Running on Fumes 

How fuel-efficient cars may soon undermine the state's road funding.

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The proverbial gas tank isn't empty, but it will be. There's a simple fact that's driving the debate over how to pay for the state's massive transportation problems: Gas taxes, which make up 95 percent of the state's transportation revenues, haven't been adjusted for inflation in more than 20 years. And at 17.5 cents per gallon, the state gas taxes can't keep pace with Virginia's growing road construction and maintenance needs.

As the transportation debate heats up in the General Assembly, however, few politicians have openly acknowledged the great irony that is undercutting the state and federal highway system. The automotive industry, through its efforts to make cars more fuel-efficient and environmentally friendly, is slowly undercutting the state and federal highway system's most important revenue stream.

Ironically, the increasing environmental friendliness out of Detroit is forcing states such as Virginia into a political quagmire. And for those keeping score for the green lobby, the lack of transportation funds puts off the discussion on mass transit, which experts say is decidedly more expensive than expanding the road system and nowhere nearly as effective.

"We've got this problem with the hybrids," says George Hoffer, professor of economics at Virginia Commonwealth University who specializes in transportation issues. "Let's think of the [Toyota] Corolla and the Prius. The hybrid [the Prius] pays the state less. … The problem is, and this is both contemporary and forward-looking, as vehicles become more fuel-efficient, they will occupy the same space and cause the same congestion but contribute less to road funding."

In other words, within the current tax structure, driving more fuel-efficient cars may actually be worse for the environment. That's because more fuel-saving cars means less money to build roads to alleviate congestion, which creates more idling, emissions-emitting vehicles on the state's busiest roadways.

It's not happening just yet. Through June 2006, 15,205 hybrid electric fuel cars were registered with Virginia Department of Motor Vehicles, up from 8,998 hybrid-fuel cars through June 2005. The number is still tiny considering that the DMV registers more than 7 million automobiles statewide.

But motor-fuel taxes decreased slightly in 2006, a trend that caught some state policymakers slightly off guard. Through November, the amount of motor-fuel taxes collected by the state was down 3.7 percent from the previous year.

It's a trend that, coupled with more fuel-efficient cars entering the market, worries Hoffer. "We've got this dilemma coming," he says. "We clearly have got to address transportation financing for no other reason than the changing ways in which the automobile is powered."

Think public transportation is the answer? Not likely, says Jonathan L. Gifford, professor of transportation studies at George Mason University. Because the cost per passenger is so much higher with buses and, to an even greater extent, light rail, investing in regional transit isn't as cost-effective as building roads, Gifford says.

"Public transit makes sense for other reasons, but it's not a way to save money," Gifford says. "Hands-down, autos are cheaper, and the users pay a large part of the cost because they purchase the vehicles. The costs are borne by the individual users."

Public transportation works in regions where there is a critical mass of people and jobs, Hoffer says, places such as New York City. With the exception of Northern Virginia, there are few regions in the state with enough population density for public transportation to be effective, Hoffer says.

"The reason I'm so negative on public transportation is this," Hoffer says. "People will adjust by getting more fuel-efficient vehicles. If people feel threatened by the cost of driving, the market will give them more fuel-efficient vehicles."

It's already happening. In the wake of $3-a-gallon gasoline, the country's most popular gas-guzzling sport utility vehicle, the Ford Explorer, experienced a significant drop-off in sales last year. Fold sold 179,229 Explorers in 2006, compared with 239,788 in 2005 and 434,000 in 2002, according to company reports.

Meanwhile, some automakers are already phasing out their truck-based SUVs — for example, General Motors recently announced it is phasing out the Chevy TrailBlazer and GMC Envoy within three years.

Today's hot sellers are CUVs, or crossover utility vehicles, which get better gas mileage and have limited off-road capabilities. These vehicles are built from a car chassis instead of a truck chassis, and essentially replace SUVs.

It's all bad news for state tax collectors. It's a message Kevin Hall, Gov. Tim Kaine's press secretary, has been trying to publicize for more than a year. Kaine's proposal, unveiled last week, includes increasing the vehicle title tax from 3 to 5 percent to generate an additional $850 million a year in road funding. The plan, however, doesn't touch gasoline taxes.

"Any way you slice it, I think we will have to look at a broader menu of fees and, yes, taxes in order to generate the resources we will need to build and maintain a modern transportation network," Hall says. "Every year, we rob $450 million from the construction budget just to maintain [the roads] we already have."

Whether the hybrids and the popularity of more fuel-efficient cars is a long-term trend or a temporary blip on the auto industry radar is still unknown, Gifford says. The SUV craze started in earnest in the mid-'90s and has lasted for more than a decade.

But one thing is clear, Gifford and Hoffer say: Virginia is facing a revenue crisis in the long term if it doesn't find a way to increase transportation revenues.

"The doomsday scenario is that by the end of the decade, with current funding models in place, we see a day that Virginia cannot offer the [state's required funding match] to draw down significant federal dollars," Hall says. "The federal gas tax that Virginians pay will be spent on new and improved roads in every other state except Virginia." S

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