THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, December 2, 1994 TAG: 9412020776
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY MARGARET EDDS AND DAVID M. POOLE, STAFF WRITERS
DATELINE: RICHMOND LENGTH: Long : 153 lines
Gov. George F. Allen dangled a $2.1 billion tax-cut sugar plum before Virginians on Thursday, but he said the public - like children anticipating Santa Claus - will have to wait to find out how he is going to pay for it.
``You all are as bad as my kids,'' Allen scolded reporters who pressed for details. ``They can't wait to open up all the presents.''
The first-year Republican governor proposed slashing state income taxes by $1.3 billion over five years by tripling the personal exemption for each family member.
Eventually, the plan would save most families $250 to $350 a year and would remove 84,000 low-income Virginians from the tax rolls altogether, he said.
Allen also called on localities to phase out what he called a ``despised'' tax on business receipts. The tax generates $300 million a year for local governments.
But, other than proposing cuts in the state's 110,000-person work force, Allen offered few clues about how to close the revenue gap. And administration officials acknowledged that much of the bill won't come due until after Allen leaves office in early 1998.
The proposal comes as Republican governors nationwide are earning plaudits by pushing for tax relief. It also puts the General Assembly's Democratic leadership on the defensive as it seeks to retain its fragile grip on power in next year's elections.
Leading Democrats seemed loath to criticize something as popular as a tax cut. But they called on Allen to prove that his idea wouldn't cripple services after a four-year period in which many agencies have already weathered substantial cutbacks.
``Everybody wants lower taxes and leaner government,'' said House Speaker Thomas W. Moss Jr. of Norfolk. ``But the question, again, is how is he going to pay for it? And he still isn't giving any answers.
``We cut the budget $2 billion under the last governor. People have got to decide what they want to go without - schools, roads, colleges.''
At a news conference packed with Allen administration officials and business leaders, the governor said the issue isn't reducing services, but gaining efficiency.
Allen said he would make a down payment on the tax cuts by slashing the state's work force.
Late Wednesday, he issued an immediate hiring freeze and offered a severance package - one week's pay for every year of service - to encourage an unspecified number of state employees to quit.
If enough workers don't leave voluntarily, Allen said, a new round of layoffs could begin next year.
In a letter to state employees, dated Thursday, the governor said a ``significant reduction in the work force is inescapable.'' But at his news conference, he repeatedly refused to spell out how much he expects personnel savings to contribute in paying for the $2.1 billion tax cuts.
Allen would not lay out other cost-saving ideas, except to promise a full disclosure at a Dec. 19 briefing.
``It will force a fiscal discipline,'' Allen said of his tax plan. ``I welcome the challenge of determining our priorities.''
Some hints are contained in an Allen task force report, issued earlier this fall. The group recommended saving money by selling some state property, eliminating 16,000 state jobs, cutting some government functions and turning others over to private companies.
Finance Secretary Paul Timmreck acknowledged that what Allen will outline later this month are his ideas for paying for the first year of the proposal, which will cost $149 million.
At the same time, Allen will have to come up with an additional $350 million to cover an anticipated shortfall caused by a settlement with federal pensioners, and by increased prison expenses related to the governor's parole-reform initiative approved in September.
Senate Finance Chairman Hunter B. Andrews, D-Hampton, noted that state spending has been cut by 30 percent since the recession hit in mid-1990. He said it would be difficult to slice $500 million more from the budget.
``You're narrowing down what you can cut,'' he said at an annual Finance Committee meeting at Virginia Tech in Blacksburg.
Andrews, who has the power to cripple Allen's plan when the General Assembly convenes in six weeks, withheld comment until Allen's briefing later this month.
``Until you see the fine print, it's hard to address,'' he said.
Allen said income-tax relief is overdue. ``Virginia's income tax burden ranks in the top third of the states,'' he said.
But a study for the National Conference of State Legislatures shows that Virginia's overall tax burden is one of the lowest in the nation - and falling.
Between 1990 and 1992 - as Virginia held the line on taxes - the state's ranking for local and state tax revenue per $100 of personal income fell from 44th to 47th in the nation.
Allen hinted that he would hold Democrats accountable in next year's legislative elections for their vote on his tax proposal. Next year, the GOP has a chance to seize control of the General Assembly for the first time in modern history.
``This will be a defining moment for members of the General Assembly,'' he said.
Lt. Gov. Donald Beyer Jr., the Democrats' highest-ranking elected official, acknowledged that Democratic lawmakers will find it difficult to cross Allen.
``As long as he also has a responsible plan to pay for them,'' Beyer said, ``I think it will sail through the General Assembly with bipartisan support, including mine.''
Allen said his plan to triple the personal exemption from $800 to $2,400 will mean ``more jobs, good jobs, and job security for Virginians. It's high time we direct our hard-earned resources away from government and back into the private economy.''
Reporters questioned whether the savings - less than $100 for most families in the first year - will have as dramatic an impact as Allen suggested.
``If you saw $100 laying on the ground, I think you'd pick it up. I would. Shoot, I picked up four sticks of gum walking over here,'' he said.
Democrats said they were concerned that Virginia may be following the lead of New Jersey, where income tax cuts by Republican Gov. Christine Todd Whitman resulted in higher local property tax rates.
``This is George trying to catch up with Christine Todd Whitman, no matter what it does to Virginia,'' said state Del. Clifton ``Chip'' Woodrum of Roanoke.
Allen said he will lessen the incentive to boost local property taxes by giving localities state funds equal to the amount of business tax revenue they lose for five years.
State Chamber of Commerce officials praised the notion of doing away with local taxes on business receipts. But local government officials were skeptical.
Roanoke Mayor David Bowers said citizens would find it ``uproariously unacceptable'' to replace the business tax with property taxes. Allen has a responsibility, Bowers said, to recommend ways of adjusting local budgets after five years.
Sam Barfield, Norfolk's commissioner of revenue, found it ironic that Allen, who has asked the federal government to butt out of state affairs, would dictate to localities on tax matters.
``I think that's treating the cities and localities like children,'' said Barfield, a Democrat. ``You're taking away the right of localities to govern themselves.'' MEMO: Roanoke Times & World-News staff writer Brian Kelley contributed to
this report.
ILLUSTRATION: Graphic
TAX SAVINGS
$236 (67 percent)
For a single parent with two children, $15,000 in federal adjusted
gross income and the standard deduction.
$320 (48.5 percent)
For a married couple with two children, $24,000 in federal adjusted
gross income and the standard deduction.
$313 (27 percent)
For a married couple with two children, $40,000 in federal adusted
gross income and $12,000 in itemized deductions.\ $313 (7 percent)
For a married couple with two children, $100,000 in federal adjusted
gross income and $17,000 in itemized deductions.
A couple with two children will pay no tax on the first $14,600 of
income, up from the current $8,200.
Up to 84,000 low-income Virginians no longer would pay income
taxes.
by CNB