Monday, March 7, 2011

Borrowing to buy high-speed rail deck-chairs for the Titanic

Here's more about the financial picture in destitute California.  Everyone in Sacramento is rushing around, trying to stop the leaks and keep the boat from sinking.  However, they are assiduously ignoring one of the biggest leaks about to take place, when lots of rivets pop and a big time hemorrhaging takes place. And that's the high-speed rail project.  The state share of this project, ostensibly, is the borrowing of $9.95 billion to pay for train design and construction. Those funds are intended to be matched by other funds, such as the federal ARRA stimulus funds promised to California. 

But, what about that borrowed $9.95 billion?  That's got to cost somebody. Yes, it does. It will cost us two dollars for every dollar borrowed and spent.  Then, the legislation talks about not having to return to the state taxpayers for one dime more than that.  Yeah, right. And, by the way, those Federal dollars are also borrowed money, since the country is struggling with a huge deficit.

Step back a minute and ask yourself this: The federal and state governments, both deeply in debt including to other countries, and paying enormous debt servicing fees, are setting out to build a high-speed luxury train for more billions of dollars than we can count, and which we don't have and therefore have to borrow.  And, it's a train that will be used only by people who can afford the top-dollar tickets. What's wrong with this picture?

Please understand that the real purpose of this entire project in California  is get and spend money.  It's the most lavish program imaginable, as if the State were to set out to buy and give away Rolls-Royce motor cars to each and every person in the state.  Absurd, but that would be less expensive. Unfortunately, what's even worse is that although every taxpayer in the state will be contributing to this, very few will ever ride the train. To validate this claim all you need to do is check ticket prices for high-speed rail anywhere in the world.

And, I shouldn't have to belabor the fact that this state economy is locked into a zero-sum game.  Every dollar spent on this project is not available for education.  The state education budget has been slashed for a very long time, and it's not over with yet. More cuts are due. The rail promoters will insist that these are two different budgets and one has no effect on the other. Nonsense. It's two different pockets on the same pair of pants. 

Human capital is the natural resource of this state; not oil, not minerals.  By not educating and training, more and better, we are wasting such human capital as if we were to pour our state's oil production into the ocean.

So, what's the central problem?  We are all prima donna divas.  We want what we want and we are determined to get what we want. The Democrats especially are determined to spend as much money as possible, and for a variety of reasons.  But the Republicans refuse to raise taxes, also for a variety of reasons.  So, what's left to satisfy both sides?  Borrow more money.  And as this article points out, that's what's going on for this train project.

How is that justified?  Jobs, boosting the state economy, saving fuel, cleaning the air, ridding ourselves of traffic congestion.  At least, that's the underlying mythology, believed by all the rail supporters from the President on down. Even when those assumptions are analyzed and challenged, it's still easier to just ignore them.  The pressure to purse this misconceived project comes from politicians who see their careers being benefited, as well as the rail industries and their satellites who are lobbying like mad to keep those dollars flowing. 


California’s Hemorrhaging Debt does not faze our High Speed Rail Authority.

Today’s San Francisco Chronicle sounds the same alarm that some of us have been shouting for almost two years as we oppose the under funded high-speed rail.

The following text might serve as a wake-up call for those with their heads in the sand listening for the train whistle that hopefully will never be heard.
California addiction to debt proves costly

Sunday, March 6, 2011

Schools, taxes, state workers’ pensions, prisons – all of these topics get plenty of airtime in Sacramento when our elected leaders are wrestling with the state budget.

But there’s one big line item that doesn’t get much attention, even though it’s eating California alive: the cost of our debt service.

In the next budget, the state will spend $6.6 billion on debt repayment. According to Moody’s Investors Service, California’s debt has tripled over the past decade.

We wouldn’t have to talk about slashing children’s medical insurance and older people’s in-home care or closing state parks if we weren’t paying off the debt we’ve accumulated. California is addicted to debt. Not only are we in denial, but we’re also not even attempting to face the problem.

Legislators have already approved an $11 billion water bond for the 2012 ballot. A group of California mayors is floating the idea of a $1.7 billion bond issue to save redevelopment agencies, which Gov. Jerry Brown has targeted for elimination. Education lobbyists and stem cell officials are mulling a return to the ballot for more debt. Meanwhile, there’s $42 billion in unused debt still hanging around from 2006, when voters approved an infrastructure package that was unaffordable then and even more unaffordable now.

For years, Californians have encouraged this debt binge because we wanted services, and we didn’t want to feel the pain of paying for them.

Thanks to our structural deficit and what Standard & Poor calls “recurring episodes of insufficient financial liquidity,” California has the lowest credit rating of any state. This means that bonds aren’t even an affordable solution – taxpayers have to pay about $2 for every $1 borrowed.

This situation is unsustainable and unacceptable.

Brown seems sincere about sending California to debt rehab. The state will be taking a “moratorium” from bond sales in the spring, according to state Department of Finance spokesman H.D. Palmer.

“Based upon our survey of state departments for bonds that they have ongoing, there’s about $13 billion right now for projects that are under way,” Palmer said. “So we don’t think we’re going to cause any problems by not going to Wall Street in the spring. And we’ll use that time to determine how we can better use the proceeds we have and get more bang for our buck in the future.”

The spring moratorium is a good start, but it’s not enough. Just paying off California’s existing debt would require the state to stop issuing bonds for years, not months.

Under that scenario, Californians would have to find new ways to pay for the things we want without borrowed money – and so far, the obvious solutions (higher taxes or fewer services) have proved too tough for voters.

This year’s budget should serve as a wake-up call to voters. The annual cost of interest and principal on our debts is approaching the annual costs of higher education and the correctional system. And it may surpass these costs soon, if we keep passing more bonds.

The better choice for California would be to spend our hard-earned tax dollars on future investments that will actually pay off – like education, for instance. Interest payments benefit only banks.

To read the entire Chronicle article click on the following link:
Gilbert comments. I would be remiss not to mention Mark Landsbaum’s OC Register Editorial today in which he writes:
“State treasurer Bill Lockyer reported in December 2009 that California’s bond rating had hit bottom, the lowest of all 50 states, which he said results in paying a “significant penalty” in interest to bond buyers, costing  21 percent more than states with top ratings.

That sad condition was when Californian had $83.5 billion in outstanding long-term debt to pay off. There is about another $58 billion in voter-authorized and Legislature -approved bonds that can yet be sold.”

Mark goes on to report that our “State government’s annual debt service increased 143 percent from 1999 through 2009-almost seven times greater than the increase in revenue. The payment on California’s credit cards was nearly 7 percent of budget expenditures in December 2009, compared to only 3 percent in 1999, on its way to a projected 10.98 percent by 2013, and even higher if revenues do not increase.”

Juice readers. We’re addicts. Who cares about the debts that our grandkids will be stuck with. At least we can brag about having our own high-speed train that will arrive in Anaheim, if not stopped in its tracks, by 2030. When private sector funds do not arrive as mandated, the HSRA will create a way to “invest” taxpayers money in our future, and limited use, mode of transportation.