News and Views

Richmond Times Dispatch

Competing legislative proposals to repeal the state sales tax on groceries would commit Virginia to replacing hundreds of millions of dollars that would be lost to local governments and school divisions, but legislators are offering no protection to the state transportation fund to replace up to $250 million over two years.

The House of Delegates is poised to completely repeal the 2.5% tax, including a 1% local option tax that sends revenues directly to local governments where the sales are made. The Senate is about to adopt a compromise, modeled on the budget then-Gov. Ralph Northam proposed, that would eliminate the 1.5% tax that goes to the state for education and transportation, but not the 1% local option.

Both proposals would cost the state hundreds of millions of dollars in revenues — more than $1.2 billion over two years to eliminate the tax entirely — but use state taxpayer funds to replace the money that no longer would go local governments or school divisions, much like the $950 million annual cost for partial repeal of the car tax.

“I think the intent of both bodies is to hold local governments harmless,” said Dean Lynch, executive director of the Virginia Association of Counties.

However, neither the General Assembly nor the two-year budget proposal left by the former governor provides any way to replace the loss of transportation revenue — $186.5 million to $250 million over the next two years, depending on whether the tax is repealed on July 1, as the House wants, or Jan. 1, 2023, in the Senate bill.

The state transportation fund would continue to lose up to $139 million a year, beginning in mid-2025. The proposal reduces money for struggling public transit companies by almost $84 million over the next six years, according to Lisa Guthrie, executive director of the Virginia Transit Association.

“It kind of perplexes us that more people aren’t concerned about it,” Guthrie said. “We’re removing a dedicated source of funding.”

Gov. Glenn Youngkin, who’s pushing to repeal the entire sales tax on groceries and cut the state gas tax by 5 cents per gallon for 12 months, says Virginia has plenty of money in its transportation trust fund to pay for both. The fund finished the last fiscal year with a $371 million surplus and is running $387 million higher in the first seven months of this year, compared with the same period a year ago.

The administration and lawmakers also are counting on a big boost of federal money for Virginia from the Infrastructure Investment and Jobs Act, which President Joe Biden signed last fall. The federal bill will send an estimated $741 million to Virginia in the fiscal year that will begin on July 1 and $1 billion in the following year.

Counting the federal money, the governor’s office says the Commonwealth Transportation Fund would increase by $170 million next year and $680 million in the second year, even after cutting the grocery tax and “suspending” the last gas tax increase.

But Guthrie said the federal funds won’t begin to flow until Congress adopts a federal budget, instead of relying on a continuing resolution to run the government. Even then, she said the money will be restricted so transit companies can’t use it for operating revenues that have dropped during the COVID-19 pandemic.

“It is not interchangeable,” she said. “It is not a one-to-one deal to replace what the state is taking away.”

Read the full article and more in Richmond Times Dispatch