Virginia Gov. Bob McDonnell's transportation plan is on life support after two proposed alternatives died yesterday in the Senate. Only McDonnell's plan, slightly modified in the House of Delegates, remains and the Senate is not very enthusiastic about it. The McDonnell plan would abolish the 17.5-cent gasoline excise tax and rely primarily on a sales tax increase for revenue instead.
Yesterday in the Richmond Times-Dispatch, I explained in an op-ed why the McDonnell plan was both a step in the wrong direction for Virginia and a dangerous precedent-setting move nationwide:
To be fair, the governor is absolutely correct that Virginia’s gasoline tax revenue has stagnated. This can be traced to several factors. Since the 17.5-cent gasoline tax was last raised in 1987, inflation has eroded that revenue’s buying power by more than half. Cars have become much more fuel-efficient thanks to both federal regulations and changing consumer preferences, which means less revenue is collected per mile driven. Finally, and most importantly, recent driving trends suggest Virginia officials no longer can assume Virginians will continue to drive more year after year.
This does not mean revenue from the gasoline tax ought to be replaced by sales tax revenue. To do so would violate the longstanding highway funding principle of user pays/user benefits. Relying on users is the fairest way to fund highways. Payment is proportional — the more you drive, the more you pay. Charging users also ensures a reasonable level of funding predictability, because highway use does not vary wildly in the short run. And given that user-tax revenue roughly tracks road use, it provides an important signal as to how much infrastructure investment is needed to maintain a desired level of efficiency. Highway users pay, but they also reap the benefits of the resulting infrastructure investments and improvements.
Furthermore, relying on sales tax revenue is far riskier in the context of expensive, multi-year transportation projects that require stable funding. Virginians’ consumption of iPhones and dog food is a poor proxy of the commonwealth’s road use. Other jurisdictions’ large-scale use of dedicated sales tax revenue for transportation demonstrates this risk. In 2000, the Massachusetts Bay Transportation Authority began to be funded heavily by a dedicated sales tax. From 2000 through 2009, sales tax revenue grew at only one-third the rate initially projected. This only exacerbated Massachusetts’ existing transportation funding and management problems.
A better-balanced approach to transportation funding would center on preserving and strengthening the user-pays approach with modern technology and practices. All-electronic tolling should be greatly expanded, as it doesn’t face its technological ancestors’ collection cost disadvantage relative to fuel taxes.
Virginia pioneered the use of transportation public-private partnerships and should continue to be a model for the rest of the nation. Private financing and management are powerful and effective tools, which have the bonus of being taxpayer-friendly.
Vehicle-miles-traveled taxes are currently being studied but still face many unanswered questions relating to cost, equity and privacy. This alternative plan also would involve keeping the gasoline tax flat and allowing it to follow its natural course into obsolescence and eventual abolishment.
Read the whole thing here.