I live in the Bay Area, and am quite happy and comfortable living there. I expect a major earthquake to occur. I expect to repair the damage to my house, and help my neighbors, and go back to work in a few days. Our experience is that after a major earthquake, which may be catastrophic in terms of its economic effects, 80 percent of the buildings will still be standing and in use. One problem will be: how do we get people to work the day after the earthquake? I am not trying to downplay the deaths, injuries, and damage, but only to make the point that more will be standing than will be lost. Economic recovery will begin with a base of existing, functional buildings and structures.

That concept has been lost in much of what has been presented. Our model and scenarios must be legitimate. Clearly, more information is needed.

Although the state is part of the recovery process as a supplier of capital, it has limited resources. The California Legislature certainly demonstrated the fact in July 1990 by taking 43 days beyond the constitutional deadline to pass a budget. State government is in dire straits economically, in spite of a healthy economy.

In addition, California lacks flexibility to spend tax revenues. The General Fund, the primary source of state recovery-financing money, comes primarily from taxes. State expenditures are limited by the Constitution to annual increases no greater than a combination of population growth and the consumer price index, and experience shows that state programs grow faster than the combination of those two elements, so the competition for General Fund monies gets more intense each year. The problem will get worse before it gets better.

Constitutional and statutory language limits the amount of money California can raise and spend and how it can be spent. Over 82 percent of the General Fund expenditures are fixed by law and the Constitution. For example, the Constitution guarantees a minimum of 40 percent of the General Fund for K-through-12 education, even when we have an earthquake. While that 40 percent can be suspended for 1 year, it cannot be reduced in subsequent years without a constitutional amendment, even if there is a fiscal necessity to do so that was precipitated by a natural disaster, such as an earthquake.

Other programs that are certainly not frivolous are guaranteed cost-of-living adjustments by statute. The governor and the Legislature cannot change another 42 percent of the expenditures without passing new and controversial laws to reduce support for health and welfare, higher education, prisons, property-tax relief, and other critical programs.

The only areas where there is budget flexibility are in natural resources, state consumer services, business, transportation, housing, and a few other

FRONT MATTER (R1-R14)

EXECUTIVE SUMMARY (1-10)

1 WHAT IS KNOWN ABOUT SEISMIC RISK NATIONALLY? (11-34)

2 WHAT ARE LIKELY CATEGORIES OF LOSS AND DAMAGE? (35-99)

3 OVERVIEW OF ECONOMIC RESEARCH ON EARTHQUAKE CONSEQUENCES (100-111)

4 DIFFERENTIAL IMPACT OF EARTHQUAKE EVENTS (112-127)

5 RESOURCE SHIFTS FOLLOWING A CATASTROPHIC EARTHQUAKE (128-140)

6 THE 'RIPPLE EFFECT' (141-155)

7 HOW DO CURRENT RELIEF POLICIES AFFECT RECOVERY EFFORTS? (156-177)

REFERENCES (178-182)