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Bacon's Rebellion

Virginia Doesn't Need to Raise Taxes for Transportation

Global companies are pouring money into roads in other states

Geoffrey Segal
January 31, 2006

With each passing day, it becomes ever more apparent that the General Assembly is headed toward another battle over taxes. The Governor is calling for new levies to support government-financed transportation programs. The Senate is once again asking for more taxes despite surpluses in the billions of dollars — albeit it may not have the support it had just two years ago. Once again, the House of Delegates remains the last line of defense against new taxes on every Virginia family.

There is no need to retell the story or the outcome from the last tax battle. It is, however, worth noting that the House has been proven right: The Commonwealth would grow its way out of deficits, despite record spending, an important lesson moving into the current debate. To date the House hasn't presented a formal plan for transportation. Rather delegates are talking about fundamental reforms, both in designing and financing our transportation system.

At this point only one thing is certain in the House: A majority has little or no interest for new taxes. Hopefully we'll learn from the past and see that new taxes are not needed at this time.

Both the Governor's and Senate's transportation plan lack the needed creativity and innovation. They are relics relying on traditional taxes, and tax increases, to fund transportation projects. These plans are stuck in the mindset that government is the best provider of services. On the other hand, the House provides leadership with innovative structural reforms that will provide a long-term solution.

Just as our transportation needs have changed, so has the way of financing them. Indiana Governor Mitch Daniels announced last Monday that he'll be able to fully fund the state's 10-year transportation plan without raising taxes. How? A $3.8 billion concession deal to operate the Indiana Toll Road. Sounds similar to the Dulles Toll Road long-term lease conversation.

In the last 12 months, global capital markets have discovered the U.S. highway market. Literally trillions of dollars from global funds could be invested in our highways. The Indiana deal is part of a larger trend beginning to sweep across the nation. So far, in just four states—Virginia is one of them i.e., Dulles Toll Road—more than $20 billion worth of proposals are pending approval.

So, what should the Commonwealth do?

First, embrace the global markets and consider leasing other existing toll roads and bridges. These revenues would greatly enhance the state's ability to fund projects both in the immediate area and throughout the state. There is great potential to raise billions of dollars this way. In addition, the state can further leverage this money with other public-private partnerships. Projects using this model would require far less public investment than traditional funding or design. We could get more projects, completed in less time, for less money.

Second, it should become a policy of the state to consider and/or implement tolls for all new major capacity construction. For example, any new lanes on I-66, I-95, and the entire beltway should be financed, in whole or in part, by tolling. In true public-private partnership fashion, the state could pay for a portion of these costs to lower the resulting toll for users. Another advantage of this model is the introduction of a pricing mechanism to some of our most congested roads (See "Putting a Price on Mobility," Jan. 3, 2006) that could provide a more long lasting solution to congestion.

Third, we need to consider total life-cycle costs for construction projects. VDOT should seek 20-year pavement warranties for all major reconstruction projects. New Mexico was the first to experiment with this and it's proven quite successful.

Finally, rethink very expensive rail projects. A recent study by the Thomas Jefferson Institute, "Rail at Any Cost," showed that the proposed Dulles rail project in Northern Virginia is roughly three times more expensive per new transit trip than the development of a Bus Rapid Transit system. As the study notes, that means that "a high quality transit system could be built in the Dulles corridor and in several other corridors in Northern Virginia" for the same cost. Doing so would bring more customers to transit, serve more communities, remain flexible, and do more to relieve congestion.

No one doubts that our transportation system needs investment and improvement. However, given the reality of a large budget surplus and the emergence of private capital in highways, the lessons are clear. We can do better — without new taxes.

Geoffrey F. Segal is the director of government reform at Reason Foundation.



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