REGIONAL REPORT : Officials Show Optimism on Proposal to Shift Services : Budget: Governor’s plan is attractive because it contains a revenue source for the former state programs. But an uneven level of health and mental health care statewide is feared.

When Ed Edelman considers Gov. Pete Wilson’s plan to shift social welfare programs to California’s 58 counties, he thinks of the thousands of disheveled street people who inhabit sidewalks and doorways across the state.

“When the state closed mental health hospitals in the early 1960s, the money was supposed to come down to the counties to take care of people at the community level,” recalls the longtime Los Angeles County Supervisor. “But they never gave us all the money and now we see mentally ill homeless people wandering the streets.”

These days, however, Edelman’s suspicions appear to represent a minority view.

On the face of it, the last thing any government body would seem willing to take over are costly programs with a limited political constituency. But rather than turning tail, many county officials across Southern California are expressing cautious optimism about Wilson’s $2.3-billion budget proposal, which would be financed with higher sales taxes and vehicle license fees.

“It appears to offer a move toward fiscal stability,” says fellow Los Angeles County Supervisor Deane Dana.

“This is the first ray of hope we’ve had in many years,” said Larry E. Naake, executive director of the County Supervisors Assn. of California.

Even Edelman concedes: “We’re in such a bad fiscal state right now that I think any kind of change might be looked upon (by many people) in an optimistic way.”

Since the passage of Proposition 13, counties have functioned as the orphans of California government--required to administer social welfare programs, having limited taxing powers to do it and never sure whether Sacramento would provide adequate funding.

At no time was the situation worse than last year, when former Gov. George Deukmejian’s budget slashed overall payments to counties by nearly $800 million, more than 10% of their total state funding.

In Orange County, officials reduced health care programs, shut youth centers and considered layoffs among the county’s 16,000-employee work force. In Los Angeles County, supervisors avoided dismantling the mental health care system by increasing fees on telephone service, landfill disposal, hotel beds and admission tickets for the Universal Studios Tour. Still, the county was forced to close seven public mental health centers, including a crisis evaluation unit for the most dangerous patients.

Other counties fared worse. In rural Northern California, Butte County teetered on the edge of bankruptcy until the state provided an $11-million emergency appropriation. According to a county supervisors association report issued before Wilson unveiled his budget, “county fiscal failures (are) inevitable” across California without substantial structural changes in the state-county relationship.

Wilson’s proposal, a key element of his plan to cope with the state’s $12.6-billion budget deficit, would free state government from further responsibility for major programs that it has little money to finance. But many county leaders, frustrated by the previous shortfalls in state funding, appear willing to trust Wilson that the new revenue sources can adequately finance their health and mental health services in coming years.

The Wilson plan calls for a 1 1/4-cent increase in the sales tax, a 1/2 cent of which would pay for the programs that counties would take over. The 1/2 cent would go directly to county governments, rather than the incorporated cities within counties where the taxes are collected.

A 1/2 cent of the state’s share of the sales tax increase would be eliminated after a year--but individual counties would then be given the authority to seek their own additional 1/2-cent raises. If a majority of their voters approved, counties could use those funds to finance schools and provide drug and crime prevention programs.

Several key details of the Wilson plan have yet to be worked out, including whether revenue from the new sales tax would be distributed to counties on a per-capita basis or in line with current state formulas.

In San Diego County, officials complain that the distribution of state funds for county health programs has been inequitable since the late 1970s. Last year, San Diego had 8.3% of the state’s population but received only 3.5% of state funds for county health services, according to John Sweeten, San Diego director of inter-governmental affairs. In contrast, he said, Los Angeles County had less than 30% of the state’s population but received 40% of the state funds.

Of concern to all the counties is how much control the state would maintain over health care standards once the programs are transfered.

By reducing state mandates, says Riverside County Supervisor A. Norton Younglove, “You’d save an enormous amount of bureaucratic costs and give counties the flexibility to use what wit and wisdom we’ve got to solve our health problems.”

Ventura County Supervisor John K. Flynn agrees.

“I just hope that in this restructuring that county government is given not only the responsibility but (more) authority,” he said. “I hope that our lobbying position will be to try to snip as many strings as possible.”

However, mental health care advocates worry that services could decline unless uniform state standards were maintained.

“There is a serious danger of 58 very different mental health systems around the state,” says Richard Van Horn, executive director of the Mental Health Assn. of Los Angeles County. “You could have clients move across county lines toward better programs--which isn’t going to make counties want to put their best foot forward.”

Officials in most Southern California counties say it is too early to tell what level of services they would institute if Wilson’s reforms are approved. But in Los Angeles County, observers say, the new Democratic majority on the Board of Supervisors resulting from the election of Gloria Molina could make a difference.

“In the past, I suppose there’s been a fear in the (Democratic-controlled) Legislature about turning over money without strings to the county when it was controlled by a conservative board,” Edelman said. “So now there could be an easing of that feeling.”

Across the region, most county officials praise Wilson for attempting to find a long-range solution for the annual budget crunch. The former U. S. senator and San Diego mayor, they say, is providing a breath of fresh air after eight years of Band-Aid solutions and stonewalling from the Deukmejian Administration.

“(Wilson) apparently is willing to listen and negotiate,” said Billie Hansen, San Bernardino County deputy administrative officer. “It’s not easy to come forth with a sales tax increase.”

However, Hansen and other officials are concerned that the size of the increase could make it more difficult politically for counties to raise additional funds for other programs.

“It doesn’t leave the local governments anyplace to go in case they want to increase local sales taxes to solve their own problems,” she said.

In Orange County, the sales tax crunch is already at hand.

On May 14, voters are scheduled to consider a 1/2-cent sales tax to build a county jail and relieve overcrowding in a system that typically houses 4,400 inmates in facilities built for 3,203.

Despite county voters’ longtime reluctance to back higher taxes, a recent Times Orange County Poll found residents willing to support the measure when told what it would pay for.

Now, however, talk of a higher state tax appears to have imperiled the plan.

“There’s no question but that this is hurting Measure J,” said Supervisor Roger R. Stanton. “It can’t do anything else.”

Times staff writers Hugo Martin, Jim Newton and H. G. Reza contributed to this story.

COUNTY FINANCES: WHERE THE MONEY COMES FROM Sources of financing for California’s counties in 1989-90

SOURCE AMOUNT PERCENT Revenue from state agencies $7,555,189,278 37.38% Property taxes $4,907,243,029 24.28% Revenue from federal agencies $3,715,967,734 18.38% Charges for services $1,688,973, 010 8.36% Fines and penalties $356,267,452 1.76% Sales taxes $324,893,444 1.61% Miscellaneous revenue $305,156,014 1.51% Licenses, permits, franchises $232,783,254 1.15% Other financing sources $198,975,003 .98% Other $927,989,142 4.59% Total $20,213,437,360 100%

SOURCE: State Controller’s Office

Factors contributing to the chronic fiscal problems that plague California’s 58 counties: * STATE FUNDING SHORTFALLS: During the state budget crisis last year, overall funds for county programs were slashed by nearly $800 million.

* PROPOSITION 13: The passage of Proposition 13 more than a decade ago slashed individual property taxes and eliminated the ability of counties to increase property tax rates.

* ANNEXATIONS AND INCORPORATIONS: As new cities form and older cities annex lucrative shopping areas, property and sales tax revenues collected by counties diminish. In L.A. County, only 4% of the sales taxes collected go into county coffers, according to county finance division chief Jerry Roos.