New Geography

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  • Higher Gas Tax Unlikely to Gain Support in Congress

    Although some infrastructure advocates are hoping to use the current budget negotiations to win support for an increase in the federal gasoline tax, the idea is unlikely to gain support in Congress or the Administration.  While  the 2010 Simpson-Bowles deficit-reduction commission proposed raising the federal gas tax by 15 cents/gallon as part of a broad deficit-reduction plan, neither House Speaker John Boehner (R-OH) nor Senate Majority Leader Harry Reid (D-NV) have endorsed the idea.  Nor is an increase in the federal gasoline tax popular among  the rank-and-file.  Most lawmakers see the pressure to raise it as coming only from a narow coalition of liberal advocacy groups and transportation stakeholders that stand to benefit from increased federal transportation spending.

    Nor is the Obama administration eager to advocate a gas tax increase whose burden would fall most severely on the middle class —precisely the constituency it  wishes to protect from the pain of any further tax increases.  Given this perception, it is almost certain that a federal gas tax increase will remain off the table in the current fiscal cliff negotiations  and probably throughout the next session of Congress as well.

    Look instead for the states to assume a larger share of responsibility for funding their transportation needs. An early harbinger may be the state of Arkansas whose voters recently approved a half-cent statewide sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years. The measure has been called "the largest infusion of new tax dollars into a state transportation system in recent history." Local  referenda supporting public transportation also have appeared on the ballot in numerous states.  According to the Center for Transportation Excellence,  last November voters approved 70 percent of such initiatives.

    In addition to greater local financial participation, look for a shift in emphasis from federal funding to public and private financing of large infrastructure projects. The shift will be fueled by a vastly expanded TIFIA lending authority —by more than 600 percent, from $122 million in FY 2012 to $750 million in FY 2013—and by a large reservoir of equity in pension funds and private infrastructure investment funds looking for attractive investment opportunities. (TIFIA stands for the Transportation Infrastructure Financing and Innovation Act).

    This means an expanded role for tolling, for TIFIA and private sources of capital can only be used to finance facilities that are backed by a dedicated stream of revenue to cover interest payments on the loan and the loan repayment itself.   Tolls are viewed by many as a fairer way to pay for new and reconstructed highways and bridges because, unlike the gas tax,  they are paid only by the users of the particular tolled facility. In other words, drivers in Montana will not be required to pay for a road or bridge built for and benefiting mainly  the residents of say, Texas.  

    The likely prospect that  financing will replace stagnant or dwindling federal funding, dominated discussion among financial practitioners at ARTBA’s Public-Private Partnership Conference in Washington on October 10-11. Participants were encouraged to hear that 19 projects worth $27.5 billion have already submitted letters of interest for TIFIA loans in the past three months. Four more projects totaling $1.9 billion have been announced since October.  More applications are certain to follow as it becomes clear that the Highway Trust Fund no longer can continue to serve as a source of investment capital for transportation infrastructure.

     

    In sum, rather than hoping for an increase in the gas tax, the transportation community should look forward to three new trends as the most likely response to the perceived inadequacy of current  transportation revenue:  greater financial participation by state and local taxpayers,  a shift in emphasis from federal funding to private and public financing, and an expanded use of tolling.

  • The Future of Passenger Rail in America

    On October 19, an Amtrak passenger train hit 111 mph in a test run on a 15-mile stretch of track between Dwight and Pontiac, Illinois. It was the first tangible return from a three-year $1.5 billion program of improvements funded under the Administration’s high-speed rail initiative. The program hopes to shave about an hour off the 5 ½ hour rail trip between Chicago and St. Louis. Transportation Secretary Ray LaHood and Illinois Gov. Pat Quinn who were aboard, called it a "historic" event. They were perhaps unaware, as Chicago SunTimes respected columnist Mark Brown pointed out, that "ten years ago, also on the eve of an election, the same Illinois Department of Transportation offered another demonstration along nearly the same stretch of track, also reaching 110 mph."

    Setting this pre-election rhetoric aside, of President Obama’s vaunted HSR initiative that promised to connect 80 percent of Americans with high-speed rail, only two true high-speed rail projects remain.  They are the California SF-to-LA Bullet Train and the "Amtrak Vision for the Northeast Corridor." The future of these two projects is discussed below. A condensed version of this commentary appeared in the Wall Street Journal on September 24, 2012.

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    High speed trains are hardly new — they have been crisscrossing France and Japan for over 40 years. But building a nationwide high-speed rail network in America is quite a novel idea. It originated with President Obama who, on April 16, 2009, announced a plan "to give 80 percent of Americans access to high-speed rail within the next 25 years." The program was seeded with an $8 billion grant from the American Recovery and Reinvestment Act of 2009 (ARRA), later supplemented with an additional $2.1 billion in general funds.

