Misleading Funding Talk on Both Sides High-Speed Rail Fight

If you want to see attempts to exploit public ignorance, look at both sides of the debate over whether to launch the California high-speed rail project.

First, the truth.

The funding for the project is uncertain, with the federal government pledging billion and state voters having approved $9 billion in general obligation bonds in 2008 to help pay costs of the project.

It's the general obligation funds that are the source of the public confusion, and the misleading rhetoric.

The bonds in this case are dedicated to high-speed rail, and have to be spent on that. But opponents have suggested that money spent on high-speed rail could and should be repurposed to offset other programs in the budget.

That's nonsense -- and would be illegal. Bonds approved for high-speed rail go to high-speed rail, and aren't being directly taken away from other budget projects.

On the other hand, supporters of the project have gone too far in suggesting that the high-speed rail project bonds aren't an issue for the general budget.

Since these are general obligation bonds, they are backed by the general fund. That means the debt service on these bonds comes from the same fund that backs a host of other state programs.

Jim Earp, executive director for the California Alliance for Jobs, is quoted in the Capitol Weekly as saying that's not true.

“I think there will be some people who will try to make that connection that somehow not funding high-speed rail will improve the general fund. That’s not accurate,” Earp said. “The money that will service the bond is not coming out of the general fund.”

That statement contradicts the plain language of the ballot measure that authorized the bonds, and the legislative analyst's own reporton the subject from 2008: "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. While the measure allows for bonds to be issued with a repayment period of up to 40 years, the state’s current practice is to issue bonds with a repayment period of up to 30 years. If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of  30 years, the General Fund 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."

Now that number -- $647 million annually -- may sound large, and it's probably larger than the state would pay, given today's low interest rates.

But it's actually quite small, in the context of a $90 billion-plus general fund and an overall budget in the $130 billion range. That could be an investment worth making -- but the money to pay it back does come from the general fund over the next 30 years.

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Lead Prop Zero blogger Joe Mathews is California editor at Zocalo Public Square, a fellow at Arizona State University’s Center for Social Cohesion, and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (University of California, 2010).

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