Capitol Alert

Lawmakers are seriously considering grabbing money from local government and transportation funds to balance this year's $15.2 billion budget deficit, say advocates for those programs.

As much as $3 billion could be on the table, but the borrowing would only be a temporary fix for California's structurally unbalanced budget. Two voter-approved ballot measures will force any raids to be repaid -- with interest -- within three years.

"It doesn't do anything to solve the state's ongoing budget dilemma," said Jean Hurst, a lobbyist for the California State Association of Counties. "It doesn't make sense."

Jim Earp, executive director of California Alliance for Jobs, said the state's leaders are also looking to siphon off transportation funds from the sales tax on gasoline. Those funds were devoted to transportation projects through a 2002 ballot measure, Proposition 42.

"We had been assured repeatedly that Proposition 42 was not on the table earlier on for the simple reason that it doesn't solve the problem," said Earp. "But it looks like now, from the information we are getting, that it is definitely on the table."

Gov. Arnold Schwarzenegger and lawmakers on both sides of the aisle have repeatedly proclaimed in public that they want to tackle the state's structural budget problems -- not just paper over the budget with borrowing to get out of town.

But given the size of this year's budget hole -- coupled with Republicans' reluctance to raise taxes and Democrats' "line in the sand" on cuts -- the chances of raiding such funds appears very high.

"Nobody's shocked," said Hurst.

In an interview with The Bee on Wednesday, Schwarzenegger reiterated his opposition to new borrowing.

"Any time you go and do those things, it's maybe one way of getting out of the situation and coming up with a compromise, but I don't think it's the right way to go," said Schwarzenegger.

He insisted his lottery proposal was not borrowing. "Borrowing means that you have to pay back. But this is a gift from the future," he said.

At the same time, the governor's office has been involved in the discussions about taking the transportation and local government funds, advocates say.

The transportation and local government borrowing would come from two sources.

The first would transfer property taxes away from local governments to area schools. That would lower the amount of school spending that musts come out of the state's general fund, helping balance the state's books.

Voters limited that practice in 2004, approving Proposition 1A with 80 percent of the vote. But that measure allows lawmakers to still make such a transfer -- up to two times per decade -- provided the state pays back all the borrowed funds within three years.

Ironically, this is the first year lawmakers are eligible to make the property tax transfer since Proposition 1A passed.

The second would divert gas sales tax revenues from transportation projects -- such as highway construction and mass transit -- to the state's general fund. Voters similarly restricted that practice in 2006, with provisions akin to the limits on taking funds from local government.

Earp said that while the raid is allowed by law, "It was never meant to deal with the structural deficit. It was meant to deal with a short-term cash flow problem."

Mark Watts, executive director of Transportation California, said the raid could have a "devastating effect" on transportation projects in the state.

"That alarms us and so we decided to implement a strong pushback and advocacy," Watts said.

A joint coalition -- including the president of the California Chamber of Commerce as well as union and local government leaders -- fired off a letter to lawmakers Tuesday warning against taking Proposition 42 monies.

"Raiding these transportation funds is a fiscally irresponsible decision that will only make the budget situation worse in out years, hurt our economy and transportation network, and break faith with the voters," the letter said.

Watts said the coalition plans to ratchet up pressure with press events and "possibly some paid media."

Hurst said the counties association had instructed its members to lobby lawmakers, as well.

The two funds are hardly the only pots of money that lawmakers are eying as they struggle to cobble together this year's budget, which is already more than two weeks overdue.

In his May budget proposal, Schwarzenegger proposed "securitizing" $5 billion of future lottery profits for revenue this year and placing another $10 billion in a budget reserve.

Democrats, who have written a counterproposal through a conference committee of the Assembly and Senate, rejected that approach in favor of more than $9 billion in new taxes, mostly on the wealthy.

Republicans rejected the tax plan as dead on arrival.

Other borrowing options contemplated have included taking unspent funds from voter-approved First 5 commissions (roughly $2.4 billion) or temporarily taking money from mental health services funded by Proposition 63. Neither idea has been included in any written budget plan.

"We are willing to look at some borrowing if it has a funding mechanism to pay it off," Assembly GOP leader Mike Villines told Capitol Alert nearly three weeks ago.

The governor's lottery plan, he said, could be such a mechanism.

But the underlining problem to all the internal borrowing -- especially money like that from Proposition 1A and 42 -- is that there's no plan yet on how to repay the taken funds, critics say.

"They haven't got a clue," said Earp, "how they are going to pay the money back."

Kevin Yamamura and Judy Lin, Bee Capitol Bureau, contributed to this report.