Think Tank Urges Caution on Bonds, Says Most Projects Should Be Paid for by General Fund

Much of the money won't actually be spent on infrastructure; before record-setting borrowing spree state should ask private sector to pay for infrastructure

Los Angeles (September 19, 2006) — The bond measures on the November ballot lack accountability, do not ensure that taxpayer dollars will actually be directed towards the most-needed projects, are an inequitable and unsustainable means of financing the stated objectives, and ignore the failures of previously passed bonds, according to a new series of reports by the Reason Foundation.

With traffic at a standstill, decrepit levees, and astronomical housing prices putting home ownership out of reach for the typical family, the state is once again asking taxpayers to ignore its wasteful, lavish spending on nonessential programs and to approve another $42.65 billion in bonds that will cost taxpayers over $80 billion.

"Sacramento continually leaves basic fundamental expenses like roads, schools, and vital water infrastructure out of the annual budget," said Adrian Moore, vice president of research at Reason Foundation. "Instead of making tough decisions about how to pay for these programs with money we actually have, state leaders want to max out the credit cards and let others worry about the bills and consequences later. Even worse, these borrowing schemes will open up a whole new era in pork barrel spending."

"Have they fixed the policies that got us into this mess in the first place?" asked George Passantino, senior fellow at Reason Foundation and a director on Gov. Arnold Schwarzenegger's California Performance Review. "Have they asked the private sector to build roads and other infrastructure? Borrowing money should be the last resort and the state hasn't come close to exhausting its other options."

A series of Reason Foundation reports take an in-depth look at Propositions 1B, 1C, 1D, 1E and 84. The Reason studies bring to light numerous problems with each of the bonds and show how the same goals could be accomplished without borrowing. All of the reports are available online at http://www.reason.org/californiaballot/. Below is a brief overview of some of the findings.

Proposition 1B

Despite its massive $19.9 billion price tag ($38.9 billion including the interest), the transportation bond delivers miniscule road capacity additions that barely scratch the surface of what is needed across the state. With six California cites ranking among the 18 most congested areas in the country, Reason shows the state needs 13,100 new lane-miles at a cost of nearly $122 billion to deal with expected population growth and relief severe traffic congestion across the state. Reason says the state could successfully recruit private companies, who are already pouring over $25 billion into road projects in other states, to pay for and construct these much-needed roads. The companies would recoup their investments by charging tolls to trucks and cars that use the roads.

To do this successfully, Reason says the state's existing public-private partnership law needs to be updated. And former U.S. Secretary of Transportation Norman Mineta agrees. In discussing California's transportation crisis earlier this year, Mineta said, "There is no question that California would benefit tremendously from enacting the necessary legal reforms to facilitate public-private partnerships. Every private-sector investment group that we talk to says that California — and Southern California in particular — is the most attractive investment opportunity in America, if not the world."

The full report, Addressing California's Transportation Needs: Problems with Proposition 1B and Alternative Approaches, is here: http://reason.org/californiaballot/ps341_transportation.pdf.

Proposition 1C

Just four years ago, state voters approved $2.1 billion in bonds to fund affordable housing programs. How did that work out? With low interest rates driving a massive housing boom, the median home price in California has risen from $324,000 in mid-2002 to $475,000 in July 2006.

Another $2.85 billion in bond money (that will actually cost taxpayers $6.1 billion) and more government involvement in the housing market won't lower prices or fix the state's supply and demand problem. Each year California's housing shortage increases by 50,000 units. The Reason study says affordable housing is created when existing homeowners upgrade to newer units, placing older units on the market for young and first-time homeowners. Thus, we should look at ways to increase the total stock of new and used housing available. Removing regulatory barriers and streamlining the permitting and environmental review processes would be a start. The report also says prevailing wage laws should be repealed because they increase housing prices by 9 to 37 percent.

The full report, Addressing California's Affordable Housing Shortage: Alternatives to Proposition 1C, is here: http://www.reason.org/californiaballot/pb47_housing.pdf.

Proposition 1D

In the past decade, California voters have approved nearly $100 billion in school construction bonds at the state and local level. And now lawmakers are asking to borrow another $10.4 billion (costing taxpayers $20.3 billion with interest). Curiously, the last two years have seen California increase education funding by $7 billion and yet lawmakers didn't feel the need to earmark any of that money for these "critical" infrastructure projects.

The Reason study says the state's reliance upon bonds exacerbates the inherent problems in the school construction process and that the calculations used to determine construction needs are flawed. For example, while it was spending $15 million building the new Dianne Feinstein elementary, San Francisco was also busy closing several other elementary schools because of declining enrollment. And the scandal-plagued Belmont Learning Center in Los Angeles, tagged as the most expensive school in America, will have cost taxpayers over $300 million once - or if - it is ever finished.

"Cost overruns and long construction delays are the norm," said Lisa Snell, director of education at Reason Foundation. "We all want schools to be safe and clean, and to house the right number of students. But a troubling lack of accountability allows these bond projects to go two or three times over budget without any repercussions."

Snell says Arizona is now paying for new school construction out of the general fund and California should do the same. The report also recommends utilizing developer-built schools in new neighborhoods and suburbs.

The full report, Addressing California's School and University Building Needs: Alternatives to Proposition 1D, is here: http://www.reason.org/californiaballot/pb48_schools.pdf.

Propositions 1E and 84

California voters have approved over $11 billion worth of water and resources bonds over the last 10 years. And much like those previous bonds, Propositions 1E and 84 ($9.5 billion worth of new bonds that will cost $18.5 billion to repay) offer a "grab-bag of funding' for things like parks and recreational activities, but little in the way of real infrastructure. As a result, even some local water districts oppose Prop. 84.

With the tragedies of Hurricane Katrina seared into our memories, problems with the state's levees have been pushed to the political forefront. Most of the funds made available by these bonds, however, would protect agricultural land, not homes. And Reason finds the landowners and regions at risk have very little incentive to help themselves. Only a fraction of properties vulnerable to flooding are currently required to actually have flood insurance � leaving taxpayers on the hook for any damages, even those that are foreseeable. Additionally, many local governments in flood-prone areas are completely depending upon state tax money for compensation of flood damages. Reason finds immediate liability reform is needed.

The report also urges the formation of public-private partnerships to reduce water infrastructure costs. Over 40 percent of the nation's water systems are private, regulated utilities. And those customers are satisfied: 91 percent of communities with public-private partnerships for water or sewer systems choose to continue with privatization when it is time to renew the contract.

The full report, Propositions 1E and 84: Funding the State's Water and Flood Control Infrastructure, is here: http://www.reason.org/californiaballot/pb46_water.pdf.

More Information

For more information on these and other reports related to California and the bonds, please visit http://www.reason.org/california.

About Reason Foundation

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason produces respected public policy research on a variety of issues and publishes the critically acclaimed monthly magazine, Reason. For more information, please visit www.reason.org.

Contacts

Adrian Moore, Vice President of Research, Reason Foundation, (661) 477-3107
George Passantino, Senior Fellow, Reason Foundation, (661) 466-3694
Robert Poole, Director of Transportation, Reason Foundation, (310) 292-2386
Lisa Snell, Director of Education, Reason Foundation, (951) 218-1171
Chris Mitchell, Director of Media Relations, Reason Foundation, (310) 367-6109




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