Richmond Update: Transportation Bill Passed
After spending most of this session discussing various options for addressing the Commonwealth's transportation crisis, I am pleased to report that a bill has now passed both the House of Delegates and the Senate.
While not perfect, if this bill is signed into law by Governor Bob McDonnell, it will raise the much-needed new revenues for transportation.
As you know from my previous emails, Governor Bob McDonnell introduced House Bill 2313 which included several different funding provisions, including a tax cut, a tax increase, other fee increases, and reliance on a new revenue source that has not been available in Virginia in the past.
The final bill that passed the House last night and the Senate today is a result of major negotiations and significant compromises made by both chambers through a lengthy conference process.
The conference report that we voted on is dramatically different than the Governor's bill as introduced, although one might be able to recognize some shadows of the original proposal.
Let me be clear. What the General Assembly passed is not perfect and there are at least two or three provisions I oppose. Nevertheless, since the conference report was not an amendable document, we had to take it or leave it as is.
Last night, I voted to support this version, as on balance, I believe there are more positive items in this package than negative ones.
As described below, however, I will continue to seek further changes so that the final bill that Governor McDonnell signs will be the best product we can create to address our long-overdue transportation problem.
Here are the details of what was in the conference report of the bill that passed the House yesterday and the Senate today:
The Governor's original bill introduced in the House would have eliminated the 17.5 cents per gallon of gasoline tax. The Senate version kept this tax, increased it by 5 cents and also indexed it to inflation. In addition, the Senate version also would have added a new 1% tax on the sale of gasoline at the wholesale price.
In a "split the difference" move, the conference report goes back to the original House proposal by ending the 17.5 cents tax at the pump. However, it also adds a NEW gas tax at the wholesale level of 3.5% for regular gas and 6% for diesel fuel.
Importantly, the bill also includes an indexing provision so that the rate could be visited often to ensure that the tax amount is appropriate. This indexing requirement is not in the current gas tax law.
Substituting the retail gas tax for a wholesale tax would result in a loss of about $230 million a year. However, this loss is made up for by increases in other transportation-related taxes as described below.
The Governor's proposal originally included a $100 fee on alternative fuel vehicles like hybrids, electric, natural gas and clean diesel (actually, it was a $50 increase as there is currently a $50 fee for such vehicles).
I strongly opposed this provision because these are the types of innovations that will help our nation wean off of fossil fuels and lead us toward energy independence from overseas suppliers. Yet, if a consumer chooses to invest in these environmentally-sensible vehicles, they should not be punished by our state, which is what the Governor's bill would have done.
This dreaded provision was deleted on the floor of the House, and the Senate version had kept it out as well. That is why I was shocked when this provision was placed back in the conference report.
I complained to the conferees that this fee should not have been brought back into the bill.
Their explanation to me on why they added this back was that since the conference report eliminates the gas tax at the pump but adds a lower tax at the wholesale level, owner of cars that use gas will now receive a tax break, except for those cars that do not use gasoline. And since every vehicle — including electric, natural gas and others — damages the roads they drive on, the conferees believed it is fair to ask owners of these cars to pay a portion of the transportation maintenance cost.
The conferees also conveyed to me and to other members that their intent is to add the new $100 fee to only those alternative cars that DO NOT use any gasoline, like the Chevy Volt. In other words, this fee WOULD NOT apply to owners of traditional hybrid vehicles like the Toyota Prius (which I happen to own) or Ford Fusion that use gasoline since owners of these cars will continue to pay the gas tax, even if at a lower rate than other car owners that have lower fuel efficiency.
Unfortunately, when the conference report was drafted in a hurry last night, they left in the language of the alternative fuel vehicle from the earlier version of the bill that would apply to hybrids in addition to electric vehicles.
Since the conference report is not amendable, we were unable to fix this error in the bill today, so this is an issue that we will need to work on as the bill moves to the Governor's desk. I will continue to fight to eliminate hybrids from the alternative vehicles tax.
The Governor's original bill would have raised the sales tax across all of Virginia by 0.8 cent from 5 to 5.8 cents per dollar. The Senate version would have authorized any county or city to enact a new local sales tax of up to 1% to pay for transportation.
In another "split the difference" move, the conference report raises the sales tax for the entire state from 5 to 5.3 cents per dollar, but it also adds new Northern Virginia and Hampton Roads-specific provisions.
For Northern Virginia and Hampton Roads, which are two of the most congested regions in the Commonwealth, the new sales tax rate would be 6% instead of 5%. However, both jurisdictions would be able to keep all of the 0.7% of the new taxes (6% minus 5.3%) raised within each's borders to pay for their own transportation needs.
For me, this is the best part of the conference report, and it is the most significant transportation solution our Northern Virginia region has ever had. This 0.7% tax increase guarantees a dedicated stream of approximately $350 million in new revenues that will be raised and spent exclusively in our region.
The conference report includes strong language that prohibits the General Assembly from diverting a single cent out of this new tax that Northern Virginians will be paying for our own needs.
For far too long, we have seen our tax dollars from Northern Virginia sent down to Richmond only to have it be spent elsewhere in Virginia. This new provision guarantees that we keep every bit of the $350 million we raise to be spent right here in Northern Virginia.
The Governor's proposal and the Senate version would have dedicated $300 million to pay for the completion of Phase 2 of the Dulles Metrorail expansion project. The conference report keeps this provision, which will help our Northern Virginia region tremendously.
