If you were the governor of a state with a $5 billion deficit, a state that has the lowest credit rating from Standard & Poor's of any state, and someone proposed you start a new program, costing tens of billions of dollars, with no clear funding source, what would you do?
Well, if you're someone who is in the center or on the right, you'd say no, we can't afford that right now.
But if you're California Gov. Jerry Brown, you just find a way to go ahead and start the project, hoping the tens of billions of dollars materializes down the road, and penciling in a funding source that might not even be there.
Instead of trying to purchase MegaMillions tickets by the truckload, Brown is turning to an equally ridiculous method of financing the project, a so-called "cap-and-trade" tax which may not even be legal for the state to impose.
As the San Jose Mercury News reports, "the state still has no guarantee on where it will come up with about 80 percent of the funding needed for a project that high-speed rail leaders announced Monday will cost at least $68 billion. But bullet train backers are now touting a new wild card that could provide a major contribution courtesy of the state's big polluters."
But whether that funding source is even legal is a huge unanswered question.
The Mercury-News reports:
"Anywhere from $2 billion to $14 billion a year could be in play for high-speed rail, thanks to a new proposal to use money from a pollution auction established by the state's landmark global warming law. The money - expected to start flowing to the state in November, when it begins selling permits that allow industry to emit greenhouse gases - could either be a brilliant savior for the cash-strapped rail project or a disappointing enigma that disappears under legal scrutiny and opposition from businesses. At a news conference Monday in Fresno, rail leaders did little to play up the new funding possibility, nor did they return calls seeking more detail. But critics said it is likely to set off a massive legal showdown between business interests and the state."
"'It's the winning-the-lottery scenario,' said Dorothy Rothrock, vice president of the California Manufacturers and Technology Association. 'Counting on cap-and-trade revenues might not be the wise thing to do if it is so legally suspect that the money will never show up'."
To his credit, Brown's administration has found a way to lower the projected cost of the high-speed rail project from $98 billion to "just" $68 billion, by using existing rail where possible rather than building new tracks - although that price tag is still double what voters were told when they were asked to approve a bond issue in 2008. And, as even casual observers of big government projects know, the projected cost is almost always a lot lower than the actual, final cost.
Not that the cost appears to be worrying Gov. Brown very much. His new "business plan" for the high-speed rail project asks the state legislature in the next two months to start building the project even with a $55 billion funding shortfall. "The plan is banking on the federal government to provide $42 billion and private investors to contribute $13 billion in hypothetical funding -- or else risk losing existing federal grants and seeing the project fold altogether," the Mercury-News says.
A 55 billion hole in the funding for a $68 billion project? That's not a business plan, that's a plan for a financial disaster.
And environmental groups aren't sold on the idea of filling that hole with cap-and-trade revenues. While spending global warming auction proceeds on rail could cut pollution by reducing auto and airplane trips, the environmentalists "need to see whether the money would yield more benefits on other projects, such as solar power subsidies," the paper reports.
Meanwhile, the state isn't even sure how it's going to pay this year's bills. Says Los Angeles Times columnist Jim Newtown, "In a state where Republicans have all but disappeared from decision-making, this is what constitutes a debate today: Two leading liberals are arguing over how best to raise taxes to rescue the state from its economic and social decline."
California, you sure know how to pick 'em.
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