Monday, October 13, 2008

The Truth About Prop 1A and the State Budget

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

All the way back in March I opined that the biggest threat to the passage of the high speed rail bonds was the state budget. If the budget was still in deficit, folks might vote against HSR bonds even though the two are unrelated.

That may well be happening. We haven't seen new polls on Prop 1A in some time, but when we do I expect it to show a very close race.

The problem is that this thinking is deeply flawed. The state budget's problems do not - at all - mean that Prop 1A is a bad idea. Prop 1A is not the reason why the state is in deficit. It will not worsen that deficit. Instead Prop 1A is absolutely necessary to getting us OUT of deficit. Anyone telling you otherwise is simply demonstrating their ignorance of economics.

Let's look at this more closely. First, the state budget deficit. Deficits are NOT a product of natural forces but instead of bad decisions. California's current deficit stems from two major sources:

1. $12 billion in tax giveaways since 1993. This includes a $6 billion hole Arnold blew in the budget when he unilaterally cut the vehicle license fee upon coming to office in 2003. That is an annual cost of $6 billion, by the way, since Arnold has since been backfilling the revenues. Restoring that $6 billion would alone close the projected deficit. Prop 1A will create 160,000 infrastructure jobs that will pump income and sales tax revenue into the state's general fund. We badly need that revenue. We cannot afford to leave that money on the table.

(Note: California has also cut nearly $10 billion in spending since early 2007. Those who claim that this is a spending problem clearly have no knowledge of the details of the state budget.)

2. The weakening economy. As I have been arguing almost every day this month, that is an argument FOR Prop 1A. Infrastructure projects are a tried and true part of stabilizing and growing the economy during rough times. The Golden Gate Bridge, Shasta Dam, and the California Aqueduct were all built with voter-approved bonds during a recession, the first two during the deepest part of the Great Depression. Prop 1A will do the same today. We need jobs. Now. California would be crazy to turn down 160,000 jobs right now.

Further, as a recent PBS documentary explained, it was high gas prices that burst the housing bubble. Yes, gas prices have been falling - but that is only because of demand destruction. In other words, people drive less, so the price falls. The ONLY way that can be sustained over the long-term is by building alternatives to oil. If we don't, demand WILL rise - and so will gas prices.

Finally, numerous economists have argued strongly for infrastructure spending right now as both economic stimulus and a way to ease the financial crisis - which after all is happening because of underlying insolvency here in the United States. These economists include Lawrence Summers, Nouriel Roubini, Duncan Black, Dean Baker and Brad DeLong, and Nobel Laureate Paul Krugman.

Those who claim otherwise - that the state budget deficit means we must reject Prop 1A - are lying to you. They're trying to prevent a revival of the New Deal. These groups, like the oil company funded, far-right Reason Foundation, or the anti-government Howard Jarvis Association, are primarily interested in drowning government in a bathtub. Their opposition to HSR is part of a broader ideological agenda designed to prevent California from addressing its economic crisis by providing sustainable, non-oil based transportation that we badly need.

If you want to help ease our budget deficit and grow the economy, vote for Prop 1A. If you want to prolong the pain and do nothing to resolve the deficit, vote against Prop 1A. A no vote on Prop 1A is like punching the wall to cure starvation. It's only going to leave you in more pain and do nothing to solve the immediate problem.

UPDATE: Matt Yglesias calls them The New Hoovers:

This is ludicrous. You need to respond to a downturn with expansionary policies of some kind. In recent decades, we’ve preferred relying on expansionary monetary policy (Fed interest rate cuts) rather than Keynesian deficit spending. But at the moment, there’s no real room left for the Fed to cut rates. That means you need deficit spending. Among other things, the nature of state and local budgets means that a contraction in the economy will naturally lead to a contraction in state and local spending. That will lead to further contraction in the economy. If the federal government did what Scherer’s suggesting and added its own cutbacks to state government cutbacks, local government cutbacks, and private sector cutbacks that would only deepen the recession.

Again, consider the source of most HSR denier propaganda: the Reason Foundation and the Howard Jarvis Association. These people think Herbert Hoover was a good president with the right ideas.

31 comments:

Ian said...

Right on, Robert.

Now can we get this out to all voters, and not just the enthusiasts that read this blog?

This needs to be printed in all the state's newspapers.

political-i said...

Just reading the 200 page anti-HSR report seems like they manufactured half of their claims still taking prop 1a as prop 1. Although systems take some adaptation to certain environments, they will work given time.

There are assumptions that conventional rail passengers will not switch over. They point out in Japan there was barely any air service when the Shinkansen was launched. Using those dated examples are weak claims for a California System. There are too many examples where HSR has worked in the world and if those examples are used the system will be popular.

Rob Dawg said...

