End Could Cut Essential Services : California Cities, Hooked on U.S. Dole, Face Crisis

SACRAMENTO — The managers who handle the millions of dollars that flow through the City of Los Angeles treasury used to swear by a simple axiom: No matter how tempting, always treat federal money like it might vanish at any moment.

So when the Nixon Administration announced in 1972 that it would like to share some of its tax money with local government, the city’s financial advisers raised a skeptical eyebrow and pledged never to use it for essential services.

Along the way, someone forgot. Los Angeles got hooked on the federal dole.

Today, with President Reagan proposing to end revenue sharing and a number of other aid programs to help cure the staggering federal deficit, officials concede that little of the money had gone for those “extras” that residents could do without. The $55 million the city receives yearly under the revenue-sharing program now underwrites 60% of the library budget, 43% of parks expenses and 57% of the cost for delivering water and electricity to Los Angeles residents.

“First we had Proposition 13 tax cuts, then we had a huge recession hit us, and then we dropped into a deeper recession,” City Administrative Officer Keith Comrie said. “We had to use every penny (of federal money) for basic operations.”

Los Angeles’ revenue-sharing troubles underline the growing dependence that local government in California has developed on federal and state programs that are threatened by presidential and congressional deficit-reduction proposals.

Surveys by the County Supervisors Assn. of California and the League of California Cities found that 90 cents of every revenue-sharing dollar going to California--an estimated $500 million yearly--is used to keep the wheels of government turning on a day-to-day basis.

If the federal cuts go ahead as planned, administrators predict the deepest round of service cuts and the steepest fee increases since voters approved tax-cutting Proposition 13 in 1978.

“At the time revenue sharing began, I remember discussing it and saying that if it was not utilized correctly we would create the circumstance we now find ourselves in,” said Assemblyman William H. Lancaster (R-Covina), vice chairman of the Assembly Local Government Committee and a former Duarte city councilman. “We were afraid cities would be dancing to the tune played on the Potomac River as they almost came to dance to the tune played on the Sacramento River.”

$1.5-Billion Loss

When the revenue-sharing cuts are added to other proposed reductions in the President’s budget, California stands to lose nearly $1.5 billion. Nationally, the loss is expected to exceed $10 billion, a significant cut for local government though not enough to put a sizable dent in the federal deficit, now estimated at $215 billion.

It still is unclear how seriously individual communities would be affected. But the debate has begun to spotlight the extent of local government’s dilemma.

Los Angeles County, for example, spends all $80 million of its annual revenue-sharing money on health services. That is 23% of the county’s health care budget and one of the major financial underpinnings of its vast public hospital system.

San Jose, a city that already has among the lowest ratios of police officers to population, uses its $8.5 million in revenue sharing to supplement its police and public safety budget. Redding has done much the same. Ventura and Madera counties have pumped their entire allocations into fire protection.

Elsewhere, Garden Grove spends its $1.2 million on paramedic services, and Contra Costa County’s $5-million revenue-sharing budget goes entirely for public assistance.

“Initially, we advised all cities to use revenue sharing for capital improvements (building projects), and cities did,” said Don Benninghoven, executive director of the League of California Cities.

“But in order to continue serving citizen demands after Proposition 13, cities stopped maintaining streets, stopped building projects and stopped expansion. They used revenue sharing to fill the gap and that meant day-to-day operations. City managers and city councils just didn’t have any choice.”

Other Proposed Cuts

Besides revenue sharing, the President’s budget proposes other cuts that would affect every community.

City dwellers, for example, are likely to face higher bus fares and cancellation or delays in planned mass-transit systems due to an estimated $400 million in transit subsidy cuts. Also on the chopping block are $69 million in community development block grants and urban development action grants that help big cities fix up run-down buildings and underwrite low-income housing.

However, those cuts are in doubt as a result of the Senate Budget Committee’s recommendation last Thursday to freeze rather than reduce transit subsidies and block grants.

