1. John W. Lawson Chief Financial Officer
A New Model for Funding Transportation Virginia’s Sales Tax Approach May 4, 2017
John W. Lawson Chief Financial Officer

2. Virginia Enacts Legislation to Enhance Transportation Revenues
After more than a decade of legislative efforts, Virginia’s General Assembly adopted legislation restructuring the model for funding transportation.
It was projected to generate over $800 million a year once fully implemented (2018) from a combination of new and existing state revenue sources.
An additional $500 million annually for regional “self‐help” packages in Hampton Roads and Northern Virginia.
Final legislation was a compromise between those who wanted to eliminate motor fuel taxes and those wishing to increase them.

3. The Time was Right
Need for additional funding for transportation was recognized by all
Infrastructure aging and deteriorating
Congestion growing
An increasing number of high‐cost, high‐priority infrastructure projects that could not be funded
Limited public acceptance for an increasing reliance on toll supported projects
The solution had to be debated: Sales Taxes Versus Gas Taxes for Funding Transportation

4. Virginia Transportation Funding History
Original transportation funding was user fees or taxes
Gas tax first implemented in cents per gallon
Last increased in to 17.5 cents per gallon
In addition to the gas tax increase, the 1986 transportation actions
Increased the Retail Sales and Use Tax by 0.5 cents
Dedicated to transportation
First dedication a traditionally general fund revenue source
Increased the Motor Vehicle Sales and Use Tax
Designated the additional revenues for construction and multimodal projects
Established formulas for distributing capital funds

5. Other Approaches Tolls Use of Bonds/Debt Public‐Private Partnerships
Provide for debt service on bonds issued to constructed tolled highways and bridges
Typically removed once debt is retired.
Use of Bonds/Debt
Special tax districts and corridor development programs
Programs adopted to leverage state and federal revenues to support for bonds
Public‐Private Partnerships
Virginia’s Public‐Private Transportation Act had been utilized to develop mega projects
Construction of new capacity and maintenance over life of concession

6. New Revenue Model Needed
Needed to address the shortcomings of a 30‐year old excise tax based funding model
Motor fuels excise tax growth forecast was stagnant
Increasing CAFE standards
Increasing use of alternative fueled vehicles
Reduced purchasing power relative to inputs

7. Components of a Solution
A sales tax based solution would be tied to the economy
Inherent growth factor allowing revenues to keep pace with inflation
A sales tax on motor fuels would retain the nexus to transportation system user‐fees
Recognition that transportation is a core function of government

8. The Final Solution
Eliminated the 17.5 cents per gallon excise fuels tax.
Implemented*:
A 5.1% motor fuel sales tax at rack
A 6% diesel sales tax at rack (reflects higher wear and tear on roads from heavy trucks)
Increase the motor vehicle titling tax from 3% to 4.15%.
Increased the share of the existing general sales and use tax dedicated to transportation from 0.50% to 0.60%*.
Increased the retail sales and use tax from 5.0% to 5.3%, dedicating the increase to transportation.
Provided for additional taxes in the congested regions of Northern Virginia and Hampton Roads to address regional needs.
*As implemented today.

9. Motor Fuels Tax vs. TTF Share of the State Retail Sales and Use Tax Comparison In Millions

10. Motor Fuels Tax vs. TTF Share of the State Retail Sales and Use Tax Growth Comparison

11. Chapter 766 Revenues Dedicated to Local and Regional Entities
The Chapter also generates revenues specifically for Hampton Roads and Northern Virginia and future Planning Districts that meet specific transportation related criteria
Hampton Roads
0.7% local sales tax
2.1% Sales Tax on Fuel
Northern Virginia
Regional congestion relief fee - $0.15 per $100
Northern Virginia transient occupancy tax – 2%
These dedicated revenues will provide for the acceleration of existing or additional road and bridge projects

12. New Money! Problem Solved?
Year after passage of additional transportation funding
Realization that it not significant enough to address all wants or even all needs
Debate resumed about how to distribute the funds
The need for prioritization of the funds to obtain best value was realized
HB 2 of the 2014 General Assembly (SMART SCALE) required the implementation of a formal prioritization process by June 2016
The prioritization process must be objective and quantifiable, and consider at least the following factors:
Congestion mitigation
Economic development
Accessibility
Safety
Environmental Quality

13. Summary
Chapter 766 moves Virginia away from a cents per gallon motor fuels tax in favor of a sales tax on motor fuels and dedicates additional sales tax revenues to transportation.
It will generate additional revenues in Hampton Roads and Northern Virginia to address the special transportation needs of those areas.
New funding formula and prioritization methodology developed to better utilize available, but limited, resources.
Time needed to evaluate how the many changes perform.