Benjamin Franklin famously observed, “Nothing in life is certain except death and taxes.” Were he in California today, with all the hype from embryonic stem-cell researchers and quack cloners eroding the public’s belief in the inevitability of death, he might have opined instead, “Nothing in life is certain except debt and taxes.”
With $5.2 billion in unanticipated revenue swelling state coffers, and “gridlock” in danger of becoming California’s new state motto, Gov. Schwarzenegger is proposing increased spending on health, education, and $68 billion in bonds over 10 years to build roads, levees, schools, prisons, and courthouses.
To the rest of the nation, Washington, D.C., excluded, $68 billion seems like a lot of money. The governor insists that $68 billion in new debt targeted at capital projects, especially roads and levees, is critical in handling California’s steady growth.
Democratic State Treasurer Phil Angelides dismisses the governor’s plan as inadequate, because “We need to do more than we are doing…” Angelides claims that Schwarzenegger’s plan actually increases bond debt at a slower pace than it grew over the past five years. (“I see your billion dollars and I raise you two.”) Ironically, Angelides has complained in the past that Schwarzenegger was borrowing too much, revealing that the Democrats’ true beef with the governor is that they want more debt and more taxes.
The governor maintains that his plan will keep California’s debt load under 6%. What his plan cannot control is California’s penchant for issuing bonds for almost anything, such as the $3 billion in bonds authorized in 2004 for stem-cell research. Nor does his plan take into account the tens of billions of dollars of bonds already authorized, but not yet sold.
Aside from the questionable wisdom of issuing such a massive amount of new debt, we face another, even more intractable problem in California: the burdensome environmental and labor regulations that, unless reformed, will mean that for every dollar we borrow, we will get less than a quarter’s worth of construction.
The governor’s laudable desire to repair California’s aging levee system provides a great example. There are about 1,600 miles of levees in the Sacramento-San Joaquin river system alone. The cost to repair levees has ballooned from $300 per linear foot in the early 1980s to over $5,000 per linear foot today.
Why such a massive increase? Because of federal and California environmental laws. For instance, if giant garter snakes live on a levee, repair work may be prohibited seven months out of the year, while “vegetation mitigation” requirements can cause six-year delays and massive cost overruns.
When a levee along the Feather River was found to be in need of repair, the U.S. Fish and Wildlife Service discovered 43 elderberry bushes. This led to the counting of 1,538 elderberry stems that had to be planted elsewhere as mitigation. To comply with the regulations, 76 acres of a nearby peach grove had to be purchased with 1,538 elderberry’s being planted on the property. The mitigation cost was $1.9 million, or $44,000 for each mature bush. In the end, environmental mitigation on the levee cost over $10 million, while the actual repairs were about $4 million.
Sadly, in 1997, just after the mitigation project was completed but before the work on the levee was to begin, the levee broke, killing three people and flooding 25 square miles. The mitigation project was almost destroyed in the flood as well.
Environmental and labor regulations’ effect on road construction costs have a similar impact.
While his plans for more bonds are fiscally questionable, the governor’s initiatives to encourage private financing of building and operating roads are encouraging. Such efforts would permit the government to obtain rights-of-way for roads and allow companies to compete for the right to build and operate them as toll roads on a lease basis.
The state legislature will take up the governor’s bond proposals soon, and since Republican votes are needed to reach the two-thirds vote threshold, some degree of reform should be possible. To place the bonds on the June ballot, the legislature must act by mid-February.
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