Sunday, October 12, 2008

SacBee Gets Bonds Wrong

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

A few days after editorializing against Prop 1A, the Sacramento Bee has committed themselves even more deeply to the argument that bonds are bad. Today's paper offers an article on bond funding that contains some major flaws, and provides an unbalanced and incomplete picture of the overall cost of Prop 1A to readers. The result is an article that could mislead readers about the basic facts of high speed rail and its impact on California.

The beginning sets the tone:

The dozen measures on California's Nov. 4 general election ballot would cost taxpayers – and their children and grandchildren – $78.9 billion over the next 30 years, a Bee analysis has found.

The entire article proceeds from this premise, which is unimaginably flawed. The article assumes that Californians will get nothing in return for this - that it's basically a money pit. Nowhere are the 160,000 construction jobs that Prop 1A will create discussed. Nowhere is discussed the income and sales taxes that high speed rail will generate. Nowhere discussed is the 12 million barrels of oil saved, or the 12 billion pounds of carbon emissions (which will either be taxed or subject to cap-and-trade costs before much longer).

Nowhere does the article discuss the cost of doing nothing - the article assumes it is zero. And as we know, the article assumes wrongly. The cost of expanding roads and airports to cover the same demand HSR will serve has been pegged at $80 billion. That's *four times* the cost of the bond even when interest costs are considered. The cost of upgrading Highway 99 alone is pegged at $6 billion.

Nowhere does the article discuss the Green Dividend - the savings that mass transit creates, money that can be reinvested elsewhere in the economy.

What the article does is provide merely half the story. If Prop 1A was merely a way to grab money from people and toss it to the four winds, perhaps the article would have a point. But if you are going to talk about costs - especially long-term costs - it is incumbent upon you as a journalist to provide a balanced equation. To weigh the bond cost against the tangible benefits of the project.

It is especially ironic because the article DOES describe that equation for Proposition 5, which would expand drug treatment programs:

But there is a fiscal flip side to the measure: If the rehab programs worked, they could drop California's prison costs by more than $1 billion annually, plus save more than $2.5 billion by reducing the need to build more prisons.

The same calculation must be made for Prop 1A. Otherwise the article does not do justice to its readers.

As Pete Stahl explains the cost of bonds to the general fund, as a percentage, typically declines over time as the general fund revenues increase due to inflation and population growth. This, too, is entirely absent from the article.

The article does go on to mention the political prospects of bonds at this time:

"I think with the way things are, many people are going to vote 'no' on almost everything," said Bob Stern, president of the Center for Governmental Studies in Los Angeles. "It's a bad time to be asking for money for anything."...

Mark DiCamillo, director of the Field Poll, has charted the success rate of California bond proposals since 1976.

In normal times, DiCamillo found, voters have approved a minimum of 68 percent of bond proposals.

During the economic recession of the early 1990s, however, it dropped to 23 percent.

"Voters have generally been receptive to debt financing," DiCamillo said, "but the immediacy of the current economic troubles, plus the presence of other high-cost initiatives on the ballot, may make it much more difficult to support them this time."

Stern and DiCamillo are probably right, and it seems clear that the prospects for Prop 1A are not as solid as they were a few months ago. The problem is that Californians have forgotten their own history. As we've been explaining here, bonds were used during the Great Depression to build some of California's cornerstone infrastructure projects, from the Golden Gate Bridge to Shasta Dam. Shasta Dam in particular provides ongoing benefits to Sacramento residents, from flood control to electricity to agriculture. The federal Bureau of Reclamation has estimated that Shasta Dam has provided over $300 billion in economic growth since it opened in the early 1940s.

So the Sacramento Bee is quite wrong to suggest that Prop 1A is going to cost me and my progeny billions of dollars. It is going to save billions of dollars and put more money in our pockets by providing sustainable, clean, non-oil based mass transportation for our state. It will provide immediate economic stimulus, which economists like Nouriel Roubini have been calling for as a necessary part of getting our country out of the serious economic and fiscal crisis we find ourselves in.

Californians deserve to hear about those aspects of bond funding. It's neither fair nor justifiable to only present half the story.


Anonymous said...


This cost of doing nothing argument that you keeps preaching is bogus.

