THE GIESEN PERSPECTIVE

The Virginia Transportation Reform Act of 2007               

HB 3202

A Collaborative Analysis

DATE:              Friday, March 19, 2007

 

A COOPERATIVE EFFORT

 

Since the adjournment of the 2007 Session of the General Assembly the media’s attention (and hopefully the public’s) has been focused on the action the legislators took in the area of solving the transportation problems of the state.  Certainly the Governor has concentrated on HB 3202 and its various parts.  He has held “listening meetings with local officials” throughout the state.  He is now meeting with legislators trying to determine how he can “fix” the bill.

 

Many people have questioned parts of the bill.  Others have asked exactly what is this “transportation solution” all about.  In an effort to give some insight into this rather complicated piece of legislation some of us who have been working together to watch the legislature during this session have devised this “collaborative effort” to analyze the bill in some depth.  Since there is an old saying “two heads are better than one,” then it would stand to reason that four heads are even better than just two.  So, all of us listed above have contributed to this Giesen Perspective (GP). 

 

This is the first of several GP’s we will send to you to accomplish our purpose of giving you a better understanding of HB 3202.  This GP will deal with the statewide provisions of the bill.  Others will be forthcoming early next week. One of these will deal with the concept of floating bonds for use by the Commonwealth Transportation Board; another will look at the regional plans of the bill; another will give a run down of the “reform” portions of the bill (both VDOT and land use); and, finally, you may be interested in some of the background on how the bill came to be after last year’s “fiasco.”  Then when the Governor announces his “fixes” on Monday, March 26^th you might recognize what he’s changing!

 

THE STATEWIDE TRANSPORTATION FUNDING PACKAGE

 

 

The Use of General Fund for Transportation.

 

The use of General Funds (GF) for transportation systems in the state is one of the major controversial issues surrounding HB 3202.  In talking to some citizens recently, they asked, “What’s the difference between General Funds and Non-General Funds (NGF)?  Aren’t they both funded by our tax dollars?”

 

The answer to the second question is, yes, tax dollars do support both portions of the budget.  However, in the state’s budgetary process there are a number of other sources of revenue going into the NGF category.  Tuitions paid to our colleges and universities, for instance, are included in NGF expenditures for higher education.  Likewise, gasoline taxes, driver license fees, license plate fees, vehicle titling taxes, and designated portions of the sales and use tax are considered NGF and are deposited directly into transportation funds by the Department of Accounts. 

 

The GF receives the revenues from such things as the individual and corporate income taxes, the state share of the sales and use taxes, profits from ABC sales, and taxes on the recordation of deeds, the probation of wills, insurance premiums, and certain law suits.  Lottery profits are designated to go toward public education but are considered GF as far as the budget is concerned.  From the GF revenues, the state funds such things as all forms of public education, public safety, corrections, natural resources, Medicaid, and services for the disabled, mentally ill, and elderly.

 

A “One-time” Use of General Fund

 

Explanations of HB 3202 all list the use of “one-time General Fund” dollars in FY08 as part of the transportation package for this session.  In actuality, the $500 million of GF scheduled for transfer into the Transportation Trust Fund (TTF) in FY08 is already contained in the Governor’s amendments to the Appropriations Act (HB 1650). 

 

The 06-08 Budget Bill passed last June contained $339 million designated for transportation uses.  However, since the legislators never came to an agreement on a transportation bill, the money was never allocated but remained available for expenditure in FY08. 

 

Governor Kaine added $161 million to this figure in his introduced amendments to the Budget Bill in December.  He noted this $161 million came from the GF surplus but was designated for specific transportation project.  He also specified how the $339 million which was carried forward would be used.  So this $500 million of GF surplus will go into the TTF per HB 1650.

 

The Governor was careful in his GF-transportation-amendments to the budget that he used those funds for specific projects.  Part of his arguments concerning HB 3202 has been he doesn’t like an on going commitment to use GF for transportation.  The facts are the state has used GF for transportation purposes since 1991.

