The Washington PostDemocracy Dies in Darkness

Gov. Terry McAuliffe proposes higher taxes in Northern Virginia to support Metro

Former U.S. transportation secretary Ray LaHood, left, and Virginia Gov. Terry McAuliffe (D) hold a news press earlier this month to discuss LaHood’s diagnostic report on Metro. McAuliffe plans to announce his proposal for dedicated funding for the transit agency on Monday. (Bill O'Leary/The Washington Post)

Northern Virginians would pay higher taxes on real estate sales, hotel stays and wholesale gasoline to provide Metro with long-sought dedicated funding under a proposal to be announced Monday by Gov. Terry McAuliffe (D).

The new tax revenue of $65 million a year would be in addition to $85 million that Northern Virginia would earmark for Metro from funds the region already devotes to transportation, according to the McAuliffe plan.

The total — $150 million annually — would represent Virginia’s share of $500 million a year in additional, dedicated funds that Metro says it needs to ensure the transit system’s safety and reliability.

If approved by the General Assembly, the measure would be a breakthrough for Metro — the only large transit system in the country that does not obtain a significant amount of its funding from a tax or other dedicated source.

The proposal, a description of which, including documents, was obtained by The Washington Post, is part of the budget that McAuliffe will present for the legislative session that begins in January.

McAuliffe says Virginia has done its part to fix Metro and needs Maryland and D.C. to step up.

The governor promised in September that he would propose dedicated funding for Metro before leaving office next month in hope of breaking the deadlock in the region over how to fund the agency.

The effort is expected to continue under his successor, Gov.-elect Ralph Northam (D), a McAuliffe ally.

As McAuliffe has said previously in previewing his proposal, it sets two conditions. One is that Virginia will provide the money only if the District and Maryland commit to their share of dedicated funding as well.

From the archives: Virginia lawmakers approve sweeping transportation plan

The other is that the 16-member Metro board must be replaced by a temporary, five-member “reform board” to improve the agency’s governance, as recommended in a recent study by former U.S. transportation secretary Ray LaHood.

The McAuliffe plan is expected to face resistance in the General Assembly, where Republicans have shown no appetite for increasing taxes since raising them in a landmark $3.5 billion transportation plan in 2013, backed by then-Gov. Robert F. McDonnell (R).

House Majority Leader M. Kirkland Cox (R-Colonial Heights) also said last week that his party would help Metro only if there are significant changes to restrain labor costs and ensure safety. He spoke in favor of enforceable measures that go beyond creating a reform board.

Top Virginia Republican would help Metro only with rigorous reforms on labor costs, safety.

“This is the beginning of the sausage-making,” Virginia Transportation Secretary Aubrey Layne said. “We’ve given a platform here for a deal to be done.”

The McAuliffe administration hopes Republican legislators will show flexibility, because the extra money for Metro would come exclusively from taxes paid in Northern Virginia — which is heavily Democratic. The only tax change that would affect anyone outside the region is the institution of a floor for the wholesale gasoline tax, which would apply in both Northern Virginia and Hampton Roads.

In addition, the plan includes an important sweetener for the rest of the state. It allows the issuing of bonds totaling $110 million a year to cover a looming shortfall in state transit funding. The impending deficit — dubbed a “fiscal cliff” — threatens county and municipal bus systems and other local transit agencies, including those in many Republican-dominated districts, as well as some funding for Metro.

“We have to get buy-in from the rest of the state,” Layne said. Without solving the transit shortfall, he said, “there would be zero chance of this passing.”

The McAuliffe plan proposes three increases in Northern Virginia taxes, which also were raised in the 2013 package:

●The real estate transfer levy, known as the grantor’s tax, would increase a dime to 25 cents per $100 of assessed value. That would supply $33 million for Metro in 2019.

●The hotel levy, or transient occupancy tax, would rise from 2 percent to 3 percent, raising $15 million annually.

●An existing floor in the state wholesale gas tax would be applied to the regional levies, which are now separate. The state Department of Transportation estimated that if the new tax is passed to retail customers, it would add 2 cents a gallon to the pump price. The change would raise an additional $17 million in Northern Virginia for Metro, while the Hampton Roads increase would go toward projects there.

Va. Gov. McAuliffe to propose dedicated funding for Metro before he leaves office.

To make the real estate and hotel tax changes more palatable to the legislature, McAuliffe set them at levels the General Assembly endorsed at one point in the process of approving the 2013 law. Lawmakers voted for a 25-cent real estate tax and 3 percent hotel tax, but McDonnell reduced them before the final package was approved.

“We’re not asking them to vote for anything they haven’t already voted for,” Layne said.

McAuliffe suggested earlier this month that his plan would not involve a tax increase.

“I have never been a fan of tax increases,” McAuliffe said Dec. 5, when asked at a news conference whether his plan would include higher levies.

But it appears that the governor concluded there was no other way to both cover Metro’s needs and eliminate the statewide fiscal transit deficit without cutting deeply into spending on roads, education, public safety or other priorities.

Most of the dedicated funding for Metro would come by committing revenue that Northern Virginia already is receiving through regional taxes raised in 2013.

The Northern Virginia Transportation Authority (NVTA) receives about $330 million a year, which goes to both road projects and transit. The McAuliffe plan calls for dedicating $85 million a year of that to Metro.

The purpose of having dedicated or earmarked funding is to provide a guaranteed stream of revenue that can be used by Metro to support the issuance of bonds. That significantly increases the amount of money that the transit agency can raise, compared with what it gets through its reliance on annual appropriations that must be approved by the jurisdictions that support it.

A potential objection to the McAuliffe plan is that by dedicating the $85 million to Metro, it reduces the amount available for road projects in Northern Virginia.

Layne said the region should be willing to go along, partly because fixing Metro is its top transportation priority.

In addition, he said, the McAuliffe administration has used public-private partnerships to pump more than $7 billion into projects in the region including widening Interstates 66, 395 and 95. That has reduced the demands on NVTA funding for roads.

Fairfax County Board of Supervisors Chairman Sharon Bulova (D), who was briefed separately about the McAuliffe plan, welcomed it as a compromise.

“My concern has been shaving some of the funding from NVTA, but on the other hand, funding for Metro is really our major priority right now,” Bulova said. “There is no perfect package. I’m sure there will be some folks who will be disappointed and may have some objections. The bottom line is, I think it’s a pretty good package.”

The Northern Virginia taxes would apply in the jurisdictions that belong to the NVTA. It includes Fairfax, Arlington, Loudoun and Prince William counties, and the cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park.

If Virginia lawmakers approve McAuliffe’s dedicated-funding plan, it will increase political pressure on the District and Maryland to go along.

The District has strongly supported dedicated funding, but it wants a uniform regionwide sales tax that Virginia and Maryland have rejected.

Maryland Gov. Larry Hogan (R) has proposed a four-year, $2 billion funding plan, without committing to a long-term approach. His transportation secretary, Pete K. Rahn, has questioned both the value of a reform board and whether Metro needs as much money over the long term as the agency and others have said.

Maryland Democrats, who control the legislature, support the principle of dedicated funding, but they have not spelled out how it might be achieved.