May 18 (Bloomberg) -- California Governor Jerry Brown is seeking a 38,000 percent spending increase for a proposed high-speed rail system, even as he plans to raise taxes, cut state worker pay and reduce social programs to narrow a $15.7 billion deficit.
Brown’s budget, revised this week, includes $6.1 billion in infrastructure costs for the first 130 miles (209 kilometers) of the project to link San Francisco and Los Angeles. The funding request, which the state’s rail authority submitted to the Legislature in April, would boost spending on the project from about $15.9 million proposed in January, according to the state Finance Department.
California is the only U.S. state working to lay tracks for trains to run as fast as 220 miles an hour, after Congress cut off 2012 funds for such projects. In January, a state legislative review panel, questioning the long-term funding, recommended against selling debt to start the 800-mile system.
“This is a living economy,” Brown said May 14 at a news conference in Los Angeles on the budget changes. “We’re going to have to build freeways and/or we can build high-speed rail, which is less than half the cost of expanding freeways, runways and airports.”
“I’m not here to tell you that California is on the decline,” the 74-year-old Democrat said. “We have to build for the future.”
The governor’s January budget proposal earmarked about $15.9 million for high-speed rail, none of it for infrastructure. The May proposal boosts expenditures on non-infrastructure items such as administration and contracts by 55 percent, to $24.6 million, and incorporates the $6.1 billion in right-of-way and building costs. Of that, $2.8 billion is from state bonds, according to the Finance Department.
In an interview with CBS News today, Brown said he’s also going to propose a $14 billion water project for the state.
“California is not stopping,” he said. “We’re not some tired country of Europe. We’re a buoyant, dynamic society that will both discipline itself on a daily basis, but it will, on the long term, plant the seeds of future growth.”
In April, the California High-Speed Rail Authority estimated that the project would cost $68.4 billion, down from the $98.5 billion it projected in November. Funding would depend on a mix of federal grants, $9.95 billion in bonds authorized by voters in 2008, and proceeds from auctioning tradeable allowances that permit industries to release carbon if they can’t meet requirements to lower their pollution.
The state’s nonpartisan legislative analyst said April 17 that financing remained “highly speculative,” with only the bonds and $3.5 billion in federal funds pledged to date.
U.S. Transportation Secretary Ray LaHood met last week with state officials including the governor in Sacramento to press for action. To receive the federal money, the Legislature and Brown must approve the state’s match for the project by Sept. 30. California then must spend the money by 2017.
“I wanted to be sure that I personally deliver the message that President Obama’s administration is committed to high-speed rail in California,” LaHood told reporters, according to Justin Nisly, a spokesman for the department. “We have made a commitment of over $3 billion. We want to make sure that our partners here realize what is at stake.”
The state’s commitment should be “reflected in their budget,” he said.
California has sold $501.3 million of the high-speed rail bonds so far, Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said yesterday by e-mail. By June 30, the end of the fiscal year, the state will have spent $49.6 million in interest on the bonds, he said. Debt service for the bonds sold so far will total $700.9 million through 2041, according to Dresslar.
The interest payments are the only money for high-speed rail budgeted from the state’s general fund, said H.D. Palmer, a Finance Department spokesman. The general fund is used to pay for education, prisons, health care for the poor and state parks, among other things.
The general-fund deficit swelled to $15.7 billion from $9.2 billion in January due mostly to lower-than-expected tax revenue, Brown said May 14.
No Deficit Help
Abandoning the high-speed rail project wouldn’t narrow the deficit, Palmer said by telephone.
“This doesn’t play into the closing of the $15.7 billion gap,” he said. “The issues are all on the general-fund side of the house. You can’t legally redirect bond funds to go to the general fund.”
Brown proposed a 38-hour government workweek to reduce payroll, and cuts of $1.2 billion from health care for the poor, $1.1 billion from welfare and in-home help for the elderly and disabled, and $500 million from courts.
The governor is also asking voters to temporarily raise the statewide sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost taxes on income starting at $250,000. Those making $1 million or more, now assessed at a rate of 10.3 percent, would pay 13.3 percent, the most of any state.
The bond funds, federal grants and debt service ultimately all represent taxpayer contributions, said state Senator Doug LaMalfa, a Richvale Republican who co-wrote a proposed ballot measure to freeze bond funding for the project.
California can scarcely afford even the interest payments while slashing funds for schools, prisons and other services, LaMalfa said by telephone yesterday.
“I can’t understand with all of that debt, prisoners being released and stuffed into county jails, and cuts to schools, why we’re still pursuing this boondoggle,” he said.
To contact the reporter on this story: James Nash in Los Angeles at email@example.com
To contact the editor responsible for this story: Stephen Merelman at firstname.lastname@example.org