March 5, 2013 / 6:00 PM / 5 years ago

Maryland next U.S. state to weigh transportation funding overhaul

WASHINGTON, March 5 (Reuters) - Maryland Governor Martin O‘Malley is seeking an overhaul of his state’s transportation funding, less than two weeks after neighboring Virginia approved a reorganization of how it funds road, bridge and highway repairs.

States and federal funding for transportation, which is mainly based on gasoline taxes, has shrunk in recent years as vehicles have become more fuel-efficient.

O‘Malley’s plan would closely resemble Virginia’s by moving the state away from relying on a gas tax charged at the pump and instead using revenues from taxes on wholesale gasoline and Internet sales. The governor’s office also said the state would issue general obligation bonds for federally required environmental improvements, but did not give an amount.

“This plan will help us generate the revenue we need to ease some of the worst traffic congestion in the nation while building and repairing our transportation infrastructure,” O‘Malley, a Democrat, said in a statement issued late Monday.

In his proposal, the state would lower its gas tax to 18.5 cents per gallon from the current 23.5 cents and index the tax to inflation. The state would also link its public transit fares to the Consumer Price Index, the federal measure of inflation.

Then, it would create a sales tax on wholesale gasoline, beginning on July 1 at a rate of 2 percent. That tax would rise to 4 percent in 2014.

The U.S. Congress is poised to pass legislation that would resolve a decades-long fight between states and Internet retailers. Under current law, states can only collect sales taxes on web purchases from retailers who have physical presences within their borders. Governors of both parties say they are missing out on millions of dollars of revenue each year as more consumers shop on web sites such as Amazon.com.

Under O‘Malley’s proposal, if Congress approves legislation allowing states to tax Internet sales, Maryland would devote a portion of the new revenue to transportation. If it does not pass a bill by June 1, 2015, Maryland would make up for any shortage with a higher tax on wholesale gasoline.

The plan Virginia approved on Feb. 23 also looked to Internet sales revenues for transportation projects, and would increase the wholesale gas tax if the legislation fails.

In its overhaul, which was initially drafted by Republican Governor Bob McDonnell, Virginia completely scrapped its 17.5 cent-per-gallon gas tax at the pump and instituted taxes on wholesale and diesel. It also raises the state sales tax and charges registration fees for hybrid, electric and alternative-fuel vehicles.

Virginia is the “first state to legislatively address stagnant gas tax collections that have been increasingly insufficient to meet transportation funding needs,” Moody’s Investors Service said in a report released last week. The rating agency said Virginia’s transportation package was “a credit positive.”

Maryland will likely pass its overhaul quickly as O‘Malley already has support from the leadership in both chambers of the statehouse, which is controlled by Democrats.

Although O‘Malley’s proposal has major divergences from Virginia’s legislation - Maryland would not touch its sales tax or charge alternative-fuel vehicle fees - it could generate similar amounts of money. According to O‘Malley’s office, his proposal would bring in $3.4 billion over five years for transportation, while Virginia’s overhaul is expected to generate $3.5 billion over five years.

The U.S. government uses an 18.4 cent-per-gallon tax to fill its Highway Trust Fund, which is perpetually at risk of going broke.

The main source of highway funds in about half the states is a motor vehicle fuel tax, according to the National Conference of State Legislatures.

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