    But this lofty and extravagant vision soon yielded to practical realities. One such reality is America’s demography. Unlike Western Europe and Japan, the United States, lacks an urban pattern that favors high-speed rail connections. This pattern requires large traffic generating city-pairs that are neither close enough to each other to favor travel by car nor far enough apart to favor travel by air. In Europe and Japan those distances happen to fall in the range of 200-400 miles (Think Paris-Lyon, 290 miles; or Tokyo-Nagoya, 220 miles). The only corridor in the United States that fits this description is the Northeast Corridor. No wonder, the Boston-to-Washington rail line has lately become a focus of high-speed rail planning.

    Another reality is that true high-speed rail service requires a dedicated alignment reserved exclusively for passenger trains. Such is the case with the French TGV, the German ICE and the Japanese Shinkansen trains— as indeed, with any train that runs at top speeds of 150 miles per hour or higher. Having high-speed trains share a common track with lumbering freight trains as the Obama Administration has proposed to do, is to invite serious operational conflicts and safety problems. But dedicated rights-of-way for high speed trains require relatively straight and level alignments with minimal curvature. To assemble such rights-of-way in densely populated corridors where land holdings are highly fragmented, would be extremely costly and disruptive if not totally impossible.

    Yet another reality is the uncertain prospect for further federal support. Such support is deemed essential for the future of the Administration’s HSR program (but not for the future of privately funded ventures such as the proposed Lone Star HSR line between Dallas and Houston). Congress, by denying White House requests for high-speed rail funds three years in a row, has sent a clear bipartisan signal that states should not count on continued congressional appropriations for high-speed rail. The lawmakers reaffirmed this intention by eliminating Title V of the Senate transportation bill (the National Rail System Preservation, Expansion and Development Act of 2012) from the final version of the surface transportation reauthorization (MAP-21). In the meantime, the $10.1 billion earmarked for high-speed rail has been fully committed.

    In sum, high-speed rail advocates, promoters and dreamers need a triple reality check.

    Improving Existing Rail Service

    But this is not to say that nothing should be done to improve and expand existing passenger rail services, especially commuter rail lines serving major metropolitan areas. Even though such improvements will not result in significant travel time savings, they could lead to more efficient, frequent and reliable transportation service benefitting millions of daily commuters. In 2010, commuter rail systems across the country provided service to nearly 460 million riders.

    Improving commuter rail services is indeed, the approach embraced by the California High Speed Rail Authority. Despite its avowed goal to link LA and San Francisco with high-speed trains, almost half of its initial $10 billion first stage of the project will be devoted to upgrading conventional transit and commuter rail services in Los Angeles and the Bay Area, the "bookends" of the high-speed rail line, e.g. through electrification of the SF-to-San Jose Caltrain and "connectivity" improvements in LA’s Metrolink.

    The dollars spent on commuter rail improvements will have "an immediate and dramatic effect" according to the Authority’s chairman, Dan Richard. Will Kempton, chief executive of the Orange County Transportation Authority (OCTA) and chairman of the Independent Peer Review Group advising the High Speed Rail Authority concurs. It will be a good investment, he said, whether or not the overall $68 billion high-speed rail project ever gets completed.

    Similarly, in the Northeast Corridor where Amtrak has proposed a 30-year $151 billion capital investment program to bring true high-speed rail service between Boston and Washington DC, the initial efforts will be focused on "meaningful incremental improvements" in track, catenary and signals in the New York-to-Philadelphia corridor (the "NEC Upgrade Program"). This stretch of the line was chosen for the initial upgrade because it carries a heavy volume of local commuter traffic in addition to serving long distance trains. As in the case of California’s "bookend" improvements, the upgrades of the 90-mile NY-Philadelphia rail line will not only benefit large numbers of travelers – they also will be far more cost-effective in dollars-per-passenger terms than any eventual improvements raising line speeds over the entire Boston-to-Washington corridor.

    Thus, fiscal, economic and political constraints have caused both the California Bullet Train and the Amtrak vision for the Northeast Corridor — the only two projects that have survived on the Obama Administration’s vaunted high-speed rail agenda — to morph largely into a program of modest near-term improvements in existing commuter rail services. Lack of funds may prevent either project from achieving its avowed goal of providing true high-speed rail service— in the case of California, reducing travel time between LA and San Francisco to two hours and forty minutes (see Note below).  To achieve it, the California project will require $68 billion; the NEC program will need $151 billion.

    Is this goal even worth pursuing? Some people think so—in fact they passionately believe in it. They contend that in order to make our cities less auto-dependent we need to invest in high-speed trains. Minor upgrades in existing rail services, they argue, will not make a significant dent in auto use. But many planners beg to differ. They believe that the best chance of persuading current auto users to leave their cars at home is to improve the daily suburban rail commute. Business travelers will continue flying because they look for the fastest way to get to their destination. Families on vacation trips will not abandon their cars in favor of trains because cars offer the least costly and most convenient way to travel to holiday destinations. The only sector of the traveling public that can be influenced to shift to trains in large numbers are suburban commuters.

    What of the argument that a great nation like ours—a nation that built the Erie Canal, the transcontinental railroad, the Panama Canal and the Interstate Highway System — should continue the tradition of visionary grandiose public works.

