Harbor Dept. Backlash May Cost City $12 Million : Finances: Legal experts say officials misinterpreted law designed to ease losses in state funding. Budget shortfall could force cuts in municipal services.

It was as if dollars had fallen from the heavens when the California Legislature allowed Long Beach to use money from its wealthy Harbor Department to make up for losses in state funding.

But now harbor officials, backed by an opinion from state legal experts, say City Hall misinterpreted the law and took too much money. As a result, the city may not receive more than $12 million it had counted on this year to help pay for services including police and fire protection.

City officials say they are reviewing the law to determine exactly how much the city will lose.

Pending the outcome, City Manager James C. Hankla recently imposed a hiring freeze except for police and fire positions. Cuts in municipal services, from recreation programs to libraries, may have to be considered if the losses are large.

“We would have to go back and open up the budget and do some severe cutting,” Mayor Ernie Kell said last week. “But I don’t see (the City Council) cutting police and fire. I don’t support that.”

The Harbor Department is part of the city, but it is governed by the appointed Board of Harbor Commissioners that jealously guards income from pier leases and tariffs.

State law required that port income be used mostly for port improvements, and not for general city services. But that was before 1992, when Gov. Pete Wilson and lawmakers engaged in a battle over how to balance the state budget.

In the end, legislators decided to balance their budget, in part, by taking property taxes and other revenue that traditionally had gone to cities and counties.

But the Legislature also decided to soften the blow to Long Beach and several other cities by allowing them to take money from their wealthy Harbor Departments for two years to make up for the property tax losses.

Harbor officials complied, if somewhat grudgingly, last year when told that they owed the city $7.8 million. Of that, $5.5 million covered losses of general property taxes and $2.3 million made up for losses in property taxes to Long Beach’s Redevelopment Agency.

But things changed when the city attorney’s office calculated that the city was entitled to $14.5 million this year--nearly twice as much as last year.

Harbor officials went on the offensive, appealing to Assemblyman John Vasconcellos (D-Santa Clara), chairman of the Assembly Ways and Means Committee, to help them determine how much the harbor had to give the city.

“How in the world did it get to $14.5 million?” Harbor Commissioner David L. Hauser asked last week. “We were quite concerned about that figure.”

The port’s tenants, shipping companies and pier operators, also were breathing down the necks of the harbor commissioners. They pay the fees that make up the Harbor Department’s income. And they want that money to be used for port improvements.

Vasconcellos contacted the office of the Legislative Counsel of California, which issued an opinion indicating the city overbilled the Harbor Department $3 million last year. The legislative counsel provides opinions to state lawmakers on the effects of legislation.

The law authorizing the bailout does not allow compensation for property taxes that the city’s Redevelopment Agency lost, among other things, the opinion says.

Following the same reasoning, the city is entitled to just $4.7 million this year. Taking into account the $3 million overpayment last year, the harbor would owe the city $1.7 million this year, harbor officials figure.

Assistant City Manager Henry Taboada said the Legislature’s intent was to pay back the city for all of its property tax losses--including those of the city’s redevelopment agency--but the legislation was poorly written. He said the city may seek a new bill when the Legislature reconvenes in January, allowing the city to receive the full $14.5 million.

“The only remedy you have in a situation like this is to go back to the Legislature,” Taboada said. “In the meantime, we are faced with the uncertainty, so we have to take some measures to reduce spending.”