Its silly and is not an argument that bond rating agencies would care to take into account.

This is not the time to be worrying about 30 years from now. This is the time to put the California fiscal system into balance, and for sure Prop 1A is not going to work in that direction.

Our local history professor, who deems himself an economics guru as well as a rail project expert can keep on saying the same baloney over and over again. It is not getting through. Prop 1A will go down in flames, and California will be a net winner that this project get killed right now.

The CHSRA, is a miserable example of how to lead a project. They do an EIR on a route they have no right to use. They fail to produce a State mandated business plan. They get the Senate Transportation and Housing committee so upset, that the Democratic Chairman, Lowenthal, along with his colleagues issues a 40 page highly critical report with over 15 extreme problems to be solved.

Problem, number 1,no business plan. Judge Kopp agrees to produce the plan by September. September comes and goes, no business plan. Just go ahead CHSRA, thumb your nose at the legislature and the voters of California; you are sure going to instill confidence in your leadership.

No, Prop 1A,is being beaten down by most media editorial boards, it is headed south fast. May it rest in peace.

Robert Cruickshank said...

Earl, you're missing the point. Entirely. This is most certainly the time to be worrying about the next 30 years. That was the genius of the New Deal - it provided relief, recovery, and reform - to ensure that the Depression was eased, that we could climb out of it, and that we could provide long-term growth to prevent another slide back down into Depression.

Why do you think Californians voted for bonds for the Golden Gate Bridge and the Shasta Dam? If you want to put the California fiscal system into balance you need to regrow the economy. You need new jobs, which spur new activity and new tax income.

Most economists recognize this. Nouriel Roubini, who I cited and linked in the post, is widely seen as the nation's leading expert on the current fiscal crisis, having predicted it as early as 2005. Others like Dean Baker, Paul Krugman, William Greider, Robert Rubin, Warren Buffett, and many others recognize that infrastructure spending RIGHT NOW is a vital part of solving our crisis.

Of course, I note you cannot actually explain why the "cost of doing nothing argument" is bogus. You just assert that it is. I'd like to see some evidence.

njh said...

Reposting from the previous entry where it got buried.

The critical thinking in the comments on this blog is going downhill fast. We have people calling each other names (hint, prefacing your opening with things like 'pathetic' does not strengthen your position).

We have people whose argument strategy is to simply restate random numbers in the hope that they will somehow shift people's opinion.

We have people who believe that the more words you write, the more weight what you say carries.

We have people who create false dichotomies ("If you aren't going to spend money on HSR, then magically transport will solve itself; therefore if we stop prop 1a the state will save money" - clearly transport needs will increase so the discussion should be about effectiveness of alternatives).

Or try and move the debate to party lines (the problem with you wingnuts/lefties/libertarian-gun-nut/communists...).

And we have people who believe that a valid response to an idea is to simply spout random other ideas (which may or may not be true) in an effort to bury things.

I hereby propose that we build an argument map to make a serious attempt to map out the issues of CaHSR. Otherwise we are going to just degenerate into bickering and fighting (and 'oo killed 'oo). I believe that Robert is a fair chairman and perhaps can work out a way to build a shared map on his blog (either by adding some other software, using an existing service such as a wiki page, or even simply maintaining a single page for the arguments). Heck, we could just start a page on Wikipedia: Analysis of issues surrounding California Proposition 1A.

As a trivial example of what I'm suggesting, I've made an attempt on my blog. Of course we would want to provide links to support claims.

Erik said...

The SF Chronicle and your blog seem to be the only voices of reason anymore. I have been a long-time subscriber to the SacBee, but as of these articles about this years propositions, I have canceled my subscription to the Bee.

Not only are these editorials incredibly biased, but that they can openly ignore the benefits of the High Speed Train proposal has me greatly discouraged of the editors' journalistic integrity. So much for logic.


Brandon in California said...

Anyone see Ron Didiron's guest editorial (or letter to the editor) in the Santa Cruz Sentinel? I did, as it was forwarded to me from the Yahoo CHSRA Support discussion board.

All I have to say is "Brilliant"

And... all the sufficient and pertinent facts are included for any sound mind to act on.

I wish/hope other papers will print the same.

ian said...

