The buzzword in California this summer is "realignment."

Under the eyes of national, state, and local officials, California is engineering the biggest structural change its finances have undergone in more than a decade: the transfer of an estimated $2.2 billion in social programs onto the state's 58 counties.

"It's as dramatic a change as Proposition 13, but in a much more positive way," said Ralph Tabor, legislative director for the National Association of Counties. "We've been watching it closely. It's a big shift, the largest realignment effort in the country that I'm aware of."

The state's massive $14.3 billion deficit for fiscal 1992 is one reason for the transfer, but the shift also continues a larger public policy trend of giving local authorities more power.

The trouble, some local officials warn, is that many counties could be crushed unless the new burdens come with greater autonomy and a share of state growth revenues.

"If it's done right, it's clearly a move in the right direction," said Richard B. Dixon, chief administrative office of Los Angeles County and current president of the Government Finance Officers Association.

"But it's not going to work unless the state shifts the resources and, if you will, the real ability for counties to run the program," he said.

Most of California's local officials favor the shift, believing counties will have greater room for flexibility and innovation, with the leeway to tailor programs to meet diverse local needs.

Critics say some counties could end up giving worse care than others, or that mental health and public health programs could be held hostage to local ideology. The biggest concern, however, is the realignment could cost the counties money if the programs grow faster than the allocated revenues.

The transfer was set in motion with two bills by Assemblyman Bruce Bronzan, D-Fresno. The first, A.B. 948, calls for increases of 13% to 55% in counties' share of funding for various programs. The second, A.B. 1288, allows for health, mental health, and indigent health services to be transferred to the counties.

Instead of the money being allocated from the state's general fund, the state will provide counties with a separate source of revenue, such as a sales tax or vehicle license fee increase.

Where the Money Comes From

Both bills were passed June 20. Then, as part of the state budget package, Gov. Pete Wilson signed measures that include increased vehicle license fees, expected to raise $769 million, and a half-cent increase in the state sales tax, expected to raise $1.4 billion. The state would collect the revenues on a statewide basis and allocate the funds for the specific social programs being transferred to counties.

Although local officials breathed a sigh of relief when the governor approved the revenue sources, they say the measures could generate from $22 million to $29 million less than intended.

The reason is the 10-day wait -- brought on by the complexities of tying up the larger budget package -- before the governor could sign the measures into law. The delay forced the vehicle license fee increase to start in August instead of July and the sales tax increase to be held until July 15.

"I would say we're satisfied with it," said David Oppenheim, revenue and taxation analyst for the County Supervisors Association of California. "But I still think it's important to see in a couple of years how the program works and if the revenues grow over time."

Mr. Oppenheim said he was not sure what the shortfall will mean for counties or how his organization would handle it.

"We may ask for a $29 million reduction in county responsibility. Or you just might add that number in with the county's shortfall in the budget," he said.

One advantage claimed by supporters of realignment is reform of A.B. 8, a bill passed after Proposition 13 to provide fiscal relief to counties struggling to fund health care programs with thinner revenues.

Mr. Bronzan's A.B. 1288 will account for most of the change. "I think the mental health bill worked out very well in that it will make the programs client driven instead of category driven. We can decide what a person needs and then spend the money on them," said Barbara Shipnuck, Monterey County supervisor and member of the budget committee of the County Supervisors Association in California that studied the realignment issue.

"I think it is a whole new way of governance," she added.

Both bills implement, in part, Gov. Wilson's proposal to rearrange program and fiscal responsibilities within the health and social service areas. They realign mental health programs from a bifurcated state and county management and funding to a single system of care funded and managed by counties. The bills eliminate the extensive data reporting on sociald programs currently required under state law.

The two bills also implement a big change for state hospitals. The facilities will continue to be owned and operated by the state, but the funds for the costs of such operations will be allocated to counties. Counties will also be able to negotiate contracts with the state for beds.

