Bold Plan Would Set New Agenda For California

WITH an ambitious redesign of California government that could have broad implications for dozens of recession-mired states, Republican Gov. Pete Wilson has put the Golden State economy - and his own political future - on the line.

Bold new plans to revamp education, business regulations, and tax and legal systems are aimed at halting the business flight that has increasingly sapped this state over the last decade.

Unveiled last week but still to be formally circulated, the new Wilson blueprint to overhaul the workers' compensation system, capital-gains tax rates, and criminal justice procedures is considered the centerpiece of his administration.

"This is the agenda which will make or break Pete Wilson," says Sherry Bebitch Jeffe, a political scientist at the Claremont Graduate School. A 17-member, blue-ribbon panel chaired by 1984 Olympics czar Peter Ueberroth convened in December as the Council on California Competitiveness to create a coordinated industrial policy that top business leaders say the state has never had.

"Every big, aging industrial state will be watching to see how California embraces this plan to move beyond its current hysteria to consensus," says Joel Kotkin, senior fellow with the Denver Center for the New West.

With the largest state deficit in American history ($14 billion plus), California governance has reached a critical juncture. Despite net growth of 600,000 new residents per year expected during the 1990s, such population increases would require at least 250,000 jobs to support them. California lost 340,000 jobs last year, Mr. Ueberroth said. "The major problems besetting [us] are self-inflicted. Through our indifference to the need for job creation ... we are crippling ourselves," he says.

Among his council's key recommendations in a "12-month urgent action program" are:

* Replace the current workers' compensation insurance rate-setting system with a competitive system that gives employers more discretion to control costs of medical care. Revise standards for disability claims and repeal a law that limits competition among insurers. The system "is a national disgrace because of its tolerance of fraud and abuse," the council said.

* Require state environmental standards to not exceed federal ones. Create one-stop environmental regulation and tax credits for businesses that invest in pollution-control machinery. Repeal the capital-gains tax on new investments in companies with fewer than 500 employees that are held for three or more years.

* Impose sanctions on lawyers who file frivolous lawsuits and encourage arbitration of disputes. Give business more-favored treatment in the legal system by repealing the Corporate Criminal Liability Act, limiting punitive damages and keeping lawsuit settlements confidential.

* Create a State Office of Management and Budget, similar to the federal agency, to oversee state finances and appoint a commission to redesign California government to make it more responsive to business and industry.

"That the state is finally addressing all the negatives in regulatory burden that have crippled us for so long is a major attainment," says Lynn Reaser, chief economist for First Interstate Bancorp. "They have taken aim at the most objectionable factors for business."

Once called recession-proof because of its size and diversity as the world's seventh-largest economy, California fell into recession later and harder than the country at large. Signs of recovery have been slower.

"This is also a realization that the once-invincible economy of the Golden State is no more," adds Jeffe.

The bipartisan coalitions needed before such changes become law have yet to materialize as reaction divides along classic political lines: Democrat vs Republican, labor vs. business, environment vs. all-of-the-above.

"This plan is basically an industry wish-list," says Sam Yassa, a research associate at the Natural Resources Defense Council. "It's a thinly veiled attempt to give priority to corporate profits while skirting environmental regulations."

Some key Democrats are also distancing themselves from the recommendations, claiming that some ideas have been tried before, undermining revenues without spurring new growth.

"We need to discuss how we can deal with increased immigration ... due to federal policies," says State Senate President Pro Tem David Roberti (D) of Los Angeles. "The federal government needs to provide more assistance."

But industry and business have embraced the new plan in hopes that legislation can be enacted quickly.

"These recommendations are absolutely essential to create the kind of competitive environment that will keep business here," said Martyn Hopper, state director of the National Federation of Independent Business in Sacramento. Noting that some of the recommendations were not new ideas, he said "this new council has created much credibility for follow through."