SAN DIEGO - County officials in California last week warned of grave consequences if voters reject a Nov. 2 ballot measure to make a half-cent state sales tax permanent.

But city officials said that losing the sales tax would make little difference to them. City and county officials appeared before the California Debt Advisory Commission.

The ballot measure, Proposition 172, would keep the sales tax in place. Proponents say the money will be dedicated to public safety, although a commission staff report says there is nothing to keep localities from spending the money for any general-fund purpose.

The sales tax originally was scheduled to expire June 30, but was extended to year end by the California. Legislature.

The proposition, devised by law-makers with Gov. Pete Wilson's backing, is supposed to help offset the state's shift this fiscal year of $2.6 billion in property taxes from local governments. The state used the money to meet its school funding obligation.

Proposition 172 would make up for only some of the transferred property tax revenues, local officials testified at a hearing of the Debt Advisory Commission hearing last Friday.

If approved, Proposition 172 is expected to generate $714 million this fiscal year and $1.5 billion annually beginning in fiscal 1995.

The commission hearing gathered information on Proposition 172 and on how localities are handling state budget cutbacks. The commission held a similar hearing in Sacramento yesterday, and a third is scheduled for Oct. 15 in Los Angeles.

Jim Roache, sheriff of San Diego County, predicted that rejection of Proposition 172 would "create havoc in our communities." Law enforcement services in unincorporated portions of the county would be reduced by at least 50%, Roache said.

San Diego County would have to cut $123.6 million from the current fiscal year's budget, said David E. Janssen, San Diego County's chief administrative officer.

Janssen berated state officials for taking $3.7 billion in local property tax revenues over the past two years. He said county supervisors "object very strongly" to the transfer, which they are challenging in court as unconstitutional.

State lawmakers "have almost set up an Armageddon" by taking the property tax revenues, Janssen said. He pointed to last spring's downgrades of the county by Standard & Poor's Corp. and Moody's Investors Service.

"As each year has progressively gotten worse, we have always done a good job of convincing them that we could manage with inadequate resources," Janssen said. "This year, they finally came to the conclusion there was no flexibility left."

Steven Zimmermann, a managing director of municipal finance at Standard & Poor's in San Francisco, told the commission that "reduced financial flexibility" prompted a downgrade of San Diego County's certificates of participation to A from A-plus.

The rating agency also has negative outlooks on three of the state's largest counties: Alameda County, Los Angeles County, and San Bernardino County. The agency recently downgraded the city and county of San Francisco to AA-minus from AA.

Counties accounted for about $2 billion of the $2.6 billion property tax shift this fiscal year and are "most likely to be vulnerable to rating downgrades," Zimmermann said.

But so far the state budget has not caused any downgrades of cities, Zimmermann said.

"This is probably due primarily to the cities' inherent revenue diversity and fewer state mandates, especially when they are compared with counties," he said.

City officials testified that the success or failure of Proposition 172 will have little effect on them.

Pat Frazier, a financial manager for San Diego, said the city has been affirmed by two rating agencies even though last year it shifted $11 million in property taxes to school purposes and is transferring $12 million in the current fiscal year.

"We have been out to the market three times in the last 45 days, issuing bonds for transportation, park, and sewer purposes," Frazier said. The city continues to maintain a reserve for unforeseen circumstances, he said.

Officials at Imperial Beach, a city of 27,500 people on the state's border with Mexico, expect little change in fiscal stability if Proposition 172 wins or loses, Mayor Mike Bixler said.

"We understand that all cities in San Diego County will share less than 5% of the proceeds [generated by the sales tax extension] and the county will be securing 95%," Bixler said. "Even if the measure passes, the direct impact to our city budget would be inconsequential."

Proposition 172's passage is expected to add $175,000 to the El Cajon treasury this fiscal year, said Harriet Stockwell, a councilwoman for the city of 91,000, located 15 miles east of downtown San Diego.

"We will be grateful" for the extra revenues, she said. But even with the extra sales tax, El Cajon would have to cover a shortfall of nearly $2.8 million to balance its $45 million budget in the current fiscal year, she said.

Several local officials testified that state policymakers must reorganize and improve the state's fiscal relationship with local governments.

In recent years, "the only consistency the cities have come to know is that the state reaches deeper and deeper into their pockets," said Bixler of Imperial Beach. Cities need to know "above all else that they have a consistent source of revenue."

A commission staff report prepared for the hearing says the ballot, title for Proposition 172 - "Local Public Safety Protection and Improvement Act of 1993" - is misleading.

If voters permanently approve the sales tax, revenues would not need to be restricted to public safety purposes, the report says. Revenues could be used by counties and cities for general fund programs of their choice.

"Technically, these actions would not constitute a violation of the requirements of Proposition 172," the report says. "Consequently, while voter approval of Proposition 172 will likely protect public safety programs from drastic reductions, it will not necessarily guarantee an increase in funding for these programs."

The three hearings should produce a report "that hopefully will be constructive regardless of what happens to Prop. 172," said state Treasurer Kathleen Brown, chairwoman of the Debt Advisory Commission.

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