Lawmakers and Gov. Arnold Schwarzenegger propose to balance the state’s budget using local property taxes, redevelopment agency money and gas taxes that has city leaders crying "lawsuit.”

Even state Sen. Leland Yee, D-San Francisco/San Mateo and state Assemblyman Jerry Hill, D-San Mateo, who will both vote yes on the current budget to avoid issuing additional IOUs to state workers, call the budget problematic or simply bad.

"It’s just terrible in every angle you look at it,” Hill said.

The budget, Yee said, denies services to the most vulnerable among us.

"My problem is this is not a good budget. It denies local cities about $2 billion,” Yee said.

And the League of California Cities is threatening to sue the state once Schwarzenegger signs the budget on the grounds the raids on redevelopment agencies and local gas taxes have been ruled illegal by the courts.

"By relying on illegal mechanisms and fund shifts, this budget resembles a Ponzi scheme that the League of California Cities condemns in the strongest possible terms,” the League declared in a statement yesterday.

For cities such as San Mateo and San Bruno, the raid on local taxes means layoffs loom and services face elimination.

San Mateo is already in a $4 million hole after cutting more than 10 percent from its fiscal year 2009-10 budget or another $4 million. The city is relying on taxes to pass in November to help balance its budget.

The budget, however, did not take into account any state raids on the city’s coffers, said San Mateo Finance Director Hossein Golestan.

Golestan anticipates the state borrowing $2.8 million in property tax revenue allowed by Proposition 1A, taking $3 million in redevelopment agency money and another $3.2 million in local gas tax money over the next two years.

"We are going to have to go back and make adjustments. It will be very painful,” Golestan said.

The state is simply passing off its financial problems to local governments, San Mateo City Manager Susan Loftus said.

"We find it unconscionable that the state is unwilling to do the difficult work that local governments continue to have done over the years — find a way to balance their own priorities instead of shifting the responsibility to cities,” Loftus said.

In San Bruno, City Manager Connie Jackson anticipates losing about $1.5 million to the state this year. San Bruno trimmed $2 million from its budget and eliminated 10.5 full-time jobs to balance its fiscal year budget 2009-10.

"The city will be seriously impacted,” Jackson said. "The state is irresponsible, ill-advised and its actions are illegal. Additional cuts will mean layoffs.”

The impact on San Carlos’ budget will be about $2.5 million, said Assistant City Manager Brian Moura.

"They are running out of things to take from cities,” Moura said. He said, however, the one good thing about the state’s raid on local taxes this year is that the state cannot come back asking for the same money for another three years.

The Proposition 1A funds should be paid back with interest to cities, too, but local leaders aren’t depending on it.

Burlingame is facing a property tax hit of about $1.2 million and a gas tax loss of $480,000, said City Manager Jim Nantell.

"We will be recommending that we use reserves for this one-time takeaway. If we have to cut rather than use reserves it will be a big hit on all departments including police and fire,” Nantell said.

Although education will suffer a significant amount of cuts in this budget, the state was able to keep Proposition 98 intact, which requires the state to spend no less on education this year as it did last year.

"While no one will be happy with the outcome of the budget, we were able to prevent the suspension of Proposition 98 and the deepest cuts to schools; deeper cuts to health care for children, the elderly and the infirm; and prevent the loss of millions of federal matching funds to balance the budget. Despite that, many state programs that act as a safety net for the most vulnerable members of society have been cut dramatically,” said Assemblyman Ira Ruskin, D-Redwood City.

The San Mateo Union High School District prepared a conservative budget this year and will not be as hard hit as it anticipated, said Associate Superintendent of Business Services Liz McManus.

"I was ecstatic Prop. 98 was not suspended,” McManus said.

And while state Sen. Joe Simitian, D-Palo Alto, called the current budget grim, he did note the state was able to avoid the "worst of the worst.”

Healthy Families, a program to insure poor children, was saved as were Cal grants for students, Simitian said. The state was also able to avoid the closure of 220 parks and avoided the suspension of Proposition 98, Simitian said.

Local governments and schools will still be hit hard, Ruskin said.

"Times like this illustrate the need to reform our budget process. If we fail to reform the process, we can expect to continually encounter the same problems that led us here today,” Ruskin said.

Assemblyman Hill plans to make reform a priority moving forward.

Hill is especially upset with all the drama surrounding the budget in recent weeks that could have been avoided long ago.

"This budget was 95 percent ready to go in June,” Hill said.

The delays in reaching a deal cost the state an additional $1 billion to $2 billion, Hill said.

The only difference between the budget then and now is that there will be no tobacco tax and no oil extraction fees, Hill said. Now, the budget includes a provision to allow offshore drilling off the coast of Santa Barbara, a provision Hill calls a "pet project” of Schwarzenegger.

"The budget was hijacked for a good month for nothing more than oil drilling off the Santa Barbara coast,” Hill said.

Hill said the budget is complicated and may not have as a significant an impact on local government that city leaders fear.

There is a chance cities can avoid state takeaways by suspending redevelopment agency activity, Hill said. It will become clearer as time goes on, he said.

Bill Silverfarb can be reached by e-mail: silverfarb@smdailyjournal.com or by phone: (650) 344-5200 ext. 106.

BOX

Prop. 1A estimates borrowing from state (estimated).

• Atherton $435,469

• Belmont $431,256

• Brisbane $366,109

• Burlingame $1,146,343

• Colma $179,234

• Daly City $2,083,109

• East Palo Alto $708,803

• Foster City $1,206,702

• Half Moon Bay $220,885

• Hillsborough $850,335

• Menlo Park $981,087

• Millbrae $476,223

• Pacifica $964,058

• Portola Valley $93,796

• Redwood City $2,892,572

• San Bruno $829,615

• San Carlos $833,661

• San Mateo $2,808,517

• South San Francisco $2,045,007

• Woodside $178,635

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