That is an annual cost of $6 billion, by the way,

You might want to fact check that assertion Robert. Regardless you are beyond wrong to assert that the elimination of the VLF was unilateral. Can you at least admit this much while we wait patiently for your personal guarantee of an NTE cost for CAHSR and whether you are interested in making me eat my words and donating a sizable sum to charity?

Rafael said...

@ robert cruickshank -

passing prop 1A would indeed prop up state tax revenue during a prolonged recession, because bond money is spent well before is must be repaid. That's the whole point of taking out a $9.95 billion loan.

However, there's still a lot of prep work to be done before HSR can break ground in 2012. Only $1.85 billion of prop 1A bonds could sensibly be sold as soon as the financial markets regain liquidity and, so the immediate stimulus from prop 1A would be limited. Of course, the impact of servicing this slice of debt on the next few budgets would also be limited, to roughly $120 million a year. The bonds that will create the bulk of construction jobs during the recession are the ones already approved in 2004 and 2006.

That doesn't mean HSR isn't essential to the state's economy in the medium and long term. If private matching funds can be secured, they will fund construction jobs between 2012 and 2025 or so. Moreover, the state's growing population will need clean, affordable intercity mobility in the 2020s and beyond. The price of oil has come off its peak in recent months. However, the long term outlook remains unchanged: relative to household income, gasoline and jet fuel will be expensive again in a few years. This will be doubly true if fuel taxes are raised to curb CO2 emissions and balance the budget.

Bottom line: one-off infrastructure projects will prop up state tax revenue when the recession hits in earnest. However, only about 1/5th of prop 1A could sensibly be spent before breaking ground in 2012.

The California state budget process will be broken as long as a 2/3 majority is required to pass one. This gives hard-line ideologues on both sides an excuse for not dealing head-on with the mismatch of tax revenue and recurring spending plus debt service. Putting off essential infrastructure projects does not solve the budget conundrum.

2008 may be the only chance you ever have to approve a high speed rail system for California. I urge you vote Yes on prop 1A and also, to ensure future state budgets can be passed by a straight majority as soon as possible.

Robert Cruickshank said...

Working on it, Ian. Definitely working on it.

The $6 billion figure comes from the California Budget Project. Their most recent figure on the annual VLF cost was $6.1 billion.

rafael, absolutely - my next post will be about how if we vote no now, we're going to miss the boat on billions in federal infrastructure funding.

Rob Dawg said...

Funny, the LAO disagrees.

http://www.lao.ca.gov/analysis_2002/2002_pandi/pi_part_5d_vlf_anl02.html

You will notice several things not least of which is the VLF reductions starting in 1998.

Anonymous said...

If you're looking for Federal matching funds, might want to check out the event planned for this Wednesday at the SF Caltrain station.....

(sorry, no link to the release, so selective cut and paste)

"Bay Area groups including elected officials Nancy Pelosi and Mark Leno will host one of 10 events across the country....

...the events will highlight “Build for America: A Five-Point Plan to Get Our Economy Moving.” The agenda is very urbanist: invest in public transit, high-speed and intercity rail, neighborhoods that are less car-dependent, more walkable and more affordable, and restore our country’s roads and bridges.

The conference is at the downtown San Francisco Caltrain Station at 4th and King, Wednesday Oct. 15 at 10:00 a.m.

Then there's a link to the group:

www.buildforamerica.org

Robert Cruickshank said...

rob, those numbers are from 2002. I'm using the CBP's 2008-09 estimates produced in February 2008.

Tony D. said...

Call me an eternal optimist Robert, but I think the polls, when they do show up, will still show HSR a sure winner with California voters. The major papers of the state are coming out for Prop.1A, and average folks I talk to love the idea of "bullet trains." We do see a lot of negativity, naysaying from the spineless anons on this site and from small-town papers/editorials. No big deal: again, this thing was never going to poll %100-0. Despite the onslaught of negativity from the economy and anon's, keep your head's up and keep fighting! YES TO PROP. 1A!!

phil said...

Anyone in the Los Angeles area this Wednesday might want to check this out:

CALPIRG Wants Your Help to Pass High Speed Rail

"Wednesday (October 15)- High-Speed Rail Action Meeting, 7-8:30: Volunteers can learn more about Prop 1a, and what we need to do to win. After the briefing, we will write letters to the editor to key newspapers, and also start to plan the next big event. Meeting is at 3435 Wilshire Blvd Suite 385, Los Angeles."

Sounds like this could lead to a good way to get the word out...

Brandon in San Diego said...

As Arnold mentioned this past spring, some Califronians need to get out and see thw world; to see how other parts of the world function and move.

I believe many naysayers would benefit by taking Arnold's advice.

And, I believe discussion should move onto next steps; what actions take place after November 4th?

I believe plannign and engineering work needs to be advanced and finalized. I also believe that the CHSRA needs to show some quick work... to illustrate to Californians that the project will be done and not get mired in tiny logistical issues.

