Daily News, by Rick Orlov, Staff Writer

Tensions between Mayor Antonio Villaraigosa and the City Council over the city’s budget problems grew Friday, as the mayor threatened to veto council spending from a special fund used on pet district projects.

Council members reacted angrily to the mayor, and Villaraigosa’s office later acknowledged that he didn’t actually have the legal authority to carry out his threat because the “council exploited a loophole to circumvent the mayor’s veto plan.”

Still, Villaraigosa’s threat drew a sharp response from Council President Eric Garcetti and Council President Pro Tem Jan Perry.

“We are dealing with reality, not rhetoric,” Garcetti said.

Perry was more blunt.

“There’s a lot of heat and noise,” Perry said. “I would urge you to look at the council’s actions. We have been working meticulously on the budget issues.”

The dispute was prompted by a Villaraigosa threat to veto some $480,000 in projects the council approved dealing with the use of street furniture funds, for things under the jurisdiction of each member.

The mayor had asked the council to loan $40 million of its discretionary funds to help shore up the city’s reserve fund. City Controller Wendy Greuel this week also called on the City Council to give up $25 million in discretionary funds to help balance the city’s budget.

In a letter to the council, the mayor said he was disappointed that several members had taken steps to lock in funding for projects in their districts after he had made a direct appeal to them for the funds.

Villaraigosa had asked the council to delay action on the proposals, saying the city needed to come to grips with its spending.

“We have been living beyond our means for too long,” Villaraigosa said in his letter where he said the reserve fund needed to be increased. An inadequate reserve fund, he said, “could trigger a downgrade by credit rating agencies, which makes it more expensive to borrow money.”

However, each council member defended the use of the money as necessary for improvements in their districts.

“In many cases, these were projects that the city had committed to,” Garcetti said. “Sometimes, they have been in the works for years and (are) being used as matching funds for other money.”

“None of these were for staff salaries,” Garcetti added.

The City Attorney’s Office also said the mayor had no authority to veto the funds.

But, bolstering the mayor’s plea were a pair of reports further detailing the city’s problems.

The City Administrative Office reported a decline in tax revenue to the city, $185 million more than the $300 million decline that had been expected. Taxable receipts were down in all categories – taxable sales, sales tax, property taxes, hotel bed tax and documentary transfer taxes.

The City Controller’s Office also reported the city is now spending $1.5 million more a day than it is taking in and faces the prospect of not being able to meet its last month’s payroll or pay all of its bills in the new fiscal year starting July 1.

Also on Friday, City Attorney Carmen Trutanich warned that he will be forced to end the popular neighborhood prosecutor program if he is required to lay off 100 people in his office as proposed by the mayor.

“I need to be able to staff the criminal courts around this city and if we lose 100 people, it simply isn’t possible,” Trutanich said in a rare news conference.

The neighborhood prosecutor program puts deputy city attorneys in police stations, where they are available to work proactively to spot problems with gangs, graffiti and other quality of life and public nuisance issues. Officials estimate it takes up 40 members of the city attorney’s staff.

Trutanich complained his office has already taken 20 percent in cuts since he took office July 1.

He has proposed a number of ways to save money, including a request to transfer all workers’ compensation cases to his office as well as debt collection.