
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, June 22, 1993                   TAG: 9306220269
SECTION: VIRGINIA                    PAGE: C-1   EDITION: METRO 
SOURCE: BY BONNIE V. WINSTON STAFF WRITER
DATELINE: RICHMOND                                LENGTH: Medium

SETTLEMENT PUT ON HOLD

Key Virginia lawmakers insisted Monday that the state do nothing to negotiate a settlement with 200,000-plus federal retirees who are clamoring for a refund of up to $467 million in income taxes the state illegally collected from them.

Discussions of setting up an escrow account, raising taxes to generate funds for special payments to the retirees, or offering tax credits to the retirees are premature, several said, until the Virginia Supreme Court decides whether the pensioners are entitled to refunds at all.

"The General Assembly is not going to do anything until the Virginia Supreme Court makes a decision," said Del. Robert Ball, D-Richmond, chairman of the House Appropriations Committee. "We're not going to even discuss it until the court decides something."

At a morning meeting of the Appropriations Committee, Ball distributed copies of Friday's U.S. Supreme Court opinion in the pension case, but told members there would be no discussion until the case is resolved.

The high court ruled that a 1989 decision requiring equal tax treatment of federal and state retirees must be applied retroactively.

For almost 50 years, Virginia taxed the retirement benefits of former federal workers while exempting the benefits of retired state and local government workers. After the high court struck down the disparate tax treatment as unconstitutional in 1989, federal retirees in Virginia sued, seeking refunds for taxes they paid from 1985 to 1988.

While the U.S. Supreme Court declined to order refunds, it said the state Supreme Court should do so if it finds the retirees did not have adequate avenues under state law to challenge the taxes before paying them.

Such a ruling could be devastating to state finances if the entire $467 million must be returned to the pensioners, state officials have said. While the state may have a $120 million surplus when the current budget year ends June 30, Gov. Douglas Wilder said last week that there may be a $700 million revenue shortfall next year because of heavier-than-anticipated payments to the state's Medicaid health program.

Sen. Hunter Andrews, D-Hampton, chairman of the Senate Finance Committee, said Monday that lawmakers "ought to see" what the Virginia court decides before taking action.

"I'm sure a lot of planning has been done, but not talked about," he added.

Two lawmakers called for more realistic planning about possible outcomes.

"We ought to continue the court process, but the legislature ought to be talking about steps we need to take to bring a balance to the situation," said Del. Richard Cranwell, D-Vinton, chairman of the House Finance Committee.

Worthy of exploration are the issuance of tax credits to federal pensioners over a four- to six-year period, and a delay in the effective date of several tax breaks now scheduled to begin in 1993-94, Cranwell said. The state also might tap the current budget surplus or the state's $30 million "rainy day" fund, he said.

Cranwell likened the solutions to cafeteria fare - "I'm not going to choose one until I see what's being offered," he said. "I think we need a lot more information on what the options are."

But Sen. Madison Mayre, D-Shawsville, a member of the Senate Finance Committee, said raising taxes may be the only solution.

"I wish we could have an immediate solution," he said. "But I don't know any other way to raise that kind of money other than to raise taxes."

by CNB