The transportation funding package passed by the General Assembly last weekend has drawn criticism from both ends of the political spectrum.

But the plan is getting praised by one of three key Wall Street credit rating agencies.

In its weekly credit outlook published Thursday, Moody’s Investors Service said the Virginia transportation package  is “credit positive.” The state has a Aaa rating with a negative outlook from Moody’s.

The transportation package is worth $3.5 billion statewide over five years, with regional provisions that could produce another $2.6 billion for Northern Virginia and Hampton Roads.

Moody’s senior analyst Lisa Heller wrote that the legislation makes Virginia ” the first state to address stagnant gas
tax collections that have been increasingly insufficient to meet transportation funding needs, a problem faced by many states as they, consumers and automakers embrace higher fuel efficiency standards. These forces, combined with the fact that Virginia’s motor fuel tax rate did not adjust to inflation, have translated into flat revenues over the last ten years.”

Heller went on to note that transportation package “was passed at a time when Virginia’s economy is highly exposed to federal downsizing. Defense cuts included in sequestration in particular would have an adverse impact on the
commonwealth and its ability to address its transportation needs.”

Gov. Bob McDonnell and his legislative allies on the transportation bill have been taking heat from some Republicans, anti-tax activists and conservative pundits (here’s a take from Steve Moore of the Wall Street Journal). But McDonnell hailed the Moody’s report as validation of the bipartisan effort to pass the legislation.

“This is yet another demonstration of why it was so critical that we finally, after 27 years of inaction, come together in Richmond to get a long-term transportation funding plan passed,” McDonnell said in a news release. “Transportation is crucial to job creation, and it is crucial to the quality of life of our citizens. The failure to properly fund transportation was hurting Virginia’s economic competitiveness, it was hurting our citizens ability to find good paying jobs, and it was imperiling Virginia’s critically important credit rating. Today’s report from Moody’s is good news for Virginians. We are working to make Virginia a jobs-magnet and that can’t happen without a modern and well-funded transportation system. I thank all those who have worked so hard to get this legislation passed, it was long overdue, and it is having a positive impact on our Commonwealth already.”

– Michael Sluss

Gov. Bob McDonnell, never known to be short on words, consumed several minutes of radio air time this morning defending the compromise transportation bill passed by the General Assembly and making the case for new revenue to pay for the state’s infrastructure needs.

The Republican governor even cited the example of his party’s most popular president of the modern era, Ronald Reagan, to defend a plan that has come under attack from anti-tax forces in the GOP. McDonnell noted that Regan pushed for an increase in the federal gas tax 30 years ago to address highway funding needs.

McDonnell appeared on the Virginia News Network’s monthly  “Ask the Governor” program this morning, and the program’s first caller asked about the bill that is heading to McDonnell’s desk.

“I just wanted to know why you would have been willing to sign the largest tax increase in the history of Virginia when you ran on a campaign of no increased taxes and smaller government,” the caller said.

After calling the representation “factually incorrect,” McDonnell launched into response that consumed several minutes of air time and was interrupted only be a commercial break.

“Over the last three or four years, I’ve done everything that I had available to me as a tool in order to try to improve the transportation infrastructure of Virginia,” McDonnell said. “It’s a jobs issue. It’s a quality of life issue. It is an issue that affects every man, woman and child here in Virginia, is having a good network of roads an bridges. So I have tried everything that we can with the tools that we’ve got.”

After returning from a commercial, McDonnell told host Jimmy Barrett that he was dismayed when Virginia dropped from first to third in the annual CNBC ratings of  the best states for business. Virginia’s low grade for infrastructure cost the state its top spot, the governor said.

“This issue of transportation really gets down to what do you believe what kind of business structure we ought to have,” McDonnell said. “Parents can’t go to their kids’ soccer games or can’t go their ballet recitals on time because it takes and hour, and hour-and-a-half to get there. They can’t spend time doing homework at night. We can’t get job creators to come to Virginia. I’ve recruited all over the world. They ask me about workforce. They ask me about transportation. A lot of times they don’t want to come or don’ want to expand because of the problems. And so I decided, Jimmy, you know, governors are elected to govern – not talk, not pontificate, not make excuses like they do in Washington, D.C. In Richmond, we get things done

“And so I decided this was something we needed to try to get done this year if we’re going to keep a strong economy.”

