Assembly Standing Committee on Transportation

The Assembly Transportation Committee is called to order. Good afternoon. Welcome to today's informational hearing on high-speed rail 2024 draft business plan. The hearing room is open for attendance of this hearing and it can be watched from live stream on the Assembly's website. We encourage the public like to provide written testimony by visiting the committee's website. Please note that any written testimony submitted to the committee is considered public comment and may be read into the record or reprinted.

At the end of today's hearing, we will allow two minutes each for, hold on one second. Okay. Thank you for your patience. At the end of today's hearings, we will allow two minutes each for two primary witnesses in support and opposition. These witnesses must testify in person in the hearing room. Additional witness comments must also be in person and will be limited to name, organization, and position. As noted, this will be at the end of the hearing, not after each panel.

Today we have an opportunity to hear from the High Speed Rail Authority CEO Brian Kelly about the exciting progress that has been made on the project in the Central Valley. Brian, I understand you submitted your letter of resignation in January, and I'd like to thank you for years of service working on this project and the great work that you've done to stabilize the project and advance construction.

Let's take a moment, even though it's probably not appropriate, but at the pleasure of the chair, to give Brian Kelly a round of applause for his service. So everyone knows, as I've said repeatedly since becoming transportation chair, that I'm originally from Fresno and recently had the opportunity to tour the project and see the amazing work that is being done in nearby cities. The project has had a tremendous positive impact in the Central Valley and has created thousands of jobs.

I've also had the opportunity to recently meet with Amit Bose, administrator of the Federal Railroad Administration, and celebrate the federal award of 3.3 billion to the project. We discussed the need for the state to continue to show its financial support. I'm looking forward to hearing from any of today's panelists about how we could secure the funding needed to complete the project. I'd like to welcome Assemblymember Bennett and invite him, if he'd like, as chair of the subcommittee dealing with this particular topic, to make any remarks if he'd like.

Thank you. There we go. Thank you very much, Chair Wilson. I really appreciate the invitation to join you in doing this through the Transportation Committee. And as you mentioned, I think the issue is the creativity that we need in terms of financing, given where the state's budget is at this particular time. So we're really, from a budget standpoint, really looking forward to any ideas people have, long term, et cetera, in terms of financing. Certainly, there was a great shot in the arm for us to see the coaches, the design of the coaches, and to be able to imagine and dream about the future. But the question right now is, where do we go between here and there? So thank you very much.

Thank you, Assemblymember Bennett. I'd like to bring it over to other members of the Transportation Committee to see if they had any remarks for today. All right, seeing none. As mentioned today, the High-Speed Rail Authority will present its 2024 draft business plan. We will also hear from the Legislative Analyst Office, the high-speed rail peer review group, and we will get to hear for the first time from our newly created high-speed rail inspector general.

I look forward to hearing their feedback on what we need to do to keep this project moving forward. Finally, we will have a panel on the future operations of high-speed rail from Merced to Bakersfield. This panel includes Chad Edison, Chief Deputy secretary from the State Transportation Agency, Bruce Armistead, chief of rail and operations delivery with high-speed rail, and finally, Dan Leavitt, the manager of regional initiatives from the San Joaquin Regional Rail Commission, San Joaquin Joint Powers Authority, which will ultimately operate the train.

We will also take questions from members after each panel. Lastly, after the third panel, I will open it up for public comment. As I noted before. With that, we will begin our hearing. If I have to step away, and Vice Chair Fong is not available, Assembly Member Kirillo will step in as our chair for the meeting. With that, I'd like to invite Brian Kelly, Chief Executive Officer, California High Speed Rail Authority. Brian Annis, chief financial officer of the California High Speed Rail Authority. You may begin when it's convenient for you to do so.

No, thank you. I'm Brian Kelly, the Chief Executive Officer for the California High-Speed Rail Authority. I'm honored to be here before this committee today to present our 2024 business plan. Our business plan comes on the heels of a plan we released just 10 or 11 months ago, which was our project update report, which was a major reset for the project. And because that was just 10 months ago, this plan is still pretty much living within the guidelines of that plan from the project update report.

And so this plan is really about updating what's occurred over the course of the last 10 or 11 months, what's in front of us, and some of the challenges that we have together to move the project forward. So with that, I'm happy to just start rolling through a prepared PowerPoint. To summarize the 2024 business plan. It's a little bit tough to see, but this 2024 business plan is required under the Public Utilities Code and we present it every two years.

There's a 60-day process that really began when we issued the draft on February 9. That kicks off the 60-day period where we take public comment, ultimately revise the draft, bring it back to our board for approval on April 11, and then we make any and all changes to that draft before it goes final and we submit it to the Legislature by the statutorily required May 1 deadline in 2022.

Our business plan included limited updates to forecasts at the time, and COVID impacted the release date of the final 2020 business plan to 2021. So we had this sort of squeezing together of plans that used to be spread out by a year or two, suddenly coming together in a matter of months, and we're just coming out of that as we get past the COVID period.

But one of the effects of that is we had a much more significant or comprehensive project update report last time around in 2023 than we do a business plan. So the next project update report will also be a more expansive document. In 2023, we provided a report that had more comprehensive looks at the forecast and estimates to complete the project in the schedule.

It was a keystone document that relayed the foundation for the work that we had in front of us, updated cost and schedule estimates for the Merced and Bakersfield segment, and it specified the Merced to Bakersfield segment would be built as a dual-track electrified railroad with a shared station in Merced shared with the San Joaquin's Joint Powers Authority and the Altamont Commuter Express, which provides services connecting services to Sacramento, San Jose and Oakland.

In January of 2024, the aforementioned and newly installed inspector general reviewed our 2023 project update report and among other things, found the report credible and responsive to the statutory requirements that are on the authority. His recommendations did also include improvements to make to upcoming plans, including this 2024 business plan, including providing specific dates when funding is needed for project elements to keep the overall project on schedule to break out costs PUR certain Merced along the Merced to Bakersfield segment for certain categories of costs, for example, right away for those extensions.

Also to adopt a board policy on the timing of when we do our cost updates, we generally update the segment costs after we finish the environmental work for each segment, and they recommended more specificity on our management of the key risk factors that we identified in the 2023 PUR and that we identify in this 2024 project update report sorry, this 24 business plan so a significant progress has been made since the issuance of the 2023 project update report.

Our budget and schedule and vision is still aligned with the content of the 2023 PUR and where we plan to go. Notably, with 3.1 billion in federal state funding granted in December, really keeps us on task toward meeting the objectives that we outlined in the 2023 project update report. This plan also includes extensive discussion about risk identification, management, and mitigation in chapter four of the document.

Again, the project update report from 2023, it set a target for the early operating segment of between 2030 and 2033 to be operational. It updated our cost estimates based on escalation and inflation, which had reached an all-time high during the height of the COVID experience. It said a funding strategy informed by the California legislative budget decisions and the availability of funding through the federal bipartisan infrastructure law.

