THE GIESEN PERSPECTIVE

The Virginia Transportation Reform Act of 2007 -

A Collaborative Analysis—The Governor’s

Substitute Bill for HB 3202

DATE:                  Monday, April 2, 2007

 

THE GOVERNOR’S ANNOUNCEMENT—Naturally, A Press Conference!

 

A week ago today, Governor Kaine held a long awaited press conference in his cabinet room in the Patrick Henry Building, and like the building’s namesake, gave a rather stirring speech.  It was not designed to flame the emotions of liberty, however, but to stir strong feelings about his “amendment in the nature of a substitute” for HB 3202.  He designed the stage for the modern day media.  The state and U.S. flags were on either side of the podium, but with enough space for the cadre of local officials to be in a semi circle behind him. 

 

The 12 TV Cameras lined up across the large polished table from the assembled group were clearly pleased with the setting.  After all, the timing (scheduled for a 2 pm start with an actual beginning at about 2:13) made it possible for them to edit their tapes, refine their footage, get the station’s reporter’s lead-in comments and explanations fitted in between their live shots and still easily make the six o’clock news slots.

 

It worked.  By Tuesday most every comment was favorable concerning the modifications the Governor had made and predictions were we will have a transportation act for 2007.

 

The Governor himself emphasized “it isn’t a perfect bill.  If I or any of us could sit down alone, we would have fashioned a different bill.  Nonetheless, it is a real step forward toward solving the transportation problems of the state.”

 

The chief executive praised the General Assembly for sending him a bill with which he could work.  He noted in 2006 there was no bill, but the 2007 G.A. came forward with a real beginning.  He stressed, “I have honored the structure of the bill they sent me, but because of the number of changes necessary to correct the bill, I am sending a substitute back to the Assembly rather than an extensive number of amendments.”

 

He noted that during the month since he received the enrolled bill on his desk he had, “…had conversations about HB 3202 with hundreds of locally elected leaders, business owners, interest groups, citizens, and legislators around the state.  I have heard from people in every part of Virginia who want a workable transportation package.”

 

From the comments of the local officials at the press conference and statements attributed to some of the major Republican legislative leaders, such as The Speaker, William Howell, patron of HB 3202, it would immediately appear the Governor had indeed fashioned a compromise substitute bill that moved the process much closer to “a workable transportation package.”

 

“The Devil’s in The Details”

                  

This is a favorite saying by legislators.  They use it a lot when the budget is presented and the media has had a copy for several days and the legislators being interviewed have seen it only 50 or 60 minutes before and have been listening to the Governor talk during that time.  So, you indicate you haven’t had an opportunity to study the “details” and obviously, there are a few devils contained there in. 

 

The immediate responses to the Governor’s fixes to HB 3202 were very positive.  He received very high praise from the local officials who joined him.  Now isn’t that strange since they were all personally invited by Tim Kaine!  The Regional Plans were now acceptable to all in attendance and most stressed, as these were structured in the bill passed by the Assembly, their local councils and boards would not have enacted the necessary tax increases to implement the programs.

 

The Governor related a telephone conversations he had had with the Speaker and other legislative leaders, over the last few minutes before the press conference and indicated the legislative leadership on both sides of the aisle” were in favor of the changes he had made in the legislation., at least, in concept.  

 

Editorial writers generally gave the Governor high marks in their opinion columns the next several days.  But as the week wore on, certain parts of the bill began to be questioned by various entities.  For instance, the Home Builders of Virginia (HBAV) indicated a portion of the Governor’s substitute bill, “…clearly crosses over the ‘fair share’ threshold for the members of HBAV.”  Then there is an effort by Delegate Bob Marshall to get some constitutional questions answered by the Attorney General. (See below for more on both of these concerns).

 

There is also talk among some legislators of using a parliamentary devise to get the bill back to the committee status which could really make things interesting during the reconvened session this Wednesday, April 4. The “details” could really be changed if this were to happen.  Again, more a little later, but first a quick examination of the major changes made by the Governor Kaine. 

 

The Administration’s Amendments

 

 THE BONDS—Many are noting the Governor “sweetened the pot” by increasing the amount of bonds the Commonwealth Transportation Board (CTB) can issue under the substitute HB 3202.  In answering a question from a reporter, he explained he could accomplish this by his dedication of the insurance premiums to the required payments for existing and new debt allowed by the bill.  So enactment clause # 2 of HB 3202 Sub (our designation for the Governor’s substitute bill) allows the CTB to issue up to $3,000,000,000 in bonds instead of the $2.5 billion allowed in the General Assembly (GA) passed bill. 

