Imagine your finances are down, and you need to cut back. You get rid of the premium cable channels, start shopping at the discount market, scrap date night at the movies, and ... buy a new house?
California politicians may decide to embark upon a similar strategy, on a far bigger scale. Even as they must ax crucial services by Friday to help close a $15.7 billion deficit, state lawmakers are weighing California's costliest project ever: a $69 billion high-speed rail line.
"You don't run your home like that," said Assemblywoman Diane Harkey, R-Dana Point, who's tried, unsuccessfully, to kill the bullet train. "We're bankrupt."
It looks so simple: Halt the train, save the budget. After all, $69 billionis three-fourths the amount of the entire state budget -- enough money in the upcoming year to give free tuition to every Cal State and University of California student, wipe out the state sales tax, fund the state's health care services subsidy and still close the budget deficit.
Of course, it's not that simple. The high-speed line would be paid for over time, not in one lump sum, with the biggest payments coming in later years; plus, most of the funding would come from outside sources. The project would consume up to 0.04 percent of next year's state budget -- not even enough to fund the California Department of Pesticide Regulation.
"It is a sound investment in our future, as well as an immediate stimulus to our struggling
Tallying the debt
Gov. Jerry Brown is asking the Legislature to spend $3.7 billion in state bonds, matching $3.3 billion in federal grants, to start building high-speed rail track in the Central Valley, beef up local transit and conduct more planning. Supporters hope to approve the bullet train by July 1, but skeptics are aiming to delay the vote until mid-August.
The measure voters approved in 2008 called for the general fund to pay back nearly $10 billion in bonds, with interest, over about three decades to help build the 520-mile line to connect San Francisco and Los Angeles with the fastest train in the country. Still, the Brown administration is anxious to minimize the hit on the state's general fund and has already been tapping other accounts, including one that customarily uses truck weight fees to pay for highway repair and construction.
"The governor has tried very deliberately not to have to make that choice (between high-speed rail and) these general fund dollars that are so precious
Yet a majority of voters now oppose the project, and a main reason is the cost, recent polls show. So just how much will it cost California taxpayers? That depends.
Kill the project now, and the state is still on the hook for about $1.3 billion to pay back its debt from planning the bullet train, including interest. If lawmakers vote to start building tracks, only to see future funding dry up and construction halted after the first segment is built, then the state taxpayer burden will climb as high as $9.5 billion. Finally, if more funding comes through to extend the tracks, it would unlock all the available bonds, saddling California with up to $22.5 billion in bond and interest payments. If officials succeed in selling a portion of the bonds as tax-exempt, those debt figures would decrease slightly.
"People are incredulous that this is even being seriously considered, particularly in these financial times. We cannot afford it," said Assemblyman Jim Nielsen, of Gerber, the ranking GOP member of the budget committee and a project opponent. "Funding it in this particular budget is a very dangerous thing to do. You're going against the grain of public sentiment."
Budget vs. trains
The train's biggest blow to the budget won't come just yet, however. Like a mortgage or car payment, the train bonds will be paid back in annual installments over several decades.
During the fiscal year that starts July 1, the bullet train's budget cost will be about $36 million even if lawmakers vote to start building, a drop in the bucket for a budget 2,500 times bigger than that. Over 30 years, though, full construction of the train could cost the budget an average of $750 million a year, or enough to pay the current salaries of 11,000 public school teachers.
Unlike the bond payments, the remaining two-thirds of the money envisioned to build high-speed rail cannot so easily be used to bolster the state budget.
The current federal grants and up to $42 billion in hoped-for future federal funds would be earmarked only for the bullet train. Same goes for $13 billion in envisioned private investments.
If that money doesn't surface, there's a backup plan to tap into new fees paid by big polluters as part of California's cap-and-trade program. There is some debate about whether this money legitimately can be spent to build high-speed rail, but no one is arguing that it can be used to solve the budget crisis. The fees are limited by law to funding environmental programs.
Finally, spending is only half of the budget equation. Though the exact revenue from the train is tricky to gauge, supporters estimate a 2-1 return on spending by putting thousands of people to work and stimulating business activity. They argue California's bullet train would have a net benefit for the budget over the long run.
"It's a legitimate question for people to ask when they're seeing budget deficits, and then here we are with this thing that to a lot of people looks like just a big luxury," Richard said. "The reason I can sleep at night and support this is that I also know we're planting the seeds for future growth."
Contact Mike Rosenberg at 408-920-5705. Follow him at Twitter.com/rosenberg17.