McDonnell then outlined the plan he proposed in early January. It would have eliminated the state gas tax, increased the sales tax from 5 percent to 5.8 percent, increased annual registration fees by $15 and applied a $100 annual fee to alternative fuel and hybrid vehicles.

“The whole point is the gas tax in a declining revenue source,” McDonnell said. “At the same time, asphalt’s gone up 350 percent. It’s simply a math problem. It  isn’t a political issue. When your revenues for supporting transportation are going down, and your needs are going up, you’ve got a problem. It’s a quality of life issue. And so I said that we would address it.

“My original proposal:  get rid of the gas tax and replace it in a revenue-neutral manner with the sales tax, increase the user fee 15 bucks, do a couple of other things. During the course of the process, the final bill has come out share it makes a couple of other changes in the tax structure, and then puts some regional self-help provisions in place for Northern Virginia and Hampton Roads, because they have unique construction and transportation problems.”

The plan heading to McDonnell’s desk would scrap Virginia’s 17.5 cents per gallon tax on gasoline and apply a 3.5 percent tax on the wholesale price of fuel and a 6 percent tax on the wholesale price of diesel fuel. The legislation also would increase the retail sales tax from 5 percent to 5.3 percent, increase the vehicle sales tax from 3 percent to 4.3 percent, and dedicate a greater portion of the existing sales tax to transportation.

The package also includes revenue Virginia could generate if Congress passes legislation enabling states to compel online retailers to collect sales taxes. If Congress does not act by 2015, the wholesale tax on gas would increase by another 1.6 percentage points .The overall plan would pump more than $880 million into the state’s transportation programs by 2018.

McDonnell said his administration will conduct “a legal and constitutional and policy review” of the bill when it reaches his office.

“But, our initial analysis is, in the first year, unless you’re driving a diesel truck, in the first year this bill is revenue neutral,” McDonnell said. “The average citizen who doesn’t live in Northern Virginia or Hampton Roads isn’t going to pay any more than they do now. Because it’s a conversion from a gasoline tax, in part, to a sales tax. In fact, the gas tax under this bill is cut 35 percent. I wanted them to get  rid of it. They didn’t do it. I said I would not sign a gas tax increase, and so they cut the gas tax 35 percent. So we will have the lowest gas tax in the continental United States. That’s a fact. And I think that will drive gas prices down. That’s a good thing for Virginians all over the state.”

McDonnell went on to say that about $400 million of $880 million the plan would generate annually by 2018 would come from existing tax proceeds — provided that Congress pass legislation enabling states to compel online retailers to collect sales taxes.

Then, McDonnell invoked Reagan in making the case for taking action this year.

“Governors have to solve problems,” he said. ” You have to do it with your conservative principles. Over the last three years, I have gone through a series of things to try to fix transportation. I audited VDOT four times. You remember back in 2010, found $1.4 billion laying around from the previous administration, not doing things right. We’ve used surpluses. We’ve dedicated two-thirds of the surplus to transportation. I’ve created an infrastructure bank. I have used bonds in order to leverage scarce resources, in a time with incredibly low interest rates, to be able to get hings done. That helps to fix things for three or four years. We have done public-private partnerships, using the private sector, and toll roads to be able to get things done. So, every tool that I’ve currently got available, we’ve done. But I got to the point where we said, look, this is a problem that’s got to be fixed. Otherwise, our ability to grow the private sector, to have entrepreneurs and job creators and leaders in the business community to grow new jobs for Virginia, it’s going downhill.