 

To some of us observing this unfolding drama this seemed a little strange.  The estimated revenue from the recordation tax that the legislators were using to pay off the bonded indebtedness was $172 million per year after FY 10.  So the Governor recommends borrowing more money and using the estimated amount of the insurance premiums from auto insurance policies (1/3 of the total) to cover the payments for the larger amount of debt.  The spread sheet passed out at his press conference uses lower estimates for this source of revenue than did those passed out by those legislators who made up the Conferees on HB 3202.  The Governor showed $137.0 million being generated in FY09 by the auto insurance premium taxes and then growing to $169.5 by FY13. He failed to emphasize in his press conference that the length of the borrowing was extended from 20 years per issuance to 25 years. 

 

This now means that the final issuance (assuming $100 million in bonds in FY08, $300 million each year from FY09 to FY17, and $200 million in FY18) in FY18 won’t be paid off until 2043!  Oh well, our grandchildren won’t mind taking care of those bond repayments for us, will they?

 

The Governor also stated he was using dedicated funds to pay off the bonds and not the general fund source (the recordation taxes) in the bill as it reached his desk.  We have looked at the monthly report of the Secretary of Finance to the Governor and the GA very closely.  Strange there is no mention of revenue received from the Insurance Premium Taxes on the spread sheet for the non general funds for transportation.  There is a line item for this source of revenue on the spread sheet entitled “General Fund Statement of Revenue Collections and Estimates.”  The GA has used this fund source for transportation in the past but always by direct action on each such allocation.  So, up until now it has been considered a GF revenue.  Were the Governor’s comment a little misleading?  Oh well, as some would say, a tax is a tax is a tax no matter what pot you put it in. 

 

Another change the Governor made was to dedicate more of the revenue from the bonds to mass transit capital outlays.  The elected local officials from the urban areas of the state and those that see mass transit as a solid way to relieve some of the congestion on our highways were pleased to see this action by the former mayor of Richmond.  This, along with the bill’s provision which would dedicate 4.3% of the bond revenues to capital expenditures for rail, leaves about $227.1 million out of the expected $300 million annual bond revenue for the CTB to use for “paying the costs incurred or to be incurred for construction of transportation projects…”  This means the first dollars are to be used to match federal highway funds, “…for the purposes of allowing additional state construction funds to be allocated to the primary, urban and secondary systems of highways…”  The following sentences fix the concerns of many rural elected officials that the smaller construction districts would be short changed under the distribution parameters set up in the GA’s version of HB3202. 

 

The Governor did listen to the local officials and apparently tried to balance his changes to satisfy the concerns from all corners of the state.

 

OTHER STATEWIDE REVENUES which were included in the GA HB 3202 were retained in HB 3202 Sub.  The abuser drivers’ fees remained essentially the same in both versions of the bill.  However, the Administration’s estimates have been toned down from those forecasted by the legislators.  The Conference Report for the final version of the bill from the GA showed as much as $108.1 million being collected annually from all of these convicted, terrible drivers.  The official forecasts for the amended HB 3202 only go up to $65.4 million per year of revenue for our Highway Maintenance and Operation Fund (HMOF). 

 

Other “fee” collections which were retained in HB 3202 Sub include the $10 increase in the vehicle registration fee, the increased registration fees for heavy trucks and trailers, and the increased fines for violation of weight limits by heavy trucks.  The revenue from these increased fees is still scheduled to flow into the HMOF if the bill passes as submitted by the Governor.  The executive branch probably made the first estimates on the collections which can be expected from these fees so they are essentially the same in spread sheets supplied by both the GA and the Governor, $95.4 million per year in the “out years.” 

 

THE GOVERNOR’S TAX INCREASES made up for his lower estimate of the Abuser driver fee collections.  He increased the per gallon tax on diesel fuel taxes up to the same level as the per gallon tax on gasoline.  This is an increase of 1.5 cents per gallon equalizing these taxes at 17.5 cents per gallon.  This is estimated to raise from $20.9 million (FY09) to $24.3 million in FY13.

