BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 783
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Ashburn
VERSION: 4/13/09
Analysis by: Art Bauer FISCAL: Yes
Hearing date: April 28, 2009
SUBJECT:
High-speed rail business plan
DESCRIPTION:
This bill establishes additional requirements for California
High-Speed Rail Authority's business plan.
ANALYSIS:
Existing law:
1.Creates the California High-Speed Rail Authority (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.
2.Authorizes the HSRA to develop a high-speed rail system
extending from San Diego to Sacramento with Phase I being
between Anaheim-Los Angeles Union
Station-Bakersfield-Fresno-San Jose-San Francisco Transbay
Terminal. Proposition 1A, the Safe, Reliable High-Speed
Passenger Train Bond Act for the 21st Century, approved by the
voters last November, provides up to $9 billion for the
development of the high-speed rail system.
3.Limits the expenditure of bond revenues for the construction
of the high-speed rail system to not more than 50 percent of
the cost of building the system.
4.Requires that 90 days prior to submitting to the governor an
initial request for an appropriation of bond proceeds for
capital expenditures, the HSRA shall convene a peer review
committee to review the detailed funding plan for the proposed
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project.
5.Prohibits state, local, or federal operating subsidies for the
high-speed rail service.
6.Requires the HSRA to have prepared a business plan by
September 1, 2008 that includes the types of services it
expects to develop, a description of the system's benefits, a
patronage forecast, the sources of funds to construct and
operate the project, the chronology for construction of the
corridors in which it will operate, the risk associated with
construction, technology, financing and other aspects of the
project, and the HSRA's strategy for managing the risks.
This bill :
1. Requires the HSRA, prior to seeking an allocation of bond
funding for the 2009-10 fiscal year, to prepare an expanded
business plan, with a draft of the plan being submitted to
the Legislature by September 1, 2009 and the final plan being
adopted by the HSRA's governing board by January 2010. The
draft business plan must be circulated for public comment.
2. Requires the expanded business plan to include the most
recent patronage forecast to identify high, medium, and low
ridership scenarios and the corresponding levels of service
for Phase I.
3. Requires the HSRA to prepare alternative financial pro
formas for the different levels of service, identify the
break even point, and assume no operating subsidies.
4. Requires the HSRA to identify supplemental sources of
funding to augment bond revenues and its confidence in the
availability of supplemental funds.
5. Requires the HSRA to identify written agreements with
public or private entities to fund components of the
high-speed rail stations and terminals.
6. Requires the HSRA to identify alternative public-private
development strategies for implementing Phase I.
COMMENTS:
1. Purpose . Drawing from the recommendations of the Legislative
SB 783 (ASHBURN) Page 3
Analyst's Office (see comment 4 below), the author is seeking
to have the HSRA prepare a business plan that address concerns
overlooked in its business plan submitted to the Legislature
in November 2008.
2.Background. AB 3034 (Galgiani), Chapter 267, Statutes of 2008,
authorized the provisions of Proposition 1A, the Safe,
Reliable High-Speed Passenger Train Bond Act for the 21st
Century, which the voters approved last November. That measure
provides up to $9 billion in bond proceeds for high-speed rail
development. Among the provisions of AB 3034 was a requirement
that the HSRA prepare a single business plan by September 1,
2008. The HSRA submitted the plan on November 7, 2008, three
days after the election. The HSRA testified at an oversight
hearing of the Senate Transportation and Housing Committee in
October 2008 that the plan was going to late because of the
delay in the adoption of the 2008-09 state budget. The
committee has been seeking an acceptable business plan since
January 2008. The business plan is important because the HSRA
is proposing that the state and federal government each share
in one-third of the project's cost with the final one-third
coming from the private sector. The project will be completed
as a public-private partnership. The HSRA has never discussed
the type of arrangement it expects the public-private venture
to be. For example, is a private consortium expected to
design, build, finance, and operate the system? Or is it
expected only to operate and maintain the system? Would the
consortium buy the rolling stock or would the state? The
financial documents prepared by the HSRA do not discuss the
prohibition on the use of state, local, or federal operating
subsidies.
3.Legislature needs to understand project risks . This central
financial issue associated with the high-speed rail project is
the allocation of project risk between the state and a private
consortium. The agreement between the state, represented by
the HSRA, and a private consortium will inherently address the
distribution of risks between the parties. A business plan
that identifies alternative patronage and operating revenue
assumptions and provides alternative pro forma financial
statements begins to form the basis for discussing risk
allocation. Because the HSRA has authorization to enter into a
public private partnership, it is important for the
Legislature to understand how the HSRA proposes to share
project risks between the state and a private consortium.
