Assembly Standing Committee on Transportation

With that powerful gavel. Sounded like a tin horn. I'll call this meeting to order. Good morning, and welcome to the Joint Hearing of the Subcommitee three on climate crisis, resources, energy and transportation, and Assembly transportation committees. That by itself is a mouthful. We are going to go ahead and get started even though we don't have everybody here, because we've budgeted this as an exclusive item, and we want to make sure that we have plenty of time for the conversation we're going to have here today.

Today in room 1100, we are an in person. We're accepting public comment at the end of this hearing, both in the hearing room and on the phone. The phone number to connect is on the Committee website and should also be on the screen if you're watching over the Internet. The number is the public toll free number, 877-692-8957 the public access code 18501100. If you encounter any problems, please contact the Assembly Budget Committee at 916-319-2099 and a staff member will assist you.

We encourage the public to provide written testimony before the hearing. Please send your written testimony to budget sub three at Assembly CA Gov and with that, I will ask the witnesses to all come on up to the and thank you very much. And before you do your initial conversations, if you will identify yourself and the agency that you're with.

Shall I start, Mr. Chair?

No, not yet. Thank you. All right. We are doing this presentation in a little bit different order than we have normally done this at Budget Committee. We have alerted all of the panelists witnesses about this change. We are going to start with the peer review, then we'll go to legislative LAO office, and then we'll go to the review responses and comments from Mr. Kelly and the authority.

The reason we're doing this is, I think that it's important for us at this point in time to sort of stop and reflect on the challenges that we have with this project. And by identifying all of the challenges before Mr. Kelly starts, I think it lets us focus on the things that are most important to us as we go forward. And excuse me again, everybody. And so what I want to give in my mind, sort of the overview.

If you think about, if you step back as somebody new coming into California and trying to observe this thing, somebody would look at this and say, what's the history of this project? Well, 15 years ago 2008, the voters approved the financing for this project for the first time. The authority was created back in the 1990s, but there was never any financing. Finally, this bond proposition moved forward.

What the voters were told was that $9 billion, and this project would be able to complete this project for $9 billion and be able to complete this project in fairly timely period of time. Here we are 15 years later, and the project has had massive cost overruns, and it has significant delays to the point where we don't know when we would be able to complete this whole project.

And I think we all know that it's most likely that the cost overruns, the cost of the project will continue to go up and up and up. And it is appropriate for us to, I think, try to look at the big picture today while we're doing this. The easiest thing for us to do politically would be to just kind of go high speed rail. Yeah, we want it, and just kind of let this drift again.

And we will then get some more cost overruns and some more delays, and the project costs will continue to go up. And that's not a criticism of the authority that is in charge trying to do this now. It is the nature of a project this large, and particularly the nature of a project that is launched by literally almost an initiative pulling this together. That's not the way that most nations would decide to build a high speed rail project like this and a complicated project like this.

And so I think it's important, and I talked with my colleague, the chair of the Transportation Commission, Transportation Committee, and Assembly Member Friedman agrees, trying to focus on this. And so the best way for us to focus on what our challenges are, I think, is by starting with peer review, then going to the LAO's office and going from there, we will then go to the Committee Members to ask their questions, and that will be the kickoff.

And so Mr. Kelly will then be responding to those questions from the Committee Members first. And then we're going to ask him to respond to the issues raised in the peer review and the issues raised by LAO and the peer review Committee. And that gives him the opportunity to directly and make sure that in the time we have, we're right at the questions and the key issues that we have in front of us.

I would also just like to point out that we are at an inflection point from the standpoint of this project for the first time getting an Inspector General coming onto this project. I think that if you look back on it, I think almost everybody would agree it would have been best to have had an Inspector General on this project at the beginning and so into this situation in quandary rides Mr. Kelly and the authority and the board.

And I want to start by complimenting Mr. Kelly for giving us a more transparent and updated report coming to us every odd number of years. We need to get that report from the authority. And I just want to talk about the dilemma that you face. Mr. Kelly's job is to try to get this project done. And you want to get this project done.

You want to present positive, you want to create positive energy, and we want to try to have the Federal Government feel good about this project and feel good about funding this project. And on the one hand, he's trying to present this positive energy, and at the same time, he has this demand from the Legislature, appropriate demand from the Legislature and the public for more transparency. What's gone wrong? What do we need to do?

So today is not a reflection on our analysis of the individual work being done by you as the Executive Director, by the board, by all the people involved in the authority. But it's a recognition of how difficult of an assignment this is to try to deliver this.

The final thing I want to say is that Ms. Friedman and I both went to Japan, and the big focus of mine going to Japan was to look at the high speed rail and find out what did they do and what lessons could we learn from that and a few things:

Number one, they started with a government run attempt to try to build high speed rail. And after a number of years, it was just obvious it wasn't going to work. And they dramatically changed how they were going to do it. Basically, private companies were put in charge of different parts of the high speed rail project, and they put that together.

The second thing was they came up with funding sources, regular funding sources and funding sources that allowed them to have the high speed rail authority benefit from the real estate that would go up in value wherever they put these stations. And that is a significant part of what keeps the high speed rail system in Japan cost effective. And it does not require subsidies from the national government.

Third thing is, it is a national project, the high speed rail program, and there's a recognition there. So here you have Japan with nearly 140,000,000 people, about the same size as California, with three times as many people almost, and they do it on a national level.

And here what we are trying to do in California is with 40 million people, the same size state, we're trying to Fund this without the benefits of a long term federal commitment, et cetera, and all the benefits that come from that federal funding. So that's the overview that I would like to create or present as the atmosphere that we should constantly work in.

Not one of criticism, but one of very stark recognition of how difficult this project is and what are the challenges that we have to overcome. And so with that, I appreciate that. Assemblymember Friedman, the chair of the Transportation Committee, is here, and I'll turn it over to her for part of this Joint Hearing.

Thank you, Chair Bennett, and thanks for everybody who is here today or watching remotely. This is a continuation of a very important discussion, because this is the largest project in California's history, and I'm really looking forward to today's discussion. And I hope that we can speak very candidly today and very honestly about whatever hard choices might lie ahead about with regards to this project. I appreciate that high speed rail authority has been more transparent as of late, particularly about the budget challenges for the project.

I think that transparency would have been helpful all along, including last summer when we were negotiating the release of the remaining Prop One a funds. We all have to help make choices, and if we don't have all the information or we have incomplete information or we have information that we feel doesn't give the big picture, it's really hard for us to help make the policy decisions that we need to make to guide the project.

I also want to be really clear that I'm a supporter of high speed rail in California. I really look forward to the day when we don't just have high speed rail from Los Angeles to San Francisco, but Los Angeles to San Diego, which is a route that desperately wants high speed rail, and to Las Vegas and beyond. I'm a believer in rail. So I come to this with the spirit of trying to be constructive and trying to be helpful.

I am not somebody who's here to try to put an end to this project. My fear is that we get to a point where because of decisions we've made, the Legislature decides to not continue the project. And as I've said all along, that, to me, is the biggest worry that I have in this. I'm not trying to derail high speed rail.

I'm trying to make sure that it's on such a sound footing that at every step of the way, it has the support of the Legislature and most importantly, of the people of California. And if the people of California feel that this project is not on the most firm financial footing, done with the utmost transparency, they may not want to continue the project. Continuing that the costs have gone up far beyond what the public had envisioned.

I also think it's important that we make people really understand the benefits that the project can bring, and that means bringing in all the local communities that are involved as very active partners so that they understand that this would be helpful even at a time when people aren't commuting as much to work, that there is value to having alternative modes of transportation that get people out of their cars. So I would certainly be very happy to help with any of those efforts.

But at the end of the day, and I think what we're going to hear today is whether or not we have the funding to create anything that's truly meaningful in the valley. Because as I've said all along, when this project opens and you're running a train, it's not going to be enough to just show that the train is going at a certain speed and that it's staying on the tracks. We know you can do that. We know that you're going to be able to do that.

What's going to be important is people riding that train. So we have to make sure that whatever you deliver in the Central Valley has enough people on it and that it has the funding to make sure that those people have somewhere to go when they get to their destination, meaning connecting possibly to a train to get them into the Bay Area, and that they want to use it.

Because if not, when you go back for your next big tranche of money, you may not have as a receptive, as an audience as you need. I'm also concerned that the $10 billion funding gap will grow larger because of unexpected project costs, because of historic inflation right now, and double digit growth every time a new project document comes out. I'm very concerned about the ridership estimates, and that's certainly not the fault of high speed rail.

We're seeing that in transit across the state, even before COVID we've seen transit ridership decrease, which is a topic that we've been discussing in the Transportation Committee. How do we counter that trend and get people onto transit? And certainly now, after Covid, people have not yet returned to the workplace that they had before, which also presents challenges for this project. But we certainly need to get people onto public transportation. We have climate goals, we have equity goals.

Nobody wants to be on congested highways, and high speed rail offers an alternative to all of that. So I want to understand exactly what the high speed Rail Authority believes that we need to see from the Federal Government this year in real numbers to show that they're a reliable and strong funding partner.

And I want to highlight the dilemma that our high speed rail peer review group raised in its March 23 letter, according to the PRG, and I'm quoting the dilemma the project now poses is that given the expected cost increases, delays and demand decreases for the Merced to Bakerfield segment, there's few who would argue that completing this section by itself at a cost of up to $35 billion can be justified.

Rather, it would only make sense in a context of commitment to building the complete phase one system. At the same time, completing the full phase one system poses a growing financial challenge for the state because the gap is already large and costs have been increasing faster than the identifiable potential financing. While forecast ridership has fallen. Now, I believe that there's great value in a one seat ride, or at least an easy transfer ride from the Bay Area, hopefully into San Francisco and through the valley.

I think that that even if it takes a while to get to Los Angeles, would still have great value. But I'm not even sure right now how we make that connection, something that people are going to want to do given the cost that the ticket could end up being. We have to look at the cost of the ticket plus the transfer time and how many times people are going to have to change modalities to get to a population center or a job center.

And that's what we need to be realistic about. Because I, again, do not believe that a demonstration project without humans taking it on a regular basis is going to be enough to convince people. Again, this isn't an exercise of blaming anyone in particular. I think everybody has huge challenges they're working within, and I don't take any of that for granted.

I'm here to try to do my best to put this project on a good footing so that one day I can take it, my daughter can take it, and we see people riding that fast train instead of taking cars. And lastly, I'll say that questioning and challenging is not opposition and that we don't do this project any favor.

If we gloss over any of the challenges that we have, we have to be very honest about them and we have to have a very serious conversation about how to overcome them, whether it's, yes, we want the Legislature now to pick up the bulk of the funding, and we expect you to do that if that's going to be the case. What is that funding and where would you suggest that money comes from? And with that, I will turn it back over to chair Bennett. Thank you.

Thank you very much for those comments. And I appreciate the fact that I think we're both aligned in terms of trying to. The best thing we can do for high speed rail is make sure we're honest about what all the challenges are and what we're going to do, one final big picture item that I will point out, we have a new challenge, and that is a recognition that transit ridership is really falling.

And we now have requests from transit agencies throughout the state for us to Fund operation and maintenance, daily operation and maintenance of those projects. The State of California has never funded operation and maintenance. We haven't subsidized operation and maintenance of transit in California. The Japanese, I think, found a way to not have that kind of subsidy. And so that challenge is loaded on top of this.

Can we really create a project that, as was advertised with the Proposition, would not require a state subsidy as we move forward? So that challenge, I think, is particularly acute when we realize that high speed rail is going to have to compete with the other transportation modalities that we have in the State of California. And until we have the courage to properly price carbon, high speed rail will be at a disadvantage.

Because if we properly price carbon and you had to actually pay the true cost of what it was doing to the environment, if you took these other modes of transportation, you would find high speed rail would become much more attractive from a price standpoint. And someday the State of California is going to have to, I think, actually make the courageous political decisions regarding properly pricing carbon in our state.

Is the mic okay? Good. Chair Friedman and Chair Bennett, Members of the Committee, I appreciate the opportunity to speak to you today. My name is Lou Thompson. I'm the Chairman of the peer review group. As you know, the group was created by Proposition One A and charged a report to you on matters of interest. To date, we've covered eight business plans, issued 18 letters of comments, and have testified before the Legislature or congressional Committee.

Mr. Thompson, could you move your microphone closer to when you look down?

Then the angle doesn't remain stable. Okay. And we've testified before the Legislature or congressional committees 15 times. Helen Kirstein's excellent remarks are comprehensive and they are accurate. I can say exactly the same about the staff papers that were prepared for the Committee. They are parallel many of the comments on our letter of March 23. As we have all said, project costs continue to rise, schedules are stretching out, demand estimates have fallen, and financing is inadequate and unstable.

There is no point in belaboring what you already know. I would like instead to focus on the increasingly urgent dilemma that emerges from these facts. In doing so, I do not intend to criticize the current HSRA staff the project has always been over promised and underfunded. It got off to a rough start, partly due to inexperience and partly because the allure of seemingly free federal money led the authority to award contracts before they were properly prepared.

Managers have learned a lot, and I do agree that this is the most accurate and honest picture of the project that we've seen to date. That is both the good and the bad news from the 2023 project update report we now know that the phase one will cost about three times what was expected when Prop One a was passed, and this is certain to rise further. It will also take 15 to 20 years longer.

It will not realistically meet the trip times specified in Prop One A, and it is now predicted to carry only three quarters of the passengers. These results are significantly below the expectations promised by Prop One A, and this should encourage the Legislature and the Governor to reassess the viability and priority of the project, giving the other financing needs that the state faces. The Legislature may want to request an independent, updated analysis of the benefits and cost of the project.

I understand that the authority is conducting such an analysis in support of its grant request to the US Department of Transportation, so one way to accomplish this would be to Commission independent review of the authority's submission by one of the state's universities and ask them to report findings to the Legislature. I know the LAO and the peer review group would also report on the results of the review, as would the new OIG and the High Speed Rail Authority, who I hope will be appointed soon.

At the same time, the Legislature could request an analysis by the LAO or an appropriate agency of ways to fill the financing gaps that are now apparent. First, the gap, if any, in the 119 mile section, Madeira De Poplar Avenue. The authority argues that this section is adequately funded and there is a reasonable chance that they are right. Then there is the 2.5 to $10 billion gap in the Merced to Bakersfield section, depending on the success in getting federal money.

Similarly, there is a gap of $93 to $103,000,000,000 in phase one, and I want to repeat that, a gap of $100 billion in completing phase one. Any funding plan to fill this gap must be adequate, credible and stable. Anything less is a guaranteed continuation of the instability and managerial problems of the last 14 years. Anything less also leaves local planners in decisional limbo.