The 23 PUR also established new ridership and revenue forecasts based on new model development by the authority's early train operator in coordination with the California State Transportation Agency, and it updated our schedules for the completion of our construction work in the Central Valley. We have three construction packages there. Two of them were set to be complete in 2026 and one in 2023. And as I said here today, we are sticking with those schedules.

We've reached substantial completion on construction package four and the other two are set to be complete in 2026. Still, it also set targeted goals for critical procurements such as our track and systems, our train sets, and our station and extension alignment extension designs. I say all that about the 23 PUR because again, it was the document that really set us on the course that we're on now, and this report has us operating within the confines of that 2023 project update report.

Still, in this report, with respect to Merced to Bakersfield, the cost estimates are unchanged while the cost estimates have not been moved. The business plan will update on cost risks for each construction package, with the CP 23 carrying the highest risk due to impacts from the 22-23 flooding in early spring, a major change order that's in arbitration now that we're waiting for a decision on major third party issues that are yet to be resolved and a final revised baseline schedule that is still in negotiation.

That said, our expectation is to continue to deliver the CP 23 project on the 2026 timeline with respect to the phase one cost updates. This is the stretch from San Francisco all the way to Los Angeles. We have now environmentally cleared virtually all of downtown San Francisco to downtown LA, and we will be back to our board in June of this year to clear the segment from Palmdale to Burbank. As I said in June, we'll bring that to our board for clearance.

The analysis to date suggests that the cost for that and the extension from LA to Anaheim in that environmental document, which has changed dramatically from where it was a couple of years ago, those will come in at a higher cost range than we reported in the 23 PUR however, it'll be higher than the identified baseline cost, but it will stay within the range of costs that we put in the 2023 project update report. We discussed that in detail on page 89 in this business plan.

Major accomplishments for the authority since the 2023 project update report as many of you know by now, we were awarded significant federal funds during the course of 2023. The biggest award was the state-federal partnership program in December, but in the 11-month period, we were awarded a total of $3.3 billion in federal funds to advance the project.

We advanced procurements to move the project forward in operations, including qualifying the two bidders to manufacture our trains and we are now out on the streets right now on the design of the track and systems for the Merced to Bakersfield stretch starting with 119 miles currently under construction. Our first construction package, CP 4, which covers 22 and a half miles, has reached substantial completion.

We're working through a land use issue on 400 feet of that 22 and a half miles, but we are looking forward to resolving that very soon. Our construction jobs total jobs exceeded 12,200 in 2023, a record high for the project, and we also achieved record high for the daily workers on the job sites, roughly around 1500 every day, and the record number of structures completed in the calendar year 17.

We also exceeded our goals, internal goals for the percentage of our right of way parcels that would be acquired in calendar year exceeding now 98%, and the number of utilities that we moved in a single year. We set a record for 254 in 2023. We also are meeting our contract milestones on keeping the designs for the extensions to Merced and Bakersfield on schedule. We are now at 30% draft design and that will go final in 2024.

And because we've received federal money, we've asked our board to allow us to move forward on extending that design to 100%, which we will take up later this year. Additional work in the Central Valley as I mentioned, we completed 17 structures in 2023, the 98% on the right of way parcels. We also increased our executive engagement on third-party issues, where we're often involving moving utilities or working with the freight railroads on issues.

We identified 68 third-party issues that needed attention, and we've resolved 66 of those. That's a dynamic number. We'll re-up that number as we go forward, but it shows how we have elevated the issues and then found resolution to the vast majority of them. We finalized our revised baseline schedules for two of the construction packages, and we'll be resolving the third one in August of 2024.

And again, funding to support the final design and right away for the Merced and Bakersfield extensions was awarded in December of 2023. This just represents a scorecard for where each of the construction packages are. CP 1, 2, 3, and 4. And just to provide you a little bit of context, all three of those packages make up the 119 miles that are currently under construction in the Central Valley. CP 1 is the 31 miles that goes right through downtown Fresno.

CP 23 is 65 miles south of Fresno into the northern Kern County. And CP 4 is the final 22 and a half miles almost entirely in Kern County. And that scorecard just shows you that we've advanced again the full design completed right away at 98 or 100%, depending on where we are. You see the percentage of utilities that are either completed or in progress, and as well as the percentage of structures completed in the miles of guideway that is open or in progress of getting open.

And then our overall contract value shows how far we are through each of the three construction packages in the Central Valley. I mean, the one thing I want to just say about this chart because this gets into an area of lessons learned. Typically, you don't want to be in a construction project and finishing your right of way and your utility relocations after you've gone into construction.

But one of the lessons learned that we've talked about last year and in prior years in this committee is the way this particular project started. With a deadline on spending federal funds against a really tight clock, the authority went into construction at risk. This is back in 2013 and 14. And as a result, some of the right of way and utility relocation problems caused delay, and that delay caused cost. And the good news is we're at the tail end of that process in the Central Valley. And for our extension construction contracts for Merced and Bakersfield, we will not start construction until the right of way and the utilities are entirely moved. So that lesson has been painfully learned.

We are also advancing the design work on four stations in the Central Valley, collaborating closely with officials and stakeholders on pre rail activities, gathering feedback for successful station site planning. Our schedule in this regard for all of the Bakersfield, King's, Tulare, Merced, and Fresno stations, all under design right now, we executed that contract in March of 2023. We completed high level design concepts on all four stations in November of 2023.

I think some of you were able to come out to the Cal Expo exhibition center and see what we're doing on the station design in each of the four cities in the Central Valley. And we're going to continue that design work in 24 to get to a schematic design phase where we refine with greater architectural detail the drawings that get to about 30% design, and then we'll get ready for the next notice to proceed, which is to advance those designs further.

And we are pursuing federal funds for the complete design of all four of those stations. That's kind of the Central Valley now, in Northern California, which is roughly 159 miles stretch between Merced and San Jose and San Francisco. We've completed the environmental clearance for all of that segment from Merced into downtown San Francisco. We are co funders of the electrification of what's called the Caltrain corridor along the peninsula from San Francisco to San Jose. We've invested about $714,000,000 in that project along the Caltrain corridor.

That project is scheduled to open in fall of 2024. We are working closely with local officials on two major station projects in the Bay Area, including what's known as the portal or the downtown extension project, linking the rail line to the Salesforce Transit Center, what it used to be called the Trans Bay Joint Powers, or the Trans Bay Joint Transit Center.

And in San Jose, we're working closely with our partners on the development of the Deridon Integrated Concept Plan for transforming the Deridon station into an intermodal hub that will receive services from VTA in San Jose, Amtrak, BART, High Speed Rail, and. Am I missing one? I think that's all of them. And Caltrian, of course, several service providers coming to a single station in San Jose.

And we are actively seeking additional funding for design work and geotechnical studies in the Pacheco Pass to link the Central Valley with the Bay Area.

And so those are again the advanced design dollars, our funds that we are pursuing through federal grants as we speak. In Southern California, our focus is on both working with regional local entities on joint benefit infrastructure that we are investing in and completing the environmental clearance for all of that segment south of Bakersfield today, about 92 miles of the 164 are environmentally cleared.

