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Obama Fills Out Infrastructure Plan, Virginia May Opt for Wholesale Fuel Tax

February 21, 2013

By Oliver Patton

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The White House is adding details to the “Fix-It-First” infrastructure program that President Obama unveiled in his State of the Union address.

The administration yesterday called for a “frontloaded” $50 billion infrastructure investment, to include $40 billion for deferred maintenance on highways, bridges, transit systems and airports.

The announcement did not say how the $50 billion would be raised, nor did it address the pending shortfall in the Highway Trust Fund. It did call for creation of a National Infrastructure Bank, a new bonding mechanism called America Fast Forward Bonds, and implementation of the expanded loan and credit program Congress passed in last year’s highway bill.

The administration also said it can speed up the permitting process for infrastructure projects, presumably by enacting the reforms contained in last year’s bill.

The announcement came amid continuing discussions about infrastructure funding as Congress enters the early stages of drafting the next highway program. The current program, MAP-21, expires at the end of September 2014.

The crucial question in the new law will be funding: where will the money come from and how much will there be?

Rep. Bill Shuster, R-Pa., chairman of the House Transportation and Infrastructure Committee, has said that all ideas for fund-raising are on the table. His predecessor in that key job, Rep. John Mica, R-Fla., was opposed to raising the fuel tax.

Shuster, responding to the Obama administration’s announcement yesterday, said the nation needs to responsibly pay for infrastructure.

“I welcome the President’s interest in improving our infrastructure,” he said in a statement. “However, the President’s plan appears to be only a short-term proposal for long-term challenges.”

While it remains to be seen where the top leadership of the House will come down on taxation as a source of funding, the trucking and business communities are pushing to make sure the Highway Trust Fund is made whole in the next highway program.

American Trucking Associations supports an increase in the diesel tax, and Tom Donohue, president and CEO of the U.S. Chamber of Commerce, recently said the Chamber supports reasonable fuel tax increases that are phased in and indexed to inflation.

At a recent hearing, Donohue told Rep. Peter DeFazio, D-Ore., that he’s willing to discuss the idea of linking fuel taxes to the National Highway Cost Construction Index and to fleet fuel economy.

DeFazio said this would raise the fuel tax slightly, a cent or so per year, but would provide a slow-growing revenue stream that could be bonded for an upfront investment that could amount to more than $100 billion.

DeFazio also has suggested taxing oil at the barrel, which he says would restrain OPEC from raising prices and cut profits for oil middlemen and speculators.

Virginia May Opt for Wholesale Fuel Tax

In a related development, the Richmond Times-Dispatch reported yesterday that Virginia legislators have tentatively agreed on a plan to raise revenue for the state’s beleaguered highway program.

Virginia has for years struggled to raise enough money to address severe congestion problems in urban areas, particularly in the northern part of the state, as well as keep up with ongoing maintenance requirements. 

Conflicting interests have made it politically impossible to solve the problem by raising fuel taxes, as other states have done.

In an attempt to break the long-standing deadlock, Gov. Bob McDonnell proposed to eliminate the state’s fuel tax and replace it with an increase in the sales tax, higher registration fees and a presumed revenue stream from a federal Internet tax that has not yet cleared Congress.

This would have made Virginia the only state in the nation without a gas tax.

The Virginia House passed that measure, but the Senate proposed a 5-cent increase in the gas tax, plus a wholesale tax on gas and allowing localities to raise their own transportation funds.

What emerged from the conference between the chambers was a blend, according to the Richmond paper.

If it is accepted, the agreement will replace the 17.5-cent gas tax with a 3.5% wholesale tax on gas and a 6% wholesale tax on diesel. The current 5% retail sales tax will go up to 5.3%, with a fixed portion going to transportation.

In addition, there will be a $100 annual fee on alternative fueled vehicles, including hybrids. The sales tax on vehicle purchases will go from 3% to 4%, and a larger portion of general fund revenues will go to transportation.

Virginia also wants to tap revenues from the Internet tax, should it pass. If it doesn’t pass, the state will add 1.6% to the wholesale gas tax.

The agreement still must be accepted by a majority of the General Assembly, whose session adjourns on Saturday.

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