Virginia lawmakers are expected to vote within the next couple of weeks on an accord between legislative leaders and the representatives of about 185,000 federal retirees on refunds of illegal taxes imposed on pension benefits in the 1980s.

The bipartisan settlement calls for Virginia to repay $340 million of the taxes, which represents about 80% of claims, excluding interest. The General Assembly last month rejected Gov. George Allen's lower settlement offer of $234 million.

Michael Kator of Washington, the retiree's attorney who negotiated the compromise with House leaders, had sought a $400 million settlement, or more that half of Virginia's total estimated liability of $707 million, including interest, as of last December. Most retirees are expected to accept the package.

Passage of the settlement legislation could and five years of litigation that exposed the state to a judgment of $700 million, said James S. Gilmore 3d, Virginia's attorney general, in a statement yesterday. The resulting financial obligation from such a judgment "would cripple" state programs on education and crime and "place a tremendous burden on taxpayers," Gilmore said.

The Supreme Court ruled in Davis v. Michigan in 1989 that state taxes on federal retiree income are unconstitutional if state and local retiree income is not similarly taxed.

Under the settlements, refunds would be paid in installments out of general fund appropriations of $60 million in the first year and $70 million in succeeding years.

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