Nineteen-ninety-eight was a year of significant accomplishment for California's competitiveness and economy as voters flexed their muscles at the ballot box and their elected officials approved pro-taxpayer policies in the legislative arena.

Election results underscore that voters want to meet their priority needs without raising taxes. Voters continue to be vigilant about taxes and spending issues. This results in a stronger economy and greater job growth for the state.

Rejecting Proposition 9, the electric utility initiative, statewide voters were concerned about unnecessary exposure to $6 billion in costs associated with potential default on bonds already sold. Moreover, passage of Proposition 1A was not just about borrowing $9.2 billion for high-priority school facilities. It included landmark cost-containment features, new homebuyer and property taxpayer protections, and a financially responsible approach for building and renovating schools.

Defeating Proposition 7 showed that voters would rather have their Legislature evaluate and enact tax incentives to provide cleaner air. They seemed to oppose the ballot-box budgeting approach and were concerned about this initiative's impact on the economy.

Proposition 10, the cigarette tax increase, passed by a surprisingly narrow margin despite perceived popularity among the non-smoking majority. This indicates that many voters recognized it as unfair taxation, discriminating against a segment of the population.

Last June, voters defeated Proposition 224, a measure that sought to protect state employees from private-sector competition, which would have been a big step backward for strategies to make government more efficient with taxpayer dollars.

In November local elections, several high-profile local tax measures were rejected, including sales tax hikes for transportation in Marin and Sonoma counties, a special tax to repair Los Angeles sidewalks, and a sales tax hike in Sacramento County to pick up the costs of additional sheriff's deputies hired with federal grants.

These and other measures were placed before voters when many cities and counties are enjoying budget surpluses. In Sacramento County, Measure M proposed a six-year, quarter-cent sales tax increase. It received only 31.9 percent of the vote as there was little demonstration of need for the additional revenue, and opponents suggested that deputies be paid from existing revenues.

Sacramento County is one of many local governments in recent years that used federal money to beef up law enforcement. Now, as expiration dates of these grants approach, city councils and boards of supervisors will have to choose. Do they lay off police officers, adjust budget priorities, or ask voters to raise taxes?

At the state level, 1998 was a good year for taxpayers, particularly with passage of the Internet Tax Freedom Act. Supported by Cal-Tax, this measure was enacted with overwhelming bipartisan support to protect electronic commerce from new state and local taxes on electronic commerce. A moratorium on new taxes runs for three years. The Legislature also passed a 25 percent cut in the so-called car tax. There also have been significant personal income tax savings for those with dependents.

However, the biggest economic news for Californians in 1998 was the unprecedented $4.4 billion state budget surplus, mostly from higher-than-expected income tax returns. At least a portion of that bonanza should be attributed to policies of recent years that produced major tax relief - the manufacturers' investment tax credit, research and development tax credits, and a reduction in the corporate income tax rate. In addition, the state approved badly needed reform of the workers' compensation insurance system.

These factors combined to make California's economy more competitive with other states and regions of the country in a high-stakes battle for employers. California payrolls have increased by 1.6 million employees since the depth of the recession in mid-1993. The rate of growth easily outpaced the nation.

California's competitiveness is not a Republican or a Democratic issue. It is a bipartisan issue. The challenge for the new governor and the 1999-2000 Legislature is to sustain and build upon those policies that nourish the economy.

- Larry McCarthy is president of the California Taxpayers' Association

Larry McCarthy