Last week, the Los Angeles City Council approved a measure to extend free parking to hybrid drivers until 2011. This week, they halted those plans and decided to send the issue back to committee.

This news follows last month’s move by Washington D.C. Mayor Adrian Fenty to eliminate tax breaks for owners of hybrid vehicles unless those hybrids get better than 40 mpg. During an economic downturn, and with many municipalities facing a budget crunch, local government agencies are evaluating how to create or revise effective incentives for fuel-efficient cars.

According to L.A. City Councilman Bill Rosendahl, the hybrid perk costs the city about $46,000 per year. Los Angeles Department of Transportation officials puts that number at $116,000. Even using the higher figure, eliminating free parking for hybrids will hardly make up for the city’s budget shortfall of approximately $500 million this year.

But the money is not the issue. It’s more about government searching for the right personal transportation incentives—in an era when gas prices, car markets and vehicle technologies are rapidly shifting. “This was a great incentive when we first did it,” said Rosendahl, speaking to City News Service. “But hybrids don’t need assistance from us. They already are getting a benefit from the savings they get by not having to buy $4-a-gallon gas.”

In addition, several of the latest hybrids to be introduced are large SUVs, with fuel economy numbers in the low 20s. Under the plan recently approved by the council, free parking is only granted to vehicles with state-issued Clean Air Vehicle decals—and those were made available only to hybrids rated at 45 mpg or higher.