Thursday, October 9, 2008

Pete Rates Prop 1A a Yes

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

Pete Stahl has been giving insightful and clever recommendations on ballot propositions since 1980. This year he saved Prop 1A for last, and offered a strong YES on 1A endorsement.

Pete also has some good insights on bonds, gathered from 28 years of watching California government. While the HSR deniers are trying to mislead voters into believing these bonds are going to bankrupt the state, Pete is explaining why they are sensible for long-term infrastructure projects like high speed rail:

"Wait a minute!" I hear you cry. "What about those interest payments? Won't we end up paying more for interest than for the bonds themselves?" This may once have been the case, but with today's low interest rates each dollar of bond money will cost only 30 cents in interest, accounting for inflation. (See details online or on page 8 of your supplemental ballot pamphlet.)

"Okay," you admit, "but loans are still more expensive than pay-as-you-go." This is true. But loans are the only way to buy a house, or a car, or anything else that you need immediately but can't pay for yet. It's worth paying the premium of interest to get the funding now.

This is especially important as the American economy enters a deep recession. We're going to have to raise taxes to balance the state budget, so we can't pay for HSR that way. We desperately need the jobs, the clean and sustainable transportation, the reduction in oil consumption and carbon emissions, if we are to get out of this economic trough. Bonds are going to be costly, but as Pete explains, there's a compelling reason to pay the premium.

Pete also explains how the long-term repayment actually is a good thing:

Remember, too, that California's population continues to grow by hundreds of thousands of people every year. Borrowing makes particular sense if you know your income will go up in the future. As the state grows, the General Fund will certainly grow too.

This is a very good point. In 1998 the General Fund revenues were at $58 billion. In 2008? $102 billion. As California grows, the General Fund will grow too. The bond debt will become easier to repay as a result. This is an oft-overlooked point.

There is one last reason to vote for a bond measure. In addition to being formal requests for permission to take out loans, bond measures are also looked upon as referenda on the merits of the proposed projects. If a bond measure fails, legislators are likely to believe that the public feels the project is not worthy of receiving state funding. By voting no, you may have meant, "Yes on the project but no on the bonds," but your message to Sacramento will read, "No on the project." So if you vote down a bond measure just because you don't like bonds, you may well have killed forever the project the bonds were to have funded.

This is an especially important point given that many HSR deniers claim to support HSR as a concept. If we kill this now, it's not coming back. Federal HSR money will go elsewhere - to Texas, to the Midwest, to Georgia. California politicians will move on to something else as they will take the message that voters don't want HSR.

Which is of course the entire point. That's why they're HSR deniers. The opponents of Prop 1A aren't espousing fiscal responsibility, they're espousing the death of California's high speed rail project, ten years in the making.

Bonds built the Golden Gate Bridge and Shasta Dam during the Depression. They worked for California then and they'll work for us today.


Morris Brown said...

The lack of a promised business plan, causes Senator Roy Ashburn to write and request all the legislators to oppose Prop 1A.

Rafael said...

Instead of raising taxes, California could also choose to cut services. The fiscal consequences of the three strikes law in particular are coming home to roost.

Anonymous said...

Especially for brandon in san Diego:
Bullet Train Opponents: Put Brakes On High-Speed Rail
KFMB-TV (CBS) San Diego) reports:

With a credit crunch gripping even California's ability to run the state government, some voters are wondering if the timing is right for a multi-billion-dollar bullet train. One non-profit think tank wants to put the brakes on the high-speed rail.

"By law there was supposed to be a business plan filed by Sept. 1 by the California High Speed Rail Authority, and that hasn't been filed to date and apparently it's not going to be ready before the elections," Summers said.

Morshed has now publicly stated there will be no business plan until Nov 8th.

Rob Dawg said...

Robert, do you sign loan documents before the details are written in? The lack of an updated business plan is an issue like it or not.

morris Brown said...

rob dawg writes:

Robert, do you sign loan documents before the details are written in? The lack of an updated business plan is an issue like it or not.

Good point here rob. Of course Robert only admits to anything that will promote this project.

