VA: Money for public transit could mean big tax policy changes

Virginia's next governor and General Assembly are looking for a roadmap that leads to more money for the Washington Metro and public transit systems across the state, without draining state and local government budgets or raising the cost of living for Virginians.

One way to get there, proposed by former Del. Mark Sickles, D- Fairfax, would require major changes in state tax policy. Virginians would pay the state sales tax on some services for the first time, while the proposal would decrease the rate paid outside of Northern Virginia and finally eliminate the grocery tax on food purchases.

That route could lead to more money for public schools and other core services, as well as interstate highway improvements, but it also would include a new fee on home delivery of retail packages.

The other way, proposed by Sen. Adam Ebbin, D- Alexandria, would require residents in Northern Virginia and the Fredericksburg area to pay more in sales tax and various user fees. The goal is to provide for Metro and other transit services essential to commuting for work and local economies that pay the largest shares of revenue for education and other core public services across the state. That approach also could include a new statewide fee on retail package deliveries and apply the sales tax to ride-hailing services.

"I think all of this stuff is going to have a long road," said Sen. Jeremy McPike, D- Prince William. He is a member of the Senate Finance & Appropriations Committee and sits on the governing board of a regional commission for commuter rail and bus service in the Prince William and Fredericksburg areas. "It's hard to predict the outcome, but it's good to see options."

The options are coming from a legislative subcommittee on transit and a Washington area task force. They have been working in tandem since last year on thorny questions about how to pay for public transit in Northern Virginia and the greater Washington, D.C., region.

The initiatives also anticipate transit opportunities that will come with construction of a new railroad bridge across the Potomac River. It will unlock expansion of passenger rail service to Richmond and every corner of Virginia. Construction has begun on the new bridge next to the 121-year-old Long Bridge to separate passenger and freight trains crossing the Potomac.

"We want to be ready for Long Bridge when it opens," said Sickles, who served as vice chair of a legislative subcommittee that Ebbin led about the future of rail and bus transit in the region.

Sickles also has served on the DMVMoves task force that has examined the needs of the Washington Metro system and other transit companies in a joint initiative of the Washington Metropolitan Area Transit Authority, which runs Metro, and the Metropolitan Washington Council of Governments.

$289 million

The two initiatives have identified $289 million that Metro is seeking from Virginia — $153 million for operations and maintenance, and $136 million that can pay bonds for capital investments in the $5 billion enterprise. Virginia made a $154 million annual commitment in 2018 to help reduce a backlog in capital needs. That was not indexed to inflation, so the transit system has almost 20% less buying power now. The state also provided $145 million over the past two years to fill an operating budget gap, but that money runs out next year. Gov. Glenn Youngkin has not proposed to extend it.

"If we don't get that investment, we're going to have a massive fiscal cliff," said Randy Clarke, president and CEO of the Washington Metropolitan Area Transit Authority.

Sickles has been preparing legislation that would propose major changes in state tax policy to pay for Metro and other public transit needs while generating revenues for other core services such as education and health care. This comes as the federal government cuts back spending on joint programs it administers with states.

But now he is changing government branches after serving for 22 years in the House of Delegates, including seven as a budget negotiator. Gov.-elect Abigail Spanberger recently appointed him as secretary of finance, so he is looking for a new patron of legislation that could dominate the center ring of the General Assembly session that will begin Jan. 14.

Sickles' approach

The legislation hasn't been filed, but Sickles' approach would expand transit funding, for Metro and agencies across the state, by modernizing Virginia's tax system. The state would apply the state sales tax for the first time to a range of services, not just goods. Youngkin proposed a similar idea two years ago as part of a package that also would have raised the sales tax while cutting income tax rates. The Republican governor and Democratic-controlled legislature could not come to an agreement.

Under Sickles' plan, the broader sales tax base would allow the state to lower the tax rate in every region of the state except six localities in Northern Virginia. They would continue to pay the same rate to raise money for Metro, Virginia Railway Express and other transit systems in the region.

Residents of the six localities in the Northern Virginia Transportation Commission — Fairfax, Arlington and Loudoun counties and the cities of Alexandria, Fairfax and Falls Church — would continue to pay a 6% sales tax to raise money for Metro and other transit services, as well as a proposed new 20-cent fee on retail package deliveries.

