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This is $5.4 billion towards efforts to protect our supply of safe drinking water, flood control, as well as a fat chunk of change for various conservancies, rivers, lakes and streams. Oh and there’s some money for the state park system, forests, wildlife habitat protection, and protection for ranches and farms too (what, you thought this was just a water bond? ;-).

According to the detailed information on the bill, we already have $1.4 billion in unspent bond money for these kinds of projects. Throw in proposition 1E and you have to wonder why you should vote for yet another water bill.

Well, the reasons are many fold. First of all, 1E doesn’t really address availability of drinking water for emergencies (not sure about the remaining $1.4 billion). Nor does it do anything for all the various conservation funds for parks, ranches, farms, etc. Of course, these kinds of things are kind of on going commitments rather than one time infrastructure investments if you ask me. There are a few specific projects, like restoration of the San Joaquin River and Colorado River, but all in all, this seems to me like things that should be paid out of the general fund.

Oh, this bill also allows a lot of the spending to bypass normal contracting and procurement requirements (can you say, “No Bid Contract”?) because of the pressing need to spend this money quickly.

Sorry. I can’t possibly see why this kind of spending shouldn’t come from the state general fund and be subject to the usual contracting and procurement requirements. This stuff is important and can and is addressed by the legislature. Maybe it’s worth talking to your representative about increasing the budget for these projects, but I just can’t see floating a bond for this stuff.

At this point I expect the eyes of most voters will have glazed over and they’ll just give up the struggle to look closely at this last bond measure in the 1 Plan agenda. That’s certainly what I want to do.

Nonetheless, let’s take a peak. Basically, this bill is going to save us from Katrina…. Okay, seriously, it would help us to shore up the Central Valley in particular against flooding that really could create a state wide disaster.

Generally, this sort of stuff has been paid for from a variety of sources: federal funding, the state general fund, and a lot of it has been contracted out to local governments. There’s kind of a strange structure to this, as a lot of the responsibility is in the hands of local governments even though the state has a serious interest in seeing that waterways and the water supply be maintained.

The killer part of this bill from me came from reading this detailed assessment: “The Department of Water Resources (DWR) has made rough estimates of the cost to repair and upgrade the Central Valley flood control system and levees in the Delta of between $7 billion and $12 billion.”

If it’s going to cost between $7-12 billion to fix the system, why are we issuing a bond for only $4 billion? Do we really think the feds and local government are going to make up the rest? I don’t see any kind of plan supporting this, so I’m forced to conclude that we can expect to see additional bonds in years to come.

I have to agree that we have a problem here with our water systems, and they aren’t sexy so politicians tend to have difficulty selling this problem, but our governor drew it to Bush’s attention recently, and the state legislature managed to find $500 million from the general fund to work on the problem this year. Particularly if you think the federal house might shift democratic this election, you have to think California is going to have an easier time getting federal money for this problem.

While I recognize the problem, the solution to me seems to be grabbing money from the general fund, petitioning the feds for more money, and letting local governments handle the rest, rather than packing on more debt to only partially solve the problem. That’s where the money has traditionally come from, and aside from the headline grabbing nature of Katrina, it seems like that’s the way things ought to continue to operate.

It’s hard not to acknowledge that California’s schools are in need of help. We just had a bond a few years ago that shunts a bunch of money their way, but the governor also grabbed a bunch of their money (breaking a promise in the process) to fund other bits of the state budget. Honestly, if you vote for this measure I don’t see how you can in good conscience also vote to reelect our governor, who played no small part in creating this problem.

Most of this money ($7.325 billion) is allocated for K-12 education, with the rest being thrown in to the community colleges, state colleges, and universities. Honestly, I wish more of it was going towards post secondary education. High quality state funded post secondary education was on of California’s best calling cards, and underfunding over the last few years has really started to erode that infrastructure.

As a matter of course, I’m more inclined to support education bonds than other bonds, because they do have the potential to provide a return on investment that exceeds the interest costs. Schools help reduce crime, increase income (and therefore the tax base), attract employers, attract academically inclined immigrants, etc.

Here’s the catch though: this isn’t the first state wide school bond we’ve had. Indeed, we’ve had several as described by Bill Leonard, there have been three school bond measures issued since 1998. We basically keep borrowing more every time the money from the last one runs out. What does this tell me? These school bonds aren’t the one-time measure a bond should be, but rather an ongoing interest in increased education spending. The voters of California really just want to spend more of their taxes on education.

It’s ridiculous for us to burn through half of our education spending on interest payments when what we really should be doing is either cutting spending from somewhere else or raising taxes to pay for our education goals (or more likely some combination of both).

