THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, July 8, 1994 TAG: 9407080613
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY DAVID M. POOLE, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 65 lines
A legislative panel reached a compromise late Thursday night on a $340 million settlement with federal retirees.
The agreement clears the way for a vote today on a five-year repayment plan for former federal and military employees whose pensions were taxed from 1985 to 1988 under a state policy that later was declared illegal.
House Majority Leader C. Richard Cranwell, D-Roanoke County, said, however, that the compromise deal may be a tough sell in the House of Delegates and the state Senate and with the leaders of retiree groups.
Michael J. Kator, a Washington lawyer who has negotiated on behalf of several major retiree groups, said that many retirees may not be pleased because the package includes an unrelated change in the way the state taxes Social Security benefits.
Kator said the Social Security changes mean that civil service retirees would pay an estimated $25 million in additional state taxes over the next five years.
``What concerns me is that more people may want to opt out,'' Kator told reporters, referring to a provision that would kill the pension tax deal if enough retirees decide not to participate.
Cranwell planned to meet with retiree leaders this morning to urge them to support the compromise.
The package would preserve the essential ingredients of the proposed $340 million settlement with federal and military retirees. Those owed refunds are expected to get their first installment by March 31, 1995. Retirees with claims under $1,500 would be paid in full. Those with larger refunds would be paid in installments lasting until 1999.
The six House-Senate conferees left the administration of the plan to the state Tax Department, which is expected to begin mailing out notices to affected taxpayers by Aug. 1.
Retirees can accept the settlement offer, which is expected to refund all of the illegal taxes they paid, or ask the courts to reward them both principle and interest.
The General Assembly can kill the deal if retirees with more than $20 million in claims opt out.
The changes that Kator said could upset many retirees include elimination of a Social Security offset, ending the indexing of an age deduction for seniors and reducing the age deduction for people 65 and older from $12,944 to $10,000. The deduction will increase to $12,000 beginning in 1996-97.
The net effect on the state budget will be an overall reduction in tax revenues of $20 million in1995-96 and an additional loss of $95 million in the 1996-98 biennium.
The effect on individual taxpayers will vary. Many will receive a tax break, while some - particularly those will little or no Social Security income - could face a tax increase.
Kator said that many civil service retirees fall in the latter category because they do not receive Social Security. These retirees may resent the fact that they are, in effect, being asking to pay for part of tax refunds they have been due for five years.
Asked if the opposition would be enough to kill the deal, Kator replied, ``Perhaps. We don't know. There are so many things to consider.'' by CNB