Davis Offers Reassurance to Cities, Counties

Gov. Gray Davis vowed Wednesday to balance the state’s next budget without diverting nearly $4 billion earmarked for California cities and counties to cover the cost of a popular tax cut.

Davis told members of the League of California Cities that he is not counting on the estimated $3.8 billion the state pays to local governments in lieu of vehicle licensing fees to balance the state’s books. Lawmakers have cut the fees by 67.5% since 1998--a reduction that is expected to cost the state as much as $4 billion in the 2002-03 fiscal year because it has been reimbursing the lost revenue to cities and counties.

With the state facing a deficit of $12 billion or more, cities and counties have voiced concern in recent months that the state may balk at making up the lost fees.

But Davis said Wednesday that he believes he can present a balanced budget on Jan. 10 without increasing taxes or depriving local government of funding for lost vehicle license fees.

“I am going to treat local governments as a full partner, not a scapegoat,” Davis said. “I do not intend to balance this budget on the backs of local governments.”

The governor stopped short, however, of stating that local governments would be immune from any cuts and suggested he may trim spending on programs that have experienced generous funding increases in the last three years.

“Now that the state is facing some hard times, largely because of Sept. 11, we all have to accept some reductions,” he said.

Davis has already proposed $3 billion in cuts, which lawmakers are scheduled to take up when they return in January.

The Davis announcement came as Democratic lawmakers moved to rescind or at least temporarily suspend the rollback in annual vehicle licensing fees currently enjoyed by motorists.

Assemblywoman Carole Migden (D-San Francisco) plans to introduce legislation that would suspend the vehicle license fee rebate to help the state get through the current budget crisis.

Sen. Dede Alpert (D-Coronado) has been asking city leaders from across California to support restoring the fees in an effort to help the state tackle its deficit and protect funding for local governments.

“I think the kind of services that they provide, including public safety and public health, are really at the top of people’s agenda right now,” Alpert said of local governments. “We have to make sure we don’t take away revenues that allow them to carry out those tasks.”

Steps taken to balance the state budget during the last recession are fanning concerns over funding for local government. Faced with massive deficits, state officials diverted billions of dollars from local coffers during the 1992-93 fiscal year, which threw many local governments into turmoil.

The state’s current fiscal woes, fueled in part by a steep decline in personal income tax revenue, have local governments worried.

The California State Assn. of Counties, for example, has presented state finance officials and legislative leaders with copies of a report prepared by Salomon Smith Barney. It suggests the state could free up as much as $2.3 billion in the next two years by taking advantage of low interest rates and refinancing its general obligation bonds. Under the proposal, the state would make lower debt service payments in the next two years on its general obligation bonds, but would be required to make bigger ones in subsequent years, said Steve Keil, legislative coordinator for the Assn. of Counties.

Assemblyman John Campbell of Irvine, soon the Republicans’ budget leader in the lower house, questioned whether the proposal would help the state.

“I just don’t think playing games by changing borrowing patterns is really addressing the fundamental problems,” Campbell said.

The Davis administration has made clear it plans to balance the budget by cutting spending, borrowing and refinancing debt. Legislative Analyst Elizabeth Hill released a report Wednesday that outlined $1.4 billion in cuts for lawmakers to consider. They included temporarily suspending the governor’s kindergarten through 12th grade performance awards at a savings of $157 million.

The state could secure another $1 billion by suspending employee raises in the areas of health, social services and education and $2 billion by increasing state sales taxes by a half-cent.