Amended Virginia Transportation Bill Backtracks on Prius Tax

In signing the funding bill that eliminates the state's 17.5-cent gas tax, Gov. Bob McDonnell reduced the new registration fee on hybrid vehicles to $64. While environmentalists remained disappointed, Moody's bond rating agency praised it highly.

Keith Laing writes that Gov. Bob McDonnell reduced the new registration fee from $100 because the legislature had added a 3.5% wholesale sales tax on fuel. The lower fee will apply to all "alternate fuel vehicles" according to the governor's press release.

Environmentalists remain displeased. "People who are doing their part to reduce oil consumption reward all of us with cleaner air and less climate pollution -- but now Virginia will turn around and punish hybrid car owners", stated the press release of the Chesapeake Climate Action Network.

The hybrid registration fee reduction and other amendments made by Gov. Bob McDonnell on March 26 will be finalized by the legislature on April 3, according to Michele Fuetsch of Transport Topics.

On March 4, Errin Haines of The Washington Post wrote how positively the new funding plan was received by the bond rating agency, Moody's Corp

The bond-rating firm reports in its U.S. Public Finance Weekly Credit Outlook (PDF, pg. 4) that the funding plan — expected to generate as much as $3.5 billion in additional revenue for transportation over the next five years — makes Virginia “the first state to address stagnant gas tax collections that have been increasingly insufficient to meet transportation funding needs, a problem faced by many states as they, consumers and automakers embrace higher fuel efficiency standards.”

It might appear ironic that the first state to eliminate it's gas tax would be praised, but from Moody's perspective, it was the total amount from all sources of revenue that the bill raised for transportation, including:

  • Boosting the state sales tax on nonfood merchandise from 5 percent to 5.3 percent and devoting more existing revenue to transportation instead of school, public safety and other services. 
  • A regional funding mechanism would boost the sales tax to 6 percent in Northern Virginia and Hampton Roads, and those monies could only be spent on transportation projects in those areas.
  • Uses $200 million in current general funds and uses another $200 million in future general funds from the federal Marketplace Fairness Act for transportation

More irony can be found in the governor's signing statement:

“In 1983, President Ronald Reagan proposed and signed legislation to more than double the national gasoline tax,” McDonnell said in defending the tax increase.

How doubling the federal gas tax compares to eliminating the state gas tax will no doubt be lost on many readers. However, he may have referenced The Gipper because the total tax package was not received well by many of McDonnell's fellow Republicans.

The Wall Street Journal had editorialized on Feb. 24, "There's one thing uglier than a Democratic tax-and-spend spree. A Republican one. On (Feb. 22) Virginia Governor Bob McDonnell and a GOP-run legislature approved a five-year, $6 billion transportation bill financed almost entirely with higher sales and car taxes"

On a positive note, the VA tax plan did prompt neighboring Maryland to act on Gov. Martin O'Malley's bill, according to John Wagner in The Washington Post because Virginia "is led by a Republican governor and that competes with Maryland for jobs."

Full Story: Enviros decry Virginia tax on hybrid cars

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