“So I look at what Reagan did in 1983. Reagan is not certainly looked at as a liberal, if you know what I mean. And in 1983, Reagan proposed and signed a bill to increase the gas tax 125 percent. He increased the federal gas tax from 4 cents to 9 cents. And I’ve read his speech that he gave in in a weekly radio address about why he did that. And he said, look, we have not increased the gas tax in 23 years in the United States of America. He said we have a magnificent infrastructure system and I am not going to let our magnificent infrastructure go downhill, because if you don’t pay for it today, then you’re going to be paying a lot more in the future and we’re going to hurt our quality of life. That’s Ronald Reagan, January of 1983. So, I think his analysis was generally right. I think it’s a conservative principle to pay as you go.”

With that, it was time for another commercial break.

– Michael Sluss

Gov. Bob McDonnell sent this letter to members of the General Assembly following yesterday’s conclusion of the 2013 legislative session:

February 23, 2013

May God Continue to Bless the Commonwealth of Virginia.

Gov. Bob McDonnell issued this statement today following Senate passage of the transportation funding bill:

“This is a historic day in Virginia. We have worked together across party lines to find common ground and pass the first sustainable long-term transportation funding plan in 27 years. There is a ‘Virginia Way’ of cooperation and problem solving, and we saw it work again today in Richmond.

“Most Virginians and Americans are tired of the politics of dysfunction and inaction that we see in Washington. They prefer cooperation and results. They want elected officials to advocate for their principles and then find ways to work together to get things done and improve their daily lives. We do that in Richmond. For several decades now transportation loomed as an issue that seemingly could not be solved. Lines were drawn and debates droned on as motorists sat in traffic. Today we have shown a path forward, a path past the old political arguments and endless posturing that threatens the economic prosperity and competitiveness of our state and nation.

“Every year, Virginians have been paying a hidden transportation tax. The Texas Transportation Institute found that our failure to approve new transportation funding, and the resulting congestion, cost every motorist in Northern Virginia $1,400 a year; every driver in Virginia Beach $877 a year; and every commuter in Richmond $581 a year. For nearly three decades, Virginians have paid a high price for our inaction on transportation. Their commutes have gotten longer as political positions got more and more rigid and unyielding. And that is a tax in and of itself. With this bill, gas prices will be reduced, and we will reduce our historic reliance on the gas tax which is in a long-term decline. Today we have stated unequivocally that transportation is a core function of government, by moving $200 million in future general fund dollars, and another $200 million from anticipated changes to federal law, to transportation. And we will allow Northern Virginia and Hampton Roads the resources they have long requested to address their pressing, local transportation needs. Through tax reform, general fund dedication, and economic growth, we will build a 21st century transportation network.

“Over the past three years, we have cut spending, audited and reformed VDOT, authorized new bonds, used surpluses, issued new public-private partnerships for toll roads, created the Virginia Transportation Infrastructure Bank, and dedicated two-thirds of all undesignated surplus funds to transportation. We have used every tool provided by law to leverage scarce dollars. Yet those actions were not sufficient to meet the mobility, economic development, and quality of life needs of the people of Virginia. Today, we fixed the problem.

“This is a compromise bill. It had to be. Neither party controls Richmond outright. The House is Republican, the Senate is split 20-20, and the Lieutenant Governor cannot vote on transportation funding.  On an issue like transportation funding, regional differences and needs are just as important as partisan affiliation. If we were ever going to fix this problem, and improve our citizens’ quality of life, a compromise had to be fashioned.

“Virginia’s economy depends upon a modern transportation system. Without good roads, rail, transit and bridges we cannot attract the new businesses that will create the good-paying jobs our citizens need and deserve. A continued failure to dramatically improve transportation would leave the Commonwealth less competitive economically, shrink our tax base and endanger our well-earned reputation as the best state in the nation in which to do business. In fact, just last year CNBC dropped Virginia to third in its well-recognized annual ranking of ‘Best States for Business’, in large part because of our repeated inability to properly fund transportation. We plummeted from 10th to 33rd in the specific category of ‘Transportation and Infrastructure.’ That is unacceptable. I ran and was blessed to be elected on a pledge to make Virginia a jobs-magnet, and do everything I could to help our state attract more employers so our citizens could get the good jobs they need and deserve. This transportation plan helps us do that. Conservatives believe we must grow our economy by allowing the private sector to thrive and create. We believe in paying as you go and in not running up high levels of debt. That is how you create new revenue. But that can’t happen if we don’t provide private-sector job creators with the infrastructure they must have to be successful.

