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April 2, 2013

Transportation Plan Raises Revenue – And Issues

Although the governor’s amendments to the transportation package passed by the General Assembly fix some of the numerous problems with the plan, the package continues to lean too heavily on modest-income earners, shifts the responsibility for funding transportation away from those who use the roads the most and does little to make major funding sources more secure.


Low- and moderate-income Virginians will pay a disproportionate share of the cost. On average, a median-income household in Virginia earning about $51,000 annually will pay around 0.15 percent more of its income – or roughly $75 a year – in the new taxes included in this transportation package.   In Northern Virginia and Hampton Roads, the two heavily populated regions where the taxes will be higher than the statewide average, the median household will pay at least $150 more a year.  Households in these regions earning less than $21,000 will pay between six and eight times more of their income toward transportation than the regions’ top 1 percent of households earning at least $509,000 annually.

The legislation includes no measures to offset the disproportionate impact on low- and moderate-income people . Targeted tax relief, like a more generous earned income credit for low-wage working families, is not included in the legislation. While Virginia needs new revenue, especially for investment in a fundamental building block of our economy such as transportation, sticking low-income Virginians with a bigger bill is the wrong approach.

The package shifts costs away from drivers. The bulk of the statewide resources included in the transportation funding package come from revenues that are not directly related to driving. This includes  potentially greater sales and use tax collections from online shoppers, if Congress allows them, and diverting an increasing share of overall sales tax dollars to transportation, money that would otherwise go to other key  priorities like education, health care, and public safety. About 10 percent of the statewide resources included in the transportation funding package come from driving-related revenues, such as the gas tax. 

Parts of the plan are still a gamble. If Congress fails to allow Virginia to require online sales tax collections, the state will lose over $400 million — even after accounting for the increase in the tax on gasoline that would be triggered if Congress doesn’t pass the remote seller measure. That’s because the increase in the gas tax is not enough to make up for the lost revenue from remote sales. And even though the Governor’s amendments seem to address the constitutional concerns over the local taxes for Northern Virginia and Hampton Roads, there’s still a possibility that they will face legal challenge. If this part of the bill is overturned by the courts, total resources for the transportation plan would drop by over 40 percent from 2014 to 2018.

Even if the General Assembly adopts the governor’s amendments this week, it seems clear that Virginia’s journey down this highway is far from over.

 –Sara Okos, Policy Director

The Commonwealth Institute

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