    Regretfully, both ventures have come at a most inopportune time. The nation is recovering from a serious recession and is trying to rein in the deficit and reduce the 16 trillion dollar national debt. At a more distant moment in time, when the economy is growing again and the deficit has come under control, the nation might be able to resume its tradition of pursuing "bold endeavors"—ambitious programs of federally financed public works that benefit the whole nation. When that time comes, perhaps toward the end of this decade, it might be appropriate to revive the idea of high-speed rail— at least in the context of the densely populated Northeast Corridor where road and air traffic congestion may eventually threaten its continued growth and productivity. For now, prudence, good sense and the nation’s fiscal well-being require that we lower our sights and focus on improving commuter rail connections.

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    Note on the Status of the California HSR Project

    There is a high likelihood that the LA-SF bullet train project will never get completed. Law suits are pending to stop construction of the first stage of the project—the Central Valley segment from Madera to Bakersfield. A motion for a preliminary injunction has been filed by Madera County, the Madera and Merced County farm bureaus and other opponents. The motion seeks to prevent the rail Authority from moving forward on the initial Madera-to-Fresno section until a trial on the lawsuit is completed. Hearing on the preliminary injunction is set for November 16.

    Even if the preliminary injunction is denied, construction on the rail section will not begin until the fall of 2013 according to a legal declaration filed by the Authority in the Sacramento Superior Court. What’s more, the Madera-to-Fresno section will not be electrified before 2022 according to the rail Authority—and then only if more funds become available. Additional legal challenges are expected over the Fresno-to-Bakersfield section of the line. The City of Bakersfield has already announced plans to file a lawsuit contending that the Authority’s environmental impact report doesn’t meet CEQA standards. The cumulative effect of these delays has led to speculations that the Authority may not be able to complete work on the Central Valley segment by September 2017 when the federal $3 billion grant expires. And if the federal money stops flowing, who will step in to fill the gap?

  • Robert DeShay

  • Warnings of an “infrastructure Crisis” are Meeting with Skepticism

    Is the "infrastructure crisis" a myth or a reality? Many  within the transportation community firmly believe that the crisis is real. They point out that many of our roads, bridges and transit systems are approaching the end of their useful life and are badly in need of repair, reconstruction and modernization. They are convinced that without an ambitious program of investment —beyond the billions that already are being spent—the transportation infrastructure will continue to deteriorate, rendering great harm to the nation’s economy. They find it difficult to understand why politicians and the public do not necessarily share the same sense of urgency. They tend to blame themselves for doing a poor job of "educating" the public about the catastrophic consequences of inaction.

    Even though the new two-year transportation bill has barely gone into effect (on October 1), activists already are strategizing  how better, i.e. more convincingly,  to present  the case for higher transportation spending in the next transportation bill.  As an AASHTO spokesman reminded us recently, "it is never too early to consider your strategy for making the case that the United States should continue to invest in its transportation infrastructure." "We can’t afford to relax," echoed Pete Ruane, president of the American Road and Transportation Builders Association (ARTBA). "We’re in a very serious struggle over the future of federal investment in transportation." Similar sentiments have been voiced in various transportation-related meetings over the past several months..   

    But proponents of greater spending ignore the political realities. With mounting deficits and the shadow of a $16 trillion debt hovering over all fiscal decisions, Congress is not about to vastly increase spending on transportation. Concern about deteriorating infrastructure has failed to resonate with the electorate during the election campaign.  Nor did  the presidential condidates care to mention transportation in their recent debate on domestic priorities, despite pleas by stakeholder groups to include infrastructure on the political agenda.

    Infrastructure crisis believers decry this supposed "indifference" or "short-sightedness" on the part of the politicians and the public. But their anger is misplaced. People recognize and acknowledge the need to modernize and expand the nation’s infrastructure.  They simply are not convinced by the "sky is falling" rhetoric employed by the alarmists—dire warnings of collapsing bridges and crumbling roads if  government does not greatly increase spending on infrastructure. 

    As the Washington Post editorialized no too long ago, people see no signs of  "crumbling infrastructure." They trust their own eyes more than they trust the unverified claims of  the experts —and what they see is highways and transit networks that are well maintained and functioning smoothly and reliably most of the time. They suspect that  warnings of catastrophic consequences if spending on infrastructure is not boosted, are overblown, self-serving, and more often than not inspired by liberal advocacy groups, lobbyists and industry spokesmen who have a financial stake in pushing for more federal spending.  As one senior congressional aide confided to us, "I don’t see our constituents lobbying to raise the gas tax in order to spend more money on transportation."

    Moreover, the public is not sure that all of the billions of dollars that the federal government already devotes to  transportation ($114 billion in FY 2012) are spent  wisely, nor that more money will make the transportation system perform any better (e.g. reduce congestion).  They believe that the desire to greatly increase investment in infrastructure must be tempered by the overriding  imperative to get the nation’s fiscal house in order.

