BILL ANALYSIS SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 289 SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Galgiani VERSION: 6/22/10 Analysis by: Art Bauer FISCAL: yes Hearing date: June 29, 2010 URGENCY: YES SUBJECT: High-speed rail DESCRIPTION: This bill authorizes exempt positions and establishes priorities for spending state and federal funds relating to high-speed rail. ANALYSIS: SB 1420 (Kopp), Chapter 796, Statutes of 1996, creates the High-Speed Rail Authority (HSRA). In 2008, California voters approved the Safe, Reliable High-Speed Passenger Train Bond Act, Proposition 1A, which was put on the ballot by AB 3034 (Galgiani), Chapter 276, Statutes of 2008. The bond measure makes available $9 billion for the development of a high-speed rail system and $950 million for improvements to existing passenger rail systems that will offer feeder services to the high-speed rail service. Proposition 1A identified Phase I of the high-speed rail (HSR) project as Anaheim-Los Angeles-Bakersfield-Fresno-San Jose-San Francisco Transbay Terminal. Although planning can proceed on the San Diego and Sacramento lines, construction may occur only after Phase I is under construction and funding is available for these two additional segments. In January of 2010, the Federal Railroad Administration (FRA) awarded the HSRA a $2.25 billion American Recovery and Reinvestment Act (ARRA) grant, the largest HSR grant award in the country. Included in the grant is $400 million for the San Francisco Transbay Terminal joint powers agency, which submitted a separate ARRA application, but FRA consolidated its grant with the state's. The actual amount of ARRA funds available to the AB 289 (GALGIANI) Page 2 HSR project is $1.85 billion. The ARRA grant is for assisting in funding the preliminary engineering and environmental work on Phase I and to assist with the construction of the following Phase I segments: Los Angeles-Anaheim, Fresno-Bakersfield, Fresno-Merced, and San Jose-San Francisco. As a condition of the grant, the HSRA must obtain environmental clearances for the corridors by September 30, 2011, and construction must be completed by September 30, 2017. In addition to the Proposition 1A authorization and the ARRA funds, the HSRA also has $336 million of other public funds. The total amount of funding currently available to the HSRA is $11.2 billion. The HSRA's current estimate for constructing Phase I is $42.6 billion. Management of the HSRA Existing law establishes the HSRA with a nine member governing board, including five members appointed by the governor, two members appointed by the Senate Rules Committee, and two members appointed by the Speaker of the Assembly. The board is authorized to appoint an executive director, who is exempt from the state civil service, at a salary established by the board and approved by the Department of Personnel Administration. With the approval of the board, the executive director may appoint staff to assist him. This bill : Authorizes the governor, upon the recommendation of the executive director of the HSRA, to appoint up to six exempt employees who shall serve at the pleasure of the executive director, and who shall serve in the following positions: o Chief program officer. o Regional directors (up to three). o Chief financial officer. o Director of risk management and project controls. Authorizes the compensation of all exempt employees to be set by the governing board based on a salary survey conducted by independent outside advisors of state, regional and local transportation agencies with responsibilities comparable to the HSRA, and other relevant labor pools. AB 289 (GALGIANI) Page 3 Requires the Department of Personnel Administration (DPA) to review the methodology used in the survey and to approve the salaries set by the governing board. DPA may accept a previously completed salary survey if it so desires State Funds Existing law establishes an annual budgetary process managed by the Budget and Fiscal Committee in the Senate and the Budget Committee in the Assembly to determine the level of appropriations for all state programs for the fiscal year. This bill states that it is the intent of the Legislature to appropriate $230.5 million in Proposition 1A bond funds to the HSRA. Federal Funds Existing law authorizes the HSRA to accept federal grants; however, the grant revenues cannot be expended nor can state funds be expended in anticipation of being reimbursed from a federal grant, until there is an appropriation of funds by the Legislature. In addition, existing law requires the HSRA to adopt a funding plan that identifies all existing funds for expenditure in a corridor as an element of the pre-appropriation process and the plan must be reviewed by a peer review group. This bill : Requires ARRA funds appropriated by the Legislature to be used for planning, preliminary engineering, project-level environmental work, mitigation, final design, and construction for San Francisco-San Jose, Merced-Fresno, Fresno-Bakersfield and Los Angeles-Anaheim corridors. Requires the HSRA to prepare an expenditure plan, in consultation with the Federal Railroad Administration, for the ARRA funds and submit the plan to the Director of Finance and to the transportation and fiscal committees of both houses of the Legislature. Places in state statute the federal requirements governing the use of ARRA funds, including the completion AB 289 (GALGIANI) Page 4 of environmental reviews by September 2011, the obligation of funds by September 2012, and the completion of construction by September 2017. Funds received by the HSRA from the Passenger Rail Investment and Improvement Act of 2008 (PRIIA) shall be used for planning and engineering of future high-speed rail service in the Merced to Sacramento Corridor, Los Angeles to San Diego Corridor, and the Altamont Corridor. PRIIA is the act governing the use of federal rail improvement funds. COMMENTS: 1) Background . The Senate Transportation and Housing Committee has held eight oversight hearings on the HSRA. The most recent oversight hearing included a presentation by the State Auditor of her findings of an audit that the chair and vice-chair of this committee requested. Among the findings of the State Bureau of Audits (SBA) were managerial deficiencies, including $6 million of payments made to contractors without any documentation, and the HSRA's failure to the keep track of the use of bond revenues for administration and preconstruction planning. 2) Issues related to management appointments . The provisions related to the appointment of six exempt positions and the setting of salaries is unnecessary because trailer bill language for the 2010-2011 Budget Act includes those same provisions. 3) Budgetary polic y. The bill states as a matter of legislative intent that the Legislature will budget in the 2010-2011 fiscal year $230.5 million of Proposition 1A funds to match the federal funds awarded to the HSRA. It is difficult to understand the purpose of this language because the amount of bond funds are appropriated by the Legislature and reflect several factors, including the ability of the funds to be spent during the fiscal year. To date, HSRA does not even have a fund transfer agreement AB 289 (GALGIANI) Page 5 with the federal government for ARRA funds that the state would match. This provision of the bill is unnecessary. 4) Federal funds . This bill puts into state law existing federal law or regulations that govern agreements between the HSRA and the federal government. Should the federal government change the regulations or the underlying statute, state law would have to be amended to conform to the new federal provisions to avoid conflicts in law. These provisions are unnecessary. Assembly Votes are not relevant to this bill. POSITIONS: (Communicated to the Committee before noon on Wednesday, June 23, 2010) SUPPORT: None received. OPPOSED: None received.