Like, do a groundbreaking ceremony for one of the train yards and/or initial section of track to be used for testing trains. I believe that will be in the valley.

And, begin design charretts for station area plannign for stations... at least teh 1st phase ones where we have not heard a thing about.

Rafael said...

@ brandon -

in addition to the things you mention, CHSRA would have to persuade the cities and counties served in phase I to commit a total of $2-3 billion toward the construction of their stations and environs. This money would not be needed until ground is broken in 2012.

The idea would be to bundle state, county and city spending commitments as the "in-state public investment" and then seek federal and private matching funds for that.

Of course, the more immediate problem will be finding buyers for the $950 million for the existing railroads plus $900 million for the remaining prep work prior to breaking ground (incl. some ROW purchases). The frozen credit markets are only beginning to thaw out and, California has a lot of projects in the pipeline that were approved in 2004 and 2006.

CHSRA made the mistake of focusing narrowly on planning and engineering before and duly found its budget scaled back to starvation levels. The Authority now has finance specialist David Crane on the board, he will need a sizable team to secure funding from disparate sources for phase I. Assuming prop 1A passes, additional fundraising has to be job #1 after Nov. 4.

Anonymous said...

@rafael

What a change from the promotion the Kopp has been presenting. He promised that the California taxpayers would not have to put up more than the 9.95 Billion in Prop 1A.

Now were are hearing, local agencies have to come up with other sources of funds.

Talk about dishonest promotion.

Rob Dawg said...

To be fair Kopp has been careful to say "State" taxpayers are currently limited to the $9 billion. I just find it laughable that cities like Bakersfield are assumed to be able to drop $600-$900 million of their own for station construction and local row acquisition. Good luck getting the whole of Kern County ponying up for some cash.

Anonymous said...

So California high-speed rail would draw far more riders than all of Amtrak? Really? Really? Really?


A colleague pointed out this AP story from last week ...

Amtrak carried a record 28.7 million people last year, with each of its routes seeing gains, the national passenger railroad said Friday.

... as illustrating the absurdity of the Proposition 1A folks' claim that their high-speed rail system would carry 100 million people a year. He's absolutely right.

Amtrak has about 300 trains linking more than 500 destinations in 46 states on 21,000 miles of routes, but we're told to believe that California high-speed rail, with its handful of stops and its smallish trains, would draw vastly more riders.

How can they say this stuff with a straight face?

But, then again, just about everything in Prop. 1A is made up out of thin air, as I noted in the last item of Sunday's print column.

And voters just might buy it, pathetically enough.

Posted by Chris Reed at October 13, 2008 04:42 PM

http://weblog.signonsandiego.com/weblogs/afb/archives/028193.html

Brandon in San Diego said...

^^^ To be fair, comparing Amtrak to high speed rail is like comparing bicylces and cars.

You may ride your bike to the beach for a nice liesurely ride, but if you don't want to spend half the day on your tw-wheelr, you drive a car.

High speed rail is much much faster, will be much much more frequent... and will have much much more utility than it's slower and more infrequent cousin.

Rafael said...

@ anon @ 8:55am -

contributions from the cities and counties served were always part of the plan. It's not a new concept.

All I - not Judge Kopp - am suggesting is that CHSRA should seek matching funds for them as well.

@ rob dawg -

where did your $600-$900 million figure for Bakersfield come from?

For that particular city, I'd figure more like $150 million, considering the population size and the fraction of trains that will actually stop there. Debt service on a 30-year municipal bond would be on the order of $9-10 million a year. For reference, Kern County's budget for 2008/09 totals $1.67 billion, that of the City of Bakersfield $182 million. Ergo, chipping in on HSR isn't going to kill either of them. On the contrary, if $300 million in matching funds is raised, it'll be a bargain.

Substantially larger contributions should be sought from SF, San Jose, LA. Each of those stations will be served by every single train.

Btw, Kings & Tulare counties should not be asked to contribute unless a station for Hanford & Visalia is confirmed. Merced county should not be asked in phase I.

Rob Dawg said...

@ rob dawg -

where did your $600-$900 million figure for Bakersfield come from?

For that particular city, I'd figure more like $150 million, considering the population size and the fraction of trains that will actually stop there. Debt service on a 30-year municipal bond would be on the order of $9-10 million a year.


The $600-900m is a proportional distance and typical transit node wild ass guess. I am so glad you are willing to put your own money up behind the $150 million figure. That isn't enough to grade separate within the city boundaries.

Rafael said...

@ rob dawg -

I never said cities would have to pay for grade separation within their limits. Where did that come from? Another wild ass guess?

What I talked about were the station buildings and their immediate environs, i.e. the adjoining roads, bus stops, bicycle lockers etc. Bakersfield isn't LA, it cannot afford nor does it need a billion-dollar train station with oodles of platforms.

