SENATE COMMITTEE ON TRANSPORTATION

Senator Jim Beall, Chair

2019 - 2020 Regular

Bill No: SB 340 Hearing Date: 4/9/2019

SUBJECT: High-speed rail bonds.

DIGEST: This bill prohibits the sale of the remaining High-Speed Rail Authority Proposition 1A bonds and requires any remaining bond proceeds to be used to pay down existing bond debt.

ANALYSIS:

The California High-Speed Rail Authority (HSRA) was established by legislation in 1996 (SB 1420, Kopp, Chapter 796) to direct the development and implementation of intercity high-speed rail service that is fully coordinated with other public transportation services. In 2008, California voters approved Proposition 1A, the Safe, Reliable High-Speed Passenger Train Bond Act for the 21^st Century (Prop. 1A), which authorized $9 billion in general obligation bonds for the high-speed rail project. Prop. 1A included a number of requirements the state must meet to access the bond funding for capital construction, including the identification of matching funds, the completion of a funding plan, and approval of required environmental clearance documents.

In 2009, the federal government augmented Prop. 1A bond funding with roughly $3.4 billion in funding from the American Recovery and Reinvestment Act and other federal funding programs. HSRA committed to match these federal funds with approximately $2.3 billion in state funding.

Of the $9 billion total Prop 1A bond funds allocated for high-speed rail, $4.509 billion have been appropriated thus far. HSRA has spent $2.040 billion through December 31, 2018. HSRA plans to spend $1.484 billion in FY2018-19: $1.363 billion in Prop. 1A bond funds, $0 in federal funds, and $121 million in Cap-and-Trade funds. The Prop 1A figure includes expenditures for local assistance bookend projects. Approximately $164.7 million in Prop 1A bond bookend funds is forecast to be spent in FY2018-19.

Existing law:

1. At the federal level, appropriated approximately $3.4 billion in federal funds designated for construction of the high-speed rail project.
2. Establishes the HSRA and vests with it the responsibility to develop and implement a high-speed rail system in California.
3. Authorizes the sale of $9 billion in general obligation bonds to partially fund the development and construction of California's high-speed rail system.
4. 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.
5. Requires the HSRA 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.

This bill:

1. Prohibits the future sale of the remaining high-speed rail bonds (Proposition 1A, 2008) and requires the unspent proceeds from previous bond sales to be appropriated to pay down outstanding high-speed rail bond debt, as specified.
2. Exempts the bond funds designated for early improvement “bookend” projects from the abovementioned prohibition.

COMMENTS:

1. Author statement. According to the author, “with a continuous desire for a more efficient means of transportation throughout the state of California, both voters (via Proposition 1A, 2008) and members of the Legislature (via statute and budget bills) have repeatedly approved the funding for California High-speed Rail programs and the Commission. However, in the last few years, several polls have shown that a majority of Californians disapprove of spending on high-speed rail. A USC/LA Times poll earlier this year showed 49% of Californians want to end the project once and for all. SB 340 would end the failed High Speed rail project by stating that no further bonds shall be sold for high-speed rail purposes pursuant Prop 1A, except as specifically provided with respect to an existing appropriation for high-speed rail purposes for early improvement projects in the Phase 1 blended system. Unspent proceeds received from outstanding bonds issued will be used to settle the debt incurred from the issuance of said bonds.”
2. Fulfilling the promise. Proponents of high-speed rail suggest that the project still technically meets the promises made to voters in 2008. In addition, some advocates argue that the project is transformative and should be pursued regardless of a potentially divergent electorate. These advocates suggest that, while voters today may not approve the project as currently envisioned, when the system is finally running and all of the benefits are realized, Californians will be thankful the state continued to pursue it in the face of its many detractors. They point to the significant opposition to construction of the Bay Area Rapid Transit (BART) system in the 1960s, which today is an integral part of the Bay Area transportation network.

Other supporters of high-speed rail argue that, despite the fact that today’s plan may not fully live up to the vision presented to voters in 2008, the large influx of construction dollars and potential jobs created in the Central Valley are too important to risk losing should the voters defeat the project at the ballot. To that end, HSRA has reported that the Authority has contracted with 480 certified small and micro businesses throughout the state and has generated $6.8 to $7.6 billion in economic output in the Central Valley where high-speed rail construction is ongoing. The most updated figures by HSRA note that construction of the high-speed rail project in the Central Valley has created approximately 2,600 construction jobs. With this region suffering one of the worst unemployment rates in the country, the funds from this project are stimulating much-needed relief to the Central Valley’s economy.