They are in the position of spending money to retain the option of HSR access when it is not clear that high speed rail will ever arrive. The pressing need for a credible funding approach is the most important message we can deliver, and it has been a common theme in many of our statements in prior years. We've also pointed out that the Legislature has options short of the full phase one.

This may be especially important if phase one does not emerge favorably from an analysis of benefits of cost or if it cannot credibly be financed given the state's competing needs. If there is no commitment to the full phase one, then it is clear, at least to me, that the current $35 billion plan for Merced to Bakersfield cannot be justified. The Legislature should request the authority to develop an alternative plan in the absence of a commitment to phase one.

Such a plan might, for example, use existing connections to Merced and Bakersfield, eliminate electrification, but purchase better diesel or other rolling stock to eliminate the San Joaquin transfers in Merced and complete the station work in Merced and possibly Bakersfield. The bare bones, 119 miles section from Madeira to Poplar Avenue with a single track and no electrification also remains an option, though it might require negotiation with the Department of Transportation.

The Legislature may want to request an analysis from the authority of how this could be done and what it would cost. I fully realize that this is not a welcome message, but the results of the 2023 PUR and the financial implications it has make it urgent that the state review its commitment to the full phase one if it can find a way to pay for it or start the process of defining and considering the alternatives. Thank you for your time. I'll be happy to answer any questions you may have.

Thank you very much. Mr. Thompson, we're now ready to go to the Legislative Analyst Office.

Good morning, Chairs and Members. My name is Helen Kerstein with the Legislative Analyst Office. Thank you so much for inviting me to participate in today's hearing. We've prepared a handout, which hopefully you have. If you don't have it, the sergeants have a number of extra copies. It's also available on our website and on the Committee's website. So, Mr. Chair, I have a quick question. I was wondering if you would like us to review the contents of the project update report and also provide our comments, or if you'd just like us to go straight to our comments?

I would like you to summarize the contents of your project update report and then go to your comments.

Okay, great. Thank you. So I'm still going to skip over the beginning part of this handout because the beginning part of the handout really just provides background on the project. And I know you all are very familiar with that, but I am going to skip to page, if you want to follow along in your handout, page nine. And that's where I summarize where we start to summarize the major features of this project update report.

Some of them have been referenced by previous speakers, but just, I'll try to cover them relatively quickly in the interest of time. So the first major feature of the project update report, which, as was mentioned, the authority has to prepare every odd year. So every even year, they prepare a business plan. Every odd year, a project update report. Usually the project update reports are kind of minor updates. This year, it's a little bit more significant.

And part of that is because last year's project update report was what the authority called a bridge document. Basically because of COVID and other factors, they didn't fully update last year's report as much as they might have otherwise. So this year's project update report is a more comprehensive update, so similar to last year's business plan. This project update report continues the focus on Merced to Bakersfield. We've heard a lot about that segment. This focus on Merced to Bakersfield was first introduced by the authority in 2019.

It's also consistent with legislative intent. So there was some reference to last year's budget action. So I'll just briefly mention last year for those of you who may not recall, probably pretty much everyone in this room does. But maybe those folks who are listening at home may not recall that last year, the Legislature appropriated essentially all of the remaining Prop One a funds, the 4.2 billion that was remaining, and also passed budget trailer legislation that did a number of really important things.

One of those key things is really establishing legislative intent that the authority focus on Bursetta, Bakersfield, which at that time was roughly fully funded. And so this continued focus is consistent with that budget trailer legislation. Also, the project up to report continues the plan of doing some planning work on the rest of phase one.

So that includes doing environmental work on the phase one, and that's consistent with federal grant requirements as well as as that work is completed, starting to do advanced design work to try to develop better cost estimates, for example. And we note that the authority is planning to submit a grant application to help fund some of this work in the next couple of weeks.

Also, the project update report articulates a plan to commit some other activities starting in 2025, like right of way acquisitions, utility relocations, those types of things. So if you turn to page 10, wanted to highlight that there are a few new elements of project scope that are added. These are new that we haven't seen in the project before. For example, adding a solar and battery storage component, that's a new thing, as well as a different location for the Mercedes station.

This I know is very familiar to Members of this Committee that there was really a--previously the Merced station was going to be at a different location from the station that Amtrak, the San Joaquin's goes to, as well as Ace. And that didn't make a lot of sense. And so the Legislature expressed its intent that there'd be one combined station and that was consistent with what the authority was hoping to do as well. But the costs weren't previously reflected in the last business plan.

So this project report for the first time really reflects those costs. And then also this project update report shifts some costs that were previously not in Mercedes Bakersfield into that segment. So there were costs that existed before, like a permanent Bakersfield station, but previously that permanent station was not costed out in the Merced to Bakersfield segment. If you turn to page 11, we highlight some of the delays that are reflected in the project after report.

So you'll see in this table that there are a few activities that are probably going to happen a little bit later than were previously estimated. You'll also note that there's no update for the timeline for the work outside of Merced to Bakersfield, which currently isn't funded. Now if you turn to page 12, there's a table, and this is, I think, a really kind of key table to look at. This compares the cost estimates in the 2022 business plan.

So in last year's plan to the 2023 project update report. And you'll notice a few key things. You'll notice that overall cost estimates are up by 13.4 billion. Most of this is in Merced to Bakersfield. And there are a few reasons for this. One of this is the scope changes I mentioned, like the Merced station, like the combined solar and battery storage system, that's about 3.9 billion. 3.7 billion is related to contingencies and other factors, 2.1 billion is related to inflation and timing impacts. And then 1.7 billion is those shifts in costs, right?

Those ones I talked about before that were previously kind of counted in other segments and moved to Merced to Bakersfield. So you'll notice that Merced, Bakersfield increases in costs by almost 50% relative to what the Legislature saw last year. The other big change that you see is that there's a 3.3 billion increase for constructing San Francisco to San Jose. That's about a 200% increase. But you'll notice that most of the segments haven't been updated. So that's another kind of key thing to notice here.

If you turn to page 15, we summarize, we basically compare the funding that's available, that's estimated to be available under the project update report to the estimated costs. And you can see here that the estimated costs of 35.3 billion are significantly lower than the funding available. And there's a range of funding depending on kind of where cap and trade comes in. So there's estimated to be roughly 10 billion to $12 billion funding gap, depending on what those cap and trade revenues come in at.

The authority does identify a target of $8 billion in additional federal funds. So there was recent federal legislation, the IIJA and the IRA, and the authority hopes to go after that funding. We note that the project update report doesn't identify any specific funding sources for work outside of Merced to Bakersfield. So if you go to page 17, we summarize some of the revised ridership estimates.

So the project update report does show reduced ridership estimates, 38% decline in the valley to valley, that's the San Francisco to Bakersfield segment, and a roughly 20% decline from San Francisco to Anaheim, the phase one. We'll note that this is partly related to a new ridership model, but also partly, just as was referenced, people are traveling differently, and also the state's population hasn't grown as robustly as was assumed originally.

So if you turn to page 18, we summarize some key issues for legislative consideration, and then I'll raise some questions that flow from those. The first issue is really this big funding gap. So if there's one thing that you take away from my comments this morning, the funding gap I think should be, is last year it looked like we basically barely had enough money potentially to do Merced to Bakersfield.

There was always risk that costs would go up, but really the estimates put it at about fully funded. This year. We've seen this emergence of this very significant funding gap, and we think that there's a lot of risk that costs could be higher, as the chair mentioned, and there are a lot of reasons for that. Part of it's just the nature of these types of projects.

Part of it is that some of this work is in early planning stages, and part of this is that inflation might just be more persistent than it's currently assumed. Also, we note that some of the GGRF, some of the cap and trade dollars that are assumed might not materialize. They might there's just a lot of uncertainty. So the authority projects out the relatively robust cap and trade revenues that we've seen over the last couple of years that they'll continue through 2030.

And there's a lot of uncertainty once you project out that far, particularly because as the program gets close to kind of expiring, if you turn to page 19, we also highlight the uncertainty about the federal funds. Certainly we all hope the state will be very successful at securing those funds. The last couple of years, the authority hasn't been as successful. And, for example, in the last two years, it's applied for at least 1.6 billion in federal dollars, and it's received about 50 million.

So it's relatively small awards we've received in the last few years. We know that they are planning to submit additional grant applications, and there's hope that they will be successful, but it's unclear. And then we also here identify the issue of no funding plan beyond Merced to Bakersfield. So as Mr. Thompson mentioned, there's a very large funding gap. Depending on which numbers you use, you get a slightly different number.

But essentially we're looking at the high tens of billions, if not 100 billion or potentially more in terms of a funding gap for that phase one. So it's a lot of money, and there's currently no specific plan for how that would be funded. And that's been an issue with the project for many years. But as project costs go up, the issue becomes more pronounced. On page 20, we do mention that the reduced ridership could affect the project business case.

So we think it'll affect, if there's lower ridership, it's going to affect operating revenues, it's going to affect the ability to not require an operating subsidy. So those are significant issues. And then finally, we think that project oversight continues to be really important. This is something the Legislature did something really important about last year. So that trailer Bill that I mentioned, one of the other key elements was establishing this office of Inspector General and really a robust office, a really independent office.

We think that's really valuable and has a lot of promise, and hopefully we'll start to see the benefits of that soon as that individual and as that office is stood up. So if you turn to page 21, we highlight some near term questions facing the Legislature. Again, the Legislature took some really important actions last year, but because there's this big funding gap, we think the Legislature could consider whether it wants to take any additional actions.

These are some of the key questions we suggest the Legislature keeps in mind. One is it still committed to Mercedes, to Bakersfield? Again, that was the intent expressed last year. But given this funding gap, which wasn't there last year, has anything changed? Two, what funding does the Legislature want to use to fill that gap? So the Legislature doesn't have to identify funding today, but they're going to be really difficult choices. So we think it's worth starting that conversation sooner rather than later.

There's going to be no easy funding source. Even if we get the full 8 billion, that's not going to cover this funding gap. So some of the things to think about are a financial approach to borrow or to use cash. The Fund source, again, there's no easy Fund source. You could take General Fund. You could use more of the GGRF. You could use truck weight fees as a piece of it potentially, but there's no easy, obvious solution.

And all of those other funding sources have calls on them. They're all used for other things. Now and then you could think about whether you want to use existing revenues, and that would potentially mean spending less money on other things or raising new revenues. Then the next question we raise is whether the Legislature agrees with the elements that are included in Mercedes to Bakersfield. A lot of these elements are really critical. I mean, a combined station, pretty important if you actually want the system to work.

So you don't want to get rid of that. Probably. There's a lot of value, probably, to having two tracks rather than one track with just passing tracks. But there are some things that maybe are kind of more nice to have. For example, the solar and battery system that's added, that's something the Legislature could think about. Well, is that a priority or not? A next question is does the Legislature agree with the authority's planned actions beyond Merced to Bakersfield?

So again, we don't have enough money to do Merced to Bakersfield now. And so I think a key question is, given that, what's the Legislature's comfort with undertaking additional actions outside of that segment? The next question, if you turn to page 23, is whether the Legislature has sufficient information to guide its decisions to the extent the Legislature doesn't. It could always fund additional work or ask all of those who work for the Legislature or are directed by the Legislature to conduct additional work.

And then finally, how can the Legislature promote the effectiveness of the Inspector General? Obviously, really important to have an Inspector General, and we want to make sure the Inspector General is as successful as possible and as independent and is really fully resourced. So those are my comments. Happy to take any questions at the appropriate time.

Thank you very much. We're now going to turn to questions so that again, the spirit of this is to make sure that the authority has all of these questions out in front of them as they're then starting to respond. Members, are there questions knowing that your question may be not to correctly answered right now, but they just want to go through and see what questions Members have. Mr. Ting, you want to start off?

Okay. Assemblymember Conley.

Thank you. Appreciate the opportunity to participate, particularly as a new Assembly Member. So coming at this for the first time, although as a local elected official, as a resident of California, obviously very aware of the project, and apropos, I think, of some of the earlier remarks, have been supportive, but at the same time recognize we have to be candid, we have to be honest, we have to be transparent about this project, given the overruns, given kind of the amount of money at stake.

So in that spirit, had some questions and just trying to kind of narrow these down. Aware of a recent LA Times report that touched on a number of issues, but it included questions around consultant costs. So I wanted to raise some questions around that right now.

The LA Times reported that the consulting firm WSP was given a new 700 million contract with high speed rail, despite the fact that their original work developing the estimate for building phase one was estimated to be 12 years for $33 billion. We know that estimate was now wildly inaccurate. Why are we still giving almost $1 billion to a company whose estimates have been so inaccurate?

Mr. Chairman, if I could answer that. I'm Brian Kelly, the Chief Executive Officer of the California High Speed Rail Authority. The short answer to your question is, we're not. WSP was awarded a contract back in 2015 for this project. I came on this project in 2018. WSP is now getting off of this project now that contract has expired, and we're transitioning away from WSP.

Great. The LA Times also reported that the Administration and high speed rail were firmly committed to being less reliant on consultants. Professional engineers in California government also remarked that the rail authority was making, quote, a grave error by relying so heavily on consultants. At the time of the story, there were 470 WSP employees on the project and only 180 rail authority employees, I. E. Public employees. Has this dynamic changed and how reliant on outside consultants is the project at this time?

I appreciate the question. When I came in, one of the first things we did was start a process we called form to function, which was to review who was doing what for the authority. Consultants versus state staff. When I started, the authority was 70% consultant and 30% state staff. We've gone worked with the Legislature over the last several budget cycles, and we've reversed that. Not entirely, but state staff today is about 55%. Consultant staff is on the order of 45%.

This project will always need some consultants because the magnitude of the work exceeds the ability of the current state staff. And high speed rail is a new thing in America and in California. So some specialization will always be needed. But we have flipped the proportion on state staff versus consultant, and that's been done in the last couple of years.

Thanks. And not to belabor the point, but reports show that the authority, at least in 2010, was paying consultants an average of $427,000 per engineer, while the state's in house engineers were approximately $131,000 per engineer. Has this disparity been resolved, and how many consultant engineers is authority still using?

Private sector engineers typically do make more than public sector engineers, but public sector engineers are no longer making just 131,000. It's significantly above that. I don't have in front of me right now the total number of engineers for each that we have, but we can provide that to you.

Yeah, I think I'd be interested in seeing that. The State Auditor also noted in her high speed rail audit that consultants from the same firm, namely WSP, were being used to oversee other consultants, which presented a significant conflict of interest. Has this ethical issue been resolved?

Yeah, I think that's from a 2012 audit. 11 years ago, when that audit first came out, that's what led us to do, when I came in to do, I'm sorry, 2018 audit. And when I came in, that's when we started the form to function review. And so WSP, as the primary contractor, has some subcontractors that they manage. But what we've gone through and done is in the form to function process identified, what's the appropriate role for contract workers versus state workers.