As I mentioned, we will be going before our board to clear the Palmdale to Burbank segment in June, and when that is cleared again, all of downtown San Francisco to downtown Los Angeles will be environmentally cleared. We are funding partners with LA Metro on the Rosecrantz Marquat grade separation, which at one time was the most dangerous grade separation in the State of California, and that is well under construction now.

That construction will be completed in early '25 and it essentially, like all grade separations, will separate cars and pedestrians from freight and passenger rail traffic. So that project is moving forward. And as I mentioned, the environmental drafts down there are both Campbell to Burbank and in 2025 we'll complete Los Angeles to Anaheim.

Also, I should mention with the funding of the Brightline Project with Federal Government assistance this year, we're also working, looking forward in 2024 to work closely with Brightline and the High Desert Corridor Joint Powers Authority on working on a connection site for the two services, likely in the Palmdale or Victorville area, for the two services to connect.

In terms of funding the program, this chart is designed to give you a sense of where our funding is and how we get to the funding we need to complete the project. The authority committed to securing funding for the Mercedes to Bakersfield extensions. Those funding efforts include 4.2 billion from the Proposition 1A and additional funds from the cap and trade allocations. In 2022 and 2023. We developed a strategy, a five year strategy, to secure 8 billion in federal funds again over a five year period.

In 2023, we achieved 3.3 billion of those federal funds, and we continued to seek another 4.7 billion from the Federal State Partnership Program and from other bipartisan infrastructure law programs that are available. Current and projected funding for us at this point between now and 2030 is between 27 billion and 30.5 billion, assuming different funding scenarios for cap and trade, which leaves a funding gap for the Mercedes Bakersfield stretch of between five and $7 billion.

And again, we're pushing hard for additional federal funds for that to get that work completed. This is kind of a busy chart, but let me just tell you what's good about it. Anything that's green is good. This chart shows both the phases of the project. On the left column you see the cities Merced, Madera, Fresno, Kings, Poplar Avenue and Bakersfield.

We are currently under constructing the 119 miles on the middle cities of Madera, Fresno, Kings, Tulare and Poplar because that's the stretch that we got initial federal funding for. Then, because we wanted to get into the cities of the Central Valley, the Newsom Administration pushed for extended project in the valley connecting Merced, Fresno and Bakersfield. We developed a strategy to get federal funding to advance that project in 2023. That square on the left, all the colors non green were unfunded.

With the work that we had with the Federal Government during the course of the last 11 months. You see much of the work to get the entirety of the Mercedes Bakersfield stretch completed has turned green, including buying train cars, advancing design and right of way for the extensions to Merced and Bakersfield, and for some additional capital work in Merced and Bakersfield as well. So we had a very good year in 2023, and obviously that needs to continue to get that entirety of that chart green.

The federal investments that we did receive in December are for distinct project elements. The 3.1 billion federal grant was to fund six electric trains for testing and use. We have qualified two bidders to manufacture those trains. We'll be going to our board with a request for proposals in April, and we look forward to awarding the contract later in 2024, sometime around the third quarter of 2024. They funded design and construction of train set facilities.

They funded the design and construction of the Fresno downtown Fresno station, final design and right of way acquisition for the Merced and Bakersfield extensions and civil works traction powered track overhead catenary system in the systems for the Bakersfield interim extension, which is 13 miles into the 18 miles extension to downtown Bakersfield. And so that's the designation for the use of the 3.1 billion we received in December. In terms of the capital costs for the project,

for all of phase one, we articulate first the top row, Merced to Bakersfield, a low a base and a high on the cost estimates. Mercedes Bakersfield is what we know the most about because it's entirely environmentally cleared, it's in advanced design, and much of it is already in construction. So with that one, it's really a high probability, in terms of the cost ranges for northern and Southern California. We're still in the early phases of that project.

As I mentioned, the environmental work is done in the Northern California segment, but we have not yet started advanced design work. We need federal funding to do that. And in Southern California, we are finishing the environmental work with the two segments I mentioned before.

The totality in terms of the low base and high cost ranges, 106 is the base, 127 is your high. As we finish Palmdale and Burbank in summer '24 and the LA to Anaheim cost update, sorry, the environmental document in December '25, we will adjust those cost estimates for those two segments. And because it's been so much time and the environmental document includes different alignment changes, commitments on mitigation, it does push the cost higher.

So this chart will move a little bit to the right, but we expect to be within the range still after the completion of all the environmental work from San Francisco to Anaheim. And then this slide is just intended to show again, even at a cost of between somewhere around 106 and 128 billion dollars that high speed rail there's two things about that cost estimate that I think is important to know. One, it's generally in line with the cost for high speed rail around the world.

And compared to get the same capacity benefits out of your transportation system, the number of highways that would have to be expanded, or the number of airports that would have to be expanded, the cost of doing those other things would still far exceed the cost of the high speed rail alternative that we are pursuing here. And those other things would provide much less in the way of environmental and mobility benefits.

Lastly, this chart is just designed to describe some of the reductions that we've seen in emissions, both during construction as we anticipate in operations, and what we've seen economically from the advancement of jobs in the central valley. And so that top line is just in the work that we're doing in the valley. The middle column. Consistent with the reductions of GHG emissions under AB and SB 32, we've avoided 123,000 metric tons of CO2 emissions through recycling and reuse during construction.

We've offset other GHG emissions through planting more than 7000 trees in the central valley, and we sequestered 272 metric tons of CO2 through habitat and agricultural land conservation. Once in operations, the phase one system is expected to reduce CO2 emissions by 600,000 tons annually. In terms of other benefits and other emissions, our clean construction requirements, including the cleanest using the cleanest available technology on construction equipment, has led to reductions in reactive organic gases, particular matter, black carbon and nitrogen oxides, or NOX.

And we've avoided 500,000 pounds of air pollutants since the start of construction, again through the reduction of VMT and air trip replacement 1400 tons of criteria. Air pollutant reductions will also occur annually. And then finally, we've talked a bit about the job creation in the Central Valley. But consistent with other directives to get economic benefits out of Greenhouse Gas Reduction Fund dollars, we've delivered 220,000,000 in wages to disadvantaged workers.

Thousands, thousands of living wage jobs for the more than 65% of workers who live in a disadvantaged community and work on this project. We've invested a total of 5.5 billion in disadvantaged communities, more than 50% of our total investment. And we've employed some 215 small businesses located in disadvantaged communities on this project. So again, in terms of meeting the suite of objectives from the Greenhouse Gas Reduction Fund, we think this project has done quite well.

The other update that we provide in this business plan is tied to our ridership projections. As many of you know, transit ridership throughout the country and in California was hurt significantly when COVID came along. And obviously it's really changed the pattern of commute still for less workers generally going into the office on days per week. And so all transit ridership has been reduced a bit, and we reported that extensively in the project update report.