Here you have an issue that is really much deeper than High Speed Rail.

It is an issue of deceit and arrogance. The Authority promised a business plan by Sept 1st, and that was written into AB-3034.

Now they say no business plan because they didn't have the money to prepare one because of the budget crisis. Funny they seem to have money to fund economic reports on how many job etc. the project will produce. They have money to go up and down the state promoting the project.

The legislature demanded a business plan so the voters could have needed information before casting their ballots.

I would hope that Robert would not be on the side that would favor the voters being kept in the dark about the economics of the project.

This issue is really a sore point with me. I gave input on this very issue at the July 1st meeting of the Transportation and Housing committee on AB-3034.

Spokker said...

"Robert, do you sign loan documents before the details are written in?"

Is the CHSRA even funded adequately to do all these things they need to do? They asked for $130 million for 2007-2008 but the governor only gave them $4.7 million.

Environmental impact assessments, business plans, engineers, and the rest of the eggheads that are supposedly going to build this thing cost a lot of money.

Has our legislature and governor set this thing up to fail, similar to how the U.S. Government set up Amtrak to fail in the 70s?

Anonymous said...

Was there a business plan for Prop 116 that "anon" Tolmach is so proud of? No, that was a blank check. How many times have I heard him say we need another Prop 116.....

Spokker said...

At least Prop 1A will give them the money to actually figure out the details. I continue to not care about the business plan and the 2000 version is good enough for me. The updated plan will only be that much better now that gas prices have skyrocketed.

Brandon in San Diego said...

Hey anon 4:21am... thanks for the heads-up.

And the significance of that?

Do you honestly think a report provided before November 4th, regardless of the outcome, will not be pointed at by one side or the other as having an impact on the election outcome? And thus put the CHSRA on its heels due to allegations of trying to manipulate the election and undermine their own credibility?

As for deniars, I am reminded of the statement that 'you cannot change some peoples minds.' And I feel that the deniars here could find flaws in daisy's or puppies.

High speed rail is good for the state; ....economically, ceation, ...fighting global warming, ...mitigating need to build wider highways destroying homes and business, or on open space and on environmentally sensative lands, ...decreasing reliance on foreign oil and sending our hard earned money to parts of the world that hate us and would rather see us obliterated from the face of the earth.

Indeed, deniars are a nuisance to a healthy planet and safe America. But, what do you/they really care if they are seniors or have no descendants?!

By the way, I sent my absentee ballot in this morning. It felt very satisfying...

Barrack Obama
Yes on 1A
No on Aquire

Anonymous said...

I'm sure if you ran the ridership model again with $4/gallon gas, you'd see an increase in ridership over what the present model predicted.

Over the past six months, the lowest-priced efares on United have gone from $54 one way to $80 one way.

Brandon in San Diego said...

All, by the way, Prop 1A is the loan document. The business plan is a plan. In its absence you should rely on CHSRA staff reports until a new updated plan is out.

Rob Dawg said...

Hey, if Mr. Tolmach is listening; we met at your mom's years ago when we were looking for Prop 5 money and working up the light rail proposal. Visit my blog and leave a msg.

Anonymous said...


October 10th, 2008

In a letter dated Oct 2sd, and sent to all members of the legislature, Senator Roy Ashburn (18th district) urges them to support him in opposing Prop 1A.

A full scanned color copy of the letter can be found here. 510 Kbytes.

Here is the text of the letter:


October 2, 2008

Members of the Legislature
State Capitol
Sacramento, CA 95814

Dear Colleague:

I am writing to call your attention to serious concerns regarding Proposition 1A, the High Speed Rail Bond Act, which will be before the voters in the November election. This measure would give the High Speed Rail Authority a blank check for almost ten billion dollars at a cost of nearly $20 billion to the taxpayers, and this is just the down payment.

