NORFOLK–Declaring that transportation is a “core responsibility” of state government, Gov. Bob McDonnell outlined today a legislative package that would increase funding for roads, highways and transit from the General Fund. Traditionally, Virginia has paid for transportation projects primarily through dedicated revenue streams such as the motor fuels tax, a half percentage point of the sales tax, a tax on automobile registrations and other narrow-bore levies.
McDonnell’s plan would divert an additional one-quarter percentage point from the state sales tax, a bigger share of end-of-year budget surpluses, a full percentage point of the General Fund budget when revenue growth exceeds 5% in a year, and a Tax Increment Financing-like mechanism for capturing a share of state tax revenues made possible by state-funded infrastructure.
“Transportation and economic development and prosperity are inextricably linked,” said McDonnell, presenting his initiative to the Governor’s Transportation Conference in Norfolk. “Whether it’s the infrastructure needed to move people and goods, or certain transportation-related industries poised for major growth and job creation, we must continue to make progress in improving our transportation networks if Virginia is to remain economically competitive.” (Read the press release.)
The governor’s address was interrupted briefly by an outburst from a group identifying itself as Occupy Norfolk. The protesters employed the Occupy movement’s trademarked human microphone technique to greet him with, “Welcome Governor McDonnell.” That elicited a fleeting smile, but the protesters then proceeded to shout over the governor as he tried to address the audience.
The biggest chunk of new revenue would come from phasing in a one-quarter percentage point increase in the share of the state sales tax dedicated to transportation over eight years. If enacted, the plan will boost the share from one half percent (.50%) currently to .055%, or one-twentieth of a percent, sufficient to bolster transportation revenues by $110 million next budget. The governor provided no estimate of how much the other measures would generate, although he noted that over the past two years the state has transferred $100 million in surplus funds to transportation.
Last year, the General Assembly backed McDonnell’s proposal to accelerate borrowing — $4 billion during his administration — to take advantage of low interest rates and low construction costs. Interest will be repaid from sources traditionally dedicated to transportation. A potential sticking point with the new plan is that, by taking money from the General Fund, it may be perceived as funding transportation at the expense of priorities such as K-12 education, higher education, Medicaid and corrections, that rely upon the General Fund.
McDonnell deals with potential objections by limiting the circumstances in which the transfers to transportation would be made. The proposal to steer 75% of budget surpluses to transportation would apply only if the state runs a budget surplus. Taking a one-percent slice from the General Fund would apply only in years when revenues increase by more than 5%. It’s not clear how the Tax Increment Financing proposal would work, but the logic is that it would return to transportation a share of the revenues made possible by a transportation investment in the first place.
Another foreseeable objection is that the plan will focus on the fact that McDonnell’s emphasis is on raising more money for transportation rather than reprioritizing how the money is spent. A recent Sierra Club report accused the governor of borrowing billions of dollars to build “major, unneeded and destructive roadways” instead of funding transit, bike paths, carpooling and transit- and pedestrian-friendly land use.
In justifying the need for more revenue, the governor made two key points. First, the motor fuels tax, the primary source of transportation funds, will decline in the future. An increasing number of cars will shift to alternate fuels, and even those that don’t will get better gas mileage. “Add those two things together and you have a math problem,” the governor said.
Secondly, transportation is vital to economic development. McDonnell cited a study by Chmura Economics & Analytics that found the 2011 transportation package will grow the Virginia economy by over $13 billion and sustain an additional 104,000 jobs. Among specific economic-related initiatives, the governor mentioned additional funding for the Mid-Atlantic Regional Spaceport, with the goal of making it the number one commercial space flight facility in the nation.
The governor also touted the the I-85 Connector Economic Development and Promotion Zone, an initiative that is tied to the construction of a new, limited-access U.S. 460 between Petersburg (the northern terminus of I-85) and Suffolk. A southern route linking Hampton Roads to the national interstate highway network would provide an Interstate-quality alternative to the overloaded U.S. 64 and open up vast new acreage for industrial and warehousing development.