The Unintended Consequences of the Gas Tax Suspension and Indexing Cap
Virginians for Better Transportation, a statewide coalition of more than 50 organizations spanning business, labor, environmental, community, and professional and trade associations, understands the Commonwealth’s commitment to easing the burden of higher costs and helping everyday Virginians make ends meet. However, Gov. Youngkin’s gas tax suspension and indexing cap plan cuts an additional $900+ million from Virginia’s dedicated transportation funding in addition to the $800+ million cut from the elimination of grocery sales tax equating to bigger potholes, more traffic congestion and worsening delays, parked buses and trains, and even more unfilled jobs.
How does this impact our transportation network?
- From every dollar of our dedicated, statewide transportation revenue $0.51 is invested in maintaining Virginia’s roads, $0.26 toward multimodal infrastructure construction, $0.11 for maintaining and expanding our public transportation network, $0.04 toward rail infrastructure like Amtrak, and $0.012 is invested in our ports!
- The gas tax is the 2nd largest source – and largest user fee – of transportation revenue in Virginia. The Governor’s plan could reduce revenue from this user fee by 11 percent over the next six years.
- The decrease in revenue from the gas tax suspension and 2 percent indexing cap would reduce funding over the next six-year improvement program period by $900+ million, including $106.9 million for public transportation, $32.4 million for passenger rail, $730 million for road maintenance and construction, and approximately $12 million for ports!
- Though CNBC rated Virginia as the best state to do business, it also graded our infrastructure a C+.
- The Governor’s plan hurts the long-term sustainability of the Virginia Transportation Trust Fund by changing the motor fuel tax rate indexing from the economically sound Consumer Price Index to a maximum cap of 2 percent. The average rate of inflation from 2017 to 2022 was 3.05 percent, which means, over time, our transportation dollars will buy less as our infrastructure needs increase.
Would Virginians see any benefit under this proposal?
- Very little. According to the report How State Motor Fuel Tax Increases Affect the Retail Price of Gasoline, “For 18 of the 38 times a gas tax decreased, the average retail price of gasoline either increased or declined but was back to the same price level within a few days,” and with the remaining states seeing a price decline of about 30 percent before returning to market rates. This means motorists save very little at the pump but will pay greatly over time for deteriorating transportation infrastructure.
- With a gas tax freeze, Virginians lose out on even more since nearly 20 percent of the Commonwealth’s regular motor fuel tax revenue and more than 50 percent of the diesel motor fuel tax revenue are paid by non-Virginians.
- Since the Maryland gas tax suspension started, oil companies have banked nearly $14 million in extra profits meant to help Maryland citizens. The average Maryland motorist, meanwhile, has saved 56 cents a day. We could expect a similar story if Virginia suspends its fuel tax.
- While several other states (MD, GA & FL) have passed a one-month gas tax suspension plan, these states have “backfilled” these funds to ensure long-delayed and immediate transportation needs are met. Unlike in Virginia, none of those states had already eliminated millions in dedicated transportation funding. Virginia’s plan cuts much deeper than these states combined and has no plan to backfill any of the losses.