DATE: Sunday, August 31, 997                TAG: 9708300964

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY WARREN FISKE, STAFF WRITER 

DATELINE: RICHMOND                          LENGTH:  122 lines

BUSINESS LEADERS SAY TAX CUTS WILL HURT VA. 123 CLUB PUTS THE FOCUS ON INVESTMENT FOR SCHOOLS, ROADS.

Concerned that the tax-cut pledges of the gubernatorial candidates are short-sighted, business leaders across Virginia are uniting with hopes of convincing voters and lawmakers that it is more important to invest in schools and roads.

Calling themselves the 123 Club, some 100 executives held their maiden meeting in Charlottesville earlier this month to explore ways to move debate beyond the tax-cut frenzy that has dominated state politics during the last three years.

In interviews last week, several participants said they have little hope of influencing discourse in this fall's gubernatorial campaign. They noted that Republican James S. Gilmore III and Democrat Donald S. Beyer Jr. already have locked themselves into competing pledges to reduce the property tax on privately owned cars and trucks.

The businessmen have reached no consensus on a plan for action. Some said efforts should be concentrated on lobbying the General Assembly members, who ultimately will decide between tax cuts and future investments.

``We've already accomplished a great deal by bringing forth the issues,'' said John T. ``Til'' Hazel, a Northern Virginia mega-developer who is at the center of the business group. ``I'm convinced that when the General Assembly convenes, we will have a sober addressing of these issues.

``We're onto something. In the current gubernatorial campaign, the discussions are very superficial and not focused on the real issues. . . . Sometimes a pebble going downhill starts an avalanche.''

A few of those interviewed expressed hope that after the election, the next governor quietly could be convinced to abandon his tax-cut pledge. ``He wouldn't be the first politician to break a campaign promise,'' said one businessman, who asked not to be identified.

The only real consensus was to develop a long-range strategy for educating the public about Virginia's status as one of the lowest tax states in the nation right now and its growing needs for public schools, colleges and transportation. The group also agreed to future meetings.

``We aren't focused on the election,'' said Thomas R. Brock Jr., a Roanoke business consultant. ``We're much more concerned that there are lots of discussions, so people in Virginia understand what's going on.

``We've got a lot of candidates talking about cutting taxes and, on the surface, that seems pretty good. But when it comes down to cutting taxes or building roads and improving education, the answer may not be so clear cut. We want to be very sure that everyone fully understands the ramifications.''

Gilmore has proposed eliminating the personal property tax on privately owned vehicles with an assessed value of less than $20,000. He said his plan, when fully phased in, will cost $650 million a year. The Virginia Municipal League has estimated the cost at $1.3 billion annually.

Beyer countered with a plan to give state income tax credits to those who pay the car tax. Individuals with incomes up to $40,000 would receive a $150 credit, families earning up to $75,000 would be eligible for $250 in relief. Beyer's proposal would cost the state $202 million a year.

The ramification, the businessmen say, is that the state will have less money to spend on education and roads if either plan is enacted.

A legislative study earlier this month concluded that state transportation funding is falling $1.9 billion a year below needs. That figure, based on current spending trends, would increase to a $3.2 billion yearly shortfall in 2015.

Hampton Roads alone faces a $6.3 billion total shortfall in funding transportation needs over the next 20 years, according to a recent report by the Hampton Roads Partnership.

Businessmen also argue that tax cuts will impair the state's ability to hire more teachers, put computers in classrooms and reduce hefty tuitions at Virginia colleges, which are among the most expensive in the nation.

``We just don't have the funds to do these things and we don't hear the candidates emphasizing them,'' said Joshua P. Darden, an influential Norfolk businessman and former rector of the University of Virginia.

``We're now in a contest to see who can cut taxes the most and we think it's very ill advised,'' Darden added. ``We're going to pay a big price as a state for those tax cuts.''

The 123 Club developed from a group of Northern Virginia business executives who have been meeting for more than year to discuss state priorities. At the center of the effort is Hazel, a developer who has long argued that Virginia should increase taxes to invest in colleges.

In recent years Hazel has doggedly spearheaded efforts to persuade legislators that higher education is endangered if more money isn't invested. In 1995, the group of business leaders and former governors Hazel brought together was widely credited for lobbying successfully against Gov. George F. Allen's plans to cut Virginia's income tax.

Now, the blunt-spoken Hazel is accusing Beyer and Gilmore of ``trying to buy votes'' with tax cuts. He traveled around the state this summer to assess which business leaders from other regions shared the concerns of his Northern Virginia group. His efforts led to the statewide meeting in Charlottesville.

``Politicians are bidding for tax cuts and denying needs,'' said Hazel.

``We will continue to press,'' he added. ``Business people are sometimes short on patience. They want action and they want to move on. We're here to stay. We will continue to demand that these issues will be addressed.''

Not all members of the group are as gung-ho for a tax hike as Hazel. Darden said he is open to the idea, noting that gas taxes in Virginia are 4 cents less per gallon than in North Carolina and 6 cents less than in Maryland. ``Every one-cent increase would raise $42 million in Virginia,'' Darden said. ``It would a start'' for raising transportation money.

Hazel is definite on how to meet road needs: ``We have to talk about user taxes. We're not going to get any real transportation needs met until we increase the gas tax.''

Some say they're looking for information so they can form an opinion. ``Not everyone agrees with Til Hazel,'' Brock said. ``That's not to say that once we've presented with the facts, we won't all come to the same conclusion as Til.''

Gilmore and Beyer say that conclusion is mistaken. They argue that booming economic growth in Virginia makes it possible to invest wisely while at the same time giving tax relief to citizens.

``I believe the hard-working families who have made the growth possible deserve a dividend,'' Gilmore said.

Beyer said: ``There needs to be a balance between increased investment and targeted tax relief. We can do both.''

House Minority Leader S. Vance Wilkins Jr., R-Amherst, says the business leaders are out of touch with most voters. ``I don't expect they talk to average people on the street nearly as much as I do,'' he said. ``People are telling me they want a tax cut. If we can't help them out when times are good, when we ever be able to?''

But House Majority Leader C. Richard Cranwell, R-Roanoke County, sees things differently. He noted that Virginia was one of only two states that did not raise taxes during the recession early this decade. Instead, the state cut funding to colleges and transportation.

``When you go through a recession, people will drive a car a few years longer,'' he said. ``But when the times get better, people go out and reinvest. It's time to reinvest in Virginia.''

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