 

It was in 1989 that the then Speaker of the House, Delegate A. L. Philpott, D-Bassett, devised a plan that brought Southside Virginia rural legislators together with Northern Virginia urban legislators.  This plan provided for $40 million from recordation tax revenues to go into a Route 58 Fund to pay the debt service on bonds to improve (four lane) Route 58 from Norfolk to the Cumberland Gap. For any new comer to Virginia, the 400 plus miles of  Route 58 stretches across the south part of Virginia from the East Coast to the western point of the state the Cumberland Gap (which as you know is west of Detroit).  The trade off for Northern Virginia legislators was the legislation allowed another $40. million from the recordation tax receipts to go to all local governments based on the point of collection.  The largest share of the recordation taxes are collected in NOVA.   

 

The idea took hold and the 1989 General Assembly passed the legislation and the 1990 legislature took the necessary budgetary action.  In 1991 the first $40,000,000 was spent by VDOT.  With the economic downturn of the early 90s the amount paid into the Route 58 fund was reduced to $16.3 million in ’92, $15.3 million in ’93, and $22.3 in ’94.  It was back up to $40.0 million in ’95 and has varied from that up to $47.3 million in 2000.  Those amounts going to NOVA localities were “pooled” by a 1993 amendment to this section of the code.  Since then their funds have gone into the Northern Virginia Transportation District Fund to provide for debt service for projects in the Eighth Planning District.

 

In 2000, economic times were good and GF revenue was exceeding forecasts.  So the legislators took advantage of the extra dollars in the GF and passed the Virginia Transportation Act of 2000.  This set up a list of highway construction priorities and transferred an additional $285.6 million of GF in FY01 and $94.3 million in FY02 into a special sub-fund of the TTF for these specific projects.  Since then, additional projects have been added and VDOT has spent GF amounting to $45.0 million in FY02; $140.6 million in FY03; $72.9 million in FY04; $317.4 million in FY05, and $185.0 million in FY06.  These sums have always been specifically designated in legislation passed by the Assembly.  These dollars have not been appropriated on a continuous use basis.  The proposed use of GF for the debt service of the bonds authorized by HB 3202 is a different approach.  (See the next edition of GP).

 

Insurance Premium Taxes

 

The GA, on a budget by budget basis, has been appropriating insurance premium tax revenues for transportation purposes since 2003.  Part of the insurance premium tax revenue comes from the sale of automobile insurance policies.   The legislators reasoned this transfer of a traditional GF revenue source into the NGF transportation arena was justified.  After all, automobiles do contribute to the need for highways.  So there is a nexus between these revenues and the transportation needs of the state. 

HB 3202 designates that 33.3% of the insurance premiums taxes from FY09 and forward will go into the TTF.  This means the use of these formerly GF revenues will now go into the TTF by statute.  That transfer would no longer take a separate and annual action by the GA.  The Department of Taxation will automatically deposit 1/3 of the Insurance Premium Tax Collections into the TTF.  In FY08 the GA had already appropriated $109.8 million to go into the TTF from this source (approximately 27% of the revenue forecasted). This action will reduce money going into the GF by an estimated $144.1 million in FY09 and is forecasted to increase to $180.0 million by FY13.

During the 2006 debate on the transportation issue, all parties (the Governor, the Senate and the House) agreed that using the automobile premium taxes for transportation purposes was OK.  So this portion of HB 3202 is not likely to be changed by the Governor despite his comments about using GF for transportation expenditures.

Using 50% of the “nonrecurring GF surplus.”

Again the Governor and the General Assembly leadership have recommended this approach in the past.  So this will probably stay in the final version of HB 3202.  The question becomes this--is the $64 million per year estimate of what this action will produce for transfer from the GF to the TTF accurate?

As usual in these kinds of discussions on “estimates,” there are several different opinions.  There are those that insist that this is an overestimated sum.  They point to the wording in the bill which states:

               “At the end of each fiscal year, the Comptroller shall designate                                                                             within his annual report pursuant to Section 2.2-813 as follows: one-half of the remaining amount of the general fund balance that is not otherwise reserved or designated shall be designated by the Comptroller for nonrecurring expenditures, and one-half shall be designated for deposit into the Transportation Trust Fund.”