“This vote is an important moment for Virginia’s economy, Virginians quality of life, and our political system. We have demonstrated that in Richmond we cut the rhetoric and we get results for the people. We have found ways to move from sound bites to solutions. We have passed, on a bipartisan basis, the first major new sustainable transportation funding and reform bill in Virginia in 27 years. I thank the over 60 percent of legislators in each chamber who voted for this bill and I thank Secretary of Transportation Sean Connaughton and his team and the many individuals and groups all across Virginia who have advocated tirelessly for this legislation from business to labor, and local government to technology. Specifically I would like to thank Lieutenant Governor Bill Bolling, Speaker Bill Howell, Majority Leader Tommy Norment, Majority Leader Kirk Cox, Delegate Chris Jones and all of the conferees. With this vote, we have made Virginia more economically competitive, improved our business climate, helped the private sector to create more jobs in the years ahead, and helped families spend more time together and less time in traffic. I look forward to receiving the bill in the days ahead, and, as with every piece of legislation we receive, conducting a thorough policy and legal review of the legislation for any amendments that may be appropriate.”

Lt. Gov. Bill Bolling issued this statement today after Senate passage of the transportation funding bill:

“I commend the members of the Senate and House of Delegates for coming together to forge a historic agreement to address Virginia’s long term transportation funding needs.  The votes they cast today were not easy votes, but they were important votes for the future of our state.  It shows what can happen when we work together, are willing to compromise, and keep our focus on solving problems and getting things done.

“Building a transportation system for the 21^st century is the most important issue facing Virginia today.  Every region of our state has its own unique transportation needs, and a solution to this issue has eluded us for far too long.  The legislation approved by the General Assembly today will ultimately generate $860 million a year to meet critical highway maintenance and construction needs in every part of our state.  It will truly enable us to start building a transportation system for the 21^st century.

“Needless to say, this was not a perfect bill.  Each of us would have addressed this issue in different ways if left to our own devices.  This legislation represented a compromise of many competing viewpoints.  No one was happy with every aspect of this legislation, but I commend those members who supported the bill for not letting the pursuit of the perfect prevent us from accomplishing the good.  What we did today was good for Virginia.  It is a historic accomplishment.

“I want to personally thank Governor McDonnell for the leadership he provided in putting this issue on the front burner during his final legislative session.  It would have been easy for the Governor to have avoided tackling this difficult issue, but he knows how important it is to our efforts to build a better Virginia and provide more opportunity for our people.  I feel confident in saying that this historic agreement would not have been possible without the Governor’s steadfast support.

“I also want to thank the leadership of the General Assembly for helping usher this legislation through the Senate and House of Delegates.  There are 140 members of the General Assembly, and they all have an equal vote and their own ideas on how to solve the critical issues facing our state.  The General Assembly’s leadership worked hard to pull these competing views together into a compromise that could receive majority support.  Special thanks go to Speaker Howell, Senator Norment and those legislators who served on the Conference Committee that produced the final agreement.

“Passage of this legislation will enable us to enhance the economic competitiveness of our state and improve the quality of life of our citizens.  It is an accomplishment we can all be very proud of.”

The Senate passed a compromise transportation funding bill this afternoon, delivering bipartisan support for the most significant infusion of revenue for roads, rail and transit in 27 years.

The 25-15 vote sends the bill to Gov. Bob McDonnell, whose demand  for a long-term transportation funding package was his top legislative priority.

The last roadblock to a deal wasn’t removed until today. An eleventh-hour opinion from Attorney General Ken Cuccinelli threatened to upset a fragile compromise on Medicaid expansion that was critical to getting Senate Democrats to back the transportation bill. House and Senate negotiators addressed the issue this afternoon, allowing a vote on the transportation bill to proceed.

The House of Delegates passed the compromise on Friday. The deal  would pump $3.5 billion into roads, rail and transit over the next five years and prevent rising maintenance costs from depleting the state’s highway construction budget.