Residents of rural areas would be hit doubly by plans to slash the timber receipts program that since 1908 has provided them with a share of profits from logging on federal land. By law, half the money goes to schools and half to road projects.

Last year, 30 of California’s most distressed counties received $44 million in timber receipts. That would plummet to $7 million under the President’s proposals.

“The counties suffering these losses are the counties least able to endure the loss,” said Bill Coates, a supervisor in Plumas County, where unemployment often rises above 20% and timber receipts provide 40% of the money to run local schools. “While the rest of the state in many cases has been making an economic recovery, the rural areas have not been doing that well.”

Medicaid Funding Targeted

There also is the question of how states, including California, would cope with proposals to cut Medicaid spending and refugee assistance as well as with a planned funding freeze for such programs as foster care, food stamps and child support. In the past, similar cuts in state assistance have been passed to counties that administer the programs and have a legal obligation to take care of the growing indigent population regardless of how much money they get.

For California, the timing of the proposed cuts is particularly ironic.

After parading before the Legislature hat in hand for more than half a decade, cities and counties just last year were granted a permanent financing mechanism designed to make up for the remaining ills of the 1978 property tax cut initiative.

The fortunes of local government also appeared on the rise under plans unveiled by Gov. George Deukmejian in his State of the State address this year to rebuild California’s deteriorating bridges, roads, water systems and public buildings, all of which suffered under the Proposition 13 tax cuts.

“We’d be right back where we started,” said Larry Naake, executive director of the statewide county supervisors group, which is part of national mobilizing effort to try to change Reagan’s mind.

Too Much Hyperbole

Some skeptical observers of the government scene, however, see all of the pleas and dire predictions as just so much hyperbole, too reminiscent of the doom-and-gloom scenarios painted by some officials in Proposition 13’s aftermath.

Although forced into difficult decisions and some service reductions, cities and counties generally survived the initiative without a major crisis. The problems were forestalled by decisions to delay long-range projects and, to a larger degree, by massive bail-outs from a Legislature that had been sitting on a huge surplus in the state treasury.

Nonetheless, government leaders say they continue to be haunted by a credibility gap that has widened with the perception--strongly voiced by Reagan and others--that state and local treasuries have surpluses large enough to cushion them against Washington’s deficit-reduction measures.

Cities such as San Francisco, San Diego and Palo Alto, where healthy economies and smart management have produced substantial reserves, have provided critics with ammunition. California’s nationally publicized $1-billion reserve for economic emergencies also has added to the public relations problem.

Some of the most damaging developments, however, have come in the political arena, where Republicans elected to local office--such as the conservative majority on the Los Angeles County Board of Supervisors--have been hesitant to join their colleagues in decrying the President’s cuts.

Elected Officials Stunned

Any remaining veneer of unanimity was shattered last month when Deukmejian spread the word at a meeting of the nation’s governors in Washington that Reagan’s cuts “would not have a dramatic adverse impact” on California.

The statement stunned elected officials across the state. “If the governor thinks cuts amounting to $1 billion will have no dramatic impact on California, he should talk to the 19 million people who live in the urban areas of the state,” said Bill Carroll, Vacaville mayor and president of the League of California Cities.

“I think the governor and Congress should talk to all the prospective first-time buyers who find they are unable to afford homes because of these cuts. They should talk to the people who will be unable to find jobs because our cities will be less able to provide the streets and roads, water and sewer systems necessary for new employment. They should talk to the 4 million Californians who rely on public transportation who will find it much more difficult to get to and from their jobs.”

Still, the fact that revenue sharing originally was intended to last only five years, and would have ended by 1987 in any event, leaves cities and counties open to criticism about their own role in contributing to the crisis.

“It was renewed each time,” said the League of Cities’ Benninghoven. “We knew it would be a hard fight, but we were ready to have it renewed again.”

Money Held in Reserve

Not all cities fell into the trap of heightened expectations. San Diego, for instance, routinely held three-quarters of its annual $12-million revenue-sharing allocation in the bank so there would be a large enough reserve if the program was suddenly ended. More recently, the City Council there ordered that revenue sharing be used only for one-time construction projects.