And I think we've aligned it much better today. There are still subconsultants that serve General consultants, and that will exist in any context, but I don't think we have any obvious conflicts that are in front of us right now.

Great. Maybe you'll need to get back to us on this, but can you break down the funding for this project, namely, how much is going to consultants and how much is actually being spent on construction? Can you quantify this in percentages?

Yeah, I can come back to you with it, but I'm happy to. I can tell you the bulk of it is going to construction, but happy to provide that to you.

Yeah, I'd like to see that breakdown. I may have more, but I'll end at this time.

Any other Committee Members with questions? Assembly Member Hart? Thank you.

Thank you, Mr. Chair. I'm curious about the points that Chair Bennett made at the beginning. His presentation about the differences in the strategic approach of the Japanese model using real estate development at stations. And I imagine that is used primarily to subsidize operating costs. But is that a strategy that is viable for capital shortfalls? And how does that relate to your strategic vision for our California high speed rail mean?

There are things we can learn that can be applied now to the development as we're designing and building the project?

Yes, we are just at the beginning stage of designing the four key stations in the Central Valley, Merced, Kingstolare, Fresno and Bakersfield. But as we do that, and we work with the local communities on that, there will be opportunities for increased value of parcels and land around the station, some of that which we own.

And there will be ability to work with those locals through things like infrastructure, finance districts, for example, or similar mechanisms like that, to capture some of the value of the land based on what we're doing there and make it a revenue generating thing for the authority. The other thing is some of the opportunities in the station itself, through concessions, through naming rights, through various other ways that you can raise revenue. So some call it ancillary revenue.

I think on the Value Capture stuff, it could be much bigger than that. And so there are opportunities, and we are pursuing opportunities in working with the cities on the development around the stations and part of the station to raise revenue through that process.

But how would you characterize that in the context of the numbers that we're talking about in the shortfall? Is it a significant percentage?

My sense of it sitting here right now is, I don't think in terms of. We've identified the cost increases from where we were last year to now, between 6.5 and 9.7 billion. And I don't think you're going to raise that much revenue to cover that through value captured stations. But you can raise significant revenue to offset operating costs and other things through those concessionaires. Thank you.

May I add something to that?

And I was going to say, I would like to have all the panelists feel free to address any of the questions that are brought up.

I have extensive experience working with Japanese national railways and then with the system later. They are very aggressive about raising commercial development in their stations and other kinds of development around the stations. And it is beneficial. They do generate money, but it will not be the solution to this problem for two reasons.

One, I don't think it's that great, and the other is that the local authorities are going to try to get their share of whatever the value is, and that's good in the overall economic value of the project, but it will not make that much of a commitment to the construction of the system.

And.

I would just offer, my observation is that that's much more in an operation and maintenance subsidy than it is a capital cost subsidy. Other questions? Assembly Member all right. Assembly Member Creo, thank you.

First, I want to say that I am supportive of the project. This is something that California has to do, given the fact that other nations are really successful in what they've done. It was mentioned Japan, the model in Japan, something I just learned with Chair Bennett's comments about the trip to Japan, how Japan actually partner with other systems to make it successful. And maybe this can be an opportunity for us to see how we can partner with other ones.

The reason I say that is because I'm sure, you know, Priyland is here or is going to start construction this year. According to a press release they did, they are already operating in Florida and they are coming to California. One of the questions I had, and maybe it's going to be answered later in the next presentation, but if you can, one thing that I keep hearing is, why was the decision to start the system in the Central Valley?

This is about ridership, knowing that this was first approved in 2008. Of course, we didn't predict that we were going to have this shortage of ridership in systems, public transit systems now, but it seems like starting the system in populated areas like LA, San Francisco, that would actually have the ridership again, not knowing that we were facing with COVID and with the declining ridership that we have now. But why was the Central Valley the beginning of the project?

Back in 2008, the State of California applied for federal funds to develop the project, and the state submitted four different sites for application of funding, and the Federal Government chose the Central Valley as the place to start. In part, I think it was because there was a thought that the right of way issues and the cost of property, there might be an easier place to start than any more expensive areas.

I also think, and my recollection is that they had a very clear, under, a clear intent to get economic development going in what was a disadvantaged economic area. And I think that was part of the drive for it, as well as an area that was a poor air quality basin. And they wanted to see the benefits of the project start to have an impact there.

I think it's important to give the reasons why, so that people know what the reason behind that was. On page nine on the report that you provided us, the second bullet point, the fourth lineup, it says that it is expected to lease the right of use of its tracks to a third party, and it's listed here, San Joaquin John Powers Authority to that it seems to me that we are predicting maybe that the project will not continue.

We're looking at listing the tracks for the existing section. What's the reasoning behind that?

I'm sorry, was that on my handout?

Sorry, it was on our handout and sorry I skipped over that one. But I'm happy to talk a little bit about that bullet. So it's what references the authority's plan to use a third party operator to operate the Merced to Bakersfield service on an interim basis. And the idea would be the joint Powers Authority, I think, although I'll let the authorities speak about the rationale, there are a couple things. One, the joint Powers Authority already operates the ACE service and they operate Amtrak service.

They are sort of well positioned to probably coordinate service because you're going to need a lot of coordination there at Merced. So there's some logic perhaps to that. Also, there is this requirement under Prop one a, about the authority not requiring an operating subsidy. So this is sort of one part of addressing that issue, as I understand it, is if you use a third party operator, there's perhaps a stronger argument that the authority itself is not requiring an operating subsidy.

But I'll let the authority, yeah, I.

Mean, just to be clear on the intent of the business model for the initial Mercedes Bakersfield run, we are presenting that for the initial run that we would own the assets and that an operator would lease the assets and the trains to operate the initial service. San Joaquin's operates the service today. That is, that exists today.

But the opportunity here was for us to get the assets that are built put into use as soon as possible, get an operator running on that electrified high speed service and then transition as we get into the Bay Area or Southern California for an operation that's run directly by the authority through a contract operator. And it's also not, I should say it's not entirely clear.

I think San Joaquins themselves are looking for, considering what they call a universal operator that might operate all systems and it could be under contract with them. So there's options to come on that. But initially the first business model that we are doing is owning the assets and the rail and another is operating. Okay.

And one last question, if you can educate me on the difference between the brightline scope and the high speed rail so that I can understand if there is a way to partner with Brightline. Again, going back to the model from Japan, where again, if Brightline starts working this year, which they say they would, they still haven't started working. Right.

But if the opportunity to partner with Bryline being a private entity who obviously seen the market in California to be successful for them based on their model, whether it be revenue, whatever the case may be, but if they are willing to come to California to take people to Vegas, which are international tourist destinations, what's the difference between the Bryan model, the high speed rail, and is there an opportunity to partner to make this successful?

I appreciate the question. The first thing I need to be very clear on is that everything we do at the authority, the alignment we choose, the technology we pick, is guided by statute. Everything we do. The Proposition 1, a bond Bill, laid out pretty much the alignment for what we would put into place. And that alignment was a north to south alignment connecting San Francisco to Anaheim.

And it had to go through the Central Valley cities, and then it had to meet many performance criteria that required electrification. And so that's the reality of what we operate in. That's the box we operate in today. That's what the voters of California approved.

The project that is the coming bright line project between Southern California and Las Vegas has a little bit of a different statutory history, I recall, and this goes back to, I think, somewhere around 2006, there was a Bill passed that authorized the then secretary of transportation for the State of California to provide right of way for a passenger rail system that would use the I 15 corridor to connect California with Las Vegas. But that alignment was not all laid out in the statute like ours is.

However, at that time, there was a different entity called Desert Express west that was going through a process of approval to do that project. And over time, it's gone through them and virgin, and now it's brightline to run a Rancho Cucamonga to Las Vegas stretch along the I 15 corridor. And one of the key differences between what they're doing and what we're doing.

I mean, I'm happy that now they're at a place to do electrified high speed rail, because that was a question for a while, but now that's the proposal. They have not had to deal with private right of way issues because the State of California has provided them right away. They have not had to do a full blown CEQA or NEPA document because it's an interstate project.

And they will need, like any operator will need us, them or anybody in America who wants to build a high speed project. They will need federal funding, and they will be applicants for federal funding this year. So while they've been private before, their business model is changing a bit to be successful. So I expect they'll be applying. Now, all of that said, I think there are very good opportunities for us to do some things together.

For example, we would likely be the first two entities in America that would try to procure electrified high speed trains. And there may be great efficiencies and economy of scale if we do that together. And that may be a better way to move the manufacturing of electrified high speed trains to America by having it be a bigger procurement that we both may undertake. So there's opportunities there. There's interoperability opportunities.

We've entered an MOU with them to make sure we'd work on things like platform heights and track gauge and things like that. That would be interoperable. And so there's opportunities there. And the big one for us, I think, is the ability to connect initially with a service in the Palmdale location because they're going east to west from LA to Vegas through Victorville.

Now, it may make sense to go to Palmdale, where we intend to stop and have a station connection there so that they can move people from both Northern California and La East to Nevada. And so those are all things that are kind of down the road that are possible, but there are opportunities for the two systems to complement one another.

Thank you for that. One last comment or question on the last two pages and where you're asking what the Legislature would like to do for me, personally speaking for myself, I would like to see that Phase 1 being completed. There was an article on calm matters about how it would be more expensive to not complete high speed rail. And I read the article, but I think it's because of the significant investment that has been done on what's already there, the infrastructure.

Do you agree with that article that it would be more expensive if the project is not completed?

I think I would say it this way. One, even with the cost impacts that we are seeing, and everybody is seeing from inflation and other factors, our costs here are in line with international high speed rail costs. That's one. Secondly, if you are trying to get the same capacity from your transportation system that we are offering through highway widening and airport expansions, you would spend a lot more than you're going to spend doing what we're doing.

Thank you, Mr. Chair. No more questions. Thank you.

Senate Member Jackson.

Thank you very much, Mr. Chair. I was a lot happier walking in today. How much of our General Fund is being allocated in this budget towards this project? Is any General Fund? So it's all bond. Correct.

And federal funding and GGRF. So the main sources of funds on the state side are the Prop one, a bonds, which the voters approved, that was a General obligation bond. And then about 25% of the state's cap and trade dollars are continuously appropriated to this project. So the project is receiving significant funding from that source, and the authority assumes that it will receive between 750 and $1.0 billion a year through 2030 from that source.

And that source also supports a variety of other activities as well.

So even though we are seeing a large amount of additional unanticipated cost, it is still within the funding streams that are not affecting the overall finances of the state.

Well, sorry. So to some extent, money is fungible. So to the extent that we spend, for example, greenhouse gas reduction fund dollars on this project, those are dollars that aren't being used for other activities, some of which we Fund with the General Fund. And the GGRF is a pretty flexible funding stream, so it's one that can be used for a large variety of projects. So I think that there certainly is a trade off between using GDF for this and other priorities.

And then Prop 1 a while, that's a General obligation bond. We do repay that bond with other revenue streams and we've been using, again, we truck wait fees offset some of the General Fund costs associated with that. But to the extent we use truck weight fees for that, again, they're not available for other things. So I think they are certainly state revenue sources that have trade offs already that we are using for this project, even if it's not direct General Fund.

And that's, I know, a little bit complicated, but I think it's an important part of the story because I think sometimes people focus on, zero, there's no General Fund that's directly going to this, but there are some other important state funding sources.

Well, obviously that's important in terms of the fact that it is taking up room for us to address other priorities that we could actually literally make an impact with. Right. Because at the end of the day, when we go back to our constituents and talk about what have we accomplished with the decisions that we've made, this is a tough one, right. In terms of what the original vision was when it comes to. Secondly, what it is, obviously hard decisions need to be.

Excuse me, Assembly, before you go, I think Mr. Kelly wants to address your first question also.

No, I just to provide.

Jump on in.

No, I'm sorry, just to provide some historical context to this. When the GGRF dollars were assigned to this project, about 40% of the dollars were assigned to various transportation related things. On the notion that about 40% of greenhouse gas emissions came from the transportation sector. And so there's money for transit operating, there's money for transit capital, and there's money to advance this project. I just say that there is no project anywhere in America that is moving along and constructing as clean as we are.

Our GHG offsets for our construction is not comparable to anybody else in terms of what we are achieving. And the ultimate GHG offsets from our operations, once we're in full operations, will be huge in terms of vehicle miles reduced and number of cars taken off the. You know, we think the overall GHG impact from what we're doing is worthy of that investment. And even in construction, let alone once we're in operations, we put out a sustainability report every year that goes through this.

And again, happy to talk more about those specifics.

Well, I mean, obviously that brings up the idea that even with this first segment, right. Can we really give a completion date?

Yeah, we'll be done with the 119 miles by 2026. We'll be testing trains by 2028. And assuming as Lou and Lao and we have been saying for years, funding is stabilized, we think we'll be in operations in the window between 2030 and 33 for the Mercedes Bakersfield stretch.

So it's after that, the remainder of that phase that is in question, correct? In terms of additional funds necessary?

No question. And that's been the case since the bond Bill passed. I mean, just again, to provide context, when the bond Bill passed in 2008, the voters put 9 billion up for a project proposed to cost 45 billion in the voter pamphlet. And so it's never been a fully funded project. It is still not a fully funded project.

Since I've been here, we've been focused on getting the 119 done first, which we owe the Federal Government focus, getting our environmental documents done, which we're almost finished with, and then getting the first operational run, which we think, based on where it started, where the assets are, and where you can get a bang for the bucket, should be the Mercedes to Bakersfield run.

Are there hard decisions for us as a Legislature that we need to make?

Well, may I respond to that?

Sure.

Because the reason why we emphasize that you should step back and look at the entire project now is because this is not the project that was seen in Prop one A. The costs are much higher. The schedule is much longer, the demand is less. This does not mean that it isn't a good project. It just means it's not the same project. Then you should step back and see what you're getting for your money.

And your question about trade offs is even more serious now than it was in 2008. And you really do need to take this new perspective before you say we really are going to do the project, because I think that is the key to the second piece, which is if we really want to do the project, where are we going to get the money? And you can't make that decision. Well, unless you know for sure this is what we really want to do.

The second point I want to make in this discussion is that this should not be seen as a greenhouse gas project. It will have a greenhouse gas effect, yes, but it's not that important in the context of California's greenhouse gas emissions, especially when you realize that we're going to have electric cars, which will be using the same electricity, and the impact of the shift on greenhouse gases will not be as great as it was appeared to be from air.

Yes, but the main source of demand of automobiles will not have the same impact. So think about what we're doing. Sit and make sure this is what we want to do. And we're not saying we won't reach a positive conclusion, but we really should do that now because of the difficulty of the decisions that you identify.