The plan would scrap Virginia’s 17.5 cents per gallon tax on gasoline and apply a 3.5 percent tax on the wholesale price of fuel and a 6 percent tax on the wholesale price of diesel fuel.

The package also would increase the retail sales tax from 5 percent to 5.3 percent, increase the vehicle sales tax from 3 percent to 4.3 percent, and dedicate a greater portion of the existing sales tax to transportation. The plan also creates a dedicated source for rail funding, which could speed the extension of Amtrak service to Roanoke.

The House and Senate still have one piece of important legislative business to complete today, the final day of the General Assembly session. The two chambers must vote on revisions to the state’s two-year budget, which includes provisions to allow for the conditional expansion of Medicaid.

– Michael Sluss

Attorney General Ken Cuccinelli has issued an opinion challenging the constitutionality of a proposed legislative commission that would oversee the process of Medicaid expansion, a development that could scuttle chances to finalize a revised state budget and pass a state transportation funding package.

In an opinion issued late  Friday, the conservative attorney general wrote: “It is my opinion that the General Assembly may not delegate legislative authority regarding budget or other matters to a committee composed of a subset of members of the General Assembly.”

The opinion was requested by Republican Del. Ben Cline of Rockbridge County, who had criticized a proposal to have a 10-member legislative commission oversee a conditional expansion of the Medicaid program under the federal health care reform law. House and Senate negotiators agreed to the structure on Friday. Democrats sought assurances that Gov. Bob McDonnell  would not thwart the deal before voting a compromise transportation funding bill that the House of Delegates passed on Friday.

It was unclear this morning whether Cuccinelli’s opinion will torpedo prospects for passing a revised budget and a transportation bill today, which is supposed to be the final day of the General Assembly session.

Budget negotiators said this afternoon they have an agreement on budget language that should address Cuccinelli’s concerns.

Cline declined to comment on Cuccinelli opinion or why he requested it, saying: “The letter speaks for itself.”

McDonnell spokesman Tucker Martin said the governor’s office is reviewing the opinion and reiterated the governor’s position that transportation and Medicaid expansion are separate issues.

“Medicaid and transportation are not connected, and are two completely different policy issues. Some may want to tie the two together, the Governor will not,” Martin wrote in an email. “Yesterday, the transportation bill passed the House with strong bipartisan support. Republicans and Democrats came together to vote for better roads and a stronger economy. This is the closest we’ve been to passing a long-term transportation funding plan for Virginians in 27 years. It is time to act to improve transportation in Virginia, and this is that opportunity. We urge the Senate to vote on the transportation bill today.  This is the last day of the session, and the Governor also expects legislators to pass a budget today as well.”

– Michael Sluss

A carefully crafted compromise to pump new money into Virginia’s cash-starved transportation system inched closer to passage in the General Assembly today, winning bipartisan support in the House of Delegates.

But the evenly divided Senate postponed a vote on the transportation bill as Democrats sought a written assurance that Gov. Bob McDonnell would not stand in the way of a separate deal that could allow for an expansion of the Medicaid program. The delay pushed critical votes on the transportation bill and the state budget to Saturday, which is scheduled to be the final day of the 2013 General Assembly session.

“There’s some dissatisfaction with the transportation plan anyway, so it’s key that we have that Medicaid expansion” agreement, said Sen. Janet Howell, D-Fairfax County, a Senate budget negotiator.

The transportation bill is a top priority for McDonnell, looking to seal a legacy in the final year of his term. The plan passed Friday by the House would pump $3.5 billion into roads, rail and transit over the next five years and prevent rising maintenance costs from depleting the state’s highway construction budget.

McDonnell, a Republican, has been equally adamant about refusing to expand eligibility for Medicaid under the federal Affordable Care Act, insisting first on cost-cutting reforms in the state-federal health care program. In a Friday evening letter to Senate Republican Leader Tommy Norment, R-James City County, McDonnell commended negotiators for the compromise but stopped short of promising not to alter it when the budget reaches his desk. .