    Beyond MAP-21 
    The fiscal and political climate in the next few years will make the job of convincing the skeptical electorate to support higher transportation spending even harder. Funding constraints will continue to make it difficult if not downright impossible for Congress to commit hundreds of billions of federal dollars in a single legislative package, regardless of which party controls the purse strings. Unwilling to raise fuel taxes, Congress is likely to embrace short-term bills as a convenient way out of the dilemma.  Short-term authorizations such as MAP-21 will require only modest transfers from the general fund —especially if states are willing to step in with increased contributions of their own. On the other hand, a six-year bill would require an injection of nearly $90 billion in general revenue.  

    To be sure, some in the stakeholder community will contend that longer-term (i.e. five- or six-year) authorizations are necessary to allow for orderly planning and implementation of capital projects. They will argue that short-term bills will not provide the kind of funding certainty that major public works require. But to the extent that large capital investments still figure on State DOTs’ and transit authorities’ agendas, private capital, tolling, and credit instruments such as TIFIA and state infrastructure banks, will provide adequate alternatives to the funding stability that long-term congressional  authorizations offered in years past.

    The bottom line: regardless of the outcome of the November elections, do not expect a boost in federal transportation spending. Indeed, minor reductions in discretionary programs (TIGER, New Starts) are possible if automatic year-end spending cuts under sequestration are not avoided.

  • Chicago Tribune Joins the Ranks of High-speed Rail Critics

    Last year, in congressional testimony before the House Transportation and Infrastructure Committee hearing on high speed rail, we cited the Chicago-to-St.Louis "high-speed rail" project as an example of the Administration’s wasteful use of its economic stimulus money. We pointed out that the $1.4 billion program of track upgrades will allow top speed of 110 mph but will raise average speeds of Amtrak trains between Chicago and St. Louis by only 10 miles per hour, from 53 to 63 mph. The four-and-a-half hour trip time will be cut by a mere 48 minutes, to three hours and fourty minutes. In France, TGV trains between Paris and Lyon cover approximately the same ditance (290 miles) in a little under two hours, at an average speed of 150 mph. Yet, federal officials did not hesitate proclaiming the Chicago-St. Louis project as "historic" and hailing it as "one giant step closer to achieving high-speed rail passenger service."

    Now, a Chicago Tribune story, linked here and excerpted below, confirms just how "ridiculously expensive" and "uneconomical"  this project is turning out to be.  As the editorial points out, the project stands to "drain funding from mundane projects that could make a much bigger difference." Something that the California High Speed Rail Authority has belatedly recognized in diverting almost half of the initial $10 billion stage of its bullet train project to upgrading "mundane" commuter rail services in Los Angeles and the Bay Area. 

    In recent years, under the banner of economic stimulus, the federal government has spent a ton of money getting the tracks ready for those speedy locomotives. In the Chicago-St. Louis corridor, for instance, Uncle Sam has poured at least $1.4 billion into crossing improvements and other upgrades. Between Chicago and Detroit, more than $400 million has been spent.

    How would you feel, taxpayer, if we told you that some of the work might need to be torn up and redone?

    Angry? You bet.

    A debate over just how fast high-speed trains should operate could turn very costly very soon.

    The issue comes down to 15 miles per hour.

  • 5000 Public School Teachers Could Lose Their Jobs in Chicago

    The Democratic Party in Chicago is at war. The one party town is seeing an important element of the coalition on strike. Rahm Emanuel is at war with a real adversary:  teacher’s union boss Karen Lewis. Last year Lewis began laying the groundwork for a strike as witnessed in this Chicago Magazine interview with reporter Carol Felsenthal:

    CF: So you have an issue with [Secretary of  Education, former CPS CEO] Arne Duncan?

    KL:Yeah, because he has a bachelor’s in sociology from Harvard and played basketball [he’s an education expert]? I think he’s completely and totally unqualified to do this job. And to me, it’s sort of indicative of how education is such a political tool now, as opposed to [his] having a real bent toward education. I think this is a way for Obama to try to make an olive branch with Republicans. There’s this mentality that outsiders and people with no education background are the… experts…. They want to privatize public education…. Arne’s policies here were a disaster.

    Karen Lewis, like Rahm Emanuel, isn’t shy about expressing her opinions. Conflict is in the air. For 25,000 teachers to be on strike weeks before a Presidential election is a major problem for Barack Obama and Rahm Emanuel. Karen Lewis has even organized children to chant slogans against Rahm Emanuel.  As veteran Chicago reporter Greg Hinz has said:

    Mr. Emanuel has loudly declared what he wants, issued his demands in what I hear was an f-bomb-filled meeting with Ms. Lewis, and moved to impose some items by fiat — i.e., enacting a longer school day and directing the board to rescind a negotiated 4 percent pay hike.

    Chicago is running out of money. There’s much blame to go around. The financial math is a threat to the status quo. The public school system has been a lucrative racket for some. Chicago Tribune columnist John Kass explains:

    Unfortunately, the system works just fine. It works for the teachers union that wins the big raises (the current offer: a 16 percent bump over the next four years) and for the bureaucrats who are creatures of patronage, and for the vendors who feed from the almost $6 billion budget.

    It works for Democratic politicians. They increase property taxes to pay for union raises and, in exchange, receive union support and political donations in election years. It’s been going on that way for years.

    But does it work for the kids? Not when nearly half don’t graduate.

