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Calif. Mayors Urge Schwarzenegger to Spare Cities

— The mayors of some of California's largest cities on Tuesday asked Gov. Arnold Schwarzenegger to avoid undermining local governments as he and lawmakers seek to close the state's $24.3 billion budget deficit.

Los Angeles Mayor Antonio Villaraigosa led a group of mayors from San Diego, Sacramento and Fresno who came to the Capitol to meet with the governor. They said the state should repay cities if it takes any of their tax revenue.

Schwarzenegger later said nobody is pleased with the state's fiscal condition but that tough decisions have to be made.

In another development Tuesday, the state Senate leader said Democrats were beginning to form their own plan to address the deficit, including fewer cuts than Schwarzenegger has proposed and closing some corporate tax loopholes.

Part of the governor's proposal to eliminate the shortfall calls for the state to borrow $1.9 billion from property tax collections and reduce the local share of the gas tax by $744 million.

The mayors said taking gas-tax money would be worse than borrowing from property taxes because the state would not be obligated to repay it. The state must repay local governments within three years, with interest, if it borrows local property taxes.

"One of our core principles is that any plan that pulls tax revenues from cities must be accompanied by a plan to get that money back into the coffers of local governments," Villaraigosa said during a news conference.

In addition to taking the gas tax from local governments, the Legislature's budget analyst has recommended siphoning even more local money from gasoline sales. It's unclear whether that proposal will be adopted by lawmakers.

San Diego Mayor Jerry Sanders said his city already has cut 18 percent from its $1 billion general fund. The state is threatening to take revenue worth another 7.5 percent.

He said the loss of the gas tax alone would mean 120 fewer police officers and 120 fewer firefighters for San Diego.

"We're here to call on the legislators and to call on the governor to balance the budget without balancing it on the backs of cites, counties and school districts," Sanders said.

Schwarzenegger disputed the claim that public safety would have to be cut if the state reduced gas tax revenue to cities and counties because that money is dedicated for transportation projects.

"One has nothing to do with the other," the governor said.

Michael Cohen, an analyst in the Legislative Analyst's Office, said cities that can defer road maintenance might not be hurt by the state's actions. Others may have to take money away from police or fire services to pay for emergency transportation projects, he said.

Cohen noted that cities still will receive federal money.

Senate Democratic Leader Darrell Steinberg said Tuesday that lawmakers were working on a budget plan that would not require local borrowing.

He said Democrats are working on their own budget plan that closely follows the proposed budget Schwarzenegger introduced earlier this month.

The governor proposed $16 billion in cuts to education, health care, in-home support services, prisons and other core areas of state government. In addition to borrowing from local governments, Schwarzenegger's budget plan calls for a number of other steps to close the deficit.

They include accelerating tax collections - such as those from self-employed people who pay their taxes quarterly - shifting money between various state funds, charging homeowners an average of $48 a year to boost funding for emergency services and allowing limited oil drilling off the coast of Santa Barbara.

Steinberg said Democrats would counter with $13 billion in cuts. He wants to take most of the rainy day fund Schwarzenegger has proposed - $4.5 billion - and apply it to college aid and other programs that otherwise would be eliminated. The governor said Tuesday his rainy day fund is necessary in case the state has a costly wildfire season.

The Democrats' budget plan would prevent the elimination of health insurance for 1 million low-income children, welfare and college fee assistance programs, as Schwarzenegger has proposed.

Steinberg said he will not propose new taxes but would push to close some corporate tax loopholes.

"It would be a mistake, in my view, to lead with taxes," he said.

In February, the Legislature and the governor passed a two-year budget package that contained at least $2.5 billion in corporate tax breaks and credits, including ones for the film industry and a change in the tax formula that will save businesses hundreds of millions of dollars.

Quickly declining tax revenue sent that earlier budget into the red just weeks after it was signed.

Lawmakers face a deadline Monday to pass a budget bill for the fiscal year that begins July 1 and send it to the governor's desk, a deadline they are likely to miss.

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