By Spencer S. Hsu
Washington Post Staff Writer
Sunday, April 5, 1998; Page B01

RICHMOND—After an overtime legislative session, Gov. James S. Gilmore III and Virginia lawmakers expect to finally nail down a two-year, $450 million plan to begin phasing out the car tax later this month. But some in the General Assembly are wondering about the future of Gilmore's centerpiece program.

Their question is essentially this: If it was so difficult to find $450 million in new revenue to begin Gilmore's five-year tax cut in a roaring economy, how will they find $1.2 billion in 2000 -- when more of the governor's plan is to be phased in? Or $2.2 billion two years after that, when the full tax cut is scheduled?

Some critics of the GOP tax cut's cost -- Democrats and Republicans -- believe it could be delayed beyond Gilmore's five-year timetable, and may stall right after the 27.5 percent reduction for the first two years.

The percentage of members who expect the full tax cut on time "is probably 50-50," said Sen. Malfourd W. "Bo" Trumbo (R-Botetourt).

"I don't think all the Democrats believe it's not going to happen, but I don't think all the Republicans believe it's going to happen, either," he said.

Other Republicans -- sounding a lot like Gilmore's Democratic critics -- suggest that once the first two years of the tax cut are approved as part of the $40 billion budget that lawmakers will endorse later this month, it might be time to take another look at the program.

"I think the whole car-tax plan is going to reevaluated in the next couple of years," said Sen. Warren E. Barry (Fairfax), another of Gilmore's fellow Republicans who is worried about the eventual cost of the tax cut. "I like tax relief, but this just doesn't make any sense. . . . It was a good political slogan. Now we have to pay the price."

Most lawmakers, recalling how voter support for the tax cut drove Gilmore to a landslide victory last fall, aren't willing to speculate publicly on the full tax cut's prospects. Like Gilmore, some maintain that continued growth in state revenue largely will resolve the funding questions and allow modest increases in state spending.

But lawmakers on all sides acknowledge that Gilmore's tax-cut plan has fundamentally changed the outlook for Virginia's legislature for sessions to come.

As other state programs are squeezed by the escalating cost of the tax cut -- and possibly by a slowing economy -- the budget debates will make this year's often raucous session seem tame, lawmakers and analysts said.

"We are certainly starting down a path where we will have fewer dollars to do more things," said Sen. Kenneth W. Stolle (R-Virginia Beach). "There's going to be a huge battle in the future. There is a lot of concern about how localities are going to be impacted."

House Democratic Caucus Chairman Alan A. Diamonstein (Newport News) said that "in an economy such as this, only a few things have to suffer" because of the car-tax cut.

But "if the economy obviously takes a turn for the worse," Diamonstein said, "we are going to have to find other cuts. . . . Every year as time goes on, we're going to be discussing the financial resources necessary to comply [with the tax cut], and it will be a continual debate."

This year's session went three days past the scheduled adjournment as lawmakers wrangled over a package that included the car-tax cut and a new $110 million school construction fund pushed by Democrats.

School construction is among a range of programs that could be limited in future years because of the car-tax cut, which by 2003 is projected to eat up 9 percent of the state's general revenue fund.

Many legislators aren't sure how Virginia will swallow a tax cut whose annual billion-dollar cost eventually will equal about what the state now spends on prisons and corrections ($1 billion a year), public colleges and universities ($1.1 billion) or Medicaid ($1.2 billion).

The car-tax cut "is going to be on the political landscape in Virginia for some time," said Robert D. Holsworth, a political scientist at Virginia Commonwealth University. " . . . This is a Republican tax plan that affects $1 out of every $10 Virginia raises. It's a very high-magnitude issue."

Advocates for higher education, mental health and roads already are complaining of dire consequences, such as tuition increases and slower graduation rates, declining hospital quality and traffic congestion.

"Who is thinking about the future? Where are you going to cut?" asked Hunter B. Andrews, a Hampton Democrat and longtime chairman of the Senate Finance Committee who was unseated in 1995 but remains an authority on Virginia's budget.

Republicans voice some of the same concerns, even while pushing for more discipline in the state's budget process. "It's going to force a new concept of priorities of where state funds will go because there will be a new wedge of the pie there," Trumbo said. "But maybe that's not so bad."

Gilmore has always said that if there was not enough state revenue available, his tax cut on $20,000 of each vehicle's value could be delayed before it was fully implemented. But in recent appearances across the state, Gilmore has criticized the "naysayers" who question his program.

The tax cut is scheduled to be phased in with a reduction of 12.5 percent this year and 27.5 percent next year. By fiscal 2001, the reduction would be 50 percent, then 70 percent the following year. By fiscal 2003, the tax on the first $20,000 of a car's value would be eliminated.

"We're confident growth will be there and the car tax will be eliminated over five years," Gilmore spokesman Mark A. Miner said. "This is about tax relief for the people of Virginia."

In recent speeches, Gilmore's "No Car Tax!" campaign has grown from a promise of cash back to voters to a drumbeat for smaller government and "better choices and liberties and freedom."

"People's freedoms are tied up with their ability to earn their own money and spend it," Gilmore said last week. "We should not go backward to this old thinking that the government has all the best ideas for everyone," which he has called "socialistic."

Gilmore will enjoy at least one and possibly two advantages in getting the next phase of his car-tax cut through the General Assembly in 2000. He will have full control over the budget, instead of inheriting a spending plan from a previous governor that limited his options in allocating money.

And the 1999 legislative elections could for the first time leave Republicans with majorities in both chambers of the legislature. Both of the Virginia legislature's virtually deadlocked chambers now operate under power-sharing agreements.

"He who controls the purse strings of the state controls the state," Stolle said.

But even as the legislature has tilted more in Gilmore's favor, there is disagreement among moderate and conservative Republicans in the General Assembly over how much to cut taxes.

The locally collected car tax, which costs a typical Virginian about $181 annually, is second only to real estate taxes as a source of revenue for local governments. Under Gilmore's plan, the state will reimburse localities for phasing out the tax, meaning that those with higher tax rates -- namely people in wealthy jurisdictions in Northern Virginia -- will benefit more from the car-tax cut than residents of rural areas.

That disparity was behind many of the regional rivalries that popped up in the last session, and lawmakers predict it will be a constant source of irritation.

"We've got to get rid of it, the notion of fighting [the car tax] every year in Richmond," said Sen. John H. Chichester Jr. (R-Stafford), co-chairman of the chamber's finance panel. "We really need to keep our focus on the commonwealth's real and true role -- providing education opportunities and human resources that don't tend to diminish."

As for whether Gilmore's tax cut could be slowed, Chichester agreed it is possible, saying it all depends on whether the economy continues to provide a healthy stream of tax revenue. "Corporations pay dividends when they make money," he said. "And when they don't, dividends are sometimes cut."