This one follows the classic bond measure formula: ask for tons of money, partition it up in to all kinds of different little accounts so that everyone feels they got something, and then wrap it in a bow that says, “no new taxes”. Of course, if you read the fine print on this proposition, you’ll find this little ditty:

“55350. There shall be collected annually, in the same manner and at the same time as other state revenue is collected, a sum of money in addition to the ordinary revenues of the state, sufficient to pay the principal of, and interest on, the bonds as provided herein, and all officers required by law to perform any duty in regard to the collections of state revenues shall collect that additional sum.”

Yup. It’s right there in black and white.

That’s basically what most of this 1 Plan initiative is all about: solving the state’s fiscal and infrastructure problems by using bonds as back-door tax increases.

I’m actually not against tax increases on principle, but bonds bug me because tax payers are on the hook not just for the principal but the interest. If you just did a tax increase and paid as you went, you could save a ton of money. Anyway, let’s look at where this money is going.

This one is billed as allocating funds as follows: “Funds may be used for the purpose of providing shelters for battered women and their children, clean and safe housing for low-income senior citizens; homeownership assistance for the disabled, military veterans, and working families; and repairs and accessibility improvements to apartment for families and disabled citizens.”

If you read the bill though, the biggest single account the money will end up with is $850 million earmarked for “Regional Planning, Housing, and Infill Incentive Account”. You’re probably wondering what all that means. I sure did. The “Infill Incentive Account” is provides grants to developers who tear down developments to put up denser housing developments (you’d think that’d be a profitable enough business already, wouldn’t you?). Then there is “no more than” $200 million of that $850 set aside for “parks, development or rehabilitation to encourage infill development”. I think that means fixing up the neighborhood so that developers can reap more profits when they do their infill projects. Then there is money for water, sewage, transportation “or other public infrastructure costs associated with infill development”.

There are a bunch of other funds allocated, but it looks much like the $850 million fund. The bottom line is that this fund is really designed to subsidize denser housing development state wide. Some opponents have argued that it doesn’t make sense to have housing development funded on a state wide basis. While it’s true that you probably aren’t going to see much need for infill development in rural California, the reality is that denser urban development provides a lot of benefit to the surrounding area outside the urban setting, not the least of which is increased tax revenue.

I think though, that this bill has a lot of the same problems as the LA’s proposition H: it subsidizes what should be profitable development and totally ignores the real crux of the problem: zoning laws that create an artificial scarcity. I can only imagine what is proponents expect will happen when funds from this bond have been spent (are we planning on not growing the state after that?).

Trying to get a guage on the impact of this proposition is tricky. This bond is only about 3x the size of the one proposed for the city of LA, and it’s being applied state wide. I’m sure a lot of the money will be spent in San Francisco, San Jose, Sacremento, Los Angeles, and San Diego where real estate dollars don’t buy you much in the way of new homes. I’ve seen estimates suggesting this measure will add merely 10,000 housing units. At that point, you have to ask yourself if this is the best way to spend the money.

Given that the bond market isn’t as friendly as it was a few years ago, and last I checked California didn’t have a stellar credit rating, it just seems like any bond that isn’t desperately needed should get a thumbs down, and I’m going to throw 1C in to that ring.

I think it is safe to say that California is long overdue for some upgrades to its transit infrastructure. There’s also some federal dollars out there somewhere that are probably going to waste if the state doesn’t find a way to provide matching funds.

So, on one hand, it’s hard to argue against increasing spending on streets, highways, train systems, etc. Aside from all of the above it’ll provide for some extra spunk to the economy.

What annoys me is that we don’t fund this spending the old fashioned way: tax increases. I suspect this has a lot to do with a certain fateful “Read My Lips” statement made years ago by the only president since Jimmy Carter to lose a reelection. Politicians are afraid to put in a vote for a straight, across the board tax increase. So instead, we have these huge, long standing bond obligations which have the same effect (increased taxes), but which also cost tax payers in the form of interest charges.

Of course, when this bond runs out, we’ll almost certainly need to fund a new one as all of our transit infrastructure spending for the preceding years would have been used to pay off our bond debts. ;-)

Unfortunately, I think in this case a little bit of realpolitik has to be applied here. Since the voters of California won’t support politicians funding this kind of spending the right way, I am either going to have to live with an infrastructure that falls apart in a few more years or I’m going to have to live with funding this project the wrong way. Given those choices, proposition 1B seems like the lesser of two evils.

