BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1889


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          (Without Reference to File)

          CONCURRENCE IN SENATE AMENDMENTS
          AB  
          1889 (Mullin)


          As Amended  August 19, 2016


          Majority vote


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          |ASSEMBLY:  |79-0  |(May 5, 2016)  |SENATE: |25-12 |(August 25,      |
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          |COMMITTEE VOTE: |10-5 |(August 31,     |RECOMMENDATION:   |concur     |
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          Trans. 




          Original Committee Reference:  L. GOV.










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          SUMMARY:  Defines the terms "suitable and ready for high-speed  
          train operation."


          The Senate amendments delete the Assembly version of the bill  
          and instead:


          1)Outline the history of the California High-Speed Rail Program,  
            including funding and acts of the Legislature.  


          2)Declare the intent of the Legislature in appropriating funds  
            for the "Bookend" projects that the projects should proceed to  
            construction in the near term and the investments are  
            consistent with Proposition 1A of 2008.


          3)Declare the intent of the Legislature that nothing in the bill  
            relives the California High-Speed Rail Authority (Authority)  
            of any requirements of Proposition 1A, including the  
            development of a funding plan for the use of bond funds. 


          4)Declare that the bill clarifies that early investments in the  
            Bookends and elsewhere along the system as defined in SB 1029  
            (Budget and Fiscal Review Committee), Chapter 152, Statutes of  
            2012, are consistent with the intent of the Legislature in  
            appropriating the funding and consistent with Proposition 1A.   



          5)Define, for the purposes of a funding plan required by  
            Proposition 1A, that a corridor or usage segment thereof be  
            "suitable and ready for high-speed train operation," for the  
            use of bond funds, as appropriated in SB 1029, to mean a  
            project that would enable high-speed trains to operate  
            immediately or after additional planned investments are made  
            on the corridor or usable segment thereof and passenger train  
            service providers will benefit from the project in the  
            near-term.









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          6)Requires the Authority to include information in the Business  
            Plan and Project Update Report describing the use of bond  
            proceeds appropriated for the Bookends demonstrating that the  
            investments made are consistent with the Authority's current  
            Business Plan and advance the development of the Phase I  
            blended system as described in the Business Plan.    


          EXISTING LAW:  


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


          2)Enacts the Safe, Reliable High-Speed passenger Train Bond Act  
            for the 21st Century (Proposition 1A of 2008), which  
            authorizes the sale of $9.95 billion in general obligation  
            bonds to partially fund the development and construction of  
            California's high-speed rail system and other passenger rail  
            systems in the state that will provide for connectivity to the  
            high-speed system.  


          3)Continuously appropriates 25% of the cap and trade proceeds  
            annually from the Greenhouse Gas Reduction Fund to the  
            high-speed rail program. 


          4)Requires the Authority to prepare a business plan by March 1,  
            2014, and every two years thereafter that includes specific  
            requirements.


          5)Requires the Authority to develop a project update report on  
            March 1, 2017, and every two years thereafter that includes  
            specific requirements. 


          6)Appropriates $8 billion in federal and state funds to begin  








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            construction of the Initial Operating Segment (IOS) of the  
            high-speed rail system, the bookend projects as defined, and  
            the rail connectivity projects administered by the California  
            Transportation Commission, and requires funds to be encumbered  
            by June 30, 2018.   


          7)Defines the "Bookend" projects as early improvements for the  
            Phase I Blended system as outlined in the Authority's 2012  
            Revised Business Plan and agreements with local transportation  
            agencies in Northern and Southern California.


          8)Prohibits appropriated funds for the San Francisco to San Jose  
            corridor to be spent on a 4-track system.


          9)Requires the Authority, prior to seeking an appropriation of  
            bond funds for a specific corridor or usable segment, to  
            submit a detailed funding plan, with specific requirements, to  
            the Director of Finance, the High-Speed Rail Peer Review  
            Group, and the Legislature.


          10)Requires the Authority, prior to committing bond funds for  
            construction and real property and equipment acquisition for a  
            specific corridor or usable segment that has been  
            appropriated, to submit a detailed funding plan, with specific  
            requirements, to the Director of Finance and the Joint  
            Legislative Budget Committee. 


          11)Requires the Authority, in conjunction with the funding plan  
            prior to committing bond funds, obtain a report or reports by  
            one or more independent financial consulting firms that  
            includes an analysis on a number of elements, including  
            whether the corridor or usable segment will be suitable and  
            ready for high-speed train operation upon completion of  
            construction.


