Monday, September 29, 2008

California Cannot Afford to Reject Prop 1A

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

Ever since this blog launched back in March I've felt that the most potent threat to Prop 1A's passage is the budget and economic crisis. Too many Californians, especially in the media, are stuck in obsolete late 20th century thinking that a recession is a time to cut back on government spending, that now would not be a good time to authorize bonds and construction of high speed rail.

Nothing could be further from the truth. If we followed that argument - being advanced in newspapers such as the Pasadena Star-News and the Long Beach Press-Telegram this weekend - in the 1930s then we'd never have built Hoover Dam or the bay bridges. If we followed that advice in the late 1950s when California had a budget deficit we'd never have built the California Aqueduct.

When a state is stuck in a recession the #1 priority is to get the economy moving again. Deficit spending to create jobs is a good way to do that. Borrowing to build infrastructure that provides many decades of value and itself spurs further economic growth is an even better way to do that.

HSR is estimated to create around 160,000 jobs in the short and medium term. A recent study suggested San Diego alone would see 45,000 jobs. Long-term job creation estimates have been around 450,000 for the entire state. California's unemployment rate stands at 7.7%. These newspapers are irresponsible to suggest California should wait to create these jobs - we need them now.

Another argument against Prop 1A is that with a state budget crisis now isn't the right time. The Pasadena Star-News makes this explicit:

Right now, though, when we need to find ways to simply balance our budget in order to pay teachers, keep health clinics open and operate other essential services, we're going to have to wait to get aboard this train.

How exactly is California going to balance the budget if we don't have jobs? If jobs are lost and tax revenues shrink because people are paying too much money for oil-based transportation?

But even worse is the notion that our choice is between teachers and high speed trains. It's not. The nonpartisan Legislative Analyst Office reported that California can afford Prop 1A - it will not significantly increase our bond debt beyond what we can afford. The total cost of Prop 1A with interest is likely to be around $19 billion. That will be repaid, however, over 40 years. $10 billion is NOT going to be authorized all at once. It will be spent over the course of ten years as the construction schedule necessitates. Meanwhile new jobs and new tax revenues will help boost the state economy and state budget. California's budget needs structural reforms, but we can and must pursue them while also building for the future.

More importantly, neither editorial assess the cost of NOT building HSR. They make the same mistake countless others have made in assuming that if we reject Prop 1A, we spend no new money. That is absurd. The cost of expanding freeways and airports has been estimated at around $80 billion. HSR meets the same need at an eighth of the cost (to the state budget). Airlines are cutting flights and raising fares which means additional costs for the state. As our foreign competitors are turning to HSR, it will be more difficult for California to attract new business investment if we lack an alternative to oil-based transportation.

The cost to the environment is also considerable - HSR will cut 12 billion pounds of carbon emissions and save over 12 million barrels of oil per year. Given the eventuality of a carbon tax or cap-and-trade fees that translates into actual money California will have to spend because we rejected Prop 1A. Those costs themselves will be considerable, and will have a negative ripple effect throughout the economy.

Some suggest we wait and build HSR later. When is "later"? When oil prices have shot through $200/bbl? When construction inflation costs have pushed the project's cost over $50 billion? If we had approved HSR in 1998, it would be ready to go now, ready to provide economic growth and financial savings. The longer we wait, the higher the cost will be.

California's economic and financial crisis stems from having relied on oil for our economy. When oil prices soared, our economy suffered and in turn our banks became insolvent. If we want long-term recovery, we MUST move beyond oil. It is an absolute requirement for further economic growth. Those who oppose Prop 1A out of a sense of fiscal responsibility are instead consigning California to chronic instability in our economy and in our budget.

California cannot afford to reject Prop 1A. The time to start building a prosperous 21st century California is now.

17 comments:

Rob Dawg said...

California's economic and financial crisis stems from having relied on oil for our economy.

Nothing about a State budget rising at 10x the rate of population growth? Nothing about single party politics beholden to special interests?

No, according to Robert it is all about the price of oil. So, if oil goes back to $65/bbl home prices in Antioch will triple? Double in Merced? Up 80% in Bakersfield. There are lots of reasons to advocate CAHSR, stick to those. Twisting every event to fit the HSR worldview is blatantly transparent and weakens the legitimate arguments.

For instance, middle class families are leaving the State because of congestion. Even if only serving as a symbol for the next 8 years and then practically serving only a fraction of the populace, HSR is an honest attempt to address the transportation crisis facing us.

Anonymous said...

