In the darkest days of the global financial crisis, leaders in Richmond were willing to do almost anything to balance the budget. So they came up with a creative financing scheme known as Local Aid to the State program. Essentially, it turns the normal flow of money upside down. Instead of sending localities money for schools or social services, the state reaches into the pockets of local governments and extracts millions of dollars.

“It’s perverse,” said Democratic Arlington County Board member Chris Zimmerman. “It’s like the poor stepchild being forced to pay for the wealthy uncle.”

This year, the state extracted $60 million from localities. In the governor’s proposed budget, he reduces the program to $50 million. The House of Delegates passed a budget that reduces the program to $27.5 million. But the proposal that has local governments all over the commonwealth hopeful has emerged from the Senate, where one proposal eliminates the program altogether. As budget negotiations move toward some kind of resolution at the end of this year’s session, a funding level for the Local Aid to the State program must be determined.

“Every level of government is struggling to balance its budget,” said Fairfax County Supervisor John Cook (R-Braddock). “At the end of the day, whoever is paying the money gets to make the rules.”

UNDER THE BUDGET provision that outlines the program, local governments are given a difficult choice. One option is to elect to take reductions in particular state aid programs such as law enforcement, jail administration, social services or election administration. The other option is for the locality to simply send a check to the state for the amount determined by the Department of Planning and Budget. Critics of the program say local governments don’t have the option of refusing to house inmates or asking the state to administer elections.

“These reductions do nothing more than shift state costs to local taxpayers,” wrote R. Michael Amyx, executive director of the Virginia Municipal League in a letter to the governor. “There is simply no reason to continue to rely on local governments to fund state mandates and responsibilities.”

The budget cuts are not accompanied by any reductions in state-imposed standards or service requirements. And the local governments are not given any kind of additional administrative flexibility to deal with the loss. As the budget negotiations continue this week, local governments across Virginia are hoping to make the case that the state is no longer in an economic freefall. As a result, they’ll be arguing, the Local Aid to the State program should be reduced or eliminated.

“We have our own needs,” said Bernard Caton, legislative director for Alexandria. “If they tell us we have to give money back to the state then all that means is that we have to raise local taxes, so they’re just passing the buck.”

THE FORMULA for how much money is required from localities is based on how much money is received from the state. Local government leaders across the state say that’s a cruel bit of irony. Those localities that have more mental health needs, for example, are required to pay more even though they have more of a need. Whatever the case, it’s a way for the state to save money by sending less to the local governments.

“Since fiscal year 2008, Arlington and other localities have contributed toward balancing the state budget through Local Aid to the State,” said Patricia Carroll, legislative director for Arlington County. “We applaud the efforts by the governor, House and Senate to reduce those payments and look forward to the time when we are no longer contributing toward balancing the state budget.”

The process for creating a budget in Virginia is notoriously murky, a series of deals cut behind closed doors by party leaders in the waning days of the session. This year, however, may be unlike any other in recent memory. The Senate Democrats and Republicans are at an impasse, unable to find common ground with Republican Lt. Gov. Bill Bolling unable to break the tie. Although the House budget will be considered by the Senate, that’s unlikely to pass either.

“The expectation is that the Senate Democrats won’t vote in favor of that,” said Caton. “So we could go home in another two weeks with no budget.”

One potential silver lining for the localities — if there’s no budget this year, there’s no Local Aid to the State program because localities haven’t received anything. Of course, that also means no money for law enforcement, jail administration, social services or election administration.

“What we’re really talking about is budget reductions, but of course they don’t want to call it that,” said Cook. “So they’ve created this paper gimmick.”