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.  




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          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 




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          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 




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          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 




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          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