For my last post until the first week in August (the wedding is coming up on Saturday and I'll have the laptop taken away and thrown in the Sound if I keep writing!) it seemed fitting to briefly discuss the Legislative Analyst's Office overview of bond proposals that was published last week and is making its way into the state media. The LAO concludes that California can afford Prop 1 - but the analysis does not fully take into account all the benefits of HSR to the state budget and the economy. It's a good but imperfect overview.
The LAO assessment of Prop 1 is mostly a rehash of the basic facts about the system that we all know. The interesting stuff comes at the end:
The costs of these bonds would depend on interest rates in effect at the time they are sold and the time period over which they are repaid. The state would make principal and interest payments from the state’s General Fund over a period of about 30 years. If the bonds are sold at an average interest rate of 5 percent, the cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year.
That $647 million per year figure is what the state media are latching onto, because they feel it fits their "omg trains will break the budget" narrative - the Central Valley Business Times article certainly implies this to be the case. But in fact the bond spending won't be an average of $647 million per year - some years, especially the next few years, it will be much smaller, and will ramp up in the next decade as contracts are signed and construction begins.
Obviously our opponents will latch onto this figure and claim either that this proves a state with a budget deficit can't afford the trains or that this is guaranteed to raise our taxes. Neither is true. As I have explained before HSR and the budget deficit are separate issues - the deficit will have to be closed no matter what happens to Prop 1.
But more important - and totally absent from the LAO report - is an assessment of what would happen if we do not build HSR. The cost of doing nothing is not zero. The LAO has a narrow mandate in assessing something like Prop 1, but by not assessing what the cost to the state budget would be of not building the project - in freeway and airport expansion, or in lost tax revenue from declining intrastate travel due to high gas prices - their report does not actually give us a complete picture. It has been estimated that to expand freeways and airports to meet capacity demands would cost the state between $80 and $120 billion, whereas HSR can handle much of that capacity for a cost to the state of $10 billion.
Some might quibble and say "well the true figure isn't $10 billion - it's $19 billion!" That's become a new tactic of the anti-transit forces. In Seattle they helped kill the monorail project by claiming its "true cost" was $11 billion once all financing costs were included, but that is an accounting method rarely EVER used to assess projects. Even if it were, it is dishonest to calculate all the financial costs of HSR alone while not comparing it to the financial costs of NOT building HSR.
More fundamentally the LAO report does not examine the broad economic impact of HSR. That too is beyond the LAO's too-narrow mandate, but we can and must include that in our own assessment and our explanation of the project to Californians. The HSR bonds will create as many as 450,000 jobs, providing an economic stimulus as well as tax revenue. As the world now recognizes, HSR is vital to a prosperous 21st century economy. We can have broad economic growth or we can not build HSR - but we cannot do both. Those who oppose HSR on fiscal grounds have their heads in the sand and are missing what is happening to the economy all around us. We have used up the infrastructure investments of 50 and 75 years ago - without investment in 21st century infrastructure our state will be hostage to ever-rising gas prices, while will hurt tourism, business, and everything else in our economy that depends on travel...which is everything.
The LAO also discussed operating costs:
When constructed, the high-speed rail system will incur unknown ongoing maintenance and operation costs, probably in excess of $1 billion a year. Depending on the level of ridership, these costs would be at least partially offset by revenue from fares paid by passengers.
"At least partially" is such an understatement as to almost render this section useless. Every HSR system currently in operation generates a surplus - meaning they pay for their own operating costs. The ridership issue that was once the cornerstone of HSR deniers has now receded as even they must understand that since passenger rail ridership in the US is soaring, and that HSR lines around the world do a booming business, California's HSR system is unlikely to face low ridership.
Finally, the LAO offered a overview of state bond debt that demonstrates Prop 1 would not really change the state's overall bond picture or debt level:
In short: California can afford high speed rail. And even though the LAO did not analyze this, over four months of posts on this blog shows the corollary to be true: California cannot afford to NOT build high speed rail. It is an investment in our future that will repay itself many, many times over. We cannot let a temporary budget crisis or a lingering, foolish anti-spending mindset turn us from those crucial facts.