Accountability is critical for the High Speed Rail, and we cannot have it without an up-to-date business plan. The Authority offered to produce a revised business plan by September 1st, something that should already have been completed. This timeline was agreed to by Authority representatives in meetings, and the Committee was publicly guaranteed at its July 1st hearing that a revised plan would be available in September. With these assurances, the Committee developed a compromise to allow the bond language to proceed. The Authority has now reneged on this commitment and will not produce a plan until long after the voters decide the matter. This is unacceptable and a blow to the integrity of the High Speed Rail Authority and its manager, Mehdi Morshed.

Independent research has revealed serious flaws in everything from projected costs to ridership predictions, and the project manager has an extremely questionable past running large-scale public works projects (i.e. the “Big Dig” in Boston). Millions of taxpayer dollars have already been spent, but the Authority has little to show for it. That is why true accountability is critical. California’s great historical infrastructure achievements were only accomplished through designated spending on very specific plans with real oversight.

I cast a deciding vote in passing the original “Safe, Reliable High-Speed Passenger Train Bond Act” and am in support of progress, but in light of the misrepresentations of the High Speed Rail Authority to the Legislature and the Governor, I am opposing Proposition 1A. The voters have the right to assess whether or not this is a worthwhile project, particularly since they will be paying for it, but they will be going to the polls without the critical, promised information. I encourage you to join me in protecting the taxpayers and ensuring that any plan that moves forward has real accountability and does not merely spend money for the sake of change.


18th District


Vote No On Prop 1A

Anonymous said...

Morris Brown,

Just curious, did you vote yes or no on the bond measures two years ago that authorized billions of dollars for roadwork?

Rafael said...

Digging into Pete Stahl's opinion on prop 1A, I noticed that he has apparently misunderstood the concept of federal matching funds.

Mr. Stahl apparently believes the 80% figure, which will go into effect as soon as Pres. Bush signs HR 2095, is relative to state funding ($9.95 billion). This is incorrect, it's relative to total expected project cost (~$33 billion for phase 1). However, in the case of California HSR, the Feds will only be asked to chip in 33% of the total (i.e. ~$11 billion for phase 1).

This is not just because California HSR is such a huge project. Rather, it's because HSR systems all over the world yield positive farebox returns, something that is also expected for the California network. Operating subsidies will not be needed. While this positive cashflow will not be enough to pay back all of the capital investment in a reasonable timeframe, it should be enough to attract private investment on the order of 33% of the total.

Rob Dawg said...

rafael said...
Digging into Pete Stahl's opinion on prop 1A, I noticed that he has apparently misunderstood the concept of federal matching funds.

In all fairness Federal matching funds and indeed outright transportation grants are not subject to consistent rules. The deniers understand that and merely object to the rosy assumptions as to potential Federal participation much like they question local participation and private participation.

qwerasdf said...

Budget gap (as a % of the total budget): 22%
Gap: $22.2 billion

Wikipedia: Public Domain

California Governor Arnold Schwarzenegger warned this week that the state might need to borrow $7 billion from the federal government, if credit markets don't ease, to pay for salaries and other operating costs. The state, which has been battered by falling home prices and foreclosures, enacted a budget that imposed cuts to the state's health insurance program for the poor and other social service programs.

LULZ. Deniers? We are realists. You are all dreamers who think we have money.

Anonymous said...


How did this country get out of the depression when there was "no money"?

Infrastructure projects.

And we are in a better situation now financially than then.

Rob Dawg said...

Q: "How did this country get out of the depression when there was "no money"?

WW-II. Is that what you are advocating? Transit lost market share 1910 thru 1940 and only temporarily bumped slightly during WW-II. Is that what you advocate?

qwerasdf said...

Ok now you're pathetic. I said we can't afford this and you say that this will spur the economy. We have other infrastructure projects you know.

You know that Bay Bridge Eastern span project? Yeah the one that was supposed to be finished LAST CENTURY? Estimates pegged it at $1.04 bilion in 2002. How much is the estimate now? Over $6 billion. HAHAHAHAHAHAHAHAHAHAHAHAHA. So how come the economy isn't in full scale? The purpose of this is NOT to jumpstart the economy. It's to give CA more benefits. We just can't afford it now. Fix our spending first then talk about spending more money.

Anonymous said...

