New Transportation Funding Explained

On July 1st a new transportation funding bill takes effect.  The bill ramps funding for transportation from an additional $392 million in FiscalYear2014 to $817 million in 2018, for a total of almost $3.3 billion.  In addition, the bill provides regional funding for Northern Virginia ($1.6 billion over five years) and Hampton Roads ($1.1 billion over five years).   It does nothing, however, to reform highway construction spending or the opaque Public Private Partnership Act.

The bill is controversial because it:

  • Reduces the connection between driving and paying for roads by lowering the effective gas tax
  • Subsidizes transportation system by increasing sales taxes, and
  • Places new $64 annual fee on hybrid vehicles.

Beyond providing more money for roads, however, the bill:

  • Increases funding for public transportation, and
  • Establish permanent funding for passenger rail.
New Transportation Funds  (millions)[*]
Year 2014 2015 2016 2017 2018 5 yr. total
Highway Maintenance $160.1 $325.1 $409.1 $478.8 $500.2 $1,873.3
Highway Construction $102.3 $127.6 $134.4 $142.1 $148.9 $655.30
Public Transportation $85.6 $99.10 $103.4 $107.8 $111.9 $507.90
Intercity Passenger Rail $44.3 $50.2 $52.2 $54.2 $56. $257.00
Yearly Totals $392.3 $602 $699.1 $782.9 $817.1 $3,293.5

Regional Funding (millions)

Year 2014 2015 2016 2017 2018 5 yr. total
Northern Virginia $284.0 $317.3 $328.5 $339.6 $350.1 $1,619.5
Hampton Roads $185.6 $211.4 $219.4 $227.4 $234.8 $1,078.6

User Fee Changes

  • Replaces the current 17.5 cents per gallon gas tax with a 3.5 percent per gallon sales tax on the wholesale price of gasoline.[†] At current prices this represents about a 40 percent reduction in the effective gas tax.
  • Increases the sales tax on motor vehicles from 3 to 4.15 percent over four years.
  • Imposes a $64 per year license fee on electric, alternative fueled and hybrid vehicles.  This “hybrid tax” generates less than two percent of the bill’s total revenues and punishes those drivers who purchase cleaner more efficient vehicles.

New taxes and General Fund transfers

  • Imposes a 0.3 percent sales tax increase statewide that is dedicated to highway maintenance, public transportation, and intercity passenger rail.
  • Transfers 0.175 percent of existing sales tax revenues to pay for highway maintenance, which will come at the cost of other core functions of the state government.
  • Imposes an additional 0.7 percent sales tax on residents in Northern Virginia and Hampton Roads dedicated to regional transportation funding.
  • Imposes a tax of 15 cents per $100 value on real property transactions in Northern Virginia.  For a $500,000 house this amounts to $750.
  • A portion of Northern Virginia revenues also comes from a 2 percent hotel room tax.
  • Imposes an additional 2.1 percent sales tax on wholesale gas prices in Hampton Roads for regional transportation needs.  This tax already exists in Northern Virginia and is used to fund Metro.

Regional Funding

  • In Northern Virginia 30 percent of funds go to localities and 70 percent of funds are for regional projects approved by the Northern Virginia Transportation Authority.  Funds can be used for road construction, projects that reduce congestion, public transportation capacity expansion.
  • In Fiscal Years 2014, 2015, and 2016 $100 million will be dedicated to Phase II of the Dulles Metrorail Extension Project.  This $300 million comes from increased revenues in the Highway Maintenance Fund.
  • In Hampton Roads funding is restricted to new construction on new or existing roads, bridges, and tunnels.  The Hampton Roads Transportation Planning Organization must approve projects.

[*] Table does not including funding for DMV, Debt Service Fund, Port, and Airports

[†] There is also a 6 percent sales tax imposed on the wholesale price of diesel fuel, which currently is equivalent to the 17.5 cents per gallon tax.

About the Author