The most interesting part of Governor McDonnell’s proposal is the substitution of a sales tax for the traditional gasoline tax. The US highway system has long been financed based on a series of broad benefit taxes – most importantly the taxes on gasoline and diesel fuel. For many years federal and state governments increased these fees in response to increased demand for highways – the federal government extended this concept to transit some thirty years ago.

Toll roads represent a true user fee – a direct payment for a specific service – but the broad based tax on motor fuel provides a practical approximation. The fundamental problem, however, has been a growing unwillingness by federal and most state politicians to increase these fees. This has helped to create a transportation funding crises at the federal level and for most states. In response Governor McDonnell has proposed an even broader form of a benefit tax.

In effect a sales tax recognizes that surface transportation is key to our day-to-day economic and social activity. A sound transportation system is vital for economic growth including economic productivity. There is considerable literature on this topic. Sales taxes are a common form of funding for local transportation, most often mass transit. What makes the Governor’s proposal stand out is the direct substitution of a sales tax for gasoline taxes. A decent economic argument can be made in favor of this approach. It should not, however, be used as an argument against true user fees, such as toll roads or managed lanes including the new express lanes on the Washington beltway.

There are other parts of the proposal that are less clear cut, however. His proposal to continue the existing truck taxes appears inconsistent, although large trucks do cause more wear and tear on highways, so a specific charge makes sense. The plan to piggyback on any sales tax on internet sales raises its own set of philosophical issues – personally, I am not a fan of this type of tax.

I can't help but think that Governor McDonnell assumed media coverage would focus almost exclusively on elimination of the gas tax. This levy is hugely unpopular, so leading with that was at least politically smart.

But then there are the details of the plan (or in some cases, lack thereof).

First of all, moving away from the gas tax flies in the face of the important "users pay" principle. To be clear, I strongly disagree with others who define "users" so narrowly as to forbid investments in public or nonmotorized transportation options. Based on our public opinion research, I think most Americans also see themselves as users of a variety of transportation services, not just "highway users," and consequently (and correctly) believe it's fair for gas tax revenue to support multiple choices.

"User pays" is an important principle, especially since such payment raises the price of fuel -- albeit modestly -- so it's more closely aligned with environmental and social costs of burning it in autos. This proposal violates that principle.

The proposal also includes a registration fee for alternative-fueled vehicles, which is aimed at getting fuel-sipping or all-electric cars to pay their fair share for transportation services. When coupled with gas-tax elimination this is a wrongheaded double-whammy that will only perpetuate our addiction to oil.

It’s also a red herring. Plug-in cars are not the problem; there just aren’t enough of them. The governor notes that there are about 91,000 hybrids and plug-in vehicles in Virginia right now. Sounds like a lot, but that's about one percent of the total Virginia fleet. And a much smaller percentage of those are actually pluggable cars as opposed to more common (but still rare) hybrid cars, whose pay gas taxes just like drivers of efficient conventional vehicles. So not only would you slow electrification down under this plan, you would also not get much revenue from the move. All road users should pay their fair share, but levying special fees on the cleanest cars is the wrong way to go. We shouldn’t be imposing barriers to technologies that save consumers money at the pump and reduce our dependence on petroleum.

Other components of the plan, such as streamlining at VDOT, possible Port expansion and more stringent evaluation of transit investments, could have damaging environmental effects too depending on how they are implemented. As an aside, I wish more states called for more stringent evaluation of over-engineered, pricey road projects; that's where the bulk of our taxpayer money goes and they deserve the most scrutiny.

Overall, the plan is fatally flawed due to the big move away from the gas tax towards higher sales taxes and the hurdles for vehicle electrification. And it is disturbingly vague on key details about implementation of some measures and likely overall revenue for transportation after such a radical overhaul.

One thing the plan does underscore, however, is the need for aggressive innovation in transportation funding and finance. Hopefully other states will model plans that head in the right direction, and soon.

Great topic, Fawn. Before anyone criticizes Gov. McDonnell's announcement, let's recognize that a great many state governors could soon be walking a mile in his shoes—along the crumbling shoulder of a poorly-maintained Interstate, after abandoning their vehicles in an interminably congested lane.

As you say, there’s a lot to like about the plan. Start with the Governor’s recognition that “the same old means of funding transportation” will bring us the same old problems. He’s making a solid attempt to address the combination of looming challenges that led Rep. Bill Shuster (R-PA), the new Chairman of the House Transportation and Infrastructure Committee, to warn that transportation faces its “own version of a fiscal cliff”: the infrastructure deficit is deepening, maintenance budgets are declining, and the gas tax is becoming ever less effective as a method of funding the roads we need.

Yes, there are questions about the difference between the transportation dollars Virginia needs and the funds that will be raised under Gov. McDonnell’s plan. For a hint at how to bridge the gap, look no farther than the toll revenue coming from the new 495 express lanes in northern Virginia. The project is a solid step toward diversifying Virginia’s transportation revenue. Assuming the 495 experiment succeeds – which I believe it will – it could pave the way for similar projects in Virginia and elsewhere.

Many states are in the grip of their own transportation funding woes. But it doesn’t have to be this way. With more than 5,400 miles of toll roads in 35 U.S. states and territories generating more than $10 billion in revenues annually, tolling is already a big part of the solution to the challenge of creating sustainable revenue streams to support our country’s transportation infrastructure needs. Our Moving America Forward campaign will highlight the positive lessons that states have learned from decades of experience with tolling and road user charging.

Fuel taxes may indeed be “passé” as a way of paying for roads, and a mileage-based charge would probably be better, but the proposal made by Virginia’s Governor is much worse. It places highway financing in the hands of Virginia’s politicians, whose recent experience in financing transport infrastructure has been unfortunate.

Cannot the Governor find a way to get road users themselves to determine how to raise the funds they need to pay for roads? Could he not declare that after, say, the year 2014, no Commonwealth funds whatsoever would be allocated to roads, except out of a dedicated road fund to be established by the Commonwealth but paid for and administered by road users’ representatives?

Road users still determine how to pay for the vehicles they need. Why not let them determine how to pay also for the roads that carry them? Virginia’s consultants and universities have the expertise necessary to design a fund and system that would enable road users to meet the costs of the roads they are willing to pay for.

Governor – Invite submissions and select the best proposal!