Bacon's Rebellion

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Why Kaine Upped the Ante for Transportation Bonds

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James A. Bacon
in

Several days ago, I raised a question about Gov. Timothy M. Kaine’s amendments to the GOP transportation package, which seemed to represent a dramatic turn-around from previous stances. (See “Kaine Submits Transportation Amendments,” March 26, 2007.) After criticizing the use of debt to pay for transportation improvements, I asked, was Kaine really amending HB 3202 to borrow $500 million more than the $2.5 billion the Republicans had proposed?

Kaine’s amendments seemed at such variance with his previous rhetoric, and the rhetoric of fellow Democrats, that I wondered whether I even properly understood the amendment. Turns out that I did. During a blogger conference yesterday, the Governor illuminated the thinking behind this important amendment.

The General Assembly proposed issuing $2.5 billion in debt, with debt service to be paid out of the General Fund. But HB 3202 identified no particular source of funds, Kaine explained. “If you’re going to issue long-term debt,” he said, “you should use a transportation revenue source to back up the bonds.” He found a long predictable, long-term source of revenue — the tax on automobile premiums — to cover the debt service. Because the tax generated enough revenue to cover the debt service on $3 billion, he decided the state might as well borrow the full $3 billion.

In other tweaks to the legislation, Kaine lifted the restriction that would have limited the bond proceeds to Interstates and primary roads. His wording would permit the finacing of secondary road projects, making it possible to spread more money around the state.

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2 responses to “Why Kaine Upped the Ante for Transportation Bonds”

  1. Larry Gross Avatar
    Larry Gross

    He did what I thought he did.

    He basically took another look at the concept of General Revenues and designation of revenue streams.

    Here’s the question.

    What makes a revenue stream as a “general fund” stream or a transportation trust fund stream?

    The answer is simply that it is designated that way.

    The gas tax was from the begining but what about the 1/2% of the sales tax? It USED to be a general fund stream before it was re-designated…

    So that’s why Kaine did – he found a stream – and that stream had a significant nexus to transportation and he essentially re-designated it.

    so two questions:

    1. – is this a permanent redesignation?

    2. – is it a fixed percentage or amount or will it vary by year according to surplus?

  2. Informed Patriot Avatar
    Informed Patriot

    A couple points in response to Jim and Larry. First, the orginial version of HB 3202 had the debt service from the recordation tax- a reliable general fund source. It was set at a dollar amount. The Governor’s amendment changed the debt service to the 1/3 of the insurance premiums, a growing general fund source that allowed him to increase the bond package. To Larry’s first question, yes it would be a permanent redesignation of the 1/3 insurance premium revenue- something that was supposed to happen under VTA 2000 but didnt always occur. The amendment takes it from the general fund to a non-general fund and ties it to the bonds. Second question- it is a fixed percentage (1/3) that has and is anticipated to grow in the future. Kaine flipped the insurance premiums which had been going to the trust fund in the orginial version with the recordation tax. In the amendment, he changes the recordation tax from a fixed dollar figure to a percent- 3 cents- and puts that into transit and maintenance. So he shuffled the deck chairs, but still uses general funds for debt service and uses more general funds for general transportation. By tying the recordation to a percent, it could and should actually grow to more than the originial bill allocated. Actually a huge flip from his original rhetoric.

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