QUAKE WATCH : A Poor Rating

Standard & Poor’s Corp. has taken a new look at California and changed its long-term rating outlook from stable to negative. The credit rating firm says the downgrading reflects the continuing deterioration in the state’s cash position and the bleak budgetary view for 1994. Once again, an operating deficit is expected, with no deficit reduction in sight.

What the S&P; action means, among other things, is that buyers of the state’s bonds are likely to demand a higher return on their investment. Gov. Pete Wilson, who wants to put a bond issue on the June ballot to pay for the state’s share of earthquake repairs, should take note.

Wilson favors going the bond route as a way to avoid any temporary rise in taxes. But a bond is a debt. The interest paid on a bond and the return of principal can come only from state revenues, which are derived from taxes or user fees. A 20-year bond simply obscures the source of repayment while shifting much of the debt burden to a future generation. That may be the safest thing to do politically. But in this case it is clearly not the fiscally responsible thing to do.

Short-term selective tax increases of a few cents a gallon on gasoline and a quarter-cent on the sales tax would give state and local governments the funds they need to repair earthquake damage to public facilities and retrofit others to withstand future quakes. Certainly bonds have their place in providing for many long-term needs. But the only fiscally sensible way to cover quake-related emergency costs is on a pay-as-you-go basis.