by CalWatchdog Staff | December 27, 2010 11:05 am
DEC. 27, 2010
By WAYNE LUSVARDI
Everyone has had the disappointing experience of opening up a Christmas time holiday gift and finding something entirely useless or even lacking sentimental value. So it may be with California’s five previous water bonds. Examining these prior water bonds may provide the basis of some New Year’s resolutions for the upcoming vote in 2012 for the proposed $11.1 billion Consolidated Water Bond.
In his 2009 book Scroogenomics, economist Joel Waldfogel defines the winter holiday practice of gift giving as “an organized institution for value destruction… A spectre has been haunting the rich economies of the west, and that spectre is wasteful gift-giving.”
Bonds for Public Luxuries
Californians may be waking up on Christmas morning 2010 to the awareness that their state and local governments are in the preliminary stage of future potential budgetary insolvency mainly due to looming underfunded public pension obligations while wasting billions of dollars on gifts of luxury public goods and services for mostly greenbelt projects yielding very little water but funded with so-called water bonds.
$73 Billion in Water Bonds With No Guarantee of Water
California voters have authorized five water bonds (Props 12, 13, 40, 50 and 84) since 2000, totaling about $15.5 billion, or $18.7 billion with interest over 25 years at five percent interest. The annual payment on these bonds is about $1.03 billion. About $4.1 billion, or 22 percent, of the $18.7 billion of authorized water bonds remains unspent.
Depending on how you look at it (Northern vs. Southern California, environmentalist vs. agriculture), if the proposed $11.1 billion new water bond for 2012 is also passed by voters, all the water bonds will total more than $50 billion (including interest and matching fund requirements). But even with $50 billion spent the long sought Holy, or Unholy, Grail of water in California — the Peripheral Canal — would still not be built. The most recent estimate of the cost of building the Peripheral Tunnel is an additional $13 billion, of which $3.3 billion would be for vaguely defined habitat restoration. That would bring the total cost of water bonds since the year 2000 to a staggering $73.6 billion!
Existing and Proposed California Water Bonds
|Proposition No.||Title||Amount in Billions||With Interest
|Amount Unspent||Annual Payment
In million $
|12||Safe Neighborhood Parks, Clean Water, Clean Air, and Coastal Protection Bond Act of 2000||$2.1||$3.8||$252
|13||Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Bond Act. 2000||$1.97||$3.4||$495
|40||The California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act of 2002||$2.6||$4.3||$764
|50||Water Quality, Supply and Safe Drinking Water Projects. Coastal Wetlands Purchase and Protection. Bonds. Initiative 2002||$3.4||$5.7||$1.429
|84||Bonds for clean water, flood control, state and local park improvements, etc. 2006||$5.39||$10.5||$1,186
|Subtotal||Props 12, 13, 40, 50, 84||$15.46||$18.7||$4,136||$1,028
|Safe, Clean and Reliable Drinking Water Supply Act of 2012||$11.1
|Total||All Water Bonds including Peripheral Canal||$44.58
The preliminary operating cash for the past water projects funded with bonds has been provided by short-term loans from the State’s Pooled Money Investment Account (PMIA), which is repaid after the sale of the bonds. In other words, the state, counties and cities have all been parasitically raking in interest for their invested funds off these water bonds instead of waiting for the bonds to be sold. Such a practice will erode the legitimacy for future water bond issues.
Water Bonds Without Water
These five bond issues have not produced one major reservoir, pipeline, water bank, system of conjunctive use underground storage basins or desalination plant despite being called “water bonds.” Sure, some groundwater recharge projects were reportedly funded but the amount of water gained was never quantified. What the five water bonds have mostly financed are aesthetic green space projects that enhance the property values around wealthy residential enclaves. These are mainly luxury goods for localized special interests, not for the greater public good.
Just put “water” in the title to a bond on the ballot and public officials know it is typically a guarantee of being passed by the voters, even if no water results from such bonds. Water bonds are sort of Orwellian double talk that really means “non-water bonds.” Paraphrasing poet Samuel Taylor Coleridge, “bonds, bonds are everywhere, but not a drop of water to drink.”
It appears that the proposed consolidated Water Bond, which has been deferred until the 2012 ballot, is an advanced gift to Northern California in the hope that they will return the favor and vote for yet another future water bond for the Peripheral Canal at some future date. But what if they don’t? What about the problem of bait and switch?
The last time Southern California got a bundle of state water projects in return for building levees in the Delta it made sure to enshrine the projects in the state Constitution so that they could not be unwound at the next legislative session. There is no such guarantee in the 2012 water bill package. The hope that the Consolidated Water Bond is a prerequisite for the Peripheral Canal, Auburn Dam or other water projects is an exercise in faith.
This does not necessarily mean that the proposed consolidated Water Bond for the 2012 ballot should be opposed. What it does reflect is that environmental pied pipers have persuaded the electorate to vote for past water bonds without any substantial water in them.
And we are likely to end up with a significant amount of non-water projects in the 2012 Consolidated Water Bond because as much as $2 billion is likely to end up as pure political pork. Moreover, the 2012 Water Bond is just an authorization for funds and does not specify the water projects that would be funded. In other words, the proposed 2012 Water Bond is a blank check without much detail of the water projects to be funded.
Unwritten Rule of Capitol Life
Veteran California newspaper columnist Dan Walters of the Sacramento Bee has stated that even with $11.1 billion, including up to $2 billion in political pork, the proposed 2012 Consolidated Water Bond violated an unwritten rule of Capitol life:
“That rule says any major policy decree must have virtually unanimous support from every stakeholder group or it will ultimately fail because opponents have so many political ways to kill it. The corollary to that tenet, of course, is that in a state as complex and fragmented as California, unanimity on any big bill is almost impossible.”
