The city of San Diego’s budget gap could grow even more if the state takes up to $24 million in gasoline tax money from cities to pay of its debts.

But Job Nelson, the city’s director of intergovernmental affairs, told City Council members this morning that Gov. Arnold Schwarzenegger’s proposal to end payments to cities and counties and use the money to pay off state transportation bonds is legally questionable.

“This is of dubious legality and the legal questions are being explored by attorneys all over the state,” Nelson said.

If the state does make that move, however, it would add to the city’s budget shortfall for the fiscal year that starts July 1. Mayor Jerry Sanders has released a spending proposal to bridge an estimated $83 million shortfall.

But his office is working on a contingency plan in case of potential state action. In addition to the gas tax, the state could borrow up to $36 million in property tax revenues from the city. That looks increasingly likely, given the state’s $24 billion shortfall and the recent failure of several ballot measures meant to help bridge the state’s shortfall.

If the state does take both the gas tax and property tax money, the city’s shortfall could reach $143 million, of which $60 million hasn’t been factored into the budget proposals so far.

Nelson mentioned Schwarzenegger has proposed a way for municipalities to borrow against the state’s future repayment of property tax revenues, but added, “Nobody has seen that proposal yet so we have no idea what it looks like.”

Even if that proposal comes through, Nelson noted that the financial markets are much different and the state’s ability to pay back the debt is more “up in the air” than in past years.


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