RICHMOND -- Gov. Bob McDonnell will ask lawmakers to scrap a state budget local-option provision to require public employees to contribute a portion of their pay to the state retirement system.

McDonnell's proposal would give counties, cities and towns less flexibility in balancing budgets already affected by sagging revenues and state funding cuts. Franklin County officials were considering requiring teachers and other public employees to contribute 2 percent of their pay to the retirement system. If lawmakers approve McDonnell's budget change, Franklin County will have to come up with $1 million from some other source, County Administrator Rick Huff said.

McDonnell's proposal would put teachers, sheriff's deputies, police officers and other local employees on the same footing as current state workers, who are not required to contribute their own pay to the Virginia Retirement System.

"Current state and many local employees took their jobs with the expectation that their retirement contributions would come from their employer," McDonnell said. "We cannot turn our back on that agreement. To do so would be unfair to Virginians who work hard for our commonwealth every day."

The General Assembly will act on McDonnell's proposal during its one-day veto session April 21. McDonnell has proposed a series of changes to a state budget plan that contains deep spending cuts to help offset a two-year, $4 billion revenue shortfall.

The budget passed last month by the General Assembly contains a provision giving localities the option of requiring current public employees to contribute up to 5 percent of their pay to the retirement system. Organizations representing teachers, sheriffs and police chiefs lobbied McDonnell to scrap the provision.

"School board employees in many localities are facing pay cuts, soaring health insurance costs and increased responsibilities," said Kitty Boitnott, president of the Virginia Education Association. "Like state employees, many school board employees have not seen raises in years. We asked that the governor endeavor to treat school board employees in an equitable manner in this regard."

Local governments generally supported the change because it would give them another option to reduce costs and avoid layoffs, program cuts or tax increases.

"It was nothing more and nothing less than giving localities the option of making that decision," said Mike Edwards, deputy director for legislative affairs for the Virginia Association of Counties.

Huff said the 2 percent employee contribution proposed in Franklin County would produce about $800,000 in savings for schools and $200,000 for local government. A public hearing on the county's budget is set for Tuesday.

The state began picking up the employee share of pension system contributions in 1983 in lieu of a salary increase. In December, former Gov. Tim Kaine proposed requiring current state workers to contribute 1 percent of their pay toward retirement in 2011 and 2 percent in 2012, but lawmakers rejected the plan.

But lawmakers did approve a plan requiring new state and local workers hired July 1 or later to contribute 5 percent of their pay toward the retirement system.

On Tuesday, McDonnell also announced a budget amendment that would preserve a state tax deduction designed to encourage domestic manufacturing. The General Assembly's budget plan would phase out the deduction by 2014.

McDonnell's administration pointed to some bright economic news Tuesday, reporting that state revenue collections last month increased by 3 percent over March 2009. It was just the third time in nearly two years that the state reported positive monthly revenue growth. But revenue growth for three quarters of the current fiscal year has declined 4.1 percent, worse than the projected 2 percent decline.