    As New Geography readers remember, we warned that Chicago was on the downswing. The 2010 Census confirmed this decline. The difficult part of decline is the hardship that comes with layoffs. University of Chicago Professor Tim Knowles says 5000 Chicago Public School teachers could lose their jobs because of 100 schools may shut. When you lose 6.9% of your population in 10 years, closures are inevitable.

    In conclusion, Karen Lewis has picked a perfect time to strike: right before a Presidential election. The Democratic party needs all the help it can get from unions to get out the vote in nearby battleground states. What if they don’t get out the vote in Ohio and other unions strongholds in November?

  • New Setbacks for the Beleaguered California Bullet Train

    A proposal by Senator Michael Rubio (SB 317) to loosen California’s landmark environmental protection law commonly known as CEQA, has been shelved. The proposed legislation was intended to exempt the Central Valley rail construction project from CEQA requirements, thereby removing the threat of environmental litigation against the project. The bill, if approved,  would have likely led to the dismissal of currently pending lawsuits against the California High-Speed Rail Authority (CHSRA), and specifically the challenges filed by the Merced and Madera Farm Bureaus, according to Gary Patton, a California attorney who has been involved in environmental litigation. With environmental protections remaining in place, CEQA-based challenges could seriously  delay the start of construction and jeopardize the Authority’s ability to complete the Central Valley project by the federally imposed deadline of September 2017. Missing the federal deadline would deprive the project of the balance of the $3.3 billion federal grant.

    The unexpected cancellation of Sen. Rubio’s bill is credited to the opposition of powerful environmental groups and local elected officials. The latter sent a letter to Senate President Pro Tempore Darrel Steinberg and Assembly Speaker John Perez opposing "any proposal to create significant new exemptions or otherwise re-write CEQA in the days ahead." The proposed bill, wrote the officials, contain major changes to the existing law that have not been properly vetted and are being pushed  by "special interests in an end of session power play." In the end, Sen. Steinberg chose to side with the objectors rather than with a fellow Democrat.   "This law for all its strenghts and faults," he said, "is far too important to rewrite in the last days of the session."

    What Lies Ahead?

    The announced schedule for the California HSR procurement process calls for proposals from the five qualified bidders due in September 2012, contract award in December 2012, and Notice to Proceed  (on the 60-mile Merced-to-Fresno section of the line) in January 2013. No schedule has been announced for the Fresno-to-Bakersfield segment whose final EIR/EIS is not expected until early 2013.  

    However, before construction can begin (initially on a 29-mile line segment  from Madera to south of Fresno), the necessary rights-of-way for the HSR track must be acquired. The acquisition  process will include appraisals, acquisition offers, negotiations with land owners and relocation assistance (if any). These actions could be delayed by any potential legal challenges filed against the project by members of the Merced and Madera Farm Bureaus. 

    "It’s going to be a long battle for the Rail Authority, said Amanda Carvajal, executive director of the Merced County Farm Bureau. "There is going to be opposition every step of the way."  "We feel that the evidence against the Authority’s environmental document being adequate or truthful is solid," echoed Tom Rogers, President of the Madera County Farm Bureau in announcing the filing of a class action environmental lawsuit against the Authority in early June. Anja Raudabaugh, executive director of the Farm Bureau added,   "…this lawsuit was necessary to protect the bedrock economy of agriculture in the Valley. … We are actively seeking support from the community, local businesses and anyone who feels the rail project is to the detriment of their livelihood and way of life."    

    The strength of opposition to the bullet train in the Central Valley has led some observers to conclude that the actual groundbreaking and start of construction on the initial segment of the line could be many months if not years away. 

    New Operating Cost Analysis Casts Doubt on the Project’s Profitability

    New doubts concerning the financial viability of the California bullet train have been cast by the August 22 publication  of a report by William Warren and William Grindley, two prominent critics of California’s HSR project. The report challenges the Authority’s claim that the bullet train’s revenues will cover its operating and maintenance (O&M) costs as required by the enabling Proposition 1A law. The 198-page report concludes that  the high-speed train "is in the untenable position of having to compete against the low costs of automobile travel  and intra-California airfares while simultaneously meeting AB 3034 (Proposition 1A) requirement to be profitable."    

    To successfully compete with the low costs of driving and flying, the authors contend the bullet train must keep the per passenger mile (PPM) fares somewhere in the 20 cent/PPM range.  The average PPM fare for existing HSR systems is more than twice what the Authority projects —47 cents versus 23 cents/PPM.

    The authors used the Northeast Corridor’s high-speed train Acela  for their comparison because its operating costs offer the closest equivalent to the California bullet train in terms of  labor, power, maintenance and employee benefit costs   The real life examples show that existing high-speed rail  operating costs exceed 30¢/ PPM, while the Authority claims operating costs of only 10¢/ PPM. 

    The authors conclude: "The difference between the reality of high-speed rail’s operating costs and the fares CHSRA says they will charge can only be made up by subsidies which are  prohibited by law.   That means hundreds of millions to several billions of dollars  will need to be found from California’s taxpayers every year." 
    The report has received  wide distribution in Sacramento and  can be found at  www.sites.google.com/site/hsrcaliffr,  It will be also available at www.cc-hsr.org.

