BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Tom Torlakson, Chairman
3034 (Galgiani)
Hearing Date: 7/7/08 Amended: 7/3/08
Consultant: Mark McKenzie Policy Vote: T.&H. 8-4
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BILL SUMMARY: AB 3034, an urgency measure, would revise a
number of provisions of the Safe, Reliable High-Speed Train Bond
Act for the 21st Century, which would provide $9.95 billion in
general obligation bonds for the construction of a high-speed
train network, if approved by the voters in the November 4, 2008
general election.
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Fiscal Impact (in thousands)
Major Provisions 2008-09 2009-10 2010-11 Fund
Bond interest: maturity extension increased interest of
$3,777,000* General
(from 30 year to 40 year term) --------(see staff
comments)--------
HSRA accountability duties unknown increase in administrative
Bond**
costs for peer review,
pre-appropriation
review, and pre-expenditure review
duties
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* Represents cumulative increase in interest payments if the
term of bond maturity is extended from 30 years to 40 years,
assuming 5 percent interest and 3 percent inflation. Annual
General Fund debt service payments (assuming they are level over
the term) would be $580 million for 40 years, rather than $647
million annually for a 30 year term, but the total debt service
would be $23.195 billion for 40 year bonds, rather than $19.418
billion for 30 year bonds. These figures are in current
dollars.
** Unspecified fund created by the High-Speed Train Bond Act
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
SB 1856 (Costa), Chapter 697 of 2002, authorized the submittal
of the Bond Act for voter approval at the November 2, 2004
statewide general election. Primarily due to budgetary concerns
and competition with other bond authorization priorities, the
Bond Act was delayed twice: SB 1169 (Murray), Chapter 71 of
2004, delayed voter approval to the November 7, 2006 election,
and AB 713 (Torrico), Chapter 44 of 2006, delayed it again to
November 4, 2008. Approval of the $9.95 billion Bond Act is
intended to provide the state portion of funding for the
planning and construction of the 800 mile statewide intercity
high-speed passenger train system, which is projected to cost a
total of $42-$45 billion, as well as complementary improvements
to other specified rail systems to provide connectivity to the
high-speed train system and for capacity enhancements and safety
improvements to those lines. The remainder of the funding for
the high speed rail system is expected to come from federal and
private sources. The new high-speed train network would serve
the major population centers in the state and link regional and
local transit systems to form an integrated transportation
network throughout California.
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AB 3034 (Galgiani)
Overall Bond Costs
The Bond Act currently awaiting voter approval, as authorized by
SB 1856 (Costa), would result in total General Fund costs of
$19.4 billion, assuming a 30-year bond with a tax-exempt
interest rate of 5 percent and a constant inflation rate of 3
percent. This would increase the annual debt service by $647
million for 30 years. AB 3034 would extend the maximum
allowable bond maturity term from 30 years to 40 years.
Assuming the same interest and inflation rates, this bill could
result in an increase in total General Fund costs of $3.78
billion if the term of the bonds is extended to 40 years (to a
total cost of $23.2 billion). Annual debt service payments
would be $580 million for 40 years.
High Speed Rail Authority (HSRA): accountability provisions
The Senate Transportation and Housing Committee recently issued
a "Report on the California High-Speed Rail Authority" based
upon information gathered after convening two interim
informational oversight hearings. This report offered six
points for consideration in any bill that would amend the bond
measure scheduled for voter approval in November of 2008: (1)
the HSRA must update its business plan; (2) the Bond Act should
include financial accountability standards for the development
and management of the high-speed rail system; (3) the HSRA
should create a risk management process; (4) the HSRA should be
integrated more closely into state government to enhance
accountability; (5) a peer review process should created to
strengthen oversight; and (6) the HSRA should stage construction
so that initial state funds are spent on improving travel
segments involving shared rights-of-way.
In furtherance of these points, AB 3034 would:
Require the HSRA to prepare, publish, and submit to the
Legislature a revised business plan by October 1, 2008 that
includes a revised funding estimate and discussion of
foreseeable risks.
