Legislators reach budget accord; vote set for next week

By CHRISTINA NUCKOLS AND WARREN FISKE
The Virginian-Pilot

RICHMOND Lawmakers finally shook hands on a spending agreement Friday evening, only two weeks before they faced the unprecedented quandary of how to run a government without a budget.

The accord came on the 157th day of a legislative session that was supposed to adjourn March 11.

The full House and Senate will vote next week on the two-year $72 billion spending plan, which is expected to pass easily. Negotiators delayed signing the compromise until then to allow final editing .

Gov. Timothy M. Kaine must review and sign the budget before the current one expires June 30.

In a last-minute deal, budget negotiators agreed to end Virginia's tax on millionaires' estates.

They also rewarded teachers, state employees, college faculty and sheriff's deputies with 4 percent raises that go into effect later this year. They earmarked money for 3 percent raises the following year for state workers, faculty and deputies and 1.5 percent raises for teachers. Second-year pay increas es could be augmented by lawmakers this winter.

The compromise will not close the books on this year's legislative session. Still unresolved is how to increase spending on the state's overburdened roads and transit systems.

Lawmakers promised to return later this year to consider transportation measures, including plans that would target aid to congestion-plagued Hampton Roads and Northern Virginia.

The estate tax measure could end a four-year debate in Virginia over whether to follow Congress' lead in abolishing the levy. The General Assembly still must approve separate legislation to make the tax cut permanent.

Only estates valued at $2 million or more are taxed in Virginia under current law. Last year, 275 estate tax returns were filed for inheritances of that size, according to the Virginia Department of Taxation. Budget analysts estimate the cost of the tax cut to be about $140 million a year.

Earlier proposals to abolish the tax failed because of its drain on tax coffers. However, state leaders have become increasingly concerned that millionaire Virginians could transfer their residency to states that don't tax inheritances.

Several bills seeking to end Virginia's estate tax failed earlier this year, but Kaine revived the issue last week during a breakfast meeting with budget negotiators. Kaine, who as a candidate advocated the tax cut, encouraged lawmakers to reconsider the matter.

On transportation, negotiators set aside $339 million that could be used for transportation if the legislature approves a funding plan later this year. If no plan is adopted, the money would remain in reserve until next year, when it could be available for road projects.

The increas ing cost of maintenance and construction materials has eroded the state's road-building budget at a time when there is growing pressure to fund expensive projects such as a third bridge-tunnel to the Peninsula and the widening of U.S. 460.

State senators pressed for tax increases that would create a permanent new source of cash for transportation. House leaders refused , bringing budget talks to a standstill for months.

Del. Leo Wardrup, R-Virginia Beach, said he doubts the legislature will adopt a statewide tax increase for transportation this year. However, he said new regional taxes for Hampton Roads and Northern Virginia are possible.

Wardrup said any regional plans, including higher taxes, likely will require a vote by local government boards or a voter referendum.

He said a referendum is certain to be an unpopular option for lawmakers because it probably would be scheduled for November 2007, when all 140 seats in the General Assembly are up for election.

House negotiators were ebullient that they had forestalled a statewide tax increase.

"Taxes was the big win, no doubt about it. We were adamant that we win on that," Del. Kirk Cox, R-Colonial Heights, said. "That's what this was all about, let's not kid ourselves."

Sen. Edward Houck, D-Spotsylvania, said ideological fights over taxes and political one-upsmanship took precedent over the basic governmental responsibility to pass a budget on time.

"If there's a fix, it has to come from the voters," he said. "I think the voters have to step in and say they want to change the way we legislate. The pox is on all of our houses. We're all a part of it."

Other lawmakers said they doubt their constituents are paying attention.

"I'm not sure people are in tune with what we were doing here," Senate Finance Chairman John Chichester, R-Northumberland, said. "I don't think anyone is angry that we took so long. I think they would have been disappointed if we had gone past June 30."

The budget compromise includes $1.6 million to start work on a performing arts center at Old Dominion University. It also includes a provision blocking the sale of state-owned riverbed to owners of valuable waterfront property in Norfolk, a deal approved by legislators earlier this year.