Those who question these estimates call attention to the Comptroller’s “General Fund Preliminary (Unaudited) Annual Reports” presented since 2000 to the General Assembly at the joint money committee meetings in August of each year.  Prior to 2000 a similar report was made by the Secretary of Finance.  If you interpret the phrase, “…that is not otherwise reserved or designated…,” in absolute terms, then general funds shown in the Comptroller’s and the Secretary’s reports that fit this definition over the years are: 

               Year               Amount in Millions                 

             FY  1992                   $  22.4

             FY  1993                       52.8

             FY  1994                        59.7

             FY  1994                         7.6

             FY  1995                         0.0 

             FY  1996                         1.1 

             FY  1997                       76.3

             FY  1998                       33.0

             FY  1999                        39.4

             FY  2000                        34.8

             FY  2001                          0.0

In his letter of explanation the comptroller notes, “For 2001, sufficient cash is not available to designate these entire amounts.” He was referring to the reappropriations for FY 2002 required by Chapter 1073 of the 2000 Acts of Assembly (the budget bill).

              FY  2002                          0.0 (Same notation in comptroller’s letter.)

              FY  2003                          0.0 (Same notation in comptroller’s letter, BUT

$16.8 million shown as “Discretionary Reappropriations”)

              FY  2004                        0.0                   (ditto—with $31.8 million shown as “Discretionary Reappropriations”)

              FY  2005                           0.0  ($19.2 shown as “Discretionary Reapp.”)

              FY 2006                        28.4   (This is shown as “Discretionary Reapp.” but there is no note in the explanation letter indicating there isn’t sufficient cash to designate all of the amounts required.)

 

This review would indicate with a strict reading of the language in HB 3202 the largest amount of GF Surplus funds which would have been transferred to the TTF over the years would have been $38.2 million and the least ZERO.  The average amount even when you included the “discretionary reappropriation dollars” would be $25.4 million. 

 

Those legislators who helped fashion this portion of HB 3202 interpret this language much differently.  “The intention of the amendments to Section 2.2-1514 (as quoted above) means 50% of the revenues in excess of the official GF annual forecast (the surplus), after funds have been designated for the Revenue Stabilization Fund and the Virginia Water Quality Improvement Fund, will be transferred to the Transportation Trust Fund,” one of these legislators stressed in a one-on-one conversation.  He added. “It’s just that simple.” 

 

With this interpretation, the amounts stated in the explanations of the revenues included in the bill, $64 million per year, are probably understated.  For instance, in 2006 the Secretary of Finance reported to the legislators that the FY 06 revenue was $147 million.  Of course, she then added the General Assembly which didn’t pass the 2006 budget until June anticipated this surplus and had included $128 million in the passed budget bill.  The Governor had then incorporated the balance ($19 million) into his version of the 2006-2008 budget.  (The question then becomes, are these funds reserved or designated?) 

 

But since this was an anomaly—the budget is normally adopted in March—the patrons of the Speaker’s HB 3202 would say after the deductions for the Rainy Day and Water Quality Improvement Funds, 50% of the balance of the $147 million would go to the TTF.  Since the Rainy Day fund is at its statutory cap there would only be a 10% transfer to the Water Quality Improvement Fund leaving $132.3 million.  This would allow a transfer of $66.2 million.

 

The $64.0 million used in the revenue estimates for HB 3202 is based on a 12-year average of GF surpluses.  In most of these years the transfers into the Revenue Stabilization Fund (the Rainy Day Fund) were in play.  Now that this fund is at or near its statutory cap the fund will not be in play and transfers into it will be minimal.  Thus “surplus balances,” as defined by the patrons of the bill, will be larger than this stated “average.”

 

Whichever way you calculate this “50% of nonrecurring GF surplus,” how reliable a source of funding for transportation is it?  In the last 40 years the U.S. economy has “turned south”—now you southerners don’t get upset, that is the term economist frequently use when economic activities slow up—about every ten years.  While often Virginia does a little better than the nation as a whole, these economic downturns have impacted our state revenue streams.  The information from the Comptroller’s reports noted above indicate how important this impact can be.

