Spending Plan Fuels Anxiety

The budget adopted by the state Assembly may have closed the book on an ugly legislative deadlock, but the spending plan has created anxiety and uncertainty for cities, schools and counties in the Inland Empire.

Anticipating heavy cuts by a state budget that had to close a $38-billion shortfall, several local governments in Riverside and San Bernardino counties had set aside robust reserve funds to absorb deep cuts. But the state budget plan leaves a $7.8-billion deficit for the next fiscal year and local officials are worried that they will have to absorb still another blow.

“That is a big concern that as soon as this budget is signed there is another problem right on our doorstep,” said Megan Taylor, a spokeswoman for the League of California Cities.

The budget plan adopted during a marathon legislative session Tuesday is not likely to result in additional layoffs for school districts and local governments -- many already had issued layoff notices after Gov. Gray Davis released his revised budget proposal in May. But many local officials fear the financial crisis is not over.

“It puts us on alert right away since the state budget is starting with an $8-billion deficit. We know that grew like [crazy] last year, and I wouldn’t doubt that it would not happen again,” said Ed Corser, Riverside County’s finance director.

San Bernardino County Chief Administrative Officer Wally Hill agreed, saying he plans to ask department heads to begin reviewing plans for more budget cuts next week.

“The state did not complete the job of balancing the budget,” he said.

Local government officials are so angry about the deep cuts city and county governments must endure that the League of California Cities is considering putting a measure on the November ballot that will try to protect local finances from the state budget ax.

“It is a major effort saying, ‘Leave local dollars local and let local people decide how the money should be spent,’ ” said Riverside Mayor Ronald O. Loveridge. “The state sees cities and counties as ATM sites.”

The biggest hit for most local cities and counties is the loss of a portion of the newly increased vehicle license fees, a major source of revenue for many local governments.

During healthier financial times, the license fee was lowered. To keep that revenue stream flowing to cities and counties, the state agreed to pay the difference that local cities and counties lost due to the fee reduction.

But in June, faced with a historic budget crisis, state lawmakers increased the fees to their pre-1998 levels. The increase won’t take effect until October and until then the state won’t pay the difference between the lower level and the increase. That funding gap will cost cities and counties statewide about $850 million, although state lawmakers promise to repay the revenue in three years without interest.

The reduced license fees will mean a loss of about $22 million for San Bernardino County, $20 million for Riverside County, $3 million for the city of Riverside and $2.3 million loss for the city of San Bernardino.

The budget plan also calls on counties to absorb part of an annual $200-million federal penalty the state must pay for failing to install an adequate computer system to track child support payments. The penalty will cost San Bernardino County $3.9 million and Riverside County $2.5 million.

“It is the best deal we could get, but that is not to say it is a good deal,” said Pat Leary, a legislative representative for the California State Assn. of Counties.

Cities and counties also have to absorb a $135-million cut in redevelopment funding.

Riverside County officials were livid over the cuts.

“It stinks,” Corser said. “They’re ripping us off for $34 million and it’s not our doing.”

The county began building its reserves more than a year ago, when the state’s crumbling finances became obvious, he said. But with the reductions under the proposed state budget, the reserve funds set aside by the Board of Supervisors will be whittled to $9.1 million, Corser said. That’s too small to carry the county through another year of such hits, he said.

Though the state reductions are supposed to be one-time reductions, Corser and other local officials are skeptical.

Hill, San Bernardino County’s top administrative officer, also worries that $26 million in state cuts to the county will soak up most of the $42.5-million reserve amassed by his Board of Supervisors. The county has already issued layoff notices to about 190 employees.

“I’m reluctant to draw down on the reserves because more cuts could be coming,” Hill said.

The city of Riverside, which has about $22 million in reserves, will lose nearly $5 million, including $3.2 million in license fee funds, $600,000 in transportation funds and $800,000 in redevelopment money.

Those cuts will not hamper city services, although the City Council took a number of cost-cutting measures this year.

Palm Springs expects a revenue reduction of more than $1.2 million this year, a big hit for a city with a $47-million operating budget.

Tom Kanarr, Palm Springs’ director of finances and treasury, said he is cautious about whether the state will repay the lost vehicle license fee revenue as promised.

“If they pay it back, that’s one thing. You can temporarily dip into reserves. If it turns out to be a permanent loss that goes away and you never get the money back, it’s greater problem,” he said. “I think that’s a more likely scenario.”

The city of San Bernardino will probably offset its $2.3-million cut in license fee funding by tapping its $7.5-million reserve fund.

Education largely escaped massive cuts, though many school districts started cutting costs in the spring to prepare for the unknown.

Riverside Unified School District will lose $13 million in the coming year, which it planned for earlier this year when it eliminated more than 100 positions and cut athletic programs and other measures, said Deputy Supt. Michael Fine.

Transportation officials were thrilled with the budget deal because they won’t have to mothball a $312-million project designed to relieve gridlock at the interchange of the Riverside and Pomona freeways.

Planners need the California Transportation Commission to approve $26.5 million in funding at a meeting next month to allow construction to begin early next year. If there had been no budget in place, the commission could not have approved the funding, and the project, which has been in the works for more than decade, would have had to have been shelved for a couple years.