Tuesday, April 10, 2018
IN MY OPINION (Column)
Character’s Bad Credit a Model for California Spending
By JON COUPAL
“I’ll gladly pay you Tuesday for a hamburger today.” That was the catchphrase of J. Wellington Wimpy, simply known as just “Wimpy” on the “Popeye” cartoon show. For good reason, the proprietor of the diner rejected Wimpy’s request because of his reputation for not paying on Tuesday.
The inability to repay one’s debts can come with severe consequences, as anyone who has borrowed money from a loan shark can attest. California, despite record revenue coming into the state treasury, has a real problem with debt. High on that list, of course, is the state’s multi-billion-dollar unfunded liabilities for its pension obligations. But we have a problem with bond debt as well.
State-issued bonds can be a legitimate method to finance public projects that have a long useful life. But key to bond financing is a clear and predictable plan to repay those bonds.
California is now on the verge of adopting a second massive boondoggle plagued with financing issues. We are all familiar with the notorious high-speed rail project that was sold to voters as a safe and economical alternative to air travel between Northern and Southern California. A third of the money was to come from the private sector, a third from the feds and the rest from the sale of Proposition 1A bonds. All three of those revenue sources have disappeared in a puff of smoke and, instead, the HSR project is kept on life support through “cap-and-trade” revenue that didn’t even exist when voters approved the original bond.
The second mega-project destined to adopt the boondoggle label is Gov. Jerry Brown’s “twin tunnels” project, intended to transport water from the Sacramento River to the pumping stations at the south end of the delta. Bear in mind that the project will not provide a new water source but would be built ostensibly for environmental reasons.
However, like the high-speed rail project, the financing for the twin tunnels is illusory. Virtually all the potential major wholesale customers of water from the twin tunnels are highly skeptical of its viability and balk at paying for it. The one exception is the Metropolitan Water District in the greater L.A. area, which is considering the adoption of a plan to finance a scaled-down version of the project—meaning one tunnel instead of two.
Taxpayers and local water agencies served by MWD should be very concerned. If the twin (or solo) tunnel project goes bad, they will be stuck with the bill. And as the history with the high-speed rail project makes clear, these mega-boondoggles are hard to stop once they get started.
Let’s be clear that this is not about California’s unquestionable need for infrastructure improvements for water, power and transportation. What it does mean, however, is that before we embark on major projects, our elected leaders need to be both clear and honest about how much it will cost, how it will be financed and who will pay.
Copyright 2018, Metropolitan News Company