We do see some comeback in ridership, obviously for air travel and also less on the commuter systems, but a little bit more on intercity or longer term rail passenger runs. And so we've updated from the per for our valley to valley and phase one ridership projections. You see, on valley to valley, we are still around 12 million riders projected a year. And on phase one, San Francisco to LA, just under 30 million riders per year on that system.

And just to give you some context on that, the inner city passenger system, Amtrak, that runs through the northeast corridor, which is really the busiest inner city corridor in the country, that carries about 12 million riders per year today. On the inner city system, they carry other passengers on the local services, but on the inner city system, they carry about 12 million. So that gives you some sense of where valley to valley service will be matching that system.

And then phase one, about two and a half times the size of that system in terms of ridership. There are risks that we talk about in this project update report, including some of our achievements. We improved and accelerated our parcel acquisition, which at one time was a huge risk in the Central Valley. We resolved most of the major commercial issues that were challenges between the authority and the contractors on construction in the valley. We set a litigation with the Burbank Glendale Pasadena airport.

We have stay agreements in place with two Bay Area cities that challenged our environmental document, and we are in active settlement negotiations on those. And in the Central Valley, we completed work with the semitropic water storage district on a canal realignment in Kern County that now opened up that part of our alignment through the Central Valley. Our top risks going forward, which are no surprise to any of you, funding uncertainty, which remains something important to us. Stabilizing the funding for this project.

Third party management just working with utilities, freight, railroads, cities and counties and others to reach agreements and advance the project. Workforce planning in terms of making sure that the capacity of authority can meet the expanding and dynamic needs of the project as we go forward. And as the project moves from construction to operations, it's important that we integrate the management of those two entities into a single management team at the authority, and we work on that every day. In terms of what's next that we identify in the business plan.

Again, we're working to finish the construction packages in the valley for both the Merced and Bakersfield extensions. We're going to continue to advance the environmental review work and get that completed for all of the phase one system advancing collaborative projects in northern and Southern California regions.

We want to execute the procurements that are in front of us to advance the whole system, including the train sets, the track and systems, and what's called the overhead catenari, or contact system, and continue to work on station designs and advocate for additional federal funding. Our goal remains, as it was in the project update report, to have an electrified operating segment between 2030 and 2033. And just lastly on the process we're on, on this plan. We released the draft on February 9.

We had our board hearing. We're before you today. We'll be before the senate tomorrow, back to our board meeting to revise the draft and issue the final business plan on May 1. And with that, Madam Chair and members, I'm happy to answer any questions. Thank you.

Thank you, Mr. Kelly. I'm moving over to members to see if there are any questions. Assemblymember Carrillo.

Thank you, Mr. Kelly, for that presentation. On page two of the presentation, you identified some key risk factors in the 2024 business plan. Do you recall what those key risk factors were, or are those the one at the end of your presentation?

I'm sorry, can you just ask that again? Which slide were you on?

Page two. Second slide, 2024 business plan.

Yes.

You said that there was bullet point number three. There were some key risk factors in that plan, 2023. But then at the end of the presentation, you mentioned some risk factors.

I did.

I just wonder if they are the same from 2023 or these are the ones from 2000.

And, yeah, they are pretty much the same. But let me tell you what we do. We have an Executive Risk Committee within the authority, an Enterprise Risk Committee within the authority, and in that process, each year between our program group, our project controls team we come together and we identify the key risks before us. And this is discussed in Chapter 4 of the business plan, but we identify the key risks that are before us that need our attention as we go through the calendar year.

And we re up that on an annual basis. And so on page 76 of the business plan, we list all 13 key risk factors that we are managing. What I mentioned in my testimony earlier were sort of the top three or four that we are dealing with, and funding uncertainty is clearly the top one. And then it's schedule monitoring and managing, third party management, stakeholder engagement, workforce planning, procurement planning, Microeconomic impacts. There's several things that we manage as we go through this.

And again, we discuss those in Chapter 4 of the business plan, and we put in place management and intervention steps to manage those risks. And so I think my reference in the presentation was just to that process and identifying the top three or four risks that we have.

Thank you for that. And then on slide number 18. The workforce planning, on the trip that we did to Fresno, we had an opportunity to go to the training center in Selma, which is doing a great job, in my opinion. They're training those young kids coming out of school who don't want to go to college, city programs, and the training specifically to the high speed rail. On that page number 18, slide 18, you are saying that the topics also include the workforce planning.

Maybe you're not the right person to talk about this program, but in your opinion, is that a program that has been effective and you think the continuation of those programs are going to be the key to continue the workforce planning?

Yeah. I mean, the program in Selma is actually an offshoot of something that was started well before I got here, but it was part of a community benefits agreement that the authority entered into back in 2013 for construction, and that included training local folks to get into the laborers apprenticeship program and ultimately through the building trades and into other programs where they can find work not just on the high speed rail authority, but other construction projects in the central valley.

So we started that in the valley. It became a nice feeder system for the construction work needed in the Fresno area, and then we extended that into Selma as we extend this project further south. And we have sought from time to time federal money to keep that going. But even without the federal money, we have extended that program, and we will continue to. We think it's the right thing to do, and it's important that we have a constant feeder of qualified workforce for the construction work.

I just say that. So those are important programs that we swear by and that we think are needed and excellent for the work we're doing in the field. I would also say that workforce planning extends broader also to the capacity of the organization in Sacramento and around the state to make sure that even within state services, we have the right capacity at the organizational level to advance all parts of the program.

I think it's a great program. Two more quick things on the slide presentation on slide number nine.

Yes.

You talked about and showed the Northern California portion of the project. And then the second slide is the Southern California.

Yes.

Is that the next segment of the system that is to be built, or it's just a continent, that it was just in that order?

It's not necessarily in the sequence that it will be built? I think what we're laboring to do is get operational in the Central Valley as we finish all the environmental work in Southern California and toward the Bay Area. The environmental work is already done, but what we're trying to do is get to advance the geotechnical work and the advanced design work on both ends.

We have identified and the rail authority has identified for some years the extension into the Bay Area is the likely next step, and it really comes down to funding, cost and available revenue for where we go next. But the key thing for us right now is to advance the design work on both of the segments where the environmental work is done, so we can refine what we need to do there, get ready for construction, and find revenue to fund those elements.

And I think which way we go first is largely going to be determined by how easy it is to get the funding to get it done, but we have to advance the work on both ends. The other thing that's changed a little bit is the emergence of brightline in the Southern California region. I think there's an emphasis now on a connecting service down there as soon as we can possibly do it. But those are things that we have to work through as we go forward.

In your presentation, you also mentioned a job set on Rosecrantz. Is that in LA?

Yes, it is.

Okay. Can you elaborate a little bit about that project?

Yes. So the Rosecrantz Marquis grade separation at one time was on the State of California's list as the most dangerous grade separation in California in terms of accidents, injuries and fatalities. So years ago, the authority got into an agreement with both the Northern California region and the Southern California region to spend what we call bookend dollars on improvements in the regions outside of the Central Valley and in Southern California. Because that grade separation was so dangerous we dedicated about $80 million to that.

