January 8, 2013 / 10:20 PM / in 5 years

Virginia seeks new ways to fund transportation, drop gas tax

WASHINGTON, Jan 8 (Reuters) - Virginia’s governor wants to replace the state’s gas tax with an increase in its sales tax along with new fees on alternative-fuel vehicles in a bid to wipe out the state’s transportation funding shortfall.

“The gas tax is a stagnant revenue source,” said Governor Bob McDonnell in a statement on Tuesday.

“If we stick to the same old means of funding transportation, we will find ourselves having the same debates and facing the same revenue shortfalls over and over again.”

McDonnell’s proposal is a radical change. Virginia would become the first state in the nation to drop its gas tax if his plan passes, according to the governor’s office.

States levy various taxes at the pump to pay for their transportation programs, which come on top of a federal tax of 18.4 cents per gallon.

The U.S. Congress for years has wrestled with the same issues Virginia faces. As gas prices rise, drivers turn to cars with better fuel efficiency and pay less of the federal tax. The trust fund filled with those tax revenues is perpetually on the brink of going broke and the federal government has stepped in repeatedly since 2008 with emergency funding.

A lack of a solution has prompted rating agencies recently to downgrade some of the bonds states issued in anticipation of road grants from the federal government. This summer, Congress passed legislation authorizing transportation funding for two years, but the risk of cuts “remains elevated,” Randy Gerardes, senior analyst at Wells Fargo securities wrote in a recent note.

McDonnell said his plan to eliminate the state’s gasoline tax of 17.5 cents per gallon and increase its sales tax by 0.8 percent, along with putting more of the existing sales tax toward transportation and charging new registration fees, will help provide more than $3.1 billion in funds for five years.

The governor also proposed creating a constitutional amendment ensuring state transportation dollars are only spent on transportation projects, streamlining the state’s department of transportation, and moving transit funding to a formula based partly on performance.

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