State Case Study

In 2013, then-Governor Bob McDonnell and the Virginia state legislature led an effort to create a more diverse mix of revenue for both roads and transit projects. The compromise bill was passed with support across political and geographic divides but also faced heavy criticism that almost brought the package down more than once. Virginia’s bill was advanced through the strong support of the Republican governor, leaders on both sides of the aisle in the state legislature, and coalitions of major businesses and transportation interests

The funding package replaced the 17.5 cents-per-gallon gas tax with a 5.1 percent sales tax on the wholesale price of fuel and a 6 percent sales tax on the wholesale price of diesel. In addition, state and local sales and use taxes rose from 5 to 5.3 percent and the tax on vehicle titles rose from 3 to 4.15 percent. At the time it was passed, the measure was projected to deliver an additional $3.4 billion over the next five years for highway construction and maintenance, as well as transit, intercity rail, airports and seaports.

Business coalitions pushed for this legislation. The Virginia Transportation Construction Alliance (VTCA) partnered with the Virginia Department of Transportation (VDOT) to produce a supportive campaign dubbed “Let’s Go VA,” focusing on both the economic benefits and quality of life impacts of transportation. To make the economic case, the campaign highlighted the importance of a well-maintained transportation network in attracting and keeping companies, especially in light of Virginia losing its rank as the Top State for Business according to the CNBC annual index. To make the quality of life argument, Let’s Go VA highlighted the amount of time residents were spending in traffic away from their families and the added car maintenance costs associated with driving on roads in poor condition.

Virginians for Better Transportation, which included stakeholders representing multiple modes of transportation from across the state, also ran a campaign called “It’s Time Virginia.” Their messaging focused primarily on the quality of life argument for investing in a range of transportation options. Local chambers of commerce, small businesses, trade associations representing the various industries that contribute to the construction of transportation projects and freight companies also strongly advocated for the bill. Smart growth and conservation groups were more cautious about new funding, seeking to ensure that a larger portion of funding went to transit and funds were tied to smart growth outcomes, as had been the case with 2007 transportation bond legislation.

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The Governor made transportation a significant priority of his administration. He urged fellow Republicans in the state legislature to act, noting that a failure to do so would only make necessary fixes costlier in the future. He also invoked Ronald Reagan, who signed the law increasing the federal gas tax in 1982, as a precedent. Democrat Terry McAuliffe, who at the time was a candidate to succeed Gov. McDonnell, was also a champion and brought together strong support from Democrats in the legislature.

Although the result was a strongly bipartisan bill, it was also a compromise bill. Various interest groups staunchly opposed certain elements. Left on the cutting room floor in the final package were proposals to commit funding to local roads, to require the Virginia Department of Transportation to spend money more efficiently, and to invest more state funds in transit. Advocates for low-wage workers and vulnerable populations expressed concern over shifting the tax burden from gas purchases to taxes on all items. The final bill also specifically forbid Hampton Roads, one of Virginia’s most populated regions, from spending its new regional funds on transit.

Additionally, some of the new projected revenue was to come from collecting sales tax on Internet sales — contingent on Congress passing a law permitting states to do so. As Congress has not passed this law to date, a provision in the 2013 law was triggered at the beginning of 2015, requiring an additional hike in the wholesale gas tax to cover that gap. Particular funding flows defined in the 2013 law means that less of that additional funding will go to transit.

The revenue package also raised additional funds for the state’s largest and most congested regions, Northern Virginia and Hampton Roads, which face greater and more expensive transportation needs. In order to compose a package that appealed to both urban and rural areas, Virginia legislators used regionally assessed taxation as a solution.

Under the package, Hampton Roads and Northern Virginia residents are assessed an additional 0.7 percent sales tax, a 2.1 percent wholesale fuel tax, a 2 percent transient occupancy tax, and a real estate transaction tax of $0.15 per $100 of the value of the property sold. Revenue raised from these additional sources will be directed to regional transportation bodies and spent only on local and regional transportation solutions in the two metros. The transportation bodies are made up of local elected officials, state legislators, and appointees of the governor. Northern Virginia’s funds are flexible and can be used on road and transit projects, but as noted earlier, Hampton Roads is restricted to spending its funds only on road, bridge and tunnel projects. Over the next five years Northern Virginia is projected to have $1.55 billion and Hampton Roads is projected to have $1.02 billion in additional transportation revenue.

In 2014 the legislature improved the law with a bill that set up criteria for prioritizing and evaluating state projects. This built a new level of transparency and accountability into the state’s process for investing in transportation. The Commonwealth Transportation Board will prioritize projects based on their benefits to safety, accessibility, environmental quality, congestion mitigation and economic development. Projects that receive a favorable evaluation on these criteria will be included in the state’s official Transportation Improvement Program (TIP). The five factors can be weighted differently according to each region’s varying priorities, but each region must be transparent in doing so.