ATLANTA - Georgia has tentatively agreed to pay retirees $108 million in illegally collected tax payments, following Tuesday's U.S. Supreme Court ruling on the matter, Gov. Zell Miller told state legislators.

Speaking late Tuesday at an biennial legislative conference held on the campus of the University of Georgia in Athens, Miller said that under the proposed accord, payments would come in four equal annual installments of $27 million starting in October 1995. The reimbursement, he said, would include 7% interest.

"I believe the right thing to do is to refund the money owed these people, so I have been working for many months to negotiate a settlement," the governor told lawmakers.

Miller said that state officials were taking a "second look" at the proposed agreement to make sure it "meets the requirements of the court ruling."

"And I will be asking for your help to pass any necessary legislation," he added.

Georgia's attorney general, Michael J. Bowers, said yesterday in an interview that it is "not essential" for legislation to be in place to honor the settlement. He said that it is up to the state officials, working with the Georgia Supreme Court, "to determine what mechanism the refund needs to take."

However, lawmakers said yesterday that the initial $27 million installment would probably be included in a supplemental budget request for the current fiscal year, which ends June 30, 1995.

According to Miller, state revenues through the first five months of fiscal 1995 have been about 8% above fiscal 1994's collections - comfortably above the 6.8% level needed to cover currently budgeted outlays.

Miller's comments came a few hours after the nation's high court unanimously ruled, in Reich v. Collins, that Georgia had employed a "bait-and-switch" scheme to tax federal pension income in the state, and then to deny retirees' requests for a tax refund.

The U.S. Supreme Court left it up to Georgia's Supreme Court to provide retirees with "meaningful backward-looking relief." Miller's $108 million settlement covers about 50,000 pensioners who applied for a refund by the state's April 1992 deadline.

Georgia potentially owes another $100 million to a roughly equal number of federal retirees who did not apply for the refund, according to Carlton Henson, the plaintiffs' attorney.

Miller did not address the question of the state's possible additional liability beyond the amount due taxpayers that applied for the refund.

Last year, the Georgia Supreme Court rejected the claim of plaintiff Lieut. Col. Charles Reich, who had originally filed his lawsuit in a state court in 1990. The state Supreme Court said Reich should have sought a remedy before paying taxes.

State Sen. George Hooks, chairman of the Senate Appropriations Committee, said yesterday in an interview that he is "familiar with" the settlement between Miller and the retirees and would not oppose it.

"Our budget could absorb the impact of this." said the Democrat from Americus.

In a separate interview yesterday, Sen. Terrell Starr, vice chairman of appropriations, said that the settlement is "long overdue."

"Let's get this issue resolved and move on," he said. Starr is a Democrat from Forrest Park.

Rep. Thomas B. Murphy, speaker of Georgia's House of Representatives, has "no aversion" to budgeting moneys to cover payment to the retirees, Murphy's chief aide, Steven Anthony, said yesterday.

Miller's talk - his first speech since he narrowly won re-election last month - outlined other spending proposals he plans to bring before the legislative session in January.

Miller said that he will also seek a "one-time expenditure" of $55 million in the fiscal 1995 supplemental budget for state infrastructure rebuilding following the devastating floods that struck Georgia in July.

The money will used to pay for flood repair expenses not covered by federal emergency relief funds.

In addition, Miller said he intends to request $15.5 million in supplemental 1995 outlays to cover settlements of two other long-standing lawsuits.

A school desegregation suit filed by Savannah will require $9 million and resolution of a state employee wage dispute will cost $6.5 million this fiscal year, Miller said. An additional $6.5 million to cover the wage settlement will be sought during fiscal 1996.

"These are all legal obligations that go back a number of years, and I have been working to get them cleared up and out of the way so we can move forward," Miller said.

Miller said that none of the spending requests would require a tax increase.

"I remain opposed to any land of tax increase, any kind," he said.

The governor said that as part of his legislative proposals for fiscal 1996, he would propose phasing out the state's 4-cent sales tax on groceries. The tax, he said, should be reduced by 1 cent a year until it is eliminated.

Miller also proposed earmarking spending for about 2,300 additional prison beds: 1,600 at four existing adult facilities and 700 for juvenile jails. Miller did not provide an estimate of how much the facilities would cost.

In their yearly legislative sessions beginning in January, Georgia lawmakers traditionally revise spending in the current fiscal year as well as appropriate money for the upcoming year.

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