Wilson Weighs Letting Counties Hike Sales Tax

Gov. Pete Wilson on Wednesday was weighing options for financing a historic shift of health and welfare programs from the state government to the counties, including giving the counties a chance to raise the sales tax by up to half a cent to pay for the services.

The transfer of programs is expected to be a key part of Wilson’s new plan to close the state’s record $12.6-billion budget gap. The governor was putting the finishing touches on the proposal late Wednesday after returning to the capital from a speech in San Francisco. He has scheduled a news conference for this afternoon to discuss the plan.

The revenue shortfall is nearly twice the $7-billion gap that Wilson projected when he sent the Legislature a $55.7-billion budget in January. The governor’s earlier proposal included about $1.8 billion in new taxes and $5 billion in budget cuts.

The plan to shift state health and welfare programs to counties would be in addition to a temporary, half-cent increase in the sales tax that Wilson is considering to raise about $1.6 billion a year, according to recent statements by the Republican chief executive and sources close to his Administration.

The increase would last for at least 12 months, and possibly 18, and the money would go into the state general fund.

Less clear is how Wilson intends to help counties raise the $2.3 billion in programs, ranging from mental health services to in-home care for the aged, that the governor and legislators from both parties apparently want to transfer to local government.

Wilson already has proposed giving the counties $900 million a year from higher alcohol taxes and increased motor vehicle license fees. But that would leave the counties far short of what several sources have said is the likely cost of their new responsibilities.

One source who has conferred with Wilson advisers about the governor’s strategy said Wilson was considering whether to allow counties to raise the sales tax by half a cent on the dollar, subject to the approval of a majority of voters in each county.

Another option would be to allow the county boards of supervisors to approve the tax increases without having to seek voters’ approval. This approach is favored by the County Supervisors Assn. of California and has the backing of Senate Republican Leader Ken Maddy of Fresno.

A third possible route would simply be for the Legislature to raise the sales tax an additional half penny--on top of the temporary half-cent levy--and funnel the extra revenue to the counties.

“It’s still a fluid situation,” said Otto Bos, Wilson’s director of Communications and Public Affairs.

Since last year’s election campaign, Wilson has said he would rather raise the sales tax than increase income taxes, a move he believes would further depress the already slackening California economy.

The minimum sales tax in California is 6%, and the revenue is split between the state, counties and cities. Many counties already have added higher levies to pay for jails, roads and public transit.

The twin increases considered by Wilson, if approved by the Legislature and the counties, would temporarily bring the sales tax to as much as 8% in some counties, including Los Angeles.

To help close the rest of the budget gap, a source said, Wilson plans to propose extending the sales tax to automobile and electrical repairs as well as other services involving parts, which are currently taxed, and labor, which is not.

Wilson already has proposed eliminating the sales tax exemption enjoyed by newspapers, periodicals and candy; closing other tax loopholes, and increasing alcohol taxes and motor vehicle license fees.

All told, that could bring his proposed state and local tax increases to nearly $6 billion.

The rest of the revenue gap would be closed through spending cuts, primarily in health, education and welfare programs. Wilson reportedly was considering saving $800 million by shifting the Medi-Cal health services program to HMO-style care. The governor might have difficulty persuading the Democratic-dominated Legislature to shift health and welfare programs to the counties without a guaranteed source of money to pay for the programs and minimum standards for the services. Some Democrats fear that the counties will cut the programs rather than raise taxes to pay for them.

“I don’t think (health and welfare) programs are adequate now and I have no intention to see them reduced,” Sen. Alfred E. Alquist (D-San Jose), chairman of the Legislature’s budget conference committee, said at a hearing Wednesday.

But Republican Sen. Frank Hill of Whittier and GOP Assemblyman William P. Baker of Danville both countered that to properly “realign” spending and services, county supervisors must be free to determine their own levels of service based on local needs without requirements attached by Sacramento. This could mean curtailing some programs, they said.

“We want local counties to use their local discretion,” Hill said. “We think most boards of supervisors are responsive and responsible.” Comparing the situation to the Warsaw Pact countries of Europe breaking away from dominance of the Soviet Union, Hill said it is “an issue of freeing the hostages.”

Times staff writers George Skelton and Jerry Gillam contributed to this story.