Gov. James S. Gilmore III jokes with Sen. Charles J. Colgan (D-Prince William) Tuesday. (AP)

By Spencer S. Hsu and Ellen Nakashima
Washington Post Staff Writers
Wednesday, March 18, 1998; Page A01

RICHMOND, March 17—Making historic commitments to cut Virginia's car tax and build new schools, a bone-weary General Assembly approved a two-year, $40 billion budget and adjourned late tonight after nine weeks of partisan combat, promising to return next month to hammer out the thorny details.

Having failed to reach binding agreement on how to carry out either program, the Republican-led Senate and Democrat-led House of Delegates gave final passage to a $560 million outline for phasing out the annual property tax on vehicles and sending $110 million to local school districts for construction. After minimal debate, the Senate approved the budget 39 to 0; the House vote was 94 to 5.

The assembly adjourned at 10:17 p.m., ending a 63-day session, the longest in state history. Its legacy could be far-reaching: The car-tax phaseout will be Virginia's biggest tax cut since World War II. And state government is offering to help build local schools for the first time in 44 years.

"This budget does . . . contain money for tax relief and $110 million for school construction," said House Appropriations Committee Co-Chairman V. Earl Dickinson (D-Louisa). "The framework is there to do what we all want to do."

"It's over, it's over!" exulted Sen. Joseph V. Gartlan Jr. (D-Fairfax), expressing the relief shared by all 140 lawmakers.

"While our work has been unfinished, much has also been accomplished," Gov. James S. Gilmore III (R) said in commending the assembly for acting on his centerpiece tax cut.

"Thank you for taking this giant step," he said, adding that he will "gladly" find the $29 million needed to complete the school funding.

This afternoon, Gilmore hinted that he may call lawmakers back to a special session to finish their work sooner than they expected. Each house had voted to reconvene for up to three days for that purpose after considering the governor's vetoes of legislation and amendments in a session already scheduled for April 22.

But Gilmore said this afternoon that the assembly "should deliver on this car tax . . . and get it done as soon as possible." Asked about lawmakers' plans to take it up at the veto session, Gilmore said, "There are other choices as well."

The discordant note summed up relations between a cranky, halting General Assembly -- under divided party control for the first time this century -- and a poker-faced, ambitious first-year governor who fought to overhaul tax policies.

In a flush budget, Gilmore won $450 million to lower the unpopular local tax on cars and trucks over the next two years, the first installment of his five-year pledge to eliminate the levy on the first $20,000 of a vehicle's value. Gilmore rode that promise to his 13 percentage-point election victory in November.

Even after his mid-session acknowledgment that the plan would cost twice as much as he predicted during the campaign, Gilmore escaped with most of the $493 million he requested, despite bipartisan concern about its long-range cost.

Tonight, Gilmore for the first time said he would sign off on a plan for implementing the car-tax cut passed earlier by the House, which now becomes the focus of the special session. "It's a done deal, I think," the governor said.

The plan would cut the tax by 12.5 percent this year and by a total of 27.5 percent in 1999 but would be limited to 8 percent of the state's general fund. The tax on car values up to $20,000 would be phased out over the subsequent three years, although owners of cars valued at less than $1,000 would pay no tax at all starting this year.

And Democrats must rely on Gilmore to squeeze $29 million from state agencies to help finance school construction. When they return, they also must battle the tough issue of how to distribute that money. Some lawmakers support a formula that favors Northern Virginia and other relatively affluent urban districts; others want to protect poor, rural areas.

The car-tax and school construction plans mark policy watersheds for the state, and they provide fodder for each party's strategy in the 1999 legislative elections. If Gilmore's full five-year, $2.8 billion tax cut is enacted, it will kill the second-largest source of tax money for Virginia's local governments and codify his "No Car Tax!" mantra, which crushed Democrats in the fall.

The state hasn't involved itself directly in building schools since 1954. Over Gilmore's protests, Democrats got enough help from House Republicans to force a deal to help local districts, which say they are $2.1 billion short of meeting $6.2 billion in predicted repair and construction costs over the next five years.

"You're going to have dueling television commercials for 1999," said William H. Wood, of the Unversity of Virginia's Sorensen Institute of Political Leadership. "The car tax is fine for Gilmore . . . and Democrats can go home and say, 'If it hadn't been for the Democratic Party of Virginia, you wouldn't have gotten school construction.' "

The budget adopted tonight also includes $66 million to hire as many as 2,000 teachers, as Gilmore promised in his campaign. The positions would complete a Democratic plan to reduce class sizes in kindergarten through third grade and to hire elementary reading specialists. But Gilmore complained that districts might use the money to pay teachers they already have, and he vowed to change it.

Lawmakers also voted to finance 2.25 percent annual raises for teachers and an average pay increase of 5.75 percent for professors at public colleges and universities. The legislature would give $1 billion in new money to public schools and universities, not counting the $110 million for school construction. The money would help meet costs of enrollment growth, technology improvements, teacher training and other programs. Also, Northern Virginia won a $96 million transportation bond program to improve roads and mass transit.

Other legislation adopted this year dealt with health and social policy.

Moderates joined conservatives to pass bans on physician-assisted suicide and "partial birth" abortion. They sided with Democrats to reinstitute state-mandated sex education and elementary school guidance counseling in public schools.

Both houses adopted the largest expansion of health insurance for poor children in a generation, although Gilmore has said he will veto it and pressure the legislature to adopt a less extensive plan.

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