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Why Aren't Unions Fighting California's Bullet Train Boondoggle?

Back in 2008, voters in California approved Prop. 1, a statewide initiative to spend, “$9 billion for building a new high-speed railroad between San Francisco and Los Angeles.”

Total cost, $9.5 billion. Remember that?

Quoting further from the original initiative’s ballot language:

“Bond Costs. The costs of these bonds would depend on interest rates in effect at the time they are sold and the time period over which they are repaid. The state would make principal and interest payments from the state’s General Fund over a period of about 30 years. If the bonds are sold at an average interest rate of 5 percent, the cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year. Operating Costs. When constructed, the high-speed rail system will incur unknown ongoing maintenance and operation costs, probably in excess of $1 billion a year. Depending on the level of ridership, these costs would be at least partially offset by revenue from fares paid by passengers.” (ref. UC Hastings Scholarship Repository, Propositions, California Ballot Propositions and Ballot Initiatives)

Over time, fantasy always yields to reality.

The most recent reputable estimate of High Speed Rail costs come from an in-depth special report published last month by the Los Angeles Times, entitled “$68-billion California bullet train project likely to overshoot budget and deadline targets.”

The title of that special report says it all. California’s High Speed Rail was sold to voters for an amount that is at least seven times less than our most recent estimate of costs, and if the author of the LA Times special report is to be believed, it is very unlikely this project will come in for a total cost under $100 billion.

High speed rail was sold to voters back in 2008 in roughly the same way pension benefit enhancements were sold to naive politicians back around 1999. In both cases, the decision makers were told it would cost next to nothing. Isn’t this called fraud? To sell a good or service to a consumer at a given price, then come back and demand ten times as much money?

Payments on these construction costs will be paid from the California state general fund, and based on a $100 billion total cost and a 5.0% interest rate, that comes out to $166 per year per California resident. Not that much? Unimpressed? Put another way, based on roughly six million taxpaying households in California (about half of California’s 12 million households pay no taxes; their sales tax burden is largely offset by the earned income tax credit), construction of this train will cost $1,084 per taxpaying household per year.

Do you want to pay $1,000 per year for a project that will not alleviate California’s transportation challenges one bit? A project that will lose money forever? A project that will use up massive amounts of capital that could be deployed to achieve literally dozens of other huge and vitally needed infrastructure objectives?

This is where California’s labor leadership, by continuing to support high speed rail as a centerpiece project, are showing how out of touch they truly are with the average working family. Because they are unwilling to fight for major infrastructure investments that would improve the quality of life and lower the cost of living for all Californians; improvements to existing rail, upgraded roads, state-of-the art natural gas and 5th generation nuclear power stations, reservoirs and aquifer storage projects, upgraded sewage treatment plants to produce potable water, and much, much more. If California’s labor leaders care about all workers, they will find the vision and courage to fight for these useful amenities, instead of promoting high speed rail.

20151123-UW-HSR
High Speed Rail CEO Jeff Morales made $477,760 in 2014

A legitimate role for government spending is to make strategic investments that reduce costs for basic necessities. That is what makes a nation prosperous. That is a proper use of public funds. Artificially inflating the costs for energy, water and transportation – which is the current policy of California’s government, abetted by big labor in this state – is a crime against the people of California.

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Ed Ring is the executive director of the California Policy Center.

Desalination Plants vs. Bullet Trains and Pensions

Current policy solutions enacted to address California’s water crisis provide an object lesson in how corruption masquerading as virtue is impoverishing the general population to enrich a handful of elites. Instead of building freeways, expanding ports, restoring bridges and aqueducts, and constructing dams, desalination plants, and power stations, California’s taxpayers are pouring tens of billions each year into public sector pension funds – who invest 90% of the proceeds out-of-state, and the one big construction project on the table, the $100B+ “bullet train,” fails to justify itself under virtually any credible cost/benefit analysis. Why?

The reason is because infrastructure, genuinely conceived in the public interest, lowers the cost of living. This in-turn causes artificially inflated asset values to fall, imperiling the solvency of pension funds – something that would force them to reduce benefits. Beneficial infrastructure is also a threat to crony capitalists who don’t want a business climate that attracts competitors. Affordable land, energy, and water encourage economic growth. Crony capitalists and public sector unions alike hide behind environmentalists, who oppose growth and development, all of it, everywhere – because no new developments, anywhere, suits their monopolistic interests. No wonder the only infrastructure vision still alive in California, the “bullet train,” is nothing more than a gigantic, tragic farce.