Together, the bills will save California nearly $2.2 billion in general fund revenues that now can be used for other purposes.

Realignment is not a new concept in California. As early as 1982, the County Supervisors Association of California set up a "realignment task force" to look into the feasibility of the plan.

Ms. Shipnuck, who was a member of the 1982 task force said many of the concepts being implemented this year came out of that committee. She praised the state Legislature and California's governor for taking action on realignment this year.

Pros and Cons

Realignment's supporters cite a string of benefits. They say it will stop the annual reductions in state funding for health care, provide a stable funding source that should grow 7% to 8% each year, provide a financial incentive to counties to properly manage resources, centralize program administration and accountability at the local level, and enable counties to prioritize services to address needs unique to each community.

They dismiss fears that giving county policymakers more elbow room could -- because of political ideology or budgetary necessity -- result in growing gaps in levels of care.

Paul Press, chief consultant with the state Assembly Health Committee, said that as counties implement the programs, each would be monitored closely by the state. He pointed out that the bills call for a revamp of several state and local mental health and social service watchdog commissions that could oversee realignment efforts.

If counties do not implement the programs, he said, the state may stop funding. "What the state giveth, the state can taketh away."

Many county officials are nervous over just what they will be getting from the state.

"We don't want them to give us these fast-growing programs to fund with a static revenue source," said Clyde Booker, treasurer-tax collector of Yolo County and president-elect of the California County Treasurers Association. Mr. Booker said before the governor approved the increase in the vehicle license fees and the sales tax, many local officials were worried the state would earmark funds from revenues such as a tobacco tax, which is not a growth revenue.

"We're just waiting to see," what the Legislature and the governor decide, Mr. Booker said. "It's spooky. The unknown is worse than anything, and that's where we are now."

County officials were not the only ones wathching to see what the state will decide. Rating officials also are concerned that if the allocated revenues are not related to the program it will fund -- such as a utility tax financing health care -- that the expenditures and revenues will grow at separate rates.

Rating officials predict if that happens, California may not only see a realignment of programs but a wide-scale realignment in county ratings as local governments are forced to dip into the general fund to make up the difference.

"The question will be whether the revenues and expendituresf will grow in relation to each other," said Amy Doppelt, senior vice president with Fitch Investors Service. "The real concern is how it will play out in the long term. I don't think you will see realignment in ratings immediately, but over the long haul ratings could be affected."

Under the two bills, supporters say, counties will get a more stable and growing revenue source for social programs. In the past six years, state funding for county health programs has dropped dramatically.

In 1985, the statef provided nearly $550 million for certain public health programs, but by 1990 that number dropped to $250 million, despite the state's growing population, according to figures from Mr. Bronzan's office.

State-allocated funding for county mental health programs also has seen a dramatic decrease in the past few years, even as population growth has increased the need for such programs.

In 1985, more than $450 million was allocated by the state for mental health funding, but by 1990 that number had dropped to a little more than $300 million. Under realignment, countiesf are expected to receive stable funding sources that will hold steady until 1996, when slight increases will show. Part of the savings for counties will be in lower overhead and bureaucratic costs.

Although the state has provided the funding, some county officials are concerned the state could turn around and put such severe restrictions on the money that counties will not have the autonomy to shape the programs to suit individual areas of a very diverse state. County officials say they need more authority in order to cut back on program costs.

"If the state shifts the program but leaves such strong restrictions and rules on the program, you haven't accomplished much. It's a recipe for disaster," Mr. Dixon said. "A health-care program for Los Angeles County should look quite different from a program for Butte County."

Ms. Shipnuck said other states may be looking at California's lead as a way to decrease the drain of social programs on a state's general fund. "I think if it works, it will be copied," she said.

National officials agreed but said it would be a while before California's realignment efforts could be judged.

"It's a very significant thing," Mr. Tabor said. "Will other states look at this as the way they want to go? Time will tell."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.