          12)Requires the Director of Finance to approve the funding plan,  








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            with the abovementioned reports included, prior to the  
            Authority entering any commitments to expend bond funds for a  
            specific corridor or usable segment. 


          AS PASSED BY THE ASSEMBLY, this bill deleted obsolete provisions  
          of law creating the Peninsula Rail Transit District.


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, this bill has potential accelerated expenditure of  
          $1.1 billion in previously-appropriated bond funds, relative to  
          current law (High-Speed Passenger Train Bond Fund).  This bill  
          would explicitly allow for expenditure of bond funds in the  
          near-term for projects that benefit passenger train service  
          without providing all necessary funding for investments in a  
          usable segment that would be necessary for the immediate  
          operation of high-speed trains.  Absent this bill, these funds  
          may not be available for project expenditures prior to the  
          expiration of the June 30, 2018, encumbrance limitation tied to  
          the previous appropriation of bond funds.


          COMMENTS:  The Authority was created in 1996 to direct  
          development and implementation of intercity high-speed rail  
          service in California that would be fully coordinated with other  
          public transportation services.  In 2008, voters approved the  
          Safe, Reliable High Speed Passenger Train Bond Act for the 21st  
          Century (Proposition 1A), which authorized $9.95 billion in  
          general obligation bonds to develop and construct a high-speed  
          rail system connecting San Francisco Transbay Terminal to Los  
          Angeles Union Station and Anaheim, and for connecting intercity  
          and commuter rail systems that would enhance those systems'  
          capacity, safety, or connectivity to the high-speed rail system.  
           Proposition 1A prescribes specific design and funding  
          requirements for the high-speed rail system, and lays out  
          specific requirements the Authority must meet in order to access  
          and spend the bond funds, including submission of detailed  
          funding plans to the Legislature and Department of Finance, with  
          independent financial review.  










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          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.  In November 2011, the Authority  
          released a Business Plan, as called for in Proposition 1A, with  
          an estimated cost of $98 billion.  The Authority revised the  
          Business Plan in April 2012 to build the project "better,  
          cheaper, faster."  The Revised Business Plan reduced the cost  
          estimate to $68 billion by utilizing the "blended system," or  
          integrating high-speed rail by sharing tracks with existing rail  
          systems in the San Jose/San Francisco segment and the Los  
          Angeles/Anaheim segments.  Additionally, the Authority proposed  
          making near-term investment in the Bookends in the Bay Area and  
          Los Angeles to produce "immediate benefits and enhance the  
          ultimate utility of high-speed rail."  The current 2016 Business  
          plan estimates the cost of the system at $64 billion.  


          In July 2012, the Legislature approved SB 1029 which  
          appropriated roughly $8 billion in federal and state funds to  
          begin the construction of the IOS, fund the bookends and  
          connectivity projects, and continue work on other high-speed  
          rail segments, as outlined in the 2012 Revised Business Plan.   
          Specifically, SB 1029 appropriated $1.1 billion of Proposition  
          1A funds for improvements in the Bookends.  Specifically, $600  
          million was dedicated to the electrification of the Caltrain  
          system in the San Francisco Bay Area, and $500 million to fund  
          projects in the Los Angeles Basin as reflected in the 2012  
          Memorandum of Understanding (MOU) signed with the Southern  
          California Association of Governments (SCAG) and its regional  
          transportation members.  SB 1029 requires that all funding  
          provided be encumbered by July 30, 2018. 


          Prior to spending any bond funds, Proposition 1A requires the  
          Authority to submit a detailed funding plan, referred to as  
          Funding Plan (d), to the Department of Finance and the  
          Legislature.  Funding Plan (d) must include specific details  
          about the corridor or usable segment.  An additional report to  
          accompany Funding Plan (d) must be completed by an independent  








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          financial services firm confirming the contents of the plan and  
          that the corridor or usage segment thereof would be suitable and  
          ready for high-speed train service, one or more passenger  
          providers could begin using the tracks or stations for passenger  
          train service, the planned passenger train service to be  
          provided by the Authority, or pursuant to its authority, will  
          not require an operating subsidy, and an assessment of risk.   
          The funding plan must be reviewed by the Director of Finance and  
          the Joint Legislative Budget Committee and the Director of  
          Finance has 60 days to approve the plan.  


