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Assemblyman Donald P. Wagner

A Surprising Way to Budget

The Assembly Budget Committee heard from the governor’s office last week in defense of the proposed 2014-15 budget. I thought I’d share the bizarre and surprising answer I got to a question I asked about that budget.

By way of background, the governor proposes to spend 30% of the state’s receipts from the Cap and Trade auction on high speed rail. Now, Cap and Trade is a neat little scam the government runs under the AB32 scheme to supposedly reduce greenhouse gasses. Under AB32, businesses that emit greenhouse gas are limited in the amount of such gasses they can put out. However, in a significant loophole, the government has set up a “market” by which gas emitters can purchase the right to discharge excess gas. The effect, of course, is to increase the amount of greenhouse gasses that would otherwise be produced, by allowing companies to buy their way out of the limits. But since the government gets the money, it overlooks this gaping logical hole in AB32.

One use to which the budget proposes to put some of this Cap and Trade money is the governor’s misguided high speed rail project. Specifically, a quarter of a billion dollars is supposed to go from the state’s greenhouse gas reduction effort to breathe life into the governor’s legally and economically challenged train.

There are major problems with the proposal. For example, it is quite likely illegal. AB32 funds are required to be spent to achieve AB32’s goal – the reduction of greenhouse gasses to specify (arbitrary) levels by 2020. But the train cannot help reach those levels because in no case does anyone expect the governor’s train to be up and running, and thus helping reduce greenhouse gasses, by 2020. Not even the most optimistic high speed rail supporter can make that claim. Thus, the budget proposes spending Cap and Trade dollars on a non-Cap and Trade related project.

Also, court rulings have pointed out the lack of a viable funding plan for the train. In fact, a superior court judge has prohibited the sale of bonds needed to finance the project until a realistic plan is in place. Even with the $250 million from the Cap and Trade diversion, though, high speed rail remains economically challenged. The infusion of Cap and Trade money is not enough to make the project pencil out.

Finally, it makes little sense to drop a quarter of a billion dollars today on a project with a 30 year time horizon like high speed rail. This is especially so given both the temporary nature of the current year’s surplus and the state’s much more immediate needs.

Against that backdrop, I asked the Department of Finance at the budget hearing, to explain the economic analysis supporting the decision to divert a quarter of a billion dollars from Cap and Trade. Specifically, what analysis says 30% is both the right amount, and an appropriate use of those dollars?

The answer was a surprise: The governor’s office did no analysis.

Really? None?!

Nope. None. The Department of Finance did no economic analysis whatsoever, and forthrightly admitted so. Instead, the department’s spokeswoman brazenly reported, they knew that they needed a large amount of money for the train but were a quarter of a billion dollars short when all was said and done. So they combed through the budget, saw the money sitting there, and just grabbed it from Cap and Trade. No analysis, no study, no concern for the legalities, no economic considerations, no long term budgeting or planning. Nope. No thought as to the consequences. Just a hole in the budget and a pile of cash from Cap and Trade to fill that hole.

This is a very troubling way to put together a budget. Now, I’ve written separately about the overall budget and, in particular, that there are many things in it to like. But this is certainly not one of them.


Assembly Member Wagner represents the Orange County cities of Anaheim, Irvine, Lake Forest, Orange, Tustin, Villa Park, and surrounding areas.