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Legislative Bulletin

February 28, 2007

General Assembly sends compromise transportation/land-use bill to governor

The last day of the 2007 session produced a long-awaited bill that dedicates substantial funding for transportation. The final version of HB 3202 (Speaker William Howell) was worked out among the members of a conference committee before it easily passed the House 64-34 and then squeaked by the Senate 21-18.

The ball is now in Gov. Tim Kaine’s court. Kaine has the constitutional responsibility of reviewing and acting upon legislation adopted by the legislature. (Please see the following article for an overview of the governor’s options).

Intense politicking is likely to play out prior to the April 4 reconvened session. Rumors abound of warring political ad campaigns either calling on the governor to sign the bill and “start solving problems; stop playing politics” or calling on the governor to veto the bill to “find real solutions to transportation and to prevent bleeding the general fund of needed money for education and health care.” The rhetoric is likely to be as divisive as any seen in recent years.

The bill does include significant funding for transportation – a long-documented critical need in Virginia. The funding is especially timely as the real estate market cools.

The issue of most concern to local governments is the source of the dedicated funding. While some of the money would come from new sources (increases in abusive driver fees, truck related charges and new vehicle registration fees), much of it would come from the state’s general fund. About $180 million from the general fund will be used for annual debt payments, and another $150 million a year will be transferred from the general fund (the dedication of one-third of the insurance premiums) for road construction.

The bill also addresses land use. It appears NOT to include the so-called “devolution” provision, so counties will not be required to take over the responsibility for new subdivision streets.

In addition to the land use and statewide funding provisions, the package includes regional funding plans for Hampton Roads and for Northern Virginia. A series of new regional taxes and fees, including a gas tax, could produce about $200 million annually for Hampton Roads, and more than $425 million a year in Northern Virginia. Local officials in the two regions will have to grapple with whether or not they want to levy these new regional taxes and fees to produce the revenue.

What HB 3202 does: Statewide transportation funding

HB 3202 provides up to $180 million a year in general funds to retire existing transportation debt and issue new project debt totaling $2.5 billion. Bonds would be paid back over a 20-year period, and would support road, transit and rail projects. In addition, up to $200 million in new user fees would go highway maintenance. The new fees include additional: $31.2 million in truck related charges (registration and weight enforced fines); $62.4 million in a new vehicle registration fee; and up to $80 million in abusive driver fees.

Transportation is only dealt with every 20 years or so as a major initiative. If this continues to be the case, it is important that whatever is enacted be as comprehensive a package as possible. This package does not address either maintenance of highways, which is falling behind, or mass transit.

VDOT currently is transferring $450 million a year from construction to support maintenance, cutting into money for new roads and expansion projects. HB 3202 does not solve this problem.

Why the opposition to dedicating general funds for transportation?

Local governments are very concerned about using the general fund for transportation, because of the many other important services that must be funded through general revenues. Arguments against dedicating general funds for transportation often fell on deaf ears during the legislative session, with many legislators pointing to the current revenue surplus.

Reasons for concern are:

1. Current surpluses mask the reality that the general fund has finite revenues that must fund an array of necessary services. We have decades of experience showing that general fund surpluses are followed by general fund shortages. This happened in the early 1990s and the early part of the current decade.

2. The general fund must provide the funding for certain services because they cannot be funded through user fees: education, public safety, health and mental health services. Therefore, those services that can be funded through user fees (like gas taxes to fund transportation) must be funded that way in order to keep general taxes at moderate levels.

3. The state’s 2008-2010 biennial budget will be prepared later this year for adoption by the 2008 General Assembly. Local governments have many outstanding needs that the budget must address, primary of which is the re-benchmarking of the state’s constitutional requirements for educational Standards of Quality (SOQ). Re-benchmarking is the way that the state re-adjusts its payments to localities for K-12 education by looking at the actual costs localities bear for providing public schools. It reflects existing local spending. Early estimates are that the additional costs for this biennial adjustment will be about $1.3 billion to $1.5 billion. Without the state funding of re-benchmarking, localities will continue to fund a growing, disproportionate share of the costs of education. Having a new major funding demand in the general fund adds pressure to the other services that must be paid for through general revenues.

