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Congress Eyes Virginia's Model for Funding Transportation Projects

Tom Williams/CQ Roll Call File Photo
Boxer, left, said last month at a hearing that a percentage highway fee “could bring in more than all of the other taxes bring in for transportation.” Baucus, right, has said it might be difficult in the future to find budget offsets, such as the general fund transfers used to fund the two-year transportation bill passed last year.

The model for fixing the federal transportation funding shortfall may lie just across the Potomac River.

Virginia enacted a plan this year that is projected to bring in $5.9 billion for transportation projects over the next five years — without increasing the per-gallon gasoline tax.

In fact, Virginia did away with its statewide 17.5 cents-per-gallon tax at the gas pump entirely, in favor of a new wholesale tax of 3.5 percent on gasoline and 6 percent on diesel, along with an increase in the state’s general sales tax. In the heavily populated Washington suburbs and Tidewater area, motorists pay an extra 2.1 percent sales tax on gas purchases. Drivers of electric vehicles pay a $64 annual fee.

The idea of a wholesale tax replacing a fee assessed at the pump is getting close attention in Congress, as lawmakers preparing to write a new surface transportation authorization next year look for creative ways to shore up the Highway Trust Fund. The fund relies primarily on per-gallon taxes on gasoline and diesel, which have slumped as motorists drive less and embrace fuel-efficient vehicles. In recent years, Congress has supplemented the trust fund with direct appropriations.

A wholesale tax on motor fuels would solve one of the central problems facing the trust fund by naturally adjusting for inflation. The per-gallon tax of 18.4 cents for gasoline and 24.4 cents for diesel hasn’t been increased since 1993, so the trust fund’s buying power has steadily eroded with rising prices. Taxing a percentage of wholesale motor fuels costs would boost revenue as prices rise without forcing lawmakers to revisit the question with politically painful votes to raise taxes.

“Several states are turning to a percentage highway fee that is paid for at the refinery level,” Senate Environment and Public Works Chairwoman Barbara Boxer, D-Calif., said last month at a hearing on highway financing. “This could bring in more than all of the other taxes bring in for transportation.”

Sean T. Connaughton, Virginia’s Transportation secretary, says the wholesale tax should provide more long-term stability than the cents-per-gallon tax that it replaced.

“We were able to show our legislature that we weren’t going to have enough money, even for federal matches, by 2017,” he said.

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