the Commonwealth speech Wednesday, the governor told lawmakers “Please do not leave without approving a long-term transportation funding plan for Virginia. And please do not send me a budget that does not include new transportation funding because we are out of excuses. The time to act is now,” WAMU reported. But anti-tax advocates don’t appear to be getting behind McDonnell’s plan. Grover Norquist of Americans for Tax Reform said the plan “fails in its goal to prioritize transportation spending while avoiding tax increases.” Democrats in the state legislature don’t like the idea much either. “This package significantly shifts the burden of paying for our transportation needs to the backs of just Virginia residents and lets the interstate driver off the hook,” said Del. Vivian E. Watts. The Washington Post editorial board this week, while calling the McDonnell plan “in some ways, bold” also said it is “inadequate and unbalanced.” “It may be true, as the governor suggests, that his too-modest plan will ignite a political bloodbath in Richmond,” the editorial reads. “Republicans will balk at the higher taxes; Democrats at the raid on existing revenue. Maybe his plan is the best that can be hoped for. But if that’s the case, Virginians will be shortchanged.” Angie Schmitt of Streetsblog Capitol Hill had some of her own criticisms of the plan as well, including what she considers “a complete perversion of incentives” in taxing only drivers of alternative fuel cars and continuing to exempt gas from the sales tax as 37 states and DC currently do. One of the arguments against elimination of the gas tax is voiced by Bob Chase, President of the Northern Virginia Transportation Alliance, who told Martin Di Caro this week that “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.” Tollroads News has a roundup of other thoughts on the plan from the likes of veteran transportation analyst Kenneth Orski and former Heritage Foundation Research Fellow Ron Utt, both of whom think it stands little chance of success. An article in The Baltimore Sun this week also notes that McDonnell’s proposal could complicate things in Maryland’s gas tax debate, altering the competitive balance between the two neighboring states. The Virginian-Pilot reported on how McDonnell’s plan is playing in transportation policy circles.
  • Wisconsin: The Transportation Finance and Policy Commission, a 10-member citizen panel created in the last biennial budget, has released its preliminary recommendations on how to finance state transportation needs over the next 10 years. The complete report is expected January 23rd. The preliminary recommendations call for: raising the state gas tax 5 cents per gallon, increasing annual motor vehicle registration fees 73 percent, creating a pay-per-mile registration fee, and allowing regional transit initiatives to be supported by local property taxes. The commission considered four scenarios for funding levels to address specific goals for the condition of the transportation network over the next decade. They ranged from disinvestment to preservation to capacity management to multimodal enhancements. The projected 10-year costs ranged from $27 billion to $42 billion. The state faces a funding gap of between $2 billion and $17.1 billion depending on the scenario, the panel said.
  • Wyoming: Longtime Wyoming journalist Geoffrey O’Gara has a lengthy article on Wyofile.com this month in which he interviews lawmakers and transportation officials about the chances of a gas tax increase passing in the state legislature this year. Facing an estimated annual shortfall of $110 million, the Wyoming Department of Transportation says it needs more revenues just to maintain existing transportation assets, much less build anything new. “Historically, legislators have resisted various taxes that might come directly from voters’ wallets, choosing instead to run state government mostly on bountiful severance taxes and royalties from coal and oil and gas,” O’Gara writes. “That’s why Wyoming has no income tax, low sales tax, and gasoline pump taxes far below any state in the Lower 48.” But some lawmakers think it could be different in 2013. The fuel tax increase option seemed to find traction in interim legislative committees last year, O’Gara reports.

Coming Soon: States to Watch in 2013, the CSG Webinar

Next month, you can join us for a discussion on the states to watch in 2013 on transportation funding. Reporters and bloggers from around the country who cover state transportation funding issues will take part in a webinar hosted by CSG. Among those scheduled to join us: Larry Ehl of Transportation Issues Daily, Ryan Holeywell of Governing, and Dan Vock of Stateline. The webinar will take place Tuesday, February 5th from 2-3pm EST. You can register for the webinar (which is free) by clicking here.