Is California Going to Surrender Billions in Federal Money?

We keep hearing from the HSR deniers that because of the financial crisis we shouldn't approve Prop 1A. For several days running we've demolished that ridiculous thinking. But as we watch what is going on in Washington, DC we can see just how self-destructive their arguments are.

Momentum is building in Congress for a new economic stimulus package. Speaker Nancy Pelosi is pushing for a new stimulus that would accomplish the following goals:

money for infrastructure projects, aid to cash-strapped states, an extension of unemployment benefits and perhaps another round of tax rebates or tax cuts to boost consumer spending.

Pelosi wants to help ease California's budget crisis, something Barack Obama has proposed as well. That should help cut down on the number of people who claim, falsely, that California's budget troubles should lead us to reject Prop 1A.

With the budget deficit out of the way we can then focus on the infrastructure stimulus aspect. We must keep in mind that the federal government no longer gives money away. Instead you have to provide a state-level match to receive transit money. No local match, no money.

California's high-speed rail project, with its detailed construction plan and with a $10 billion state match, with the potential to create 160,000 jobs over the next few years, would likely rank pretty high on the list of projects Congress would be interested in funding. The fact that the northern terminus would be in the core of the home district of the Speaker of the House, and that two of the most powerful Senators - Dianne Feinstein and Barbara Boxer - hail from California would also boost our chances.

And of course, both Barack Obama and Joe Biden have repeatedly expressed their support of high speed rail.

Finally, the US Senate has been ready to step up on high speed rail, with Republican Senator Johnny Isakson joining Democratic Senator John Kerry to propose several billion dollars be spent on high speed rail.

But if we reject Prop 1A, those billions - likely between $10 and $20 billion - will go elsewhere. Senator Isakson wants to spend it on HSR connecting Birmingham, Alabama to Washington, DC via Atlanta and Charlotte. Texas has revived its HSR plan and the Midwest has its own HSR plans. That money is NOT coming to California if we reject Prop 1A. It's just not. Without a local match there is no incentive at all for Congress to drop a dime on HSR here.

With federal HSR money committed to other states that's going to set back our own HSR project by about a decade at best. Those who claim we should vote no on Prop 1A to get a better HSR plan are either misleading you or aren't aware of the facts. For California, it really is now or never.

The choice is clear: follow the new Hoovers and reject Prop 1A, or follow the successful path FDR charted and approve Prop 1A.

Pete Rates Prop 1A a Yes

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.

The US Senate Ready to Step Up on HSR

Although this blog is primarily focused on Proposition 1A through November 4, we do need to pay attention to the federal government when necessary. We've had strong indications of support from leading national politicians on high speed rail over the course of the year. Once Prop 1A passes our focus will shift toward ensuring those strong indications become firm realities. In that light it's worth spending a moment to consider a John Kerry/Johnny Isakson funding concept that the two Senators are kicking around. Kerry is of course a Massachusetts Democrat, Isakson a Georgia Republican, but together they are sounding like strong HSR supporters, as demonstrated in an Atlanta Journal-Constitution interview of Isakson on HSR:

Kerry’s office wouldn’t answer questions about the measure, dubbed the High Speed Rail for America Act, but a letter he sent to colleagues talks big: “$200 million per year in grants, $8 billion in tax-exempt bonds, $10 billion in tax-credit bonds for high-speed intercity rail facilities, and $5.4 billion in tax-credit bonds for rail infrastructure.”

Kerry and Isakson are focusing on Birmingham, Alabama to Washington, DC but this concept can apply to our own HSR project, which after November will be the closest by far to reality. Senator Isakson shows a very astute understanding of the need not just for HSR but for government involvement in getting it off the ground:

Q: Why should government be involved in this at all? If it’s really worth doing, won’t market forces lead private enterprise to make it happen?

A: Sometimes you have to make the investment in the hub if you will, like aviation, or in the spine, like in the line from Boston to New York, to then make the rest of the system viable. And, again, I don’t think general taxpayer subsidies make sense in transportation … it’s a user investment in the system they are using in turn to make an income.

This formulation may be key in bringing Senate Republicans on board - government needs to "prime the pump" and build basic infrastructure to spur private enterprise. Isakson is talking in systemic terms here, understanding the value that an HSR spine - like SF to LA - provides for the entire passenger rail system.

Now I strongly disagree with his claim that taxpayer subsidies don't make sense in transportation - they most certainly do, for without them we wouldn't have a transportation system at all. Airports and freeways require continuous subsidies to maintain operations. But let's game this out for a moment. If Isakson is willing to support federal government funding for tracks...that's pretty much all we need them for anyway. HSR generates an operating surplus "above the rail" - meaning that subsidies are either not going to be necessary for ongoing operations or they'll be costs California can handle. If Isakson doesn't want the federal government to pay for ongoing CA HSR operations, but is willing to help pay for construction costs - which is how I read his statement - then that's a deal I might be willing to take.

Isakson also understands the economic value of HSR - especially during hard economic times like these:

Q: The U.S. economy hasn’t been in such bad shape for years. Is it a little strange to be talking such an ambitious project that would cost so much at this moment?

A: The economy’s struggling now in part because of the high cost of fuel, because of the high cost of commodities, and that rolls right back into the whole transportation issue. I mean if you can reduce your dependence on oil, then the demand goes down so the price goes down.

From your lips to other Republicans' ears, Johnny. He clearly understands the connection between HSR and economic recovery. Namely, the first leads to the second.

Logan Nash at Trains for America is reserving his judgment for now:

A high-speed rail initiative in this county would be great if executed well, but we don’t want any nascent project to siphon funds and support away from our already functioning Amtrak system....The way Isakson talks seems to point to a European-style system where a public entity owns the infrastructure, which private-ish operators then rent.

In other words, the role of private enterprise in HSR is going to be a key battleground for us after November 4. I'm on record as favoring a limited role for private enterprise and am strongly opposed to giving them a place in system operations. But if Isakson is willing to agree to federal assistance for track construction and then letting the states determine the role of private enterprise, well, that would be workable.

And of course all this demonstrates that federal support for HSR is quite strong - despite what the HSR deniers would have you believe.