It’s no wonder that water bills are inflationary as to funding and deflationary as to developing any new water resources or efficient water management systems. If everyone has to be bought off ad infinitum, there is no end in sight. The proposed 2012 Water Bond may become the next Tunnel to Nowhere.
Inducing an Inflationary Fever
Presently, the Federal government is trying to devalue the U.S. dollar in the hopes of making American export goods competitive in world markets and boost our balance of trade. Likewise, California is intentionally trying to inflate the price of electricity by mandating expensive Green Power and near totalitarian-like air quality regulations issued by the unelected California Air Resources Board (CARB). In other words, California has a concerted policy of apparently trying to inflate its way out of its debt bind using environmentalism as a cover. Inflation results in having to pay back debts in fewer dollars.
Danger of Hyperinflation
In his 1975 classic book When Money Dies: The Nightmare of Spending, Devaluation and Hyperinflation in Weimar Germany, Adam Fergusson writes:
“Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgment, the more useful it is. Once no one acknowledged it, the Germans learnt, their paper money had no value or use – save for papering walls or making darts. The discovery, which shattered their society, was that the traditional repository of purchasing power had disappeared, and that there was no means left of measuring the worth of anything. For many, life became an obsessional search for…things of ‘real,’ constant value.
Value Shift Needed During Austerity Period
Fergusson also points out that a value shift is needed during periods of economic insecurity:
“What is precious is that which sustains life. When life is secure, society acknowledges the value of luxuries, those objects, materials, services or enjoyments, civilized or merely extravagant, without which life can proceed perfectly well but which make it much pleasanter notwithstanding. When life is insecure, or conditions are harsh, values change. Without warmth, without a roof, without adequate clothes, it may be difficult to sustain life for more than a few weeks. Without food, life can be shorter still. At the top of the scale, the most valuable commodities are perhaps water and, most precious of all air, in whose absence life will last only a few minutes.”
Mandates for Green Power and the clean up of air pollution will, like empty water bond measures, result in little to no improvement of air quality, although they may improve visual aesthetics. California’s Green Power Law (AB 32) will raise electricity rates, but mainly for cleaner air in Utah, Nevada and Arizona where California gets its imported power. New wind and solar farms in remote desert areas will do next to nothing to reduce smog in California’s urban air basin traps. And CARB’s air pollution cap and trade program is likely to result in urban industrial polluters buying pollution credits from those industries and power plants located outside smog basins, thus defeating their purpose.
Vaporizing Money by Bureaucratization
It isn’t only Wall Street or the Federal Reserve that vaporizes the value of money. What we are seeing is the rendering of money as useless by bureaucratization. Water bonds with no water and Green Power and air pollution cap and trade policies that do not necessarily improve air quality are symbols of this bureaucratic uselessness.
Empty water bonds and dirty air pollution programs aren’t the only bureaucratic contradictions. Californians have recently learned that the regulation of Chromium 6 and perchlorate in drinking water has had no discernible positive effect on public health.
Once again, more hollow environmental regulation and the disappearance of money into thin air or flushed down the drain.
As Adam Fergusson wrote above “when life is insecure, or conditions are harsh, values change.” Despite the collapse of the Real Estate Bubble, apparently in California cultural values have not changed and are still wedded to the public provision of luxury public goods and useless jobs programs with no apparent benefit to the health and welfare of Californians. Instead, California is trying to reignite inflation via another economic bubble, only this time a Green Energy Bubble.
If California’s water bonds are going to have a shot at approval at the polls in 2012, a cultural value shift is needed toward austerity, not artificially induced inflation. As such, the following New Year’s resolutions for 2011 and 2012 should be considered:
1. Putting on the 2012 ballot a parallel proposition that would ask the voters to transfer the $4.1 billion in unspent funds in the existing water bonds into the new proposed Consolidated Water Bond. Gov.-elect Jerry Brown should use his bully pulpit freeze the further spend down of any more unused water bond funds until this issue can be forwarded to the voters.
2. The plausible parasitic practice of making “pay-day” loans or advances from the California Pooled Money Investment Account to fund water bonds should be reexamined and prohibited.
3. Wherever practical, water projects should be defined up front and no blank check for water projects should be approved by voters given the poor historical track record of past water bond measures. Water agencies should distance themselves from past empty water bond measures.
4. Proponents of the 2012 Water Bond should reconsider requiring reciprocity from Northern California before proceeding.
5. Water projects that could be authorized and funded at local levels should be removed from the Consolidated Water Bill and only those with statewide benefit remain. There is too much useless gift giving in the 2012 Water Bond.
6. The policy of providing up to $2 billion of political pork in the 2012 Consolidated Water Bill to comply with the so-called “Capitol Rule” to buy every conceivable special interest out may have been viable during an economic bubble. But special interests are insatiable and will ruin the legitimacy of the water bond in a period of austerity. During a period of economic deflation cultural values should change and the political pork removed from the ballot proposition. Brown’s mostly symbolic displays of austerity and asceticism should be concretely applied to the Consolidated Water Bond by cutting out political pork to provide legitimacy during this period of economizing.
“What If It Does Not?”
As Adam Fergusson writes in the new preface to his re-issued 1975 book When Money Dies:
“Whatever the reason for the country’s deficit –- necessity or profligacy, unwillingness to tax or blindness to expenditure –- it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? It is alarming that some respected bankers and economists today…are still able to commend ‘the printing press… as a fail-safe, a last resort. A country’s budget can indeed be balanced that way, but at what cost, to whatever degree, of its citizens savings and pensions, their confidence and trust, their moral and morale?”
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