BILL ANALYSIS �
AB 385
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 385 (Harkey) - As Amended: April 25, 2011
SUBJECT : High-Speed Rail: investment grade analysis
SUMMARY : Requires an investment grade analysis of the
high-speed rail system. Specifically, this bill :
1)Requires the High-Speed Rail Authority (Authority) to approve
and submit to the Department of Finance, the high-speed rail
peer group, and the Legislature an investment grade analysis
for a corridor or usable segment of the high-speed rail
system.
2)Requires the State Auditor to prepare the analysis and submit
it to the Authority.
3)Requires the analysis to include all of the following:
a) An identification of the corridor in which the Authority
is proposing to invest bond proceeds.
b) A description of the expected terms and conditions
associated with any lease agreement or franchise agreement
proposed to be entered into by the Authority and any other
party for the construction or operation of passenger train
service along the corridor.
c) The estimated full cost of constructing the corridor
including an estimate of cost escalation during
construction and appropriate reserves for contingencies.
d) The sources of all funds to be invested in the corridor,
the terms and conditions associated with these funds, and
the anticipated time of receipt of those funds based on
expected commitments, authorizations, agreements,
allocations, or other means.
e) The projected ridership and operating revenues,
operating expenses, and operating margin estimates based on
projected high-speed passenger train operations on the
corridor.
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f) The projected payment schedule to service all debt and
equity funds, including revenue guarantees or operating
subsidies, and an analysis of how these cash flow
requirements will be met by the estimated operating margin.
g) All known or foreseeable risks associated with the
construction and operation of high-speed passenger train
service along the corridor and the process and actions the
Authority will undertake to manage those risks.
h) A determination as to whether construction of the
corridor can be completed as proposed in the plan.
i) A determination as to whether the corridor would be
suitable and ready for high-speed train operation.
j) The extent to which the corridors include facilities
contained therein to enhance the connectivity of the
high-speed train network to other modes of transit,
including, but not limited to, conventional rail (intercity
rail, commuter rail, light rail, or other transit), bus
auto or air and the level of expenditures needed to make
them viable and cost effective.
aa) Over a 5-, 10-, 15-, 20-, and 25-year event
horizon, a description of anticipated ridership, ticket
prices, frequency of trains, and costs of operations and
maintenance, including how these prices would compare with
other transportation modes from a cost perspective, and
with a sensitivity to the environmental positives and
negatives when compared to transportation modes of the
future, such as future planes, automobiles, and buses based
on anticipated developments; also, the assumptions used to
develop the projections and demonstrate that these
assumptions have been carefully developed and evaluated to
produce the highest levels of confidence.
bb) The number and types of jobs projected to be
created during each year of the construction period showing
prescribed detailed information.
EXISTING LAW:
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1)Establishes the Authority and vests it with the authority and
responsibility to develop and implement a high-speed train
system within California.
2)Pursuant to Proposition 1A, as approved by the statewide
voters at the November 2008 general election, 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)Authorizes the Legislature to establish conditions and
criteria on the use of funds appropriated for planning and
capital costs; requires the Authority, prior to expending bond
funding for the construction and acquisition of equipment and
property, to submit concurrently to Department of Finance and
the Joint Legislative Budget Committee a detailed funding plan
for each corridor or usable segment.
4)Requires the Authority, at least 90 days prior to requesting
an initial appropriation of bond proceeds, to submit a
detailed funding plan for a corridor to include the following:
a) Identification of the corridor in which the Authority is
proposing to invest bond proceeds.
b) A description of the expected terms and conditions
associated with any lease agreement or franchise agreement
proposed to be entered into by the Authority and any other
party for the construction or operation of passenger train
service along the corridor.
c) The estimated full cost of constructing the segment,
including an estimate of cost escalation during
construction and appropriate reserves for contingencies.
d) The sources of all funds to be invested in the corridor
and the anticipated time of receipt of those funds based on
expected commitments, authorizations, agreements,
allocations, or other means.
e) The projected ridership and operating revenue estimate
based on projected high-speed passenger train operations on
the corridor.
