Leaning back in his swivel chair that bears the seal of the Commonwealth of Virginia, James S. Gilmore III peers out the window of his historic office in the Statehouse toward Richmond’s Main Street. Perplexed, the governor shakes his head. He has delivered on his simple, three-syllable pledge, "No Car Tax," that carried him into office four years ago. Now nearing the end of his term, he is being maligned in the nearby downtown office towers — long the bastion of the state’s Republican hierarchy. After giving him generally high marks, many in Virginia’s business community have come, with stunning suddenness, to regard him as arrogant, stubborn, short-sighted.

"Intransigent" he adds helpfully to the list of names. He finds it ironic that his single-minded promise to end the loathed car tax — the issue that irks the business community — has also served him well. It helped earn a prized position within his party — chairmanship of the Republican National Committee. At home, polls show that many average Virginians support him.

Still, during the last six months of his tenure, Gilmore spends time with the elite who truly appreciate him. Rather than tour the state, he’s commuting two or three days a week to Washington, D.C., a spot Republicans ordinarily loath but one that Gilmore finds strangely comforting. There, he and his new buddy, the president of the United States, sing from the same hymnal. People don’t like taxes, so get rid of them. That’s what they were elected to do. If some priorities must be put on hold, well, the voters will understand.

These should be the best of times for Jim Gilmore, the scrappy former prosecutor who fought his way up Virginia’s political ladder as an uncompromising outsider with a populist bent. As he prepares to leave the governor’s office next January, Gilmore, 51, has built a record as an effective administrator who sticks to philosophies held dear by Republicans. He gave little quarter on GOP priorities such as maintaining a pro-business regulatory climate and slicing taxes, especially the car tax. During his four-year term, the state has thrived economically, nurtured a high-technology boom and enjoyed its lowest unemployment rates in nearly half a century.

Gilmore’s performance caught the attention of national party leaders who in February made him chairman of the Republican National Committee. As the RNC chief, Gilmore, barred by state law from accepting the post’s $150,000 salary, has become a familiar face on national television. He’s been a regular on Fox, CNN, Meet the Press and Larry King Live. The RNC has picked up the tab for him to travel to 12 states, and when he’s traveling on state business, Gilmore says, his national title opens doors. During a recent trade mission to Germany, for example, he credits meetings with major leaders of Western Europe to the RNC title. The German-speaking governor charmed German Chancellor Gerhard Schroeder with his linguistic skill while plugging the Old Dominion’s trade advantages. "Governors don’t get to do what I got to do, creating opportunities through national exposure," he says. "When their governor is on TV every day, it lends legitimacy to the state."

Gilmore sought the RNC job, but his selection by President George W. Bush signaled that party elders believe that officeholders such as Gilmore are the party’s future — sharp, youthful, steadfast. A big plus was his decision to cast himself in a populist, Reaganesque mold in his fight against the car tax. While the levy amounts to just a few hundred dollars a year for most car owners, it is wildly unpopular. In contrast to property and income taxes, which are deducted automatically from paychecks or rolled in with mortgages, taxpayers pay the car tax in a lump sum directly from their checkbooks.

Legislation authorized the state to reimburse localities for revenues lost from a phase-out of the car tax, but allowed for the governor to defer the cuts if state tax revenues failed to meet forecasts. Gilmore’s determination to stick to the original schedule in the face of an economic slowdown has caused a major split in the state GOP and raises questions about his ability to lead Republicans nationally.

Even more foreboding, the car tax imbroglio imperils Gilmore’s first major test as party chairman: retaining the two governorships in Virginia and New Jersey up for election in November. Circumstances beyond his control are working against the party in Trenton. In Richmond, if the GOP fails — after two consecutive lopsided victories — Gilmore may well share the blame with recalcitrant GOP members of the state Senate.

The rift between Gilmore and Virginia’s business community is itself a curious turn of events. No other Republican in recent history has managed to alienate business leaders who have always been a reliable source of GOP votes and money. Yet many resent Gilmore’s preference for populism. Corporate chieftains worry that Gilmore is undoing the profitable, if unspoken, consensus that helped Virginia become a national leader in job creation. The deal was this: both political parties would support the twin goals of transportation and education. If they did, campaign money would flow. Asked to describe Gilmore’s legacy, Northern Virginia developer-lawyer John T. "Til" Hazel gave a devastating description of Gilmore’s state of affairs: "Cut all the programs that count, devastate transportation, refuse money to education and leave the state insolvent for your successor."

Few critics go so far as Hazel, a backsliding Republican and outspoken Gilmore detractor. Given the governor’s reputation for vengefulness, many corporate leaders would not speak for attribution. But privately many agree that Gilmore’s fealty to abolishing the car tax at the expense of funding college construction, cultural attractions and pay raises for state employees has jeopardized the long-standing romance between the GOP and the business elite.

