SAN FRANCISCO — If there was any doubt before, it was removed Thursday by the California Supreme Court: the state’s current budget is out of balance.

The high court Thursday declined to hear the state’s appeal of an appellate ruling that determined that recent budget shifts from local transit agencies to the general fund were unconstitutional.

The issue at stake in the lawsuit, filed by the California Transit Association and its executive director, Joshua Shaw, involved $1.2 billion in diversions from the state’s fiscal 2008 budget. But the CTA, which represents more than 180 transit operators around the state, says more than $3 billion in similar illegal diversions were made in the two subsequent state budgets.

The most recent revised budget, which Gov. Arnold Schwarzenegger signed in late July, had a $500 million reserve.

“Our take on this is that, based upon the Supreme Court’s refusal to hear this case, we will have to come up with an additional $1 billion in solutions for the current year, and we will do that when we submit our budget in January,” said H.D. Palmer, spokesman for Schwarzenegger’s Department of Finance.

With the Supreme Court’s denial of the appeal, the case is remanded to a trial court that will issue orders to implement the judgment.

“There’s no hard and fast timetable for that to happen,” Palmer said.

“We realize the state doesn’t have whatever x-amount we are eventually awarded lying around,” said Jeff Wagner, spokesman for the CTA. “It’s also going to involve us sitting down with the administration and legislative leaders.”

The association filed suit in 2007 over diversions in the fiscal 2008 budget, and the trial court issued a split decision, finding $419 million of diversions to be illegal and the remainder to be legal. Both sides appealed, and the appellate court agreed completely with the transit advocates, finding the entire diversion to be illegal under the language of four different ballot measures voters approved between 1990 and 2006.

“We were disappointed that the Supreme Court did not hear this case, because we won at the trial court level, although we were reversed at the appellate level,” Palmer said. “So we were disappointed and thought it warranted a hearing.”

There were a variety of diversions, examples of which include using funds from the Public Transportation Account to fund school bus services, transport disabled persons to care and treatment programs, and to make debt service payments for a variety of general obligation bond authorizations.

“We feel the voters intended 'mass transportation’ to mean 'public transportation’ or 'public transit,’ and the appellate court agreed,” Shaw said in a statement.

“Our original lawsuit strikes at the heart of the gimmicks that have been employed year after year in putting together the state budget,” he said. “We recognize the horrendous crunch that the budget crafters face, but the fact that the California Supreme Court would not even hear the state’s request for an appeal of the appellate court decision is one more obvious sign that the whole budget process needs serious reform.”

The Supreme Court’s action came a week ahead of this week’s planned pricing of $4.5 billion in California general obligation bonds, and Thursday’s action was already incorporated into the preliminary official statement by Friday morning.

The POS includes 11 pages outlining litigation with a potential impact on state finances.

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