By Ellen Nakashima
Washington Post Staff Writer
Thursday, March 12, 1998; Page B04

RICHMOND, March 11—The House voted 100 to 0 this afternoon to approve a compromise plan that would give localities money to build schools while cutting the car tax, but Gov. James S. Gilmore III immediately indicated he might not back the deal.

With the vote, which drew a standing ovation, the House reached a breakthrough in a debate that had dominated the session since it opened seven weeks ago: whether or how to provide tax relief.

"We are taking a historic step today," said Del. Barnie K. Day, a Patrick County Democrat who has made nearly daily floor speeches calling for equity in tax relief and decrying the poor condition of school buildings in southern Virginia.

The bill would give something to both sides -- $447 million to slash car taxes, a priority for Gilmore and fellow Republicans, and for Democrats, permission to borrow $350 million to dole out to cities and counties to build and repair schools.

Democrats said they would have preferred to pay for the schools out of the general fund, rather than by borrowing, but they realized that the budget could not accommodate that money and still have room for tax relief.

Republicans who opposed the school plan voted for the compromise because they did not want to be on record voting against a car-tax cut. They said they hope that the school bond provision will be stricken from the bill.

That appeared to be the governor's hope as well. "I remain deeply concerned . . . at the prospect of borrowing hundreds of millions of dollars at a time when Virginia is floating in an ocean of surplus tax revenues," Gilmore said in a statement released after the vote.

The plan now is in the hands of the Senate, where John H. Chichester (R-Prince William), the sponsor of that chamber's original car-tax bill, must decide whether to accept the House version. He said today that he would decide after he had conferred with the GOP Senate caucus Thursday morning.

However, Chichester, and a number of other Senate Republicans, agreed with Gilmore's concerns about borrowing money at the same time the legislature contemplates a huge tax cut. "It's very difficult for me to get the rationale that gives tax relief and debt in the same mouthful," Chichester said.

An attempt to strip the school bond provision from the bill failed, 24 to 74. And several other efforts to scale down the bill or otherwise change it failed by about the same vote.

When the final votes showed up on the electronic board, 49 Republicans and one independent had joined 50 Democrats in passing the plan.

"What we're doing is historic," said Del. Vincent F. Callahan Jr. (R-Fairfax), a budget negotiator, who said he would "hold my nose" and vote for the bill. "But the most historic thing we're doing is financing a tax cut by borrowing money."

Democratic Floor Leader C. Richard Cranwell (Roanoke) said the unanimous show of support for the plan will put pressure on Gilmore and the Senate to accommodate the Democrats' wishes on schools. And key Republicans say they believe the legislature's budget ultimately will include some money for school construction.

"I don't think there's any way you can ignore the message of the House of Delegates on an issue that has generated so much controversy," Cranwell said.

Gilmore made the car-tax cut the centerpiece of his campaign in the fall. But he has said that he wants a reduction of nearly $500 million and that he would rather study the school construction needs for a year and then provide money for loans, not outright grants.

Clearly, the sticking point is the borrowing, said Del. John H. "Jack" Rust (R-Fairfax), a key negotiator between the parties.

With only three days left before scheduled adjournment, budget negotiators are scrambling to resolve differences between the two chambers' $40 billion spending plans. Both houses have money earmarked for tax relief -- $498 million in the House and $479 million in the Senate, but without legislation detailing how those dollars are to be used, negotiators say, it is difficult to produce a final version of the budget.

"There's a very good possibility we'll have to do a special session" after the legislature adjourns to deal with the tax issue, Callahan said.