I think the totality of that project is about 15 million. So we funded roughly half of it. They're well into construction now. The project is to separate the road traffic from the freight traffic, and I believe the first bridge has opened already to start that separation of the traffic. There's more work to do to complete all of it, and the totality of that project will be completed in 2025.

Two more things. I'm sorry I said two, but it's two more on page three on the top slide. Number three, you talk about the target schedule for early operations segment Mercedes to Bakersfield between 2000 and 32,033.

Yes.

But the cap and trade will expire in 2030, I believe.

Yes.

And further on your presentation, you talk about how critical that funding will if we get it extended.

Yes.

Is that something that is going to be very critical for us to extend that cap and trade and also the Proposition 1A.

Yes. So Proposition 1A. In terms of the revenues available to this project, they're kind of coming to the end. That was a $9 billion bond bill, I think back in the budget year 2021, the legislature appropriated the last 4.2 billion. We've gone through about 2 billion. Of that 4.2, there's roughly 2.2 left to get.

And I know that there's some communication back and forth under that budget bill and the language of that budget bill for how we can access and issue those bonds to complete the work. But the bond dollars, the nature of bond funds is it's really one time money. And the thing about cap and trade, it's ongoing, and is the only source of ongoing dollars that this project has. Everything else is one time. And we get 25% of the annual auction revenues from cap and trade.

It has been very robust the last two years. Over the last eight auctions, we're coming in at about $1.0 billion a year for the project. The last three auctions were about a billion, 25, if you annualize that. And so it's been robust, but it's also had rough times. During COVID there was one auction, we got $1.0 million. So it is subject to some volatility.

But as that is the only ongoing source of funding, we have the extension of that source to keep this project going and to allow us to achieve what we're trying to achieve in terms of getting the Merced to Bakersfield extension complete is essential.

Thank you. And lastly, I just want to let you know that I continue to be supportive of the project.

Thank you.

A couple of weeks ago, I had a chance to go to DC and I met with Senator Alex Padilla and a couple of other congressmen that represent the high desert to thank them for their efforts in getting that federal funding, not only for the high speed rail project, but also for Brightline. And I'm happy to hear that you are working with them. See how these systems can integrate connecting future lines once we get this going.

Anyway, I just wanted to let you know I continue to be supportive. I know that we are tough on the budget the way that it is now, but in my own personal belief, I think that we should continue to support this project because we cannot just leave that infrastructure. Just be there and do nothing with that. Madam Chair, thank you. Thanks for allowing me to ask too many questions.

Thank you.

Not too many. Thank you for the questions. That allowed for robust back and forth. Turning it over to Aguiar-Curry.

Good afternoon, and I want to thank both of you for being here today.

I remember initially this was on a rocky road. You've turned it around. There's lots of work to be done, and I want to just acknowledge what a great job you've done, despite the ups and downs and the COVID and everything else.

Thank you.

I just want to acknowledge a couple of things. On page three of your presentation, set targeted goals for critical procurement, such as track, blah blah, train sets, et cetera.

Thank you.

Yes.

And then also on page 13, fund electric trains for testing and use. I just want to ask about something that's the elephant in the room about worker protections, because I've heard troubling information from potential vendors, particularly semis, has refused a request to meet with the state building trades and has been hostile to overtures to communicate with their know. As we build such massive projects. Right.

I want to make sure that there are protections to make sure our workers have a safe working conditions and the right to organize. So I'm asking this how will the procurement process ensure that vendors are treating their employees fairly? And can you help ensure that prior to any award that any contractor is allowing to workers to exercise their rights to organize and that workers are receiving appropriate treatment and compensation?

A couple of things about that. I think we sort of have a three pronged approach for how we've come at this from an organizational standpoint. First, as I mentioned in the construction space back in 2013, the authority executed a community benefits agreement. That community benefits agreement is essentially a PLA for the project, and it articulates essentially a labor workforce in the construction of the project. In November of 2023.

As we are starting to look at and transitioning into operations and maintenance, I executed an agreement with labor partners on a national scale to ensure that protections they are afforded under the Railroad Retirement Act and the Railroad Labor Act, both federal statutes that we expect the contractors we work with to adhere to those statutory requirements.

And those things do include laying out, for example, how a facility can gain representation, the process for that, how the facility owner must communicate with the employees who are interested in representation. And that process is sort of laid out and is laid out in those federal statutes. And so those are part of what we do on the operation and maintenance side, on the manufacturing side of the train specifically, it's candidly a little trickier because those specific statutes don't necessarily apply to the manufacturing part.

But that said, as we are getting into this RFP, we are taking part in what's called the United States Employment Plan. And the United States Employment Plan is a voluntary program where we ask questions in the RFP process about the labor force that will be used on the project, where the trains will be manufactured, what kind of training is available to those employees, where those employees come from.

And there certainly is an expectation from the authority standpoint that any contractor working with us, whether it's in construction management or operations and maintenance or the manufacturer of trains, that they have to respect the federal rights that employees have to gain representation. And so those things will be non negotiable things with the authority. And as I said, we've entered contracts to make that so. And so in our RFP process, we're relying on the US employment plan.

We will get information from the two qualified bidders who are bidding to manufacture our trains, and we will score based on the information we receive in the procurement process.

As you can imagine, we have visitors in our offices and these are the questions that they ask. And I wanted to make sure that we address them and that before contracts are awarded to any vendor, that we have vetted them well enough that we have our local californian people having potential jobs.

Yeah. Let me just say one other thing, just so you know, on just a process point. The authority has a public board appointed by both the legislature and the Governor, and we will bring this RFP to that public board for approval. It'll be available publicly about a week in front of that hearing so people can go through it, see what we're asking in the RFP, and they can certainly come to the hearings and present positions on the RFP language itself.

And then once we get in the RFP process, before that RFP is awarded, we go back to a public board for the award. And so there will certainly be public opportunities at the authority to ensure that the RP process works.

Thank you very much. And again, I appreciate all the work that you've all done.

Thank you.

You have a lot more to do, but we're going to get there.

Thank you.

Thank you, Jackson.

Thank you very much. Madam Chair, obviously very excited to hear about Federal Government being supportive of this project. It was a relief to many of us who were having seizures up here last year when we were together, but certainly me, too. Blood pressure is under control now. Of course, just building it is one thing, but maintaining it is another.

And of course, one of the things that we also have to be mindful of is making sure that we get those segments of the line that will bring in the most income as well to be able to continue to the sustainability part of this program, of this project. What do you see as those critical segments that are essential to ensuring that we are able to also maintain the huge investments that we are making in this process as well?

Well, let me first say that maintaining the system is going to be a key element for every part of the segments that we build, both in the Central Valley and then extending into the Bay Area and the Southern California region. I'd say this, I mentioned the ridership numbers as we are projecting them now. And what's clear is for this to be a self sustaining system, we got to get into the population centers.