    Ken Orski has worked professionally in the field of transportation for over 30 years.

  • Is California the New Detroit?

    Most Californians live within miles of its majestic coastline – for good reason. The California coastline is blessed with arguably the most desirable climate on Earth, magnificent beaches, a backdrop of snow-capped mountains, and natural harbors in San Diego and San Francisco. The Golden State was aptly named. Its Gold Rush of 1849 was followed a century later by massive post-war growth.

    There is no mystery why California’s population and economy boomed after the Second World War. Education in California became the envy of the world. California’s public school system led the nation in innovation with brand new schools and classrooms. The Community College system that fed its universities was free for its students. A college education at the UC and Cal State systems was inexpensive. UC-Berkeley, with its graduate schools, was arguably the greatest in the world while Stanford developed into the Harvard of the West. An efficient highway system moved California’s automobile driven commerce while fertile soil of the Central Valley became the fruit and vegetable basket of the world.

    The next wave hit in the 80s as former orchards south of San Francisco morphed into the Silicon Valley. Intel and other chip manufacturers led the computer and software revolution bringing high tech jobs and immense new wealth to the Golden State. The dot-com revolution of the 90s brought more gold to California. Innovators like Google and Apple cashed in by nurturing the Internet era. The next decade heralded the greatest housing and mortgage boom in the nation’s history. Developers from Orange County, south of Los Angeles, invented creative financing vehicles that drove home sales, and profits, to record heights by 2006.  
     
    This success has created a problem: Californians, due to their golden history, live unreflective lives. The Tea Party movement generated a political tsunami that swept more than 60 incumbents from political office in 2010, but the wave petered out at California’s state line as Democrats take every elected office in the state.

    The state budget, mandated to balance by law, has been billions in the red for ten straight years. Yet Californians re-elect the same politicians, year after year, who produce budgets with multi-billion dollar deficits. California voters rejected Meg Whitman, the billionaire founder of Ebay, in favor of Jerry Brown. California now has a $16 billion deficit which “assumes” that California voters will pass massive tax increases on themselves. If they do not, the 2013 deficit becomes a mind numbing $20 billion. Yet despite the red ink, Governor Brown signed into law a “high speed rail” bill that will spend $6 billion on a train between Fresno and Bakersfield – not LA and San Francisco as promised. Polls turned against the choo-choo, but there remain no outcry from California voters.

    California voters rejected Carly Fiorina, who ran Hewlett Packard, for Barbara Boxer in the 2010 Senate race. To protect the endangered Delta Smelt, a fish known better as bait, water has been diverted from Central Valley farms to the Pacific Ocean. Orchards in the Central Valley were allowed to wither and die resulting in unemployment in the Central Valley as high as 40%. Imagine Californians on food stamps, living in what was the fruit basket of American.  

    California’s business climate now ranks dead last according to 650 CEOs measured by Chief Executive Magazine. Apple will take 3,600 jobs to its new $280,000,000 facility in Austin Texas – jobs that California would have had in the past. Texas ranked first in the same survey. California’s unemployment rate is consistently higher than 10% of its work force, and there are few jobs for college students who graduate with as much as $100,000 in student loans. Despite overwhelming evidence that bad public policy is chasing away jobs, the same state politicians are sent back to Sacramento every two years.

    California’s public education system, once the envy of the world, now ranks 46th in the nation in per pupil spending and faces a $1.4 billion cut in the fall. In the last month, three California cities declared bankruptcy. More will follow. Take Poway for example. Its school board borrowed $100,000,000 (for 33,000 students) through a Capital Appreciation Bond. The politicians told the voters there would be no payments for 20 years. What they did not explain was the residents must pay back $1 billion dollars on their $100 million loan. Beginning in 2021, tiny Poway will be forced to pay $50 million per year in bond payments. Huge property tax assessments will be required if homes do not appreciate 400% by then, which is unlikely under foreseeable circumstances.   

    Rather than stare at themselves in the mirror, Californians should take a look at Michigan. In the 50s greater Detroit was the fourth-largest city in America with 2 million inhabitants and the world’s most dominant industry: the automobile.

    Most people had a good paying job. Its burgeoning middle class was the model of the world with excellent public schools and universities. Detroit in 2012 is a shadow of that once great metropolis. Its population has shrunk to 714,000. The average price of a home has fallen to $5,700. Unemployment stands at 28.9%. It has a $300,000,000 deficit. There are 200,000 abandoned buildings in the derelict city. Its public education system, in receivership, is a disgrace producing more inmates than graduates. In 2006, the teacher’s union forced the politicians to reject a $200,000,000 offer from a Detroit philanthropist to build 15 new charter schools. Jobs long ago abandoned Detroit for places like South Carolina and Alabama, with their “right to work” laws and low taxes.