 

The current revenue picture

 

Earlier this week, the Secretary of Finance sent her monthly report to the Governor on the state’s revenue picture for February and the first eight months of FY07.  The picture is not as rosy as the advocates for using GF surpluses for transportation would like.  After adjustments on the year-to-date basis, the Secretary noted, “…revenues grew 4.6 percent through the first eight months of fiscal year 2007, behind the adjusted forecast of 5.4 percent annual growth.”  Note this is an “adjusted forecast” for revenues.  The forecast on which the GF portion of the budget was fashioned reads “% annual growth required by estimate—6.5%”!  The state’s collections have a ways to go in the next four months just to break even much less produce a surplus that might put some funds into transportation.  However, HB 3202 does hedge against this, as this portion of the bill doesn’t go into effect until the next biennial budget cycle. 

 

Oh yes, the eight month results of various taxes which contribute to the GF revenues is also interesting considering the parts of HB 3202.  Sales and Use Tax collections (19.07% of the budget) are 2.6% ahead of forecast, but Net Individual Income Tax (61.54% of the budget) and Corporate Income Tax (5.57% of the budget) revenues are

2.6% and 13.7% BEHIND estimates.  Then one should also consider that “Insurance Premiums” are 11.3% short of the “official forecast.”  For comparison, in 2005 this same report showed Net Individual Income Tax collections ahead of forecasts by 2.4% and Corporate Income Tax receipts a whooping 62.6% ahead of estimates.  Insurance Premiums revenues were 1.7% behind forecast and Sales and Use Tax collections were dragging but only by 0.2%.  Just a few facts for our consideration, and hopefully that of the Governor, as we analyze how HB 3202 might work

 

Fees for Abusive Drivers

 

This is the portion of bill that perhaps sounds good to the public.  From a political perspective it may be the best part of the bill, but it is probably the least understood by the public.  Heavy fees on abusive drivers are certainly a good way to pay for roads, isn’t it?  If HB 3202 in its final form keeps this section as it is now, the Commonwealth will really hit those bad, bad abusive drivers with heavy fees—all in addition to any fines or court costs the driver made have incurred with his or her conviction.  Revenue from these fees will flow directly into the Highway Maintenance and Operating Fund (HMOF) of VDOT to help offset the fast rising highway maintenance deficit.

 

This legislation spells out six different serious driving situations in which people will be assessed fees.  The first five of these situations are conviction for driving offenses.  All of the fees assessed because of these offenses will be paid over a three year period by a court order.

 “The court shall collect, in full, the first annual payment of the fee imposed…at the time of conviction and shall order the person assessed a fee to submit the second annual payment to the Department (of Motor Vehicle—DMV) within 14 calendar months of the date of conviction and the third annual payment to the Department within 26 months of the date of conviction.

The five driving offenses and the fees imposed upon conviction are:

               1) Driving while your driver’s license is suspended or revoked--$750.00;

               2) Reckless or aggressive driving--$1050.00;

               3) Driving while intoxicated--$2250.00;

               4) Any other misdemeanor that is not included in these three--$900.00; and,

               5) Any felony conviction for driving or motor vehicle-related offense--$3000.

So drivers convicted of one of these offenses will be paying anywhere from $250.00 a year to $1000.00 a year over a 26 month period from the date of their conviction.

 

The Demerit System—a brief explanation

 

Back in the late 1960s the legislature put into the code the Virginia Demerit System to be administered by DMV.  It was designed to identify risky drivers and give DMV and the courts a tool to encourage or require these drivers to take courses to improve their driving skills.  Demerit points are assessed for conviction of various offenses.  Good driving habits can earn you safe driving points or get demerit points removed from your record.  Any conviction that may have earned you demerit points may remain on your record at DMV for additional years depending on the severity of the offense. 