Establish an independent peer review committee to review and
issue an analysis of the HSRA's assumptions underlying its
planning, engineering, and financial plan and its viability
for a project in a corridor for which it is seeking bond
funding.
Require the HSRA, 90 days prior to a request for an
appropriation of bond proceeds, to submit a detailed funding
plan for a corridor or usable segment to the Department of
Finance (DOF), the peer review committee, and specified policy
and fiscal committees of the Legislature. This funding plan
must include, among other things, a description of all funding
sources, identification of risks and proposals to manage them,
and a description of terms and conditions of any proposed
lease or franchise agreements with private entities.
Require the HSRA, prior to expending any bond proceeds
appropriated by the Legislature, to submit to DOF and the
Joint Legislative Budget Committee (JLBC) an updated detailed
funding plan for the corridor and a report prepared by an
independent financial services firms and/or consultants on the
viability of the project and its funding plan. The JLBC may
communicate findings to DOF, and DOF would be required to make
a finding that the plan is likely to be successfully
implemented prior to the HSRA proceeding with the project.
Page 3
AB 3034 (Galgiani)
The Transportation and Housing report indicates that the
proposed High-Speed Rail Bond Act presents voters with a
business proposition, rather than a typical public works project
that relies on more traditional pay-as-you-go financing or
longer term funding with revenue bonds or general obligation
bonds. The high-speed rail system would be funded with a
combination of state funds provided by the Bond Act, unspecified
federal funds, and unspecified private funds. The HSRA has
initiated discussions to pursue federal funding for high-speed
development in the next reauthorization of the federal surface
transportation funding act. Private funds are expected to be
realized through public-private partnerships (PPP) that may
include lease or franchise agreements that would provide a
private company or consortium of firms with a negotiated rate of
return on an infusion of private capital into the construction
of one or more usable segments. Any proposed PPP agreement must
be enumerated in the pre-appropriation and pre-expenditure
reporting requirements specified as part of the accountability
provisions included in AB 3034.
Staff notes that AB 3034 would require the HSRA to complete an
updated business plan, establish a peer review committee,
prepare detailed funding plans prior to appropriation, and
facilitate the preparation of independent financial analyses
prior to expenditure of bond proceeds. The addition of these
accountability provisions would result in unknown ongoing
administrative costs to the HSRA.
Fiscal Provisions
Existing law, the General Obligation Bond Law, requires that
state general obligation bond proceeds be used only for
specified purposes, including issuance costs, administrative
costs, and the construction or acquisition of "capital assets,"
which is generally defined as tangible physical property with a
useful life of 15 years or more. This provision also allows up
to 10 percent of bond proceeds to be used for capital assets
with a useful life of 10 to 15 years. Equipment purchased with
bond proceeds must have a useful life of 2 years or more.
AB 3034 would update the standard language in the fiscal
provisions pertaining to the actual issuance of the bonds.
Staff notes, that while this bill generally makes the Bond Act
consistent with the GOBL, AB 3034 would provide an exception to
the useful life provisions of the GOBL. This could lead to
expenditures for short-term purposes using bond funds that are
repaid from the General Fund over a long period of time. It is
unclear why this is necessary. Staff recommends an amendment to
delete the exception to the useful life requirements of the
GOBL.
Staff notes that neither the current Bond Act nor AB 3034
specifies a cap on the use of bond proceeds for administrative
purposes. Staff recommends an amendment to specify that: (1) up
to 2.5 percent of bond proceeds may be used for administrative
purposes; (2) the actual amount available shall be appropriated
in the Annual Budget Act; and (3) the administrative cap may be
adjusted in a future statute if it is in furtherance of the Bond
Act.
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AB 3034 (Galgiani)
Summary of Proposed Amendments:
Delete the proposed change to fiscal provisions that allow an
exception to the useful life requirements of the General
Obligation Bond Law.
Cap the use of bond proceeds for administrative purposes at
2.5 percent, as specified.
Several technical amendments requested by the Secretary of
State relative to the ballot label provisions.