"The $1.8 billion in [transportation] bonding, we don’t have a repayment mechanism."
Terry McAuliffe on Saturday, May 7th, 2011 in a speech.
Terry McAuliffe says Virginia has no repayment plan for its new transportation debt
Democrat Terry McAuliffe, who is considering a bid for Virginia governor in 2013, says a road-building plan passed by the General Assembly this winter is paved with peril.
The former chairman of the Democratic National Committee helped launch the reelection campaign of Del. Scott Surovell, D-Fairfax, at a May 7 rally. During introductory remarks, McAuliffe criticized a plan to borrow $1.8 billion for transportation that Republican Gov. Bob McDonnell pushed through the legislature.
"The $1.8 billion in borrowing, we didn’t even have a repayment mechanism, folks," McAuliffe said.
A major borrowing plan with no way to repay the money? Is that really what the state did?
We decided to check.
A transportation plan to borrow up to $300 million a year for 10 years was approved in 2007. But the recession and legal challenges delayed issuance of the first bonds until May, 2010.
What McDonnell and the General Assembly did this winter was accelerate the sale of those previously authorized bonds so that $600 million annually could be sold during the next three years. John Lawson, chief financial officer for the Virginia Department of Transportation, said the state still plans to issue the full $3 billion in bonds, but in a shorter period of time.
Both McDonnell and Democrat Tim Kaine, who signed the 2007 plan, offered the same repayment plan.
The 2007 bill directed that one-third of the state’s revenue from insurance premium taxes be set aside to pay the debt. That portion roughly equals the fraction of annual receipts from insurance premium taxes that come from vehicle policies.
McAuliffe told us he knows the state has a repayment plan. He said he was "rhetorically" arguing the state lacks a plan to pay back the debt because he does not think politicians set up "a realistic repayment mechanism."
He told us in an email that the state is "doubling" the amount of debt issued, but in reality, Virginia is issuing the same amount of debt in half the time.
McAuliffe also said he is concerned that one-third of the revenues from the tax on insurance premiums won’t cover the state’s new borrowing for roads. He said tax receipts from premiums fell below projections in 2009 and 2010.
Ric Brown, the state’s secretary of finance under Kaine and McDonnell, told us that one-third of the insurance tax will net about $131 million for the 2011 budget year that ends June 30. That’s up from $128 million in 2010, Brown said.
Proceeds from the insurance tax proceeds make up about 85 percent of the Priority Transportation Fund, the state’s repository for revenues to pay off road bonds. The coffer also receives money from a state tax on the wholesale price of gas that is paid by service station owners, as well as interest on its cash balances.
All told, Virginia saw $152.2 million in revenues flow into the fund during the 2010 budget year and $154.5 million is expected this year, according a briefing by Transportation Secretary Sean Connaughton to the House Appropriations Committee in January. Connaughton and Brown both say the fund will take in enough money each year to pay back the accelerated loan.
Between 2011 and 2017 the state expects to deposit annual revenues of about $224.8 million in the fund. The average debt payment during those years is expected to be about $175.7 million. Those forecasts give the state plenty of leeway, even if actual revenues fall short of the projections.
Terry McAuliffe said Virginia is taking on $1.8 billion in transportation debt without any plan for paying it back. He’s wrong. The General Assembly in 2007 set aside one-third of the proceeds from the tax on insurance premiums to pay off the debt. Taxes on wholesale gasoline also go towards the bond payments.
All told, the state has set aside yearly revenues to repay the loan that are 28 percent higher than projected borrowing costs.
McAuliffe is not the first Democrat to make this claim. State party chairman Brian Moran earned a Pants on Fire in January for saying the McDonnell had no plan for paying back the debt. Moran, while serving in the House of Delegates, had voted for the two bills that allocated automobile insurance taxes to transportation debt payments.
By saying the state "didn’t have a repayment mechanism," McAuliffe misled voters. He admitted to us he knew all long that a repayment plan exists.
We rate his claim Pants on Fire.