Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, July 10, 1993 TAG: 9307100033
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: DWAYNE YANCEY STAFF WRITER
DATELINE: LENGTH: Medium
Allen - for the first time sketching out how he'd try to settle the case of federal retirees whose pension benefits were unconstitutionally taxed by the state - said a tax credit stretched "over a period of years" could settle the lawsuit without creating "a shock to the state budget."
Allen suggested a total tax credit package of about $100 million per year. Whatever the figure, though, Allen warned that the state should move quickly to resolve the matter on its own terms before the Virginia Supreme Court imposes its own solution.
"You can get a fairer settlement now than you can possibly later," Allen said during a news conference in Roanoke to wrap up his weeklong campaign swing through Southwest Virginia.
A spokesman for Democratic nominee Mary Sue Terry - who has said the state should continue its court battle in hope of not paying anything - immediately dismissed Allen's proposal. "He's trying to politicize a legal case, and it's unfortunate," said Tom King.
Regardless, the pension tax case has emerged as a key issue in Allen's campaign against Terry for the governorship, one he's expected to hammer again when the two meet today in Virginia Beach for their first debate.
At stake in the case is $489 million - and the votes of about 200,000 federal and military retirees in Virginia.
The controversy began in 1989, when the U.S. Supreme Court ruled that states must tax state and federal pensions equally. At the time, Virginia taxed federal pensions, but exempted the benefits of state retirees.
A group representing the state's 200,000 federal retirees filed suit, trying to reclaim the estimated $457 million they paid in state taxes on their federal pensions from 1985 to 1988. Counting interest, that figure has now swelled to about $489 million.
Last month, the U.S. Supreme Court ruled that Virginia must refund the money unless it can prove that it had a procedure by which retirees could have contested the taxes before paying them.
The case was sent back to the Virginia Supreme Court, which must determine whether such a procedure existed and, if not, how much the state should refund.
Since then, Allen and Terry have wrangled over the financial implications of the case.
Terry says Virginia shouldn't pay a penny until the Virginia Supreme Court makes its ruling, which may not come until next year. "The Supreme Court explicitly said Virginia might not have to pay any money," Terry's spokesman stressed again Friday.
But Allen, who has charged that Terry was "asleep at the switch" as attorney general in 1989 by failing to warn the General Assembly that the state might be liable for millions, says Virginia has a "moral and legal obligation" to settle with the retirees.
To buttress his argument, Allen on Friday cited legal advice he's been given by two prominent Republican lawyers - former Rep. Caldwell Butler of Roanoke and former U.S. Solicitor General Ken Starr of McLean.
Their analysis concludes that the Virginia Supreme Court likely will order the state to pay something, and it would "unwise and highly imprudent" to bet otherwise.
Allen warned that the state's negotiating hand is stronger if it proposes a settlement now spaced over several years. Otherwise, he said, Virginia might be forced "to eat the whole watermelon at once."
But Terry's spokesman called Allen's legal analysis "more political than legal."
Allen has used the pension tax case to portray Terry as the culprit "largely responsible for getting us into this mess."
One of Virginia's top political analysts, though, says it's unclear how the pension issue is playing with voters. "There are a lot more taxpayers than there are pensioners, so this does have the potential to backfire on Allen," said Tom Morris of Emory & Henry College, if Allen is seen as willing to spend money the state might not otherwise have to spend.
By contrast, Morris said, Terry's insistence on holding out for a state Supreme Court ruling could make her appear to be the stronger defender of taxpayers.
In general, though, Morris said, voters might not care much. "This is not an issue anywhere comparable to the [Supreme Court decision on abortion] that came down four years ago," which dominated the 1989 governor's race.
Keywords:
POLITICS
by CNB