 

The Governor also increased the portion of the “general fund surplus” which will be dedicated to the TTF from 50% to 67.7%.  He, however, did not make a “technical change” to the wording of GA HB 3202.  If you refer back to the first installment of this series of GPs on HB 3202 dated March 19 you will understand our concern as to how much of a GF balance there will be at the end of any year that is “not otherwise reserved or designated.”  Past history would indicate there will be very little. 

 

The Governor (or maybe his conservative staff) does deserve credit since in his distributed spread sheets he simply noted “2/3rds general fund surplus” would be dedicated for transportation.  There were no dollar figures on the spread sheet and the “Statewide New Revenue Totals” did not included any amount for this potential source of revenue.

 

Finally, for the statewide program, the Governor placed in HB3202 Sub the dedication of 3 cents of the recordation tax to go toward transportation.  Two cents of this would go for transit operation costs (an estimated $44.6 million plus or minus) and one cent ($22.3) would go into the HMOF.  The Governor is convinced mass transit systems through out the state need to be strengthened as a way to ease the congestion on some of our urban streets and highways.  

 

The total of all of these fee and tax increases are calculated to bring $175.5 million to $182.5 million new dollars into the HMOF.  This is still considerably less than the $473 million shortfall that VDOT has estimated for the HMOF by FY12.  But it is a start!

 

THE REGIONAL PACKAGES as included in HB3202 Sub again indicated the Governor had listened to local elected officials throughout the state and had heard the message they shared with him.   The Governor moved the implementation dates for both the NOVA and the Hampton Roads regional packages until January 2008 and proposed some local option revenue taxes that each locality could adopt and use the receipts on transportation needs within their own borders.  For both regions this authorization includes increasing the commercial real estate tax (for NOVA localities, up to 25 cents per $100; for Hampton Roads, up to 10 cents per hundred); imposing an additional $10 vehicle registration fee; and, enacting commercial and residential impact fees to be determined by the individual locality. 

 

For The Northern Virginia Regional Transportation Authority the bill allows the imposition of taxes and fees to yield approximately $324 million for the first full year of the implementation of the authorized taxes and fees. These taxes and fees include the following:

            A 40 cents per $100 valuation Grantors tax (included in GA HB3202);

            A 2 percent motor vehicle rental tax (included);

            A 2 percent Transient Occupancy Tax (included);

            A $10 vehicle Safety Inspection Fee (New, was allowed in Hampton

                          Roads package);

            An Initial Vehicle Registration Fee, changed from $100 to 1%;

            A 5% sales and use tax on auto repairs (New for NVTA); and,

            A regional $10 Registration fee (new).

 

HB 3202 Sub duplicates most of the language in GA HB 3202 as far as the Hampton Roads Transportation Authority (HRTA) is concerned.  It extends the taxing and fee raising authorities granted in the original bill and adds the grantor’s tax (same as NVTA’s, 40 cents per $100) to the list allowed to this region in the original bill’s package.  These taxes and fees included in both are:

              The 2% sales tax increase on gasoline (equalizes that with NOVA);

              The 2% Motor Vehicle Rental Tax;

               The annual Motor Vehicle Inspection Fee of $10;

               The Initial Vehicle Registration Fee, 1%;

               The 5% Sales Tax on Auto Repairs; and,

               The annual Vehicle License Fee (now a regional registration fee) $10.

 

For the HRTA these fees and taxes should raise about $168 million to $177 million per year.  Then the local option taxes mentioned above would increase the area’s road funds another $39 to $42 million.  The local officials who were at the Governor’s press conference all seemed pleased with the Governor’s changes to the bill and the local authority extended by his amendments. 

 

LOCAL LAND USE REFORMS as amended in the Governor’s substitute were also pleasing to local officials.  The three main land use components were retained: urban development areas (UDA), impact fees and urban transportation service district (UTSD).  He changed the urban development areas to add cities and towns to the list of counties that must include these areas in their comprehensive plan.  He also changes the criteria for the UDAs to be mandatory.  That is, the locality must have zoning and have a population of 20,000 with a decennial growth rate of at least 5% or a growth rate of 15% regardless of size. 

The UDAs must accommodate the residential growth for 10 years (the original HB 3202 had a 20 year growth factor).  The Governor’s changes also include an incentive for localities to adopt Urban Development Areas by directing all agencies, to the extent possible, to funnel development funds into the UDAs!