From: http://www.pressdemocrat.com/article/20080929/NEWS/809290306?Title=SMART_not_only_rail_issue_on_ballot

SMART not only rail issue on ballot
$9.95 billion bond measure for high-speed train from SF to L.A. draws out backers, critics
By GUY KOVNER
THE PRESS DEMOCRAT

Published: Monday, September 29, 2008 at 4:40 a.m.
Last Modified: Monday, September 29, 2008 at 5:46 a.m.
While North Bay voters will be weighing a 70-mile commuter rail line on the Nov. 4 ballot, the entire state will consider a much bigger proposition: A $9.95 billion bond measure to begin building a high-speed train linking Northern and Southern California.

Proposition 1A, which requires a majority to pass, would account for about one-third of the $32 billion cost of the system's main line from San Francisco to Los Angeles. The federal government and private investors are expected to provide the other two-thirds.

The trains, running at up to 220 mph, would create the nation's first true high-speed rail system -- and the largest public works project in California history.

Backers say the fast trains, traveling from San Francisco to Los Angeles in 2.5 hours, are essential for a state that will grow to a 50 million population in 20 years.

"It's clearly the only way California is going to be able to move people," said Jim Lazarus, a San Francisco Chamber of Commerce executive. "Highways and airports are not the answer to growth in California."

Critics call it a boondoggle, contending that the system proposed by the California High-Speed Rail Authority will cost more, run slower and make less money than the agency claims.

"We're appalled by how lousy a proposal the rail authority has put together," said Adrian Moore of the Reason Foundation, a free market-oriented nonprofit group that conducts public policy research.

State payments on the bond measure, made over 30 years, would total $19.4 billion, with annual payments of about $647 million a year, according to the state Legislative Analyst.

"I would respectfully submit we don't have the money for it," said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

Rail backers like Lazarus say that California lacks the room and the resources to expand freeways and airports to keep up with growth.

"There is no other single project that can combat global warming, move people fast, create good-paying jobs and unclog our freeways," said Assemblywoman Fiona Ma, D-San Francisco.

Business organizations, state and local agencies, and city and county governments support the high-speed trains.

In the Bay Area, only the cities of Atherton and Menlo Park oppose the trains, which would run through those communities, Lazarus said.

The high-speed rail line's northern terminus would be an underground rail station at San Francisco's $4 billion Transbay Transit Center, scheduled to open in 2014 and to handle 45 million bus and rail passengers a year.

The project includes a 1.3-mile extension of Caltrain's tracks to the new center.

North Bay residents could get to the transit center on Golden Gate Transit buses or the Larkspur ferry to the nearby Ferry Building.

If Sonoma and Marin voters approve a quarter-cent sales tax for the proposed SMART rail system from Cloverdale to Larkspur, they could go all the way from SMART stations to Southern California on public transportation.

The first phase of the high-speed line would run from San Francisco down the Peninsula on Caltrain right-of-way tracks with stops in Millbrae, Palo Alto, San Jose and Gilroy.

Heading into the San Joaquin Valley, with stops at Fresno and Bakersfield and possibly Visalia, the line would continue south to Palmdale, followed by stops at Sylmar and Burbank before reaching Los Angeles.

Extensions would go to Sacramento, to Irvine and to San Diego.

The rail authority says high-speed trains would:

Take millions of people off California highways, easing traffic congestion on roads and at airports.

Use one-third the energy of airliners and one-fifth the energy of automobiles, and eliminate more than 12 billion pounds of greenhouse gas emissions annually.

Create nearly a half-million new jobs and trigger economic growth along the 800-mile route, which snakes from the Bay Area through the Central Valley and Southern California.

The Reason Foundation's report disputes nearly every claim, asserting that cost overruns will drive the $42 billion price tag of the first two phases as high as $81 billion.

It also says the trains will take an hour longer than advertised to roll from San Francisco to Los Angeles, thereby curbing ridership and driving the rail authority's forecast of a $1 billion annual operating surplus to a multimillion-dollar loss that will require a taxpayer subsidy.

"It's really a disaster in the making," Moore said.

Proposition 1A does not establish any new tax, but the bond payments would be made from state tax revenue.

You can reach Staff Writer Guy Kovner at 521-5457 or guy.kovner@pressdemocrat.com.

Rafael said...

The people of California could easily afford both HSR and salaries for public servants etc. Indeed, as Robert points out, government spending ought to be anti-cyclical, damping out the natural dynamics of the economy. It boils down to how much damping you want in both the good times and the bad.

In purely financial terms, your position on prop 1A should be informed primarily by the answers to two questions. If passed, how likely is it that the proposed HSR spine plus spurs will be completed more or less on time? And if they are, will the system attract enough ridership to justify the public investment and finance at least its own operations?

Additional considerations are jobs, traffic safety, energy security for the transportation sector, air quality, greenhouse gases etc.

Btw, I tend to agree with rob dawg that the rise in the price of oil is not the primary factor behind the present downturn. It may have helped to burst the bubble, but the underlying problem is that too many Californians asked for and were given mortgages with little or no collateral.

