Shafted in the recession and shafted in the boom

Three segments of government suffered the biggest hits during the early 1990s as the state struggled to balance a budget decimated by California’s worst recession in 60 years: public education, local government and the Public Employees’ Retirement System. Today, local government alone is still holding the bag. As the Legislature fashions a final 1997-98 state budget, lawmakers should do their best to restore some of the money taken from local government, especially the counties, during the recession.

Whatever the localities get will be crumbs at best. Gov. Pete Wilson saw to that when he decreed that the state use all of its newfound budget bounty to pay off in one lump sum a $1.3-billion debt to the retirement system.

The state could have repaid the money over 10 years. By deciding to pay all at once, Wilson, piqued by the Democrats’ rejection of his $1-billion tax cut, effectively barred the use of any substantial amount of new money for state programs in the coming year.

A few years ago, the Legislature agreed to a repayment schedule for $1.8 billion taken from public schools during the recession. The state now has repaid about $500 million, and the debt will be fully repaid in 2002. And the schools are flush with new money now as the result of the booming economy.

Cities and counties took by far the biggest beating as the state usurped some $3.5 billion annually in property tax revenues, part of it since offset by new sales taxes for police and fire services. Wilson had proposed a token $100-million return of funds this year. The Legislature sought $280 million. With the PERS loan payment, however, the prospects are dim for anything.

Senate President Pro Tem Bill Lockyer (D-Hayward) now has proposed giving counties $450 million to support the courts. But most of that money would not be available until next year.

One of the grimmer things about this budget is that legal immigrants about to be deprived of federal food stamps are the chief competitors for the state funds the counties so desperately need. Counties also are bracing for new demands as the state’s welfare reform program goes into effect.

Just a few weeks ago, California counties had looked forward to the possibility of getting as much as $850 million in new state aid this year. Now the likelihood of getting anything is poor. Even crumbs would look good.

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Cuts During Recession

Education: $1.8 billion.

Local government: Lost $3.5 billion in property taxes in 1992-93, shifted to state.

Retirement: $1.3 billion borrowed from PERS to help balance state budgets.

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STATUS OF REPAYMENT

Education: Being repaid under a schedule approved in 1994.

Local government: None repaid so far; loss partly offset by sales taxes for police and fire.

Retirement: Repaid in full on July 30, 1997.