- The Washington Times - Friday, November 16, 2001

RICHMOND Virginia Gov. James S. Gilmore III announced yesterday the full phaseout of the car tax will be delayed, saying the September 11 terrorist attacks have driven the state into a post-attack recession.

The Republican governor said state revenue projections for fiscal 2002 are expected to be $890 million less than originally projected, making it financially impossible for the state to afford a full car-tax rebate next year.

"Revenues will not meet the legal requirements to advance the final phase of car-tax relief next year," Mr. Gilmore said at a news conference. "This is disappointing to me and, I can assure you, to Virginia's working men and women."

The car-tax rebate, which is now at 70 percent, was scheduled to advance to 100 percent next year. Instead, Virginia residents will continue to pay 30 percent of the tax on the first $20,000 of a car's value.

Although temporary, the freeze will save the state approximately $109 million next year, Mr. Gilmore said. It would have taken an estimated $1.5 billion each year to replace the lost car-tax revenue, according to state figures.

"You just can't do that in a recession," Mr. Gilmore said.

He also said that all state agencies have been ordered to make plans to trim as much as 2 percent from their operating budgets, although not all agencies will be required to make the cuts.

"Working families all across the state are making sacrifices during this extraordinary time; surely, their government can do the same," the governor said.

Mr. Gilmore declined to say which agencies will face the cuts. He is expected to disclose his biennial budget proposal Dec. 19.

No matter how tough economic times are, however, the governor said, he will not propose any tax increase.

"A tax increase would stifle our economy when it needs a spark," he said. "We managed the last recession without a tax increase, and we will not impose one now."

The last recession was in the early 1990s, when the state saw an estimated $2.3 billion loss in revenue, state legislators said yesterday.

Mr. Gilmore said he expects that all the cuts will be in place before he leaves office Jan. 12.

The governor has the option of tapping into the state's "rainy-day fund," which totals about $1 billion, to help offset the recent losses. Although Mr. Gilmore has not yet made any decision, he said "everything is on the table at this point."

Also yesterday, Mr. Gilmore signed an executive order to increase unemployment benefits by 37 percent and applying the increase to include all residents laid off before Sept. 9. Last month, Mr. Gilmore increased weekly unemployment benefits by $100 statewide for those who lost their jobs after Sept. 9.

News of the car-tax-cut delay didn't surprise some lawmakers.

"I knew the final numbers weren't going to be too good," said House Speaker S. Vance Wilkins Jr., Amherst Republican. "But this is nothing out of the ordinary. Certainly, some people will be disappointed, but they knew that we would have to put it off if the economy wasn't going well."

Sen. John H. Chichester, chairman of the Senate Finance Committee, said freezing the tax cut makes it easier for lawmakers to dip into the rainy-day fund if they have to.

"It's not the governor's fault or the president's fault that there's an economic downturn," said Mr. Chichester, Stafford Republican. "Since we're all in this together, let's pull us out of this together. Let's move forward."

Finance Secretary John W. Forbes and Mr. Gilmore have said the state could begin to recover from the recession next spring. But yesterday both men pushed the timetable back to next summer.

"I'm never confident when making any kind of economic forecast," Mr. Forbes said. "It's difficult, because we don't know what the future holds. We don't know what future terrorist attacks will be like."

Mr. Forbes said the attacks could cost the state nearly $2 billion. The three-week shutdown of Ronald Reagan Washington National Airport after September 11 cost the state more than $1.2 billion in revenue.

Gilmore administration officials said the state's economy was in good enough shape to go ahead with the full tax cut before September 11, when terrorists attacked the World Trade Center in New York and the Pentagon in Arlington.

"The car-tax cut could have been done if not for the attacks," said M. Boyd Marcus Jr., Mr. Gilmore's chief of staff. "We knew we would have had to deal with an economic downturn, but not an economic recession, which is what we are in now."

Mr. Gilmore said 32 states have reported revenue losses that range from $20 million to $10 billion since the terrorist attacks.

The National Association of Budget Officers predicts the total revenue loss for state budgets could reach $20 billion to $30 billion nationwide, if unemployment continues to rise.

Gov.-elect Mark R. Warner, a Democrat, is expected to get a personal briefing on the financial situation today.

"I look forward to asking Secretary Forbes a number of questions tomorrow and hearing his answers," Mr. Warner said.

He commended Mr. Gilmore for his decision to increase unemployment benefits.

"Particularly in light of what has happened since September 11, not only because of what happened in Northern Virginia, but because of what happened in Martinsville and Henry County," Mr. Warner said.

•This article is based in part on wire service reports.


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