After years of gloomy news, the budget picture suddenly looks brighter for local governments.

Both L.A. County and city of Los Angeles officials say they expect their chronic budget deficits to ease somewhat next year, thanks to robust property tax revenues and sales tax receipts that have held steady.

"We have resources that we didn't think we would have," said County Supervisor Zev Yaroslavsky. Those additional revenues might be used to reopen some county jails, county officials said last week.

Other cities, including Burbank, Long Beach and Redondo Beach, are seeing stronger-than-expected revenues that may limit the scope of budget cuts they were planning for the next fiscal year starting July 1.

"We're still looking at some budget cuts for the upcoming year, but they will be nowhere near as big as what we've been through in past years," said David Wodynski, budget management officer for Long Beach, where 360 positions were cut in the last two years and several library branches closed.

Last year, as talk of a real estate bubble gathered steam, many local governments projected property values would level off, and they made conservative revenue estimates. They also projected slightly more modest rises in retail sales tax receipts than what actually occurred.

But property values rose 7 percent countywide in 2003 and appear on track to equal that increase in 2004. Under Proposition 13, property taxes are pegged at 1 percent of a property's assessed value. In addition, every time a property changes hands, local governments receive transfer fees.

(The state of California is also seeing revenues come in at nearly $2 billion more than initially projected, though that's primarily because of a jump in personal income taxes, which do not flow to local governments.)

While this is not the first year that property taxes and other revenues have come in stronger than projected, cities and counties now know they won't have to surrender additional funds to the state. That's because of a ballot measure that voters passed last fall bans the state from diverting local government revenues to its own coffers.

After tense negotiations with Gov. Arnold Schwarzenegger, cities agreed to a compromise that allowed the state to take $1.3 billion in revenues from local governments for the 2004-05 fiscal year and again for the 2005-06 fiscal year, but banned all future diversions. Voters last November overwhelmingly approved this compromise.

"The main thing now is that local government has stability," said Megan Taylor, spokeswoman for the California League of Cities. "Instead of waiting for the other shoe to drop, city budget officials can now plan ahead."

Cities are also benefiting from another obscure state budget agreement.

When Schwarzenegger moved to cut the vehicle license fee on his first day in office, he agreed to a revenue swap in which local governments would receive $1 in property taxes for every dollar that was lost in vehicle license fees for the first year. After that, these property tax revenues would be allowed to grow in line with cities' other property taxes.

In cities experiencing huge run-ups in property values, this shift has bestowed a temporary windfall, since the increase of up to 10 percent in property taxes outstripped the expected 4 percent annual increase in the vehicle license fees.

"Property taxes are much more volatile, so what goes up one year can stay level or even go down the next year," warned Michael Coleman, financial analyst for the California League of Cities.

Opening jail
The additional revenues are giving some local governments the ability to spend more in long-neglected areas.

"Last year at this time, we were doing exercises based on the expected loss of $300 million in funds," said David Janssen, chief administrative officer for L.A. County. "With more revenues coming in, there are things we can fund that we previously couldn't."

Janssen said one area being looked at is the reopening of county jails closed in recent years due to the budget crisis. Back in 2001, Sheriff Lee Baca closed a low-security jail at the Peter J. Pitchess Detention Center near Castaic. Reopening jails would reduce overcrowding and could mean fewer early releases of inmates.

Meanwhile, in the city of Los Angeles, budget watchers are cautiously optimistic that revenues will come in above initial projections.

"We have strength in our traditional and major revenue categories," said City Administrative Officer Bill Fujioka. "It's looking better than we thought it would a few months ago."

But Fujioka said he won't breathe easier for another month, after the city finds out how much it will get in winter sales tax receipts and from April property tax filings.

"Right now, there's guarded optimism on the budget," he said.

If revenues keep coming in at levels higher than initially projected last year, it could free up some dollars to fund the hiring of more police officers. In February, Los Angeles Mayor James Hahn sought City Council approval for a half-cent sales tax hike; the council rebuffed his motion on a 9-6 vote, one vote short of the needed two-thirds majority.

The amount coming into other cities may not be enough to offset additional expenditures. Most are facing increased contributions to the California Public Employees Retirement System.

"We're looking at a $1.5 million hit from Calpers, so even though we're seeing additional revenues coming in from property taxes, we're still being very cautious," said Diana Moreno, financial services director for the city of Redondo Beach.

Long Beach also faces a higher contribution to Calpers, which is one of the reasons why Wodynski said there will still be some budget cuts next year.

Meanwhile, officials in Burbank are estimating a $1 million shortfall for the 2005-06 fiscal year, their smallest budget deficit in four years. Two years ago, Burbank officials had to cut $10 million from their budget, which meant cutting police and fire services.

Assistant City Manager Mike Flad said salary and benefit increases, along with higher energy and materials costs, are slightly outstripping healthy increases in revenues, so some fee increases and cost-cutting will still be needed.

But, Flad said, "We're not looking at a slash-and-burn environment anymore. For the first time in three years, we're not going to be cutting police and firefighters."

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