I have to note cynically that its authors appear to be trying to get a free ride from another housing bond, Proposition 1C, that is on the state wide ballot. They might be hoping for voter confusion between the two bills, but these are fairly different matters, including from a straight financial perspective. Proposition 1C is a $2.8 billion state bond, while this is a $1 billion municipal bond. Keep in mind that the state’s annual revenues are over $90 billion while the city’s budget is under $7 billion. So, this is, in reality, a much bigger move. In fact, it is the largest bond in the city’s history. I’ve seen all kinds of figures bandied about as to the cost of this proposition for tax payers, but there seems to be a lot of debate about the real cost. Here’s the simple bit: LA’s population is ~3.7 million. Divide up $1 billion across those people and you’re averaging at least $300 per person. Then you have to factor in bond interest, which I have to image could more than double this number. Then, if you are a home owner, adjust this for what percentage of the city you think paid what you paid for your house. It starts to get pretty grim pretty quickly (the one consoluation being that property taxes are deductible on your federal income tax). I’m pretty easily imagining this costing me in the area of five figures if I stay in LA.

So, what does this bond do with all that money? Well, it divides up the money in to basically four categories based on median incomes. I hate this kind of stuff in propositions, because the question that always goes through my mind is, “how did you determine the best way to bracket up people and how much money each bracket needed?” (most likely answer: “we made it up”).

Now, the issue is a compelling one: it is getting harder and harder to make rent in LA. The supply of low-cost rental units is actually declining. Only a very small percentage of the city can actually afford to own a home. Wage increases have definitely not be tracking rent and housing price increases.

I found this article to be fairly informative. It mentions that while “12,800 affordable rental units had been built using city money since 2001, 11,000 existing rent-controlled apartments were either torn down or converted to condominiums during the same period”.

That, I suspect, is the heart of the matter. We’ve got a supply/demand problem here, and the problem is that the supply hasn’t been building to match the demand. We’ve essentially been building rent control units in one place and tearing them down in another. As far as I can tell the main purpose of this has been to line developers pockets.

The article also talks about how zoning laws have factored in to creating this problem. Most of LA has a NIMBY problem: nobody wants dense, low-cost housing built in their neighbourhoods. It seems like that is the real problem, which unfortunately will require significant political backbone to address. If we’ve really got a shortage of affordable rental units… don’t let developers tear them down to build expensive condoes as part of an “urban renewal” project gone mad. Recognize that you’re going to have to tick off a number of neighbourhoods and start allowing some dense apartment complexes along transit corridors (which would do wonders for the city’s traffic problems as well).

One of the trickiest parts about H is that it doesn’t address these zoning rules, so it’s very hard to know what exactly how this problem will be addressed. Will they just pack ‘em in even more tightly in the few places that welcome low-cost housing? Will developers push some zoning changes through city hall so they can build in neighbourhoods that don’t want new growth?

The other problem with this bill is that not all of it is for rent control. $250 million is for building housing for the homeless (defined as those earning less than 30% of the city’s “average median income” –isn’t average and medium used together kind of confusing?). $250 million is for building rent control housing for those earning between 30-60% of the median income, and another $100 million for building rent control housing for those earning between 60-80% of the median income (although this money can be siphoned off to help out those in the 30-60% range). Then there is $250 million to help those at or below 150% of the median income buy a house.

Yup, that’s right, we’re all going to be paying increased property taxes and rents so that someone well above median income in the city, who maybe moves here a decade from now, can buy their first house (at which point they’ll be paying the taxes as well). There isn’t any specification of how exactly the money would be used to help them buy a home (give them cash? interest free loan? help pay closing costs? subsidize developers who build “starter homes”?). The funny part is that I have to think this financial assistance will just drive up the asking prices on starter homes. So the money will ironically go back to existing home owners, after a nice chunk of it has been siphoned off by developers and the city’s bureaucracy.

Honestly, I really do feel for anyone trying to get by in this town. It’s tough for me, and I make more than most. Rent is high, housing prices are even higher. More and more people come here each year, and they just don’t build nearly enough homes to keep pace. That said, the reason they don’t build nearly enough homes to keep pace seems to be more about zoning rules preventing redevelopment than about developers not being interested. By limiting new construction so greatly, you of course end up with a shortage on the supply side and the inflated prices that come with it.

If the problem really was that developers could make more money with expensive condos, one would think the economics of the situation would have corrected the problem by now. Sooner or later there’d be a glut of high priced condos (okay, I can definitely see that one on the horizon) and a shortage of lower-cost rental units. Suddenly, developers would make less money off of the condos and more money off of the rental units. Even if the rental units ended up costing 50% more than they used to, you’d start to see wages having to go up to compensate (hey, that’s going on too!). Bottom line: there are lots of employers who need employees who can afford to live in the city, and lots of employees who need an affordable place to live in the city, and lots of developers who will build a building if they can make a buck. The problem seems to be that we don’t let the buildings get built to match the demand.

I think I’m going to give this one a thumbs down, and maybe let my representative on the city council know that I’d be okay with a more modest proposal focused on building housing for the indigent and increasing zoning for development of low-cost housing.