---

The reason the state of California has a budget in perennial crisis isn't that a number of long-delayed infrastructure projects are now piling debt on top of debt.

Rather, the issue is the state's badly broken constitution:

a) 2/3 majority required even for regular tasks like passing a budget

b) gerrymandered first-past-the-post districts that tend to elect parochial generalists rather than competent subject matter experts

c) directly rather than indirectly elected governor

d) 80% of discretionary spending determined by single-issue ballot propositions that undermine efforts at integrated planning, e.g. for infrastructure

The upshot is that voters cannot easily hold any one person or group accountable at the next election, which breeds voter cynicism and apathy.

Democrats dig in their heels on pet spending programs and then blame Republicans for a lack of funds. Republicans are ideologically opposed to tax hikes and blame Democrats for refusing to cut spending. You can replace the individuals all you want, it makes no difference as long as the system allows each party to block the other.

The only way to resolve that is to put either one or the other lot clearly in charge. Since neither is likely to ever garner the support of 2/3 of the electorate, the bar must be set at 50%+1 instead. If you don't like what they come up with, you can vote for the other lot at the next opportunity.

Nothing concentrates a politician's mind like the possibility of losing power or even his or her job.

Rafael said...

@ anon @ 8:37am -

thanks for digging that up, but since the text is already published elsewhere, please make do with a hyperlink.

We're more interested in your take on that article than in a copy-paste job.

Rob Dawg said...

How exactly is California going to balance the budget if we don't have jobs? If jobs are lost and tax revenues shrink because people are paying too much money for oil-based transportation?

You do understand the one "bright spot" in the California State budget is/was the unexpected sales tax revenue from fuel sales? Robert, stick to the defensible aspects of CAHSR.

anonymous-1 said...

Blogger cut off the link to the article in the post by anonymous at 8:37AM

Here is the correct link to the Press Democrat article.

Rafael said...

@ rob dawg -

CA gasoline tax is a constant $0.18/gallon, not a percentage of the wholesale price. If actual revenues have exceeded expectations, that would have to be because actual consumption exceeded earlier projections.

In absolute terms, gasoline consumption is declining in California, e.g. 1.218MM gallons in June 2008 vs. 1.314MM in the same period last year.

In any case, income tax is the primary revenue the state generates from Joe Average. If he loses his job, the state budget takes a double hit because he'll become eligible for benefits associated with unemployment. While job losses are usually unrelated to high fuel prices, they can have a significant impact on those trying to find new work.

Anonymous said...

I would just like to say that calling your opponents "obsolete" and "deniers" does exactly nothing to convince them. Prophesying their doom unless they vote for your issue definitely does not make your argument any more convincing.

Rob Dawg said...

rafael said...
@ rob dawg -

CA gasoline tax is a constant $0.18/gallon, not a percentage of the wholesale price.


Anyone want to set "rafael" straight or am I free to excoriate him on the facts and his poor reading comprehension?

mike said...

rafael - Rob was presumably talking about the generic sales tax (generally around 8.x%) rather than the gasoline-specific tax.

Rob - How much extra revenue the state is making as gas prices rise depends on what items consumers substitute away from as they spend more on gasoline. If total spending on taxable items does not rise, then overall the state will not take in any additional sales tax revenue.

One of my colleagues has a paper showing that consumers respond to higher gas prices by substituting away from eating-out and towards buying more groceries. Since restaurant food is taxed while grocery store food is not, this implies that a large chunk of the extra gasoline sales tax revenue will be offset by reductions in restaurant sales tax revenue.

Literally taken, your point is surely true, but the implications for the state budget are not as positive as you might hope.

Spokker said...

"I would just like to say that calling your opponents "obsolete" and "deniers" does exactly nothing to convince them."

That's nothing compared to what I want to call them.

Rafael said...

@ mike, rob dawg -

ok, we had a misunderstanding there. The statewide sales tax is 7.25%, anything above that is imposed by your city and/or county.

Robert's central point stands: public works funded by bonds allow the state to obtain infrastructure assets and also, to pump extra money into the economy just when it needs it most. The downside is all those interest payments.

By contrast, rising unemployment is bad for state revenue. High fuel prices aggravate that situation because it makes finding new work that much more expensive.

At least California doesn't have actual gas lines right now like they do in metro areas all over the south-east. Still, I'm willing to bet gasoline inventories on the West Coast are at historic lows as well. All it would take is one major incident at one major refinery - e.g. a fire like the one in Martinez in 2004.

Rob Dawg said...

Robert's central point stands: public works funded by bonds allow the state to obtain infrastructure assets and also, to pump extra money into the economy just when it needs it most. The downside is all those interest payments.

Not exactly. California is on the verge of a ratings downgrade. Too much debt and the CAHSR could cost far more than just the interest charged directly.

