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

DATE: THURSDAY, November 30, 1995                   TAG: 9511300070
SECTION: VIRGINIA                    PAGE: A-1   EDITION: METRO 
SOURCE: WARREN FISKE STAFF WRITER
DATELINE: RICHMOND                                LENGTH: Medium

PROJECTED SHORTFALL THREATENS TAX CUTS

Administration officials declined to say whether the Republican governor will abandon his pledges on Dec. 18 when he proposes his two-year budget to the money committees of the General Assembly.

But Secretary of Finance Paul W. Timmreck seemed to dampen expectations by predicting a "highly constrained" spending package. "This is a very, very tough situation," he said.

Timmreck projected that state revenues would grow by $204 million due to business expansion during the fiscal year starting next July 1. But that gain, he said, would be swallowed up by an estimated $757 in new expenses.

The new costs include $371 million to fulfill commitments to public schools and colleges, $128 million to fund a cost-of-living increase for state pensioners, $59 million to give state employees a 2.25 percent pay raise, $55 million to operate new prisons and $51 million to fund Medicaid requirements.

Timmreck suggested that the burden could ease in the fiscal year starting July 1, 1997. He projected that revenues would grow by an additional $537 million that year.

Timmreck said his projections are based on conservative forecasts for new job creation and wage growth in Virginia and that the financial outlook for the state could improve. He declined to say exactly how much shortfall the administration is predicting.

Several Democrats privately said that the administration may be presenting a worst-case scenario to lower expectations for a tax cut. They noted, for example, that Timmreck did not calculate in his report an estimated $50 million a year in savings from an early retirement program offered to state employees.

Allen's efforts to reduce state income taxes and return lottery profits to localities became a rallying cry for GOP candidates in this fall's legislative races. Democrats insisted that the state could not afford losses in revenues without deeply cutting education. Allen lambasted Democrats as wasteful spenders.

Since the election, in which Democrats maintained razor-thin control of the legislature, Allen seems to have offered an olive branch. The governor met with Democratic leaders last week to seek accord on the budget.

"The feeling I get is that he may be reluctant to move forward on some of the things he's suggested, such as tax reduction," said Sen. Stanley C. Walker, D-Norfolk, who is slated to become chairman of the Senate Finance Committee.

Walker said Allen still appeared eager to return lottery profits to localities. The senator said Democrats may be willing to consider the proposal, but that their first priority will be making good on a campaign pledge to appropriate $200 million for public schools to lower class sizes.

Walker called the financial projections "sobering" and expressed concern that it may be difficult even to come up with the education money.

Sen. Kenneth W. Stolle, R-Virginia Beach, said Allen and other Republicans should remain committed to returning lottery profits and not abandon hope for lowering taxes. He noted that the economic picture is expected to improve in 1997.

"If we can realize some savings in state government, then we can still do these things," he said.