Wednesday, December 7, 2011

Fiscal insanity in Sacramento; with the help of high-speed rail

This online blog, written by Ed Morrissey, is conservative and opposed to high-speed rail.  Nonetheless, there are some points of disagreement, and I'd like to touch on those:

1. I believe that taxes ought to be more, not less progressive. This is not the place to discuss this, however.

2. There are no $3.3 billion federal funds to return; we haven't received them yet and they won't start appearing in California unless we start construction in 2012. But, we are already out of pocket -- call them sunk costs -- of well over $500 million, with only paper to show for it.

3. If there were indeed a requirement that the project would have to be fully paid for only by California taxpayers, it would never have been voter approved in 2008.  That means Californians won't have to come up with "at least $96 billion" to pay for the train; not all of it anyhow. Which, of course, raises the question who is going to give or lend us all the funds required to build the train.  No one knows.  Therefore, the train construction is being started with wishful thinking. Presumably, the governing bodies in this state assume that it will be on the federal government's dime.

My own speculation is that the California governance doesn't know where the massive funds will come from, and they don't really care.  They want to get what's available now if they do what they're told, start in the CV and receive $3.3 billion from Washington.

4. There is now sufficient reliable information in hand that tells us that there will be no surplus revenues; that is, there will not be enough fare-box receipts to cover operating costs.  The rail authorities, desperate to get their hands on the federal $3.3 billion, deny this of course, persisting in projecting massive surplus revenues from the train's operation. So, one thing California will be on the hook for is permanent, forever subsidies for this train's operation.  Even the "cheaper" Amtrak operations cost the taxpayer more than a billion each year. 

5. There has been no fiscal sanity in California for decades, and they are not going to start becoming sane now.  The state economic crisis would still be with us even without the looming shadow of this HSR project.  With it, of course, makes things even worse.

An outbreak of fiscal sanity in California?
posted at 12:10 pm on December 7, 2011 by Ed Morrissey

Is there hope yet for the Golden State?  While Governor Jerry Brown attempts to push through a tax increase that will make the state’s income tax even more progressive — and therefore more vulnerable to economic fluctuations — the state’s voters seem inclined to put the brakes on a high-speed boondoggle whose costs have tripled before ground has even been broken (via JWF):

    Four weeks after the news that the cost of California’s high-speed rail project has tripled since voters approved it, the struggling project is taking another hit: waning public support.

    A new Field Poll shows that 64 percent of California voters would like a ballot measure giving them a chance to reconsider their 2008 decision to approve $9 billion in state bonds for the project.

    Fifty-nine percent said they would reject the $98.5 billion project if it were put before them again. In 2008, 52.6 percent of voters approved plans for the rail line to connect San Francisco and Sacramento with Los Angeles.

That’s not just Republicans talking, either.  The Contra Costa Times quotes the chair of the state Senate Transportation Committee, Democrat Mark DeSaulnier, as acknowledging that “public patience” with the massive public-works project “is about exhausted. … I think it’s time to fish or cut bait with this project.”  Another Democratic state Senator didn’t go quite as far; Joe Simitian warned that public support may fall so low that “you can’t sustain momentum for it,” but it’s too soon to see if that point has been reached.

Supporters of the project warn that shutting down the project now would mean having to return $3 billion in federal grants — but that’s a rather poor argument for committing to a project whose predicted cost has now risen to $99 billion, and the same projection warns that it could run an additional $19 billion more depending on route options.  The funds would only be applicable to the project anyway, so it wouldn’t help California deal with its serial budget crises, and committing to the project would mean having to still find at least $96 billion from the pockets of California taxpayers.

Besides, the advocates for the rail project — which includes Governor Brown — will have to explain why the project should go ahead when Brown is predicting doom if further tax increases don’t get approved at the current level of spending:

    “The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts,” Brown said.

    “That is why I am filing today an initiative with the Attorney General’s office that would generate nearly $7 billion in dedicated funding to protect education and public safety,” Brown said. “I am going directly to the voters because I don’t want to get bogged down in partisan gridlock as happened this year. The stakes are too high.”

    Brown and fellow Democrats who control the legislature failed to win Republican votes to forward a tax measure to voters earlier this year and approved a state budget on their own that relied on deep spending cuts, some fees and the expectation of a $4 billion revenue surge to close a roughly $10 billion shortfall to balance the state’s budget.

Shouldn’t a state facing such a stark fiscal crisis avoid committing to a massively expensive public-works project that won’t generate revenue for more than a decade, and will require ongoing subsidies even when people do use it?  How does Brown make a case that California can’t survive without big tax increases in a state whose tax system is already overly progressive and burdensome, and at the same time tell voters that spending $99 billion is just what the doctor ordered?

California voters might be achieving fiscal sanity.  Clearly, though, their governing class is not even coming close.

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