Such an amount would do little to close the state's $15 billion deficit, but it would rock Gilroy by increasing this year's budget gap to about $5.6 million. Council members already planned to make additional cuts to balance the city's $44 million budget by 2012, but such a sudden loss would likely fast-track a combination of lay-offs, wage freezes, deep program cuts and a further depletion of the city's reserves, according to council members and City Administrator Tom Haglund.

"The longer this budget crisis goes on, it becomes easier and easier for state legislators to rationalize pushing the problem to our level. At that point, we'd have to come back to the council with some really solid cuts," Haglund said.

Three out of four of Gilroy's state representatives have vowed to protect cities, including Assemblywoman Anna Caballero (D-Salinas), who sits on the State Assembly Committee on Local Government.

"I am firmly opposed to borrowing money from local governments," the former Salinas mayor and council member said. "We're going to have to compromise, but I'm not sure if we'll stop it."

Neither are local officials, who are struggling to understand how exactly Sacramento has the authority to balance its checkbook on the backs of cash-strapped cities such as Gilroy. The answer is Propositions 42 and 1A. More than two-thirds of voters passed them between 2002 and 2006 in efforts to make sure state legislators delivered sales and property tax revenues to cities and used gas tax revenues for relevant transportation projects, not as lifelines for the state's general fund. Cities deposit property and sales tax revenues into their own general funds and use the gas tax revenues for local transportation projects.

During a fiscal emergency, though, the state can borrow these tax revenues from cities, but it cannot borrow anymore unless it repays them with interest within three years. Reimbursement or not, Gilroy could forfeit $1.3 million from its general fund and $450,000 from its restricted transportation budget, which would delay street and sidewalk maintenance, Haglund said.

Mayor Al Pinheiro stressed that about 75 percent of Gilroy's general fund pays for public safety services - "number one priority," he said - so the council will have to squeeze other departments to keep the city afloat. The body already approved $4.5 million in expense cuts and an across-the-board hiring freeze earlier this year, and the reserve fund - which held $26 million last fiscal year - will drop to $16 million by the end of this fiscal year.

"We did everything we could to try and balance the budget earlier this year," Councilman Perry Woodward said. "This would be devastating because there's just not much left to cut, but everything would be on the table."

Councilwoman Cat Tucker said the council should consider wage freezes and cutting middle and senior management positions.

"If it gets dire, (state legislators) may have to borrow money," Tucker said. "I understand it may have to happen."

The Senate Republican budget plan released last Saturday does not specifically mention borrowing from cities' general and transportation funds, but it still runs a $4.5 billion deficit and includes borrowing $1.9 billion from future lottery earnings and another $349 million from local redevelopment agencies. Gilroy does not have such an agency, but again, officials worry the lure of taking billions more from 42 and 1A funds will soon become unbearable.

"If it drags out long enough, it becomes more acceptable to go after cities' money and say we have no other choice. I'm really worried about it. I think they're going to come after us," Councilman Dion Bracco said. "It's going to put us in a bad spot, and we'll see some draconian cuts, but nobody's listening up there."

Sen. Abel Maldonado (R-Santa Maria) has not formed an opinion, according to his press secretary, Brooke Armour.

"I don't think the senator's decided one way or another on that issue," Armour said. Maldonado, a former Santa Maria council member and mayor, spoke at the Republican National Convention in Minneapolis, Minn., Wednesday night and could not be reached, Armour said. He did not return messages.

On the other hand, State Assemblymember John Laird (D-Santa Cruz) and Caballero have vowed to balance the budget through other means, including tax hikes.

As a former Santa Cruz council member and mayor, Laird also hopes to stop it, but he added that this is the first time the legislature has entertained such borrowing.

"The only way it could show up in the final budget is if this becomes a ticket to avoiding deep service cuts and tax hikes," Laird said. "The last thing you want is to balance the budget on the backs of local governments."

In a written statement, Sen. Elaine Alquist (D-San Jose) said, "borrowing from critical local government funds is my absolute last choice, and one I certainly hope I don't have to make ... I will do my best to ensure that the budget does not have the type of borrowing that could short change the Gilroy community of essential services."

Pinheiro and the other council members worry, though, that their representatives' best efforts may not be enough.

"The response from all of them is what we want to hear, but at the end of the day, we'll see how much they really mean it," Pinheiro said.