Los Angeles County votes to bring lawsuit
* Counties, cities statewide to join court challenge
* Highway, redevelopment funding grab is called illegal
LOS ANGELES, July 21 (Reuters) - The day-old pact among California leaders to close the state's $26.3 billion budget gap came under fire on Tuesday as county and city governments threatened to sue to block a plan to seize local tax revenues as part of the deal.
City and council officials vowed to seek a court order barring the proposed diversion of $2 billion from local redevelopment agencies and $1.7 billion in highway tax collections into state coffers to help close the budget deficit.
Opponents argue that such moves are illegal because the state is prohibited under its constitution from grabbing revenues raised at the local level or earmarked specifically for county and municipal purposes.
They cited a recent state appeals court ruling that a similar diversion of $740 million in local public transit funds last year was unconstitutional.
The Board of Supervisors for Los Angeles County, the state's most populous county, voted to file suit against both moves if the budget deal is enacted as agreed to on Monday by Governor Arnold Schwarzenegger, a Republican, and leaders of both parties in the state Legislature.
"For the state to balance its budget on the backs of state residents most in need of help, and the counties that serve them, is fiscally reckless and morally bankrupt," the supervisors' motion said.
The executive directors of the California State Association of Counties, which lobbies on behalf of all 58 counties in the state, and the League of California Cities, which represents 480 municipalities statewide, reiterated their intention to challenge the highway tax proposal in court.
A separate group, the California Redevelopment Association, has said it would sue to block the seizure of redevelopment funds, which are raised through local property tax levies.
Chris McKenzie, executive director of the league of cities, said the threat of a court battle could prompt lawmakers to rethink the budget accord. Votes by the Democratic-controlled state Assembly and Senate were expected on Thursday.
"It could threaten to unravel the whole deal," McKenzie said. "It remains to be seen ... how many legislators want to vote on something that's blatantly unconstitutional and which they know they're going to lose when they get to court."
California's constitution requires that all budget and tax measures be approved by a two-thirds majority in both houses of the Legislature to win enactment.
The state has asked the California Supreme Court to overturn the appellate court decision on the transit fund diversion, McKenzie said. In a separate case under appeal, a lower court has found an earlier diversion of local redevelopment funds by the state to be unconstitutional.
County officials say the proposal to take $1.7 billion in Highway User Tax Account funds over two years would force the layoff of 4,000 county employees and leave local jurisdictions without money to repair or maintain their roads. Cities and counties are allotted 6 cents of every 18 cents per gallon collected on the sale of gasoline.
"They've decided that state highways are more important than local streets and roads, even though 81 percent of the state's road miles are maintained by cities and counties," McKenzie said.
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