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L.A. County threatens to withhold revenue from state

Citing a $106 million budget deficit, supervisors threaten to retain funds that should go to Sacramento in order to pay for local health and social services.

February 04, 2009|Molly Hennessy-Fiske

Los Angeles County supervisors threatened Tuesday to withhold county revenues from the state to pay for local health and social services, a move they say they have been forced to consider because Sacramento's budget stalemate has left them $105.6 million in the hole.

"We're declaring our own Boston Tea Party," Supervisor Gloria Molina said during Tuesday's board meeting, adding that refusing to turn over the money to state lawmakers "will make their pain more acute."

But it may not be legal, or, for that matter, practical.

"It's a delicious idea," said Supervisor Zev Yaroslavsky. "It may be deliciously illegal, but I think the state's action may also be illegal."

As of Sunday, the state controller had delayed more than $100 million in health and human services payments to the county for at least a month. Such delays are also affecting the rest of the state's 57 counties. Locally, county leaders have so far opted to cover the delayed state payments with reserves.

But as Tuesday's warning shot indicates, they are open to other solutions.

Supervisors gave William T Fujioka, the county's chief executive, as well as the county counsel and the auditor controller, two weeks to explore the legality of withholding money -- including state reimbursements and property and sales tax revenue -- from the state.

Much of the county's tax revenue could not be withheld for the simple reason that it is collected directly by the state -- as is the case with income and sales taxes.

Still, the county controls billions of dollars in property taxes and millions of dollars in state reimbursements, said John Naimo, assistant auditor controller.

Naimo said his office was investigating whether that money, including $120 million in court maintenance payments due to the state this spring, could be withheld. The board plans to reconsider withholding state payments during closed session next week.

County Counsel Ray Fortner said he has been researching "for some time" whether the county could legally keep money it owes the state given that the state is currently withholding money from the counties. Fortner, however, said he had not yet reached a conclusion.

A spokesman for Gov. Arnold Schwarzenegger warned that such a game can be played both ways. If L.A. County holds on to the state's share of taxes, said H.D. Palmer, a spokesman for the state Department of Finance, the state can withhold an equal share of the county's sales tax revenues.

"The state has the ability to compensate for any action that might be taken on the local level," Palmer said.

Supervisors have said they will be unable to cover an ongoing shortfall in social service funds if the governor follows through with plans to defer an estimated $1.4 billion in state welfare and other social services payments to the county during the next seven months.

The county already had to transfer $29.1 million from its reserves last month to cover increasing costs for welfare and construction projects, and supervisors have said they may have to cut services and jobs next month if state lawmakers do not take action.

"If they can defer our money, why can't we withhold theirs?" said Supervisor Don Knabe, who chairs the board.

Knabe and Supervisor Mike Antonovich said the county should try to withhold the money to cover programs the state has delayed funding.

"If it's legally possible, we ought to use all resources possible to protect the public safety of Los Angeles residents," Antonovich said.

Withholding state payments is not really an option for most counties, said Paul McIntosh, executive director of the California State Assn. of Counties.

McIntosh said most counties pay very little to the state, mainly through court maintenance, fines and forfeitures. By law, counties face heavy penalties if they withhold those payments, about 18.5% of what is owed per day, he said.

"While I am sure many counties are expressing their frustration and thinking about such steps, when they consider the implication, I do not think any counties will take this action," McIntosh said.

Counties may find other ways to fight the state.

Riverside County supervisors voted Tuesday to take legal action, possibly with other counties, to force the state controller to release delayed payments and to prevent the county from having to pay for state programs the state stops funding.

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molly.hennessy-fiske@latimes.com

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