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Gov. Bob McDonnell’s transportation plan has earned critics on both the left and right. On the left, many are upset the governor’s plan would transfer general revenue funds to transportation — funds that otherwise would go for government services liberals support. On the right, Grover Norquist, head of Americans for Tax Reform, has blasted McDonnell’s support for a sales tax increase and a new Internet sales tax. But neither of these critiques addresses the McDonnell plan’s core problem — one which the plan ignores.
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.
The fuel excise tax that proved so useful in funding transportation infrastructure during the latter half of the 20th century is quickly becoming obsolete. Fuel economy and inflation are important factors in this trend, but they are not the underlying cause. Adjusting the fuel tax rate is unlikely to do much good because, again, Virginians probably won’t continue to drive more in coming years.
Recent road use data from the Virginia Department of Transportation underscore this problem. Although average daily vehicle-miles traveled (ADVMT) slowly increased from 2001 to 2011, per capita ADVMT peaked in 2005. In 2011, per capita ADVMT dropped below 2001 levels. This trend is likely to continue, at least in the short run, and policy makers must take it into account.
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.
McDonnell has the opportunity to continue Virginia’s tradition as a leading innovator in transportation funding and finance. He can do this and alleviate the chief concerns of critics on both the left and right. Unfortunately, the governor’s current plan not only threatens Virginia’s hard-earned reputation for sound transportation policy, it could set a dangerous precedent nationwide.