Va. Nears End of Fuel Tax and Campaign to Toll I-95

This story appears in the April 1 print edition of Transport Topics.

Virginia Gov. Bob McDonnell (R) last week signed a transportation funding bill that replaces the state’s 17.5-cent-a-gallon tax on diesel and gasoline with sales taxes that will pay for roads and public transit.

By signing the bill, McDonnell also signed away his plan to toll Interstate 95, ending a two-year effort to win federal permission to toll existing interstate highways.

The bill gives the state a transportation tax system that will “grow with the economy” and moves Virginia away from declining fuel-tax revenues and “toward a more dynamic sales tax-based revenue source,” McDonnell said in a statement.

There’s just one more procedural hurdle to clear. In Virginia, legislators adjourn and then meet later to approve bills the governor signs. The lawmakers are due to meet April 3.

The bill, which would take effect July 1, contains a provision that no toll plan for I-95 south of Fredericksburg can be advanced without legislative approval.

“That provision in the law now exists for [Interstate] 81 and 95, and it sends a pretty clear message that the legislature’s very wary and has serious concerns about tolling an existing interstate in the Commonwealth,” said Dale Bennett, president of the Virginia Trucking Association.

In 2008, lawmakers extended the same protection to I-81 when a previous governor tried to toll trucks there.

The newly signed bill is expected to generate nearly $6 billion in new transportation revenue over the next five years.

Increasingly fuel-efficient cars and trucks have narrowed the revenue stream generated by per-gallon fuel taxes at the state and federal level while inflation has eroded the buying power of governments trying to maintain and build roads.

The plan contains a wholesale tax levied on fuel distributers: 6% for diesel and 3.5% for gasoline. Also, the state sales tax on vehicle purchases will rise to 4.15% from 3%. Sales of heavy trucks are not subject to the vehicle sales tax.

In addition, the state sales tax will increase to 5.3% from 5% with the new revenue designated for roads, bridges and public transit.

The bill also makes Virginia one of the first states to tax electric cars. The legislature put a $100 annual registration fee in the bill; McDonnell reduced it to $64.

Virginia’s decision to end the per-gallon tax on diesel and gasoline is a watershed moment in transportation policy, said Emil Frankel, a visiting transportation scholar at the Bipartisan Policy Center, a Washington think tank.

“What’s happened in Virginia is a very, very important step in terms of forcing those of us in the transportation world and public policymakers to grapple with the issue: Should this be a general fund program or a user-based program, and should funds be dedicated or should transportation have to fight it out with everybody else for its share of the pie?” said Frankel, who was assistant secretary for transportation policy in the U.S. Department of Transportation under President George W. Bush.

Frankel said he still believes that user fees, which connect taxation to road use, are the best way to pay for transportation but that McDonnell and Virginia are to be commended for addressing the funding issue.

The bill is also viewed as a victory for truckers, who in the past decade have waged two efforts to stop Virginia from tolling existing interstate highways.

Bennett said that once the tolling provision was added, VTA supported the funding plan.

Virginia’s new funding plan has implications for neighboring North Carolina and for federal policymakers grappling with how to provide funding to states that maintain an interstate.

Although federal law prohibits states from tolling existing interstates, more than a decade ago, in an effort to find new funding, Congress created a pilot program where three states could apply for permission to toll. Virginia, Missouri and North Carolina applied.

However, Missouri lawmakers blocked toll plans, and North Carolina lawmakers said a study on the economic effects of tolling must be done before a toll plan there can proceed. North Carolina Gov. Pat McCrory (R) said during his campaign last fall that he did not look favorably on I-95 tolls.

The Federal Highway Administration, which is in charge of the pilot, did not respond to requests for comment on the future of the pilot.