County Loses 1st Round in Halting Tax Transfer : Budget: Judge rules that the state has the right to take local revenues. On the heels of that setback, the Board of Supervisors makes deep cuts in health and welfare programs.

The Los Angeles County Board of Supervisors on Wednesday lost the first round in its lawsuit to stop the state government from taking $500 million in local property tax revenues and shortly after adopted sweeping budget cuts in health and welfare programs.

In its second day of budget deliberations, the county board also agreed to restore nearly $100 million to the sheriff and district attorney, although the supervisors stopped short of giving either official all the funds he had requested.

Supervisors voted to close four of six comprehensive health care centers--Hubert H. Humphrey, H.C. Hudson, Long Beach and Mid-Valley--and to cut General Relief payments to the state minimum.

But the board rejected proposals to levy new local taxes.

The tools of the session were traditional and low-tech: a marker and a blackboard, on which millions of dollars were added and subtracted.

Faced with dwindling options, the supervisors toted up available funds and identified a pool of $80 million that could be used to plug some of the gaping holes in their $13.1-billion budget.

Budget analysts say the county is about $1.6 billion short of what is needed to provide a reasonable level of services.

Wednesday’s actions--which could be reversed--were the first steps in completing the budget, a task not expected to conclude until at least the end of the week. Money could still be added to, or cut from, just about any program.

In the court decision Wednesday, Superior Court Judge Diane Wayne found that the state’s plan to transfer local property taxes to school districts is constitutional.

County officials plan an immediate appeal. “We regret the ruling went against us, but the judge has done us a service by expediting the decision,” said Assistant County Counsel Fred Bennett.

“Today is a step back,” said Supervisor Mike Antonovich. “But if the courts follow the law, we ought to prevail.”

State officials said they were encouraged by the decision. “It’s a very strong and direct ruling . . . that sends a very clear signal,” said H.D. Palmer, assistant director of the state Department of Finance.

The county based its case on three arguments: that Proposition 13 prohibits the state from allocating local property taxes, that Proposition 98 requires the state to fund education solely with state taxes, and that the principle of home rule gives the county authority to finance local affairs without undue influence by the state.

But the judge rejected all three points and disagreed with the county’s contention that the state acted on a whim in taking such a large portion of its property tax.

“The money is not being spent by whim, but rather, by the state for a constitutionally mandated expenditure--schools,” Wayne said in her opinion.

San Diego, Contra Costa and Kern counties have also sued to block transfer of local property taxes to the state. Los Angeles’ suit is the first to be heard and ruled on. But the decision does not necessarily decrease the chance that the other counties will prevail, said Dan Wall, a lobbyist for the California State Assn. of Counties.

“Presumably, local judges are autonomous, and it is possible for a judge somewhere else to render a decision that conflicts with the one issued in Los Angeles,” he said. “But there is a serious issue here. There is a legitimate fear on the part of boards of supervisors that they will not be able to carry out the powers of office because they can’t get the revenues to deliver services.”

As the county pieces together its budget, there could be other legal obstacles.

The welfare cuts endorsed by the board Wednesday, especially the 27% cut in General Relief benefits, seem certain to be challenged in court.

The General Relief cuts are “not only inhumane, but also illegal,” wrote Robert D. Newman, an attorney for the Western Center on Law and Poverty, in a letter to the board. “If, however, the Board of Supervisors does adopt these cuts in the (General Relief) grants, then our office and other advocates for the poor in this county will bring the appropriate legal action.”

If adopted as part of the final budget, monthly General Relief payments would drop from $293 to $212--the legally mandated state minimum. But Newman’s group argues that the $81 cut would violate various federal guidelines and court rulings.

Most supervisors said they are also unhappy with the General Relief cuts, but added that they are willing to take their chances in court rather than maintain General Relief payment levels at the expense of health care, law enforcement, cultural programs such as libraries and museums, and recreation services, including lifeguards.

The board is required by law to formalize its budget by Aug. 31 but is allowed extensions under a variety of circumstances, according to the county counsel’s office.

As the supervisors deliberated in public session Wednesday, their staff continued working behind the scenes to reach compromises on a range of budget issues, including restoration of funds to libraries, additional funding for the Sheriff’s Department and funding lifeguards beyond Sept. 30.

Supervisor Deane Dana said that the groundwork has been laid for agreement and that the time had come to talk hard numbers.

One number being bandied about is $20 million, the amount of additional funds that may go the Sheriff’s Department, board sources said.

Although they rejected any new local taxes, the board is tentatively supporting a state measure on the November ballot to maintain an existing half-cent sales tax that is scheduled to expire Jan. 1. The tax would raise $200 million for public safety projects in the county.

In his monthly news conference Wednesday, Sheriff Sherman Block said: “I’ve had conversations with individual supervisors as recently as late last evening. . . . Right now, we’re $31 million (short of his full funding request), and that translates into closure of facilities. There is no other way to accomplish those kind of cutbacks.

“I think that everyone pretty much realizes that without an adequate level of public safety, everything else is going to fall apart,” he added. “If you’re going to have an orderly society, if you’re going to have social order, or social well-being, it must be built on a foundation of social order. . . . I would say that we’re first in the line of defense.”

Times staff writer Kenneth Reich contributed to this story.