Californians Wary of Tax Hikes To Fund Earthquake Recovery
As damage assessments for last week's Northridge temblor come in, officials at both the federal and state levels begin sorting out who will pay costs of rebuilding
HAVING weathered the jolt from last week's earthquake, southern California - and the nation - are now confronting the financial aftershock. They do not like what they're feeling.
The quake will be costly - and may be especially costly for California taxpayers.
Already, state officials and politicians are proposing raising sales and gasoline taxes to pay for the damage. Many Californians -
from business leaders to citizens - say they are already taxed enough.
``We have all kinds of businesses already leaving because of all our taxes,'' groused one Ontario, Calif., resident on an electronic bulletin board the day after the quake. ``Now another tax hike! NO NO NO NO NO!! We can't afford it.''
Even if the federal government ends up paying more than the state to rebuild the Los Angeles area, it's the California taxpayer who is likely to bear the biggest financial burden, according to a Tax Foundation analysis done for the Monitor.
Just raising the state sales tax by a quarter-cent would cost California households an extra $25.43 to $2,162.07 a year in taxes, depending on their income, estimates Arthur Hall, a senior economist at the foundation. The average tax increase: $70.30.
That figure is far higher than the average $43.98 increase the federal tax filer would pay if the United States decided to raise income taxes to pay $5 billion for southern California's recovery (an estimate that is considered high.)
If the state sales-tax hike is approved, ``anybody who buys anything in California is going to end up paying more,'' Mr. Hall says.
It is too early to tell how much last week's quake is going to cost. California Gov. Pete Wilson (R) has estimated damage at up to $30 billion. But such early disaster estimates are notoriously unreliable.
``They're always overstated for the obvious reasons,'' says George Horwich, professor of economics at Purdue University. ``It's a natural human tendency to overstate the degree of your loss in the hope that compensation will be forthcoming.''
Historically, the gap between estimated and actual costs of a disaster has yawned wide. When Douglas Dacy of the University of Texas at Austin researched natural-disaster costs in a 1969 book, he found that early estimates grossly exaggerated the final cost - sometimes by three times or more.
Several factors, however, will likely make the Northridge temblor more expensive for the federal Treasury than other natural disasters of a similar size.
First, California's state government is strapped for cash. It already faces a $5 billion deficit, so it will be hard-pressed to come up with more money. Even the federal government is straining to come up with disaster aid. Last year's Midwestern floods and L.A. fires drew down the disaster fund of the Federal Emergency Management Administration to about $1.1 billion. Second, earthquakes are traditionally more of a strain on government coffers than, say, a hurricane or a flood. That's because private insurance companies routinely protect homeowners against wind and water damage caused by hurricanes or floods. But ``not a lot of people buy earthquake insurance,'' says Karen Clark, president of Boston-based Applied Insurance Research, which estimates potential property damage from natural disasters.
After Hurricane Andrew in 1992, for example, private insurers bore the brunt of the rebuilding cost. They paid out more than $16 billion - better than double the $7.7 billion federal price tag for Hurricanes Hugo and Iniki. But in the 1989 Loma Prieta earthquake near San Francisco, private insurers covered only about $1 billion, Ms. Clark says, while the federal government footed a $2.5 billion bill.
The need for federal help is further exaggerated in earthquakes because they typically do far more damage to highways and other infrastructure than do hurricanes. Public facility and highway damages from last week's quake are estimated at more than $500 million.
The Clinton administration has already pledged $100 million from the Presidential Disaster Fund for Public Assistance, $45 million in Department of Transportation funds, and $95 million in Small Business Administration monies that will leverage loans for rebuilding. Overall, the federal government could end up paying at least as much as the $2.5 billion it spent on cleaning up after Loma Prieta.
That's big money. But spread over a multitrillion-dollar national economy, the cleanup sum will be a blip.
``It's a drop in the bucket compared to the total income funds collected by the federal government,'' Mr. Hall says.