Wilson, Brown Break the Ice, Meet on Budget : Stalemate: Talks follow nearly a month of dealing through surrogates. No accord is reached but the discussion is called cordial.

After nearly a month of communicating with each other only through surrogates, Gov. Pete Wilson and Assembly Speaker Willie Brown held face-to-face negotiations on the state budget Wednesday and emerged exchanging pleasantries but reporting no substantial progress.

The two agreed to meet again, perhaps as soon as today, in an effort to hammer out an agreement on how to curtail or possibly end the state’s post-Proposition 13 bailout of local governments.

The local government issue is considered the first major hurdle that Wilson and state lawmakers must overcome before they can fashion a broader agreement erasing the state’s $11-billion budget gap.

Whatever money the state takes from cities, counties and special districts will be used to soften the blow on schools and health and welfare programs--the two other major areas of disagreement between the Republican chief executive and the Democrats who control the Legislature.

“The Speaker and I had what I think was a useful discussion,” Wilson told reporters after the hourlong meeting, which was followed by a session between Wilson and Senate Leader David A. Roberti (D-Van Nuys). “What we are trying to do is achieve some agreement we think can be sold to others.”

Brown described the session as productive and brushed off questions about the apparent warming of his relationship with the governor, which has been chilly since Assembly Democrats blocked Wilson’s effort to cut as much as $2 billion from the public schools.

“Apparently neither one of us has been listening to or reading what each of us has said about the other, because it was a very pleasant meeting,” Brown said.

At stake is $2.8 billion in property tax money now spent by counties, cities and special districts. That money represents the share of the property tax that the state shifted from schools to local government in 1979 to help them survive the property tax reduction enacted by Proposition 13. As part of the same transaction, the state gave the schools more general tax money to make up for the property tax revenue transferred to local government.

Now Democratic and Republican leaders have agreed that the state no longer can afford that bailout and that it should be reversed. The parties are divided, however, over how fast to phase out the support, whether to end it completely and for all local agencies, and whether to give local government greater power to levy sales taxes to make up for what they lose.

Wilson proposes taking $932 million this year from counties and special districts but sparing the cities. Assembly Democrats want to take $1.4 billion from counties, cities and special districts. A two-house conference committee adopted Wilson’s figure but has not settled on where the money would come from.

The distribution of the cut will determine what services eventually fall by the wayside. Counties provide mainly health and welfare services to the poor. Cities use much of their money to provide police and fire protection. Special districts provide everything from libraries to fire protection to street lighting.

While counties have accepted the end of the bailout as inevitable and have tried to shape the compromise to meet their needs, cities have fought it all the way, contending that the loss of funds would cripple them. Los Angeles officials say the city would lose $300 million under the Assembly Democrats’ proposal.

“We cannot afford to lose $300 million, and any state legislator who votes for such a package does not deserve to represent constituents in Los Angeles,” City Councilman Zev Yaroslavsky said Wednesday at a City Hall news conference attended by three other council members.

The officials blasted Assemblyman Richard Katz (D-Sylmar), a potential candidate for mayor of Los Angeles who has supported the Assembly plan. Katz said the City Council members were being shortsighted.

“They are focused on their one little problem in terms of the city budget,” he said.

Times staff writer Louis Sahagun contributed to this story from Los Angeles.