The initial build and operating segment in the central valley will not be a self sustaining system, just as Amtrak today is not. But the benefits that we'll produce from our project being there involve things like half the cost from a per mile passenger basis, much higher revenue, a ridership bump that's almost double because we're there in the valley. So those things are going to be important.

But we do have to get into the population centers ultimately of the Bay Area in Southern California to have a fully self sustaining system, meaning that the net revenues of the system exceed the net cost of the system. So we project that both the extension into the Bay Area from the valley and the extension into Southern California will achieve that under our ridership projections.

The other thing that I think is a new development that will probably affect our ongoing analysis of where we go next is the emergence of Brightline. I do think the system that goes east to west in Southern California, and as long as that is coming online and getting into service, the connecting points then, and how we bring people from Northern California and Central Valley into a system that goes east to west to Las Vegas will be of interest to them and us.

And so as a general matter, it's really getting into both of the population centers. We've got a lot of work to do to get there. We're just finishing that environmental work now. But those are the key parts of a self sustaining system.

And so are those the priorities, once we've honored our commitment to the Central Valley, is that our priorities after that is to making sure we get those up and going so we can make sure we're. So the way the math is making sense.

Yeah. So the way that we are approaching this is one we want to get operational in the valley where we're under construction today.

And by the way, I have no dog in this fight because I'm in the Inland Empire and ain't even on the map. Second phase, that's what they all say. We'll get to you.

So, yeah, our strategy right now, given our constrained funding, is to get operational in the valley first, finish the environmental work everywhere where we're wrapping up now, and then advance the design work and do all the geotechnical work you got to do to nail down the final configuration of the full alignment, San Francisco to Anaheim. And then we're going to have to work on how we fund those segments because they're expensive and it's going to take time.

And ultimately, we're going to want funding contributions not just from the federal and state, but probably local and regional partners as well. And so part of that equation is where does some of that come from? And so that's going to be conversations we have when we're further along in the pre-construction process in Northern California and Southern California.

Thank you, Madam Chair.

All right, Bennett.

Thank you, Madam Chair. My first question is about the population centers that you've just been referring to, and you talk about the fact that we're finishing up the environmental work. And I'm just curious as we've looked at what's happened in Japan and we had some conversations with them and stuff, they've used tunneling to address lots of issues. Are we far enough along because of the environmental work that we know where we're going to tunnel and where we're not going to tunnel?

And is there any ability to expand the areas that we're tunneling to decrease sort of some of the conflicts we have, or have we passed it?

Yeah. So the bond bill that passed in 2008 provided direction to the authority to build a system that got from San Francisco to Los Angeles in a time requirement. And so speed does matter. And to make that so, where you're going from the coastal part of the Bay Area into the Central Valley, down the spine of the Central Valley, and then back to the coastal parts of Southern California does require us to go through mountains, not around up and down, but through mountains.

And so in Northern California, we have about a total of about 14 miles of tunneling. There's a 13 miles segment and then a smaller segment. And in Southern California, particularly the environmental segment that we have left between Palmdale and Burbank, I think our tunneling total is on the order of 32 miles there. Not all in one stretch, but a totality of 32 miles of tunneling through the mountainous area there, the Tehachapi and San Gabriel.

Are we tunneling in places where we just have a lot of existing urban development just to avoid that urban development.

As we come into Burbank, there's some tunneling there, but primarily it's getting through mountains. Primarily, it's getting through mountainous regions.

We don't think that it's economical to tunnel and avoid some of those conflicts that we're going to have with the existing urban area.

Yeah, it just depends on where you are. And so, for example, in the urban area, that is Burbank. Burbank is building a new airport terminal right now, and we want the train station to be very close to that terminal. So our proposed train station there will be underground. And so we tunnel right next to the airport where the new terminal will be. But then as we leave the Burbank airport, we're back at grade going into the LA Union station. And so it just really depends.

But I would say that as a general matter, the most complex stretches that involve tunneling are through the mountainous areas and not necessarily urban.

My second question deals with the issue of trying to make sure that the revenue starts to cover the expenses, the operation revenue, operating revenue covers the expenses. And the Japanese did a remarkable job of allocating their real estate around the stations. And could you give us an update in terms of how much are we going to be able to capitalize on the improved commercial opportunities that will exist because of the stations being there?

And are we going to be able to realize revenue anywhere near like the Japanese were able to?

Yeah. So Value Capture is generally what it's called, but it's using both leasing and revenue and concession opportunities at stations to generate ancillary revenue for the service, as well as being a partner in some of the development in and around those stations. We're at the forefront of that, I don't have today a number of how much we're going to generate for that. But on a station by station basis, working with each of the localities where we are station partners, those things are on the table.

As we build the stations, they'll be built in a way where initially they're just aimed at dealing with the capacity of the ridership that starts. But they will be constructed in a way to expand, to do things like increased concession services and other revenue generating services in the station environment. And then again, outside of there, it's really a sense of who owns what parcel, what you can do with those parcels.

And I will say that each station differs a little bit because in the Central Valley we are building these stations kind of whole. In some of these places, we own a lot of the parcels around some of those stations at the LA Union station or the San Francisco portal, it's called, it's different. Those are owned by others. And so you just have different opportunities depending on the station.

But I will say this, that for this system, we do want station development and station concession revenue to be part of the ancillary revenue that comes into the program.

And final question, if we have a significant change in administration after the presidential election, to what extent are we protected and not protected in terms of funding streams, cooperation, et cetera, going forward? What do you see as the risk there?

Candidly, I see a high risk. I mean, the experience that we just lived through prior to the current administration was, well, I mean, I'm going to be candid, it was the most dysfunctional state federal relationship I have ever seen in 30 years in public service. And so I don't have high hopes that there's a big change in terms of having a stable federal partner on this project.

But that said, for the dollars that have been obligated to us in the course of the last year, we're working hard with the FRA to make sure we put those dollars to use, that we get them obligated, and for the authority that we are hitting the milestones that we lay out so that those dollars keep coming, I will say that no matter who the next administration is, I think our job is the same.

It's to lay out milestones that are achievable and make sure we're hitting them. And I think as long as we're doing that and we're putting the federal dollars we get to good use, expanding economic opportunity and job growth, I think it gets harder and harder to take those dollars away.

Thank you.

Thank you Madam Chair. Mr. Kelly, just, again, just to echo the committee's comments, just really appreciate all your years of hard work on this high speed rail authority. Really appreciate it. I know that it's been very challenging since the day you took over. Thank you. I did have some questions in terms of more the timelines and schedules. I know you had sort of color codes.

In terms of what's completed, is it more detailed in the business plan where you actually have dates that you hope to have completion by for various phases? I know you mentioned in your presentation that completion was by 2030 to 2033, but just wanted to know, as you're looking at each of these different milestones, if there's a more detailed.

There is in the business plan itself. In Chapter 2 of the business plan, you go through each of the construction segments. We actually tell you, for example, if you are looking on starting on pages 2021 and 22 and 24, we show you each of the construction segment for the 119 miles under construction, exactly where each structure is in that process.

