You can hear echoes of the subprime housing boom and bust in the transportation plan passed by the General Assembly this year. Virginia is about to take on debt beyond its transportation income stream, under inflated terms, to buy new big-ticket items, while ignoring a crumbling foundation.
There is no question that Virginia has the debt capacity for new borrowing. We are rated AAA by all three rating houses, and our potential couldn’t be better. The problem is that tapping Virginia’s good credit rating doesn’t come without cost. Borrowing has to be backed up by fiscally sound decision-making regarding how the new debt will be paid back.
The 2011 General Assembly accepted the governor’s plan to use the Priority Transportation Fund, which was established in 2000 by using the annual tax on insurance premiums. Until last May, all the money from that fund was committed to pay back 10-year loans — Federal Revenue Anticipation Notes — taken out to cover the cost of projects that don’t get the federal part of their funding until construction is complete.
Now, as these 10-year loans are repaid, the insurance tax revenue will be shifted to cover the cost of the $1.8 billion in 25-year bonds that are the heart of the governor’s plan — even though it costs over 40 percent more to carry debt for 25 years than it does for 10 years. As with a subprime loan, the longer the repayment period, the lower the annual payments and, therefore, the more debt Virginia can take on using those insurance taxes — at least for a while.
As a result, when this governor leaves office in 2013, for every $10 spent in the next three years, there will only be $2 of capacity left in the Priority Transportation Fund to finance a long list of pending projects for the next 20 years. That amounts to less than one-tenth of the $1 billion a year in new funding required to meet Virginia’s ongoing transportation needs.
Those needs in Northern Virginia alone are beyond crisis. We are now ranked the most congested region in the nation. Our 40-year-old Metro system needs safety upgrades and eight-car trains to serve packed station platforms. Road surfaces are breaking down from a lack of maintenance and, again this spring, the Virginia Department of Transportation’s reduced mowing will create intersection hazards and health concerns.
When his plan was announced, the governor garnered wide business and legislative support for his total package of $4 billion in borrowing — which includes $1.1 billion in federal loans and $1 billion in hoped-for budget surpluses to finance private debt, as well as the $1.8 billion in 25-year bonds. He got this support based on two selling points: that front-loading debt at currently low interest rates will create jobs and that all this borrowing was just Phase I. The governor promised that by the end of his administration, he would put forth Phase II for adequate, sustained funding of all transportation needs, not just financing big construction projects.
However, during the session, a McDonnell news release made it clear that he would not support a gasoline tax increase — even though it’s been 25 years since Virginia’s gas tax was set at 17.5 cents per gallon; its buying power is less than half what it was in 1986; and 20 percent of road use is by out-of-state cars and trucks.
The governor went further in an end-of-session meeting with Northern Virginia delegates, saying he would not support any tax increases — ruling out the effort to raise transportation funds here and spend them here to deal with our desperate transportation problems.
This leaves only one source of revenue to fund an adequate, sustained transportation program: Taking the money from other programs. However, since Virginia ranks in the bottom 10 states for low tax burdens, state spending also ranks low in all areas except prisons and law enforcement. Spending for mental health services and Chesapeake Bay cleanup lags far behind and is already under threat of legal challenge. We are 48th in Medicaid spending. Veterans’ services trail many other states. And the amount of state support per student for public schools is actually lower than in 2008.
Was Phase II an empty promise? Let’s hope not. For 25 years — one entire generation — we have refused to invest in sustaining an adequate transportation infrastructure. The answer in 2011 was to meet limited immediate needs by mortgaging the next generation. Paying back that debt plus meeting $1 billion a year in ongoing needs means that sound, ongoing, adequate funding of this essential public service is more crucial than ever.
The writer, a Democrat, represents Fairfax County in the Virginia House of Delegates and was Virginia’s secretary of transportation and public safety from 1986 to 1990.