BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 733
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Galgiani
VERSION: 2/26/09
Analysis by: Art Bauer FISCAL: yes
Hearing date: July 7, 2009
SUBJECT:
High-speed rail
DESCRIPTION:
This bill makes the number of jobs created in California a
criterion for awarding contracts to suppliers of equipment to
the High-Speed Rail Authority (HSRA).
ANALYSIS:
Existing law:
1. Creates the California 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.
2. Authorizes the HSRA to develop a high-speed rail system
extending from San Diego to Sacramento with Phase I being
between Anaheim-Los Angeles Union
Station-Bakersfield-Fresno-San Jose-San Francisco Transbay
Terminal. Proposition 1A, the Safe, Reliable High-Speed
Passenger Train Bond Act for the 21st Century, approved by
the voters last November, provides up to $9 billion for the
development of the high-speed rail system.
3. Limits the expenditure of bond revenues for the
construction of the high-speed rail system to not more than
50 percent of the cost of building the system.
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4. Requires that 90 days prior to submitting to the
governor an initial request for an appropriation of bond
proceeds for capital expenditures, the HSRA shall convene a
peer review committee to review the detailed funding plan
for the proposed project.
5. Authorizes the HSRA to enter into contracts with private
or public entities for the design, construction, and
operation of high-speed trains.
This bill authorizes the HSRA to consider the creation of jobs
in California when awarding major contracts or purchasing
high-speed trains and related equipment and supplies, to the
extent permitted by federal law and other state laws.
COMMENTS:
1. Purpose . According to the author, this bill seeks to
maximize the number of California-based jobs that will be
created by the construction of the high-speed train project
as a means to improve and strengthen the California economy
and job base. The bill achieves this by encouraging the
HSRA to give preference when awarding contract to suppliers
that will manufacture their products in California. Keeping
existing employment and businesses and growing California's
job base and economic activity will help the state meet its
service and infrastructure needs for the future. The
author argues, "To the extent allowed by law, the state of
California should undertake any actions that will create
job growth and provide a stimulus to the economy."
2. Buy California will it work ? This is essentially a Buy
California requirement. Federal law has subjected the
public transit sector to Buy America requirements for many
years. This program has not always worked as desired. For
example, Pittsburgh, Pennsylvania awarded a contract to a
German manufacturer under the federal Buy America for light
rail cars but the manufacturer decided to import their
workers from Germany to do the final assembly of the
vehicles. The reason for this was that the size of the U.S.
market was difficult to discern, and it was unclear whether
the cost of training employees would be rewarded with other
contract opportunities. A light rail car market has emerged
and some foreign manufacturers have established facilities
to do the final assembly of the vehicles in the U.S.,
including in Sacramento. Often certain components not
AB 733 (GALGIANI) Page 3
central to the electro-mechanical systems, such as air
conditioners, directional signage and other "add ons" are
purchased from U.S. suppliers.
High-speed rail rolling stock and the related electrical
systems are very complex, technical systems and are much
more complex systems than light rail vehicles. Thus, the
manufacturing and final assembly is not easily exportable.
Moreover, if California is the only market for the
high-speed rail that has a top speed of approximately 200
miles per hour in the country, no strong incentive exists
to construct production facilities in the state. Finally,
Buy California provisions may be inconsistent with federal
law governing domestic content of public works projects
that are partially federal funded.
3. Buy California may be inconsistent with HSRA
implementation strategies . Although the HSRA has yet to
explain fully its strategy for implementing the high-speed
train project, the existing law provides that one strategy
may involve a public-private partnership to construct,
finance, and operate the project. Because Proposition 1A
requires that bond revenues cover only 50 percent of the
capital costs and prohibits the use of local, state, or
federal funds for operating subsidies, the HSRA will likely
develop an implementation strategy that will be attractive
to private consortia of rolling stock manufacturers,
electrical system suppliers, construction firms, operating
firms, and financial institutions to develop the project.
In light of Proposition 1A's financing framework, the
decision on how to proceed with implementation will likely
be a business decision based on the economic viability of
the proposals. An evaluation including a Buy California
criterion could raise the cost to all bidders as they try
to meet the condition or result in the selection of a
consortium that strongly meets the Buy California standard,
but may be weaker in other respects. The development of a
public private partnership proposal will likely be
difficult even without special conditions related to
California purchases that this bill encourages.
4. High-speed rail project will create jobs . The number of
construction jobs created by a heavy engineering project
such as high-speed rail is assumed to be between 18,000 and
32,000 jobs for every $1 billion of expenditure. If it is
assumed that for every $1 billion of heavy construction
AB 733 (GALGIANI) Page 4
approximately 25,000 direct and indirect jobs are created,
the number of jobs create by the project could exceed
800,000. The high-speed rail project will have a very
beneficial effect on the construction sector of the
California's economy.
Assembly Votes:
Floor: 73-0
Appr: 16-0
Trans: 13-0
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
July 1, 2009)
SUPPORT: None received.
OPPOSED: None received.