The Governor's proposal had relied on what I've been calling "phantom moneys" to pay for one third of this entire transportation program. This was hypothetical tax revenues that may come into Virginia based on whether Congress passes the "Marketplace Equity Act," which would allow states to collect out-of-state sales taxes on purchases made online.
The Senate version would have required that, should Congress not pass this bill into law by July of 2014, Virginia would add an extra 1% tax to the wholesale price of gasoline, in addition to the new 1% tax that was described above.
The conference report does a better job than the Senate version. It would require that if Congress does not enact the "Marketplace Equity Act" by January 1 of 2015, Virginia would add an extra 1.6% tax to the wholesale price of gasoline, in addition to the new 3.5% tax, which would bring the total gas tax to 5.1%.
The conference report includes a positive feature that was not in earlier versions. The bill would fund mass transit and intercity passenger rail programs by dedicating some of the sales tax increase to this special need.
While some of our traffic congestion problems can be alleviated with new or expanded roads, I believe we also need more mass transit options to keep people moving outside of having to get in their cars. This provision will generate new funds to pay for rail and transit options we have not had in the past.
Finally, although this was a transportation funding bill, it included a side benefit for public education. Since the bill raises the state's sales tax, it also sets aside a portion of that tax increase (1/8th percent) as well as a portion of new taxes that may be received from the Marketplace Equity Act to pay for education. This could result in an additional $150 to 200 million per year in state support for our schools.
On Friday night, the House of Delegates approved the conference report on a 60 to 40 vote, with 35 Republicans and 25 Democrats supporting and 33 Republicans and 7 Democrats voting against.
Today, on a rare Saturday session, the Senate voted to approve the same bill on 25-15 vote, with 18 Democrats and 7 Republicans voting for and 2 Democrats and 13 Republicans voting against.
Yesterday, I voted for the final passage as I believe this is the best bill that we could pass this year. Let me explain my rationale.
First, in earlier emails, I said that I wanted a funding package that would raise over $1 billion of new revenues per year. The original House version would have raised about $850 million. The Senate version would have raised about $900 million. That is why I voted against both bills earlier this session.
With the addition of the Northern Virginia and Hampton Roads provisions, the conference report could raise about $1.5 billion per year upon full implementation. This is a much larger amount than anyone thought was possible in this legislative session. This new amount met my requirement.
Second, I said that I oppose eliminating the gas tax as I believe it is a logical stream of revenues that ties the purpose of the tax to the specific needs. In other words, the gas tax makes users of the road pay for the damage they create with their vehicles.
I voted against the House version because it would have eliminated the gas tax altogether. The conference report, however, merely switches the tax from the retail level (at the pump) to the wholesale level (at the rack), which also switches the burden of the payment from the consumer to the gas distributor.
While the dollar amounts are not revenue neutral, I believe that having a 3.5% tax at the wholesale level maintains the same principle of requiring gasoline users to pay for the use of that product.
Additionally, I do not believe that Congress will pass the Marketplace Equity Act by 2015, which would mean that the effective gas tax will become 5.1% instead of 3.5%. At that point, assuming that price remains around the same $3.50 to $4 per gallon that we pay today, the total amount of the gas tax would meet or exceed the current fixed 17.5 cents per gallon that Virginia currently charges at the pump.
Because this bill maintains the gas tax and adds an indexing feature, I thought the trade between retail and wholesale gas taxes was worthwhile.
Third, I am very pleased that the conference report includes a Northern Virginia revenue package that would raise AND KEEP $350 million of our own tax dollars in our own region.
Over the past four years that I have been in this job, I have spoken to thousands of constituents, and whenever the topic of transportation came up, most people told me that they would be willing to pay a little more tax if that money could be kept right here to solve our local traffic problems.
This bill does exactly that by including a new Northern Virginia tax for Northern Virginia transportation needs.
This Northern Virginia package is a solution that has eluded the General Assembly for 27 years. The last time that the legislature tried this "local option" in 2007, the Supreme Court struck it down as unconstitutional. The language in the bill we passed today has been cleared by lawyers to be constitutional.
Finally, although I despise the fact that the conference report includes a fee for alternative fuel vehicles, I am hopeful that Governor McDonnell will correct the language to carve out cars that do use gasoline. Regardless of the fate of this provision, however, it is worth noting that the $100 fee is expected to generate only about $10 to $17 million per year.
While I strongly oppose the "hybrid tax" issue, I have to decide whether it is worth supporting a bill that would raise $1.5 billion including $350 million for our Northern Virginia region, or oppose it based on a bad provision worth up to $17 million in the bill.
In the end, I decided to support a comprehensive bill and work to eliminate the offensive provision separately.
With any legislation, I have to consider all the pros and cons before voting on it. And with a bill as complex and important as this transportation revenue bill, I have spent countless hours, days and weeks working with every stakeholder to consider every aspect of it. I was one of the first Delegates to study this bill when it came to the House Finance Committee, and I reviewed every version carefully.
I'm sure many constituents will agree with my vote and many others will disagree.
Regardless of how you feel about this bill, I hope you will appreciate that this is the first time in over 27 years that the General Assembly has dealt with the ever-growing transportation crisis we are facing in Northern Virginia, and that we have put in place a workable solution that was supported by a strong bipartisan group of legislators.
The bill now heads to the Governor for his consideration. I am confident that he will pass it into law, which means that beginning July 1, 2013, we will begin to see the benefits of this new transportation solution.
Should you have any questions about this or any other issue, please do not hesitate to contact me at any time.
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