ARNOLD FLEXES MUSCLES GOVERNOR WILL BYPASS LEGISLATURE TO BAIL OUT CITIES.

Byline: David M. Drucker and Harrison Sheppard Sacramento Bureau

SACRAMENTO - Blocked by Democrats from honoring his promise to fund local services, Gov. Arnold Schwarzenegger today will bypass the Legislature to reimburse cities and counties some of the money they were losing due to his repeal of the tripling of the car tax, administration sources said Wednesday.

Using new unilateral authority granted to then-Gov. Gray Davis earlier this year, Schwarzenegger will order an ``emergency expenditure'' so that local communities will begin receiving the $2.6 billion they are due from the vehicle license fee.

He will also order $150 million in immediate cuts to health and welfare services that do not require legislative approval, even as the Legislature has ignored his proposal for $1.9 billion in midyear cuts from similar programs.

``Cities and counties have made it clear that uncertainty over the backfill money is causing them serious financial concerns, specifically as they pertain to public safety,'' an administration official said. ``The governor is using the authority given to him by the Legislature to make that backfill happen.''

Schwarzenegger is scheduled to provide details today, but sources late Wednesday said his finance director will declare the funds due cities and counties to be an ``emergency expenditure'' and order the state controller to make the full payments to them beginning with $40 million they are scheduled to receive on Dec. 26.

Local officials had planned to sue the state for these funds, but sources said the governor's action was not in response to the lawsuit threat. He wanted to help local communities head off disastrous cuts they were considering in their police and fire services if they do not receive the funds from the state's car tax revenue.

Local officials were cautiously optimistic after hearing of Schwarzenegger's move to keep them whole, but they wanted more details before specifically endorsing his action.

``Funding from the state for our police and fire departments is something that is really important to Mayor Hahn, so he's looking forward to hearing the details,'' said Julie Wong, a spokeswoman for Los Angeles Mayor James Hahn, who is scheduled to meet with Schwarzenegger today in Sacramento.

To prevent his action from adding to a state deficit already projected to hit $29 billion next year, Schwarzenegger is using a gubernatorial authority created in the 2003-04 budget act to cut $150 million from current expenditures without legislative approval. That law allows the governor to unilaterally cut up to 5 percent of any line-item expenditure in the budget.

It is then up to the Legislature to come up with $2.5 billion in cuts by March 1, the remainder of the ``deficiency'' caused by the governor's move to keep money flowing to local governments. The $150 million in unilateral cuts will come from the $1.9 billion in cuts he proposed in November that the Legislature refused to consider in the recent special session.

Facing a $38.2 billion deficit last June, Davis tripled vehicle registration fees to add an estimated $4 billion to the state budget this year.

The increase outraged the public, and then-candidate Schwarzenegger promised to rescind it if voters recalled Davis and elected him. Schwarzenegger reduced the car tax within hours of being inaugurated on Nov. 17 and asked the Legislature to appropriate money to keep local governments properly funded. But the Democratic-controlled Legislature refused.

So today, using a statute that allows the administration's finance director Donna Arduin to declare a fiscal emergency, Schwarzenegger is ordering the reimbursement money to be paid immediately to municipalities in a way that eliminates the need for legislative approval.

``The governor called for moving that legislation to provide the backfill. That didn't happen, therefore the governor'' is bypassing them, the administration official said.

Although original estimates pegged the total vehicle license fee backfill funds due local governments at $3.6 billion, the administration said revised car sales figures have changed that number to just over $2.6 billion for the nine months it would have applied this fiscal year.

Democratic state Controller Steve Westly indicated in a brief statement Wednesday evening that he will not try and thwart the Republican governor's action by holding up the payments. By law, Westly is responsible for managing Sacramento's cash flow and signing all checks paid by the state.

``Our police officers and firefighters must not be held hostage,'' Westly said. ``This is an appropriate but temporary solution. The governor and Legislature now have six months to cut waste and solve California's fiscal crisis.''