BILL ANALYSIS Ó SB 517 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 517 (Lowenthal) - As Amended: June 30, 2011 Policy Committee: TransportationVote:9-3 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill restructures the governing board of the High-Speed Rail Authority (HSRA) and establishes conflict of interest restrictions on board members and authority employees and contractors. Specifically, this bill: 1)Places the HSRA within the Business, Transportation, and Housing (BT&H) Agency and requires the BT&H Secretary to propose the authority's annual budget in consultation with the authority. 2)Makes the following changes to the authority board composition: a) Expands the board from nine to 10 members by adding the BT&H Secretary as a non-voting member. b) Requires the governor's five appointees to be confirmed by the Senate and requires each to have a specified expertise: engineering, economics, environmental protection, project financing, and an attorney, respectively. c) Requires two of the four Senate and Assembly appointees to represent organized labor. d) Provides the terms of all current board members expire on January 1, 2012, and establishes one- to four-year terms, as specified, for each of the new appointees. 3)Prohibits anyone holding elected or appointed office from SB 517 Page 2 becoming a board member. 4)Prohibits, from becoming a board member or an employee of the authority, anyone who received a substantial portion of their income in the previous two years from a firm either under contract with the HSRA or that supplies or builds rolling stock or other equipment particular to high-speed rail systems, and prohibits former board members from being employed by such firms for two years after leaving the board. 5)Prohibits a board member or employee from participating in decisions in which the member, their spouse, minor child, or partner has had a financial interest within two years of the member's or employee's appointment. 6)Requires the authority's the executive director to be confirmed by the Senate, and requires the executive director's employment agreement not be executed prior to Senate confirmation. FISCAL EFFECT 1)Given the size and complexity of the significant issues involved with the high-speed rail project, BT&H would likely require at least a deputy secretary or assistant deputy secretary position at an annual cost of around $150,000 (bond funds). 2)By adding another layer of bureaucracy between the authority and the governor and Legislature, HSRA believes the bill would create inefficiencies and resulting staffing pressures and delays in developing policies, submitting budgetary documents, and approving reports. To the extent this additional coordination resulting in staffing demands equivalent to one position, annual costs to the HSRA would be around $80,000 (bond funds). COMMENTS 1)Purpose . The HSRA was established by SB 1420 (Kopp)/Chapter 796 of 1996. Its chief responsibility at that time was to plan for a high-speed train network. Today, the authority's responsibility is to implement the plan. The initial phase of the project is currently estimated to cost $43 billion, though recent estimates have increased this cost by several billion SB 517 Page 3 dollars. Voters approved $9 billion in state general obligation bonds for the project, and the federal government has approved an additional $3 billion. The author introduced SB 517 to incorporate the Authority into the structure of state government, ensure there is relevant expertise on the board to provide informed policy direction to the staff, and to reduce the likelihood of conflicts of interest by imposing incompatible office restrictions and pre- and post-employment restrictions. 2)Outstanding Issues . In its analysis of this bill, the Assembly Committee on Transportation raised the following concerns, which have not been addressed: a) Though the HSRA would be placed under the BT&H Agency, the executive director would continue to be appointed by the authority, which the analysis argued was incongruous with the enhanced oversight being provided by the agency secretary. The analysis suggested the governor appoint the executive director. b) The abrupt elimination of the entire board, and replacement with all new appointees could disrupt the project and cause delays. c) Reforming, though essentially maintaining the structure of the authority board, when the Legislative Analyst's Office (LAO) asserts in its recent report, High Speed Rail at the Critical Junction, "Ýa]n autonomous state operation does not seem to be a very good fit with the critical set of tasks now required to move forward with a high-speed rail project." The LAO suggests ceding day-to-day and strategic long-term project management decisions to Caltrans or a new state department would provide more accountability to the Administration and the Legislature. 3)Related Legislation . AB 145 (Galgiani), pending in Senate Appropriation, also moves the authority under the BT&H Agency. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081