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Davis Yields in Fight for Local Funds

He admits plan to keep $4 billion in annual payments to cities and counties is dead. The state now has to find that much elsewhere.

January 30, 2003|Gregg Jones, Nancy Vogel and Carl Ingram | Times Staff Writers

SACRAMENTO — Gov. Gray Davis acknowledged Wednesday that his proposal to end $4 billion in annual car tax payments to local governments is all but dead in the Legislature.

If so, the governor and lawmakers would be forced to find another $4 billion in spending cuts or tax increases to balance the budgets for this year and next, and an increase in the vehicle license fee -- so far opposed by Davis -- would become more likely.

After meeting with Los Angeles Mayor James K. Hahn and mayors of five other major cities Wednesday afternoon, Davis told reporters "there's no indication" the Legislature would approve his proposal to cut the payments the state has made to local governments for four years.

"No such vote has passed," said Davis. "No such vote has come close. No such vote is likely to come close in the foreseeable future."

In 1998, the state reduced the vehicle license fee, money that goes to cities and counties, by two-thirds. At the same time, the state made up the difference to them. It's that "backfill" that Davis now proposes to eliminate.

The proposal was a key element of the governor's plan for bridging a budget shortfall estimated at more than $26 billion over the next 17 months. Local government officials said losing the $4 billion in backfill payments would devastate city and county budgets and jeopardize public safety.

Feeling the pressure from local governments, the Democratic-controlled state Assembly is attempting to force the governor's hand by linking an increase in the vehicle fee with $3.5 billion in cuts the governor wants in the current state budget. The Assembly approved legislation Tuesday that made the cuts contingent on an increase of most vehicle fees to the 1998 level, which is 2% of a car's value. Tripling the car tax would add $124 to the license fee paid by the owner of a vehicle valued at the state average of $9,200.

In a further bit of legislative ingenuity, Democrats exempted vehicles sold for less than $5,000 from the proposed increase and declared their assessment a "levy" rather than a "fee." Unlike a fee, a levy takes effect immediately and can't be overturned by referendum -- a course of action that Republicans and taxpayer groups are threatening.

Senate leader John Burton (D-San Francisco) said the Senate would consider similar legislation next week.

The mayors also met with legislative leaders as they stepped up pressure on Davis to abandon his proposal to end the assistance to local governments or raise vehicle license fees by an equal amount.

"What we're saying is you cannot balance the state budget entirely on the backs of the cities," Hahn said after the meeting with Davis.

Agreeing to Disagree

Hahn described the meeting as cordial, but he said Davis "was very clear with us that he's very reluctant to support" higher vehicle license fees.

Davis says he opposes the proposed tripling of vehicle fees, but he won't say whether he intends to veto the measure if it reaches his desk.

The governor also warned Wednesday that the state probably will have to borrow money from Wall Street at the end of the fiscal year in June to meet its obligations as the government starts the new bookkeeping year on July 1.

Davis did not indicate how much may have to be borrowed, but that it would be done by the sale of state "revenue anticipation notes," a short-term loan device that has been used in the past to provide capital needed at the start of the new fiscal year.

The loans would be paid off at an unspecified interest rate when state revenues improve.

The governor said California finance officials will travel to Wall Street next week for an annual conference with credit rating agencies, where they will detail the state's troubled fiscal condition.

Because the state's credit rating may be at stake, Davis indicated that the meeting would provide additional pressure on lawmakers to move swiftly on budget cuts, and that they may need to be far more severe than lawmakers have been willing to be so far.

He warned that before they loaned the money, bankers would demand proof that the state could pay off the loans.

"They [bankers] don't want cuts that are problematical. They want cuts that are real," Davis told reporters at an impromptu press conference following his meeting with the mayors.

Oakland Mayor Jerry Brown, the former governor, suggested that local governments will ultimately hang on to their $4 billion in annual "backfill" payments from the state because Davis can't end the payments without a change in the law -- and the Legislature won't send him the legislation that he'll need to change the law, said Brown.

The mayors warned of potential catastrophic cuts in local services, including police and fire protection. Local governments and representatives of police and fire units from around the state have descended on the Capitol in large numbers in recent days to pressure the Legislature to either scrap the Davis proposal or increase vehicle license fees to make up for the loss in state funds.

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