By risking funds that could unclog Northern Virginia highways and help colleges turn out more computer whizzes, they say Gilmore could be crossing a very dangerous line and jeopardizing Virginia’s long-term competitiveness. "It’s a crying shame, I can’t think of any good that will come out of it," says Robert Woltz, Virginia president of Verizon and a former president of the state chamber of commerce. The budget impasse, he adds, "hurts Virginia’s reputation because anytime anyone looks at the state they’ll poke fun. And it’s kind of hard to say we don’t deserve it."

For his part, Gilmore insists that hanging tough on the car tax is keeping his promise to voters. Wearing a monogrammed white shirt and, incongruously, a bright Jerry Garcia tie, Gilmore addressed the issue in an interview with Virginia Business. When asked why he’s so certain people want the car tax axed, he pounded the table and said: "... I’m going to keep faith with the people. They’re going to be able to say one thing we know for sure, and that is that (when) Jim Gilmore says he is going to do something, he is going to do it."

Gilmore says he gets nothing but positive feedback from the public on his car tax initiative. "Hundreds of people have communicated with me. .. gas station attendants, bartenders, people I run into. They all say, ‘Thanks for being steadfast. Thanks for delivering on this tax cut.’ Yesterday, somebody said to me, ‘This meant $300 to me.’ This happens all the time…So far there has not been a single example of somebody coming up to me and saying, ‘You’re stubborn, you’re obstinate, don’t do this tax cut.’"

Until now, Gilmore’s tenacity has served him well. It worked when he was an iron-willed youth shedding his modest upbringing as the son of a supermarket butcher to gain admission to the University of Virginia and its law school. And his thunder for uncompromising principles was a major asset when he was a suburban prosecutor putting away criminals and as the attorney general representing state agencies.

But, say business executives and fellow GOPers, there’s just too much at stake now for Gilmore to keep being Gilmore. His tough stance leaves the state with no new budget for the first time in its history. It threatens critical discipline in a party that after having everything going for it, seems bent on committing political hara-kiri. Only two years ago, for the first time since Reconstruction, the GOP gained control over the General Assembly and all three statewide offices.

Victims of his Faustian bargain are piling up. One is the state’s higher education system (see story page 15). Even though pro-technology Gilmore has dubbed his state the "Digital Dominion" and has created the first-ever position of Secretary of Technology, critics say the governor is willing to sacrifice all for his car tax repeal. Virginia’s universities may be turning out insufficient numbers of computer engineers and other experts, forcing high-tech firms to import foreigners with H1B visas. Likewise, with lackluster state support for research and development, Virginia colleges lag behind their peers in North Carolina, Maryland and other states in research activity. Boosting spending for education, especially in science and technology, could do much to alleviate that. But Gilmore, who boasts of having increased state support for higher education by 54 percent since he took office, is willing to withhold critical dollars this year to preserve his campaign promise.

The issue before the General Assembly this year was whether to slow the phase-out of the car tax or keep it on schedule. Members of the House of Delegates, whose seats are up for re-election in November, sided with Gilmore in adhering to the original schedule, which called for 70 percent of the tax to be eliminated in 2001. In the Senate, whose members are not on the ballot this year, the majority Republicans joined with Democrats in holding the increase from last year’s 47.5 percent rollback to 55 percent. Even extra sessions and bookkeeping gimmicks failed to resolve the impasse. At one point Gilmore tried to raid the state employees retirement fund to finance the car tax refund, but Lt. Gov. John Hager, a fellow Republican who later failed in his bid to become the GOP gubernatorial nominee, ruled that improper. The standoff left Virginia with a $50 billion biennial budget enacted a year ago that contains no money this year for college construction, state employee pay raises or aid to cultural institutions.

When it’s pointed out that his Washington boss compromised on his federal tax-cut proposal, Gilmore still doesn’t blink. "The president didn’t say $1.6 trillion, take it or leave it, that’s our contract with you," Gilmore says. "He had more wiggle room than I did. I didn’t run on ‘some car tax.’ I ran on ‘no car tax.’" Although he has not specifically talked to Bush about his car tax travails, Gilmore says, "That’s part of the reason, probably, why I’m chair of the RNC, because I keep my word and I’m a conservative that pushes conservative principles."

At least for now, the budget mess appears to be a boost for Mark W. Warner. He’s the millionaire venture capitalist running on the Democratic ticket for governor against GOP nominee Mark L. Earley, who resigned as attorney general to devote full time to campaigning. It’s still possible that Gilmore’s car-tax populism will resonate with voters, who may turn out in force for the GOP. To the delight of Democrats, however, the GOP has unwittingly created the image that, after playing second fiddle to the Democrats for a century, they can’t govern.

It’s unfortunate that the car tax meltdown comes just as Gilmore’s national exposure is beginning to change perceptions of Virginia as a former capital of the Confederacy overly enthralled with its past. Waxing philosophic, Gilmore says, "I have tried to change the way Virginia looks at things and get Virginia on the national stage, not characterized as a Southern state, which carries certain connotations in America, but as a leading, progressive state. ... But you can’t do that if you get pigeonholed. The Civil War pigeonholed Virginia back into a backwater of the country at one time. Well, the South is moving and Virginia has to move out of an old-type look and approach, and that’s what I’ve attempted to do."