Well, obviously, this is no longer a budget year or maybe in the foreseeable future when we start thinking about the ups and downs of our economy, that this is no longer a discussion of whether this is a good or bad project anymore. This is a discussion about what should be prioritized. Right. And so for me, there's no doubt this is a good project.

But in terms of, can we get more bang for our buck in terms of other money that we could be spending on other things. Right. And whether this is, can we actually provide more relief to our constituents by investing in other projects that has a greater return on investment or a quicker return on investment for the amount of funds that we have available. Any comments on that?

I think that's an extremely important question, and especially as the state is staring down potentially deficits in years to come. And really as this project funding gap has grown quite substantially even in the last year, and I think, as Mr. Thompson pointed out, there is a question about, okay, if we were to just stop at Mercede to Bakersfield, which again, there's a funding gap for that, but say we find the money we do that, is the Legislature comfortable with that?

Is that going to provide enough benefits to justify that cost? If not, is the Legislature comfortable funding valley to valley or phase one? We're looking at, again, probably something in the order of at least 80 billion, probably significantly more than that in terms of funding gap. So there's no easy funding stream to come up with that kind of money.

So it's going to require really tough choices to come up with the kind of money that we're looking at to really complete phase one, much less to get down to San Diego or go beyond that, which I think is in many people's dream. That's what we would do. So I think that's really a very difficult fundamental choice for the Legislature.

Not just is this a good project, but is this a good enough project to prioritize it above the variety of other really important things that are coming before you, some of which may end up getting cut this year and next year and the year after? And we can't answer that for you. That's a priority question, but it's a difficult priority question.

Yeah, I wanted to add the second recommendation that we made is that you put together a comprehensive source of what the money might be and what the sources are and how they might add up. Discussing them in the abstract isn't going to get us anywhere. You need a good solid list of the various things, like if you extend greenhouse gas, the cap and trade to 2050, that is x dollars, what are the various sources and what are the trade offs?

And we can't discuss them in the abstract. You really need a good solid list in front of you.

Mr. Thompson, please don't ask us to be that. We don't want to have to ask you to, to leave. That's a hard thing for us to do. Let me say this. This is my first hearing on this. Right. I'm not saying I'm prepared to make a decision or have the answers to my own questions. Right. But the idea is clearly that there's some red flags and we've got to stop pushing this from one session to the next, hoping it just works out right.

And so I just think that at the end of the day, we've got to start really digging down into what decisions need to be made. And if we're not willing to make those decisions, then in a responsible way, in a comprehensive way, then we need to start thinking about what's a better rate of our return, because I don't think history is going to judge as well on this project as the way we're making decisions right now.

May I, Mr. Chairman?

Absolutely.

I appreciate it. Just one thing I want to be really clear on. There is no disagreement between LAO, the PRG and the high speed rail authority on whether or not we should do Merced and Bakersfield and stop. I mean, at least from my perspective, we are not proposing it as the end of the project. We're proposing it as the first part of the project.

And the reason we're doing that is, as we talked about, the Federal Government gave California back in 09 and 10 $3.5 billion to get started in the Central Valley on 119 miles segment. That is not a good operational run. It is between Madeira and a place called Poplar Avenue. And what Governor Newsom came in and did and what we talked to the Legislature about last year was extending that segment from 119 miles to 171 so that we had an operating segment that made some sense.

And that's what we proposed last year. Now, it's very humbling to come before you now and bring you a project update report. At the time, we're at the 40 year high of inflation and say to you, it's going to cost more just like every other transit project is facing in California right now. We are not immune from those challenges.

So we presented a report that says we have inflation costs, we have higher risk costs that we are acknowledging and putting in our budget, and we have scope costs because we've defined the scope much better. The other thing I just want to be clear on, and this may be a divide between LAO and the authority.

What I'm proudest of in the five years that I've been here and the work I've done on this project, and we have done on this project, is that we have learned all the lessons that were not learned before we got here. And that means, fundamentally, you get into construction too early before you're ready. You didn't have the right of way done. You didn't have design done. You didn't have utilities moved. Okay?

Today, 100% of the design is done, 98% of the utility or the 96% of the right of way is done. And we have a much better definition of what's in front of us. So we feel like we're closing the door on the big challenges of the 119, and we're focusing on how to do it right going forward, and we're putting the lessons learned into practice. And what I mean by that is, for example, we are not waiting to advance design later. We're doing it now.

So today, we're in construction on the 119, and we're in design now. On getting to Bakersfield and getting to Merced, we're in design now on the four stations that would make up that system. That is how you identify risk earlier, mitigate that risk earlier, and not have a repeat of the cost overruns that we've been dealing with. So to me, it's been five years of trying to close the door on that past and do a future that's clearer, better and smarter.

And candidly, I think we're being successful at that. So we're almost done with the 119 stretch, and we're looking forward now to moving forward in the right way on what's in front of us. But all of that said, it is also true that to build a high speed rail system from San Francisco to Los Angeles and Anaheim and reduce that travel time from what is a 12 hour train ride today to about 3 hours will take a lot more money and time.

It'll take between $100,000,000 and $130,000,000,000 to build that. We said that two years ago, and I said it last year, and I'm saying it again, that's what it will cost. But you all don't have to make that decision now. The decision that we're asking you to make now is, can we get this done in segments? In know, I come from the Bay Area. We built a BART system in the Bay Area. When that system was first built, it covered three counties. Right?

Contra Costa, San Francisco, Alameda. That's it. People wrote about how cost crazy it was. Now it almost is circling the entire bay. The ridership is well beyond what it was when it first started, and it's suffering from all the post Covid things that everybody else is. But I just want to be clear that what we are saying is this project has never had all the money it needs for all of it.

We can do this in bytes to advance the concept and get ridership going, get people to see what we've been investing in, and then we do have to work on how we Fund the rest of it. And that's something that we have to work with all of you on how we do it. But the benefits of the system are still significant in terms of mobility benefits, greenhouse gas emission benefits and economic benefits. So, I mean, that's the question before you today.

It's not come up with $100 billion. Today. It's, do we have a federal partner? Can we get that first segment done? Let's work through that, and then we advance the work everywhere else so we can come back to you with good data on making decisions for how we go forward. So I just wanted to present that perspective.

Very helpful.

Thank you very much, Mr. Chair. Thank you for that. I'd like to ask Mr. Thompson to respond to the comments just made by Mr. Kelly.

I think I agree with Ryan that you don't have to have a decision made today, but I feel very strongly that you should plan to make a decision within a reasonable period of time and have before you what you need to make that decision. This should not be postponed forever. You can't manage a project like this hand to mouth, year after year. That's what has gotten us into the problem that we are in now.

So the Legislature, within a reasonable period of time, if you favor the project, then commit to it and then find the funding that's necessary so that Brian can manage it responsibly. He cannot manage it responsibly now.

And when you say do we favor the project, you mean do we favor the whole completed project? Because I think you've said the project doesn't make sense if it's only a segment.

That's correct. And if the Legislature is not prepared to Fund the entire project, then you need to think again about exactly how to do Merced to Bakersfield in a way that's much more cost effective than it would be. If you spend $35 billion to run high speed trains from Merced to Bakersfield, that is not a stable project and you shouldn't do it.

Mr. Kelly, your response to that?

A couple of things. First, the 35 includes a lot of expenses outside of Mercedes to Bakersfield, like completing the environmental work everywhere, doing bookend projects in LA and the Bay Area. We're now investors in Caltrans project in the Bay Area. We are not proposing this as the end of the project. I mean, fundamentally what we have said is, again, the dilemma I feel like the state was put in is here's federal money. Do 119 miles. That 119 miles is not a very good operational run.

We're trying to do a better operational run, and so it's going to take some more to do that. We're going to ask for most of that to come from federal help, and we're going to start that ask with a big application for funds this year. Then our hope is to advance the design work everywhere else so people understand exactly what these elements will cost beyond Mercedes Bakersfield. And then we have to have a conversation about how we Fund those elements.

Thank you, Assembly Member Reevis.

Thank you to the chairs for setting today's hearing so we can hear these updates and the progress on the high speed rail. I've sat on this Committee for the past four and a half years and have participated in these updates and had the opportunity to hear the status of this project. And every year what I hear is that the cost of this project continues to rise while the ridership estimates continue to decline.

And so the funding for this project has always been a concern and continues to be, especially today. You identified a funding gap, no plan for future funding, and I understand we've never fully funded this project, and we're asking some of my colleagues, is this good or good enough to continue? I feel the decision that we made last year to release the remaining bond funds we all voted for, it was an indication that we think it's good enough.

And so I feel like that puts us into a commitment to create a plan for this project. Funding whether I've been very critical about the high speed rail, I have constituents. The Palm Delta Burbank segment will go through my district without having to stop. It's always been an issue in my area. But after last year, I feel that the Legislature committed to continue or signaled that this is good enough and that we will move forward with the whole project.

And with ridership levels trending downwards and funding commitments from the Federal Government may not reach the levels necessary to Fund this project fully. My concern is how much are these tickets going to be to ride the high speed rail? Do we have any idea? And I know we're maybe 10 years out to the first ride on even the Merset, was it Merced to Bakersfield. And the whole goal of starting it in the Central Valley was to see economic benefits in that region.

But if no one is riding it or it would be too expensive just to ride that segment, how are we going to see and to show that this is to show Californians that this is the right thing to do to continue. I feel like the business case, we're losing the business case for this.

Well, it's certainly more challenging in the era of inflation. There's no doubt about that. That said, look, as I said, we wanted an operational run to start. That made some sense.

And what we know based on, even with our reduced ridership projections right now that are still going to go through a lot of work and analysis with our partners on that initial segment, even with that, building the system by the timeline, we want to get that thing up and running would almost double the ridership versus a no build scenario, which means that if you don't build it, you leave Amtrak there, you'll have half the ridership you'll have if you build our system.

So there's a value in that already and then that ridership number between 6.6 and 7.5 million riders a year. Just to give you some context on that, the three corridors that Amtrak runs in California today, the San Joaquins, the Losan and the Capitol corridor, their combined annual ridership is 5.6 million riders in year one. We'd be exceeding that by a million riders a year. So we see value in the initial operating run. It is not the end of the project for us.

We think the voters said build phase one. We think that's what we got to get to. We're trying to get to in a way that makes some sense and that's what we're proposing.

Assembly Member Ting.

Thank you,

Thank you, Mr. Chair. Just to clarify, I appreciate Lao's comments, but again, the only state funds that are committed, the funds that we have direct oversight over are bond repayments, which technically we don't have oversight over just because we've committed it. The voters have passed it and then DGRF. Is that correct?

Yeah.

So when we're talking about what our role is, and I guess going back to Mr. Thompson, the question is whether or not we would, I don't know if Mr. Thompson's asking whether we'd be willing to commit further dollars or is it just are we going to direct Director Kelly to go chase after more dollars for the San Francisco to Anaheim Lakes?

I hate to finance a project of this side by chasing after federal money. That isn't what we're trying to do. The existing sources will not pay for the project. That's clear. So, something else has to be found to pay for it. Now, if there is a federal program that's the equivalent of the Interstate Highway Program, that's good, but it doesn't exist today.

And if you wish to follow through on a commitment to the project, then a thorough study of where might that money come from or who's going to pay? It has got to be done. It must be done.

And I appreciate that, Mr. Thompson. I appreciate everything you've done. Incredibly, your guidance has been absolutely critical for the last number of years. I guess my question, either to you or to Mr. Kelly or LAO, is what significant state transportation project has been significantly paid for by state dollars? I'm not aware of one.

The California State highway system.

Yep. That's the only one I can think.

Of, is a good example. Most transportation, big transportation projects in California have multiple sources of funding. Often in California is unique in that it's got local sales tax measures for transportation, but even those are often matched by federal or state funds of significant value. Just last, I'm sorry. In January, the state transportation agency provided about two and a half billion to transit projects around the state. That all were just dealing with inflation related cost issues.

There was nothing new about the projects, no new scope, but they were dealing with cost issues. So the State of California provides a ton of money every year. I think the budget for Caltrans alone is on the order of 20 billion, and some of that includes federal funds, but the bulk of that is state funds.

I completely appreciate Mr. Thompson's comments, LAO's comments, the entire Committee. I think there is a significant amount of uncomfortableness around the uncertainty of the project. But I would also just remind all of us as legislators.

I think if you go back to the construction of the Golden Gate Bridge or in my area, the Bay Bridge, or you go to the construction of BART, which is a critical system in our region that really accounts for moving significant number of peoples, even at a time when it's rather Low.

And you go back to the headlines for each of those major, major projects, and you could probably compare them to these headlines, I imagine, in terms of cost overruns, uncertainty, whether or not we should build that Golden Gate Bridge between San Francisco and Morin, whether we should do large infrastructure projects are very difficult. They oftentimes take many, many years and they outlive the people who started them. And they require the people who see it through over multiple administrations, multiple legislatures, multiple boards. However we see.

Me, just to answer Mr. Thompson's question, I think if we didn't stop the initial leg of Merced to Bakersfield or whatever, between parts of Merced to Poplar Avenue, I think we're already committed to phase one. Because you're absolutely correct. It does not make any sense to only run a train, whatever train that is, between Merced to Bakersfield in terms of ridership. I think that to not connect it to the Bay Area, to not connect it to LA, makes absolutely no sense. Right.

And so I think your next question is the right question, which is, what does I think commitment look like? And I think commitment, just from a state budgetary point of view, may incorporate more money at some point, but I don't think that this project gets done without a significant amount of federal money, period. That's the way, when you look at La Metro, La Metro wasn't.

Okay, let's go talk to the voters of the City of LA, and we're going to float bonds and we're going to spend money of our General Fund, La Metro, the most recent large scale transit project. A lot of that's focused on federal money. Right? That's where you get the money. So I don't think it's incorrect in terms of any. I think all of you are saying all the right things and pushing us to make the right decisions.

I think the challenge for us is what does commitment look like and in terms of state money or, I think direction. I think we took a big step last year when we authorized the remainder of the $4 billion in terms of bond funding and to provide greater direction.

Wanted to make sure that the authority was very much focused on Merced, to get that completed, to make sure that that was completed not at the expense of the other locations, but to make sure that there was a certain level of focus. We didn't want to have a little bit of work here, a little bit of work here. Let's at least get something done, get stations open, get those trains running. I think the larger question is in terms of sort of our commitment and direction.

I just go back to Mr. Thompson. What would you want in terms of direction that would make sense? Because I think anything that gets put together in terms of a financial plan, in terms of projected revenues, and this is no different from any public project, we have an affordable housing crisis.

One of the major challenges we have around affordable housing is look at any affordable housing project, whether it's 10 units or 100 units or 400 units, you've got to stitch together like 51015 different funding streams. That's the challenge with any kind of public project. If this was a private project that we could build and could sustain itself on the market, this would have been built yesterday.