Okay.

There's also a timeline at the bottom of pages 26 and 27 that lays out the crucial timeline for each part of our procurements and project development going forward in the business plan. Got it.

Okay. Thank you. And then just one more.

Just from slide 11, is the gap for Merced to Bakersfield 8 billion? I couldn't quite tell what your funding gap is still.

Yeah. So unfortunately we have to express these gaps in kind of ranges because as I said, gap in trade is a little bit of a sliding pot of money depending on how that is coming in. And so we've identified our cost range for completing the Merced to Bakersfield, and all of the bookend projects and all of the environmental work we're doing statewide is between 32 and 35 billion to get it all done, all of that work and our revenues right now are between really 28.7 and 30.5.

And so that leaves a gap of between 5 and 7 to get all the work done. We are pursuing an additional, under our original federal funding strategy, 4.7 billion in federal funds. And then again, we're looking and hoping to get an extension of cap and trade that can help us finish some of the work that we have to do here.

Got it. But the hope is that with this rough gap of, say, 8 billion, you're looking at federal funds and federal partnerships to try to close that gap.

That and the extension of cap and trade here, we need both.

Got it. And then you had mentioned also the ridership estimate for the valley to valley.

Could you say again kind of what that was based on? I think when you were mentioning, you mentioned sort of, you had compared it to sort of Amtrak ridership. I don't know if I caught that correctly.

Yes.

Yeah. So our estimate ridership changed a bit with COVID And the other thing, I mean, just so members know generally, because this is really affecting transit up and down the state, and it will, irrespective of this project, and that is California's population has gotten stagnant. And so not only is it flat, but there are in the future years, we actually are starting to see a downturn in California's population, which is the first time I've seen that, certainly in my lifetime.

But the effect of that means that you also have a flattening economic growth and job growth potential. And so that affects transit and rail ridership. We talked about that initially in the 2023 project update report, where we set our valley-to-valley ridership between 11.5 and 12 million riders a year. We've updated that slightly with this business plan. It's still 12.2 to 12.5. And I think what I was trying to say about that, there's two things about that ridership.

One, the probability is that that will still be a revenue-generating service between the Central Valley and Silicon Valley at that ridership number. And secondly, just giving some context for how many riders that is, the Amtrak service that goes in the northeast corridor, the Amtrak service carries about 12 million riders a year, and that's the busiest corridor in the country. And so the valley-to-valley system on our service is estimated to carry roughly that same amount.

I know that some of the peer review group, for example, has noted that there's different dynamics around the northeast corridor, including greater population. But the trains in the northeast corridor can't move at the pace that our trains will move in terms of speed and time savings and things like that. And so we think our best ridership numbers that in the past have been peer-reviewed. We're happy to have them peer-reviewed again. Has it at about 12 or 12.5 million riders a year.

Got it. But is there a current Amtrak service that goes between Bakersfield and Merced?

Yes, there is. The San Joaquin service.

Yeah. That goes from Sacramento to Bakersfield. Their ridership number, the last I saw it was on the order of 1,000,001 to 1,000,003 passengers a year.

Okay. And your feeling is, or the peers review feeling, is that because it'll become more efficient?

Yeah, I think there's different reasons for people to take high-speed trains than conventional trains. And I think time savings is key. And if you're moving a drive that takes 4 hours today, if it can take an hour and 20 minutes on a train, you'll do it. But you can only do it if that train is high-speed.

Right. And while our population is stagnant in the state, I believe it's growing in the valley. It is in this area. It is just this very segment that you're serving.

That's right.

So it's not stagnant in the area.

It's not stagnant, right. That's right.

But in particular, it's not stagnant in the area that you're starting. Okay. Thank you very much. Appreciate it.

Thank you. Going to go, just so members are aware, Hart, then Papan, then back to Carrillo.

Thank you, Madam Chair. Mr. Kelly, thank you for the presentation. And the way I understand it, the order of work that you have planned is focusing on the construction from Bakersfield and Merced, doing the environmental work to complete both segments at the north and south, and then working on the Northern California and Southern California bookend projects. How does the new opportunity with Brightline integrate into your planning in that context? Is this something the Federal Government is interested in? Connectivity and to what degree is Brightline as interested? Has there been any ridership projections about the potential that can accrue to both of those systems as a result of that? I have a sense that this is sort of a game changer potentially in the midterm. You might want to pivot to integrate into your plans.

Yeah, I do think future business plans will talk more and more and more about the integration of the two systems. I would just say that the Federal Government has a keen interest in this. The two projects that really got the bulk of the state-federal partnership money was this one at 3.1 billion and Brightline at 3 billion right behind us. So California in the western region did extraordinarily well. Brightline is we have a lot of areas where we're in conversations with them about interoperability.

Can your trains ride on my tracks? Can my trains ride on your tracks? Connecting points are important. Initially, Brightline was definitely going to Palmdale as a stop. They pivoted on that a little bit, and now they are going to Victorville, but then turning south to Rancho Cucamonga. So the gap between Victorville and Palmdale is about 50 miles. We want to work with them, and we are going to work with them with the high desert corridor to figure out how you fill that 50-mile connecting gap.

And we are also working very closely with the City of Palmdale on station development that they have there because that's one of our stops as we head south. So we are working with them on that. There may be opportunities for economies of scale in equipment purchasing and things like that, things that we are talking to them about. We'll be hosting Brightline's management team later this month in Sacramento to talk about some of these things.

And so, yeah, it's definitely something that there'll be more and more conversation about as that project. And so they haven't quite jumped into full construction yet, but they expect to this year, I think. And then as that happens and they shore up all of their funding to complete their work. Yeah, we want to continue to be close partners with them, and I think it's important for the state that we are.

How important is that risk that the interconnectivity doesn't work out? You got a private sector operator, you've got different train set decisions happening quickly. Is that something to be concerned about right now?

Well, I would say it's something we should plan for, which means we should plan to make sure we're interoperable. We've done that now with, like, platform heights. We've agreed to the same platform heights. Again, we want to make sure that trains can operate on each other's lines. We'll work on that. As I said, there might be an opportunity for joint procurement, opportunities for various equipment pieces. So there's a lot of things ahead that there's reasons for both sides to work closely together to advance electrified high-speed rail in California.

Papan.

Thank you, Director Kelly, for being here. So I do have a dog in the fight, not like Assemblymember Jackson. So as you and I have spoken before about the two lawsuits that are being conducted in my district alone, and I appreciate the time that you've given me to discuss them. I guess my question is, what is the timeline that we're looking at to get those resolved? Because in this case, talk is not cheap, if you will. And so I'm trying to get a real read from you, if I may, on getting those resolved, and particularly in Millbrae, Brisbane. Yeah, you know where I'm talking.

So just a little bit of context, more broad context on this, and then I'll get right to the specific. But when I came to the authority, I think it had seven outstanding CEQA-related lawsuits. And our philosophy when we got here was to settle those, and we did. And most of those were up and down the valley as we extend. And at that time, we had only cleared 119 miles of the alignment. Today we've cleared 422 miles, and we had three major lawsuits.