It's one thing if you can provide a valid argument, but I'm saddened that there are people like Earl who will not provide any substance in their opposition and simply dismiss 1A on whatever perverted principles they hold.

I almost feel as if there is a certain basic logic and acceptance of cold, hard facts that needs to be a prerequisite to vote on these issues. Why do we study history? to learn from it. Earl hasn't learned from it, but it's entirely appropriate for Robert, who knows history, to be an expert in what works and what doesn't.

Robert, is there anyone trying to call these papers out on their biased reporting? In Marin County, most arguments against Measure Q (SMART rail) were removed from the voter info guide by a judge because they were biased. These papers need to be taken to court for their misrepresentations.

Anonymous said...

Earl ...are you a republican? even you can see corporate media at work? How old are you? 65-72? are you not well taken care of? Well we should vote no on this prop..and then cut SSI by 50 % and get rid of medicare ..that alone will solve our budget problem
dont you agree?

Anonymous said...

Earl..sorry I mean Martin..did you not get upset at the wall steet bailout? AS our country goes down in flames drama queen

Anonymous said...

njh..this is not a debate class
when you move to/back to the USA then you can comment..Where is the HSR in Aussiedogland? same kinda dead brains as here?

Rafael said...

I can't help but wonder if the SacBee and some other Central Valley papers are negative on prop 1A solely because CHSRA chose Pacheco Pass and decided to relegate the spur up to Sacramento to phase II.

Politically, at least, it might have been wiser to phase construction such that ground is broken simultaneously at all four endpoints. That would have yielded not one but two starter lines: SF-SJC-Sacramento via Altamont and Anaheim-LAUS-SD. These would then be connected via the Central Valley at a later date.

Unfortunately, it's too late for CHSRA to even consider this approach at this point. I just hope voters in Sacramento, the East Bay, San Diego and along the Inland Empire will see the big, long-term picture rather than cut off their nose to spite their face.

Voting against prop 1A would keep lawmakers from making another push for HSR for at least a decade, by which time it will almost certainly have become too expensive to consider. The work CHSRA has done is imperfect, but it's now or never for the whole concept of high speed rail in California.

Without HSR, there would be even more suburban sprawl, even more water pumped hundreds of miles, even more congestion on freeways and runways in spite of expansion, even worse air quality, even more dependence on oil and, an even bigger tab to show for it all. And that would really be penny-wise and pound-foolish.

Brandon in California said...

What portion of the voting public reads newspaper guest editorials and letters to the editor?

That is something that must be considered when considering the influence of the media in this election!

I think it is nominal.

I would think that more people here talk radio and tv news reports before print media. And, those media are much more unbiased than print.

Talk radio... always has a two-sided debate. And, when that is done, the deniars have their pants taken away from them.

On tv, it's more marketing and pretty pictures. And the CHSRA authority has done a great job by contracting with N3RD to provide animated visuals. They tell a great story.

Brandon in California said...

We're in limbo now.

We're three weeks and one day away from November 4th. Many voters have filled out their absentee ballots and sent them in. Or, they are already decided.

There is little that can be achieved here, except... to begin discussing what and when things happen after passage of Proposition 1A.

It's time to look ahead. It's time to illustrate what planning and engineering tasks have already been completed, are underway, or need to be initiated...

I'd like to know the status of design and engineering work that has been completed, what station design concepts have begun, etc.

(As only an aside... such discussion may also move 'undecided's off the fence)

Anonymous said...

Reported in Reuters News this morning,

But investment bank Goldman Sachs said the financial crisis had already done more damage than it expected to commodity demand and warned that a slide to $50 a barrel for oil could be possible.

So much for high price oil in the near future.

Absentee voting is pushing 50% of all ballots cast in California. About 50% of absentee voters cast their ballots within 1 week of getting them, so maybe 20 - 25% of the votes have alreday been cast.

Certainly the press has a much greater impact than blogs like this. How much impact I don't know. TV ads can really make a difference if you have the big bucks. Look at what has happened to Prop 8 in the last week. Now it is by polls expected to pass. From down maybe 15 points to expect to pass in 10 days. WOW!!! TV works.

Anonymous said...