The federal health care law expands Medicaid eligibility to adults with incomes up to 133 percent of federal poverty level beginning next year, but allows states to opt out. The federal government will cover the full cost of the expansion for three years before gradually reducing its contribution to 90 percent.

The budget provision would allow Virginia to expand Medicaid eligibility if it receives federal approval for reforms to improve service delivery and reduce costs. It calls for creation of a legislative commission that would be authorized to expand enrollment in Medicaid once reforms are implemented. The panel would include five senators, five House members, and two non-voting cabinet secretaries.

In his letter, McDonnell commended negotiators for coming up with “a concept to ensure that significant reforms are attained prior to any expansion of Medicaid.” And, the governor noted, the provision would allow Virginia to pull back from expansion if the federal government retreats from its funding commitment.

Earlier in the day, the House passed the transportation bill by a vote of 60-40. The multifaceted plan would scrap Virginia’s 17.5 cents per gallon tax on gasoline and apply a 3.5 percent tax on the wholesale price of fuel and a 6 percent tax on the wholesale price of diesel fuel.

The package also would increase the retail sales tax from 5 percent to 5.3 percent, increase the vehicle sales tax from 3 percent to 4.3 percent, and dedicate a greater portion of the existing sales tax to transportation.  The plan also creates a dedicated source for rail funding and should allow for the extension of Amtrak service to Roanoke.

General Assembly budget negotiators are working toward a compromise on the possible expansion of the Medicaid program, a deal that could pave the way for passage of a state budget bill.

House and Senate negotiators are trying to iron out details of a proposed 12-member commission that would oversee the process and ensure that Medicaid expansion under the federal health care law is accompanied by cost-cutting reforms. If the two sides can agree on terms of the deal today, they could complete work on revisions to the state’s two-year budget in time for the full General Assembly to vote on the bill before Saturday’s scheduled adjournment of the 2013 session.

The 12-member commission would be comprised of 10 legislators and two Cabinet secretaries, negotiators said earlier today.

At least 250,000 low-income Virginians could gain health care coverage if state expands eligibility for the Medicaid program under the Patient Protection and Affordable Care Act. But Gov. Bob McDonnell has taken a hard line on issue, refusing to expand Medicaid without reforms occurring first.

The Senate’s budget plan would allow for Medicaid expansion to occur in January 2014 if the state obtains federal approval of cost-containment reforms. The House plan would require the federal government to approve the state’s reforms before the General Assembly votes on authorizing expansion in its 2014 session.

The House of Delegates has passed a compromise transportation funding package that would generate about $880 million annually by 2018 and include funding to extend passenger rail service to Roanoke.

The bill passed by a vote of 60-40.

A vote is still pending in the Senate on the legislation, which is a top priority for Gov. Bob McDonnell.

The bill would scrap the state’s 17.5 cents per gallon tax on gasoline and apply a 3.5 percent tax on the wholesale price of fuel. The plan also would increase taxes on retail and automobile sales, impose a 6 percent tax on the wholesale price of diesel fuel, and dedicate a greater portion of the existing sales tax to help fund road, rail and transit needs.

Del. Onzlee Ware, D-Roanoke, helped negotiate the compromise and made a vigorous argument for it on the House floor during this afternoon’s debate on the bill.

“If you’re going to be a leader down here, you’ve got to stand up against all the obvious odds and do what’s right,” Ware said.

The bill, sponsored by House Speaker Bill Howell, R-Stafford County, divided Republicans and some conservative delegate spoke out against it before the vote.

Del. Ben Cline, R-Rockbridge County, responded to  colleagues who said the state must do something to fix it’s chronically underfunded transportation system. Cline said the fix was a “laundry list” of higher taxes.

“This bill does something. But I will tell you it’s the wrong thing when it comes to Virginia’s economic success,” Cline said.

Ware voted for the bill, as did independent Lacey Putney of Bedford and Republicans Chris Head of Botetourt County, Charles Poindexter of Franklin County, and Joseph Yost of Blacksburg. Republicans Greg Habeeb of Salem and Nick Rush of Christiansburg voted against the bill.

– Michael Sluss