It isn't fair to single out CAHSR from all the other debt but it is equally incorrect to say somehow it doesn't have an impact.

Rafael, admit you misread my comment and move on. This is about the reasons for CAHSR and not some unproductive witch hunt against any that dare speak the sin of uttering an ill word on the subject.

Morris Brown said...

Unless you have been like an ostrich with your head in the sand, after today you should realize that there is a world wide real economic crisis.

Prop 1A as drafted makes no economic sense. The bare numbers tell a lot.

The core segment is by the Authority's own estimate going to cost 33 billion. Prop 1A would provide 9 billion, and matching funds from Federal and Private sources another 18 so that is a total of $27 billion.

So right now, using the Authority's own numbers, they are going to be short 6 billion from completing the core segment. We have been told repeatedly that California taxpayers will not have to contribute more. Even by their own cost estimates they don't have the funds to do the project.

At the Atherton study session last Wednesday, Diridon gave his pitch and then played the about 10 minute glitzy video promoting the project. In the middle of the video they are making a big deal about the meeting held last spring where over 40 potential private investment parties got together in Sacramento and were showing "great interest" in investing in the project. The video then flashed up on screen LEHMAN BROTHERS

Well the crowd in the room went crazy with laughter. In point of fact a reporter in the room published an article about this occurrence.

Diridon was upset and muttered something like he hadn't seen the video before (It has been on the internet for quite a while)

My point is, private equity is certainly not going to be available for a project like this for some time to come.

Prop 1A should be rejected. Senate bill SB-53 (Ducheny) is on the Governor's desk (it passed both houses unanimously) and it could combine the CHSRA and 4 other agencies into a new agency under different leadership and under the control of the legislature.

Maybe such a re-organization would put together a really good project, not this boondoggle.

Spokker said...

I say do away with the private financing BS and build it and other high speed rail corridors with federal dollars. Let's get people working not only on high speed rail projects but mass transit all over this country in whatever cities need it.

When another gas crisis hits in the South or anywhere people won't have to drive for hours looking for the last station with gas left.

Amid the economic crisis Congress is still receptive to the Amtrak bill, surprisingly enough. Trains, nuclear power, and legalizing marijuana, that's just the ticket we need to economic prosperity and making this country great again.

Get off oil, get high, and ride the rails my friends.

YES on 1A said...

No Morris we will PASS prop1A First
then work out all the details. Once again I wish people will stop
thinking only about the next 2 fiscal quaters. Its 2years before they even break ground.IF there is no finance money then there is no train...there will be more than enough of you screaming to get it stopped.Once 1A passes I would hope you put as much effort in making it work as you have trying to stop it.

Anonymous said...

1A is not the solution

Traffic: major traffic problems are within the cities, not between SF and LA. Money should spend on solving local problems first. It is not like that currently there is a bottleneck for people traveling between LA and SF or Sacramento, there are multiple airlines serving these routes. If you look at the factors of $/mile/minutes, the air travel is still very competitive, and rail just can’t beat it.

Create Jobs: Sure, building rails will create many construction jobs, but what’s after that? Similar portion of jobs can be created via local transportation projects and keep regional airports up-to-date. Especially for airports, they create more jobs than any infrastructure for a city. And it is very long term.

Reduces our Dependence on Foreign Oil: This is just a false conception. With today’s technologies, everything relies on oil. Until an alternative truly “green” energy becoming a mainstream, the price of oil will affect everything, this high-speed train included. Just look at the pass months of how rising gas price affect everything we live on. Powering and maintaining the train will need lots gas to keep people and equipment moving to keep it running. And since there is no sign shows that people will give up driving and flying, so there is really little impact to oil consumption.

Fights Global Warming: I don’t know where this coming from is. Riding a train burns no gas doesn’t mean that it will produce no green house emission. Like I mentioned above, “new” gas consuming will be generated to power and maintain the system and no signs of reducing car and air traffic, so the net gain is big question mark. Again, the training itself will produce no green house emission directly, but indirectly it will generate new emission and no guarantee to reduce other emission generating source.

Lastly, this system will be a big money drain to the State. I just don’t see people will give up driving and flying. Especially when the alternative energy power vehicle becoming affordable, and oil consumption reducing resulting lower air fair; driving and flying will become more competitive then riding a train. Especially for long distance traveling. You can’t use Europe train system as a reference. It’s on a totally different planet. Unless we have a similar gasoline tax that discourages driving, this train system just won’t fly in California. The bottom line is, it will not be profitable and it will be such a huge financial burden to all of us that you wish you will never had it in the first place.

Personally I have nothing against train. In fact I thing it’s a great way to travel. But it is just not suitable for California from every aspect. In my opinion, the only train system that makes sense and could be profitable is the route between Las Vegas and Southern California. And it has to be privately founded that makes no financial impact to the State.

Please vote NO on Prop 1A.