And while the city was able to weather past reductions by eliminating vacant positions and reorganizing its employees—resulting in only two actual layoffs—another round of reductions would result in a number of layoffs because most vacant positions are already gone. It would also mean further reductions in community services.

Sunnyvale finance director Grace Kim said last year's $15 million cut resulted in the termination of the bookmobile program from the public library and reductions in ground maintenance, street sweeping and tree trimming. Sixty-six vacant positions—meaning positions that were budgeted for but not filled by employees—were cut. And as part of a long-range plan, 13 more vacant positions will be cut next year.

Overall, the VLF cut in funds is just above 8 percent of the city's operating budget.

"An 8 percent hit in revenues would probably mean more layoffs," Kim said. "And another round would mean layoffs of actual people."

Vehicle license fees are an annual payment based on a percentage of a car's worth. Originally, the fee was 2 percent of a car's value, but since 1998, it has been reduced down to .65 percent.

To make up for the loss in revenue, the state government "backfills" the payments to cities from California's general fund. In June, then-Gov. Gray Davis reinstated the full fee (back to 2 percent), which was projected to bring almost $4 billion into California's cities.

But after the recall and election of Schwarzenegger, the fee increase was eliminated and that elimination has created a $4 billion deficit for city budgets.

Because VLF fees are used by cities around the state for basic services and funding, City Manager Robert LaSala said this cut at the state level could hurt California's smaller city governments. He said the future of the backfill is still under debate.

"The citizens look to their local governments as their primary provider of services, and I think the state owes it to the cities to protect those services," said LaSala.

The city's operating budget—of about $90 million—includes about $7.5 million annually from vehicle licensing fees. Five million of that comes from this fiscal year's expected VLF fees, and $1.7 million is scheduled for payment to backfill past VLF reductions. The $1.7 million should be repaid in 2006, but LaSala said there is no guarantee that it will come in now.

"Sure we could budget for it in 2006," LaSala said. "But I'm not going to hold my breath."

To deal with the lack of funding, Kim said services and positions would have to be prioritized by the city in order to avoid cutting crucial parts of the city services.

"It's going to be a pretty tough cut for us," Kim said. "I think there's going to be some very difficult choices."