So I guess in terms of your commitment, Mr. Thompson, what are you advising us to do in terms of seeing that? Because anything we put out there is still our best vision of the future.

Let me emphasize the word you used, stream. Not single point, but stream. This is a 30-year project. It will not be financed year to year by, oh, we found another pot of money. It just doesn't work or shouldn't work that way. The 2000 business plan that was issued for the authority before these people proposed to finance the project with a quarter cent sales tax. That's a stable amount of money year to year.

That permits them to plan, it permits them to hire, it permits them to train, it permits them to structure the contracts in an efficient way and manage them. That's what really is needed if the state wants to do this project, not begging for federal money. We hope to get some next year, and we usually do. That's true. But you can't plan and manage in that kind of way. So that's my answer.

If you want to do this, construct stable, credible, predictable streams of money that are adequate to do the project.

Can I just add one thing to that? First, I couldn't agree more. In each of our last three or four business plans, we've talked about the potential of the extension of cap and trade at some point, and what that allows us to do with a new funding stream, including taking advantage of federal financing options that are very good on terms and very affordable and good for the State of California.

So we do agree, whatever the source is, whatever that plan is, that the long term stream is what's going to be required for a project of this magnitude. One other thing I just want to comment on federal funds. There is no high speed rail project anywhere in America that's going to be built without federal funds. And Brightline is proving that in real time. They started out as a private thought. They can't get it done without public money.

There's never been a better opportunity for federal funds than there is right now. And we have a strategy, been working with the FRA on pursuing those federal funds to either cover the gap or at least get this gap shrunk so much that we're at a much smaller amount to get the initial segment done. And so that's part of what we put in the project update report, and it's what we're working toward.

And if I might just add quickly. So I think one of the challenges is this really is an unusually good time to go for federal funds. These recent infrastructure bills are very substantial commitments on the heart of the Federal Government. Even in that context, we're looking at a target of 8 billion, and we'll probably candidly be lucky to get 8 billion. So while that would be very helpful, especially to completing Mercedes to Bakersfield, that's not going to get us to phase one.

We're still going to have a very substantial funding gap. And at this point, there's no ongoing funding stream on the federal side that would really meet that funding gap. So it would be ideal. I think all of us would love it if the Federal Government would provide funding that would really help us get to phase one. At this point, that doesn't exist.

I think the Legislature can't just, in my mind, I don't think we can just assume that the Federal Government is going to come forward and create that. It would be great if they do, but there's no certainty. And so real commitment to phase one will probably mean the state planning on the scenario in which the state really has to fund that. And I think the question is, in that scenario, what would the state's plan to be to come up with that amount of money?

And it is a large amount of money, and maybe it's a variety of different sources. It might not just be one. I mean, even if you cap, if you extend cap and trade to 2050 and dedicate all of it to this project, that's probably not going to be enough. Right? So we're going to have to think about what or may not be, depending on what cap and trade revenues are and what that program looks like.

So I think it's really important to, we're going to have to think really carefully about those choices and what the Legislature's priorities are, and probably not just even though ideally the feds would come through, not assume that they will.

In this case, I have to step out and go to the housing Committee. Hopefully it won't be long and I'll be back. But I do have comments, lots of comments about this project, but I have comments that specifically relates to what you're asking about, Mr. Ting. And so if you wouldn't mind, I'd like to make these comments very quickly.

I think a reason why we changed the format of this meeting, and I know it's frustrating for Mr. Kelly because he hasn't really had a chance to sort of present his whole package yet, but it is specifically because there are so many questions. And look, we're at two and a half hours, or we're coming up on 2 hours in this project, and I did not want to squeeze all of these questions in, in the last LItTLE bit in a hurry, rather the other way arOund.

But that being said, the reason we change this order is because I think, although we made a commitment to this beginning project, I'm not willing to simply say all public projects are like this. All public projects, you just do what you can and then see when can you patch together the next thing and do what you can, that we have to be something better than that.

And so Mr. Thompson's sort of insistence that we're not being responsible if all we say, and that's how I started this thing off. I said, I don't want to just say the easiest thing to do politically right now is just go, I hope you go get the federal funding, and thanks for the nice report. Hope the federal funding comes through, and I don't know what we'll do if the federal funding doesn't come through.

I think that it is important, and it won't be sort of a quick thing that we're going to decide right here. But we have to be serious every time we talk about this project, about this, because not all public projects get finished. And I want to hearken back to, I grew up in the Midwest. There are canal projects all over the Midwest that are segments that never got completed.

And after the Erie Canal was built, everybody said, oh, the way for your state to become powerful is to build a canal and connect you and have this great cool transportation thing. And they literally didn't have funding for those projects. And the depression of 1837 hit, and by the time, in those time periods, these things were started in 1820s, the Erie Canal was built.

By the time they got it all, finally got themselves financially in position to do it, they didn't want to build canals any longer, right. I don't want to have this project be so far down the road, because a fair question is this. If you're cruising down the road in your electric TesLA with all of the convenience of an electric Tesla, do I really want to drive to Bakersfield, get out of my Tesla, take a ride to Merced, right?

Or do I even want to take the high speed rail if it's a long time down the road? So I'm not trying to throw a monkey wrench at it. I really think I'm trying to throw a lifeline saying we've got to be more serious and coming up with a commitment to a funding stream or we have to find out if the Federal Government is going to be that partner.

The question for the Federal Government shouldn't be, hey, we're asking for 1.9 or you asked for 1.6 billion and we got 50 million. Well, if that's the answer we're getting, we should say we got a big, big problem here with this project. We need to know that the Federal Government is a partner in a funding stream, not a, sometimes depending on who's in power, because we've had administrations that have been trying to take the money away from us. So is that a logical partner out there?

So I think we have to go beyond the leap of faith that all public projects eventually make it because we eventually patch it all together. This one is different. It started on a much rockier foundation. It didn't start on the strong foundation that maybe some other public projects did. And it is not certain that high speed rail won't be something that we're looking at 30 years from now.

As boy, that segment through the Central Valley is a really cool electrified segment, but we just never pulled it off to do everything else. So I want to be serious about that. Excuse me, I'm going to go to the Housing Committee, but I'm turning over to a far more competent chair. Assembly Member Friedman, thank you.

I know after those comments. So I was hoping to go back, I was saying after those comments, but yes, I'm going to go back to chair Ting.

Thank you, Madam Chair. So I think chair Bennett brought up excellent points. And I think, again, I think this has been one of the most productive, I think, discussions that we have. I think first of all, because this report is much better than so many reports in years past, this 2023 project update, I think because now we see some light on how to potentially finish this Mercedes Bakersfield leg.

But of course, I think Mr. Thompson cut to the chase in an excellent way that we do have to make a decision that if we are going to commit long term, are we willing to go for a revenue measure, are we going to go maybe another bond? I don't know what the different solutions are, but what are we going to ask the people to support? I think that's an excellent, excellent point.

I think that's something that we're going to need to continue to, I think, grapple with probably in the next year or two. We really should be making that sort of commitment or decision. Right.

Because I know that we have Caltrain, and that was part of one of my questions around Caltrain between San Francisco to San Jose, with it mostly being run by the San Mateo County Authority, but that we went with the sales tax measure to finally give it some stream of funding, and that's one of the reasons that it's able to sustain itself through Covid. Otherwise we'd be in very, very tough situations.

So one question to Director Kelly was there's the San Francisco San Jose leg, is that around the electrification piece and the grade separations? Because I know that's quite. Because obviously there's an existing system. I think the idea was to electrify that part of that segment to connect to high speed rail eventually.

Yeah. So we are significant funding partners in the Caltrain electrification project. That's about a $2.4 billion project now, two and a half billion high speed rails contributing about 733,000,000 to that. So we're helping Fund the Caltrain electrification project right now because ultimately we will use that corridor to get to San Francisco. The short answer is same right away.

There will be some curve straightening that we'll need to do after this, but the core electrification they're doing right now will ultimately serve our entree into San Jose and San Francisco.

Is that part of the 3.3 billion listed in the report in the LA.

Yeah, well, the 3.3 billion, I think the reference there is. We completed the environmental document, and in the environmental document, when we finished the work on the environmental document, we put in all of the mitigation issues and everything else that we have to address. So it hadn't been updated in, I don't know, seven or eight years. And so when we finished the environmental document, we updated the cost for that segment, and that included all of that.

One of the main issues we had last year regarding Merced was the connection to Ace.

Yes.

So does that additional money for that Merced extension take into account a connection to ACe?

Yeah, what we're doing is getting our system into the downtown Merced section where we would have the station go, where the AcE system will go. ACE doesn't go to Merced yet, but they are working their way toward Merced. And the idea is by the time we're operational, we would all be meeting at a single station in downtown Merced. So our cost estimates include the double track into that downtown Merced station.

The ACE funding to get there is coming not through us directly, but through Kalsta, the state transportation agency, and other funding sources. But not directly through us to get AcE to Merced.

The plan then, as it's been modified, is to have a single station, not to have ACE in one location in Merced. And then, that's correct. High speed rail in another. Think that again. So the bottom line is, if we are going to commit, the commitment is twofold. I think it's policy direction, I think, which we gave on this initial Mercedes Bakersfield leg last year, but greater policy direction in terms of San Francisco to Anaheim.

And then the second piece of it is some incorporated financial plan or some revenue stream. That's what the next phase of this discussion sounds like for us, like phase one a for the Legislature is those two questions.

I agree. I would just add that maybe one thing that is a consideration on timing issues there is later this month due the application for the most sizable federal program for this system. And so I might suggest that you have some time to see where the gap is after we see where we are after year one with the feds and whether or not they're going to commit to a multi year funding commitment on this. And that's something that we're asking them about.

But we will know that in 2023.

I don't know if Mr. Thompson wanted to say add anything or not.

Yes, I think that's a summary of what I'm arguing anyway, that you need policy commitment, that you do want to complete the phase one, and then you need a credible funding program or you won't get that immediately. But over the next year or so, if you can do the summaries of what the funding sources are, then you are in the position to make the choices.

And of course, I left out the fact that obviously the Governor is going to need to be involved in this as well, and direction from his office is critical. This goes back more to Mr. Thompson. Are there any sort of operating items that we should be looking at or thinking about that may save us some money? Or is it really the project as design really is what we need to go Fund?

And it's up to us to figure out, okay, is there money to really Fund this or are there some things that we should be looking at? I think Lao mentioned some items to save money, which I appreciate in terms of her highlighting and her also highlighting how while those will save us money, maybe they wouldn't be necessarily the best places to save money, given the importance of those kinds of decisions.

She mentioned, like doing a single track, or perhaps you could save money on stations and things like that. But again, also highlighted the downside but is there anything we're not looking at that might reduce the cost?

The phase one proposal as it stands now is consistent with normal high speed rail practice around the world. I don't think there's much you would change about that. If you're going to do that phase one system. If you're not going to, then I think you would look at Mercedes Bakersfield in a different way. You probably wouldn't electrify it. You probably would reduce the speed of the two in connections. I'm sure you would do the station the same way.

That is a good idea, and it improves the value of the service.

Got it.

If you cut back to the 119 miles segment, then I think you would cut a lot of other things out. So there are changes, but if you are going to do phase one as it is currently envisioned, I think that's fully in line with international practice and wouldn't change much.

Going back to your point about international practices, there's high speed rail all around the world. This is not something, this is not a unicorn. High speed rails are built. I had an opportunity to ride it in China as well as in Taiwan. It's curious. Is what we are facing sort of consistent with what other countries, other jurisdictions, what people in Europe face as well, or is what we're going through a little more unique? We talked about Japan earlier as well.

In terms of the technology. There are different ways of solving this problem, but what we're doing is consistent with the application that we have. The difference is that most of the international systems were developed by the national rail company. They had full competence in place at the beginning. They had done these things before, and they had the full backing of the national government to get the job done.

And I would say in some countries, they didn't have the same environmental clearance issues and other kinds of issues that we have. So in China, for example, they've built 25,000 miles while we've been trying to get started. But they had certain advantages of organization and money that we didn't have. But technologically, what we're proposing to do is perfectly consistent with the various alternatives that are available.

But I think it goes back to sort of what you were talking about in terms of the interstate highway system. Right. Once we made that commitment from the federal level, there was federal commitment, federal money, resources, I'm sure policy, legal legislation to make that occur. Even though we're the fourth largest economy in the world, we're financially not set up in exactly that same way where even we see ourselves as a nation state.

We don't have that same sort of exact funding ability that even a small country like a small place like Taiwan could do that. Is that fair to say?

The interstate highway program, which was passed over a lot of opposition, incidentally, when it got started, was based essentially on a stable funding from the gas tax, plus a few other things that permitted the federal highway Administration and the Federal Government paid 90% of the cost. But that permitted the federal highway Administration to establish a national map that everyone agreed to. It permitted them to plan the construction of the system inconsistent, consistent with the money that was coming in.

It permitted them to train a cadre of people working with the states that were fully competent to do the job, and it took them 30 or 40 years to do it, and they still aren't entirely finished. There are still minor things that are going on. That's the way you do a program like this, I think, not hoping to find money from year to year.

Got it. But also I think what you described is what happens when the Federal Government has that backing, which is what was the case in all the other countries we were discussing. These were all national projects. They weren't a state provincial project. It wasn't a state project or a province project. It was something that the national government fully went after. So it seems like that's the one piece to me that's a little bit different for us, that we've decided to try to go it alone.

And this is part of the reason why it's challenging.

But I do want to add 1.0. We have finally, I hope, abandoned the idea that the private sector is going to build this. They are not. They might invest later once the operation of the system is proven. And I said might. I'm not even sure of that, but they will not make a contribution to constructing the system that needs to come from public funding, either state or federal.

Yeah, appreciate that you're reiterating that there's no one coming to save us. We got to decide if we're going to save ourselves. That's what we're hearing. So again, I completely appreciate the discussion. Really appreciate all the comments from my colleagues and our panel. I think there is a lot more agreement this year than we have had in years past. I really appreciate that.

But I think obviously there are decisions from a higher policy level that need to get made in order for the commitment to be solidified. So very much appreciate that. Thank you.

Thanks. Also, I'm going to have to make some comments and questions now. And then when Mr. Bennett comes back, we're tag teaming in housing Committee. So I'll have to go and present my Bill and then hopefully still come back to hear the remainder of the conversation. This has been a really excellent discussion probably in the couple of years that I've been doing this. I think the most honest discussion that we've had about the project and what we need to do.

Although, Mr. Thomas, you have been raising these concerns for quite a while. I think it's very easy to compare our project with projects overseas. But as you point out, there's a world of difference in many of these countries. Coming out of the Great Depression, coming out of World War II, they invested in a national rail system. We invested in a national highway program, and that put them in a very different path to being very ready to transition to high speed rail.

