With the state budget in near meltdown mode and government coffers taking huge hits with the fallout from last month’s terrorist attacks, a wide array of state and local services from senior assistance to road and highway projects face the prospect of cuts or freezes.

Signs of this new fiscal frugality are everywhere: earlier this month, Gov. Gray Davis ordered almost all state agencies to find ways to shave up to 15 percent off their budgets. Similar reviews are under way at the L.A. County Hall of Administration, at L.A. City Hall and other municipal governments around the county.

“No one is exempt from cuts or freezes right now,” said L.A. City Councilman Nick Pacheco, who chairs the council’s budget and finance committee. While that may not be entirely true programs directly affecting public safety and emergency response are likely to see spending boosts it is indicative of the new attitude in state and local government halls.

First on the chopping block are likely to be programs not considered essential for public health and safety, like library services and maintenance of parks and playgrounds.

“These so-called ‘dessert services,’ which impact the overall quality of life but are not absolutely essential will be the first to be cut,” said Stephen Frates, senior fellow at the Rose Institute of State and Local Government and Claremont McKenna College.

Capital and infrastructure maintenance projects also are likely to be postponed or scaled back. While current transportation funding from the state appears to be secure thanks to billions of dollars pumped in last year future funding is uncertain.

One such project is the Alameda Corridor East light rail corridor through the San Gabriel Valley. The state kicked in $40 million for the initial phase of the $912 million project, which helped fund a couple of grade separations. But the project construction authority has applied for $150 million more in state funds; that application’s fate is now more uncertain than ever.

With state and local governments desperate for new revenues, there will likely be increases in fees and taxes.

“Watch for the state and local governments to be really creative in coming up with new ways to exact revenues,” warned Jon Coupal, president of the Howard Jarvis Taxpayers Association. “We’re expecting to see a whole array of user fees and other targeted fees, if not out-and-out tax increases.”

Of course, much depends on how long this economic downturn lasts, as well as what lies ahead on the terrorism front. If the economy turns around by the middle of next year and if the terrorism battle settles down, local governments may be able to ride out the storm with temporary hiring freezes and postponements of capital projects.

But if the economic and terrorism uncertainty linger, local governments will be forced to consider more drastic actions, like cutting existing services and boosting user fees.

County hit hardest

However long the downturn lasts, the local impact will almost certainly fall hardest on L.A. County. That’s in large part because counties rely heavily on state and federal funds for their revenues and they are mandated by state law to provide extensive social safety net services.

“In the past, when times have been tough for the state, counties have been the target of opportunity,” said Dan Wall, L.A. County’s chief Sacramento lobbyist. Wall noted that starting in the last recession, the state diverted more than $1 billion a year in property taxes originally intended for the county and used those dollars to balance its own books. The state is now returning only $550 million of that $1 billion in the form of public safety funds. This leaves the county with an annual net loss of $460 million.

The major fear, Wall said, is that the state will try a similar tactic again. The major target: the $1.1 billion in vehicle license fees that the state distributes to the county each year. When Davis and the state Legislature voted in 1998 and 1999 to reduce vehicle license fees as a form of a tax rebate, the state agreed to make up the lost revenues to local governments from its general fund coffers.

Now, there is a concern that the state won’t “backfill” all those dollars. There is a requirement in the legislation cutting VLF fees that when the state can’t make up all the difference, the VLF would be increased to make up the difference. But that requires an act of the Legislature, which Wall said was doubtful in the current environment.

Wall said a cut in the county’s share of VLF fees would be a “devastating blow.” Only 6 percent of the county’s $16 billion budget is discretionary, where revenues are not committed by statute to specific programs, and VLF fees account for the single biggest chunk of that discretionary budget.

When combined with the fiscal problems confronting the county’s health department, Wall said significant cuts in the VLF fees “could put us over the edge,” and create a fiscal crisis similar to the one that nearly brought the county to bankruptcy in early 1995.

In that event, Wall said, mandated programs for general relief, food stamps, foster care and other social safety net programs could be threatened. “After the last recession, we’ve kept a pretty tight lid on discretionary spending, so there simply isn’t much to cut there,” he added.

City programs also at risk

State budget cutbacks pose far less of a threat to city budget coffers than the steep falloffs in sales tax, bed tax and business tax revenues.

“We are much more sensitive to the economy,” said David Jones, who tracks city revenue streams for the California League of Cities.

But just behind those three revenue sources are the vehicle license fee payments from the state. If those are cut back, cities could also find themselves scrambling to cover their costs.

Jones said two thirds of all city budgets are earmarked for police, fire and other emergency response services. “In the current environment, you are likely to see some increases in those areas, as these services are often the ‘first-responders’ to security and public health threats,” he said.

That means cuts are likely to fall first in other areas, such as library programs, “meals on wheels” for seniors, playground maintenance at parks and repairing potholes.

In the City of L.A., Controller Laura Chick agreed that, if any services needed to be cut, these would likely be among the first in line.

“We all want more library and senior services and more recreation programs for children,” Chick said. “But when you look at what is absolutely essential to our survival and existence, longer library hours may just have to be sacrificed.”

What’s more, the city receives numerous state grants for library, senior and parks programs, some of which could be cut. “We are concerned about areas that are grant-funded and are watching this issue very closely,” said Carmel Sella, deputy mayor for intergovernmental relations.

Sella and other city officials note that the city is not yet confronted with such dire choices. In reviewing finances over the last couple of weeks, officials have found reserves totaling $150 million, much of that from unanticipated revenues that came in prior to Sept. 11. About $60 million of that is considered “untouchable” in order to keep up the city’s credit rating, which leaves about $90 million that can be tapped.