NEWS ANALYSIS : Bond Package Shaped by Budget, Politics : Finances: Compromise plan would pay for bridge work and rescue highway projects without raising taxes. But the gamble faces votes by lawmakers and the public.

In packaging a $2-billion earthquake bond measure for the June ballot, the governor and legislative leaders avoided a head-on collision with mounting financial problems that threatened to force a tax increase or shut down politically popular highway projects.

The eleventh-hour agreement to designate nearly half the bond funds for the strengthening of bridges most vulnerable to earthquake damage put off for this election year the necessity of a sales or gas tax increase to pay for roads. And it postponed the state’s reckoning with at least a $2.5-billion shortfall in its transportation program.

At the same time, it solved a nettlesome problem for lawmakers in the San Francisco Bay Area who were facing a $560-million bill for the seismic retrofitting of toll bridges and no politically palatable way to pay for it.

For Republican Gov. Pete Wilson, the compromise package defused a potentially explosive campaign issue sparked by the Jan. 17 Northridge earthquake, which collapsed portions of six Los Angeles freeways and focused attention on the slow progress that Caltrans has made in strengthening the state’s highway bridges to resist quake damage.

A Times special report last month found that about 80% of the freeway structures considered most vulnerable in an earthquake have not been retrofitted more than four years after the Loma Prieta quake sent 43 people to their deaths on Bay Area freeways and bridges.

The Wilson Administration on Thursday announced a plan to accelerate the lagging retrofitting program by at least a year. Highway bridges would be strengthened by the end of 1995, while toll bridges would be fixed by the end of 1997.

After the Loma Prieta earthquake dramatically underscored the weakness of some freeway structures, Caltrans embarked on an ambitious program to strengthen the concrete columns that support about 1,300 freeway bridges considered most at risk in a major temblor.

To reduce the likelihood that the concrete in the columns will blow out when subjected to intense shaking, Caltrans developed a program to wrap the columns in steel jackets.

Even before the Northridge quake, the soaring costs of this seismic strengthening program threatened to gobble up scarce dollars from other transportation projects. These include maintenance and safety repairs on freeways, widening of roadways and construction of highways, as well as improvements to ramps and overpasses.

“When you have insufficient revenues you do begin to cannibalize,” said Art Bauer, executive director of Californians for Better Transportation, an industry and local government lobbying group.

Last month, the nonpartisan legislative analyst’s office warned lawmakers that the state was $2.5 billion short on the revenue needed to complete a seven-year master plan for transportation improvements.

The financial crunch was blamed on the recession, which reduced sales and gasoline tax receipts, and on the increased fuel efficiency of motor vehicles that has eaten into collections from the 18-cent-per-gallon state tax.

The analyst’s office also said the defeat of a rail bond measure in 1992 and the transfer of transportation revenues to help balance the state’s financially troubled general fund has contributed to Caltrans funding problems.

Without additional money, the analyst’s office concluded, the transportation department faces sharp declines in spending on maintenance of highways and construction projects in the fiscal year that begins July 1.

The financial problem would be aggravated, the analyst said, by the fact that “the existing seismic retrofit program . . . has suffered delays and is likely to cost more than currently estimated by Caltrans.”

The analyst’s findings reinforced Caltrans Director James van Loben Sels’ assessment at a January meeting of legislators and transportation lobbyists that the highway program was going “off the cliff” next year because of insufficient revenues.

Several key lawmakers and Wilson’s Democratic challengers in the governor’s race proposed tax increases to avoid the financial crisis, complete the retrofitting work and prevent the cancellation of new construction projects. But Wilson adamantly opposed increasing taxes.

“He feels a tax increase would just be fatal to an economy that’s on a turnaround,” Wilson spokesman Paul Kranhold said.

But faced with criticism that the Administration had not moved fast enough to prevent freeway failures in future quakes, Wilson needed a means to defuse the issue. First he announced the acceleration of the seismic program, and then came the announcement of the bond issue to pay for it.

Although a sales tax increase had been used to pay for repairs after the Loma Prieta quake, Administration officials said the governor believed that bonds were the most appropriate way to cover costs associated with the Northridge quake and to strengthen freeways for future quakes.

H. D. Palmer, assistant director of the Department of Finance, said Wilson believes the economy is much too weak to support a tax increase. Palmer said bonds avoid a tax hike and allow the state to take advantage of exceptionally low interest rates.

“At a time when state economy is stabilizing, the last thing you want to do is choke off or thwart that potential economic recovery by saddling the state’s economy with additional taxes,” Palmer said.

The deal that emerged from the closed-door negotiations with top legislative leaders included a concession from Wilson that made it politically attractive to the two top Democratic leaders--Assembly Speaker Willie Brown (D-San Francisco) and Senate President Pro Tem Bill Lockyer (D-Hayward)--both of whom represent the Bay Area.

Previously, Wilson had insisted that the $650-million price tag for strengthening all of the state’s toll bridges--most of them in the Bay Area--come from tolls paid by motorists using the spans. Instead, the compromise calls for the cost to be borne by the bond issue, sparing Bay Area motorists that burden.

“He’s backtracked . . . to get political support from Northern California,” said Assembly Transportation Committee Chairman Richard Katz (D-Sylmar).

Katz said the move, if successful, delays the crisis in the state transportation program. “What he’s trading here,” Katz said, “is long-term debt as opposed to dealing with the problem today. He’s making a political decision to go for a bond versus a sales tax, thinking that bonds are less onerous in the public’s mind than a tax increase.”

However, Katz said the strategy is a gamble because the bonds still must be approved by a two-thirds vote of the Legislature and a majority of those casting ballots in the June 7 election. If the plan fails at either juncture, Katz said, the state’s political leaders will face the dilemma they have been trying to avoid--deciding whether to delay new highway projects or approve a tax increase.

And the cost of the retrofitting program could grow significantly as Caltrans completes a review of an additional 1,500 bridges, many of which were deemed seismically safe but are being re-evaluated in light of the failure of bridges during the Northridge quake.

The use of bonds to pay for seismic retrofitting of bridges is a dramatic departure from the state’s traditional policy that highway improvements should be handled on a pay-as-you-go basis.

After the governor and the legislative leadership announced their compromise bond proposal, critics were quick to raise questions about the new policy direction.

“From a political standpoint this is a deft compromise, but from a policy standpoint it is a disaster,” said Senate Transportation Committee Chairman Quentin L. Kopp (I-San Francisco).

Officials have estimated that over the 20-year life of the bonds, debt service will cost an additional $1.4 billion.

Sen. Tom Hayden (D-Santa Monica) and Katz complained that in the leadership’s zeal to solve a political problem, they had put forth a proposal that would not only increase costs but saddle future generations with mammoth debt.

“I see no rationale for this except politics,” said Hayden, who is running for governor. “In order to keep the expansion of interchanges and off-ramps rolling . . . they had to find this new source of money for seismic so that it didn’t compete with the new projects.”