BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 22 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: LA MALFA VERSION: 3/24/11 Analysis by: Michelle Leinfelder FISCAL:YES Hearing date: May 3, 2011 SUBJECT: High-speed rail indebtedness DESCRIPTION: This bill reduces the amount of indebtedness authorized by Proposition 1A - the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century - to the amount contracted as of January 1, 2012. ANALYSIS: SB 1420 (Kopp), Chapter 796, Statutes of 1996, created the 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. AB 3034 (Galgiani), Chapter 267, Statutes of 2008, authorized the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century (Proposition 1A), which had several provisions. This legislation allowed the HSRA to develop a high-speed rail system extending from San Diego to Sacramento with Phase I connecting Anaheim-Los Angeles Union Station-Bakersfield-Fresno-San Jose-San Francisco Transbay Terminal, and it required the HSRA to prepare a draft business plan by October 1, 2011 and a final plan by January 1, 2012, with updated plans due every two years. This legislation also created an independent peer review committee for the purpose of reviewing the planning, engineering, and financing of the project by issuing an analysis of the viability of the HSRA's financing plan, including the funding for each corridor. It stated that 90 days prior to submitting to the governor a request for an appropriation of bond proceeds for capital expenditures, the HSRA shall convene the peer review committee to review the detailed funding plan for the proposed project. SB 22 (LA MALFA) Page 2 It defined capital costs as the costs associated with the acquisition of right-of-way and real property, construction of tracks, structures, power systems, and stations, acquisition of rolling stock, and the mitigation of direct and indirect environmental impacts. It prohibited state, local, or federal operating subsidies for the high-speed rail service, and it authorized the HSRA to enter into contracts with private or public entities for the design, construction, and operation of high-speed trains. In November 2008, the people passed Proposition 1A. This $9.95 billion bond measure provided $950 million for improving rail services connecting to the high-speed rail line and $9 billion for high-speed rail development. Of the $9 billion, $900 million is for planning, environmental analysis, and preliminary engineering for the project. The expenditure of the $8.1 billion available for construction is limited to not more than 50 percent of the cost of building the system. Existing law related to public finance (Section 1 of Article XVI of the California Constitution) authorizes the Legislature to reduce the amount of indebtedness approved by the people in bond acts to an amount not less than the amount contracted at the time of the reduction. Alternatively, the Legislature may repeal the law if no debt has yet been contracted. This bill reduces the amount of indebtedness authorized by the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century to the amount contracted as of January 1, 2012, thus precluding the generation of additional bond funds for the high-speed rail project after January 1, 2012. COMMENTS: 1. Purpose . The author states that in 2008, a slim margin of voters authorized the $9.95 billion bond to construct a high-speed rail system in California. The author further states that, while the voters approved the bond, they did so with limited information about the overall cost of the project, the cost of tickets, and train travel time versus air travel time. The author states that the overall cost of the project has risen from the original $33 billion projection to $42 billion now, with reports of higher future projections. The author also states that the project would result in widespread use of eminent domain in both rural and urban areas and the construction of large infrastructure that would disrupt SB 22 (LA MALFA) Page 3 communities. 2. Passage of Proposition 1A in 2008 . The voters of California approved Proposition 1A with 52.7% of the vote. Support for the measure was concentrated in the coastal counties of California, with a few exceptions. The counties that supported the measure were Alameda, Contra Costa, Fresno, Imperial, Los Angeles, Marin, Mendocino, Merced, Monterey, Napa, San Benito, San Francisco, San Joaquin, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, and Yolo. 3. Concerns regarding the HSRA project . Since the passage of Proposition 1A, interested parties have raised concerns about some of the activities of the HSRA. The University of California's Institute of Transportation Studies reported that the HSRA used an unreliable model to forecast ridership. The California State Auditor reported that the HSRA has made payments that did not reflect the terms of its agreements, thus risking its ability to hold contractors accountable for their performance. The California High-Speed Rail Peer Review Group reported that the HSRA needs to conduct more detailed and transparent analyses of risk based on variations in revenues, costs, and timing, because the lack of a clear financial plan is a critical concern. 4. High-Speed Rail Authority 2009 Business Plan . The 2009 Business Plan, the most recent business plan proposed by the HSRA, assumed sources of funding for Phase I of the project to be $19 billion from federal grants, $9 billion from state bonds, $5 billion from local grants, and $12 billion from private investment. The HSRA is required to present an updated business plan to the Legislature in October 2011. While federal money that has already been designated for high-speed rail will remain designated, the future of federal funds for high-speed rail is uncertain because of current federal budget deliberations. 5. Federal funding to date . In January 2010, the HSRA received an American Recovery and Reinvestment Act (ARRA) grant of $2.25 billion to aid in the development of the Phase I project. Of that amount, $400 million is for constructing the basement of the new Transbay Terminal in San Francisco to accommodate high-speed trains. According to the Federal Railroad Administration (FRA) announcement of its ARRA award, the SB 22 (LA MALFA) Page 4 remaining $1.85 billion is for purchasing right-of-way, constructing tracks, signaling systems, and stations, and completing environmental reviews and engineering documents for the Los Angeles/Anaheim segment, the San Francisco/San Jose segment, the Fresno/Bakersfield segment, and the Merced/Fresno segment. The only segment not included is Bakersfield- Palmdale-Los Angeles. In a second round of federal funding the HSRA received approximately $1.3 billion. The HSRA is seeking $2.4 billion in the third round of federal funding, federal money that Florida declined to accept. 6. Bonds sold to date . According to the State Treasurer's office, the amount of bond money appropriated to the project, to date, is about $410 million. Thus, the state is currently obligated on debt service for this amount. According to the Legislative Analyst Office, if proposed 2011-12 funds are appropriated, then the total bond appropriation for high-speed rail would be $676 million. As additional federal funds are appropriated, general obligation bond sales will be necessary to match the federal funds. If the state does not match the federal funds, the state may risk losing them. 7. Bond funds for intra-city rail improvements . If bond funds stop being appropriated on January 1, 2012, this raises the question of what would happen to $950 million designated in Proposition 1A for improving intra-city and commuter rail. This money is overseen by the California Transportation Commission and allocated to local operators and Caltrans as matching funds for projects. 8. A bill to propose a new vote by the people . Rather than act upon the privilege of the Legislature to reduce the amount of indebtedness approved by the people in bond acts, the author may wish to propose a bill that would give the voters of California another chance to vote on the high-speed rail project. 9. Related legislation . AB 76 (Harkey) of 2011 had identical provisions to SB 22. It failed passage in the Assembly Transportation Committee on April 4, 2011 by a 4 to 9 vote. POSITIONS: (Communicated to the Committee before noon on SB 22 (LA MALFA) Page 5 Wednesday, April 27, 2011) SUPPORT: Howard Jarvis Taxpayers Association OPPOSED: American Council of Engineering Companies of California Association for California High Speed Trains California Labor Federation California Public Interest Research Group Planning and Conservation League Sierra Club California State Building and Construction Trades Council of California