BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1866


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          Date of Hearing:  April 4, 2016


                        ASSEMBLY COMMITTEE ON TRANSPORTATION


                                 Jim Frazier, Chair


          AB 1866  
          (Wilk) - As Introduced February 10, 2016


          SUBJECT:  High-speed rail bond proceeds:  redirection:  water  
          projects


          SUMMARY:  Directs that a referendum be placed on the ballot  
          related to high-speed rail bonds.     Specifically, this bill:  


          1)Directs the Secretary of State to put on the November 2016  
            general election ballot a measure which, if approved, would:

             a)   Prohibit further issuance and sale of any authorized  
               bonds for high-speed rail, except for early improvement  
               projects (a.k.a. bookend projects) in the Phase 1 blended  
               system for which appropriations have already been made.  

             b)   Redirect the proceeds of any outstanding bonds issued  
               and sold, except for those related to the bookend projects,  
               to debt retirement.  

             c)   Reauthorize the issuance and sale of any unissued bonds,  
               upon appropriation by the Legislature, to fund the  
               construction of water capital projects, including the  
               construction of desalination facilities, wastewater  
               treatment and recycling facilities, reservoirs, water  
               conveyance infrastructure, and aquifer recharge. 








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          2)Does not affect the authorization of $950 million in bonds for  
            connectivity projects.  

          3)Is an urgency measure.

          EXISTING LAW: 


          1)Establishes the California High-Speed Rail Authority  
            (Authority) and vests with it the responsibility to develop  
            and implement a high-speed rail system in California.  

          2)Authorizes the sale of $9 billion in general obligation bonds  
            to partially fund the development and construction of  
            California's high-speed rail system.  

          3)Authorizes the expenditure of an additional $950 million in  
            general obligation bonds for capital projects on other  
            passenger rail lines to provide connectivity to the high-speed  
            rail system as well as for capacity enhancements and safety  
            improvements to those lines.  

          4)Requires the Authority to complete and submit to the  
            Legislature funding plans and financial analyses prior to  
            requesting an appropriation of bond funds for eligible capital  
            costs and prior to committing bond proceeds for expenditure  
            for construction and real property and equipment acquisition.   


          5)Appropriates $1.1 billion of the $9 billion in high-speed rail  
            bonds for use on bookend projects.  
          FISCAL EFFECT:  According to the Authority, $1.027 billion in  
          Proposition 1A bonds have been issued to date.  Of that total,  
          $444.9 million (of $9 billion) have been issued for the  
          high-speed rail project and $581.8 million (of $950 million)  
          have been issued for connectivity projects.  








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          COMMENTS: In 2008, voters approved Proposition 1A, the Safe,  
          Reliable, High-Speed Passenger Train Bond Act, a $9.95 billion  
          general obligation bond to fund the proposed California  
          high-speed rail project and related improvements.  As envisioned  
          at the time of the ballot measure, the project was to consist of  
          an 800-mile dedicated high-speed passenger rail system capable  
          of speeds up to 220 miles per hour, initially serving the major  
          metropolitan market of San Francisco through the Central Valley  
          into Los Angeles and Anaheim (Phase 1) with service eventually  
          extended to Sacramento, the Inland Empire, and San Diego (Phase  
          II).  


          When the bonds were approved in 2008, costs for the entire  
          project were estimated to be 
          $45 billion, to be paid by a mix of state bonds, federal grants,  
          and private investments.  Since then, estimated costs for the  
          project have risen markedly.  The Authority's most recent  
          business plan estimates costs for Phase 1 to be $64 billion  
          using the blended approach of relying in part on existing tracks  
          in the Bay Area and parts of Los Angeles.  Furthermore, federal  
          contributions to date are limited to $3.3 billion and there have  
          been no private investments.  

          In 2012, the Legislature passed and the Governor signed SB 1029  
          (Committee on Budget and Fiscal Review), Chapter 152, Statutes  
          of 2012, to appropriate $8 billion to the Authority 
          ($4.7 billion in Proposition 1A state bond funds and $3.3  
          billion in federal funds) to initiate construction of the  
          high-speed rail project.  This amount included $1.1 billion of  
          Proposition 1A bond funding for the bookend projects in the San  
          Francisco Peninsula and the Los Angeles Basin.  

          In February, the High-Speed Rail Authority released the Draft  
          2016 Business Plan which switched the focus of the Initial  
          Operating Segment (IOS) from the LA Basin to Northern California  
          with a terminus in San Jose.  The business plan also adjusted  
          the cost estimates for Phase I down to from $68 billion to $64  








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          billion. 

          Two relevant court cases were litigated in 2013 regarding  
          issuance of Proposition 1A bonds.  Specifically, one case  
          challenged the funding plan that submitted to the Legislature  
          prior to the appropriation as required by Proposition 1A.  The  
          lower court found that the plan did not meet the requirements  
          set forth in Proposition 1A.  However, the appellate court found  
          that the purpose of the funding plan was to inform the  
          Legislature and if the Legislature acts on the plan, the plan is  
          presumed to have been sufficient.  Additionally, the Authority  
          filed a validation suit to clear any potential legal hurdles to  
          issuance of the Proposition 1A bonds.  The lower court ruled  
          against the Authority noting that the Authority had not met the  
          legal standards for issuing taxpayer bonds.  The ruling was  
          overturned by the California Supreme Court and the lower court  
          was directed to issue an order validating the issuance of the  
          bonds.  