    Now Detroit’s Mayor has proposed razing 40 square miles of the 138 square miles of this once great American city returning 70,000 abandoned homes to farmland. Even such a draconian plan may not be enough to save the city. If a hurricane had hit Detroit, more of us would know of this tragedy in our midst, but this fate was man-made and not wrought by nature. Detroit has had one party rule for more than fifty years. Louis C. Miriani served from September 12, 1957 to January 2, 1962 as Detroit’s last Republican mayor. Since that time the Democrats have ruled the Motor City.  John Dingell has served region since 1956. His father was the Congressman from 1930 to 1956. Despite the disastrous decline of their city, Detroit voters send him back to Congress twenty-two times.

    Like Detroit, California now has one party rule. The Democrats of California did not need a single Republican vote to pass their budget. Governor Brown’s plan is to address the nation’s largest deficit by raising taxes instead of cutting spending. If passed, the deficit would drop from $20 billion to a mere $16 billion. The budget does nothing to cure the systemic problems of a bloated bureaucracy. It does not eliminate one of California’s 519 state agencies.  

    Caltrans stopped building highways under Brown’s first term, but the people kept coming. Now 37 million Californians are locked in traffic jams each day. Brown was rewarded for such prescience with re-election as Governor. California’s egotistical politicians passed the Global Warming Solutions Act in 2006 (AB32) to “solve” climate change. Dan Sperling, an appointee to the California Air Resources Board (CARB) and a professor of engineering and environmental science at UC Davis, is the lead advocate on the board for a “low carbon fuel standard.” The powerful state agency charged with implementing AB 32 and other climate control measures, claims the low carbon fuel standard will “only” raise gasoline prices $.30 gallon in 2013. The California Political Review reported implementation of these the policies will raise prices by $1.00 per gallon.

    Detroit was once the most prosperous manufacturing city in the world, a title later secured by California.    Will California follow Detroit down a tragic path to ruin? In 1950, no one could imagine the Detroit of 2010. In 1970, when foreign imports started to make a foothold, the unions and their bought and paid for politicians resisted any change. In the 1990s as manufacturers fled to Alabama and South Carolina, the unions and their political minions held firm, even as good jobs slipped away. No one in Detroit envisioned their future.

    Today, California is following Michigan’s path with exploding pension obligations, a declining tax base, and disastrous leadership. Housing prices have fallen 30 to 60% across the state, evaporating trillions of dollars of equity and wealth. Unemployment remains stubbornly high and under-employment is rife. Do our politicians need any more signs?

    Governor Brown’s budget will first slash money to schools and raise tuition on its students while leaving all 519 state agencies intact. He apparently will protect political patronage at all costs. Jobs, and job creators, are fleeing the state. Intel, Apple, and Google are expanding out of the state. The best and brightest minds are leaving for Texas and North Carolina. The signs are everywhere. Meanwhile, the voters send the same cast of misfits back to Sacramento each year – just as Detroit did before them.

    The beaches are still beautiful. The mountains are still snow capped and the climate is still the envy of the world. Detroit never had that. But will California’s physical attributes be enough? If the people of California want to glimpse their future, they need look no farther than once proud City of Detroit and the once wealthy state of Michigan.

    It can happen here.

    Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA, a Senior Fellow at the Pacific Research Institute in San Francisco, CA and President of the international investment firm, L88 Companies LLC in Denver – Newport Beach – Washington DC – Prague. He has been a successful real estate developer for more than thirty years.

  • Sex (Or Not) And the Japanese Single

    Back in June 2011, British prime minister David Cameron backed proposals tackling the sexualisation of British children, in a bid to dilute the culture of sex that has swept western nations. The rhetoric goes that the ‘oversexualisation’ of society, as represented in everything from ‘lads mags’ to advertising boards promoting shampoo, has fuelled a surplus of sexual desire that is thought to have contributed to the rise of teenage pregnancy and rape cases in the UK.

    Compare this to Japan, a country where, according to a recent survey, a third of young men have no interest in sex. Moreover, 50% of young women are not dating. Could this be an ‘undersexualised’ society? Has this impacted Japan’s population geography?

    In 2007, Japans population reached a tipping point. It was the first year in its history (excluding 1945) where the number of deaths exceeded the number of births. In 2007 there were 2,000 more deaths than births. In 2011 that figure rose to approximately 204,000, and it’s a figure that is accelerating. Indeed, at 23.1%, Japan has the highest proportion of over-65s in the world, and at 13.2%, the world’s lowest proportion of under 14s. Japan’s population peaked at 127.7 million in 2007, and is forecast to shrink to a mere 47 million by 2100. What are the economic and social forces behind this?

    Too much work, too little sex: Japan is a country where sales of adult diapers exceed child diapers, and where more public money is spent on healthcare than defence. It’s also one of the world’s most industrialised countries, with an agricultural sector comprising 1.5% of its GDP and services sector comprising 75.7% of GDP. For Japanese society, this means that a white collar lifestyle predominates. High salaries with high workloads in an already expensive country has meant that starting a family has become a low priority, if a priority at all, on a Japanese professional’s wish list. The little available data on the reasons why indicates that raising a child is too expensive, and that the pressure of work leaves little time available to look after anyone other than themselves.

