House Joint Resolution 656, passed by the 1995 Session of the General Assembly, established a joint subcommittee to study funding for public transportation in Hampton Roads. The subcommittee was specifically directed to examine three things: (i) the current sources of local funding for public transportation; (ii) the scope of property tax relief for homeowners and other property taxpayers in Hampton Roads by identifying dedicated funding sources, other than local general funds, to support public transportation; and (iii) sources of stable and reliable dedicated funding for public transportation.

Public transportation in Hampton roads is provided by the Peninsula Transportation District Commission, the Tidewater Transportation District Commission, and James City County Transit. These three agencies had a combined annual operating budget of approximately $32.7 million in 1995. The largest portion of their operating budget, 39 percent, is funded by the farebox and other operating revenue. The shortfall is provided by local governments (24 percent), state government (22 percent), and the federal government (15 percent). Funds for capital budgets, which totaled nearly $8.3 million, are provided by federal, state, and local governments.

The region's transit providers are facing a difficult financial future. Traditional sources of funding are not expected to permit the transit systems to continue to provide service at current levels, much less make anticipated expansions. In an era of rising costs, the public transportation systems are being forced to deal with cuts in federal operating assistance in the current fiscal year and the prospect of a total elimination of this funding source in the next three years. Operating aid from the Commonwealth to the region's transit providers has not been increasing, and the percentage of state funds available for matching federal grants for capital projects has dropped from 95 percent in 1988 to 26 percent in 1995. Local governments are under increasing fiscal stress at a time when pressure to fund other needs, such as education and public safety, is growing. Fares cannot be expected to increase substantially without creating substantial barriers to ridership.

EPA's downgrading of the region's air quality classification from "marginal" to "moderate" may have a detrimental effect on economic development efforts. Greater use of public transportation would assist the region's efforts to improve air quality. Options for improving public transportation services include expanding bus service to unserved areas, instituting Sunday service, and increasing frequency of routes. Other service expansion ideas include the construction of light rail transit service between Norfolk and Virginia Beach and light rail service in the Peninsula running from Williamsburg to Hampton. Additionally, a third crossing of Hampton Roads is being studied, which is forecast to include a public transportation component.

The cost of providing public transportation services is expected to exceed the resources provided by current funding sources. A report issued by the Hampton Roads Planning District Commission indicates that if a light rail system is built on Southside Hampton Roads, the three transit agencies face a deficit of $116 million over the next ten years; if the light rail system is not built, the estimated deficit is $31 million. These deficits will be even greater if federal operating subsidies are eliminated. If local governments are not able to contribute matching funds required for federal and state funding, the ability of the transit systems to continue operations at even the current level will be impaired.

The inability of traditional transit funding sources to meet current and future needs requires the identification of innovative financing techniques. After reviewing a broad range of funding techniques implemented across the country, the joint subcommittee focused its analysis on a sales tax on motor fuel. Such a tax is imposed at a rate of two percent within the member jurisdictions of the Northern Virginia and Potomac-Rappahannock Transportation Districts. A two percent sales tax on motor fuel in the ten Hampton Roads district served by public transportation would raise an estimated $14.5 million. A similar tax at a rate of five percent was estimated to raise approximately $36 million.

The statute imposing the two percent gas tax in Northern Virginia requires that localities use the proceeds to roll back property tax rates by the amount previously contributed to public transportation. If the proceeds of such a tax in Hampton Roads were applied to offset local government contributions for public transit, real property tax rates could be reduced by two cents or more per hundred dollars of assessed value in Norfolk, Portsmouth, Hampton and Newport News. In the other jurisdictions studied, the rate reductions would be more modest, ranging from 0.7 cents to 0.09 cents.

The Peninsula Transportation District Commission reported that the proceeds of a two percent sales tax on motor fuel, after offsetting local government contributions and reductions in federal operating assistance, would not be sufficient to finance service expansions. A five percent tax would allow bus and paratransit service expansion and the financing of debt service on a fixed guideway system on the Peninsula. The Tidewater Transportation District Commission advised that the net proceeds of a two percent gas tax in its member jurisdictions would permit the agency to provide enhanced fixed-route bus and Handi-Ride services. A five percent tax is expected to generate sufficient net revenue to fund the design, engineering and construction of a light rail transit system between Virginia Beach and Downtown Norfolk and an associated bus feeder system. Revenue from a two percent gas tax in Williamsburg and James City County was expected to be adequate to allow James City County Transit to compensate for the loss of federal operating funds while financing its five year capital program.

The joint subcommittee recognizes the importance of a viable public transportation system to the economy, environment, and quality of life in Hampton Roads. A stable and dedicated funding source must be identified if the region's transit providers are to continue to provide services at their current or expanded levels. The subcommittee considered a proposal for the imposition of a 4.5 percent sales tax on motor fuel, modeled on the levy imposed in Northern Virginia, within the ten localities served by the three public transportation systems. Although the joint subcommittee did not formally endorse the proposed 4.5 percent sales tax on motor fuel during its deliberations, subsequent to the conclusion of the subcommittee's meetings a working consensus developed which supported the introduction of fuel tax legislation.