THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, September 16, 1995 TAG: 9509160286
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY DAVID M. POOLE, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 83 lines
Jim Raleigh of Virginia Beach found out Friday that he made the correct call by turning down a partial repayment of taxes that the state had collected illegally from 168,000 military and federal retirees in the mid-1980s.
``I think that some of them who took the settlement without looking at it closely now wish they had,'' Raleigh said.
Friday, the Virginia Supreme Court ruled that the state must repay tax retirees in full, plus interest.
The ruling came too late for some 154,000 pensioners who earlier this year opted for a General Assembly offer of 75 cents on the dollar over five years, with no interest.
If Raleigh had taken the state's deal he would have gotten $3,225. His patience will pay off. He'll get about $8,000: the $4,300 the state owes him plus an estimated $3,700 in interest.
Attorney General James S. Gilmore III, who made settling the pension dispute a campaign promise, insisted that the settlement offer was a good one. Those who took it got a certain return without the risk that the court could have ruled the other way.
``Both parties shared risks; both parties assessed risks,'' he said.
Gilmore said his office was reviewing the high court's decision, but indicated at
a press conference that the state is unlikely to appeal.
When a reporter from Virginia Lawyers Weekly noted that the court decision left virtually no room for appeal, Gilmore said, ``I think that's very insightful.''
Writing for the court, Chief Justice Harry L. Carrico said a review of state law and a U.S. Supreme Court decision in a similar Georgia case led to ``the inevitable conclusion that the . . . taxpayers are entitled to full refunds.''
It remained unclear how the General Assembly could come up with the $77.9 million it will take to repay the 14,283 retirees affected by the court's decision.
But the interest clock is ticking, with each month of delay adding to the final cost.
``They've got an incentive to pay it sooner than later,'' said Michael J. Kator, a Washington-based lawyer who represented several dozen retirees in the legal fight. ``I don't know where the state is going to get $80 million, but that's not my problem.''
Gov. George F. Allen said he would await Gilmore's advice before acting, but added: ``If we owe it, we're going to pay it. That's all there is to it. .
The increased pensioner obligation will make it that much more difficult for Gov. George F. Allen to deliver on his promise to both cut state income taxes and return $300 million in state lottery proceeds to localities.
Allen already faces some daunting obligations as his staff prepares its spending recommendations for 1996-98. There is the $110 million for the settlement with the bulk of the federal retirees, an estimated $400 million for an increase in the school-age population and at least $200 million for pre-fund obligations to the state retirement system, according to House Appropriations Committee figures.
Allen said he did not want interest on the retirees covered by the Supreme Court decision to make the debt any larger.
The court decision left unanswered the question of attorney fees. The issue is problematic because though Kator formally represented only a few dozen retirees, everyone who rejected the state offer benefited.
Kator said he would seek up to 10 percent of the entire $78 million.
Raleigh, the military retiree from Virginia Beach, found it hard to believe the state would ask retirees to settle for what amounts to less than 50 cents of principal and interest.
Imagine, he said, if the roles had been reversed with a group of citizens refusing to pay taxes for a number of years. If the citizens later admitted wrongdoing, would the state accept only partial payment?
``If you believe that, you still believe in the Easter Bunny and the Tooth Fairy,'' Raleigh said. MEMO: The Associated Press contributed to this story.
KEYWORDS: TAX REFUND MILITARY RETIREES STATE TAX FEDERAL RETIREES
VIRGINIA SUPREME COURT RULING by CNB