While it would inappropriate for the Legislature to enter into
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the negotiating process, it is appropriate for the Legislature
to establish state policy through legislation regarding the
type and degree of risks it believes appropriate for
California to assume. Well crafted, periodic business plans
assist the Legislature in making this determination. It is far
better for the state to articulate this policy in advance of
negotiations than after contracts are entered into and
disputes over financial responsibility between the contractor
and the state arise.
4.Legislative Analyst comments on the HSRA's business plan . In
its review of the HSRA budget request for the 2009-10 fiscal
year, the LAO summarized inadequacies it found in the HSRA's
November business plan, (see table below). This endeavors to
address the issues raised by the LAO as well as other
concerns.
-----------------------------------------------------------
| |
| Business Plan Fails to Provide Many Details |
| |
-----------------------------------------------------------
|-----------------------------+-----------------------------|
|Statutory Requirements | Sample of Missing Details |
|-----------------------------+-----------------------------|
| | |
|-----------------------------+-----------------------------|
|Description of the |What are the expected |
|anticipated system |service levels? |
|-----------------------------+-----------------------------|
| |What is the assumed train |
| |capacity? |
|-----------------------------+-----------------------------|
| | |
|-----------------------------+-----------------------------|
|Forecast of patronage, |How are ridership estimates |
|operation & capital costs |projected? |
|-----------------------------+-----------------------------|
| |What is the operating |
| |break-even point? |
|-----------------------------+-----------------------------|
| |How will costs be |
| |distributed by segment |
| |route? |
|-----------------------------+-----------------------------|
| | |
SB 783 (ASHBURN) Page 5
|-----------------------------+-----------------------------|
|Estimate of necessary |How would funds be secured? |
|federal, state, and local | |
|funds | |
|-----------------------------+-----------------------------|
| |What level of confidence is |
| |there for receiving each |
| |type of funding? |
|-----------------------------+-----------------------------|
| | |
|-----------------------------+-----------------------------|
|Proposed construction |What is the proposed |
|timeline for each segment |schedule, by segment, for |
| |completing |
| |design/environmental |
| |clearance? |
|-----------------------------+-----------------------------|
| |For beginning/completing |
| |construction |
|-----------------------------+-----------------------------|
| | |
|-----------------------------+-----------------------------|
|Discussion of risks and |How would each type of risk |
|mitigation strategies |impact the project? |
|-----------------------------+-----------------------------|
| |What specific mitigation |
| |strategies are planned to be |
| |deployed? |
-----------------------------------------------------------
The LAO makes the following comment in its analysis of the
HSRA budget and the inadequacy of the business plan:
Lacking detailed information such as this, the
Legislature really has no better sense than prior to
the plan's submission as to how the authority plans
to accomplish its objective. As the authority
continues to develop the high-speed rail system, it
is essential that the Legislature have a clear
understanding of how the state is proceeding with the
project and, most importantly, the risks it may be
assuming and how those risks would be mitigated. So
that the Legislature would have the necessary
information, we recommend that the Legislature
require the authority to expand upon its business
plan and submit information to include specific
SB 783 (ASHBURN) Page 6
elements missing from the original document before
appropriating any bond funding for 2009-10.
Although it is likely that there will be an appropriation of
bond revenue for continuing the environmental and preliminary
engineering work that is already underway, the HSRA will not
be seeking funding for a construction project for the 2009-10
fiscal year.
5.Related legislation . SB 455 (Lowenthal) provides the HSRA with
certain property management powers, requires the governor's
appointee to the governing to be confirmed by the Senate,
establishes a policy for prioritizing investments, and
provides a process for reporting on the progress of the
high-speed rail project to the Legislature. This bill passed
the Transportation and Housing Committee on April 21, 2009.
Ayes 10. Noes 1.
6. Suggested amendments . This bill endeavors to incorporate the
LAO's recommendations regarding the HSRA business plan within
the framework of existing law. To this end, the author and
committee may wish to consider the following amendments.
a. Require the HSRA to adopt the business plan and
submit the plan to the Legislature by March 1, 2010 and
every two years thereafter. Sixty days prior to
submitting the plan to the Legislature, the HSRA must
publish a draft plan for public review and comment.
b. On page 2, delete lines 22 to line 27,
inclusive, and insert "In addition to the requirements
of (a) the business plan shall include, but is not
limited to, all of the following elements:"
c. Delete the urgency clause. The urgency clause is
unnecessary as the bill does not mandate any actions
prior to January 1, 2010.
These three amendments ensure that the business plan is not a
static document, thus providing the Legislature a scheduled
update on the business economics of the high-speed rail
project. In addition, the elements of the business will
include both the requirements of Proposition 1A and the
suggestions of the LAO. The author has agreed to the
amendments.
SB 783 (ASHBURN) Page 7
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 22, 2009)
SUPPORT: None received.
OPPOSED: None received.