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User fee + tax reform = the right cocktail

January 6, 2013 12:10 am

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RICHMOND

--Today transportation is one of the most critical issues facing Virginia and its residents. There have been no substantial changes with regard to the dedicated revenue for transportation since 1986. Additionally, the primary source of revenue is based on an outmoded model that does not index for cost of living or inflated cost of construction of this infrastructure.

Some attempts have been made in recent years to develop regional authorities and to authorize bonds to fill the gap. Additionally, for the last several years we have had to take revenue out of the construction fund in order to backfill the maintenance and operating fund. Currently, the transfer from construction to maintenance and operating is $450 million-plus.

The bonds for construction now total close to $4 billion that has been authorized. All of the proceeds of these bond sales have been obligated to projects across the commonwealth and will by 2016-17 be completely utilized. The repayment of these bonds, however, will continue for the next 20 years-plus. The time has come to revisit the dedicated revenue stream and provide for future maintenance and construction needs.

In order to accomplish this and provide a reasonable approach to additional revenue, I am proposing that we utilize a user fee concept, which is exactly the same as a toll, and the system does not need new collection infrastructure. We provide income tax cuts, particularly to lower income brackets, that offset the user fee and then provide tax reform that will allow us to backfill the existing budget. This tax reform will be specific to the removal of tax credits and sales tax exemptions that have a nexus to transportation.

The bill that I propose:

Establishes a 5 percent tax on motor fuels sales based on the statewide average wholesale price of a gallon of self-serve, unleaded regular gasoline. The revenues would be distributed to the Highway Maintenance and Operating Fund, the Transportation Trust Fund, the Intercity Passenger Rail Operating and Capital Fund, and the localities to be used for transportation purposes;

Increases the additional registration fee on electric vehicles from $50 to $102, requiring hybrid vehicles registered in the commonwealth to pay this fee. Owners of hybrid vehicles registered in the commonwealth would be eligible for a refund of the new 5 percent tax on motor fuels sales.

The bill also:

Prohibits the placement of tolls on existing roads in the commonwealth without the approval of the General Assembly;

Lowers individual income tax rates and changes the individual income tax structure, effective Jan. 1, 2014. Income less than $5,000 would be taxed at a 0.75 percent rate, income over $5,000 and up to $17,000 would be taxed at a 4.5 percent rate, and income over $17,000 would continue to be taxed at a 5.75 percent rate;

Repeals income tax credits for vehicle emissions testing equipment, and clean-fuel vehicles, biodiesel fuel producers;

Eliminates the sales tax exemption currently to certain services, such as auto repairs, taxi, and limousines, armored cars, travel, and transportation.

This combination of user fees, tax reductions, and tax reform will net out with increased transportation funding that is desperately needed to improve Virginia's position with regard to economic development, and in particular with adequate transportation services to the ports of Virginia. It also addresses immediate needs in passenger rail, maintenance, and a local component to help address specific transportation-related projects. It is my hope that this will begin the return to economic vitality that Virginia needs.




Sen. John C. Watkins, a Republican, represents District 10 (Powhatan County and parts of Chesterfield County and of the city of Richmond) in the General Assembly.




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