To Pay for Virginia Highways, Charging Users Makes Sense

Regardless of the final outcome of the current General Assembly debates over road
funding, Virginia is in the midst of a historic shift in how it finances its 
highways. The commonwealth is moving from the tried-and-true method of user taxes
and charges to taxes that are unrelated to highway use. 

The current debate involves a number of revenue sources including tobacco 
settlement money, a local piggyback income tax, general fund appropriations, 
a dedicated corporate income tax, a higher local gasoline sales tax in Northern
Virginia, and earmarking of the motor vehicle insurance premiums tax for 
transportation. Only the last two of these alternatives are user taxes, the 
traditional way of financing highways.

In addition to raising revenue, user taxes and tolls provide incentives to reduce 
travel, and they charge beneficiaries for the costs they impose. For example, a 
registration tax that incorporates vehicle weight charges heavy trucks more than 
passenger vehicles. An even better approach to truck use taxation is to tie the 
registration tax to axle weight and mileage, two important determinants of road
damage.

The tax on fuel represents another user tax. Fuel consumption is a crude measure 
of road costs caused by a vehicle because of variations in fuel efficiency, size, 
and weight. Nonetheless, a fuel tax does relate to highway usage.

The motor vehicle sales and use tax, vehicle license taxes, and drivers¹ permits
are also user taxes. They charge highway users as a class, but because they are
lump sum payments unrelated to highway usage, they do a poor job of measuring 
specific road costs caused by individual users. Tolls are the most flexible device
for charging highway users. They can be adjusted for distance traveled, type of 
vehicle, and congestion.

Virginia made a major shift away from highway user charges in 1986 when a one-half
percent increase in the general sales and use tax was earmarked for transportation.
The principal user taxes in Virginia‹the fuels tax, registration fees, vehicle and
driver licenses, and the motor vehicle sales tax‹have not changed since 1986. 
In recent years tax revenue from motor vehicles sales tax has grown rapidly in 
response to record vehicle sales and a larger proportion of expensive vehicles.

The other transportation fund sources, which are based on units rather than dollar
amounts, have grown only modestly. The motor fuels tax, the principal user charge,
is 17.5 cents per gallon. Virginia¹s tax is well below the national median of 
20 cents and is below the levy in Maryland (23.5 cents) and North Carolina 
(21.6 cents). 

General tax sources are more volatile than those earmarked for highways. If the
economy falters, long-term highway construction plans based on cyclical tax
sources will be in jeopardy.

Virginia relies less on highway-user taxes and fees than many other states. 
In 1997, user taxes and tolls accounted for 51 percent of highway receipts
exclusive of bond proceeds and federal aid. The comparable national figure
was 63 percent.

User taxes and tolls were even more important in the two principal neighboring
states. In North Carolina they accounted for 66 percent of revenue and in 
Maryland, 82 percent. Any policy that depends on non-highway user revenue will
further erode the state¹s percentage.

Fortunately, new technological and financial developments are making toll roads
more feasible. Toll roads can be publicly owned or private, like the Dulles 
Greenway. The new Smart Tag technology that allows drivers to pay tolls without
stopping is used widely by toll facilities, including the Richmond Metropolitan
Authority. Smart Tag speeds traffic by greatly reducing the time spent at toll
plazas. The Governor¹s Commission on Transportation Policy is studying toll roads
and appears to consider them an option.

As for state user taxes, there is an impasse on any tax increases, even those
earmarked for highway use. Nevertheless, the tax option deserves continuous study.

In anticipation of eventual highway user tax increases, there should be a new 
cost responsibility study since VDOT¹s last study is eight years old. The study
should contain ratios of user-fee payments to allocated costs for a variety of
vehicles ranging from autos, pickups and vans, to single and combination trucks
of different axle and weight classes. 

The benefit principle that connects taxpayers to benefits is an appropriate
standard for evaluating many public outlays. In my view, it is particularly
relevant for highway finance. Users of highways, whether truckers, commuters, 
tourists, or Sunday drivers, should pay for highways. User taxes and fees, if
properly designed, can simultaneously reward vehicles that do less damage and
raise money for maintenance and construction. Resorting to non-highway-user 
sources of revenue, such as the individual income tax, ignores this valuable 
feature and may one day prove to be shortsighted.


The Virginian Pilot (Hampton Roads)
Tuesday March 7, 2000