 

You get one safe driving point for each calendar year of safe driving.  But you may not accumulate more than five safe driving points.  Safe driving points are used to offset demerit points.  You can also earn safe driving points by attending a “Driver Improvement Clinic.”  These eight hour defensive driving courses, successfully completed, can earn you five safe driving points.  From personal experience some people can affirm the effectiveness of these DMV designed courses.   Now if you are ordered to take such a course by the courts, then the court will determine if you will be awarded safe driving points.

 

The General Assembly over the years has assigned certain point totals to various driving violations.  The five listed above in the abusive driver categories each would accumulate six demerit points for the convicted driver.  You do know, of course, reckless driving (6 points) can include, among other offenses, speeding at 20 mph above the posted limit; passing or overtaking an emergency vehicle; failing to give a proper signal; faulty brakes/improper control; driving too fast for conditions; etc. etc. and so forth.

 

Four point violations include speeding 10-19 mph above the posted limit; passing when unsafe; failure to yield when turning left; following too closely; failure to signal before moving from the curb; failure to stop at a railroad crossing: and so on.  Then there are the three point violations such as improper passing; coasting with gears in neutral; unauthorized use of crossover on controlled highways; improper U turn; violation of right turn on red; failure to dim headlights; parking without proper lights displayed; failure to have license revalidated; and so forth.

 

In addition to the new fees for the abusive driving convictions noted above, HB 3202 will also institute a fee schedule for those who accumulate eight (8) or more demerit points.  When you have a balance of eight or more driver demerit points on July 15, 2007, “where at least one such demerit point is attributable to an offense that occurs on or after July 1, 2007…”  you will be assessed a fee of $100.00 plus $75.00 for each merit point in excess of eight.  The fees to be assessed on this basis are capped at $700.00.  You are only charged for extra points up to 16!  But you can pay a “fee” (note it’s not a tax or a fine, but a fee) every year until you get enough safe driver points to get below eight demerit points.  (Oh yes, the italicized language was put in the bill to make it constitutional.  New laws cannot assess fees to citizens retroactively.)

 

An example! (Unintended consequences?)

Let’s say your teenage son (18 years old but still in school) was convicted of driving 76 mph on an interstate with a posted speed limited of 55 mph (which is common in many urban areas).  After all, he was rushing to get home to his parents!  That is a reckless violation, so your son now has 6 demerit points and someone will pay $350.00 per year for three years in fees over and above the fine and court costs.  Then you receive a letter from DMV reminding you of your son’s conviction earlier in the year of “a violation of the right turn on red” law.  He had turned when there was an on coming vehicle which happened to be a police car!  That means your son now has nine demerit points and the “fees” you (probably you) will pay go up another $175.00 the first year, and $100.00 the second year since now, of course, your son will be a safe driver for at least a year.  You will now have paid $550.00 the first year and $450.00 the second year and $350.00 the third year for the transportation solution.  (If you have a large car that only averages 18 miles to the gallon and you travel some 30,000 miles a year, a 5 cent per gallon increase in the gasoline tax would have only cost you $83.33 per year!)

The estimated revenue from these abusive driver fees

Many observers of the legislative process have questioned the reliability of the revenue stream which has been used in the forecasts for HB 3202.  These figures show the collection of $57.5 million in FY08, $80.5 million in FY09, and $108.1 million per year from FY10 thru FY13.

Opponents of the bill stress this is an unreliable source of income for the highway system.  They argue that many of the abusive drivers aren’t going to pay the fees and that it will be very costly to collect them even if that is possible.  Others argue that the mission of DMV isn’t to collect fines (or fees, if you wish to call them that!) imposed by the courts but to make sure we have safe, dependable drivers on our highways.  So if DMV fulfills its mission (and the heavy fees convince more drivers to take defensive driving courses and avoid convictions) then public habits will change and the collection of fees will go down. 

The negotiators on HB 3202 used estimates of revenue from these fees developed by some professionals at DMV.  There have been a number of bills introduced since 2005 using this concept of raising money for transportation.  The “fiscal impact statements (FIS)” for these bills have been massaged constantly since the idea first surfaced in Virginia.  Several other states have already implemented similar statutes.  The developers of estimates used in Virginia relied on the experiences of these states and the collection experience of our courts.

