SAN FRANCISCO (Reuters) – Local governments in California are scrambling to respond to the state government’s decision to delay nearly $3 billion in funds for them, with some tapping reserves to keep programs fully funded.

The delay, announced on Monday, was anticipated after a law passed earlier this year giving officials in Sacramento authority to defer payments to local governments. The state government has in prior years used local coffers for its own budget purposes.

Governor Arnold Schwarzenegger and lawmakers remain far apart on a state budget. Delaying funds gives state finance officials more flexibility in managing the state’s cash until a spending plan is in place.

“We’re sort of in the mode where we expect any and all things from the state,” Ryan Alsop, an assistant chief executive for Los Angeles County, said on Wednesday.

He noted that Los Angeles County must find an estimated $83 million to bolster its welfare budget.

Officials of California’s largest county are not alone in feeling the squeeze. School districts across the most populous U.S. state will be pressed to stretch their dollars because Sacramento is also postponing payments to them.

“We’ll try to manage over the short term by keeping an exceptionally vigilant watch over our cash flow,” said Troy Flint, a spokesman for the 46,000-student Oakland Unified School District.

CHICAGO/SAN FRANCISCO (Reuters) – Election politics is hobbling the budget process in states like Illinois more than usual this year, as lawmakers try to square dire government balance sheets with voter resistance to spending cuts and tax increases.

The outcome of this fine balancing act could shift control of more state legislatures to the Republicans after the November 2 vote, dealing a major setback to President Barack Obama and his once-resurgent Democratic Party.

The stakes are no higher than in Obama’s home state of Illinois, a political bellwether and the industrial and financial heart of the U.S. Midwest. The state, however, is in the worst financial shape in its history.

With all 118 state representatives and 35 percent of senators up for election, Illinois’ Democrat-controlled General Assembly chose not to anger constituents with tax increases or massive spending cuts as they sought to deal with a $13 billion budget deficit heading into fiscal 2011.

Instead, it sent Governor Pat Quinn a budget full of undetermined cuts and one-time revenue measures, including debt sales and a reliance on yet-to-be approved federal Medicaid funds.

Quinn, a Democrat serving out the remainder of impeached former Governor Rod Blagojevich’s term and who seeks a fresh mandate from voters in November, hopes legislators will increase the state income tax rate to 4 percent from 3 percent and authorize the sale of $3.7 billion of bonds for a pension payment after the election.

LEGISLATIVE SEATS IN PLAY

SAN FRANCISCO (Reuters) – A federal judge on Wednesday struck down a California ban on same-sex marriages as unconstitutional, handing a key victory to gay rights advocates in a politically charged decision almost certain to reach the U.S. Supreme Court.

Legal scholars said the decision has wide implications for nearly 40 states with similar laws on their books, making it more difficult to defend those measures in court on the basis of moral grounds or social tradition.

Still, U.S. District Court Chief Judge Vaughn Walker ordered the voter-approved ban, known as Proposition 8, to remain in place at least temporarily until he decides on a request by supporters of the ban to keep it intact while the case moves to a higher court.

Although the result leaves gay men and lesbian couples unable to marry for now, Walker said Prop 8 opponents “demonstrated by overwhelming evidence” that it violates due process and equal-protection rights under the U.S. Constitution.

“Proposition 8 fails to advance any rational basis in singling out gay men and lesbians for denial of a marriage license,” Walker wrote in the conclusion of his 136-page opinion.

Supporters of Prop 8, which California voters passed 52.5 percent to 47.5 percent in November 2008 after one of the most expensive ballot-measure campaigns in U.S. history, expressed confidence they would ultimately prevail.

BATTLES AHEAD

SAN FRANCISCO (Reuters) – A federal judge on Wednesday struck down a California ban on same-sex marriages as unconstitutional, handing a key victory to gay rights advocates in a politically charged decision almost certain to reach the U.S. Supreme Court.