They had a lot of existing right away. They had a public that was used to taking trains, and they're bearing the benefit of that. In some countries, they don't have the same kind of environmental regulations that we have. I would say that that's not a good thing for those countries. They don't have the kind of labor standards that we have and that allows them to build quickly and build cheaply. I wouldn't argue that we move to that model either, but we are where we are.

As much as the glimpses back are helpful to give us context, we still need to figure out how to move the project forward. And what chair Ting said, I think is the kind of the most salient point that I've heard today, which is no one's going to come in and save us. We have to save ourself. And even the federal funding that's been discussed is really a portion of the Mercedes to Bakersfield funding.

I haven't heard anybody identify any federal source in any stream that's available now that would Fund the entire phase of this project. And the LAO's comment that if we extended cap and trade to 2050 and dedicated 100% of the cap and trade revenue to this project, it still would not Fund the project. And let's not forget that that 100 billion estimate for phase one is today's dollars and that project is not moving forward for seven to 10 years.

So who knows what those dollars will look like in that amount of time. So I think that whether or not we like the project or don't like the project, it's not a question of that. We're not going to think, trying to say somebody likes it, someone doesn't like it, someone's for it, someone's against it, is all beside the point. Right now we have a decision to make about how do we get the most value out of this.

How do we either find enough steady funding to really complete phase one rather than do what has been done for legislatures now for many years, which is stall install? Or do we say, that is a question for another day.

Let's just focus on Merced, Bakersfield, and if that's going to be the answer, if we don't get a federal partner, because we don't know yet if we even getting enough of a federal partner to, we don't even know what that commitment is going to be from the Federal Government. Could be 2 billion, could be 10 billion, could be nothing. Could be 8 billion. We don't know. So we need to be prepared for all those contingencies.

And we need to also be willing to float a concept that says, do we try to get the most value out of Merced to Bakersfield as we can and then again wait to see what happens in the future? And if so, what does that look like? What does that project look like? Because as Mr. Thompson said, running high speed rail from Merced to Bakersfield.

That's.

Not a great use of taxpayer money either. But what is the contingency there? And if not, if we're really committing to phase one, can we identify a steady enough funding source to get us there? We're going to have to do that. And this is the time. We can't keep waiting because they've got decisions to make that are going to impact what they're building. Right. It's not fair to them for us to change the scope of the project year to year.

And if we're really committing to phase one and we identify a funding source, that's one project. But if not, they need to be prepared to do something different. And that's just the reality of it. We've been trying to kind of have this discussion, I think, for the past several years. I think we've inched closer to it, but we haven't answered it yet. We just haven't. We did some things last year.

We got an Inspector General, which will give some transparency, I think give us some answers that we need. And certainly for a project of this size should have been done years ago. We did ask for a station in Merced that will at some point connect to Ace. But as we heard, I don't know whether Ace even has the money to get to that station. Does anybody know up there? Lao, do you know whether they have?

I don't believe it's all been secured yet. I believe they.

So we haven't even talked about that. That we have another agency that we're expecting to meet this train that's not funded for their extension to get to the station. So I'll ask Mr. Kelly, I guess, that if we don't have the federal funding partner that we expect, what then, in the near term, would you do to make that Merced Bakersfield section to complete it and to give it utility?

I wouldn't. If we don't have a federal partner, we're going to build only what we've been funded from them to build. It's 119 miles. And finish the environmental documents.

So the 119 miles from Poplar Avenue outside of Merced?

Madeira.

Madeira, sorry. And on one track or two tracks?

Probably two.

And what's your ridership estimates for that?

Well, we don't have one. As I said at the outset, the 119 miles, it's not a good operating run, and that's why we are proposing to go further.

I mean, it's hard to, yeah, it's hard to even ask questions given the amount of unknowns in, in all of these scenarios. Right. You know, it's clear to me that, you know, there's a lot of decisions that we have to make that we just haven't made yet as a Legislature and as a public to have that public dialogue. There's certainly a lot of very loud voices in the public that want to see this project completed.

But I think that without the trade offs, as was stated by one of my colleagues, without presenting to the public the trade offs that that might entail, it's hard to even have the public dialogue, for instance, the cap and trade revenue, what else it's going to now and what it could go to and then beyond that, where the rest of this funding comes from. And by the way, I don't think that we should stop pushing the Federal Government to be a more steady partner.

I think that that's an important conversation to, you know, it could be that given this administration's priorities, that that's a possibility. But also, the Biden Administration doesn't necessarily have the support of Congress for a lot of this. So there's a lot of unknowns in that. But that shouldn't stop us from as California, hopefully speaking with one voice to ask the Federal Government to be a better partner in the project. I think I'll move on to, I know that we have other Members that have questions. I think.

Mr. Fong, you were next.

Thank you, Madam Chair. This is a very sobering conversation, and as probably the only Member on this panel at the moment that represents the Central Valley and is the most impacted by this project. Everyone here is talking about other regions, but I live in this community, and so I've seen the difficulties and the challenges and the chaos that's been created by this project, and I am fully transparent. I talked to Mr. Kelly before this hearing.

I am a vocal critic of this project, but it's not because I don't have information. It's because I see it and I'm seeing the destruction. And I know there's fatigue with all the constant criticism. And I've said this before in this Committee, we as legislators make decisions all the time with imperfect information. But now we get every single year more and more information. Let me just remind the Members.

In 2008, the business plan said that this total project, phase one, would cost $34 billion and be completed in 2020. In 2012, the business plan said that then this project would cost 68.4 billion and completed in 2029. In 2014, a business plan was presented that said this project would cost 68 billion and be completed in 2028. It was a little faster. In 2016, the business plan said this project would cost 64 billion, be completed in rose to 77.3 billion finished in 2033.

In 2020, it rose to 80.3 billion finished in 2033. In 2020, it was 83 billion completed in 2033. And then, of course, last year, it rose to 94.2 billion. And then now we're looking at a $128,000,000,000 cost, with now no date provided for completion. So this is our frustration, is that the concerns we've raised and the more information that we've been presented by these business plans have proven that our warnings are coming true.

So I guess my question, and I won't relitigate all the questions, but to the Leo, how much funding and monies has this project received from the state's cap and trade project?

Um, so I think that's actually highlighted. If you'll look at our figure on page 15, we have. So the cap and trade, this was an estimate through November 2022, it was about 5.5 billion. It's probably a little bit higher since then. And then there's an estimate, and that assumes that the project will receive between 750 and $1.0 billion a year from cap and trade through 2030, that it would get another six to 7.7 billion through 2030.

And from the inception of this project, as more information has been provided, has anyone or has the Governor's Budget ever proposed any cuts or revisions to this project? Has there been any reevaluation of this project?

There have been value engineers. So, for example, originally, I think the project was supposed to have more dedicated.

Well, actually, let me grab a question. Has there ever been an option to reduce funding for this project and move it to something else?

I don't recall that.

At least in my recollection, there's been changes in scope. I'll stipulate that. I just don't know if there's ever been an option before the Legislature to say, hey, maybe we shouldn't spend a half $1.0 billion in capitrade, and maybe put it to something else.

No, I don't recall any proposal of that sort.

Okay. Because it is my understanding the Governor has proposed his budget with a number of cuts to things like flood protection, transit, school facilities. But I'm just trying to figure out contextually, whether there's ever been an option presented before us that actually moves the resources to something else.

I don't believe so.

Not from this Administration, no.

And so I guess the question may be to the Lao is, should we be presented that option?

Well, I think all of the options are certainly before the Legislature. I don't know that the administrations, they present what they present, whatever his priorities are, and that's certainly the governor's prerogative, and it's the Legislature's prerogative to look at that proposal and to take it or to leave it or to take it in part and leave it in part or to propose something entirely new.

And in fact, the Legislature's power of appropriation is one of its most powerful core roles and responsibilities and one that the Legislature really, that's where a lot of the Legislature's power is, as you all know. And so certainly whether or not the Governor proposes to reduce funding in this area, the Legislature could consider that, if that is, in fact the Legislature's priority.

So my question set this up perfectly, which is it is up to us and to the Legislature. We can determine whether we can reallocate or change that allocation to other things.

Absolutely.

It is within our power.

Absolutely. Even though the cap and trade dollars are continuously appropriated. So they're kind of on autopilot, in a sense. The Legislature doesn't have to appropriate them every year in the budget act the way it does for most things. And that's pretty unusual. And actually, in many cases, our office often cautioned against that because it does sort of put things on autopilot. But even with that, that doesn't mean the Legislature couldn't change that.

If, again, that was the Legislature's priority, the Legislature could always say, hey, we want to modify or discontinue that continuous appropriation. Certainly that's within the Legislature's prerogative. And obviously the Legislature will negotiate ultimately the final budget with the Administration. But the Legislature has a lot of flexibility in terms of what it does in the think.

I'll just end with that message, which is that is the critical component. And the big debate we're having right now is that it's not the Governor only, is that we as elected officials in the Assembly and the State Senate and on this Budget Committee have the ability to reallocate or to change and modify this project so that it can be either used for other purposes, for other useful crises.

As the chair of the Budget Committee has mentioned, we have a lot of crises facing California, and so is this going to be the number one priority? I would stipulate that it's probably not the number one priority of Californians. And as we look at all the information and we examine the business plans. We have to be honest about what we are allocating and what we're investing dollars in. As Mr. Thompson had mentioned, the private sector isn't coming in.

And if I would like to remind folks that the voters were told that 21% to 22% of the funding of this project, that this was going to come from the private sector and that this was going to be a $34 billion project that has now risen to 128,000,000,000. We have to come at this with our eyes wide open. I would make the argument right now that even though we're fatigued and we're here, we're just getting bombarded with the same thing.

Higher costs, cost overruns, delays, and the ridership numbers aren't real. And if every single business plan keeps repeating the same thing, then we should take that warning and take that information into account and stop this project and to put those resources into better use. Thank you.

Thank you, Assembly Member Essayli.

Thank you, Mr. Chair. Good morning. Appreciate you all being here. And there are references made to other countries. We are different than other countries, and that's a good thing. We're a constitutional republic. We're a representative democracy. We're accountable to the public, to the people. And I think it's important that we're honest with the public and that we are good stewards of their money. And so I'm actually very appreciative of the comments from my colleagues. I think it's refreshing that we're taking an honest assessment of this.

And I really appreciate the questions. I want to echo Assemblyman Connolly's questions. I thought they were excellent questions. And I would like to. Mr. Kelly, I would like the answers to those questions as well. So when you write to him, if you could copy me on that, I'd appreciate it. Very interested in that.

Well, provided me the whole Committee.

Thank you. I think it's important that we take an honest assessment of the project which we've been doing, and that also we discuss accountability for performance, because I do not believe the high speed rail has done a great job based on performance. Mr. Kelly, I was shocked to hear you say that everything you do is in alignment with what the voters approved. Is that correct? Did you say that? Yeah.

The bond Bill laid out what we have to build and that's what we're doing.

But the bond Bill, Prop one a, which I was in law school when this passed. I remember joking with my friends that this is a joke. It's never going to happen. It barely passed, and they were told it was a $34 billion project. That's wrong. They were told it'd be done by 2020. That's wrong. They were told the state would only spend 9 billion. That was wrong. And they were told we'd get from LA to San Francisco in 2 hours and 40 minutes. That's wrong.

There is nothing about this project that's consistent with what was told and promised to the voters. If this was done on the private sector, if money was raised in this fashion with this type of deception, we'd call it investment fraud. But here we just call it government. But I do have some specific questions. We get them here. The project costs. I don't understand why they're so wrong.

When the contract was signed with Madeira and Schaefer, it was supposed to cost 6 billion, and now it's tripled in cost. Is that accurate?

I don't know who Madeira and Schaeffer is.

I'm sorry, Shafter. Sorry. It was 6 billion. Now it's tripled in cost. Is that correct?

I don't understand your reference. Sorry.

Can I answer that?

No. The 119 miles segment that you've been talking about.

Yes. What's the question about that?

It was a $6 billion contract when it was signed. Correct.

There were three separate contracts that were valued at a total in terms of construction costs, at about 3 billion across the board.

Okay.

And now that value is about six and a half to eight.

Okay. But let's just talk about the estimates from a year ago.

On the page 54 of your report, the construction between Madeira and Shafter, which is the 116 miles segment, have risen by 25% in one year alone. The segment from Merced to Bakersfield have gone up by 38% in one year alone. So why are there such dramatic price differences in less than a year? I don't understand.

Sure.

We covered this last year when we introduced the business plan in 2022, and we said we'd come back in 23 and update the issue. But fundamentally, the problem is, as it's been articulated many times before, when this project got into construction out of sequence, which means they issued construction contracts without having the engineering done, without having the right of way in place, without having some of the design done, they then ran into issues with design and right away being delayed, which delayed the project.

And when you delay the projects, the contractors get delay claims. And when you don't have the design done or the right of way done, those costs increase over time. And so, as I said at the outset, I came in here in 2018 a lot of those problems were in front of us and we are now finishing and putting the scope of that work into the contracts today. And so we are updating those contract amounts now to reflect the work being done that wasn't done earlier.

Let's talk about change orders because these were done on your watch.

Sure.

Change orders is not supposed to be a regular thing. I mean, this is a design build project. The contractors are supposed to absorb the additional cost. So to me when there's a change order, that means there's a total failure. Something's wrong. Is that your view of a change order? Is that supposed to be common practice or is that supposed to be an exception?

No, but as I just testified a minute ago, a lot of the design work was not completed. A lot of the design work was not done on elements of the scope of the project before the contracts were let things changed. And what we've been doing over the course of the last several years is putting all of that scope, all of those delays and all of those claims into the contracts which you have to execute through a change order.

And I'm the first guy to tell you this, and I said this last year in testimony, we were cleaning up the past and we're now getting to the end of that. And as we go forward and we do this contract going forward, we do it right, we do it in sequence, we do it in the right way, and we reduce those risks and those delay costs. But I don't have the luxury of changing yesterday.

So we could take the current cost estimates to the bank. Is that your testimony?

There will be some cost impacts from the completion of the environmental work in Southern California? Because when you complete the environmental work, you hear from communities on what's important to them, what mitigations they want, what that needs to look like. There'll be scope changes, part of that environmental, and we will reflect that in our costs going forward. And look, I've been here for five years. I come from the Legislature, okay? I don't bs the Legislature.

So everything we put into our documents is as best we know it at the time. And in this case, this is a very humbling document to put forward, but it's what has to be put forward because it does reflect the cost impacts on construction projects in America and internationally right now. And it does reflect where we are on getting the yesterday caught up. And that's where we are.

Well, I think even the recent projections haven't panned out to be accurate. Let me ask Mr. Thompson, do you agree, do you have confidence in the current project's cost estimates.

