Oct. 31, 2007 — Virginia's controversial abusive driver fees represent flawed public policy because they attempt to merge the contradictory goals of revenue generation and deterrence of bad driving via penalty fees, according to a paper published by two University of Virginia researchers.

John L. Knapp, professor emeritus at U.Va. and senior economist at the University's Weldon Cooper Center for Public Service, and W. Grace Ng, a student research assistant at the Cooper Center, are the authors of "Virginia Abusive Driver Fees: An Abuse of Fines?" which appears in the fall 2007 issue of Virginia Issues & Answers, a public policy forum published semi-annually by Virginia Tech's Office of University Relations.

The article examines various issues associated with the abusive driver fees enacted as part of the transportation revenue package adopted by the 2007 Virginia General Assembly. The fees, which apply only to Virginia drivers, have been challenged in the courts and have generated more than 180,000 signatures on Web-based petitions calling for their repeal. The issue has been widely debated by candidates in the upcoming General Assembly elections.

In their paper, Knapp and Ng argue that the goal of improving driving should not have been merged with the goal of raising revenue. If the fees successfully change behaviors among Virginia drivers, the actual result will be a decrease in the expected revenue.

"In theory, there is no reason why fines and penalty fees should not be considered an important revenue source," the authors write. "But in practice, they are not an efficient or effective method of raising money because of behavioral changes that reduce collections and raise other costs."

In addition, they contend that a new tax or fee will be effective only if the majority of the public considers it to be fair. While no objective fairness standards are readily available, "common sense dictates that a fine or license fee used as a penalty should apply to all violators, not just drivers who hold Virginia licenses." If it is not practical to impose such penalties on nonresidents, then the penalty fees should not be used.

According to the authors, the abusive driver fees, when fully implemented in 2010, are expected to yield $65.4 million in revenue. Should the fees be repealed, they suggest several sources of replacement revenue, including an increase in the current 17.5 cents per gallon gas tax. "Any increase in the gasoline tax would be far less than the gyrations in pump price to which consumers have become accustomed, and it would promote the use of more fuel-efficient vehicles while reducing congestion and improving the environment."

Other potential revenue sources that they cite are the addition of a sales tax on motor fuels and an increase of one percentage point in the titling tax on new and used vehicles.

Not enough scrutiny was paid to the bill when it was under consideration, the authors contend in their article. In particular, they say that whenever a new source of revenue is being projected, analysts should err on the conservative side.

"Unfortunately, although the detailed fiscal impact analysis of HB3202 was shared by the administration and the House and Senate money committees, it was provided to the public with neither detail on how the estimates were made nor an update of the analysis to reflect last-minute changes," the authors state.

Finally, the authors conclude that if the abusive driver fees are retained but changed materially in the 2008 session of the General Assembly, as recommended by legislative leaders, then already shaky revenue estimates will become even more difficult to meet.

The entire article, including several charts and tables as well as citations for the data sources, is available in pdf format on the Virginia Issues and Answers Web site.