U.S. District Court Chief Judge Vaughn Walker also ordered the voter-approved ban, known as Proposition 8, immediately lifted to allow gay and lesbian couples to marry while the case moves to a higher court.

Prop 8 supporters had sought to keep the measure in place pending the outcome of their appeal.

But Vaughn said the lawsuit challenging Prop 8 “demonstrated by overwhelming evidence” that it violates due process and equal-protection rights under the U.S. Constitution.

“Proposition 8 fails to advance any rational basis in singling out gay men and lesbians for denial of a marriage license,” Walker wrote in the conclusion of the 136-page opinion.

Outside the federal courthouse in San Francisco, a cheer went up among a group of about 70 same-sex marriage supporters carrying small U.S. flags, as a large rainbow-striped flag — the symbol of the gay rights movement — waved overhead.

The highly anticipated ruling marked a major turning point in a social debate that has sharply divided the American public and its political establishment.

SAN FRANCISCO, Aug 4 (Reuters) – California Governor Arnold Schwarzenegger has state employees on the ropes.

Growing public outrage over their pay, benefits and pensions has helped the Republican governor put state workers and their unions on their heels.

Last week he declared a fiscal emergency and ordered three days a month off without pay for the workers, allies of Democrats who control the legislature and oppose his plan to slash spending to close a $19 billion deficit and balance the state’s books, as required by law.

State workers should be screaming bloody murder as they did when furloughs were imposed last year. But public resentment at their compensation, including what analysts describe as “pension envy,” has reined them in and muted their protests.

“Most Americans believe that federal employees and other government employees are paid more than comparable private-sector employees,” said pollster Scott Rasmussen. “When we’ve asked about 10 percent pay cuts for public employees, people have overwhelmingly supported that.”

A recent Rasmussen Reports poll found 69 percent of respondents nationwide opposed paying higher taxes to avoid public-sector layoffs. The response underscored a hardening of attitudes since early 2009, tied to rising pessimism among private-sector workers about personal finances and job security, Rasmussen said.

PENSION POLITICS

SAN FRANCISCO (Reuters) – California Governor Arnold Schwarzenegger declared a state of emergency over the state’s finances on Wednesday, raising pressure on lawmakers to negotiate a state budget that is more than a month overdue and will need to close a $19 billion shortfall.

The deficit is 22 percent of the $85 billion general fund budget the governor signed last July for the fiscal year that ended in June, highlighting how the steep drop in California’s revenue due to recession, the housing slump, financial market turmoil and high unemployment have slashed its all-important personal income tax collection.

In the declaration, Schwarzenegger ordered three days off without pay per month beginning in August for tens of thousands of state employees to preserve the state’s cash to pay its debt, and for essential services.

California’s budget is five weeks overdue, joining New York among big states with spending plans yet to be approved, and Schwarzenegger and top lawmakers are at an impasse over how to balance the state’s books.

Analysts say it could be several more weeks before the Republican governor and leaders of the Democrat-led legislature reach an agreement, a delay that threatens to lower the state’s already weak credit rating, now hovering just a few notches above “junk” status.

“Without a budget in place that addresses our $19 billion budget deficit, every day of delay brings California closer to a fiscal meltdown,” Schwarzenegger said in a statement.

“Our cash situation leaves me no choice but to once again furlough state workers until the legislature produces a budget I can sign,” he wrote.

SAN FRANCISCO (Reuters) – A local official in California earning close to $800,000 a year as the manager of a city with nearly a quarter of its population in poverty has quit following a public uproar, the mayor said on Friday.

Robert Rizzo, chief administrative officer of Bell, California, resigned along with an assistant and Bell’s police chief, Mayor Oscar Hernandez said in a statement.

Rizzo’s $787,637 salary was nearly twice that of U.S. President Barack Obama, a considerable expense for a city of 37,000 people operating its own food bank for impoverished residents.

Assistant city administrator Angela Spaccia’s pay exceeded that of the top administrator in Los Angeles County, and Bell was paying police chief Randy Adams 50 percent more than what his counterpart earns in neighboring Los Angeles, the nation’s second largest city.