He admits that he might leave office viewed as "a Johnny-one-note," defending the car tax at the expense of everything else. He would have accomplished more, he said, "if it hadn’t come under assault this year…But we were drawn back by other people, by a direct assault on the tax cut and we had to hold ground," sounding like the army counter-intelligence agent he once was.

Ever the loyal party man, Gilmore blames the minority Democrats. "The Democratic bloc did it deliberately. They did it so they could make a political argument." Then, he concedes, "together with a group of Republicans, that’s true." But the Democrats are "more guilty because the broad base of the Republican party is in agreement on the commitments they made to the public and the underlying policy that it represents," he said. "A tax cut is always good policy. It is the right policy when the president is proposing it, and it was the right policy when we enacted it."

Such passion doesn’t sway business people who are ripping the governor apart. Some wouldn’t speak for attribution. "Gilmore could have had it both ways (reducing taxes and promoting business) and ridden out of town in glory," says a lobbyist for a business group. "The car tax was a brilliant ploy and the terms of its repeal were reasonable. But with the economy in the tank and revenues down, Gilmore went ahead and played hardball. It makes no sense. We expected more from the governor. We expected leadership." He adds: "Many who voted for him are scratching their heads in disgust and looking to the future," believing that either of this year’s gubernatorial nominees will be better for business than Gilmore has been.

A top official at one of the state’s largest industries says: "No one is anxious to bash the governor, especially now that he’s the national party chairman."

Even though most business leaders say the car tax is not a factor in their bottom line, many normally Republican-leaning executives question Gilmore’s judgment in allowing the legislature to go home without enacting amendments to the biennial budget. They perceive Virginia as a low to moderate tax state anyway. What concerns them is that the state may be sacrificing long-term investments that boost business and work force productivity because of short-term political considerations. Robert W. Shinn, a vice president of CSX Corp., observes: "There is a tug within the Republican party between the limited government types, who want fewer taxes and fewer regulations, such as tort reform and environmental curtailments, and a new strand of Republican activists who favor strategically investing in some government functions, such as education, transportation and job training." Steve Walker, president of the Virginia Manufacturers Association, says that while it is his association’s position that the car tax needs to be repealed, "It’s a question of what timetable is most appropriate. I personally disagree with not being more flexible."

Even staunch Gilmore supporter Mike Daniels, the former president of Network Solutions of Herndon who is now senior vice president of SAIC in McLean, says compromise should have carried the day. Daniels describes Gilmore as "a great governor for our state — the real public sector leader in working with us in the technology industry." He believes "Jim was probably right to stick with the car tax." While some of his business friends blame the state Senate, he adds, others "think Gov. Gilmore was just too tough in his positions and that caused part of the problem."

Across the Potomac in Washington, opinions are divided regarding what impact the car-tax battle may have on his national ambitions. One national Republican operative, who lives in Northern Virginia, says he has heard "rumblings at the White House that it’s difficult to have a party chairman who can’t even get along with Republicans in his own state." If Republicans lose the governorship in November, "There will be a lot of finger-pointing. There will be enough blame to go around," says Sen. Kenneth W. Stolle, (R-Virginia Beach), one of the Finance Committee Republicans who opposed Gilmore on the budget.

Even in the House of Delegates, some leading Republicans have misgivings about the outcome. House Appropriations Committee Chairman Vincent F. Callahan Jr., (R-McLean), says, "Gilmore wanted to get on the national scene as the governor who eliminated that tax, but he’s left lots of dead bodies (in cutting service and delaying pay raises) along the way." Even if Gilmore doesn’t get to stay on as national party chairman when he leaves the mansion in January, he may land another job with the Bush administration. One rumor is that one-time Army spy Gilmore could become director of the Central Intelligence Agency.

One of Gilmore’s problems may be that he came to the governor’s office after two of Virginia’s most charismatic chief executives – now U.S. Senator George Allen and Democrat L. Douglas Wilder. Both men confronted intra-party squabbles but managed to compromise their ways out of them. President Bush, for instance, has been known to grab what he can from legislators, declare victory and move on. Yet, Gilmore hasn’t been willing to do the same and for that he’s alternately admired and maligned.

And although he has championed the high-tech industry, Gilmore, according to Del. John A. Rollison, (R-Woodbridge), "failed to make a real effort to generate any real following in Northern Virginia. He is not comfortable with Northern Virginia’s business and political leadership, always considering himself an outsider. There’s a great deal of frustration about not alleviating traffic congestion" in Northern Virginia.

Asked if his frequent commutes to Washington have given him a new appreciation for the nightmarish traffic, the governor replies unsmilingly. "I fly. I fly all the time." Such chutzpah may work well on the car tax, but Gilmore needs to remember that compassionate conservatism is in. Just ask his buddy up in Washington.