1. Federal matching requirements. Complicating the implementation of this bill is the fact that the federal government requires the state to match any federal funding expended on the project. The HSRA 2017 Project Update Report further reported that HSRA had secured $3.48 billion in federal funds for high-speed rail. As of September 2017, HSRA has expended all federally allocated high-speed rail designated funds. It is unclear whether the state, if it suddenly ceased to pursue the high-speed rail project, would be in a position to pay back the federal government for some, if not all, of the federal funds expended. If that became the case, it is not clear how the state would achieve repayment without access to the Prop. 1A bond funds.
2. HSR moving forward and who pays? Since the project’s construction commenced in 2015 in the Central Valley, HSRA now has over 119 miles of construction activity underway. This translates into bridges and structures being built, land being cleared, roads being upgraded, and Central Valley residents receiving well-paying employment opportunities. The impacts of eliminating the ability to access the remaining high-speed rail bonds is unknown; however, could potentially have significant ramifications for the state. In addition to the possibility of having to pay back federal dollars (over $2 billion), HSRA has entered into a variety of contracts for construction and supporting services (such as supplies, equipment, etc.). It is unclear what state funding source would be used to cover the costs associated with these contract commitments if HSRA no longer has access to Proposition 1A funds.
3. Double referral. This bill is also referred to the Senate Governance and Finance Committee and will be heard in that committee if passed out of this committee.

Related Legislation:

SB 414 (Vidak, 2018) — prohibited the issuing or selling of high-speed rail (HSR) bonds upon enactment and redirects remaining high-speed rail bond proceeds to state freeways and highways, local streets and roads, and local transit projects upon voter approval. SB 414 failed passage in the Senate Transportation and Housing Committee.

AB 1455 (Harkey, 2012) — would have reduced the amount of authorized indebtedness for HSRA to the amount contracted as of January 1, 2013 and excluded from these provisions indebtedness authorized for other rail purposes. AB 1455 failed passage in the Assembly Transportation Committee.

AB 1501 (Patterson, 2014) — would have prohibited HSRA from spending federal funds for which a state match is required unless state funding for the match is immediately available. AB 1501 failed passage in the Assembly Transportation Committee.

AB 2121 (Harkey, 2010) — would have reduced the amount of general obligation debt authorized pursuant to Prop. 1A to the amount contracted by HSRA. It was amended in the Assembly Transportation Committee to instead require HSRA to annually submit a six-year funding program and a project progress report to the appropriate policy and budget committees of the Legislature. AB 2121 was passed by the Assembly, but died in the Senate Rules Committee.

AB 2650 (Conway, 2014) — would have directed the Secretary of State to place on the November 2014 general election ballot a measure to prohibit further issuance and sale of any authorized bonds for high-speed rail, except for specified projects for which appropriations have already been made. It would also have redirected the proceeds of any outstanding bonds issued and sold to debt retirement, and reauthorized the issuance and sale of any unissued bonds for other transportation uses, upon legislative appropriation. AB 2650 failed passage in the Assembly Transportation Committee.

AB 76 (Harkey, 2011) — would have reduced the amount of authorized indebtedness for HSRA to the amount contracted as of January 1, 2012. AB 76 failed passage in the Assembly Transportation Committee.

AB 842 (Donnelly, 2013) — would have prohibited the expenditure of state and federal funds for high-speed rail except as necessary to meet contractual commitments entered into before January 1, 2014. AB 842 failed passage in the Assembly Transportation Committee.

SB 22 (La Malfa, 2011) — would have reduced the amount of indebtedness authorized by Prop. 1A to the amount contracted as of January 1, 2012. SB 22 failed passage in the Senate Transportation and Housing Committee.

SB 901 (Vidak, 2014) — would have required the Secretary of State to place on the November 2014 general election ballot a referendum to prohibit the sale of additional high-speed rail bonds. It would also have authorized the net proceeds from outstanding bonds to be redirected, upon appropriation, to retirement of high-speed rail bond debt and would have prohibited expenditure of bond funds, or issuance of additional bonds, for high-speed rail until November 2014. SB 901 failed passage in the Senate Transportation and Housing Committee.

SBX1 3 (Vidak, 2015) — similar to this bill, would have redirected high-speed rail bond proceeds to state freeways and highways, and local streets and roads, upon voter approval. SBX1 3 failed passage in the Senate Transportation and Infrastructure Committee in the 1^st Extraordinary Session.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 3, 2019.)

SUPPORT:

None received.

OPPOSITION:

None received.

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