Bell residents have been clamoring for answers to questions about the city’s financial management since The Los Angeles Times reported the compensation of the three city employees — along with reporting that many members of Bell’s city council earn nearly $100,000 a year.

Hernandez criticized the Times’ “skewed view of the facts” and praised Rizzo’s service.

INVESTIGATION LAUNCHED

SAN FRANCISCO (Reuters) – California officials are scrambling to find a way to bolster the finances of a rural, remote county to stop it from declaring bankruptcy.

It’s a touchy subject in the state capital of Sacramento, where California’s notoriously dysfunctional budget process is on parade again with Republican Governor Arnold Schwarzenegger and the Democrat-led legislature facing the task of crafting a state budget, now weeks overdue, that closes a $19 billion deficit.

Modoc County only needs about $15 million to bolster its finances in the near term. The amount is not what concerns state officials. Instead they’re uncertain just how the state can provide the money. If it does not, they’re concerned headlines will link the state’s name to the term bankruptcy.

California officials already have their hands full calming concerns about the state government — its credit rating hovers just a few notches above “junk” status. Two years ago the city of Vallejo became the state’s first sizable city to file for Chapter 9 bankruptcy, and state officials do not want added concerns on their plate about local finances.

At the time, some analysts predicted Vallejo was on the leading edge of a trend in which local governments in California struggling with gaping deficits brought on by soaring payroll and pension costs as revenue tumbled would opt to beg for mercy from bankruptcy judges.

That hasn’t happened. But as Modoc County now shows, there are other financial snares in the books of local governments capable of pushing them to and potentially over the brink and to plead for state help.

Modoc County needs help fast, said San Francisco lawyer Michael Sweet, who is helping the county sort out its options, including a Chapter 9 bankruptcy filing.

SAN FRANCISCO (Reuters) – A municipal manager in California who makes nearly $800,000 a year working for a small, poor city could draw pension payments exceeding $30 million in retirement, according to an activist who has been calling for an overhaul of the state’s public pension system.

That would put Robert Rizzo, chief administrative officer for the city of Bell in Los Angeles County, far ahead of other retired public workers in the state, said Marcia Fritz, who heads the California Foundation for Fiscal Responsibility.

“This guy will be our first seven-figure retiree,” said Fritz, whose group has played a leading role in publicizing the issue of California’s public pension liabilities.

Governor Arnold Schwarzenegger has seized on the topic and is demanding that lawmakers reform pensions as part of a deal to plug a $19 billion deficit in the state budget.

The state’s public pension assets are managed by the California Public Employees’ Retirement System and California State Teachers’ Retirement System, global fund giants better known as Calpers and Calstrs, respectively.

In California’s current race for governor, Republican nominee and former eBay Inc chief executive Meg Whitman has proposed restructuring state employee pensions to reduce their cost to government.

Democratic rival Jerry Brown has proposed limits on public pension benefits, his campaign says.

SAN FRANCISCO (Reuters) – While Bell, California, may be one of the poorest cities in Los Angeles County, it has lavished extraordinary salaries on top officials, and the county district attorney is curious as to why.

The Los Angeles Times on Tuesday reported that Robert Rizzo, the chief administrative officer of Bell, is paid $787,637 a year — an eye-popping figure in its own right and astounding for a city so poor it operates its own food bank with nearly a quarter of its roughly 37,000 inhabitants living below the poverty line.

U.S. President Barack Obama, by contrast, earns $400,000 a year — only slightly more than the $376,288 a year Bell’s assistant city manager pulls in.

Bell’s police chief is paid $457,000 a year, or about 50 percent more than what neighboring Los Angeles pays its police chief to oversee law enforcement in the country’s second-largest city.

Additionally, some of Bell’s city council members earn nearly $100,000 a year.

Their pay is so far out of line that the Los Angeles County district attorney’s office is looking into it.

Local government professionals say they are shocked, especially with so many local governments in California struggling with their budgets since revenue is so weak.