"You know that Bay Bridge Eastern span project"

Yeah, it's a unique design that was the wrong decision but progressed because Brown and Brown wanted it (Willie and Jerry). Carquinez Bridge and San Mateo were under budget, and Carquinez was a fancy suspension bridge.

The question to all who don't like the bond is "What is your solution?"

Anonymous said...

California Is Headed for a Real Fiscal Train Wreck

Wall Stree Journal

Anonymous said...

Sacramento Bee newspaper opposes Prop 1A.


The most politically important paper in the State writes:


Summary: Would provide nearly $10 billion in bonds for a high-speed rail network that would initially link the Bay Area, the Central Valley and Southern California.

Why we oppose it: Since this proposition was placed on the ballot by lawmakers, it meets one of our tests. Yet until California fixes its chronic budget deficits, it can’t afford to increase its debt for projects that, while desirable, are not of vital necessity. In addition, the rail system that supporters are touting may not be as high-speed as advertised. Potential conflicts with freight service lines could make trains slower than those found in Europe or Japan.

This is a tough call. The state needs clean alternatives to air travel and freeway travel, and the Central Valley needs the economic development that could result. But if it passed, this proposition would take $647 million annually from the general fund that, without a tax increase, would have to come from other services. That’s money the state can’t promise. Vote “no”

Morris Brown said...

California Rating Threatened by Cash Crunch, S&P Says (Update2)

Bloomberg News

Oct. 10 (Bloomberg) -- California's credit rating may be lowered if the state isn't able to borrow $4 billion it needs to pay monthly bills, Standard & Poor's said.

The $143 billion budget that Schwarzenegger signed into law on Sept. 23 is already facing a $3 billion shortfall because revenue tied to income and capital gains is declining as the U.S. economy falters and stock markets slide.

Yes Yes -- now is indeed the time to build this High Speed Train

Rob Dawg said...

As the state grows, the General Fund will certainly grow too.

California is bigger in 2008 than 2007 yet revenues are down significantly. 2009 is going to be a year with more people and far far lower revenues. Your assumption is flawed.

In 1998 the General Fund revenues were at $58 billion. In 2008? $102 billion. As California grows, the General Fund will grow too. The bond debt will become easier to repay as a result. This is an oft-overlooked point.

You are confusing spending with revenue. Yes revenues are up but spending is up far more. That trend makes it harder not easier to pay debt obligations.

Robert Cruickshank said...

They have no solution, anon. None at all. The Reason Foundation, which is spending a pretty penny to kill Prop 1A, fundamentally opposes using government to ameliorate an economic crisis.

The other HSR deniers here have placed themselves in the same boat. If they'd been around in the 1930s they'd have argued against the Golden Gate Bridge and Shasta Dam.

Robert Cruickshank said...

Yes, Morris, NOW is indeed the time to build it. We need those jobs desperately. We need the tax revenue those jobs create. We need long-term infrastructure that will provide for growth for decades to come.

Your argument is we should sacrifice our future because it might cost a little something in the present. That's idiotic.

davisgrad said...

To people that think that the infrastructure projects don't help you get out of a depression, but WW2 did.

So digging ditches in America has no effect on economic growth, but digging trenches abroad does? Do building tanks that get blown up in Europe have a better economic impact than say, a dam in the US?

Please, enlighten me, because they both seem like government spending that helps the economy. I know right wingers prefer things that kill people to something as harmless as infrastructure, but at the least, be somewhat consistent....

Pete Stahl said...

Rafael, you're absolutely right. I misunderstood what "matching funds" are. I have removed the reference to matching funds from my rating, at Thank you for pointing out the error.

My larger point remains, however.

Most estimates seem to agree that the state can expect about $10 billion for Phase 1 from the federal government's "State Capital Grant" program (part of the Passenger Rail Investment and Improvement Act of 2007). Prop 1A will provide $9 billion, and Californians for High-Speed Trains claims P3 will come up with about $6 billion. This still leaves us at $25 billion, which is $8 billion short of the $33 billion estimate for Phase 1.

Pete Stahl