          The Authority awarded a contract in November 2015 for  
          independent financial services to provide an independent review  
          of the funding plan.  Whether or not the firm will find that the  
          system can operate without a subsidy is uncertain.  Furthermore,  
          based on experiences with Funding Plan (c), it is likely the  
          merits of Funding Plan (d) will be litigated.  If there is  
          litigation, the Authority's ability to use the bond proceeds for  
          the high-speed rail project and the Bookends will likely be  
          delayed until the lawsuit is resolved.  


          Caltrain's Peninsula Corridor Electrification Project (PCEP) is  
          ready to move forward with construction.  In fact, in July, the  
          Caltrain Board of Directors approved $1.25 billion in contracts  
          to begin work, issuing a limited motion to proceed.   
          Additionally, in August, the Authority Board of Directors  
          approved a Caltrain corridor plan, including environmental  
          findings and funding agreements to proceed with the project.  In  
          addition to the $600 million from Proposition 1A bond funds  
          appropriated for the PCEP, the Authority committed an additional  
          $113 million from other state funding sources.  The Authority  
          estimates that Caltrain will need $117 million for the project  
          for the next fiscal year.  


          This bill would define, for the purposes of Funding Plan (d),  
          that a corridor or usable segment is "suitable and ready for  
          high-speed train operation," if the bond funds are used for  
          capital projects that would enable high-speed trains to operate  
          immediately or after additional planned investments are made on  








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          the corridor or usable segment and passenger train service  
          providers will benefit from the project in the near-term.   
          Additionally, this bill further declares the intent of the  
          Legislature that early investments in the Bookends and other  
          parts of the system, as outlined in the appropriation in SB  
          1029, is consistent with Proposition 1A.  


          According to the author, this bill provides the necessary  
          conforming statutory changes to provide more expeditious access  
          to Proposition 1A bond proceeds for the Caltrain electrification  
          project in the Bay Area, bookend projects in Southern  
          California, and California High-Speed Rail construction in the  
          Central Valley, consistent with funding provided for those  
          projects with the enactment of SB 1029.  Additionally, the  
          author states that in making the appropriation, the Legislature  
          directed the Authority to make these early investments in the  
          Phase 1 Blended system, and that this bill is necessary to  
          expedite the availability to Proposition 1A bond funds for these  
          projects.  In writing in support of the bill, the Santa Clara  
          County Board of Supervisors notes that while these early  
          investments would benefit the existing Caltrain and Metrolink  
          commuter rail services immediately, high-speed trains are not  
          expected to operate in the Peninsula Corridor or in the Los  
          Angeles Basin until sometime in the future.  The Board further  
          states that the bill is consistent with the Legislature's intent  
          when it appropriated $1.1 billion for Bookend projects in SB  
          1029, including the electrification of the Peninsula Corridor. 


          Committee Comments:  The intent of the author and sponsor of  
          this bill is to expedite the spending of Proposition 1A bond  
          funds for the Bookend projects as appropriated by the  
          Legislature in 2012.  However, it is unclear whether this bill  
          would have the desired effect.  Prior to expending bond funds,  
          the Authority must submit the required Funding Plan (d) and the  
          independent financial review and certification of that plan.   
          Although the Authority has retained an independent firm, it is  
          unclear when a funding plan will be submitted for review and  
          approval, and what portions of the overall project would be  
          covered.  As previously mentioned, Funding Plan (c), submitted  
          to the Legislature prior to the appropriation, was litigated  








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          after SB 1029 was approved 2012.  The Authority eventually  
          prevailed in 2014.  It is expected that Funding Plan (d) will  
          also face litigation.  In writing in opposition to the bill, the  
          Transportation Solutions Defense and Education Fund contends  
          that the Legislature may not unilaterally change the terms of a  
          bond measure, as understood and approved by the voters, by  
          changing the meaning of a material term in the measure presented  
          to the voters.     


          When the Authority submits a Funding Plan (d) for the Caltrain  
          project, or any other corridor or usable segment, such as  
          projects in the Southern Bookend or the initial construction in  
          the Central Valley, is will likely face litigation.  This bill  
          could serve to provide a court with additional understanding of  
          the intent of the Legislature when appropriating Proposition 1A  
          funds, but it will likely not help avoid litigation all  
          together.  As previously mentioned the appropriations authority  
          provided for in SB 1029 expires on July 30, 2018, and if the  
          bonds funds are not encumbered by that time, the Legislature  
          would need to revisit and re-appropriate funds in the future.


          Analysis Prepared by:                                             
                          Melissa White / TRANS. / (916) 319-2093  FN:  
          0005030