
DATE: Sunday, September 28, 1997            TAG: 9709270719

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

TYPE: DECISION '97

SOURCE: BY WARREN FISKE, STAFF WRITER 

                                            LENGTH:  192 lines

``NO SACRIFICES'' IS, PERHAPS, A DUBIOUS FISCAL VOW

No one is asking you to sacrifice.

The two candidates for governor - Democrat Donald S. Beyer Jr., and Republican James S. Gilmore III - are promising relief from the dreaded car tax while providing hundreds of million of dollars in new money for education.

Both said continued robust economic growth will allow them to carry out their promises without cutting or eliminating a single major program.

``No sacrifices are required,'' Beyer said. ``We can pay for critical needs and provide targeted tax relief.''

Gilmore said: ``For too long, state government has commanded Virginians to sacrifice. As governor, I will use the economic growth generated by hardworking Virginians to give them much-deserved tax relief and expand educational opportunities.''

Can they do it?

Economists say maybe. They warn that both candidates have based their platforms on rosy - but not unreasonable - economic assumptions for the next four years. The bottom line, experts said, is that state revenues may largely ebb and flow with the stock market.

``No one can predict with certainty when the next downturn will occur,'' said Roy L. Pearson, an economist at William & Mary in Williamsburg.

Many state legislative leaders are dubious of the plans, however. They question the wisdom of granting tax relief at a time when Virginians are faced with college tuitions that are among the most expensive in the nation and billions of dollars in needs for road and school construction.

Virginia was one of only two states that didn't raise taxes during the early '90s recession. As a result, services suffered. Now that times are good, many lawmakers argue that it is time to reinvest.

``Things aren't as rosy as they appear to be,'' said Sen. Stanley C. Walker, D-Norfolk. ``I think candidates like to talk about more cops, better education and lower taxes. But from where I sit, it won't be easy. There's just no way to do all of these things.''

State lawmakers aren't alone in raising questions about the course the gubernatorial candidates are proposing. Virginians - who have been polled by all of the state's major news organizations during this election season - do not appear to be crying out for tax relief.

For example, A Virginian-Pilot poll in late August showed that 82 percent would favor a reduction in the car tax, but more than half said they would let the state keep their money if it would be invested in education and public safety.

While both candidates hit some similar themes, an analysis of both candidates' spending plans shows their individual priorities.

Beyer's spending priorities

Beyer has proposed $2 billion in new initiatives over the next four years. About half of the amount would pay for a variety of tax cuts targeted at helping low and middle-income families and small businesses.

Beyer has proposed a $202 million-a-year system of state income tax credits to many people who pay local personal property taxes of cars. Individuals with incomes up to $40,000 could receive a credit of up to $150. Families that earn up to $75,000 could receive a maximum credit of $250.

The Democrat also wants to repeal the sales tax on non-prescription drugs and eliminate corporate taxes for all businesses who annually make less than $5 million in gross sales and $50,000 in profits. The two cuts would cost the state about $50 million a year.

On the spending side, Beyer would invest $100 million a year to bring teacher salaries up to the national average. He would spend $70 million annually to create scholarships that would more than double the amount of state grant money available to financially-needy students. His plan also would give one-time $2,000 scholarships to high school students who graduate with ``B'' averages.

Beyer also would invest $100 million to buy computers for public schools.

Gilmore's spending priorities

Gilmore has proposed about $2.2 billion in new initiatives over five years.

His centerpiece idea is to eliminate personal property tax payments on privately-owned vehicles for 90 percent of Virginians. Over five years, he would phase in a repeal of the levy for all cars, trucks and motorcycles with an assessed value of less than $20,000.

Personal property taxes are locally levied. Under Gilmore's plan, the state would reimburse municipalities ``dollar for dollar'' for revenue lost by the repeal. He has estimated the cost of his plan at $1.65 billion over five years.

The Republican would spend $60 million annually on a new college scholarship program. It would award a $2,000 annual college grant to high school students who graduate with ``B'' averages, score in the top 20 percent on standardized tests and have good behavior.