Their estimates say I'm going to use the term P 65, which means the probability of 65%, that the estimates on the 119 miles section are correct. And I think as we've looked at it, that that's within the realm of possibility. What you have to be aware of is that much of the work on the project is different than what's been done before, and there is no bidding experience on this work. Electrification, electric rolling stock, signaling, tunneling.

Major elements of the cost of the project have no bidding experience to date yet.

So we're guessing.

So not guessing, but you should be aware that the possibility for it to being somewhere around the estimate is much greater for this than it is for the remaining work on the 119 miles. Suction.

And Mr. Thompson, let me ask you, and I appreciate your testimony. I think you've been very transparent and honest. If there's no prospect of federal funds, and the only thing I've heard about federal funds is hope. Hope is not a plan. I do not believe this Congress has any desire intentions to Fund California highspeed road project. In fact, I think they've said the opposite. So if there's no probability of federal funds, do you recommend that we continue with this project today?

My recommendation is that you look at the cost of this project in the context of the other stuff that the Legislature needs to Fund and decide what your priorities are. I can't make a recommendation on that, but I can certainly suggest, as we have, that you take a thorough look at the project and decide is it worth it? In the context of whatever else you've got to pay for it.

Do you agree that the project is not viable without federal funds?

No, I don't agree to that. There are a number of ways that if you want to do them, you could certainly finance it with state money if you extend the cap and trade to 2050 if you gave all of that to the authority. If you have a two cent tax on sugar, for goodness sake, or sales taxes, there are plenty of sources.

This is not unaffordable to the state and in a sense, depending on the Federal Government to do it for us to solve an internal state need, we should think about that. If we really want it, we can pay for it.

Mr. Kelly asks you, do you think the project is viable without federal funds?

The best answer I can give you is that I think projects like this do get and require a long term federal partner. It was true at the highway system. It's true with a project like this, and I think we will have the opportunity this year to get federal funds.

Okay. Well, we shall see. I do think to my colleagues, I just say we're going to have some really tough decisions moving forward with our budget. Personally, in my district, I've toured some hospitals. The hospital system is facing a massive financial crisis. We're talking about hospitals being shut down. There are billions of dollars in deficit. We're talking about children's hospitals and other things. We have massive deficits that need to be filled to upgrade our electric grid system.

I mean, we're pushing EVs heavily, but we don't really have the electric grid system set up. I mean, there are a lot of areas that require immediate financial capital, and I'm not sure that this project is the best use of our resources. We have to be good stewards with that money. And I'll just say, I think overall, and I'll end with this, Mr. Chair, is just, I think it's sad.

I think America, the United States of America, we should be able to build big projects on big scales. But I think what we're suffering from today is just this overblooded bureaucracy and government and crony capitalism and regulations and all sorts of barriers that we've artificially created. And I think the Legislature should take a hard look at how do we get back to the days where we could build, not necessarily cheaply, but affordably.

Thank you very much. I'm just concerned about our time.

Zero, yes.

But I think.

Garcia, do you have questions? So I think it's Assembly Member Hart has another question.

Yeah. I appreciate the candor and the transparency and the hard work that's been done to bring this information to us today. And I do take very seriously the admonitions from my colleagues and from the panelists that it's coming to time to take a really hard look at priorities and to identify a long term funding source that's reliable, that's predictable, that can deliver a project like this.

And at the same know when we're doing that, we also have to look at the existing rail infrastructure that exists around the State of California and figure out these things in context. There are incredibly important existing needs in the system that we have that we don't have a funding source to fix. Most notably, we're trying to connect the Coachella Valley to downtown Los Angeles with rail service. I know that's something that Assembly Member Garcia is very interested in.

We have critical needs on the Losan corridor in southern Orange County and in San Diego, county, with sea level rise and bluff collapse along the coastal segments there that are billions of dollars of investments required just to maintain the existing track. In my district in the central coast, we can connect Los Angeles and San Francisco with the coast Rail route that Union Pacific owns at a much less expensive cost than we're doing with the high speed rail system. These are not the same systems.

It's not an apples and oranges comparison, but we have to look at all the options and consider all the costs and the benefits of providing that connectivity and providing a 21st century rail service system for California that we potentially could afford and at the same time trying to do our best to build this system as well. Because I think there are tremendous advantages that are orders of magnitude scale connecting the visionary plan that this entails.

But the very difficult lessons that Mr. Kelly described that have been learned through this process need to be applied to the system as a whole and to make really strategic investments going forward.

Thank you very much. Mr. Kelly, you have been extremely patient in terms of answering questions you've heard, I think, significant concerns. There's not anything that would be particularly insightful from questions that I would potentially throw at you that wouldn't be repetitive. I mean, I think that the peer review Committee, Mr. Thompson, the LAO's office and Ms. Kerstein have outlined the major issues in front of us.

So now it's an opportunity for you to present what you would like to present in the light of what you've heard here, because that may influence what you want to spend your time on in terms of your presentation. So I want to thank you for your patience, and then I will make my comments after I hear your presentation.

Thank you, Mr. Chairman. I appreciate the conversation today. And again, we sort of talked a lot about what's in the project update report. And again, I just reiterate the dilemma that we find ourselves in, which is we got federal funding in the State of California to build 119 miles. We can build that. We can build that, but it's not a great operating run. And what the Administration and the Legislature talked about last year was getting a better operating run in place.

We have finished a lot of work on the 119 miles in terms of getting it construction ready, removing a lot of risks, and moving forward. And we've accomplished a lot. Candidly, our first construction package will open or be substantially complete in 2023. When I started in 2018, we had only environmentally cleared the 119 miles under construction. Today, we've environmentally cleared 422 miles from San Francisco all the way to La County.

And we will finish that entire system in the beginning of 2025 with the next big stretch being Palmdale to Burbank. By the end of this year, we just hit 10,000 jobs created in the Central Valley. We are creating a lot of jobs for this work that we're doing. And if we build Merced to Bakersfield, that jobs number will go way up. Our estimation is in between 200,000 and 300,000 job years are created through the future construction of this project.

So there's a ton of economic development that has been done. There's a ton of economic development that will occur as we go forward. The trick again is 119 miles doesn't give you much. Phase one is a big bite, as we've discussed here today. And what we're trying to do is get the initial operating segment. Like virtually every transit system I'm aware of has been built, starting with an initial segment and then building from there. And that's what we're proposing to do.

I think it's right that we have to get our heads around policy wise, how we're going to Fund the entirety of the phase one system. And from where I sit, it's still a very good use of state money to do so, because again, I've never come across a single project that has the mobility, the environmental and the economic impacts that this one does. And so ultimately that's what we're for. I think we covered kind of what's in the project update report.

The only thing I would add, I think it's important to understand a little bit about the timing of the conversations on some of this stuff. I think we would all benefit you, the Administration, everybody. From where exactly are we with the Federal Government in 2023? And we're going to apply for a big slug of money in this month.

Likely they will award that by the end of the year and we'll at least know what the picture looks like in terms of what did we get, what's left? Is there a multi year commitment and we'll at least have a better understanding of what the problem that's left to do is. And so I don't know if I'd say much more than that. Again, we covered a lot of the various issues that are in the project update report.

We're going about this the way that we think makes the most sense with constrained revenues that we have yet, the statutory direction we have on going forward, and that's what we're trying to do. So with that, I'm happy to take any questions.

I know it was important to you to be able to have an opportunity to respond, and I just want to clarify that you feel comfortable you've had the opportunity to respond to the issues raised by peer review Committee.

No, this has been a very good discussion, Mr. Chairman. Thank you.

So I'm going to try to summarize this at this point in time from my perspective. One, I think perhaps at the end of this meeting, I, and hopefully more of us on the Committee, have a greater appreciation for the need for a credible funding source. Right. Number one. Two, I think we have to find out to what extent is the Federal Government, at least in this current Administration, there as a credible, as helping us identify a credible funding source to the extent that we can.

We need to find out whether that's a federal funding stream versus a one time grant of money, which is a significantly different question out there for us. The issue that I think particularly Mr. Thompson's identified for us pretty well, I think, is that this project by itself, Merced to Bakersfield, is that worth the amount it's going to cost to build? And I think that most people would say, I don't think anybody would have gone out and designed a Merced to Bakersfield line at this price.

So I can't see how the Legislature would ultimately say, wow, that was really good that we did that segment, and we just don't have the ability to do the rest of the segment. So it only makes sense to go forward if you have a commitment to increasing the connectivity to the two major population centers and ultimately down to San Diego as we go forward. And we have to make that decision in light of the rate of change in American society is accelerating.

As technology gets better, the rate of change accelerates. And I think we're seeing that with our transit system right now. We were having declining transit ridership before COVID This is not just a Covid issue. It's an actual decline in transit ridership as technology changes and changes. The need for our transit system to be able to flexibly adapt to those changes is significant. What will work? I go back to the canals. Once the trains came along, nobody really wanted to use the canal system any longer.

Who knows where we will be in 30 or 40 years down the road in terms of transportation options that are out there? So big question is we have competing demands just from the State of California for transit funding. The bright line is going to be applying for federal funding at the same time that we're applying for federal funding. And we can make, I think, strong arguments about this project, but everything is relative at this point in time as we go forward. As Mr. Thompson pointed out.

Greenhouse gas gains from this project are not significant and are not enough to justify this project. There needs to be other justifications for this. And I hope that we learn a lot between now and next January about the Federal Government, because I think at that point in time, hopefully we use between now and then to set the scene for this Legislature has to start to get serious. We have to get serious about what are we going to do with cap and trade in 2030.

It's not something we should wait to 2029 on. All kinds of things in California can't wait. Should we do an extension of cap and trade? Should we modify cap and trade? Should we have components of cap and trade? Should we have a carbon tax? Should we have components of cap and trade that specifically are identified for certain projects, certain needs of the State of California?

That robust conversation should be taking place as soon as we can get a clearer idea of federal support, because if we can't get federal support from this Administration, I don't think we should count on much federal support from future administrations and future congressional representation that we have there.

So the one challenge that I would walk out of here that I'd like to offer to you, Mr. Kelly, is to really try to maximize what we can get in terms of a commitment from the Federal Government, particularly a commitment to a funding stream rather than one time, and to try to sell them on the importance of a funding stream. And hopefully the value of high speed rail in California, therefore sets up high speed rail in the rest of the country.

Mr. Chairman, I appreciate your last point on the Federal Government part, and I do think 2023 is going to be a seminal year on where that partnership is. So I think it's a very important conversation. The one thing that I don't think was discussed too explicitly here today that needs to at least be considered as we go forward is if we're not doing Merced to Bakersfield, we have an obligation right now, as things stand, to do the 119.

We got federal money for that and it's got to be completed, and that's going to require the cap and trade money that we have. So I think we got to understand then the question is, what do you have? What are you left with, and is that acceptable? So I just think this conversation has to incorporate all elements of that equation.

Thank you very much. Senator Friedman, you want to go before or after their closing comments?

I have a question, just a point of clarification, because we've been talking about the federal partnership, I think in a very kind of broad way. But are the talks that you're having now about an ongoing funding stream or are they just about a tranche of money to complete this current build between Merced and Bakersfield?

Well, we've been engaged with the FRA primarily on how to address the opportunities that are in the IIJA Bill.

How much funding is, what's the maximum that you're expecting from that?

Well, I mean, we put a goal in place of 8 billion over the five year period. We'd love to get more.

So to be clear, you're not talking about with them right now. When you mentioned the federal partnership, you're not talking right now specifically about an ongoing funding stream for the phase one, hundred billion project you're talking about to help us complete Bakersfield to Merced.

The initial segment.

I just want to be very clear about that.

Yeah. Although there's two parts. One, the priority for the Legislature and the priority for us is clear to do Merced to Bakersfield first. And so that is where our emphasis is with the Federal Government. However,

I understand, I just want to set expectations. I think it's important that people don't have the expectation that you're going to come back in five months and you're going to now have a steady funding stream you're talking about. And this isn't a critical point.

No, I understand.

I'm just trying to make sure that everybody understands because we've been talking about, we keep using federal funding stream interchangeably at this point with federal money. But you're not talking about a funding stream. That's another conversation. That's something we'd love to have. But what's in front of us from the Federal Government, the only money that's budgeted from them right now is the potential to have as much as $8 billion for Mercedes Bakersfield, which still leaves us possibly in deficit in that project.

I wouldn't say it that way. We've expressed the goal. I would say that the IIJA over the next five years has 75 billion authorized for six different pots that we plan to compete in on every time a NOFO comes out. One, we're having the conversation about that. Two, I just wanted to be clear that some of the conversation is also about federal money to advance design outside of the Mercedes Bakersfield stretch.

Because where we finish those environmental documents, we think we should do more to understand what's left to do in those areas. Geotechnical work and other things in the tunneling.

And you had talked to us last year about another pot of federal money and you did apply for that. And what had you asked for and what did you receive from that first.

On the mega grant? Well, yeah, California didn't do very well on that grant, but we.

Wait, what did you tell us you were applying for and what did you receive?

In the mega grant we applied for? Was it 1.1 or 1.2? We applied for 1.2 billion out of a mega grant program, which was one of the project grants that they made available last year. And we didn't get anything out of that application. But based on our conversations with the FRA, I'm not that dissuaded by that because they changed the way they were going to do that program after our application was sent, and we're not expecting that on the federal state program.

But also, that's a $1.1 billion program, or the State of California got 30 million for one project in Santa Cruz. So the state did not do very well in that program. Not just us, but we've had a lot of conversation with the feds about how to go forward, and that's what we're going to. One last thing I just want to say about the federal stream issue, because I don't want to leave you with the idea we're ignoring it.

And so, yes, our fundamental conversations with the Federal Government right now are about how to take advantage of the IIJA. However, we are also talking to them and saying to get high speed rail done right. Because there seems to be an interest in this Administration. We're being very clear that they need something like the interstate program for rail. And so those are conversations we are certainly having. That doesn't mean I'm going to come back and have the answer in a year.

But we are making that point as well.

Right. But as of now, there's 75 billion for the whole country.

Yes.

And is that only for high speed rail or is that for all rail?

No, it's for different pots are for different parts. But I would just say like the Fed State Program where we're identifying, there's between 12 and 16 available out of that program. It's really not for the whole country because like the Northeast corridor, they got a separate set aside. So I don't expect they will play much in that program. So it all has different elements to it.

Is it all for high speed or is it all rail?

It's for inner city passenger rail. So it doesn't have to all be high speed, but it has to be inner city passenger rail.

Okay.

And I agree with you. I would love to see the Federal Government put a lot more money into a rail system. I agree. I think that we really missed the boat. I wish we had done what other countries did and had invested more heavily in rail for the past 50 years. And I will say this, that I still am a huge booster of transit.

