Governor's transportation plan filled with pot holes

Governor Bob McDonnell has put out his plan for transportation funding and, as was true with his earlier privatization plans for ABC stores, it looks like it was designed by a drunk dodging pot holes on I-81. The plan eliminates Virginia's 17.5¢ gas tax and "replaces" it by jacking the state sales tax up from 5¢ to 5.8¢. Among other provisions - vehicle registration fees would go up and alternate fuel vehicles would be subject to a tax of $100 per year.

On the smoke and mirrors side of Bob's ledger, the plan anticipates $1 billion in revenues from an Internet sales tax that is anticipated in legislation pending in Congress. That's all well and good except (1) Congress hasn't shown a great propensity to pass legislation and who knows how this will proceed; (2) these funds, assuming Congress acts, will be there irregardless of how the Commonwealth funds transportation; and (3) using all these funds for roads will deprive schools, mental health, public safety, and other programs of the General Fund of their fair share.

One question for which I haven't seen the answer - if the gas tax is eliminated, will gas be subject to the new 5.8% sales tax just like any other good? If so and assuming $3.50 per gallon, the tax would be 20.3¢ and index the tax to gas price - probably a good way to address funding.  Depending on how this is answered might negate some of the questions below while raising others.

So, let's look at a few of the potholes in the governor's concrete cracking idea:

• Would out of state motorists stopping for fuel get a free ride on Virginia's roads?
• Why hit alternative fuel vehicles with a $100 annual tax if the gas tax is eliminated? This annual tax may make some sense if the gas tax is retained but under the governor's proposal it unfairly punishes owners of alternative fuel vehicles.
• Virginia's gas tax is already lower than the taxes in surrounding states.
• If the gas tax is eliminated, will the tax for diesel used by passenger cars like the popular Jetta TDI also be eliminated?
• The gas tax is a "user fee" for folks utilizing public highways. Eliminating the gas tax shifts it away from drivers to non-drivers and those who drive less and are efficient in their use of the roads.
• The plan sounds like it will generate lots of new money (assuming the Internet sales tax goes through) but according to many analysts it still falls $1 billion short of what is really needed to upgrade roads in NOVA, Hampton Roads, and other congested highways like I-81.

Some have said Governor McDonnell has put out a bold plan that is "outside the box." Yeah, maybe. His plan may contain a few good ideas. But, beware of the potholes.

It is a good deal... let me find the credit card

Governor Bob McDonnell wants to take advantage of low construction costs brought on by the slow economy to jump start road building in the Commonwealth. His transportation plan calls for spending about $4 billion over three years to ease congestion and, as a side benefit, to create much needed jobs. Laudable goals. Road construction has languished in the Commonwealth while congestion has gotten worse. Folks in road building could certainly use the work. With costs, both highway construction and interest rates, at near historic lows now could be the time to get more miles for the dollar.

But... there's always a "but" isn't there... make no mistake about it, the Commonwealth will have to go deeper into hock to pay for the roads. Unfortunately the governor's plan fails to address just how we'd pay back those loans. Delegate Ward Armstrong (D-Henry Co.), House minority leader and a potential gubernatorial candidate, issued a press release saying of the plan,

This is just the latest in a long line of irresponsible and half-baked ideas that fail to address our core problem of generating a long-term sustainable source of funding for our transportation needs...

So where would Governor McDonnell find the dollars? He says some of the money would come from saving and unspent funds of over $1 billion "discovered" in a recent VDOT audit. So, that really doesn't represent much new spending, but rather money that is already in the pipeline for maintenance and other projects. The governor's plan anticipates $700 million from as yet unrealized future surpluses and from privatization of state ABC stores. Perhaps this is his way of pressuring the General Assembly into moving ahead on his plan to sell the liquor business, but legislators are far from being sold on deal, especially in light of a recent report of the Joint Legislative Audit and Review Commission questioning administration numbers. According to JLARC, the "profits" would be closer to $300 than the $500 million the governor projected. Plus, while it would be upfront money that could be used for current transportation, the sale would mean a loss of state revenue each and every year in the future.