Urban Water Consumption is a Small Fraction of Total Water Use

Returning to the topic of water, a basic examination of the facts reveals the current drought to be a problem that could be easily solved, if it weren’t for powerful special interests who don’t want it to be solved, ever. Here’s a rough summary of California’s annual water use. In a dry year, around 150 million acre feet (MAF) fall onto California’s watersheds in the form of rain or snow, in a wet year, we get about twice that much. [1] Most of that water either evaporates, percolates, or eventually runs into the ocean. In terms of net water withdrawals, each year around 31 MAF are diverted for the environment, such as to guarantee fresh water inflow into the delta, 27 MAF are diverted for agriculture, and 6.6 MAF are diverted for urban use. [2] Of the 6.6 MAF that is diverted for urban use, 3.7 MAF is used by residential customers, and the rest is used by industrial, commercial and government customers. [3]

Put another way, we divert 65 million acre feet of water each year in California for environmental, agricultural and urban uses, and a 25% reduction in water usage by residential customers will save exactly 0.9 million acre feet – or 1.4% of our total statewide water usage. One good storm easily dumps ten times as much water onto California’s watersheds as we’ll save via a 25% reduction in annual residential water consumption.

California’s politicians can impose utterly draconian curbs on residential water consumption, and it won’t make more than a small dent in the problem. We have to increase the supply of water.

Desalination is An Affordable Option

One way to increase California’s supply of fresh water is to build desalination plants. This technology is already in widespread use throughout the world, deployed at massive scale in Singapore, Israel, Saudi Arabia, Australia, and elsewhere. One of the newest plants worldwide, the Sorek plant in Israel, cost $500 million to build and desalinates 627,000 cubic meters of water per day. [4] That means that five of these plants, costing $2.5 billion to build, could desalinate 1.0 million acre feet per year. And since these modern plants, using 16″ diameter reverse osmosis filtration tubes, only require 5 kWh per cubic meter of desalinated water, it would only require a 700 megawatt power plant to provide sufficient energy to desalinate 1.0 million acre feet per year. [5] Currently it takes about 300 megawatts for the Edmonston Pumping Plant to lift one MAF of water from the California aqueduct 1,926 ft (587 m) over the Tehachapi Mountains into the Los Angeles basin. And that’s just the biggest lift, the California aqueduct uses several pumping stations to transport water from north to south. So the net energy costs to desalinate water on location vs transporting it hundreds of miles are not that far apart. [6]

The entire net urban water consumption on California’s “South Coast” (this includes all of Los Angeles and Orange County – over 13 million people) is 3.5 MAF. [7] Desalination plants with capacity to supply 100% of the urban water required by Los Angeles and Orange counties would cost under $10 billion, and require 2.5 gigawatts of electric power. These power stations could also be built for under $10 billion. [8]

Imagine that. For $20 billion in capital investment we could provide 100% of the fresh water required by nearly all of Southern California’s urban water users. For around $50 billion, 100% of California’s urban water requirements, statewide, could be financed – the desalination plants and the power stations.

California’s taxpayers are currently condemned to shell out at least 500 billion dollars over the next 20-30 years so a train that hardly anyone will ride will careen through expropriated land, and pension funds can invest 90% of their assets out-of-state so public sector employees can retire 10-15 years early with pensions that are 3-5 times greater than Social Security. For less than one-tenth of that amount, we can solve our water crisis by investing in desalination. Why not, environmentalists? We’re willing to carpet the land with solar farms, exterminate raptors with the blades of wind turbines, and incinerate the rain forests to grow palm oil – all financed by selling carbon emission permits. Why not disburse brine offshore, where the California current will disburse it far more efficiently than any desalination plant situated on the Mediterranean Sea?

Another way to solve California’s urban water crisis is to recycle 100% of indoor water. Quaternary treatment, where water from sewage is purified and sent back upstream for reuse, is another proven technology already in limited use throughout California. In theory, not one drop of indoor water use can be wasted, since all of it can be reused.

And, of course, imagine how quickly California’s water crisis could be solved if farmers could sell their water allotments to urban water agencies. As it is, myriad restrictions largely prevent them from exercising this option, even though many of them could profitably sell their water allotments and make more than they make farming the crop. Do we really need to grow rice in the Mojave desert to export to China?

Environmentalists alone are not powerful enough to stop Californians from acting to increase water supply. Powerful government unions, pension funds, and anti-competitive corporate interests all have a stake in perpetuating artificial scarcity and authoritarian remedies. It suits them because it consolidates their power, and ensures they get a bigger slice of a smaller pie.

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Ed Ring is the executive director of the California Policy Center.

