Laudable And Fiscally Questionable
In California, nothing in life is certain except debt and taxes…
[Chuck DeVore] 1/11/06

Benjamin Franklin famously observed that, “Nothing in life is certain except death and taxes.” Were he in California today, with all the empty 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, Governor 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 claims that $68 billion in new debt targeted at capital projects, especially roads and levees, is critical in meeting California’s burgeoning population and ongoing economic growth.

Democrat gubernatorial candidate Phil Angelides, the state treasurer, dismisses the governor’s plan as inadequate, saying, "We need to do more than we are doing…” Mr. Angelides claims that Gov. Schwarzenegger’s plan actually grows 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, Mr. Angelides has complained in the past that Gov. 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 California’s debt load will remain the prudent level of six percent in his plan. What his plan can’t forestall is California’s penchant for issuing bonds to finance almost any sort of program deemed worthy, such as the $3 billion in bonds issued 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. That is 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 extensive and aging levee system provides a great example. There are about 1,600 miles of levees in the Sacramento and 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? 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 which had to be planted elsewhere as mitigation. To comply with the regulations, 76 acres of a nearby peace grove had to be purchased with 1,538 elderberry’s being planted on the property. The mitigation cost $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 would have cost around $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, design, build and operation of roads are encouraging. Such efforts would have the government permit and obtain rights-of-way for roads and then allow companies to compete for the right to build and operate them as toll roads on the lease basis.

The legislature in Sacramento will take up the Governor’s bond proposals soon with the object being to muster the two-thirds approval in each house to place the bonds on the June primary ballot. The two-thirds requirement will allow Republicans to press for the reforms needed to maximize the value from any approved bonds, especially in the State Assembly where six Republicans must vote with all 48 Democrats to reach the necessary supermajority. Votes on the measures are expected by mid-February. CRO

copyright 2006 Chuck DeVore