I don't think transit is, despite falling ridership numbers, I think that there's a variety of reasons for that, not the least of which in our state, that we just haven't done transit always all that well, made the investments we need. But I believe that the future has to be transit for a lot of reasons, and I will die on that hill. So I'm absolutely with you on that.

And I actually think that there's utility in this project of San Francisco to Bakersfield, you know San Francisco, Central Valley, I think even without the LA connection, has a lot of value considering where people are living and where they're moving. I think that Palmdale, LA, has tremendous value even for helping metro improve their service. But certainly moving what could be the next sort of southern metropolis into Los Angeles and opening up that opportunity could have huge utility as well.

So I am by no means saying that I'm ready to, i'm not in favor of trying to stop this project, but I am in favor of making the decisions that we have to make to know how much money we reliably have. I think to do anything less is just not responsible at this point. And whether or not we'll be able to accomplish that.

That I don't know until we start really looking at what we actually need, given the very small amount of federal money that's out there, quite honestly, and the other choices that we have across the state and this project is also, there are co benefits to other transit agencies, but in many ways you compete against transit agencies for funding.

So there's a lot of interest here, but we need to be a lot more serious at this point of making those tough decisions because clearly you can't continue this way. The problems are going to get worse and worse if we don't make these decisions. So I'm committed to helping you do that. I've laid my cards on the table as to what I would like to see, but we've got some time to have those discussions, but what we can't do is not have them.

Thank you.

I appreciate that.

Thank you, Madam Chair.

I just want to clarify one thing here, and that is that I don't think you came here today offering funding stream as much as we have today. Started to emphasize that when you go talk to the Federal Government, we want you to start to have more conversations about funding stream.

Can I just say, I think there's two things that have to happen if this is going to go in terms of phase one, San Francisco to LA and Anaheim. We do have to have federal help, in my view. And we also have to get real here about what happens after 2030 because we're not going to fund this without something beyond 2030. And so I think we have to be real about that as well.

Final comments from either of our other two esteemed panelists.

Just a short bit of perspective. I've been either privileged or condemned, I'm not sure which it is, to deal with this project for the last 14 years on the peer review group. And in the 2008 business plan, we were going to do San Francisco to Anaheim. By 2012, we were not going to connect the San Francisco. We were going to leave that for later. By 2014, we changed our mind and we said, we're not going to do La connection.

We're going to do the San Francisco connection because we can't afford it. And by 2018, we were at the point where we were going to focus on the Central Valley and not do either of the connections. And now we're arguing, in a sense, about pieces of the Central Valley. The reason for this is that the scope has had to be adjusted as the budget demanded and it has caused instability in the plans, instability in the management, and instability in the concept of the project.

We do need to stop that, and the only way that will be stopped, as you have said, is to have a good idea and a good concept of how are we going to pay for whatever it is we ultimately think is in our vision and good for the California. The peer review group has consistently said that we think there should be a role for high speed rail in California, but not this way.

It will be stable, it will be designed properly, and it will be conceived properly, or we're going to continue with the same kind of problems that we've seen. There's no reason to think it will change.

Your contribution has been enormous to the State of California leading the peer review Committee, and I sincerely mean that. And not just your insights, but the way you present the information has certainly helped everybody have greater clarity about where we need to go. So on behalf of the State of California, thank you very much.

And I thank you for the opportunity to be involved in this discussion.

LAO, any final comments?

No additional comments for me. Thank you so much. This has been a really helpful conversation. Really appreciate you including us. And yes, Mr. Thompson is definitely a gem and very appreciative of his efforts over the years. So hopefully we can get him to continue this for. I joked with him recently. I was like, did you realize you were signing up for this kind of length of service here? So we've been very lucky to have his.

I think he's probably been on this project longer than the rest of us. So really appreciate you holding this hearing today.

Well, the value of LAO combined with peer review has been really important, and the value of Mr. Kelly's coming in and fixing and addressing so many of the problems, I cringe at where we would be if we didn't have that. We're challenged.

I think we all have to find a way to upfront, directly deal with the challenges and keep our personal respect for everybody high as we do that, because I see a lot of people wanting to try to do the right thing here and trying to figure that out. And we may disagree on that, but we have to keep working together to try to keep our eye on the ball.

So Mr. Kelly and the rest of the people in the authority keep up, make the same improvement over the next five years that you've done now, and that'll be good for all of us. Thank you very much. And with that, anything else from anybody? Yeah, we have public comment. Alrighty.

And we're accepting public comment at the end of this hearing, both in the hearing room and on the phone, phone number to connect is on the Committee website and should also be on the screen if you're watching. The number is 877-692-8957 and the access code is 18501100. And we'll do that right after we do the public testimony. So the hardy people who were able to stay in here for the three and a half hours, we're ready to hear from you.

Thank you, Mr. Chair. Madam Chair

One minute.

Keith Dunn here. On behalf of the Association for California High Speed Trains, the Self Help Counties Coalition, the District Council of Iron Workers of the State of California, I really appreciate the discussions that took place here today. I could stand here and talk to you about the 80,000 hours and jobs created, the 10,000 employed men and women of the construction trades, or the over 700 small businesses that have benefited from this project.

But instead, I'd like to talk a little bit about some of the discussion here today and encourage all of you as we get the opportunity, and the high Speed Rail authority puts in their application for those grant funds to remind all of us that California remains a donor state, that I hope that each and every one of you would send letters in support of the high speed rails application for those grant funds. It is critically important. As mentioned today, we are competing with other states.

So a united effort from this Legislature would send a very strong message to the FRA that California remains serious about delivering the first high speed rail in our nation. The other comment I'd like to make is that that 100 miles track, 119 miles track is also going to be used as a test track. We forget, and some of you may have seen some of the recent incidents that take place on trains that still remain somewhat dangerous. We need to have a test track.

This will be the first in the nation. It will help federalize this program. It'll help encourage the Federal Government to continue to invest in this program. I look forward to the opportunity to look towards that funding stream.

Thank you.

Thank you,

Jeremy Smith here on behalf of the state Building and Construction Trades Council, wanted to remind everybody who may not have been around as long as the two of you have been around. I mean that respectfully, that we had to do this construction in the central valley to begin with. Land is cheaper, easier EIR costs. There are real reasons why they did that. They started in the Central Valley. Just want to remind everybody of that. We believe this should be the number one priority.

Mr. Chair, Madam Chair

It was said earlier this should not be the number one priority. The only way to meet the GHG goals that many of you have put into statute is by getting millions of cars off the road. And that's what high speed rail does. It helps us meet our very ambitious goals. I want to remind everybody too about an LA report from several years ago now.

That said, for the low cost of $100 billion, that would get us 3000 new lane miles of freeway, five airport runaways and 90 new departure gates. That's what will be needed to meet the demands for travel in this state by 2030. That was a report from the LAO in 2011. I finally just would end with this. We all talk about Just Transition. This is one of those Just Transition projects. An operating engineer, by the way, Tim Clemens can't be here.

He supports this project as well. You can have an operating engineer, an iron worker go from an oil and gas job, to a high speed rail job. This is a Just Transition. This project is a Just Transition. Thank you for your support. Thank you.

Hi there. Michael Kiesling from San Francisco. Throughout my notes and I'll be going from what I saw from the meeting today, I think you have an idea of the scope of what we're trying to do here. And the question is not do we build this part of high speed rail? The question is do we give ourselves a choice between how we get around the state? It's not a transit project. The markets you're competing with are, is the airport going to get better?

Is the highway going to get better? It doesn't matter whether or not you're in a Tesla or you're in a Camaro, you're still going to be stuck in traffic. And what we're looking at, which is a great unknown, is we don't have any planning for all these new lanes of freeway. Are we going to widen the grapevine? We don't know what any of those costs are. And those are all little things that are more up in the air than the high speed rail project.

I think the great frustration here that I can express because I don't have to go with a smile on my face to Washington to ask for money, is that in the near past projects like the Atlanta subway, the Baltimore subway, the Miami Metro rail, they were built with an 80% federal match. I believe the initial part of the LA subway was built with a 50% match.

Thank you very much.

And now we are inventing a new project. There's no such thing as a full funding agreement for high speed rail because it's such a large project.

I think we have the point, but I'm sorry, your 1 minute is up. Thank you very much.

Thank you, Mr. Chair, Gus Khouri On behalf of the San Joaquin Valley Regional Policy Council, just very brief comments on behalf of the policy council. We're very supportive of the high speed rail project because it's important in addressing our air quality issues. As you know, San Joaquin Valley is in a non attainment air district. It also helps with our mobility goals.

There are some challenges and we do want to work with this body to be able to address them to make sure that the project does come to fruition. In addition, on behalf of the central coast, Member Hart mentioned some things about having coast rail service be an option. Caltrain stops in Gilroy and LOSSAN stops in San Luis Obispo. There's a 153 miles gap in coast rail service that we think would be very viable for folks along the coast to take there.

And then the Valley Link system as well, connecting Alameda to San Joaquin to eliminate some of that traffic going over the Altamont pass. And so aside from cap and trade revenue, there's Senate Bill One, competitive program funds local sales tax measure dollars as well. And then we're hoping through the work that's being initiated through Assembly Member Friedman, through her working group, that that would also yield some fruit into trying to crack the nut. So we appreciate your consideration. Thank you.

Thank you very much.

Good afternoon and thank you all. Matt Serrato, mayor, City of Merced I really appreciate the discussion and appreciate all the challenges that you guys face. I just wanted to give you a little perspective of what we see from Merced. Merced obviously being the potentially the northern terminus of the original 170 miles operating segment. And our county last year was the second fastest growing county in the state by percent, fourth fastest growing by total number.

Even though we're a relatively small to mid sized county, housing is still probably less than half of what it is in the state average. And what that needs is to make everything expand even faster is infrastructure. And right on the 99, potentially too, with ACE, Amtrak, high speed rail all coming together in our city, really creating a lot of opportunities for transit orient development, denser development around our downtown, which is a really exciting opportunity for us. And just in us, you have a willing partner.

And also UC Merced, proximity to Yosemite. Tens and tens of thousands of people leave our county every day to go commute to the Bay Area. So a lot of opportunities there. And I thank you for your time.

Thank you very much. Operator. We're now ready to take phone comments, so we'll open this up to the phone lines.

Certainly, ladies and gentlemen, on the phone lines, if you wish to queue up, please press one, then zero on your telephone keypad, and looks like we have one already in queue. We're going to go to line number 38. That's 38. Your line is open.

Good afternoon, Madam and Chair Members his is James ... with the California State Council of Laborers and just want to express our support, and I like to, just for purposes of time, I like to just align my comments with Jeremy, state building trades. Thank you.

Thank you. We'll go to line number 25. That's 25. Your line is open.

Good afternoon. Thank you for the opportunity. This is Roland ..., San Jose. Every country in the world started with rail electrification at least half a century before high speed rail.

Mr. Farn spoke exactly to the root cause of the problems, which is that high speed lines, unlike BART, avoid downtown anyway like the plague, because it is pretty much impossible to live or work within a quarter of a mile of a line operating at 200 miles an hour.

In closing, our immediate focus should be on stations connected by electrified UP and BNFF lines, starting with LA to Palmdale, and to San Francisco. Until we complete an electrified backbone capable of servicing the coast as well as the Central Valley, and then let ridership inform decisions to invest in cost effective higher speed sections between LA and Francisco. I will submit French examples in writing. Thank you.

Thank you.

Thank you. We'll go to line number 43. That's 43. Your line is open.

Thank you, Mr. Chair. Matt Robinson with Shaw Yoder Antwih Schmelzer & Lange on behalf of Caltrain. Caltrain has long been a partner of high speed rail in facilitating the Caltrain Electrification Project and building the foundation for high speed rail service between San Jose and San Francisco. We look forward to the project continuing and are happy to answer any questions about our electrification project on the peninsula. Thank you.

Thank you.

We'll now go to line number 39. That's 39. Your line is open.

Hi, my name is Andy Kunz, Founder and President of the US High Speed Rail Association. The first thing I want to say is we are in support of this visionary project and doing everything in our power and lobbying might to get you a large federal grant for your project as well as setting up consistent funding for your project and others across America. Today, over 26 nations across the world carry billions of passengers every year on high speed rail.

Over the past 60 years, countries from Spain, Japan, Morocco, and China have made high speed rail the backbone of their transportation systems in a competitive, climate friendly alternative to driving and flying. The Chinese government is now spending another they spent over $1.4 trillion building their system, and they're enlarging it by double over the next 10 years.

High speed rail is catching on all across the planet, numerous nations are doing this, and the reason they're doing it is because it's having such a transformative effect on their nations. It's the backbone of a sustainable future with electrified transport and is the basis of a renaissance of a network of walkable communities.

Thank you very much. I appreciate it.

Thank you. We'll now go to line number 40. That's 4-0. Your line is open. Who's 40? Line 40, your line is open, please Proceed.

Hi, this is Pete Varma with intraline Incorporated. I would love to have this project funded as soon as possible so Mr. Kelly can continue on to his project and create jobs in the community. If this project is not funded, and if the legislators and the high speed rail are not able to come to any kind of decision, this would be a disaster for State of California. Thank you.

We'll go to line number 42. That's 42. Your line is open.

Thank you, good afternoon, everybody. Chuck Riojas, representing the building trades in Fresno, Madeira and Tulare Kings. We have the good fortune of the high speed rail starting in the central valley. We are highly supportive of this construction project and these endeavors moving forward and doing everything we can to secure the funding on a federal and a state level for it. I cannot even begin to tell you the positive impact that this particular project has had on the workforce development in the Central Valley.

The job creation is in the thousands. The apprenticeship opportunities are in the thousands. I have the good fortune of running the Selma Pre-Apprenticeship training center, the Central Valley Training consortium for high speed rail, and hope to continue to do it in the future. So, again, we are highly supportive of this project in the Central Valley and do everything we can to support it.

Thank you.

Thank you. It looks like we have one more that is just queuing up.

Please allow us a moment to provide a line number, and we'll go to line number 44. That's 44. Your line is open.

Hi, this is Margaret Jackson from the Barriers of Business Association in Silicon Valley Bay Area. And first of all, I appreciate listening in on the conference today, and we want to support what the high speed rail is doing. We're part of the business advisory council, and we will be supporting the high speed rail in their next bids that are coming up here soon.

And one of the things that I did not hear in the comments today is really the value of high speed rail and the workforce development and the ability to transverse opportunities that would be within the state having a high speed rail. So I was a little concerned about assemblymember Essayli's comments, and hopefully he will see the value of what the high speed rail will bring to the State of California and the work that they're doing.

And additionally, when you're doing something new, there's going to be ebbs and flows, and we just need to come together and win together and support something that is history making, quite frankly, in the entire country. So thank you very much.

Thank you. And thank you everyone for your participation. And with this, we will adjourn this meeting.