Beyond that, the governor plans to borrow $2.9 billion in a mix of state-backed and federal-backed bonds. The $1.1 billion federal-backed bonds, it appears, are repaid from future federal transportation grants-in-aid to the Commonwealth. So, we'd have future loss of revenue from the sale of ABC stores, loss of some future federal transportation aid, and future interest payment to service the increased debt. And the Commonwealth already has obligations to repay money to VRS and for other bonds that helped balance previous budgets.

It is irresponsible to spend money without clear plans and a reliable revenue stream for repayment of the debt to be incurred. Future governors and legislators will be forced to choose between core services such as schools and public safety or raise taxes. As Delegate Armstrong noted,

When you don’t pay now, someone has to pay later. Unfortunately the Governor’s lack of leadership on transportation has resulted in a plan that amounts to a back door tax increase on our children.

Perhaps now is the time for the Commonwealth to revamp its gas tax. Start a process of small periodic increases in the current 17.5¢ per gallon state gas tax to raise it to a level consistent with inflation. That rate was set in 1985 and its buying power is closer to 8¢. But, the governor seems dead set against that - he'll just max out another credit card.

Souffle

The Virginia Senate passed a gas tax increase that is a dead duck in the House of Delegates. The House is ready to kill the governor's transportation bill. In this game of chicken, they now burn some gas and go home until next week (which will be a short holiday week). 

The Senate bill would increase the gas tax by 1 cent per year over the next 6 years. It also increases the auto sales tax (3% to 3.5%) and the sales tax (5% to 5.25%) but decrease the sales tax on food (2.5% to 2%). There would also be regional fees for NOVA and Hampton Roads.

Assembly leaders were hardly clucking over their accomplishments so far. Senate Minority Leader Thomas K. Norment Jr. (R-James City) said, "We have been trying to do the impossible." Senate Majority Leader Richard L. Saslaw (D-Fairfax), who introduced the gas tax bill noted, "The House is doing its thing. The governor is doing his thing, the Senate Democrats are doing their thing."

The Senate vote was along party lines.

CCC supports increasing the gas tax since it would fall on in-state and out-of-state motorists alike. CCC also supports decreasing the sales tax on food purchased in grocery stores - a very regressive tax. A "chicken in every pot" and all that!

While trolling the Richmond Times-Dispatch's coverage of the General Assembly, I came upon this tongue-in-cheek comment on a way to raise funds and lay more pavement.  But, it may not work as hoped - according to reports, a Nevada business is offering gas cards to stimulate its business which has gone soft due to rising gas prices.

Cluck. Cluck. 

Chicken Salad or Chicken____?

On the eve of a special session of the General Assembly to deal with Virginia transportation needs, Delegate Chris Saxman proposes using royalties from offshore oil and gas to fund road maintenance and construction. Saxman is the master of smoke and mirrors. The maestro of something for nothing. To say this idea is "ahead of the game" is generous at best - there is no game.

The state's transportation needs are here and now. The General Assembly and governor need to find common ground for a revenue stream to meet today's needs. In yesterday's post, CCC supported a tax on gas and diesel as the most honest (falls directly on those using the roads) and fairest (would be paid by both in-state and out-of-state motorists and truckers).

The delegate's proposal has nothing to do with the present needs. A federal moratorium on off-shore drilling has been in place since the Reagan administration. There is no guarantee it will be reversed by Congress. If it is, there will follow years of legal and environmental preparation before the first drill is sunk. If marketable quantities of oil and natural gas are off the Virginia coast, it will be years after that before they are brought to market and any royalties are paid to the state.

So why make the proposal now? The rabid anti-tax delegate never lets sound policy making get in the way of his agenda. This is smoke to distract from the real work of the special session. It is also presidential and senatorial politics.

When problems demand solutions we hope our leaders will rise above smoke and politics. We hope.

This proposal, made now, is chicken ____.