 

IMPACT FEES have been a contention in the General Assembly for many years.  Organizations such as the Home Builders Association of Virginia and other development advocates have been able to stem most efforts of localities to get legislation adopted to allow them to impose impact fees.  These efforts have been to help the localities offset the infrastructure improvements normally needed for extensive increases in houses created by large developments.  Now the Governor’s version of HB 3202, if adopted, would put 2 separate kinds of impact fees into the code. 

 

One dealing with Road Impact Fees is modeled after existing impact fee provisions in Title 15.2 of the Code but as it presently stands is rarely used and rather difficult for localities to adopt.  Under HB3202 Sub any locality that has a population and/or growth rate noted above for UDAs would be allowed to enact impact fee service areas for road improvements that benefit new developments in the service areas.  The money raised could be used for all roads in the service area that “benefit” the service area, not just those “necessitated by and attributable to” new developments.

       

The second type of impact fee requires the locality to create an urban transportation service district (TSD).  If this is done by Dec. 31, 2008 then the locality may impose a general impact fee for an number of public purposes, including roads, transit, schools, parks, and others.  The people, on whom the impact fees can be assessed, however, are limited.  The development would have to be in an agriculturally zoned district and be a by-right residential development.

These requirements may discourage many localities from even considering going in this direction. 

 

As noted above these sections of the substitute bill has caused the HBAV to issue a rather strongly worded letter to all of the legislators.  Mike Toalson, the Executive Vice President of HBAV and a very effective lobbyist for the group, has urged all of the delegates to support an amendment to delete section 15.2-2317 of the bill which deals with these impact fees.  The opportunity to support an effort to take out just this part of the bill is unlikely to happen but it might (see below).  If it doesn’t, then this organization is asking the legislators to vote against the bill.

 

Other Less Talked About Changes

 

The media and general the public has focused on the money parts of the transportation debate for the last couple of years.  This is natural.  But the Governor made some other rather interesting “amendments” in his substitute bill.  The efforts pushed by some legislators (primarily Republican Delegates) to secure legislative representation on the CTB had cleared all of the hurdles during the legislative journey of HB3202.  It didn’t make the last one. The Governor has deleted that section of the bill. 

 

He did leave in the section on changing how the salary of VDOT’s Commissioner would be set.  In GA HB3202, the Governor would continue to set the salary with the approval of the CTB which would, of course, contain five legislators.  Under the provisions of the bill the Assembly will consider Wednesday, the CTB will set the salary (without any legislative representation sitting officially on the Board.) with the Governor’s approval.

 

There may have been a trade off on this particular issue.  The Governor left in the bill the creation of the new legislature-controlled Joint Commission on Transportation Accountability.  It doesn’t matter that the duties of this commission sound like a duplication of JLARC, we are likely to have a new oversight commission.  Of course, the Governor did strip out one of the parts of the Code which would have allowed this commission to have access to “…the records and facilities of every agency whose operations are financed in whole or in part by state funds…”  Watch out for this to reappear in a bill in the future!

 

For those of you who have just read with intense interest all of our collaborative GPs on HB3202, you may remember some comments on the Enactment Clause 15.  This was in all versions of the bill which appeared in the legislative process.  It allowed the Speaker of the House and Majority Leader of the Senate to appoint a joint subcommittee “…to identify ways to cut expenses in the operation of state government.”  With this bill, patroned by the Speaker, it is understandable how this clause, of some questionable germaneness, remained untouched (and largely unquestioned) during the extensive debates on this legislation. The Governor may have felt this was an intrusion on the Executive Branch’s prerogative or he may have recognized there is such a group functioning as we speak.  Ok, so The Council on Virginia’s Future was established by Executive Order but the Speaker, the Majority of the Senate, the President Pro Tem of the Senate, and other legislative leaders sit on the Council’s Board.  Then there is JLARC, which will investigate any agency it is directed to.  For whatever reasons, the Governor did not include this enactment clause in his substitute. 

 

The Constitution

 

Some Delegate by the name of Bob Marshall, R—Prince Williams County, has written to the Attorney General and requested an opinion on the constitutionality of the regional taxes and fees imposed by HB 3202 (or the Governor’s substitute).  Bob questions why there are no provisions in either the original bill or the Governor’s substitute for voter approval for the Northern Virginia and Hampton Roads Transportation Authorities.  He argues that HB3202 in essence extents to these two authorities the powers of regional governments.  He defines this as the authority to impose fees and taxes, not merely collect them. 

