City Drops Plans for Utility Tax : Budget: The levy would have raised $1 million. However, future needs could easily help resurrect the proposal.

Hopeful rumors from afar did what angry residents had been unable to do up close: They got the West Hollywood City Council to abruptly drop plans for the city’s first utility tax.

The surprise action, which came when the council on Monday approved a $39.8-million city budget for the next fiscal year, capped a frantic day as officials tried to divine local meaning from swirling state budget deliberations 380 miles away in Sacramento. In the end, the council decided to bank on sketchy reports that state budget cutbacks won’t hit the city as hard as once feared, making a new $1-million utility tax unnecessary--at least for now.

The approved local budget--$35.9 million in operating expenses and $3.9 million for capital projects--calls for a half-percent increase in the city’s hotel tax while holding spending flat in most city departments.

The 5-0 final vote to approve the budget without the utility tax disguised a noteworthy split within the normal council majority. Councilwoman Babette Lang broke with her usual allies, leaving Councilman John Heilman and Councilwoman Abbe Land, both of whom wanted to keep the tax, on the losing side of the debate.

Lang, joining forces with Mayor Sal Guarriello and Councilman Paul Koretz, favored waiting for the final state budget before moving forward with a new tax. The city budget had included the 4% utility levy to make up for an expected loss of up to $1.2 million in property taxes allocated by the state.

The 4% tax on electricity, telephone and gas bills would have faced a separate vote after summertime hearings. The budget takes effect July 1.

“We can always do it,” Lang said of the tax. “We’re not going anywhere. I don’t see any point in doing it until it needs to be done. We don’t have to panic.”

Heilman, who went along with the budget approval after registering objections to erasing the tax, said the move simply put off the search for a new long-term cash source in the face of dwindling revenues from the state in the future.

“Even if the state does nothing, we’re still going to be in the position we’re in now,” Heilman said. “We’re delaying something we should be dealing with now and avoiding our responsibilities.”

Heilman said the council already had cut as much as possible from the budget and weathered the criticism of residents and business leaders who oppose the utility tax.

There may be political benefits in delaying the tax, though.

If losses from state budget actions turn out to be negligible, council members have avoided enacting a controversial new tax with municipal elections 10 months away. If a tax is needed to make up for state reductions or losses in coming months, officials can steer the blame more directly to Sacramento.

“We could call it the Pete Wilson-Willie Brown utility-users fee,” quipped one city official, alluding to the deal between the governor and Assembly speaker that produced the budget package.

City officials for months had sought to sell the tax as a necessary, if unappetizing, way to brace for expected losses in state-distributed property taxes. Last year, state cutbacks cost West Hollywood more than $500,000, and officials were bracing for much bigger losses this year.

But as the state Senate prepared to vote on a budget package Monday (the chamber eventually passed it early Tuesday), the city’s lobbyist in Sacramento sent back word that the projections may have been too gloomy. The lobbyist reported that shortfalls caused by moving property taxes away from municipalities probably would be at least partially covered through state sales taxes and other funding transfers, though details remained skimpy.

Guarriello saw the news as an opportunity to dump the tax, which he had vehemently opposed from the start. He got his break at the council meeting that evening, when Koretz and Lang, both of whom previously had grudgingly gone along with the tax plan, cited the rosier projections in calling for a delay in the new levy. That left Land and Heilman in support of the original plans to put the tax in the budget and schedule special hearings.

Land said she feared temporary local shortfalls resulting from state budget action. “There might be gaps in services, and I’m really concerned about that,” she said.

The half-percent increase in the hotel tax will generate another estimated $200,000 a year. The council must hold public hearings before it can be approved.

The new municipal budget reflects a series of cutbacks forced on the city by a stubborn recession and loss of state funds. Spending was held flat or lowered in almost every department--even for the city’s cherished social services, which underwent a 5% cut.

In earlier budget sessions, the council had cut about $1 million in spending, but that eliminated only half of a shortfall that was once projected to be about $2 million. The rest would be covered by the proposed utility tax, which would have cost West Hollywood residents an average of $43 a year. The tax was expected to bring in about $1.4 million a year. Officials estimated that it would draw only $1 million next year because it would not take effect until months into the new fiscal year.