Defeat of Quake Relief Bonds Adds to Budget Crisis : Election: Wilson delays highway and rail projects to pay for strengthening bridges. He rules out a tax increase but acknowledges urgent need to find more funds.

The resounding defeat of an earthquake recovery bond sent a financial shock through state government Wednesday, exacerbating a grim budget crisis and forcing Gov. Pete Wilson to delay highway and rail projects to pay for the seismic strengthening of bridges.

Wilson, who had been so confident of the measure’s passage that he had prepared no contingency plan for its failure, immediately ruled out a tax increase but acknowledged that the election night loss now presents beleaguered state leaders with two urgent problems.

They must find an additional $200 million to finance the state share of earthquake recovery costs. In the longer term, they must find a way to help pay highway retrofitting bills.

He maintained that the retrofitting will continue and be financed by postponing other projects.

“I want to assure the people of Los Angeles that the pace of highway repairs will not be delayed by the defeat of (the earthquake bond),” Wilson said. “Other transportation and rail projects are just going to have to be pushed back.”

As he met with supporters to celebrate his own Republican primary victory, Wilson conceded that he had miscalculated voter reaction to bond issues, all of which were defeated. “I thought that even though there would be a general and probably very strong voter antipathy to bonds . . . the (earthquake measure) would probably be the one survivor,” he said.

The $2-billion proposal, engineered by Wilson to counter Democratic plans for a temporary tax increase in the aftermath of the Northridge quake, would have paid the state’s share of earthquake recovery costs and provided $950 million for retrofitting highway bridges considered vulnerable to damage in a strong temblor.

The measure was overwhelmingly rejected by voters (55% to 45%), who for the first time in California history defeated every spending proposal on the ballot as they sent government a clear message that they were in no mood to sanction increases in the state’s considerable indebtedness.

Voters had been presented with proposals for nearly $6 billion in bond issues, the largest amount of indebtedness ever sought in a single election. They responded by defeating not only the earthquake measure, but also a $2-billion proposal to buy parkland, a $900-million bond issue for improvements to college campuses and a $1-billion proposal for public school classroom construction and renovation.

The park bond issue lost by the widest margin, even though it was the only proposal that had been promoted by a well-financed campaign. “When you’re in a tidal wave it really doesn’t matter whether you’re in an inner tube or a yacht,” Lynn Sadler, campaign director for the park bonds proposal, said bitterly. “The voters just made it very clear they are not interested in more bonds.”

It was the defeat of the earthquake bond, however, that confounded state government, forcing the governor and lawmakers to begin searching for additional cash to provide the state with the money required to match federal earthquake recovery aid.

But the need for cash comes while state leaders are already facing a $5-billion budget shortfall.

In his reaction to the earthquake bond’s defeat, Wilson said he will try to keep to a minimum the amount of money the state needs to spend. He said he will propose dropping some programs encompassed by the bond issue, while financing others in a way that will not affect the general fund budget.

He said, for example, that a $575-million proposal for the state to become a lender of last resort for earthquake victims who could not get federal assistance would now have to be abandoned. By the rejection of the bond issue, he said voters had in effect shown their disapproval of the project.

“With the defeat of the bonds,” Wilson said, “the state simply does not have the resources (for this program).”

The governor said an additional $145 million to finance the state share of highway earthquake reconstruction costs will have to come out of fuel tax revenues used to finance transportation projects. This also will delay other road and rail projects.

Additional costs covered by the bond issue, including the retrofitting of schools and other public buildings, could be covered by revising priorities for existing programs, he said.

But Democrats on Wednesday were skeptical that Wilson could even find the $200 million in the general fund budget that he said will be needed to pay the state’s share of recovery costs.

And as Wilson tried to take time to savor his own primary election victory, Democrats moved quickly to lay the blame for the bond failure at his political doorstep.

In Washington, Democrats warned the Republican governor not to look to the federal government for more financial relief.

“Clearly, Pete Wilson has a problem to deal with. He opted for the bond measure approach and rejected the pay-as-you-go approach and now needs to resolve the question,” said John Emerson, deputy assistant to President Clinton.

Emerson said there is nothing more the federal government can do to help California pay for earthquake damage.

On the home front, the Democratic reaction was equally biting.

“The ball’s in the governor’s court,” said Assembly Ways and Means Committee Chairman John Vasconcellos (D-Santa Clara). “I don’t know how to balance this budget. I think it’s unbalanceable. He’s the one who made this choice (the bond issue) and he has to live with it.”

Vasconcellos said the state is fast running out of financial options and warned that if Wilson is considering more budget cuts, he may encounter strong Democratic opposition. “I can’t close the universities. I’m not going to starve babies, and the schools are underfunded now,” Vasconcellos said.

Senate Budget and Fiscal Review Committee Chairman Alfred E. Alquist (D-Santa Clara) predicted that Wilson may eventually find there is no alternative but to adopt a proposal advanced by Democrats for a temporary half-cent sales tax increase.

“We tried to tell him that the bond issue wasn’t going to work. . . . I think he’s going to find he is going to have to listen to some common sense rather than the right wing of his party,” Alquist said.

The options in the transportation arena are not much more appealing for Wilson, either.

State transportation officials said gasoline tax revenues have already been earmarked to pay the $750-million first phase of the highway bridge retrofitting program. That part of the program, now under way, involves strengthening 1,039 highway bridges throughout the state. So far, retrofitting has been completed on 277 bridges and is scheduled to be finished on the remaining structures by 1995.

But it was the second phase of the program, which is not expected to begin until next year, that was to have been financed at least in part by the bond issue.

The number of bridges and the actual cost of the second phase will not be determined until the end of the month, when transportation officials complete the screening of 1,665 additional bridges. Early indications were that as many as 1,200 structures may need to be added to the strengthening program.

Insisting that retrofitting is still the state’s No. 1 transportation priority, Wilson said Wednesday that funds for the program’s second phase would have to come from the State Transportation Improvement Plan, a seven-year schedule of highway and mass transit projects financed by fuel taxes.

He said other highway projects would have to be delayed to make the money available.

While officials would not specifically outline what projects will be delayed, they said it will probably be those planned for later in the decade.

Times staff writers Daniel M. Weintraub, Jerry Gillam and Glenn F. Bunting contributed to this story.