FUNDS FOR NEEDY CUT OFF BY 'POISON PILL'.

Byline: Troy Anderson and Harrison Sheppard Staff Writers

In yet another blow to California's cash-strapped counties, local governments have begun losing tens of millions of dollars in health, mental health and social service program funds each month due to a decade-old ``poison pill'' provision in state laws on vehicle license fees.

Los Angeles County received only a partial payment in March and now expects to begin losing more than $30 million each month. Ventura County expects to lose $8 million this year and $18 million next year.

``It will have a devastating impact if it's not addressed soon,'' said Los Angeles County Department of Health Services spokesman John Wallace, who said the lost money pays for the care of hundreds of thousands of indigent patients at county clinics and hospitals.

The blocked funding results from a tangle of state legislation and court decisions going back more than a decade.

A court decision earlier this year could have triggered a further reduction in the vehicle license fee paid by millions of Californians starting March 1, through a change in the depreciation schedule used to calculate that fee, said Department of Finance spokesman H.D. Palmer.

But the state Department of Motor Vehicles blocked implementation of the new schedule through a series of emergency regulations to keep those funds flowing to counties.

The state, however, does not have the authority to continue transferring those funds to local governments. And legislation to grant that authority was killed after it was labeled a tax increase.

``We are supportive of the goals of (the stalled legislation), but we're looking to see if we can develop a short-term fix,'' Palmer said. ``We want to see if we can get to a shorter-term fix that would allow those monies that are currently being collected and held by DMV to (be distributed).''

Although Gov. Arnold Schwarzenegger lowered the car tax immediately after taking office, he does not want it to be lowered further because he has promised local governments that he would honor the state's financial commitments, Palmer said.

Those VLF payments are linked to additional responsibilities that the state turned over to counties a decade ago in exchange for additional funding from the car tax.

Assembly Republican Leader Kevin McCarthy sponsored the bill that would have returned this money to the counties, but withdrew his support when it was analyzed as a tax increase by the state legislative counsel. The governor asked him to carry the bill, he said.

``It was conveyed to me as not being a tax increase,'' said McCarthy, R- Bakersfield. ``When it got scored, it got scored a tax increase. I don't believe in tax increases.''

He has since changed the language of the bill to state the Legislature's intent to keep counties financially whole, but not through the VLF, although he said he doesn't necessarily expect the bill in its new form to move forward.

Meanwhile, county agencies are left scrambling to deal with the reduced funds and wondering whether they'll ever see them restored.

``It could be extremely devastating because that's our basic core funding,'' said Department of Mental Health Director Marvin Southard, who said the funds pay for the mental health care of thousands of adults and children.

Tanya Tull, president and chief executive officer of Beyond Shelter, Inc., a nonprofit agency with offices downtown and in Pacoima whose mission is to combat chronic poverty, welfare dependency and homelessness among families with children, said the news is just the latest in ``one disaster story after another for the poor.''

``For people living in poverty, it's been getting steadily worse. People have been falling off the edge in ever-increasing numbers, losing their jobs, losing their housing, sometimes breaking up families. The elderly are hurting, working families are hurting and I think it's going to get a lot worse before it gets better.

``I've been working in the Third World of Los Angeles for 25 years and I've never seen it so dismal.''

The loss of the funds stems from a 1991 vehicle license fee ``realignment'' program that provided VLF funds to county health, mental health and social service programs, said county Assistant Chief Administrative Officer Sharon Harper.

The realignment program was the result of a 1982 law that transferred responsibility for the indigent from the state to the counties.

``And one of the provisions of that legislation was if anybody sued, took it to court or filed any appeals, that the money would be stopped,'' Harper said.

In 1990, San Diego County sued the state to recover costs for taking care of indigents.

In September, the state appellate court issued a decision allowing San Diego County to recover $3.4 million, a decision later upheld by the state Supreme Court, triggering the poison pill as of March 1.

On March 26, counties received $66 million in vehicle license fee revenues, which represents about half a month's payment. These funds primarily pay for health and mental health programs and counties remain responsible for these costs, regardless of whether adequate resources are received.

County welfare officials said the main program that could be affected by the cuts, providing in-home caretakers for more than 100,000 elderly and disabled people, is an entitlement program the county is required to provide. That means the Board of Supervisors, if the vehicle license fee revenues are not restored, may have to make cuts in discretionary programs like public safety in order to keep paying for the in-home caretakers.

Ventura County Executive Officer Johnny Johnston told the Board of Supervisors on Tuesday that the lost revenue includes $10 million earmarked for the Ventura County Medical Center, $4 million for public health programs and $4 million for mental health programs.

``San Diego County won, and we all lost,'' Johnston said.

Staff Writer Andrea Cavanaugh contributed to this report.

Troy Anderson, [phone]

troy.anderson(at)dailynews.com