    Compounding this battle between a high flying job versus a family is a culture somewhat void of sexualisation. It is unlikely that, on a stroll through Tokyo, you will come across much imagery that is overtly sexual. In contrast with the west, sex doesn’t sell in Japan. Among males 16 to 19 year old, 36% have no interest in sex, and some even despise it. The figure is even higher (59%) for females in the same age category. These respondents often cite greater interest in comics, computer games and socialising through the internet. A low level of cultural sexualisation is not without its benefits; the rape rate is one of the lowest in the world.

    However, the net result of these socio-cultural and economic factors is that the fertility rate is astonishingly low. According to the UN the figure is 1.27.

    Japan is therefore facing a demographic crisis. The number of dependents per active member of the labour force is increasing, and in an unusual situation, there are more jobs available than people to do them. Furthermore, in future decades Japan may have an oversupply of infrastructure relative to the amount of people who can use it.

    Several policy options could be under consideration by Japan’s decision makers. Not all of these are practical or even advisable, but we may see them looked at in years ahead:

    Encourage Fertility – This would help ensure that the labour market and services such as transport are not undersupplied. It can be done in at least three ways. The first is through pro-natal incentives, such as child tax breaks for couples who desire children. The second is to restrict or even ban abortion (Japanese abortion laws are some of the most liberal in the world). For example, restrict abortions to the first trimester only. Laws such as these will inevitably conflict with women’s and couples rights. The third, and perhaps the most untried, is to sow the seeds for a more sexualised Japanese culture, one with more lust and desire, in an attempt to situate relationships as more desirable than the latest computer game.

    Encourage Migraton – Japanese immigration and emigration have both been low. The ethnic mix of Japan is not diverse. 98.5% of Japan’s population is ethnically Japanese, with only a few other ethnic groups. In order to prevent an undersupply of labour, the country may have to encourage mass immigration. Given the unique culture and language of Japan, will foreigners want to come and live there? Would immigration cause ethnic tensions in this peaceful country?

    Raise the Retirement Age – It has been calculated by United Nations researchers that the retirement age in Japan would have to be raised to 77 from 65 in order to rebalance its crippling dependency ratio. This would shorten the average amount of retirement years from 14 years to two for men, and from 19 years to seven for woman.

    A blueprint for the rest of the world? Is Japan’s pattern of rising, peaking, and falling gross population going to be a defining demographic trend in the 21st century? In Japan, Germany, Russia, Czech Republic, Estonia and several more countries it already is, with several other low growth European countries, such as Italy, forecast to head the same way.

    Low sexualisation is unlikely to be an important factor of low growth in Europe. The worldwide trends of continued urbanisation, the growth of white collar jobs, and the decline of blue collar jobs as an overall percentage of the economic makeup have acted as the most effective mass contraception.

    Given a course of continued social and economic development around the world, the ‘tipping point’ for world population could be as near as 2050, a date that many of the readers of this article could be witnessing.

    The rhetoric of overpopulation doomsday scenarios should really be reversed. The warnings today should be about the unsustainable dangers of a shrinking population. This will no doubt be one of the key issues in sustainable development discourse for years to come.

    Edward Morgan is a 4th Year Human Geography student at the University of St Andrews, Scotland.

    Photo by Kevin Poh: Night Life @ Shinjuku, Tokyo

  • New Chicago Machine Scam In the Works: Eminent Domain Seizure of ‘Underwater’ Mortgages

    With property values down 40% since 2006 in Chicago, the Chicago Democrat Machine has a new scam brewing. The Chicago Sun-Times reports:

    Should Chicago use its sweeping condemnation powers to help stem the foreclosure epidemic — paving the way for underwater mortgages to be written down and repackaged under terms more affordable to struggling homeowners?

    The City Council’s most powerful aldermen believes it’s a concept worth considering, which is why the Finance Committee chaired by Ald. Edward M. Burke (14th) will hold a joint committee hearing on the controversial idea on Tuesday.

    If this passes, the potential for corruption will be unlimited in Chicago. Alderman Burke controls Chicago’s tax code. But, the conflicts are even more pronounced. Alderman Burke slates all the judges in Cook County which means a Burke-slated judge will hear the property seizure case. Even that’s not all; Alderman Burke’s day job is running a property tax appeals tax firm. Being a client of Alderman Burke’s probably will be a good way to avoid a ‘takings’. Expecting a fair appeal, in court, on the seizure? Alderman Burke’s wife, Anne, is a justice on the Illinois Supreme Court. Expecting help from the Illinois state legislature to clamp down on Alderman Burke’s conflicted lifestyle? Alderman Burke’s brother, Daniel, is Assistant Majority Leader of the Illinois General Assembly.

    In conclusion, you can be assured that seizing ‘underwater’ mortgages in Chicago will become a money maker for Alderman Burke. Nothing has left Alderman Burke’s attention in terms of making money off the taxpayers of Chicago. The Chicago Sun-Times has reported that Chicago Public Schools have a history of paying milk money to Alderman Burke. In Chicago, even if you have a checkered past you can still work with Alderman Burke as long as you pay tribute.