Demographic Shifts Tax California; Cost of Services Expected to Climb

CALIFORNIA'S population is growing younger, and therein may lie the state's greatest challenge of the 1990s.The key word is "taxpayers." As Gov. Pete Wilson and aides are showing White House officials this week, most California newcomers are not net taxpayers; but those leaving are. "Economists and demographers across the state know that demand for services is simply outstripping the state's ability to pay," says David Hensley, director of the business forecasting unit of the University of California at Los Angeles. Noting that the state has been wrestling with the largest state deficit in American history, Mr. Hensley adds, "Now we have compelling and fresh evidence as to why it will only get worse." As revealed in a study released last week by state finance director Tom Hayes, California's major tax receiver groups - students, welfare recipients, prisoners, and those eligible for the state health-care program, Medi-Cal, are growing faster than its net taxpayer group, and "will cause a budget shortfall of $20 billion by the year 2000." By then, the study shows, there will be 0.87 taxpayers for every tax receiver. "This is a very important new perspective about the need for the state to change focus from treating problems to preventing them," notes RAND Corporation demographer Peter Morrison. Most of California's 6.2 million population growth in the 1980s was adult - reflecting the postwar baby boom, the study says. Working-age people (age 18-64) increased nearly twice as fast - more than 27 percent - as school-agers (age 5-17). But based on the 1990 census, lower birthrates from the 1960s through the 1980s will mean the working-age population will grow only 13.7 percent in the 1990s while school enrollments will jump by as much as 48 percent. "The state's entitlements to health, welfare, and prisons are the long-term trends that need to be addressed," says David Gardner, president of the nine-campus University of California, which has frozen salaries, cut staff and class offerings, and imposed a 40 percent fee increase in student fees. "Otherwise you have the state funding the social programs that result from societal dysfunctions at the expense of those that generate the wealth of the state," Mr. Gardner adds. Governor Wilson is asking congressional leaders and White House budget director Richard Darman for federal assistance to ease the burden of the mass migration hitting California. "We want to explain the pressures imposed on the state by federal mandates, such as health care, that don't include commensurate funding," says Bill Livingstone, the governor's press secretary. One federal statute says illegal workers are ineligible for public assistance, for instance, while another mandates their children be enrolled in public schools. "States are not supposed to bear unintended, disproportionate burdens of national policy," says Steve Levy, director of the Center for the Continuing Study of the California Economy. "Wilson's initiative deserves broad, bipartisan support." Foreign-born immigrants - 75 percent of California's migrants in the 1980s - are expected to have an even greater impact on schools and health-care costs in the 1990s, the study says. For the vast majority of these newcomers, English is a second language, placing extra demands on school districts and limiting employment opportunities for adult immigrants. Medi-Cal expenditures will also be heavily affected by swelling foreign-immigrant numbers - rising from 1.5 percent of case load in 1980 to 13 percent by the year 2000. Since taking office in January, Wilson has initiated a so-called "preventive agenda pushing less-expensive programs such as neonatal care to ward off problems that might require far more expensive health care later. The finance study recommends reduced government spending while stimulating job growth by improving the business climate. Two new state commissions have been formed to do so. But some observers advise caution against rushing out to change state policy in wake of the new statistics. "The study gives a new window onto what's happening," notes Mr. Morrison. "But it doesn't address the root causes of growth in employment earnings." "We feel a recession year is a poor time to address long-term budget policy issues for the state," says Levy. "The DOF [Department of Finance] raises an important red flag, but a much more careful and open, bipartisan discussion of these assumptions should be conducted before policy agendas are advanced."