 

Delegate Marshall argues in his letter to the AG, (and we will bet he argue on the floor of the House of Delegates on Wednesday), that the powers conferred on these authorities by HB3202 make them de facto regional governments in violation of the VA Constitution, Article VII, Section 1.  This part of the constitution deals with local government and section 1, item (4) defines “regional government” to mean “…a unit of government organized as provided by law within defined boundaries, as determined by the General Assembly...”  Sounds vaguely familiar, doesn’t it?

 

So, Bob would maintain, and does in his questions to the AG, to organize these regional authorities (de facto regional governments) the legislation must require a referendum in each region.  Art. VII, section 2 reads, “Every law providing for the organization of a regional government shall…require the approval of the organization of the regional government by a majority vote of the qualified voters voting thereon in each county and city which is to participate in the regional government…”

 

Bob, also, asks the question, “...how 6 of 9 representatives of Northern Virginia jurisdictions, or 7 of 12 governing bodies of localities in Hampton Roads possibly satisfy this provision of the Virginia Constitution which requires voter referenda?”

 

These are some interesting questions and observations by Delegate Robert Marshall, R-Prince William County.  It will certainly make the debate Wednesday more than “routine.”  It will also be interesting to see how the AG answers Bob.  Is there a political motivation in Bob’s letter and his questions?  Some might suspect that is the case since the Lt. Governor is also looking ahead to the 2009 statewide races.  But from our observations of Bob Marshall and his “constitutional inquires” in the past, this effort on his part is probably more about procedure and constitutionality than strictly about putting a possible future candidate on the spot. 

 

The Future

 

From all the comments, guest editorials, quoted speeches, media coverage, etc. etc. and so forth, it would definitely appear HB3202 Sub will be adopted by the General Assembly upon its return to Richmond and Mr. Jefferson’s Capitol.  Even though the renovations are only partially completed (about 94% we understand) the legislature will meet in their respective chambers on April 4.

 

A Move To Send The Bill Back to Committee?

 

Some legislators have suggested the House of Delegates use a little known and never used part of the Commonwealth’s  Constitution which permits either body considering a piece of legislation “…If the Governor fails to send down specific and severable amendments as determined by the majority vote of the members present in either house, then the bill shall be before that house, in the form originally sent to the Governor and may be acted upon in accordance with Article IV, Section 11 of this Constitution…”  The mentioned part of the Constitution would allow the bill to be handled just as if it had been introduced the first day of the session.  It could be sent to committee and amended anyway the committee desired.  Now don’t you think that would open the door for all kinds of mischief?  If the Speaker allows that to happen there would be a lot of very surprised capital watchers.

 

So our prediction remains.  HB 3202, Substitute by the Governor will pass as presented!

 

AND LATER------“It’s not as much as I would like,” said Senator Brandon Bell, R-Roanoke County.  “it’s a four-to-six-year plan that we’ll end up having to revisit down the road.” 

 

We agree!

 

 

Links to Previous Giesen Perspectives:

March 24, 2007 March 23, 2007 March 22, 2007 March 21, 2007 March 19, 2007 Feb. 28, 2007 Feb. 12, 2007 Feb. 5, 2007 Jan. 22, 2007 Jan. 15, 2007 Dec. 18, 2006 Nov. 22, 2006 Nov. 10, 2006 Sept. 7, 2006 August 23, 2006 June 30, 2006 June 1, 2006 May 24, 2006 April 10, 2006 March 30, 2006 March 20, 2006 March 6, 2006 Feb. 27, 2006 Feb. 17 and 19 2006 Feb. 10, 2006 Feb. 3, 2006 Jan. 27, 2006 Jan. 23, 2006 Jan. 16, 2006 Dec. 21, 2005 Nov. 9, 2005 Oct. 21, 2005 Sept. 16, 2005 Aug. 26, 2005 Aug. 19, 2005 July 7, 2005 June 8, 2005 May 27, 2005 April 7, 2005 March 10, 2005 February 21, 2005 February 14, 2005 February 8, 2005 January 31, 2005 January 15, 2005 December 23, 2004 November 19, 2004

 

 

© 2007 Eldon James & Associates, Inc.