BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2847


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          Date of Hearing:  April 18, 2016


                        ASSEMBLY COMMITTEE ON TRANSPORTATION


                                 Jim Frazier, Chair


          AB 2847  
          (Patterson) - As Amended April 11, 2016


          SUBJECT:  High-Speed Rail Authority: reports


          SUMMARY:  Adds additional required elements for inclusion in the  
          California High-Speed Rail Authority's (Authority) Business Plan  
          and Project Update Report.   Specifically, this bill:  


          1)Requires the Authority to include projected financing costs,  
            for a proposed segment or combination of segments, in the  
            business plan.


          2)Requires the Authority to identify any significant changes in  
            scope for segments identified in the previous business plan or  
            project update report, and provide an explanation of  
            adjustments in cost and schedule attributable to those  
            changes. 


          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.  








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          2)Enacts the Safe, Reliable High-Speed Passenger Train Bond Act  
            for the 21st Century (High-Speed Rail Bond Act).  The  
            High-Speed Rail Bond Act, approved as Proposition 1A in  
            November 2008, provides $9.95 billion in general obligation  
            bond authority to fund the planning and construction of a  
            high-speed passenger train system and complementary  
            improvements to other specified rail systems in the state.  
          3)Continuously appropriates 25% of the state's cap and trade  
            program funds for the high-speed rail project.


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

             a)   The types of services it expects to develop and a  
               chronology for construction; 

             b)   A forecast of the expected patronage, service level, and  
               operating and maintenance costs for Phase I of the system;

             c)   Alternative financing scenarios for different levels of  
               service;

             d)   Expected schedule of completing environmental review and  
               initialing and completing construction for segments of  
               Phase I;

             e)   An estimate, description, and confidence level of the  
               total anticipated federal, state, local and other funds; 

             f)   Any written agreements with public and private entities  
               to fund components of the system;

             g)   Alternative public-private development strategies for  
               Phase I; and,

             h)   Risks associated with construction, technology,  
               financing and other aspects of the project, and the  








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               Authority's strategy for managing risks.  

          5)Requires the Authority to prepare a Project Update Report on  
            March 1, 2017, and every two years thereafter that includes:

             a)   A summary of the progress on the project;

             b)   The baseline budget for all project phase costs by  
               segment or contract;

             c)   The current and project budget for all project phase  
               costs;

             d)   All expenditures to date for all project costs;

             e)   A comparison of the current  and projected work schedule  
               and the baseline schedule contained in the Revised 2012  
               Business Plan;

             f)   A summary of milestones achieved during the prior  
               two-year period and ones expected in the future;

             g)   Any issues identified in the prior two year period and  
               actions taken to address them; and,

             h)   A discussion of risks to the projects and steps taken to  
               mitigate them.  



          FISCAL EFFECT:  Unknown
          COMMENTS:  On February 18, 2016, the Authority released its  
          Draft 2016 Business Plan, which signaled a major shift in its  
          proposed planning and construction of the high-speed rail  
          system.  Rather than pursue a south-oriented Initial Operating  
          Segment (IOS) from the City of Merced in the Central Valley  
          through the Tehachapi Mountains to the San Fernando Valley in  
          Los Angeles County, the Authority is now proposing a  
          north-oriented IOS, from the Central Valley to San Jose.  The  








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          Authority also updated its plans, cost estimates, and schedule  
          for the remainder of Phase I (San Francisco to Los  
          Angeles/Anaheim by 2029) and eventually Phase II (Sacramento and  
          San Diego).  





          On March 17, 2016, the Legislative Analyst Office's (LAO)  
          released a report, "Review of the High-Speed Rail Draft 2016  
          Business Plan."  The LAO recommended additional items that could  
          be added to the business plan to better inform the Legislature  
          and help maintain oversight of the project.  AB 2847 will  
          implement these recommendations.  Specifically, AB 2847 will add  
          some new requirements for the Authority to include in both the  
          biennial business plan and project update report. 


          According to the author, AB 2847 will improve the quality of  
          information reported to the Legislature so that oversight can  
          actually be provided in a meaningful way and track the accuracy  
          and ability of the Authority to stay within a budget over time.   
          He further states that to expand the type of costs that are  
          reported to the Legislature so that an accurate and complete  
          picture of the costs to construct the high-speed rail project  
          can be better understood not only for policymakers, but for the  
          people who are paying for this project.





          Specifically, the Authority would be required to identify any  
          significant changes in scope of segments described in previous  
          reports and provide an explanation of any adjustments of costs  
          and schedule attributable to the changes.  The LAO notes that  
          "the information provided by HSRA [High-Speed Rail Authority] in  
          the business plan and other documents can be difficult to  








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          compare over time."  The LAO cites a specific example, "since  
          beginning work on the ICS [initial construction section], the  
          scope, cost, and schedule of the project has changed, making it  
          difficult to determine how well HSRA is adhering to the budget  
          for that segment.  The length of the ICS  was reduced to 118  
          miles from 130 miles.  The projected cost of the ICS assumed in  
          the draft 2016 business plan is $7.3 billion, compared to the  
          initially planned $5.9 billion cost. However, based on the  
          information provided by HSRA, it is difficult to determine the  
          extent to which the change in costs is related to the changes in  
          scope or other factors."  Essentially, if the scope of project  
          segments change from one report to the next, it is impossible to  
          make an "apples-to-apples" comparison of costs and schedule and  
          to identify any concerns or trends.  





          Second, AB 2847 requires the Authority to include all projected  
          finance costs, for any financing proposed for a segment or  
          combination of segments.  The main funding source for the  
          project is $9 billion in general obligation bonds approved by  
          the voters in Proposition 1A.  At the time of the passage of the  
          proposition, the LAO noted that debt service on the bonds would  
          be roughly $19.4 billion or $647 million per year over 30 years.  
           Additionally, the Draft 2016 Business Plan proposes to fund  
          part of the IOS by financing future cap and trade proceeds  
          continuously appropriated for the project.  Specifically, $5.2  
          billion would be generated by utilizing some type of financing  
          mechanism, possibly revenue bonds or federal loans, to be paid  
          back over 25 years.  Providing detailed information about  
          financing costs will help the Legislature understand the  
          complete funding picture.  













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          The business plans and the project updates reports are the  
          Legislature's, and the public's, most complete source of  
          information about the high-speed rail project.  The state,  
          through a voter approved initiative and appropriations, have  
          committed billions of dollars in public resources to this  
          endeavor.  Requiring the Authority to include more details of  
          scope, schedule and financing costs in these reports will help  
          ensure that future decisions about the oversight, management,  
          and funding of the project are made by a fully informed  
          Legislature and public.     





          Previous legislation:  AB 528 (Lowenthal), Chapter 237, Statutes  
          of 2013, added new elements to the California state rail plan  
          and the Authority's business plan.  


          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          None on file




          Opposition










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          None on file




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