Your comments stating with:

I can't help but wonder if the SacBee and some other Central Valley papers are negative on prop

are exactly on target. The exception is your last paragraph, which I find in-corrects in all aspects.

But understand, this project is controlled by Kopp and Diridon. It is going down in flames because of their pushing a vastly inferior route structure and will not gather the needed votes for a massively expensive project which is being seen as it really is, a project benefiting Fresno, San Jose, San Francisco, while leaving out San Diego, Oakland, Sacramento.

Anonymous said...

Enough about Altamont. I wish people would get Over the route chosen. The east bay cities where there train was to pass did not want the train running next to their cities Case closed

Anonymous said...

States That Can't Pay for Themselves
by Prashant Gopal
Wednesday, October 8, 2008
provided by

The Golden State, which recently scrambled to fill a $15 billion budget gap, still may not be able to meet its payroll without help.

California is going to Washington, D.C., to ask for $7 billion to cover its budget shortfall. Otherwise it won't be able to pay for its teachers, cops, firemen, and other essential services. Unfortunately, California won't be alone. A number of other states are experiencing a huge dive in tax revenue and could be going cap in hand to Uncle Sam alarmingly soon. How bad could it get? The potential cost for all the 31 states facing both major and minor shortfalls could be as much as $53.4 billion.

The data is based on a study by the Center on Budget and Policy Priorities released at the end of September and shows the states that have seen the biggest shortfalls in tax revenue in their fiscal 2009 budgets.

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

Brandon in California said...

Agree with anon 9:34am.

The route alignment could not be better. It serves the two largest major metropolitan regions of the state with direct service.

San Diego and Sacramento will be included in later phases. Saying that they will not be is ridiculous.

One, niether secondary region will be satisfied until they are. Second, SF and LA would recognize that commitment and own up to it. They'll also want to be connected to thsoe cities too.

And, Altamont provides less service... not even equal. Altamont meant a 'wye' configuration would have been implemented someplace near Fremont with train service split between going to/from San Jose or San Francisco across a new multi-billion dollar Dumbarton Bridge. This option also decreases service levels possible linking SF and SJ.

The alternative would be to loop all service around through the South Bay (SF -> SJ -> Fremont -> Tracy->)and add lots of time to the SF to LA trip. Was that an additional 40 minutes when all was said and done?

And what does Altomont achieve? Well, it would have provided weekday peak period commute capability for those living in Livermore and Tracy areas. That's not much benefit at all for a system designed/intended for statewide travel that occurs 7 days a week!

Less quality service at a higher cost. Yep, makes sense to me! Not!

Anonymous said...

Rob: Remember in 1997 when people voted for $300 million to build the Benicia Bridge that was supposed to be done by 2003? By 2003 that whole estimate was up to 1 billion, and by the time it was done in 2007 the cost was $1.3 billion?

I wouldn't be surprised if $40 billion becomes $100 billion.

Oh and any comparisons to Taiwan's HSR will show that private financing is what we should be pursuing.

Anonymous said...

Earl/Morris/Martin/whomever you are:

Robert may not be an economist, but he is correct that investing in infrastructure is a smart move at this juncture. That's exactly what many economists are recommending, including Larry Summers (Harvard Econ Prof, and former Treasury Secretary and Harvard University President).

Robert Cruickshank said...

Exactly, mike. Those who actually understand economics realize that HSR is a necessary solution to our financial and budget crises - it should NOT be a casualty of those crises.

Rafael said...

@ Brandon -

if you look at my previous comment carefully, you'll see I was suggesting a single route from SF to Santa Clara/SJC to Sacramento via Altamont. No new bridge, no wye in Fremont. Just 8 min more for SF to LA and 30 less for SF to Sac.

I should have known better than to mention the A-word again, since it's a moot point. The important thing is to get HSR off the ground at all by persuading voters of the merits of prop 1A, imperfect though it may be.

The state is headed for a recession, possibly a deep one. Construction workers need jobs so they can pay their mortgages and other bills and, a worthwhile big public works project is a good way to make that happen.

Spokker said...

CNN is running Great Depression stories now, as if the hysteria up until now wasn't enough. While we debate about whether public works projects work or not, this article included a bit of insight into how the public works projects during the Great Depression helped someone.