“In terms of service, citizens will see, we will weather this storm,” said Libby Watson, San Diego’s financial management director.

Ruth A. Ross, a California State University professor and author of a 1981 Brookings Institution report that chronicled the growing dependence of Los Angeles and other cities on federal grants, said the pleadings of local government amount to little more than “political rhetoric.” Cities and counties, she said, could have avoided the current dilemma by keeping closer tabs on their federal money and directing it to non-essential services.

“I think in California it was seen as money they would continually have,” Ross said. “I think it was shortsighted on their part.”

For now at least, the state’s legislative leadership sees little likelihood of another bail-out if the President’s cuts are enacted. Both Deukmejian and Assembly Speaker Willie Brown (D-San Francisco), at odds over most issues, agree on that.

Proposition 13 Legacy

Lawmakers said they would consider giving cities and counties more authority to raise their own taxes. But most officials believe the legacy of Proposition 13 makes local tax increases politically unlikely.

Aside from the loss of money, what all this means to local government is the probable death of New Federalism, the much-heralded Reagan initiative that was intended to return power to hometown America.

Stephen C. Swendiman, a Shasta County supervisor, summed up the feelings of his colleagues in a recent telegram to Reagan in which he charged that the federal partnership with cities and counties is meaningless “when there is constant erosion of traditional local powers.”

He warned that California counties “cannot be strong partners when we eternally struggle with an unrelenting fiscal crisis.”

CUTS IN REVENUE SHARING THE STATEWIDE EFFECT A key target in proposed federal spending cuts is revenue sharing money, an important source of income to local governments, but only .5% of the U.S. budget. President Reagan has proposed that revenue sharing funds going directly to local governments in California be reduced by 37%, from $2.63 billion to $1.65 billion next year. The U.S. budget proposal also would reduce payments to the state for programs run by the counties by 20%, from $2.54 billion to $2.03 billion. The California League of Cities has compiled this sampling of cuts: DIRECT PAYMENTS TO LOCAL GOVERNMENT

Program % of Proposed Reduction Mass Transit, Discretionary Funds - 55% Highway Aid - 9% Mass Transit, Capital Expenditures - 64% Sewage Treatment, Construction Grants - 2% Rural Water and Sewage Disposal Funds - 15% Community Development Block Grants - 10% Small City Block Grants -100% Historic Preservation -100% Urban Development Action Grant -0.3% General Revenue Sharing -100%

PAYMENTS TO STATE FOR LOCALLY RUN PROGRAMS

Program % of Proposed Reduction Foster Care - 28% Aid to Families with Dependent Children - 20% Food Stamp Aid - 16% Child Support Enforcement - 7% Maternal and Child Health programs - 16%

THE EFFECT IN LOS ANGELES In Los Angeles, revenue sharing brings in about $55 million each year and is used to support libraries, recreation and parks, and city water and electricity costs. City officials say thatthe effect of proposed cuts in these funds, coupled with several years of voter-approved reductions in other local taxes, will be severe. Here are the city’s predictions of the effects of approving the proposed cuts--shown here by percentage: LIBRARIES: A proposed $16-million cut could mean closing of most of the city’s library branches and a further reduction in services at the Central Library. The 62 branches now are open only six hours a day and the system operates at about half the time it once did, say officials. RECREATION AND PARKS: In the last six years, 24 recreation buildings have been closed and hours of operating have been reduced by 40% at the remaining 160. Officials estimate that the system is a half-time operation. A $23-million loss would force closing of all recreation centers, elimination of senior citizen programs, and would result in deterioration in park maintenance. WATER AND POWER: Cuts of $16 million in this account are considered impossible unless the city turns off street lights, shuts traffic signals, allows parks to dry up, creating possible fire hazards. Because the city must maintain those services, they warn of cuts in fire, police or public works accounts or suggest that local taxes will be forced to rise.