Lights burn at Virginia Capitol. (AP)

By Spencer S. Hsu
and Ellen Nakashima
Washington Post Staff Writers
Monday, March 16, 1998; Page A01

RICHMOND, March 15 – Budget negotiators in Virginia's General Assembly tentatively agreed today on a $560 million package to begin phasing out the car tax and launch a massive school-building program, but only after deciding to ask Gov. James S. Gilmore III to find $20 million in cuts to seal the deal.

The compromise between a dozen Senate and House of Delegates budget writers would clear the way for the full legislature to vote on the state's $40‚billion budget and adjourn as soon as Tuesday, three days after the session was scheduled to end.

The agreement, which budget negotiators still were reviewing late today, would give the new Republican governor much of what he wanted to begin the car-tax cut he pledged during his campaign in the fall – about $450‚million over two years.

Sen. John Chichester, left, and Sen. Joseph Gartlan talk as they arrive for budget negotiations. (AP)

But it would come at a high price for Gilmore: The Republican governor would have to help the legislature find $20‚million for a Democratic school construction initiative, which his aides complained tonight is not his responsibility.

"It's a real agreement," said Sen. Stanley C. Walker (D-Norfolk), co-chairman of the Senate Finance Committee, after 48 hours of stalemated talks that forced the General Assembly to extend its 60-day session for the third time in history.

"This ought to close it," said the Finance Committee's Republican co- chairman, Sen. John H. Chichester (Stafford), echoing Democratic House leaders.

Talks over the tax cut and school construction sent the legislature into overtime during the weekend, as negotiators argued over how large the school-building program should be and how it should be funded. In effect, negotiators agreed to spend $110‚million on the program, found $90‚million of that money and then walked away, leaving Gilmore to make up the difference.

Although the deal could put Gilmore in the politically difficult position of trimming pork projects across the state to make the school plan work, it would mark a major legislative victory for the governor, who staked his first-year agenda on cutting the car tax.

For Virginia Democrats, getting the school-building package through the legislature would mean some redemption after a disastrous string of elections in which they lost all three statewide races and enough legislative seats that they lost control of the Senate and were forced to share power with the GOP in the House.

Gilmore spokesman Mark A. Miner said today that the governor was "not prepared to comment until he sees the details before him." Others on Gilmore's staff were lukewarm toward the prospect of finding $20‚million in cuts for a school-building program.

But analysts said that for all involved, the deal would be difficult to resist.

Robert D. Holsworth, political scientist at Virginia Commonwealth University, said: "The governor has delivered on the first installment of his car-tax cut plan. . . . He's got to be happy with that. School construction was not on the governor's agenda, but it came about because House Democrats got behind it."

Del. Vincent F. Callahan Jr. (R-Fairfax) said, "It's a monumental triumph for us, in what amounts to historic change in state policy toward school-building and the largest tax cut in the history of Virginia."

Draft documents being shuttled between House and Senate budget teams tonight indicated that the deal would fund $450‚million of Gilmore's car-tax cut in the next two years, $41 million less than he requested.

Because the deal is within the budget, Gilmore's tax cut is funded for only two years. Lawmakers expect him to reintroduce legislation to enact the full five-year plan.

Under the full plan, taxpayers would see the property tax on their cars and trucks slashed by 12.5 percent this year and 27.5 percent in 1999. Owners of vehicles worth less than $1,000 would pay no tax; after five years the car-tax plan would phase out all of the tax on cars worth up to $20,000.

The plan also would send $110‚million in cash building aid to 137 local districts to help attack what a state panel has projected as a $6.2‚billion shortfall in school-building funds over five years, $2‚billion more than the districts can afford.

The program would be the first foray into school construction since 1954 for Virginia, where such programs traditionally have been a local responsibility. The program would be paid for by $63‚million in general fund revenue, $18.4‚million from unclaimed lottery prizes and $9‚million from the state's existing school building loan authority.

Lawmakers asked that Gilmore find the last $20‚million for the school program before the legislature meets either on April 22 for a one-day session to consider his vetoes and amendments or in special session. The governor and lawmakers would have to consult by mid-April to draft whatever legislation Gilmore would come up with.

House Democratic Caucus Chairman Del. Alan A. Diamonstein (Newport News) said the deal "marks the entrance of the commonwealth into school construction and into the lives of everyday Virginians."

If passed by the full General Assembly – as the budget negotiators expect – the budget deal could mark a watershed for Virginia. In paying the first installment on Gilmore's car-tax cut, the state would begin heading down a path of wiping out a local tax at a cost that by 2003 could reach 10 percent of the state's general fund.

Fearing the impact on state roads, colleges and social services, lawmakers would limit the tax's phaseout so it would not eat up more than about 8 percent of the general fund in any one year.

Today's breakthrough came after two days of bitter haggling in which frustrated senators and delegates traded profanity-laced barbs and blamed one another over why they could not close the funding gap in the school program.

"This is crazy as hell," Chichester blasted at angry House Appropriations Committee Co-Chairman V. Earl Dickinson (D-Louisa) in an impromptu 1:30 a.m. meeting today in the shadow of George Washington's marble statue in the Capitol rotunda.

Walker, a 27-year Senate veteran and president pro tempore, called the budget talks the most rancorous in his career. Besides the enormous money involved in the school-building program and in Gilmore's proposed five-year, $2.8 billion tax cut, Walker cited the power-sharing agreements in the GOP-led Senate and the evenly divided House. The divided leadership made this year's General Assembly unpredictable from beginning to end.

"We've never had a car-tax cut, a local tax cut . . . and this is a new commitment to local schools," Walker said. "And the fact is, this is the first time we've dealt with a Republican Senate and parity in the House of Delegates. . . . This is revolutionary."