THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Thursday, December 8, 1994 TAG: 9412080411
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY DAVID M. POOLE, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 94 lines
Gov. George F. Allen faces a possible revolt by localities over his proposed $2.1 billion tax cut, which some say would result in a crushing unfunded mandate on local governments.
``He's literally picked the pockets of local governments to the tune of $300 million,'' said Jim Campbell, executive director of the Virginia Association of Counties.
``You'll see a lot of tea dumped around Virginia,'' predicted Gail Nardi, spokeswoman for the state Democratic Party, referring to the Boston Tea Party.
The cause of the potential uprising is Allen's desire to strip localities of some of their taxing authority in order to give a tax break to businesses. At stake is about $300 million a year that localities generate by taxing business receipts.
Local-government advocates see irony in Allen's proposal, which would stick the state's nose into local tax matters. The governor has railed against federal meddling in state affairs.
Allen spokesman Ken Stroupe said Virginia law and tradition make the governor responsible for overall tax policy, and the General Assembly responsible for granting taxing authority to localities.
Allen's business tax cut would encourage economic development and force local governments to practice the same kind of fiscal discipline that Allen is imposing on state government, Stroupe said.
``I think you also have to realize there is an expectation from voters around the nation - and certainly within the state - that governments can get by with less,'' he said.
On Dec. 19, Allen will unveil the details of the five-year, $2.1 billion tax, including how he plans to absorb the first-year revenue loss of $150 million.
In addition to ending local business-receipt taxes, the Republican governor wants to cut state income taxes by $1.3 billion over the next five years by tripling deductions for parents and their children.
The tax package must be approved by the Democrat-controlled General Assembly, which will convene Jan. 11.
Democrats, who hold a precarious majority in the legislature, may find it politically impossible to kill the tax cut.
But the Democrats are expected to press Allen to show that the state can chop state revenue and still pay for Allen's $2 billion prison-building initiative and educate a wave of college-age students.
At the same time, Allen will be trying to placate local governments already upset about limits on their taxing authority.
``We believe the trend should be in the other direction, to give localities more leeway to determine their own destiny,'' said Dean Block, budget director for Virginia Beach.
``I love tax cuts and hope the governor is successful,'' said Roanoke Mayor David Bowers, a Democrat. ``But if this is a tax shift (to localities) instead of a tax cut, the people of Virginia should understand that.''
The Virginia Municipal League and the Virginia Association of Counties said they want more information before taking a position. But both organizations have heard from dozens of concerned localities.
Allen would soften the blow to localities by replacing any lost revenue with state funds for at least five years.
But that may do little to quell concerns of local officials, who fear the elimination of business taxes will amount to the kind of unfunded state mandate that Allen has promised he would not impose on localities.
Roanoke Finance Director Jim Grisso said that even if the state fulfills its promise to replace lost revenue for five years, the replacement dollars will not take into account a projected growth in taxable business receipts.
For Roanoke, the loss of added revenue could be more than $1.25 million over the next five years, Grisso said.
``If the General Assembly takes away our right to levy this tax, it will result in a mandate,'' he said.
Stroupe said Allen's intention would be to end the subsidy after five years. At that point, local governments would have to either find alternative sources of revenue or cut their budgets, Stroupe said.
``It's forcing a discipline on localities,'' he said.
Norfolk budget officer William M. Bodnar said the governor's proposal would hit all localities, even those that have been trimming bureaucracy. Norfolk, he said, has eliminated 18 percent of its positions through attrition in recent years.
``We feel we're very efficient,'' Bodnar said.
The loss of the business-receipts tax would cost most localities between 3 percent and 5 percent of revenue. But the impact would be more drastic in localities like Salem, which gets about 10 percent of its revenue from a tax on business receipts.
Stroupe said any revenue loss to localities would be more than offset by economic development spinoffs.
But Block of Virginia Beach said repealing the tax on business receipts would leave local governments with no mechanism to benefit directly from any boost in the economy.
KEYWORDS: TAX CUTS VIRGINIA by CNB