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THE STATE BUDGET CRISIS

Loss of Vehicle Fees Could Drive Some Cities to Brink

January 17, 2003|Kimi Yoshino and Jean O. Pasco | Times Staff Writers

For California's newest and poorest cities, the debate over whether to help balance the state budget by shifting vehicle license revenue away from local governments holds dire consequences, with officials contemplating deep cuts and even bankruptcy.

The cities -- which range from upscale suburbs such as Laguna Woods and Canyon Lake to poor Central Valley farming towns such as Parlier and Orange Cove -- rely much more heavily than most cities on vehicle license fees to fund municipal services.

Gov. Gray Davis has proposed reducing the amount of vehicle license revenue that cities receive by two-thirds. The average California city relies on the fees for 16% of its budget; about two dozen cities count on the fee for from 35% to 64% of their budgets.

Leaders of some cities say the Davis plan would slash their operating budgets by half, forcing deep cuts in services -- and perhaps forcing some into bankruptcy.

In response to these grim predictions and others, Democratic legislators this week called on Davis to raise the vehicle registration fees in order to avoid forcing cities and counties to make deep cuts. But Davis said he is reluctant to raise the fees, and Republicans are also opposed to the move.

As the Legislature debates, officials in towns such as Orange Cove worry about slipping through the cracks.

A citrus farming town that is ranked as one of the state's poorest, it stands to lose $498,834 over the next 18 months, roughly 40% of its operating budget. There is no economic base that can make up the difference, officials said.

The Fresno County town of 8,000 depends almost solely on agriculture and the whims of the weather, with rain and freezing temperatures swelling the ranks of unemployed farm workers. The city can't even consider raising water or trash rates to boost revenue because many cash-strapped residents are already months behind in their payments, Mayor Victor Lopez said. "If they do this, we're over with," Lopez said. "We're not going to survive, bottom line."

Slashing Programs

Laguna Woods, one of three newly incorporated cities in suburban south Orange County, may have to slash all recreational and social programs -- or possibly unincorporate if things get too bad.

In total, local governments would lose $4.2 billion in vehicle license fees over the next 18 months, according to Davis' budget proposal.

"Some cities are not going to be able to provide basic services," said Michael Coleman, a budget consultant for the League of California Cities.

Poor cities are being hit hard because they lack a strong tax base. They have little industry or tourism and few, if any, shopping centers. As a result, their biggest source of funding is the vehicle license fees.

The fees are based on population, not the number of vehicles in a given city. Rural towns with prisons, such as Calipatria, Wasco and Avenal, face a worse crunch because the state allows them to count the prison population when calculating the amount of fees they receive.

Calipatria, an agricultural town that has little more than a grocery and hardware store, has a population of about 7,500 -- though 4,000 are inmates at the state prison. The city may lose $447,509 over the next 18 months, about half of its operating budget. The loss is equal to what it spends on the Police Department, with its chief and four officers, and part of the Fire Department. The city's reserve is only $20,000, so all contingencies are being considered, including bankruptcy.

"We're to the bare bones," said Calipatria Finance Director Katherine Lopez, who alongwith the city manager, an office assistant and a part-time city clerk make up the city staff. "I don't know how much is left to cut."

New cities face similar challenges. To help new cities get on their feet, state law permits them to initially triple the number of registered voters they count when determining the amount of vehicle license revenue due them. This leaves them highly dependent on the fees. These cities have a harder time falling back on other revenue because, under state law, they must share a greater amount of property and sales taxes with counties than older communities.

No city in California relies more heavily on vehicle license money than Laguna Woods, where the average resident age is 78. The city, located mostly inside the gated senior citizen community of Leisure World in south Orange County, was incorporated in 1999.

Of the city's $3.9-million operating budget, 65% comes from license fees passed down from the state. The city also gets some money from sales taxes and a small slice of property taxes.

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