O.C., Cities Fear Big Budget Cuts

Local government officials were plotting worst-case budget scenarios Tuesday as Sacramento lawmakers continued to hold back tens of millions of dollars in vehicle license fees that normally funnel to Orange County and its cities.

At a Board of Supervisors meeting, Orange County’s chief budget strategist said the possible loss of $55 million in car tax revenue, over a period that supervisors expect will continue through March, could force 30% cutbacks in all county departments.

And Laguna Woods may have to lay off half its staff if the state revenue dries up.

Officials wrung their hands Tuesday over California’s bleak financial picture and anxiety grew over how local governments would cope with the loss of vehicle license fee revenue.

The fees are collected by the state and returned to local governments -- and in the case of newer or less economically diverse cities, they can provide the bulk of their revenue.

Former Gov. Gray Davis tripled the fees to help ensure the flow of funds to local governments, but Gov. Arnold Schwarzenegger quickly repealed the increase, resulting in a $4-billion rollback in car taxes.

But neither Schwarzenegger nor the Legislature has resolved how to plug the funding gap to local governments, forcing local politicians to brace for draconian cutbacks.

Even before the current crisis, Orange County cities had planned for shrinking revenue from Sacramento.

To balance next year’s budget, Brea had already planned to lay off 26 employees and freeze salaries. La Palma pared its budget by 5%. And in Laguna Woods, the 4-year-old city limited police services to 18 hours a day.

None of those cuts had anticipated a complete loss of vehicle license fee revenue for three months, which was caused by state officials’ plan to divert all remaining car-tax money away from local governments from January to March to pay refunds owed to drivers who paid the higher car tax before the repeal.

“I can’t say I’m disappointed anymore. I’m angry,” said La Palma City Manager Catherine Standiford, voicing an opinion shared Tuesday by many of her Orange County colleagues.

“The state likes to see cities and counties as their own little personal ATM. If I’d been allowed to do with this city’s budget what they’ve done with the state budget, I would have been fired a long time ago.”

If the state does not come up with a way to make car tax payments to local governments, no city in Orange County would be harder hit than Laguna Woods, a retirement community of 18,000, which receives two-thirds of its $3.8-million operating budget from vehicle fees.

The situation there would be so dire that Councilman Bert Hack, one of the city’s founders, said the unthinkable is being considered.

“We’re preparing for the worst,” Hack said. “We haven’t let anybody on the city staff go. It’s all touch and go. But we could lose up to half our staff and we could disincorporate.”

The city could survive on its $2 million in reserves -- but for only two years. The most pressing problem is public safety coverage, which is already limited. Even so, it represents 25% of the city budget.

Bus service and programs to assist the blind would be among the first to go, Hack said.

County budget director Steve Dunivent told the Board of Supervisors on Tuesday that the loss of car tax revenue may force either across-the-board cutbacks of up to 30% or hiring and spending freezes.

Vehicle license fees are one of the county’s most important revenue streams, bringing in more money than even property taxes in two of the last three fiscal years. The fees are used to make monthly payments on the more than $850 million the county still owes from its 1994 bankruptcy.

With the loss of car tax revenue, the county would have to turn to its operating budget to pay off the bankruptcy debt.

Some county supervisors hold out hope that a compromise will be reached in Sacramento.

“I honestly believe it will be revised.... I think they’ll have to come together,” said Orange County Supervisor Bill Campbell. If the revenues don’t come in, “we’re going to have to start taking action the first of the year.”

In the meantime, a little lobbying couldn’t hurt. Dunivent suggested that the county consider writing or visiting “basically everybody in Sacramento that has a hand in making these decisions.”

Anaheim Mayor Curt Pringle was among a small contingent of mayors who recently lobbied Schwarzenegger to preserve the state’s financial commitment to cities.

The mayors, who represent the state’s 10 largest cities, are supporting a bill by Senate Republican leader Jim Brulte (R-Rancho Cucamonga) to protect local governments, Pringle said.

“With this reduction, Anaheim will lose about $1 million a month in revenues that I personally believe were committed to local governments,” Pringle said.

“Nobody should walk away from a commitment.”

Anaheim has already adopted several cost-cutting measures -- mostly leaving positions unfilled and reducing travel and staff development. Further cuts would be increasingly painful to city operations, Pringle said.

Meanwhile, some cities and counties have said they would consider suing the state for the money, as representatives from the League of California Cities threatened to do.

Others are considering tax increases to help make up the difference, but Aliso Viejo officials said that is not an option for them.

“The ability to tax in a city like Aliso Viejo is nearly impossible,” said City Manager David J. Norman. “People are already paying a Mello-Roos assessment, property tax, sub-community association dues and master community associations. That’s the equivalent of four property taxes. People aren’t going to take any more.”

Brea City Manager Tim O’Donnell said he hasn’t had time to come up with a new plan to balance the budget, but said losing the revenue “would be very bad.”

Employees in Brea have already agreed to a salary freeze and 26 layoffs that will take effect July 1, but aren’t including the latest cuts, which could total $1.2 million.

“It’s terrible,” said O’Donnell, who described the state budget problems as the worst he’s seen in 28 years in city government. “We have a dysfunctional legislature. It’s so blatant. There’s so much political posturing going on.”

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What’s at stake

Unless state lawmakers reimburse local governments for lost vehicle license fees, Orange County cities stand to lose tens of millions in revenue. The county itself could lose an estimated $147,907,760.

Projected loss for fiscal year 2003-04

*--* City Total Aliso Viejo $2,663,160 Anaheim $14,305,946 Brea $1,567,794 Buena Park $3,405,232 Costa Mesa $4,718,738 Cypress $2,010,436 Dana Point $1,530,915 Fountain Valley $2,377,235 Fullerton $5,500,785 Garden Grove $7,197,807 Huntington Beach $8,277,061 Irvine $7,000,671 Laguna Beach $1,034,207 Laguna Hills $1,438,225 Laguna Niguel $2,702,857 Laguna Woods $1,964,708 La Habra $2,586,943 Lake Forest $$3,258,180 La Palma $674,002 Los Alamitos $498,962 Mission Viejo $4,180,047 Newport Beach $3,084,883 Orange $5,655,195 Placentia $2,055,355 R. Santa Margarita $2,763,558 San Clemente $2,336,101 San Juan Capistrano $1,476,382 Santa Ana $14,809,033 Seal Beach $1,049,605 Stanton $1,629,388 Tustin $2,943,533 Villa Park $262,200 Westminstser $3,997,164 Yorba Linda $2,586,518

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Source: www.CaliforniaCityFinance.com