The tax rate would decline from 5.3% to 5.2% in Prince William, Stafford and Spotsylvania counties, and the cities of Fredericksburg, Manassas and Manassas Park. All are part of the Potomac and Rappahannock Transportation Commission, which helps run the Virginia Railway Express commuter rail service and OmniRide transit services. Residents there also would pay the proposed retail package delivery fee.

The tax rate would fall from 5.3% to 5% in most of the state. The rate would fall from 6% to 5.7% in the Richmond area and Hampton Roads. Like Northern Virginia, those regions currently pay additional sales tax to fund regional transportation projects.

Sickles says the proposed legislation would generate enough money — he can't say exactly how much yet — to allow the state to eliminate the final 1% of the sales tax on groceries that currently goes to localities based on school-age population, while providing $200 million a year for K-12 public education. It also could generate an additional $55 million for regional transportation projects in the greater Richmond area.

Youngkin and the General Assembly eliminated the rest of the sales tax on groceries in 2022 as part of a big tax-cut package during his first year as governor.

The affordability issue

The question for legislators, especially Republicans who oppose tax and fee increases, is whether the net effect would increase costs for Virginians.

"If people are truthful and serious about affordability, the buck has to stop with us," said Senate Minority Leader Ryan McDougle, R- Hanover, the highest-ranking Republican member of the Senate Finance Committee.

"There can be reductions in your taxes here, but we're really raising them over there," McDougle said. "That is not affordable for Virginians."

The cost also is a challenge for Spanberger, who made affordability the centerpiece of her campaign that resulted in a landslide election victory last month. She has said it will continue to guide her decisions after she is inaugurated Jan. 17.

"We want to ensure that Virginians can afford to live, work, build families here in the commonwealth," she said at a news conference with Democratic leaders on Dec. 18. "That also means we need to invest in the infrastructure and people that make our commonwealth great."

"So as a general overarching principle, recognizing the need for continued transportation investment, I think there are conversations to be had," she said.

Senate priorities

Senate Finance Chair Louise Lucas, D- Portsmouth, responding to the same question, noted the other challenges lawmakers face in crafting the state budget, to pay for education, housing, health care and other safety net services.

"We have a lot of issues on the table that have to be dealt with that take priority," Lucas said.

In a text message Friday, Lucas said finance committee staff would review "all options regarding tax policy and revenues, including those that deal with transportation and transit."

But, she added, "as we said in my family, everyone can't get a new pair of shoes at the same time every year."

Ebbin's proposal

Ebbin, in the Virginia Senate, is offering legislation that would provide an alternative route to additional funding for Metro and other transit needs, but not money for education and other state services.

It would create a statewide retail package delivery fee of 50 cents and apply the state sales tax to ride-hailing services, such as Uber and Lyft, to generate $288 million for all transit systems, including operating funding for Metro.

His proposal also would raise the sales tax by 0.2% and levy a regional highway user fee in the 12 jurisdictions the Northern Virginia and Potomac Rappahannock transportation commissions cover, to help pay for Metro, VRE and regional bus services.

It would impose additional fees and taxes in the Northern Virginia jurisdictions for retail package deliveries, commercial parking and ride-hailing services to raise money for Metro's capital expenses.

"Both of these solutions are to avoid money coming from the (state) general fund," Ebbin said.

Property taxes

Both options also are meant to relieve some of the pressure on local real estate taxes by freeing up general tax money now going to public transit.

"Our goal is to reduce property taxes," Sickles said at a recent legislative forum that the Northern Virginia Transportation Commission sponsored.

Del. Terry Austin, R- Botetourt, the highest-ranking Republican on the House Appropriations Committee, has become a believer in passenger rail and public transit as alternatives to costly new investments in highway construction.

Austin said he recognizes that Metro is "truly a necessary thing in Northern Virginia," but he also sees mounting pressures on the state budget because of cuts in federal spending that affect core public services.

"It comes down to what do we want to support and what do we feel we cannot support?" he said.

But Austin added, "Sooner or later, we're going to have to face the music and do something about transportation."

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