The original estimates were developed in early 2006, revised in September of ’06 and again in January 2007.  The 9/19/06 FIS stresses, “The estimated revenues are based on conviction and collection rate information by conviction from the Supreme Court of Virginia for calendar year 2005, as audited by the Auditor of Public Accounts.”  Some who have argued against this approach to raising money for highways maintenance, contend the state will have a very difficult time collecting the fees.  The estimates developed for the abusive driver fee revenue took this into account in a big way.  The collection rates they used by category for the above offenses are as follows:  1) 13%; 2) 59%; 3) 44%; 4) 30%; and, 5) 5%. 

So from the data gathered it does appear the development of revenue estimates for the abuser driver fees meet “the test of reason.”  The bill also states money collected from the fees shall be used to pay the Department’s costs with the balance deposited in the HMOF.  The estimates include an 18% deduct from the estimated collection amounts to cover DMV’s costs.  The 18% comes from the experience of other states.  This is a high cost for the collection of state revenues.  The Tax Department’s costs for collecting state income, sales and use, and gasoline taxes is less than 1.5% of total receipts.  Could one suggest that those systems for collecting already enacted tax sources are in place and wouldn’t add any overhead to the system?

Again, this source of new funds for transportation has gained the support of the various policy makers.  The House has obviously endorsed it by their overwhelming vote for HB 3202 on several occasions.  The Governor had included a similar provision in the transportation bill he introduced in 2006.  The Senate has reluctantly backed the proposal if by only a very small margin.  One would have to forecast this will stay in the final proposals which the Governor will announce on March 26.

 

 

The statewide “fee” Increases

Two existing tax (oh excuse us, fee) sources for the HMOF are increased by HB 3202. Everyone in the state who pays the annual motor vehicle registration fee will pay $10 more beginning on July 1, 2007.  Thus for private passenger cars of 4000 pounds or less the annual registration fee will go up from $23 to $33 and for those that weigh over 4000 pounds, from $28 to $38.  Other private vehicles (trailers, motorcycles, vans, etc.) have a similar increase in their annual registration fees.  In addition, the annual registration fees for trailers and semitrailers “not designed and used for transportation of passengers” are increased $10 for 4000 pounds and under vehicles and $16.50 for those 4001 lbs and above. 

Then there are additions to the annual registration fees for heavy trucks according to their weight.  These rates go up an average of 22% for private carriers and from 22.6% to 130.0% for those vehicles with gross weights in excess of 10,000 lbs.  The fees on these heavier trucks are levied on a charge per 1000 lbs of gross weight.  As an example this raises the annual fee on an 11,000 lb for hire carrier from $28.50 to $52.25 and on an 80,000 for hire carrier from $1,060.00 to $1300.00.  The legislation also provides for those interstate haulers who pay proportionate fees to the state under the International Registration Plan (IRP) will pay “increases in their registration fees” according to the schedules just indicated and these too will be deposited into the HMOF.  Those fees presently paid to the state under the IRP go into the TTF. 

Since these two fee-increase sections of the bill are simply additions, the extra revenue estimated in the spread sheets for HB 3202 are presumed to be relatively accurate.  It is a little suspect that the annual projected new revenue for the motor vehicle registration fees increase is flat at $62.4 million for the six years of the spread sheets.  With the anticipated increase in population for the state it would stand to reason vehicle registrations would also increase.  With our congested highways, maybe this is wistful thinking on the part of the forecasters.

The estimates for the revenue from the increase in heavy truck registration fees seem more realistic.  This goes from $31.2 million in FY08 to $36.0 million in FY13.

NEXT UP

The next edition of this cooperative GP will be an analysis of the use of recordation tax revenue (most of which now going into the GF) as a dedicated source of money to fund the debt service on $2.5 billion in new transportation bonds to be issued over an eight year span.

 

 

Links to Previous Giesen Perspectives:

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.