"Digging into her memories, van Hylckama Vlieg says her grandfather eventually found a work program after the New Deal and was able to rebuild his life."

Not to say that public works projects ended the depression, but it sure did help before the chance to make weapons to kill Germans and Japanese came to fruition.

I guess the question is, how many people were able to rebuild their lives through these programs? And in the end, we ended up with some infrastructure that we continue to use to this day.

Anonymous said...

Financial crisis is one thing, but my arguments against 1A aren't even based on that. Afterall, this was decided BEFORE the whole debacle of this summer, and HSR was discussed pre-mortgage crisis which surfaced in summer '07. What I'm trying to say is that we have a BUDGET CRISIS and a SPENDING CRISIS in CA.

If you have a spending crisis, almost everyone agrees you cut back spending. For those who don't agree, you're probably the bulk of America that has CC debt and bad credit scores.

We're not disputing that public works don't help charge the economy, but that's for a market slowdown or a weak economy. CA can have the weakest or strongest economy in the world now but the problem this conflicts with is SPENDING. We don't have MONEY to spend, and while HSR may bring benefits, we as a state are suffering already in many other things BESIDES HSR. HSR will take away from those things we desperately need and are already facing cuts for.

Fiscal responsibility and kickstarting the economy are two separate issues but they go hand in hand when you try to change one. This is like saying for defense purposes we should engage in Reagan-like spending because we are INVESTING IN OUR NATIONAL DEFENSE. While ignoring fiscal irresponsibility in the 80s worked against the USSR, look at where it's brought us today. Or the last 8 years in uncontrolled spending. Fiscal responsibility is a huge problem, and just because you're investing in your future doesn't mean you IGNORE spending. No one has been able to refute the debt issue yet.

The only thing proponents keep pushing is how romantic this idea is and how convenient it will be and how many jobs it will create, blah blah blah. They paint the roseiest picture possible (admit it you do), and the deniers if you want to call them paint the gloomiest picture ever. You know the final result will lay somewhere in the middle, although I tend to believe the opponents are more realistic because they draw on previous government projects like bridge building and what not.

EVERY PROJECT that we invest in is good for us. There's no question that any infrastructure expansion is good for the future, but just like all spending, there has to be a limit and we have to observe responsible spending. Obama believes this and so does McCain. Why can't you guys realize that we don't have the resources to deal with this now. HSR is great, but until we iron this out further, 1A is a no go.

Brandon in California said...

During financial crisis... they also say that there is a need to do the same thing more effecietly or cheaper.

Of course, California's problem is not only in the here and now, it's also in the future; revenues do not keep up with expenses. The formula is broken.

If you take the long view... HSR is cheaper and more effecient than building the alternative; highways and runways to serve the same number of travelers.

HSR has the additional benefit of being extrmely cheap to provide more capacity... just add more cars to the train set.

For highways... widen them into hillsides or put them underground. For airports... expand into bays or put new ones out in the desert.

We must think to the distant horizon... 25 or 50 years from now when we'll have 22 million-plus more people. 60 million or more!

God, or Allah, or Buddah cannot solve the challenge. We must look to ourselves for a solution.

Anonymous said...

qwerasdf -

As Christie Romer (UCB economist) points out, the problem with debt isn't the debt itself but what we choose to spend it on. If we take out debt to finance UC/CSU and give a million people a college education, that's fine because we're investing in human capital that pays dividends down the road. And taking out debt to build long-lasting infrastructure is particularly sensible because the majority of the benefits will be accrued by future generations.

My parents' generation paid 10x as much per person (inflation-adjusted) to build BART as we are proposing to build HSR, but the benefits of BART are even larger for my generation than they were for my parents' generation. As a Bay Area resident, I am much, much better off having BART than I would be if it had never been built, even though building it did increase the amount of outstanding county bonds.

The problem with debt is when you use it for consumption (e.g., tax cuts and income transfers) instead of investment. That's basically what the Federal government is doing right now with the current administration's deficits.

Spokker said...

If you support Prop 1A you probably have bad credit. Haha that's a good one.

njh said...

shriponthebarbie: I live in San Jose, CA, USA. (and of course where a person is does not prove or disprove their arguments)