Spokker said...

"So California high-speed rail would draw far more riders than all of Amtrak? Really? Really? Really?"

You don't understand how much Amtrak sucks.

When your trains are often 2, 3, 4 hours late and beyond, you're not going to attract serious ridership. Today's rails are not usually built for speed. When you're on the Coast Starlight winding down toward Paso Robles, it's a beautiful sight, but you don't take it if you actually need to get somewhere.

Read up on the history of Amtrak and how it was basically set up to fail in the 70s. That it still exists is a miracle, and that congress is finally warming up to Amtrak means Hell must have frozen over.

Anonymous said...

"So California high-speed rail would draw far more riders than all of Amtrak? Really?"

Uh, yes, of course.

The only Amtrak project which is even comparable in terms of frequency, speed, and convenience is the Northeast Corridor -- and a certain amount of the NEC through traffic is actually credited to NJ Transit, SEPTA, and others (thanks to pricing and stuff).

A full-build CAHSR will serve more people than the NEC (if I count correctly), with similar frequencies to the *combined* Amtrak-NJT-SEPTA service, and much faster than Acela.

The rest of Amtrak, while nice for what it is, is simply microscopic compared to CAHSR.

Brandon in San Diego said...

^^^ Concerning Amtrak vs CHSRA, also pertinent is that ridership figures quoted for HSR is for the year 2030 or beyond. Amtrak figures used are the most recently made available. From the get-go the origional writer was comparing apples to oranges.

I hope Amtrak does better than today in 25 years from now!

Anonymous said...

Amtrak today has four daily trips between San Francisco and Fresno. They take 4-1/2 hours.

CHSRA will probably have houly trips that take about an hour.

Do you think they will have significantly more riders on HSR than Amtrak? If not, explain your logic.

Rob Dawg said...

I never said cities would have to pay for grade separation within their limits. Where did that come from? Another wild ass guess?
Nope, the animations show it and the budget does not. Ergo.

Rafael said...

@ rob dawg -

not sure which budget you are talking about, the HSR plan includes funding for complete grade separation along the entire network.

Note that this does not necessarily mean that each and every existing grade crossing will be preserved. Those with very light traffic may have to be closed permanently. The details are to be finalized during the project-level EIR/S processes.

Rob Dawg said...

The details are to be finalized during the project-level EIR/S processes.

The devil is indeed in the details.

I have this project here that I'd like you to sign. You are already sure it is an awesome, perhaps once in a lifetime opportunity. Sign here and we will flesh out the details later.

Anonymous said...

rafael writes:

The details are to be finalized during the project-level EIR/S processes.


Yes indeed, give us our billion or so and let us go on our way -- we will indeed come back with out Project EIR and that will reveal everything.

PB will be on its way -- looking for the next sucker to buy into their methods.

Brandon in San Diego said...

^^^ Yes, there will be some current at-grade roadway crossings over current rail that will be closed with traffic diverted to adjacent crossings; which no doubt will be studied and the necessary improvements made to accomodate increased traffic.

That's the planning process. The alternative process occurs in China... where dams are created and family's uprooted with little to zero warning or compensation.

Spokker said...

When they built the shinkansen in Japan they didn't ask anybody what their opinion on it was. They just built the goddamn thing.

Rafael said...

@ rob dawg, anon @ 3:06pm -

last year, CHSRA requested $103 million to flesh out these details and start buying ROWs. Gov. Schwarzenegger gave them $1 million.

You can always demand more detailed planning up front. However, until and unless the whole project gets the green light, Caltrans and local planners will proceed with their own work. This may invalidate assumptions made for HSR, thus increasing project cost. Case in point: I-15 near Temecula.

Prop 1A is not perfect, but it's now or never. It would be foolish to vote it down just because not each and every detail regarding grade separations has been nailed down yet.

Rob Dawg said...

rafael said...
@ rob dawg, anon @ 3:06pm -

last year, CHSRA requested $103 million to flesh out these details and start buying ROWs. Gov. Schwarzenegger gave them $1 million.


And? Since when is this an excuse? Not enough money? Isn't that the core of most objections? "Deniers" are claiming there isn't enough money and your excuse is that there isn't enough money.

You can always demand more detailed planning up front.
It wasn't a demand it was a law. A law that has been flaunted.

However, until and unless the whole project gets the green light, Caltrans and local planners will proceed with their own work. This may invalidate assumptions made for HSR, thus increasing project cost. Case in point: I-15 near Temecula.

Fair enough. You are correct that things change. How do you suggest we account for this in the HSR budget?

Prop 1A is not perfect, but it's now or never.

Well, now or decades but I get your point.

It would be foolish to vote it down just because not each and every detail regarding grade separations has been nailed down yet.

It would be foolish to sign an open ended blank check for a proposal that hasn't had so much as an update to a sketchy business plan for more than half a decade.