Why Virginia Gov. McDonnell's Tax Hike Plan is a Bad Idea

This week, Virginia Governor Bob McDonnell unveiled his transportation funding plan that would eliminate the State’s 17.5 cents-per-gallon gas tax and impose significant hikes on the sales tax and vehicle registration fees.

Under the Governor’s proposal, the Virginia sales tax would jump from 5 to 5.8 percent, car registration fees would spike $15, and Virginians with cars that run on alternative fuels would be hit with a brand new $100 fee. In truth, these new “fees” are actually taxes because they wouldn’t be dedicated to road construction, but instead would fund mass transit projects, such as building passenger rail between Lynchburg and Roanoke and lengthening the Norfolk light rail service into Virginia Beach. An additional $300 million would be set aside for the Metro’s Silver Line, a costly project that began nearly four years ago.

If all goes according to McDonnell’s plan, weary taxpayers (who are already getting pummeled by a lousy fiscal cliff deal and rising health care costs) will be on the hook to help the Governor reach his goal of raising an additional $3.1 billion by 2018. Though, as the Tax Foundation pointed out, the Governor’s math is fuzzy to say the least. True, Virginia’s transportation financing is in desperate need of restructuring, but McDonnell’s plan is a burden-shifting tax hike at its core. Not to mention, it relies on Congressional passage of dangerous online sales tax legislation to reach even deeper into Virginia taxpayers’ wallets to the tune of $1.1 billion. Banking on the so-called Marketplace Equity Act would make Virginia part of a predatory tax collection scheme that will ultimately hurt small Internet-based businesses and, undermine the principles of tax competition that have benefitted the Commonwealth.

Also, can we really expect the Virginia Department of Transportation to be good stewards of billions in new revenue? In 2010, an audit of VDOT uncovered hundreds of millions in unspent funds.

Governor McDonnell’s plan thankfully avoided an income tax boost, but there are other positive approaches that could be taken instead of his burden-shifting sales tax hike. The way in which Virginia’s transportation funding is allocated should be given more attention, and lawmakers should look to strengthen public-private partnerships made possible through the Public Private Transportation Act (PPTA) of 1995. Thanks to the PPTA, the $1 billion I-95 Express Lanes project, which began in July 2012, required only $70 million in state funding. Policymakers should increase the number of these partnerships in the Commonwealth, which have saved the State billions of dollars and years of construction time.

Virginia should also look to states like Missouri for better ways to deliver transportation improvements under budget and on schedule. In 2006, the Missouri Department of Transportation saved taxpayers $91 million through “radical cost controls” such as keeping bids for construction jobs low, asking contractors to propose innovative solutions, and slashing administrative costs. For even more inspiration, VDOT should examine this Texas Department of Transportation report for 49 highway construction and maintenance cost control ideas.

It is likely that Virginia officials have considered some of these proposals, but until they have provided demonstrable evidence that these ideas have been considered and implemented to the maximum amount possible, overburdened taxpayers will continue to oppose schemes such as the one proposed by Governor McDonnell this week.