CRITICS WANT TO SCUTTLE DEAL TO SAVE CAR-TAX CUT.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - Gov. Arnold Schwarzenegger's $2.6 billion budget deal with local governments, a key part of his balanced-budget plan, came under fire Thursday partly because it permanently protects the car-tax cut he implemented in November.

A leading Democratic budget negotiator, backed by some lawmakers and local officials, said the Republican governor's pact with cities and counties would give constitutional protection to an already dysfunctional state-local government finance system. And, this critic added, it would remove Sacramento's ability to raise vehicle registration fees - as former Gov. Gray Davis did last June - without voter approval.

``Locking in the (vehicle license fee rate) constitutionally is a problem,'' said Assembly Budget Committee Chairman Darrell Steinberg, D-Sacramento. ``There's no reason to do that. It's not part of structural reform. It's not any part of budget savings.''

To help close a deficit projected to hit $15 billion in the 2004-05 fiscal year that will begin July 1, Schwarzenegger engineered a deal with a coalition representing local governments that would cost municipalities $2.6 billion over the next two years, but would gain his support to amend the California Constitution so Sacramento politicians could not raid local funds in the future.

Some county and municipal officials back Steinberg, including Orange County Supervisor Chris Norby and Sacramento City Councilman Dave Jones.

But the coalition that negotiated the agreement with Schwarzenegger denounced the criticism. Mike Madrid, spokesman for the League of California Cities, said opponents of the agreement have mischaracterized it, which he described as the kind of reform local governments want and need.

Los Angeles Mayor James Hahn said he understood Steinberg's concern but wanted to stick with the agreement reached with the governor.

``It is not going to be easy on counties or cities for these next two years, but a lot of us feel it's worth it for the future guarantee that we will be able to keep our money,'' Hahn said.

``I think there will be a lot of opposition to any more changes now. We have an agreement, and local government is looking for guarantees on its funding sources so we aren't further punished by the state. It seems we have to balance our budgets, and when the state has problems it takes our money.''

The administration also stood by the agreement Thursday, saying it is in the best interests of both municipalities and taxpayers.

``Our goal now needs to be getting a responsible budget, (one) that does not increase taxes, done in a timely manner,'' Schwarzenegger's chief budget spokesman, H.D. Palmer, said. ``This agreement is an integral part of getting that done.''

A significant chunk of local funds comes from the vehicle license fee or VLF backfill, a reimbursement the state pays city governments to make up for revenue they lost after Gov. Pete Wilson lowered the annual VLF by 67 percent in 1998 and again when Schwarzenegger cut it in late 2003.

The state has a history of using municipal money - most of which funds police and fire departments and street repairs - to balance its books in times of fiscal crisis.

To prevent that from happening again, the municipal coalition collected enough voters' signatures to place an initiative on the Nov. 2 ballot. But the coalition said it would drop the effort if a satisfactory deal were reached with Schwarzenegger and approved by the Legislature.

Steinberg praised Schwarzenegger's effort in principle, as did others in the group of legislators and municipal officials who joined him Thursday to oppose the agreement. But they said the proposed deal - as it now stands - would fail to fix a government finance system they described as badly broken, and that it would prevent municipalities from eventually increasing their share of locally generated taxes.

Norby and Todd Spitzer, an assemblyman from Orange, are both Republicans but expressed reservations about the deal and joined Democrats, including state Senate Local Government Committee Chairman Tom Torlakson, D-Concord, in calling for it to be rewritten or temporarily abandoned.

Steinberg suggested a temporary measure guaranteeing local governments the money they expect, which he said could be passed in time to meet the June 30 deadline for signing the 2004-05 state budget.

But Assemblyman Rick Keene, R-Chico, speaking for Assembly Republicans, said his GOP caucus supports Schwarzenegger's deal and has no plans to provide the two-thirds vote necessary to reject it in favor of something else.

California League of Cities spokesman Madrid said Democratic disapproval of the deal reflects Sacramento's long history of ignoring municipal concerns.

``As long as the Sacramento politicians control what's happening at the local government level, that's not a reform; that's the wool they're trying to pull over the eyes of the voters.''

Staff Writer Rick Orlov contributed to this report.

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com