Wilson Proposes Borrowing to Pay Quake Bill

Gov. Pete Wilson proposed Thursday that California borrow money to pay most of its $1.9-billion share of the Northridge earthquake recovery costs to avoid raising taxes.

Wilson’s plan would manage the state’s end of the recovery with a loan from the federal government, a state bond issue and unspecified cuts in existing state spending. The proposal attracted some initial support from legislative leaders but was harshly criticized by his Democratic opponents for governor.

“Taxes should be a last resort and not a first response,” Wilson told reporters in his office after a meeting with legislative leaders. “The facts show that the state’s general fund exposure can be financed without raising taxes.”

Wilson said that, unlike after the Loma Prieta earthquake, which struck the San Francisco Bay area in 1989, the state’s economy cannot absorb a tax increase.

Legislators enacted a quarter-cent, temporary increase in the sales tax to raise $761 million after the Loma Prieta quake.

“We really can’t afford an earthquake recovery plan that threatens an already fragile economy,” Wilson said.

He said the state’s unemployment rate is nearly twice what it was in 1989 and that personal income, which was growing at a 7.7% annual rate then, is nearly stagnant today. Wilson also noted that both the sales and gasoline tax have been raised significantly since 1989.

Wilson’s three-point plan includes elements that will need approval from the voters, the federal government and the state Legislature.

The largest part of it would be the proposed $1.05-billion bond issue, essentially a 20-year mortgage taken out by the state. Wilson wants to seek voters approval for the measure in June.

About half of the amount raised by the bond issue would go toward costs that are already being incurred for the state’s share of freeway repair and for the reconstruction of local government buildings and schools.

The other half would be spent on low-interest loans to homeowners to supplement the program run by the federal Small Business Administration. That portion--$575 million--will not be spent unless the bond measure is approved, Wilson said.

The second part of Wilson’s plan calls for the federal government to allow California to delay payment of the estimated $334 million the state will owe as matching funds for federal disaster aid. The state would pay the money in three annual installments beginning on July 1, 1995.

The governor said that he had spoken by phone with Leon Panetta, director of the federal Office of Management and Budget, and that Panetta said the Clinton Administration would be open to the idea of the loan.

“They certainly did not reject it out of hand,” Wilson said.

The final part of the plan would require at least $290 million in cuts to the existing state budget to make up for the loss of tax revenue and to pay the state’s share of grants to individuals and families.

Another $80 million would have to be cut to make the first of the annual payments on the bond measure if it is approved. Wilson did not say where he would make those cuts in a budget that already is $3 billion out of balance. “It is part of the challenge we will face in dealing with the budget gap in general,” he said.

The state would lose another $225 million over the next 10 years as people use their property damage losses as deductions to reduce their taxes.

The Jan. 17 earthquake caused an estimated $13 billion to $20 billion in damage. The tab for federal, state and local governments is estimated at $11.6 billion. President Clinton has proposed that the federal government pay $9.5 billion of that amount.

It was not clear Thursday how Wilson’s plan would fare in the Legislature. But it seems certain that the alternative--raising state taxes--will not get the Republican votes needed for passage without a strong lobbying effort by the governor.

Assembly Speaker Willie Brown, emerging from the meeting with Wilson and other legislative leaders, described the plan as a “rollover,” and said the possibility of additional taxes remains.

“You go through all the drills and you hope you never have to come face to face with that issue,” Brown said.

When a reporter asked the Speaker if the Wilson plan amounted to Washington-style deficit spending, Brown said: “We’re trying to work together, and it’s not helpful to put questions like that to me because I don’t like to lie.”

Assembly Republican Leader James Brulte of Rancho Cucamonga, who also was at the meeting, said he will author the bill authorizing the ballot vote on the $1.05-billion bond measure.

Senate President Pro Tem Bill Lockyer of Hayward refused to comment. Senate Republican Leader Ken Maddy was unavailable.

Spokesmen for Wilson’s Democratic opponents in the upcoming race for governor criticized his plan.

“Pete Wilson has managed to confirm in broad daylight that he is truly a gutless wonder,” said Darry Sragow, manager of Insurance Commissioner John Garamendi’s gubernatorial campaign. “Apparently, Pete Wilson is paralyzed by taxaphobia.”

Sragow pointed out that Wilson’s bond proposal would raise about half the state’s estimated $1.9-billion cost. By rolling over most of the cost into future years, he said, the governor is “putting the cost of repairing the damage of the 1994 earthquake on kids who aren’t even born.”

Sragow estimated that the costs could be paid by imposing gasoline and sales taxes totaling no more than $40 on individual Californians for one year.

Roy Behr, policy director for Treasurer Kathleen Brown’s campaign, also said the plan lacked courage.

“This non-proposal is gutless and irresponsible,” Behr said. “He’s telling earthquake victims that they should sit tight and wait until June for voters to approve bond measures--and we won’t do anything else for you.”

Behr said the governor’s plan will require more than $300 million in budget cuts.

* WARNING TO MCA: MCA has been told not to seek quake relief funds to relocate a subway station. A3