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f) All known or foreseeable risks associated with the
construction and operation of high-speed passenger train
service along the corridor and the process and actions the
Authority will undertake to manage those risks.
g) A determination as to whether construction of the
corridor or usable segment thereof can be completed as
proposed in the plan.
h) An evaluation of whether the corridor would be suitable
and ready for high-speed train operation.
i) A certification that one or more passenger service
providers can begin using the tracks or stations for
passenger train service.
j) A certification that the planned passenger service by
the Authority in the corridor will not require a local,
state, or federal operating subsidy.
1)Requires the Authority to submit additional detailed reports,
with prescribed elements, prior to committing any bond
proceeds for construction or real property and equipment
acquisition on each corridor.
2)Creates in state government the Bureau of State Audits under
the direction of the Milton Marks "Little Hoover" Commission
on California State Government Organization and Economy;
provides that, in order to be free of organizational
impairments to independence, the bureau shall be independent
of the executive branch and legislative control.
3)Directs the State Auditor to conduct any audit of a state or
local governmental agency or any other publicly created entity
that is requested by the Joint Legislative Audit Committee to
the extent that funding is available and in accordance with
the priority established by the committee with respect to
other audits requested by the committee. Members of the
Legislature may submit requests for audits to the committee
for its consideration and approval.
FISCAL EFFECT : Unknown
COMMENTS : The author's intent in introducing AB 385 is to have
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the State Auditor contract with an investment firm to provide
the Legislature an investment grade analysis of the project.
The author believes that "an investment grade analysis would
take into consideration the public benefit including all of the
financial risks, currently understated, unaddressed or unknown,
which could affect competing interests and the dollars to fund
those interests. The �Authority] dollars are directly competing
with existing bond funds that may claim equal or greater
priority such as classrooms, prisons, water, and other
transportation bonds. In addition, should the �Authority]
require state assistance, either in the case of a revenue
guarantee, subsidy or bond debt repayment, the impact on the
state's general fund could affect our ability to pay for other
priorities such as education, health and welfare, public safety,
debt service, pensions and other competing interests."
The Authority will be submitting a detailed funding plan in
October 2011, at least 90 days in advance of its initial request
for bond proceeds, as required by law. That report is required
by law to include many of the specific elements required by the
investment grade analysis prescribed in this bill.
To date, the Authority's ridership and revenue forecast has been
the subject of a great many discussions, hearings, and media
reports, many of them critical. The ridership and revenue
forecast is considered central to the success of the project,
particularly because the system is proposed to operate without
any public subsidies.
The Authority forecast was developed by Cambridge Systematics
(CS), a highly regarded firm in the industry. The forecast, and
the methodology used to develop it, has been peer reviewed and
found by many, including the Authority, to be well-proven and
based on widely accepted and applied modeling techniques.
On the other hand, the forecast has also been criticized as
being unreasonably optimistic and unreliable. In a study ordered
by the Senate Transportation and Housing Committee last year,
the Institute of Transportation Studies (ITS) at the University
of Berkeley evaluated the CS forecasts and concluded that they
were "unreliable for policy analysis." The ITS analysis
concluded that the "combination of problems in the development
phase and subsequent changes made to the model parameters in the
validation phases implies that the forecasts of high-speed rail
demand -- and hence of the profitability of the proposed
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high-speed rail system -- have very large error bounds.
The Authority has subsequently worked with CS and ITS to resolve
differences between the expert opinions but key differences in
opinions remain. Hence, it is impossible to know the degree of
confidence that the Legislature should have in the Authority's
ridership and revenue forecast.
Committee concerns: This bill directs the State Auditor to
conduct any audit of a governmental agency that is requested by
the Joint Legislative Audit Committee to the extent that funding
is available and in accordance with the priority established by
the committee with respect to other audits requested by the
committee. This bill usurps the process of the Joint
Legislative Audit Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Howard Jarvis Taxpayers Association
Opposition
None on file
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093