Immediate Anxiety, Delayed Gratification From Rollback

The $4-billion tax cut ordered by Gov. Arnold Schwarzenegger on Monday brought relief to California car owners, but left open how state lawmakers might now help local agencies pay for police, fire and other services.

Asked where the Legislature would find money to reimburse cities and counties as Schwarzenegger has promised, Senate President Pro Tem John L. Burton (D-San Francisco) said, “He ain’t getting it from me.

“We don’t have the money,” Burton said. “That’s a problem between him and local government.”

Local governments have relied on the vehicle license fee to help pay for police, fire and other services. But many residents objected over the summer when former Gov. Gray Davis hiked the fee by 200%. Without the increase, Davis had said, the state would not have enough money to keep making the payments.

On Monday, Schwarzenegger made good on his campaign pledge to roll back the so-called car tax, lowering by $158 the amount paid by typical California motorists based on the value of their cars. The tax cut takes effect immediately, but because of administrative and legal issues, it could be 90 days before drivers see lower rates in their registration and renewal bills.

Schwarzenegger’s executive order also directed that refunds go to the 3.1 million drivers who have already paid the higher rates -- which have been in effect for only a month -- and that the state continue paying local governments the monthly allotments they were getting from the tax. To do either, however, requires the approval of a skeptical Legislature.

Officials at the Department of Motor Vehicles, meanwhile, are scrambling to determine how to deal with Schwarzenegger’s order. They have been given no instructions on when exactly drivers should begin paying the lower rate.

“Everything is up in the air until we get instructions from the governor,” said DMV spokesman Bill Branch. “Unless and until they receive instructions to the contrary, our advice to drivers is to play it safe” and pay the full rate on their bill.

Branch said that not doing so could quickly result in penalties that offset the savings from the tax break. Paying a car tax bill more than a month late results in a penalty of 60% of the original bill, plus $30, he said.

As local officials nervously expressed hope that the new governor would keep his promise to make them whole, leaders of the Democratic-controlled Legislature said they had seen no plan for doing that and warned that they would resist cutting other services to come up with the roughly $3.2 billion to compensate for the rest of this budget year.

“For the life of me, I can’t figure out how they’re going to do it when they’re already on their rump,” said Larry Parrish, the chief executive officer of Riverside County. “God love ‘em.”

The car tax was a central issue in the campaign to recall Davis, whose administration raised it by executive order in June, tripling the fee paid by motorists to help plug a $38-billion budget gap.

“Hard-working Californians who want safe, reliable transportation for their families were hit especially hard by this regressive tax,” Schwarzenegger said in a statement after signing the order shortly before 12:30 p.m. “Now, they will have more money in their pockets to pay for needed goods and services.”

Since the car tax rate went up Oct. 1, the state has collected nearly $500 million in higher license fees. Most of that has already been sent to cities and counties, according to officials at the state controller’s office.

Los Angeles County, the state’s largest jurisdiction by far, stands to lose $700 million per year if the state fails to replace its car tax revenue.

The money pays for many basic services, such as sheriff’s patrols and jails, beach lifeguards, public parks and libraries, probation camps for juvenile offenders, and prosecution of crimes by the district attorney.

“We can’t raise taxes, so our only option is to cut services,” said David Janssen, Los Angeles County’s chief administrative officer. “It would have a devastating effect on Los Angeles County, primarily on public safety, parks and libraries.”

Some or all of the money could be provided through a proposal Schwarzenegger aides said he would unveil today to borrow billions from private investors and pay it back in coming years. Although the administration is declining to offer specifics on the size of the borrowing plan, advisors who worked on it have suggested it could be as high as $20 billion.

Democrats have expressed reluctance to sign off on such a proposal, and some are gearing up to again push for taxes on the wealthy, tobacco and sales -- as they did last year. They note that the interest costs on a 30-year bond of that size could be another $20 billion, and that borrowing does not close the deficit, but pushes it into the future.

“The question is, if he can find a way to get Republicans to agree we need to pay $2 for every $1 in services for 30 years,” said Sen. Richard Alarcon (D-Sun Valley), “then why can’t he find a way to come to the conclusion that paying a dollar today is worth $2 in the future?”

Many drivers have been eagerly awaiting the promised tax cut. Vehicle sales in California were down 33% in October, three times the rate that they dropped nationwide, according to the California Motor Car Dealers Assn. Officials there suggested that the decline was a result of buyers in California waiting for Schwarzenegger to bring the tax down, as he did Monday.

Now local governments are eagerly awaiting details on how their payments will keep coming.

The governor “has assured us that we will not be hurt,” said Los Angeles County Sheriff Lee Baca. “I think there will be some creative backfilling going on.”

Others weren’t so sure, particularly given the lack of detail that accompanied Schwarzenegger’s move.

“I’m very concerned,” said Los Angeles City Councilman Tony Cardenas, a former state assemblyman who chaired the Assembly Budget Committee. “He made a campaign promise without thinking about the consequences.”

Not all of the local governments use the money for firefighting. Some areas, such as Los Angeles, Fresno and San Diego counties, have set up special districts that fund fire protection through property taxes.

But for those that use general fund money to fight fires -- such as Riverside County, which lost 17 houses in the recent wildfires, or the city of Los Angeles, home to 3 million people -- the reduction in the vehicle license fee could take millions of dollars away from their fire departments.

For the city of Los Angeles, the tax cut will result in a 5% across-the-board budget cut if the state fails to make up the difference, according to City Administrative Officer Bill Fujioka.

The city already endured a $44-million loss this year due to a three-month delay in collecting the increased revenue from the tripling of the car tax. Statewide, local governments lost about $1 billion during that funding gap, although the state has promised to repay them by 2006.

Los Angeles city officials are considering joining a lawsuit to block the tax repeal if alternate revenues for cities are not earmarked, Cardenas said.

*

Times staff writers Patrick McGreevy, Dan Morain, Jeffrey L. Rabin and Nancy Vogel contributed to this report.