By Spencer S. Hsu and Ellen Nakashima
Washington Post Staff Writers
Tuesday, March 10, 1998; Page D01

RICHMOND, March 9—Virginia House Republicans and Democrats agreed tonight on a package that would cut car taxes by $447 million over the next two years and borrow $350 million to give local governments help in building schools.

The deal, adopted unanimously by the House Finance Committee, would give Republican Gov. James S. Gilmore III less than the $493 million in car-tax relief he wants, but even some members of his own party were urging him to take the offer, calling it the best deal he's likely to get.

As the legislature enters its final week, Gilmore's legislative agenda has been stalled as Democrats have presented money for school construction as an alternative to Gilmore's plan to phase out the car tax. Tonight's deal is a compromise aimed at breaking the jam, and House leaders predicted it would pass the full chamber as early as Tuesday.

"This is something that allows everybody to say they've done the best they can do and come away with something," said Del. Allen W. Dudley (R-Franklin), who like other House Republicans favors giving schools some help for construction. Gilmore has said the issue needs further study.

Del. Robert S. Bloxom (R-Accomack) urged Gilmore to accept a compromise. "Otherwise, he may have no car-tax relief at all," Bloxom said.

Gilmore called the agreement a positive step but didn't endorse it.

"The car tax component has some promise," said Gilmore, attending a dinner tonight with members of the capital press corps. " . . . But it can still be improved upon. We still have a little farther to go. We're not going to give up on the people."

But House Democratic Leader C. Richard Cranwell (Roanoke) praised the agreement, choosing to emphasize the school building money -- a total of $376 million in grants over two years. "Make no mistake about it. What was done here for school construction is unprecedented in its magnitude in Virginia."

If passed by the full House, the pact must still survive the Republican-led Senate, which passed a $474 million car-tax cut last month and hasn't voted any money for school construction. Senators were critical tonight of House leaders' attempts to phase in the car-tax cut more slowly.

"I don't think that would be acceptable to the governor," said Senate Majority Leader Walter A. Stosch (R-Henrico). "That is our position. I can't imagine us voting for [the lower] amount."

Both House and Senate plans also must be taken up by a budget conference committee to hammer out a final version.

Although the two chambers remain far apart, with the General Assembly set to adjourn Saturday, today's action cleared a major hurdle for Gilmore's embattled $2.8 billion proposal to virtually phase out the car tax over five years.

Tonight's agreement, however, came only after Cranwell tied money for school construction to Gilmore's centerpiece tax cut, in effect guaranteeing that Democrats and Republicans would get part of what they wanted.

That allowed him to garner support from Republican lawmakers who back car-tax relief but also want to take at least small steps toward erasing an estimated $6.2 billion backlog in school construction.

And it will allow House Democrats to vote for the popular car-tax cut, albeit a slimmer one than Gilmore wants. Voting to phase out the car tax appeals to Democrats from high-tax Northern Virginia districts who don't want to give Republican opponents a weapon to use against them in the 1999 elections.

Like Gilmore's original proposal and the Senate's version, the House measure would gradually phase out car taxes over five years.

The House approach would cost less in the coming two years by deferring more tax relief to the third, fourth and fifth years. The House would cut car taxes by 12.5 percent the first year and 27 percent the second year; the Senate would cut by 15 percent and 30 percent in those two years.

On the other hand, the House would eliminate taxes on the first $20,000 of a car's value after five years; the Senate version would do so on the first $15,000.

Both versions would postpone the full tax cut if it threatened to eat up more than about 8 percent of general fund revenue.

The House would kill the tax immediately for owners of cars valued at less than $1,000.

For schools, the bill calls for spending $57 million over two years, some of which would help finance the sale of $350 million in bonds, which the state would repay. In all, that would provide about $376 million in grants to local school districts. Over nine years, the bill would direct up to two-thirds of state lottery profits -- or about $200 million a year -- to the building fund. The package also would award an $8 million tax credit to Newport News Shipbuilding, Virginia's largest private employer, represented by Del. Alan A. Diamonstein (D-Newport News), who is the House Democratic caucus chairman and a budget negotiator.

For Gilmore, pressure to strike a bargain is high.

Even fellow Republicans say his narrow tax-relief agenda leaves him short of needed legislative victories. All new governors struggle to keep up with the General Assembly their first year, but Gilmore has maintained a strikingly low profile and a prosecutor's one-track focus. Meanwhile, lawmakers have advanced bills that Gilmore opposes, including restoring state-mandated sex education and elementary school guidance counselors.

"I think everyone has been so focused on the tax issue everything else has been on the back burner," said Sen. Warren E. Barry (R-Fairfax). "I don't mean to be critical, but a governor shouldn't be too focused on one particular issue."

Several lobbyists said Gilmore has been invisible for three weeks, while he has battled a case of pneumonia. One Republican paraphrased Mark Twain, saying, "If you put all your eggs in one basket, you better keep a close eye on that basket."

Gilmore aides say he is working hard on other issues, including efforts to win a ban on so-called partial-birth abortions -- which passed a Senate committee today -- and health insurance reform.

"We've been very vigorous with our leadership," Gilmore said recently. "I'm very, very happy with the strength of our package."

Staff writer R.H. Melton contributed to this report.