Plan to increase prison system in Virginia relies heavily on munis.

WASHINGTON -- Virginia Gov. George Allen plans to rely heavily on tax-exempt bonds to finance a proposed $850 million criminal justice reform program that would double the size of the state's prison system.

But the financing and locations of an estimated 27 new prisons under the sweeping plan promise to be contentious issues in the Democratic-controlled General Assembly, even though there is strong bipartisan support for a reform bill.

Allen will not release financing details until next Wednesday, when panels of the state Senate Finance Committee and the House Appropriations Committee hold hearings on the package.

Allen, a Republican, submitted an outline of the proposal on Monday to panels of the Senate committee, which will hold a series of hearings before a special legislative session that starts Sept. 19.

A combination of two financing methods is under consideration, said Paul Timmreck, Virginia's secretary of finance. Allen would seek voter support in a November 1995 referendum for issuance of an unspecified amount of general obligation bonds.

In addition, the Virginia Public Building Authority would issue lease revenue bonds to finance near-term costs, Timmreck said. Specific amounts will be discussed next week, he said.

The tax-exempt bonds issued by the authority typically have higher interest rates than GO bonds. Proceeds of the tax-exempt bonds are given to state agencies under lease agreements, after which the state appropriates lease payments to pay debt service.

Democrat Robert Ball of Henrico County, who chairs the House Appropriations Committee, said yesterday he supports offering voters a choice in any referendum on bonds. He proposed raising the 4.5% state sales tax by another half-cent on the dollar in lieu of increasing the state's bonded indebtedness.

The increase could raise $200 million a year in revenue, a committee aide estimated. However, Ball may propose that the sales tax be selectively applied, such as to non-food items, the aide said.

But Allen is not willing to consider a tax increase, Timmreck said. "We are going to have to manage our debt very, very carefully and prudently," but "we have the capacity" to issue the debt, he said.

Sen. Joseph V. Gartlan Jr., D-Mount Vernon, said yesterday that Ball would be "out of his mind" to offer such a proposal. A tax increase should fund other uses such as schools or highways, he said.

Virginia raised the sales tax by a half-cent in 1986 to fund a 10-year transportation improvements program that is nearing completion. State Sen. Charles L. Waddell, D-Loudoun, who chairs the Senate Transportation Committee, said that while he supported the 1986 rise for transportation uses, future increases should be reserved to fund schools in recessionary times.

Democrats as well as Republicans are generally expected to favor Allen's crime package, because law and order is "the number one priority ... and this is part of it," Waddell said. However, Waddell said he does not support the Allen proposal "hook, line, and sinker" and details of the package are likely to change.

The key elements of the package are abolition of parole and dramatically longer jail terms, which Allen said would require virtually doubling of the size of Virginia's prison system. Allen said the plan would result in prevention of about 120,000 felony crimes in the state, with associated cost savings of $2.3 billion.

An outline of the reform proposal estimates $342 million in construction funding through 1999 and $820.6 million through 2005. Annual operating costs are estimated at $173.8 million through 1995 and at $364.7 million for new beds constructed through 2005. Another $59 million would be needed to finance equipment costs through 2005.

State officials said the total capital cost of the program would run between $820 million and $850 million.

However, even without Allen's proposal, more construction would be needed to expand Virginia's crowded prisons and accommodate a decreasing parole grant rate, Timmreck said.

The Allen plan would cost $200 million to $250 million more than the $600 million needed even without sentencing reform, according to a press statement by the governor's office. All told, 27 new prisons and work centers would be required to accommodate construction of about 23,000 new bed spaces by 2005 under the Allen plan.

Lawmakers are expected to raise questions about the state's debt load in light of a commitment to repay over five years $340 million in illegally collected income taxes from federal retirees, Gartlan said. The repayments will not increase the state's bonded indebtedness, but there is a question whether the commitment should be factored into Virginia's debt management plan, he said.

Under the plan, Virginia has the capacity to issue $283 million a year in debt, he said. Another commitment to be considered is the $132.8 million bond package enacted last March to fund road projects for Wait Disney Co.'s proposed theme park in Haymarket, he said.

Location of prison sites also will be highly contentious, Gartlan said. Representatives of northern Virginia,. which does not now house any state correctional facilities, will strongly oppose locating facilities there, he said. Under Virginia's constitution, voters must know how and where bond proceeds would be spent for a referendum to be held, he said.

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