Or, why the Sac Bee and Modesto Bee are wrong to oppose Prop 1A.

California is staring into the abyss. 30 years of conservative economic policy, including tax cuts, have brought the national and the state economy to the worst economic crisis we have faced since 1933. The state budget is in perennial deficit – caused by those same conservative policies. Since Prop 13 in 1978 the state’s revenue levels have been set artificially and deliberately too low to maintain our core services. The purpose was to force crises like this and tell Californians “either we raise your taxes or we destroy government.”

The budget deficit is a difficult problem. But it can be closed fairly easily by returning to the income tax levels on the wealthy that Ronald Reagan supported, that were in place from 1991 to 1998.  It is a question of political will – our budget deficit is not a force of nature but a deliberate creation of man. What we make, we can unmake.

More importantly, how exactly are we going to close that budget deficit, provide short-term relief and long-term economic growth without infrastructure projects? Many economists argue that government spending on infrastructure must be part of not just an economic stimulus right now but also of any financial rescue plan. These economists understand what we at this blog have understood – that we need stimulus to revive our economy.

Banks aren’t lending just because of the bad assets on their books – they’re not lending because the economy is sliding into recession. To stop that we need government spending on new stimulus. That was conventional wisdom during the Depression and it eventually brought us out of the depths – while also setting up the prosperity of the postwar era.

Unfortunately California newspaper editorial boards remain trapped in the failed conventional wisdom that brought us to this point of crisis. Instead of returning to tried-and-true economic principles of infrastructure stimulus, they argue we should sacrifice the future to the failure of the present. That because we are in crisis now, we cannot act to rescue ourselves from that crisis, and cannot act to provide a more stable future.

Such is the position of the Modesto Bee in its editorial against Prop 1A and of the Sac Bee. They both claim it is “too costly for the state.” In doing so they merely demonstrate their lack of knowledge about high speed rail and their unwillingness to act to reverse the slide into severe recession.

Details over the flip.

From the Modesto Bee:

The annual cost to operate the high-speed rail network would exceed $1 billion. Backers believe they can operate in the black. We’re skeptical. Passenger rail systems throughout the United States require subsidies.

The Modesto Bee should NOT be skeptical. Every single HSR system around the world functions without operational subsidies. In France HSR is so profitable it subsidizes the other systems! Even Taiwan HSR has achieved profitability after just 18 months in operation. Of course we should remind the Modesto Bee that every other form of transportation in America is subsidized – but HSR stands on its merits. Ongoing subsidies are just not likely. The Modesto Bee misleads its readers in not mentioning that.

That aside, our main concern is the price. A review by the independent legislative analyst’s office says that if the bonds are sold at an average interest rate of 5 percent and paid off over 30 years, the cost to the state general fund would be about $19.4 billion. That works out to about $647 million per year.

State legislators struggle to produce a budget year after year, and the current budget, just signed, is expected to be nearly $5 billion in the red unless drastic action is taken. As we noted in opposing Proposition 3, California can ill afford to encumber the general fund with more debt, especially the staggering cost for high-speed rail.

The Modesto Bee and the Sac Bee, which used almost the same argument, would do well to read Pete Stahl’s “semi-biennial lecture on bonds”. Pete reminds us that bonds are a fixed cost over time that become much easier to pay off as general fund revenues increase. Further, HSR construction will actually BOOST the general fund by providing increased income tax and sales tax revenue. Combined with the green dividend from HSR it is likely that it will pay for itself – the benefits to the general fund will equal or outweigh the ongoing bond service costs.

Newspapers like the Modesto and Sacramento Bee are suggesting that we were wrong to build Shasta Dam and the Golden Gate Bridge during the Great Depression. Both required public bond financing to be constructed. Modesto and Sacramento STILL benefits from Shasta Dam water. Instead, according to papers like the Sac and Modesto Bee, we should have waited until the 1950s. Of course that would come at the cost of not only higher unemployment during the Depression – which is the last thing you need – but it would have limited our ability to have postwar growth.

The equation is very simple, people. Prop 1A = jobs now + long-term economic growth. California would be engaging in an act of extreme recklessness if it sacrificed the future because of the failures of the present. The best way to ensure that we continue to have unemployment and a budget deficit is to reject Prop 1A.

Crossposted from the California High Speed Rail Blog

This one isn’t really a surprise, since they’ve been supporters of high speed rail for many years now, but today the San Francisco Chronicle endorsed a Yes vote on Prop 1A:

The passage of Prop. 1A would generate an estimated 160,000 construction-related jobs at a time when the state could use an economic stimulus. But its even greater long-term value to the state will be the economic and environmental benefits of connecting urban centers with growing inland cities that don’t have major airports – and providing an alternative to the cattle-call flights between the Bay Area and Southern California.

They’re absolutely right – and even understating the case. The long-term value isn’t just in providing alternatives to cattle-call flights, nice though that will be. The long-term value comes in providing an alternative to oil, period. Our state’s dependence on oil is causing financial and economic havoc. Those who make baseless criticisms of Prop 1A’s financing are ignoring the far more risky and damaging impacts of “staying the course” and doing nothing in the face of a climate and energy crisis that is strangling our economy.

The editors had a good response to those fiscal critics:

Opponents have seized on the understandable anxiety about a venture of this magnitude and have questioned everything from its cost projections to ridership estimates to its environmental benefits. In a meeting with our editorial board this week, they suggested the money would be better spent on relieving gridlock on regional roadways.

However, the fiscal safeguards on Prop. 1A were toughened substantially with the Legislature’s recent passage of AB3034. It limited the amount of money that could be spent on administration or other items unrelated to construction. Also, construction could not begin on any segment of the project until it was certified that the funding for it had been secured. State funding would account for about half of the project; the balance would come from the federal government and private sources.

HSR deniers want Californians to believe that if this passes that we’re going to be DOOMED, doomed  I tell ya, especially in our state budget. But the Chronicle points out this is nonsense. If the feds and private enterprise come through as they have consistently indicated they will then we build it and everyone’s happy. If they don’t come through, we don’t build it, no money spent, no harm done.

They close well:

Prop. 1A presents an ambitious vision that is well tailored to the state’s transportation and environmental needs. We recommend its passage.

We strongly agree.

Debra Bowen was in the Big Tent a while ago and I got the chance to talk to her about the Prop 1/1A ballot printing fiasco.  The word from the Secretary is that the voter guides containing Proposition 1 have already been printed, but that Proposition 1 will not be on the ballot.

Proposition 1A will be on the ballot, but since the voter guides have already been printed, there will be a supplemental voter guide containing all the requisite information on Proposition 1A.

The approximate cost of all of this extra printing and mailing will be about $4 million, paid by the taxpayers.

Thanks for stamping your feet and holding your breath, Governor.