Key land use provisions of HB 3202

Local subdivision streets

The state will continue to maintain all new subdivision roads that meet VDOT's new secondary street standards. The bill, however, requires VDOT to adopt regulations for new subdivision street standards in the next year. VML and VACo will participate in that process. Additionally, the bill requires VDOT by Jan. 1, 2009, to re-assign roads based upon functional classifications (as opposed to the current administrative classification method). The results of these two reviews may alter the present maintenance and funding responsibilities.

Urban Development Areas (UDA)

Only those counties located in the Northern Virginia, Richmond-Petersburg, and Winchester Metropolitan Statistical Area (MSA) with a 15 percent or more population growth rate (from one 10-year census to the next) and a population of at least 20,000 must include one or more UDA in their comprehensive plan. (Affects Caroline, Chesterfield, Dinwiddie, Fairfax, Frederick, Hanover, Henrico, Loudoun, Louisa, Powhatan, Prince George, Prince William, Spotsylvania, Stafford and Warren counties.) The UDA provisions require these counties to establish higher density areas in their comprehensive plans to accommodate growth for twenty years.

Urban Transportation Service Districts (UTSD)

Only those counties that establish UTSD will have broad impact fee authority for most public services. However, the impact fees may be imposed only outside of the district. Further restrictions make the impact fees applicable only in areas with “stale” residential zoning in agricultural districts that are being subdivided for by-right residential development.

Regional proposals

The Northern Virginia regional package would allow localities to impose all of the following taxes and fees for transportation, including a commercial real estate tax (25 cents), a grantor’s tax (40 cents), a motor vehicle rental tax (2 percent), an initial driver’s license fee ($100), and an increase in the transient occupancy (lodging) tax (2 percent). Most of the funding would go into the existing Northern Virginia Transportation Authority and would be used for regional transportation projects. A locality may not receive a direct allocation from the authority funds unless it has levied all of the taxes and fees.

The Hampton Roads regional package would allow for the creation of a Hampton Roads Transportation Authority, once affirmative action is taken by seven localities. The taxes and fees that would be granted to the localities (for their action) to fund the authority include: a commercial real estate tax (10 cents), grantor’s tax (40 cents), motor vehicle rental tax (2 percent), driver’s license increase ($10), first time vehicle registration (1 percent), sales tax on auto repairs (5 percent), retail gas tax (2 percent), vehicle registration fee ($10) and vehicle inspection fee ($10).

What’s a governor to do?

Once the legislature goes home, all of the action moves to the governor’s office, where bills are reviewed and acted upon. The governor has until midnight March 26 to act. For each bill, he has three options: sign it into law, propose amendments, or propose to veto it.

The possibilities:

1. The governor signs the bill into law as it is currently drafted. The bill would become effective July 1, 2007 (or on such dates as specified in the bill – some bills or provisions have different effective dates).

2. The governor proposes amendments. Amendments can be minor or sweeping. If there is more than one amendment, they can be drafted so that they are voted on individually or as a group (an amendment in the nature of a substitute).

3. The governor proposes to veto the bill.

The legislature returns to Richmond on April 4 in a reconvened session to review the governor’s actions. For an amendment to a bill, only a simple majority is needed to accept an amendment. Likewise, only a simple majority is needed to reject the amendment. If either House rejects a governor’s amendment, the bill is returned to the governor who then has the option of signing it in the form that it was passed by the legislature, or vetoing it. The legislature may pre-empt a governor’s veto if both the House and the Senate support a motion to “pass the bill in its enrolled [as it passed the legislature] form,” with a two-thirds vote.

The same process holds true for a governor’s veto. A motion can be made to “pass the bill notwithstanding the objection of the governor,” which requires a two-thirds vote in both the House and the Senate. With this supermajority vote, the bill becomes law (and does not return to the governor for any further action).

All of this will make for high-stakes proceedings on April 4, especially if the governor amends or proposes to veto the transportation package.

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