FOOTNOTES

(1) Total Precipitation in California during wet, average, and dry years:
California Water Supply and Demand: Technical Report
Stockholm Environment Institute
Table 2: Baseline Annual Values by Water Year Type and Climate-Scenario (MAF)
http://sei-us.org/Publications_PDF/SEI-WesternWater-CWSD-0211.pdf

(2) California water use by sector:
California Water Today
Public Policy Institute of California
Table 2.2, Average annual water use by sector, 1998–2005
http://www.ppic.org/content/pubs/report/R_211EHChapter2R.pdf

(3) California urban water use by sector:
California Dept. of Water Resources
2010 Urban Water Management Plan Data – Tables
Download spreadsheet “DOST Tables 3, 4, 5, 6, 7a, 7b, & 7c: Water Deliveries – Actual and Projected, 2005-2035”
http://www.water.ca.gov/urbanwatermanagement/2010_Urban_Water_Management_Plan_Data.cfm

(4) Cost of modern reverse osmosis desalination plant:
Technology Review
Megascale Desalination: The world’s largest and cheapest reverse-osmosis desalination plant is up and running in Israel.
http://www.technologyreview.com/featuredstory/534996/megascale-desalination/

(5) Energy required to desalinate seawater using reverse osmosis technology:
Encyclopedia of Desalination and Water Resources
“Energy Requirements of Desalination Process”
Table 1. Energy requirements of four industrial desalination processes.
http://www.desware.net/desa4.aspx

(6) part one – Tehachapi lift of 1,926 feet:
Wikipedia, California Aqueduct
http://en.wikipedia.org/wiki/California_Aqueduct

(6) part two – energy required to lift water:
University of California, Energy Required to Lift Water
Table 1. The Amount of Energy in Kilowatt-Hours (kWh) Required to Lift One Acre-foot of Water (325,851 gallons) One Foot of Elevation
http://cetulare.ucanr.edu/files/82040.pdf

(7) California water use by sector:
California Water Today
Public Policy Institute of California
Table 2.2, Average annual water use by sector, 1998–2005, ref. “South Coast”
http://www.ppic.org/content/pubs/report/R_211EHChapter2R.pdf

(8) The cost to construct a modern natural gas power plant:
U.S. Energy Information Administration, Capital Costs for Electricity Plants
Download Table 1, “Updated Estimates of Power Plant Capital and Operating Costs” (ref. Natural Gas – the most modern and expensive version)
http://www.eia.gov/forecasts/capitalcost/

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Legislature Adjourns for 2014 – Property Tax Increase Narrowly Averted

Humorist Will Rogers observed, “This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer.” If Rogers were a Californian today, he would say the same thing about the state Legislature.

Fortunately, for average citizens, the Legislature adjourned a few weeks ago so its ability to inflict more harm on taxpayers, property owners and businesses is on hold until the first of the year.

Lawmakers are no longer in Sacramento listening to high-powered lobbyists for special interests that back more taxes and spending. Most have returned to their home districts to beg for votes. They are likely to be attending local events and some will actually be walking in neighborhoods to convince voters they deserve to be returned to the Capitol. And, of course, they will be invading your mail box, television and radio with their political ads.

The majority of candidates for reelection will be bragging that they and their colleagues have achieved a balanced, on time budget and the state is on the right track. Their accomplishments, they will claim, entitle them to continue in office.

However, here are some things that most will not mention. California continues to have one of the highest unemployment rates in all 50 states. Our state ranks first in marginal income tax rates, state sales tax and gasoline tax. Businesses, and the jobs they provide, continue to flee the state. Even firms like Tesla and SpaceX that have been provided massive tax subsidies by Sacramento, have chosen to expand their facilities outside of California – Tesla to Nevada and SpaceX to Texas. And the Legislature continues to support subsidies to GovernorBrown’s bullet train that may end up costing taxpayers nearly $100 billion.

Another topic that most incumbent lawmakers will not want to discuss is their efforts to pass ACA 8, an amendment to the California Constitution that would make it much easier to increase property taxes to pay for infrastructure bonds. Passage of this, and other proposals that fell just short of approval this year, could have resulted in increased property taxes totaling billions of dollars, once again putting homeownership in jeopardy as it was prior to Proposition 13, when there were no limits on annual increases in the tax bill.

It is also unlikely they will want to discuss their rejection of legislation that would have slowed the implementation of carbon fees, fees that are likely to add somewhere between 15 and 40 cents to the cost of a gallon of gas after the first of the year. This is no less than a war on the poor, who already can barely afford to put fuel in their cars due not only to high prices, but also to the highest gas tax in the nation. And California has plenty of poor. We lead all 50 states in the percentage of those living in poverty.

Voters who have the opportunity to meet candidates for office, whether they are incumbents or aspiring challengers, should be prepared to ask a few questions.

Here is a good question for all candidates, “Do you believe it is fair that Californians pay the highest tax rates in nearly every category?” An excellent follow-up question would be, “Where do you stand on an extension of the Proposition 30 income and sales tax increase, set to expire in the next several years?” And, of course it is always revealing to get answers to this question, “Do you support the governor’s bullet train that could cost taxpayers a hundred billion dollars or more?”

Honest answers to these questions would provide a good gauge of how well a candidate understands that their actions have real consequences for average Californians. Some may show that they genuinely respect those they serve, while others, who are likely to equivocate when responding, will reveal that they are motivated by self-interest.

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Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.