          With the continued threat of litigation on the issuance and  
          expenditure of the Proposition 1A bonds, the funds approved by  
          the voters remain in question.  To begin construction work in  
          the Central Valley and move forward on the other project  
          sections, the Authority renegotiated its funding agreement with  
          the federal government to allow a "tapered match"-i.e., to allow  
          federal dollars to be spent first and state matching dollars to  
          be spent later.  Additionally, the 2014-15 state budget SB 862  
          (Committee on Budget and Fiscal Review), Chapter 36, Statutes of  
          2014, continuously appropriated 25% of the revenues derived from  
          the state's cap and trade program to the project.  This equates  
          to roughly $500 million annually.    

          The author introduced AB 1866 because "the ability to meet the  
          water needs of existing and future Californians is not only  
          dependent on our available supplies, but also on the  
          implementation of new programs to collect, store, treat and  
          delivery water to people."  The author sites recent studies by  
          the U.S. Environmental Protection Agency (EPA) that showed  
          California ranks number one in water infrastructure needs in the  








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          nation and that California could use an estimated $44.5 billion  
          in the next two decades to fix our aging water systems.  He  
          states that, "AB 1866 would repurpose $8 billion for such  
          programs which no one can deny are vital to the overall quality  
          of life for all Californians."      

          Committee concerns:  The release of the business plan signaled a  
          more concrete funding plan for the development of the IOS.   
          However, the Authority continues to face funding and legal  
          challenges and their outcomes are unclear.  The high-speed rail  
          project is under construction and proceeding and its unsteady  
          beginning is not without precedent among mega-projects.  While  
          the project is not progressing as smoothly as hoped, it is  
          progressing and is better off today than it was when the  
          Legislature committed to the project.  

          Stopping the project now by redirecting the bonds will cause  
          hundreds of millions of dollars of work and study to be wasted.   
          The Legislature should continue its stringent oversight of the  
          project and work to improve its likelihood of success. 
           
           Double referral:  This bill will be referred to the Assembly  
          Water, Parks and Wildlife Committee should it pass out of this  
          committee.

          Related legislation: AB 2049 (Melendez), requires the Secretary  
          of State to put on the November 2016 general election ballot a  
          legislative referendum which, if approved by the voters, would  
          prohibit the sale of any additional high-speed rail bonds and  
          authorize the remaining bonds be issued to fund the construction  
          of the SHOPP, STIP, and TCIF.  This bill is set for hearing in  
          this committee on April 11, 2016.

          AB 1768 (Gallagher), requires the Secretary of State to put on  
          the November 2016 general election ballot a legislative  
          referendum which, if approved by the voters, would prohibit the  
          sale of any additional high-speed rail bonds and authorize the  
          remaining bonds be issued to fund the SHOPP.  This bill is set  
          for hearing in this committee on April 11, 2016.








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           Previous legislation:  AB 6 (Wilk), would have required the  
          Secretary of State to put on the November 2016 general election  
          ballot a legislative referendum which, if approved by the  
          voters, would prohibit the sale of any additional high-speed  
          rail bonds and authorize the remaining bonds be issued to fund  
          the construction of school facilities for K-12 and higher  
          education. AB 6 failed passage in this committee on April 20,  
          2015.

          AB 397 (Mathis), would have required the Secretary of State to  
          put on the November 2016 general election ballot a legislative  
          referendum which, if approved by the voters, would prohibit the  
          sale of any additional high-speed rail bonds and redirect the  
          authorize the remaining bonds be issued to fund the construction  
          of water capital projects.  AB 397 failed in this committee on  
          April 27, 2015 and was granted reconsideration. It failed on  
          reconsideration on January 11, 2016.   

          All of the following bills would have reduced the amount of  
          authorized indebtedness for the Authority:

          AB 2650 (Conway) of 2014, failed passage in the Assembly  
          Transportation Committee 

          AB 1501 (Patterson) of 2014, failed passage in the Assembly  
          Transportation Committee.
           
           SB 901 (Vidak) of 2014, failed passage in Senate Transportation  
          and Housing Committee.  

          AB 842 (Donnelly) of 2013, failed passage in the Assembly  
          Transportation Committee.  

          AB 1455 (Harkey) of 2012, failed passage in the Assembly  
          Transportation Committee;

          SB 22 (LaMalfa) of 2012, failed passage in the Senate  
          Transportation and Housing Committee;  








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          AB 76 (Harkey) of 2011, failed passage in the Assembly  
          Transportation Committee; and,

          AB 2121 (Harkey) of 2010, died in the Senate Rules Committee.  

          REGISTERED SUPPORT / OPPOSITION:




          Support


          Associated Builders and Contractors of California


          Howard Jarvis Taxpayer Association


          Southwest California Legislative Council


          Valley Ag Water Coalition




          Opposition


          California Conference of Machinists


          California Teamsters Public Affairs Council


          Sierra Club California









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          State Building and Construction Trades Council




          Analysis Prepared by:Melissa White / TRANS. / (916) 319-2093