Saturday, February 26, 2011

How much is a dollar worth if it's spent on high-speed rail in California?

Let's get real here.  Every dollar spent on high-speed rail in California is borrowed money.  That is, it's money that should be coming from bond sales, up to $9.95 billion.  That's what the California voters approved in 2008.  Bond sales are in trouble, but never mind.  Let's just say that all those bonds have sold, which is to say that California has borrowed $9.95 billion. 

Did the voters understand that every dollar borrowed will cost the State -- that is, the taxpayers -- two dollars?  In other words, the $9.95 Proposition 1A bond issue will cost California $20 billion dollars.  And, that, of course, is the proverbial "drop in the bucket" since the real costs of building the connection between Los Angeles and San Francisco is in the $100 billion ballpark. 

So, where will that other $90 billion come from?  It can't come from California, according to the legislative language of Proposition 1A and AB3034.  One option is private investment.  Not so simple. AB3034 prohibits government guarantees of any private sector loans, or any further drain on the state's treasury.  And, the train will cost money to operate; it won't make any money. It will require operating subsidies.  In order for the train to be profitable would make ticket costs prohibitive and then there would be no riders.  Vicious circle.  All of which is to say, the likelihood of private investment is zero.

Unless of course a country like China is willing to "buy" the train for California at discount, like a loss-leader, to drum up other high-speed rail business in the US. Maybe, but I wouldn't count on it.

So, that pretty much leaves the federal government holding the tab. They've already thrown a promised $3 billion at this project in California but acknowledge that this is merely pump priming.  Whose pump are they priming?  Will the US government come up with the other $90 billion, or possibly more, to build an operational train for California?  And if not, why is this project being permitted to start as if such funds were sure to materialize, when they are not?  

The answer is painfully simple.  And you know what it is:  It's not about the train; it's about the money!  The money, from the Democratic perspective, no matter how much or how little, is purposed to improve the state's economy and help with its painful unemployment situation. That good intention justifies this bad project.  

There is the unspoken shared/common knowledge that this high-speed train will never be completed; never be operational.  It will just hang out there, seeking/lobbying for funds that may appear in dribs and drabs.  Meanwhile the costs will continue to climb much faster than any possible available funds.  

Or, as we call it, a money black-hole. Who benefits? Politicians, contractors, consultants, lawyers, lobbyists, rail related industries, developers, public relations outfits, land speculators, and so on. And, will there be benefits for those intended unemployed? Probably not, nor will it benefit the state's economy.  Why don't the Democrats understand that?

Debt takes a huge chunk out of California's beleaguered budget

After a 10-year borrowing binge, the upcoming budget is expected to spend more on debt than public universities or state parks. Next year's repayments — $7.65 billion — could make up a quarter of the deficit.

Reporting from Sacramento — Closing California's deficit this year would be immeasurably easier if the state weren't paying for a 10-year borrowing binge.

Without that tab, officials could scrap plans to close state parks, force nearly a million low-income children to go without eye care and take in-home aid away from hundreds of thousands of elderly, blind and disabled residents.

But the state has had an insatiable appetite for debt in recent years. In the last decade, the debt per resident has tripled, to $2,362, according to the credit-rating agency Moody's Investors Service.

That means for every household of four, California owes nearly $9,500 — more than the government spends to put a child through a year of school. In the next budget, the amount devoted to debt repayment is expected to exceed the money invested in California's prized public universities.

Borrowed money has proved politically irresistible in Sacramento, a safe middle ground for politicians in the constant war between Democrats and Republicans over taxes and service cuts. Campaigns for bonds often herald them for providing projects and services without new taxes.

Voters have approved borrowing in the last 10 years for such causes as stem-cell research ($3 billion), high-speed rail ($10 billion), and parks, water and the environment ($14 billion). They even took on $15 billion in debt to paper over a deficit that Gov. Arnold Schwarzenegger said would never reemerge — something economists have scolded the state for doing.

Because of its rock-bottom credit rating, California pays a premium for its loans. Taxpayers must fork over roughly $2 for every $1 borrowed — about 20% more than top-rated states, said Matt Fabian, an analyst at Municipal Market Advisors, a bond research firm.

