Governor gives emergency funds to local governments
December 18, 2003
SACRAMENTO – Saying he has no choice but to invoke emergency powers, Gov. Arnold Schwarzenegger declared Thursday the state faces a fiscal crisis and ordered payments to cities and counties without legislative approval.
The move comes as local governments throughout California edged closer to fiscal meltdown after losing millions of dollars a day in revenue when Schwarzenegger eliminated an increase in the car tax last month.
“I had to do this,” Schwarzenegger said at a press conference Thursday.
South Lake Tahoe City Manager Dave Jinkens was encouraged by Thursday’s news because the action should help to restore much-needed money. The city relies on $910,000 a year in VLF revenue.
As a $19,300 cost-saving measure, the city will close its offices Dec. 26 and Jan. 2.
Even if the city gets the entire $90,000 a month it counts on, the governor’s emergency measure only takes one step to returning the local government to the black for 2004-05.
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“Even with the (VLF) backfill, we’ll still have a $2 million deficit. We’re only encouraged it’s not 3,” Jinkens said. “The governor’s statement was a signal to us. We were concerned about the commitment because politicians go to Sacramento and make promises. He said he was going to lead the fight and we hope this motivates the Legislature to take this matter seriously.”
Tahoe’s two California lawmakers applauded the move.
“Californians clearly signaled during the recall election that this is the type of leadership they expect and deserve,” said Assemblyman Tim Leslie, R-Tahoe City.
Sen. Rico Oller, R-San Andreas, said this “money from the cuts will be sent directly to where it’s needed the most – to the general funds of California city and county governments.”
On one hand, restoration of the VLF money to El Dorado County, which amounts to $9.4 million, is good news, said Laura Gill, chief administrative officer for the county. On the other hand, cuts to get that money may prove to be a “double-edged sword,” Gill added.
“It appears we’ll get our VLF back but I don’t know at what cost,” Gill said Thursday. “He may be cutting health and human services to get a part of that…My only concern is that in order to get the VLF, the cuts in human services would ripple down to us.”
Schwarzenegger can make the payments because he imposed $150 million in unilateral budget cuts – also imposed without legislative approval. Those cuts include a reduction of .5 percent in the support for the University of California and California State University systems, closing a migrant farmworker housing center and less money for the state Department of Motor Vehicles.
Democrats spent Thursday morning meeting behind closed doors to consider their response.
“My reaction, like a lot of my colleagues, was one of surprise,” said Assemblyman Joe Nation, D-San Rafael. “I think a lot of us are worried about where he’s going to get the money from. I’ve said it before, I don’t think you get yourself out of a hole by digging deeper – his action just means that there will be more devastating cuts down the road.”
Since Schwarzenegger cut the car tax, cities and counties have lost more than $300 million collectively. That money pays for a variety of services but especially for police and fire services.
To make the move without the Legislature, Schwarzenegger is relying on new powers granted the governor in this year’s budget – an agreement struck between lawmakers and former Gov. Gray Davis. The authority will expire on June 30, 2004, the end of the fiscal year.
Although some Democratic leaders have questioned the legality of Schwarzenegger’s move, state Controller Steve Westly – who will be the one to issue the checks to local officials – said he supports the idea and believes it is legal.
“Our police officers and firefighters must not be held hostage,” Westly said. “This is an appropriate but temporary solution.”
In a statement, Assembly Speaker Herb Wesson, D-Culver City, said he does not oppose helping cities and counties keep public safety agencies operating – but the cuts Schwarzenegger intends to impose will have other ramifications.
“The governor is learning that every action on the budget has consequences,” Wesson said. “While the governor’s actions will help out cities and counties get what they need today, I’m concerned that his decision deepens our budget deficit and is bound to hurt someone else tomorrow.”
The declaration of a fiscal emergency did not go unnoticed on Wall Street Thursday. Only moments before the governor held his press conference, Fitch Ratings lowered the state’s bond rating to near junk bond status – the second rating agency to make the downgrade in the past month.
Schwarzenegger shrugged off the downgrade, however, saying that the ratings will rebound when his policies are fully implemented. “They will change their minds very soon, but its too soon yet – I’m not concerned about that,” he said.
Lower credit ratings could cost taxpayers millions of dollars in higher interest costs on the billions of dollars the state will likely need to borrow in the coming months.
The governor and the Legislature now have six months to cut waste and solve California’s fiscal crisis.”
While the new governor had the authority to repeal the higher tax, he cut it without a plan in place for replacing the funds. Schwarzenegger has sponsored legislation to repay cities and counties with reserve funds, but Democrats – who form the majority in both houses – say the state can’t afford the expense without imposing deep cuts that they won’t do.
While many of the cuts to pay for the car tax will come from social service programs, Schwarzenegger said he changed his mind about cutting millions more in services for the developmentally disabled.
Schwarzenegger had proposed only a few weeks ago plans to suspend a civil rights law known as the Lanterman Act, which guarantees care for the disabled.
The governor said Thursday that his proposal for saving $274 million by cutting services to the disabled “slipped through” in the rush to find savings in state government.
Schwarzenegger’s move Thursday comes only a week after a much celebrated bipartisan agreement struck last week between the new Republican governor and Democrats to place a $15 billion bond and new spending limits on the March ballot.
– Staff writers Susan Wood and Greg Crofton contributed to this story