Va. Road-Funding Law: Long-Haul Fix or Jump Start?

The new law presumes that a dysfunctional Congress can pass the Marketplace Fairness Act that would allow states to collect sales taxes from online merchants and interstate catalog sales.

Wed August 14, 2013 - Northeast Edition

RICHMOND, Va. (AP) You didn’t notice the 6.4 cents-per-gallon overnight drop in the price of gasoline the morning of July 1? You didn’t notice it because it didn’t happen.

Somewhere between the oil company pipelines and your pocketbook, the state gasoline tax decrease that took effect when the final seconds of June ticked off the clock took a detour.

Had the tax break been passed along to consumers, the June 30 statewide average of $3.36 per gallon as calculated by should have fallen the next day to $3.29.6 per gallon. Instead, it declined just nine-tenths of a penny, to $3.35.1. Over four days, the statewide average declined by 3.1 cents, then shot to about $3.50 per gallon. Virginia tax changes had no bearing because comparable price shifts played out at the same time in bordering states’ price averages.

The lower tax was the shiny selling feature on Virginia’s first-in-a-generation transportation funding makeover. The new law is engineered to yield an additional $1.4 billion for long-needed road and rail projects that lay unfunded and dormant for a decade or more.

The transportation funding triumph stands as Republican Gov. Bob McDonnell’s most conspicuous legislative legacy — a feat that eluded two Democratic predecessors. Now, less than half a year before his single, non-successive term expires, it’s the brightest point in McDonnell’s scandal-scarred final year.

It’s not the same bill McDonnell proposed in January on the eve of the 2013 General Assembly. His legislation would have made Virginia the first state without a tax on gasoline. He’d have shifted more of the revenue burden onto Virginia’s retail sales and use tax.

The compromise that emerged from a tax-averse, GOP-ruled legislature was quite different, but one that McDonnell came to embrace and even champion, despite having to ally himself with legislative Democrats to win passage when his own party split with conservatives balking at the new taxes.

It replaced the failing 17.5-cents-per-gallon retail tax on gasoline with a 3.5 percent tax on the wholesale cost of gas — at June 30 prices, a per-gallon decrease of 6.4 cents. Revenues had declined for years under the obsolete volume-based levy because of greater automotive fuel efficiency and a decrease in discretionary driving after monumental gas price increases. Keyed to price, the new tax will keep pace with inflation.

Other taxes besides gasoline were devoted to transportation. The sales and use tax increased from 5 percent to 5.3 percent statewide. There’s a $64 annual registration fee on hybrid and alternative-fuel vehicles and increases the titling tax on car purchases from 3 percent to 4.3 percent.

Other taxes apply in urbanized areas, generating up to $350 million for northern Virginia and $200 million for Hampton Roads for projects exclusively within those regions.

McDonnell is proud of it.

“We had a 30 year funding failure to fix and a 30 year backlog in construction to address, and this bill did it,’’ McDonnell spokesman J. Tucker Martin said as McDonnell returned from a Department of Defense trip to the Middle East and Germany to visit American troops.

“Like all bills there certainly could be technicalities to work out and items to address as it moves forward, but when it comes to transportation in Virginia, the next decade should be about paving and building, not sitting and debating,’’ Martin said.

He’s right. Without a change, Virginia risked burning out its economic engines — northern Virginia and Hampton Roads — in interminable highway gridlock that strands commuters on asphalt deserts for hours daily. Virginia also risked losing billions in federal transportation funds if the state couldn’t muster its matching share.

But the technicalities he mentioned could cost you.

First, there’s serious concern over a Portsmouth judge’s ruling against tolls necessary to finance an ongoing $2 billion public-private project to build new highway tunnels connecting Portsmouth and Norfolk beneath the Elizabeth River. If the Virginia Supreme Court upholds Portsmouth Circuit Judge James Cales’ decision, it could imperil toll-financed public-private highway projects across the state and cost taxpayers billions of dollars.

Second, the new law presumes that a dysfunctional Congress can pass the Marketplace Fairness Act that would allow states to collect sales taxes from online merchants and interstate catalog sales. If it doesn’t pass this year, Virginia will miss out on hundreds of millions of dollars in additional revenue, and it would trigger an automatic jump in Virginia’s wholesale gasoline tax from 3.5 percent to 5.1 percent.

Unlike the first morning of July, that’s a price change that will probably be passed along to you at the pump.

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