Gov. Jerry Brown has called for a moratorium on the sale of bonds this spring to slow the accumulation of debt. He proudly proclaimed in a brief interview that he is "a person of zero debt" because of its costs.

Still, the governor said, "people want a fireman to put out their fire, they want a policeman to keep the gangs out of their neighborhoods, and they want things done."

"You've got to get more money," he said recently on his way to a meeting with the state treasurer. "We can't get it always by taxes, so we get it by bonds."

Legislators have already placed an $11-billion water bond on the 2012 ballot. Nearly $1 billion in earmarks for such items as bike paths, museums, visitor centers and tree planting in key legislators' districts were inserted to grease its passage.

Stem cell officials are mulling going back to voters next year for another bond. And education lobbyists are working the Capitol corridors to promote a 2012 school construction bond that would be the fourth in a decade.

Scott Pattison, director of the National Assn. of State Budget Officers, said the state needs to prioritize its borrowing — and fast.

"You can't have it all," Pattison said. "It's simple math."

Now the bill is coming due.

Back in 2000 — in the heady days of surpluses — lawmakers placed a then-record $2.1-billion parks bond on the ballot rather than spend from the general fund to acquire undeveloped land and spruce up existing parks.

Among the projects the borrowing funded were a bowling alley in Stockton, a bee colony and otter pond in San Mateo, and a dinosaur plaza in Santa Ana, complete with a giant replica Tyrannosaurus rex. About $1.2 million went to buff up a bear exhibit at the Folsom City Zoo Sanctuary near Sacramento. Caves were retrofitted with heated concrete because the cold "gets a little tough on the bones of the animals as they age," said Robert Goss, the city's parks and recreation director.

An 8-foot-by-20-foot therapy pool was also installed so the bears could "swim against the current to force them to exercise an injury or arthritis," Goss said.

Now taxpayers are spending an estimated $144 million each year to pay off that bond — more than what Brown has budgeted for California's 278 state parks, which are threatened with closure, reduced hours and fewer rangers.

Some borrowing is designed to help a specific interest.

A consortium of eight private hospitals, the California Children's Hospital Assn., wrote and campaigned for bond measures in 2004 and 2008 that could net the facilities up to $172 million each. The bonds were drafted in such a way that the hospitals would be eligible for 80% of the money.

"The children's hospital bond doesn't raise taxes," actress Jamie Lee Curtis said in a 2008 TV ad. "It saves lives."

Miller's Children's Hospital in Long Beach spent nearly $700,000 promoting the 2004 bond and has received $73.9 million of the proceeds, according to a 2010 state auditor report.

Repaying the two bonds will cost taxpayers an average of $114 million a year for three decades, according to legislative analyses.

The consortium's former president, Diana Dooley, wrote the 2008 bond measure. She now heads the governor's Health and Human Services Agency, where she must implement budget cuts that threaten the state's social safety net, and she could desperately use an additional $114 million.

But Dooley said the state must both build health infrastructure and provide quality medical care. And she has no regrets about the 2008 bond measure. Voters "invested well and wisely," she said.

Not every state lives on credit. Some simply do less. Others cap the amount of debt they can take on. Some assess fees instead of borrowing: They impose water levies to pay for new dams, tolls to fund highway construction, etc.

But borrowing has become ingrained in California. Schwarzenegger once hailed a debt scheme he hatched as "a gift from the future." Term limits ensure that lawmakers and governors who decide to borrow will be long gone when it's time to pay the piper.

California's debt is now in uncharted territory. Government bookkeepers have long advised state officials to keep repayments below 6% of the general fund budget. But the combination of the recession, which has sapped revenue, and years of borrowing has driven California's repayments toward 8%.

While the state faces a $25.4-billion deficit, $7.65 billion is tied up in debt service for the upcoming fiscal year, according to the state treasurer.

California has gone from No. 22 to No. 7 among all states in its ratio of public debt to personal income since 2000, according to Moody's. A raft of still-unused bonds from 2006, when voters approved a $42-billion bond package for roads, levees, waterways, affordable housing, parks and public schools, will likely drive that ranking even higher once they are sold.

"No matter what we do," Brown said of the state's debt load, "it's going up."
Copyright © 2011, Los Angeles Times