Gilmore also plans to hire 4,000 new elementary schools teachers - or five for every Virginia school - at a cost of $50 million a year.

He said he would not try to implement his tax cut until after he was sure there was ample money to fund his education initiatives.

The hidden costs

The Virginia Municipal League, a nonpartisan research and lobbying group for Virginia city governments, contends that Gilmore has underestimated by more than half the cost of repealing the car tax. It says Gilmore did not factor in 9 percent average annual growth in revenues from the levy caused by Virginia's growing population and increases in vehicle prices.

Gilmore has said his program would cost $620 million a year once fully phased in. The VML estimates the cost will be $1.37 billion annually.

Also, both Gilmore and Beyer's plans for public education would require matching investments from localities. In other words, cities and counties would have to kick in about another $75 million a year to participate in Beyer's plan to raise teacher salaries, or about $37.5 million a year for Gilmore's program to hire more teachers.

Many local officials have voiced concerns about coming up with the cash needed to participate in the programs.

The candidates' underlying assumptions

Beyer and Gilmore base their spending plans on assumptions that the state's economy will remain vibrant over the next four years.

Beyer is predicting that the average 5.5 percent annual growth to Virginia's tax base will create $4.8 billion in new revenues over the next four years. Gilmore is forecasting that 6.2 percent will create $5.5 billion in new revenues over the same time span.

State economists who help governors prepare the budget are more circumspect. They are forecasting 4.7 percent average growth over the next four years, although they tend to make conservative forecasts.

So what's the bottom line?

In a nutshell, it largely depends on the national economy. Continued vibrant growth that brought average 7.0 percent growth to Virginia's revenues during the past four years could allow Beyer and Gilmore ample money to achieve their ends. But the average 2.7 percent growth the state experienced from 1989 to 1992 would likely force the candidates to retreat.

Virginia politicians like to boast that surging local economies are mainly due to the state's recruitment of new industries. But research shows that the recent expansion is closely tied to the bullish stock market.

The state had a $198 million budget surplus for the fiscal year that ended June 30. Of that amount, $151 million was attributed to higher than expected proceeds coming from taxes on nonwitholding income such as capital gains, according to Finance Secretary Ronald L. Tillet.

Questioning the candidates' priorities

Senior legislators from both political parties and a growing coalition of prominent business leaders from across the state have expressed disappointment in Beyer and Gilmore's proposals.

They argue that Virginia's status as one of the lowest-taxing states in the nation has come at a cost of limited services. And rather than rebating money to citizens over the next four years, they say it is far more important to invest surpluses in education, roads and limiting debt.

State financial analysts say Virginia already has $1.6 billion in new commitments for the two-year budget year that will begin next July 1. The mandates include inflationary increases for public school funding, money to operate new prisons and promised pay raises for teachers, college staff and bureaucrats.

Among the financial problems that many lawmakers and businessmen say deserve higher priority:

- A cumulative $47 billion shortfall between highway needs and available road-building funds over the next 18 years. Beyer and Gilmore say they will seek more federal funding.

- An estimated $6 billion in public school construction and improvement needs. Both candidates say the shortfall is a local problem.

- An estimated $110 million infusion to make college faculty salaries more competitive with private industry and major colleges outside Virginia. Beyer and Gilmore say the increases are not a top priority.

- Limiting state debt, which has quadrupled over the last decade to $3.5 billion by paying cash for some construction projects. ILLUSTRATION: MARTIN SMITH-RODDEN color photo illustration

(Hat courtesy of Stark and Legum)

Graphics

Color photos

BEYER

GILMORE

WHOM WILL YOU HIRE?

Are the promises feasible?

It depends on the national economy. Continued 7 percent average

growth could allow Beyer and Gilmore ample money. But they would

have to pare their promises if growth were like that of 1989 to

1992; an average of 2.7 percent.

Are the priorities far-sighted?