California is staring into the abyss. 30 years of conservative economic policy, including tax cuts, have brought the national and the state economy to the worst economic crisis we have faced since 1933. The state budget is in perennial deficit - caused by those same conservative policies. Since Prop 13 in 1978 the state's revenue levels have been set artificially and deliberately too low to maintain our core services. The purpose was to force crises like this and tell Californians "either we raise your taxes or we destroy government."
The budget deficit is a difficult problem. But it can be closed fairly easily by returning to the income tax levels on the wealthy that Ronald Reagan supported, that were in place from 1991 to 1998. It is a question of political will - our budget deficit is not a force of nature but a deliberate creation of man. What we make, we can unmake.
More importantly, how exactly are we going to close that budget deficit, provide short-term relief and long-term economic growth without infrastructure projects? Many economists argue that government spending on infrastructure must be part of not just an economic stimulus *right now* but also of any financial rescue plan. These economists understand what we at this blog have understood - that we need stimulus to revive our economy.
Banks aren't lending just because of the bad assets on their books - they're not lending because the economy is sliding into recession. To stop that we need government spending on new stimulus. That was conventional wisdom during the Depression and it eventually brought us out of the depths - while also setting up the prosperity of the postwar era.
Unfortunately California newspaper editorial boards remain trapped in the failed conventional wisdom that brought us to this point of crisis. Instead of returning to tried-and-true economic principles of infrastructure stimulus, they argue we should sacrifice the future to the failure of the present. That because we are in crisis now, we cannot act to rescue ourselves from that crisis, and cannot act to provide a more stable future.
Such is the position of the Modesto Bee in its editorial against Prop 1A. They claim it is "too costly for the state." In doing so they merely demonstrate their lack of knowledge about high speed rail and their unwillingness to act to reverse the slide into severe recession.
The annual cost to operate the high-speed rail network would exceed $1 billion. Backers believe they can operate in the black. We're skeptical. Passenger rail systems throughout the United States require subsidies.
The Modesto Bee should NOT be skeptical. Every single HSR system around the world functions without operational subsidies. In France HSR is so profitable it subsidizes the other systems! Even Taiwan HSR has achieved profitability after just 18 months in operation. Of course we should remind the Modesto Bee that every other form of transportation in America is subsidized - but HSR stands on its merits. Ongoing subsidies are just not likely. The Modesto Bee misleads its readers in not mentioning that.
That aside, our main concern is the price. A review by the independent legislative analyst's office says that if the bonds are sold at an average interest rate of 5 percent and paid off over 30 years, the cost to the state general fund would be about $19.4 billion. That works out to about $647 million per year.
State legislators struggle to produce a budget year after year, and the current budget, just signed, is expected to be nearly $5 billion in the red unless drastic action is taken. As we noted in opposing Proposition 3, California can ill afford to encumber the general fund with more debt, especially the staggering cost for high-speed rail.
The Modesto Bee would do well to read Pete Stahl's "semi-biennial lecture on bonds". Pete reminds us that bonds are a fixed cost over time that become much easier to pay off as general fund revenues increase. Further, HSR construction will actually BOOST the general fund by providing increased income tax and sales tax revenue. Combined with the green dividend from HSR it is likely that it will pay for itself - the benefits to the general fund will equal or outweigh the ongoing bond service costs.
Newspapers like the Modesto Bee are suggesting that we were wrong to build Shasta Dam and the Golden Gate Bridge during the Great Depression. Both required public bond financing to be constructed. Modesto STILL benefits from Shasta Dam water. Instead, according to papers like the Modesto Bee, we should have waited until the 1950s. Of course that would come at the cost of not only higher unemployment during the Depression - which is the last thing you need - but it would have limited our ability to have postwar growth.
The equation is very simple, people. Prop 1A = jobs now + long-term economic growth. California would be engaging in an act of extreme recklessness if it sacrificed the future because of the failures of the present. The best way to ensure that we continue to have unemployment and a budget deficit is to reject Prop 1A.
UPDATE: the same applies to the Sacramento Bee, which used the same logic to oppose Prop 1A.