DATE: Thursday, September 4, 1997           TAG: 9709040467

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SOURCE: BY WARREN FISKE, STAFF WRITER 

DATELINE: RICHMOND                          LENGTH:   97 lines

EDUCATION A SMARTER BUY THAN A CAR-TAX CUT, STUDY SAYS

Imagine Virginia has an extra $1 billion to play with - all of it from continued economic growth.

Should the state return the money to its citizens by virtually eliminating car taxes, as Republican gubernatorial candidate James S. Gilmore proposes?

Or should it invest the bonus in public schools?

A new study by the Virginia Municipal League concludes that most Virginia localities - including those in Hampton Roads - would see more money flow into their borders if the money were earmarked for schools.

The research considers two amounts: How much localities would gain from a $1 billion repeal of the vehicle tax, vs. what they would gain if the money were doled out under Virginia's educational need formula.

The conclusion: 107 of Virginia's 135 localities would gain more money for public schools than they would reap in tax savings for their citizens.

Residents of the five South Hampton Roads cities would pocket a total of $127 million in tax relief, according to the study. But public schools in the region would gain $182.8 million if Virginia instead invested in education.

With a few exceptions, the study shows that only the richest localities gain more in tax relief than they would in reinvestment in schools. For example, cutting car taxes in Northern Virginia would yield $234 million more than investing added state money in schools.

The findings could prompt new debate over Gilmore's centerpiece campaign pledge to repeal the car tax for 90 percent of Virginians.

A growing coalition of business leaders across the state is arguing that investing in schools and roads is smarter than a tax cut. But the business leaders concede that civic needs could be a tough sell when the trade-off is money in taxpayers' pockets.

Gilmore has proposed abolishing personal property taxes on privately owned vehicles with an assessed value of less than $20,000. The tax is levied by localities. Gilmore has promised the state would reimburse local governments ``dollar for dollar'' for revenues lost by the repeal.

He has estimated the annual cost of the plan - when fully phased in after five years - at $650,000. The Virginia Municipal League says his program would cost close to $1.4 billion a year.

Democratic nominee Donald S. Beyer Jr. has proposed a more modest plan to ease auto tax burdens. He would give state income tax credits to those who pay the levy: up to $150 for individuals who earn $40,000 or less annually and up to $250 for families that make $75,000 or less.

Beyer says his plan would cost the state $202 million a year. Like Gilmore, he says the money would come from new revenues from economic growth.

The municipal league, a research and lobbying organization for Virginia's cities, has not done a study to determine which localities stand to reap the most from Beyer's plan.

It examined Gilmore's plan last month at the request of former Norfolk Mayor Joseph A. Leafe, who serves on a state commission reviewing tax policies.

``We've been listening to a lot of stuff on the tax rebate,'' Leafe said. ``It's all about taking a lump of state money and redistributing it. I was curious if we took the same money and distributed it on the education formula, where the money would go.''

Leafe, a former Democratic state legislator, said he requested the study in June, before Beyer had proposed his tax cut plan.

The state distributes public education money on a sliding scale based on the wealth of localities. Poor counties and cities receive larger proportions than do wealthy municipalities.

Suzette Denslow, deputy director of the municipal league, said the funding formula largely explains why poor localities tend to win the most from state reinvestment in schools while wealthy communities have little to gain.

Gilmore has been sore at the league for months, arguing that the group is part of a ``high tax lobby'' that has purposely overestimated the cost of his tax cut.

Mark A. Miner, a spokesman for Gilmore, said the latest study is suspect. ``The VML has been way off base from the start,'' he said, ``The bottom line is that there will always be naysayers out there saying we can't cut taxes. Jim Gilmore is going to show we can cut taxes and invest in education at the same time.''

Page Boinest, a spokeswoman for Beyer, disagreed. ``This points out to what we've been saying from the start,'' she said. ``The cost of Gilmore's plan is so high that it will chip away on what localities have to spend on education.''

Boinest said Beyer's less-sweeping tax relief plan ``is more equitable (than Gilmore's) because it's based on income.''

Leafe is reluctant to enter a political debate. He said he's not enthusiastic about either candidate's tax-cut plan, arguing that localities sorely need money for education.

Leafe offered his own proposal. He said the state should distribute a large portion of new revenues to municipalities. Local officials could then decide whether to cut taxes, increase school funding, or do some of each.

``The state always seems to come up with bright ideas on how it can cut local taxes,'' he said. ``It would be a better idea if the state were paying a larger share of education costs and letting the locally elected officials decide which of their taxes can be reduced and why.'' ILLUSTRATION: Graphic

Virginia Municipal League research indicates:

Residents of the five cities of South Hampton Roads would pocket

$127 million.

But public schools there would gain $182.8 million if the money

instead were invested in education.

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