Burbank airport, City of Millbrae, and City of Brisbane, and a developer that's tied to the Brisbane litigation. Our strategy to settle remains the same. We have entered a stay agreement with the City of Millbrae and with the City of Brisbane and with the developer, and we are in active negotiations to settle those. Our objective and goal is to settle those in 2024.

Okay. This year. Terrific. That's what I wanted to hear. So then my next question relates to some funding, and that is, what is your anticipated funding estimate to finish through San Mateo County into San Francisco?

I think the estimate for that, I'm going off the top of my head, but yeah. So San Francisco to San Jose. I should let my chief financial officer answer this question, but San Francisco to San Jose, that segment, after it was environmentally cleared, is roughly a $5 billion segment for all of it. And not only are we, because we are partners now for about 733 million, 714 million for the electrification of Caltrain.

But as we come through there, there's other improvements that need to be made to that corridor. There are some curves that have to be straightened. There's some additional catenary systems to power the electricity through there. And so there are still some major investments up and down that corridor so that you can reach corridor speeds of 110 miles per hour and advance both Caltrain's expansion plans and our system in that corridor. So that is still in front of us in the San Francisco to San Jose stretch.

Okay. So as it relates to. Because it's very tight quarters coming through San Mateo County. And are you anticipating a passing track?

There was a passing track that was part of one of the environmental alternatives and it was excluded. However, I know at the Millbrae station there will be room for parking trains and trains going through. So there are elements of it. But there was a passing track in one of the alternatives that we did not pursue environmentally. And just so you know, that's not an issue. That's part of the litigation either on the passing track issue, but there are parts along the way where there's opportunity for passing, usually at station locations.

Yeah. Okay. So you know my issue with Millbrae.

They have a huge housing development that they want to put in. They're ready to go.

I do.

Yes.

It was music to my ears to hear that you would like to resolve it in 2024 because they really need to get that housing built rather than some surface lot that high-speed rail is proposing.

Absolutely. And look, we support not just in Millbrae, but up and down the alignment, transit orient development at the station site. It enhances ridership. We recognize that. And obviously, we're supportive of California's broader housing goals. So we are looking forward to settling that litigation.

And in Brisbane, I'm making that pitch as well.

Them, too.

Thank you for hearing me out. Thank you.

All right. Carrillo.

Thank you, Madam Chair. I'll be brief. My understanding is that in order for these projects to be sustainable, they have to be profitable, like the trains in Asia and Europe, high-speed rail. I think it's self-sustained. And I am going to make a pitch as to why you should go to Southern California first. So I wanted to jump in when you were making your comments on ridership, potential ridership, the LA Basin, more populated potential, more riders. The Brightline. Thank you for bringing that up.

Going east and west, connecting from Palmdale to Apple Valley to make that connection, and also the investment that has been already done in LA with the grants, great separation. I agree with that. So I think that that's the reason why you should go to Southern California first. And then you talked about how the learning pains on first leg with the running into utilities, the cost of relocating them, and the time that it takes to do that, those are painful lessons that we learn about that. Your decision to leave, what recommendations would you make to the authority and of those lessons learned and where do we need to go from here?

Well, I think one is to execute the lessons that we have learned. And so again, I know I said this last year before this committee, but the key thing on this project was when it got started many years ago, it got federal monies to start in a specific location and those dollars had to be spent under an unrealistic timeline. Nevertheless, the authority wanted to advance work to keep the federal dollars, which was understandable.

But in so doing, it got into construction before some of the preconstruction activities were done, which is in industry terms, it's going into construction at risk. And so what happened is the right of way challenges in the Central Valley were tough for many years. It takes time to obtain private right away, as it should since it's personal property. But that caused delay and that delay comes with costs.

And to be honest with you, in my five and a half years or six years here now, much of that we've been getting out of still. And so as I said earlier, we're now almost 99% done with the right of way. When I got here it was about 50%. So we've come a long way on that stuff. And the same with the utilities. You've got to do this in a sequence.

You got to complete enough design work so you know the right of way you need and you know the utilities, you got to move and you got to enter into local agreements on how you're going to deal with third parties going forward on the project. That wasn't all in place in the right sequence initially, and that cost us dearly. We've learned from that. And as we are now looking at the Merced extensions and the Bakersfield extension, we are doing it the right way.

We have brought those design packages to 30%. We have identified the general parcels we need, the right of way we need, and we're starting to work on the 100% utility relocation designs now. Ultimately we'll expand that design further. We'll know all the right of way we need for both our purposes and for utility relocation purposes. And we will execute that work before we start construction. And that is going to change a lot going forward. And so I think executing that lesson is key.

And I think the other lesson, which is know, to be candid with you, I've labored to do because it's not easy. It's not fun to bring people bad news. But one of the things I came to this project with, which was a perspective I learned on the San Francisco Oakland Bay Bridge when I was serving in a different capacity as the secretary under Governor Brown, it's that these mega projects are going to have challenges. They're going to have very difficult challenges. Every megaproject does.

And I think the job of the entity that's in charge of that is to be very clear about what those are and to articulate what you're going to do about them. And that's difficult because I'm always trying to bring the most transparent to see to what's in front of us, what our costs look like, what the challenges are, and what we're doing about it. But it's not an easy conversation, but you got to do it.

And I think what I learned when I was secretary is that I think the public totally understands that. The public knows that these huge megaprojects are going to have challenges. And I think it comes down to anybody who's remodeled a bathroom or a bedroom or any part of their house, there's challenges. There's things you get into you didn't know. And here we times everything by a million because it's so big. This scale is so huge. And so I think that's the thing. Transparency, clear communication, and then, in my view, getting the sequence of work correct. I think those are the things for a better future.

Thank you. Thank you.

Well, thank you so much, Mr. Kelly and Mr. Annis, for being here for this good discussion. We appreciate the draft business plan. We know it's got a long ways to go before it comes back to the Legislature, but we appreciate the work and being available to answer all the questions. I had a few of my own, but most of them have answered, and I'm not going to belabor. I know how to find you. Thank you so much.

Thank you, Madam Chair and members. Thank you.

All right, moving on to the commentary on the plan, I'd like to invite up Helen Kerstein, principal fiscal and policy analyst from the Legislative Analyst Office, Louis S. Thompson, chair of California High-Speed Rail Peer Review Group, and Ben Belnap, inspector general of the California High-Speed Rail Authority. At your convenience, you may begin.

Good afternoon, Chair and Members. I'm Helen Kerstein with the Legislative Analyst Office. Thank you so much for inviting me to be here at this hearing and participate. To guide my comments, I prepared a handout, which you probably have in your pockets, but the sergeants are passing out extra copies just in case.

It's also available on our office's website and on your Committee's website. I'm going to try to be brief. I know you have a ton on your agenda. You've already had a very robust discussion with the authority. So even though this is a very lengthy handout, I'm going to try to go through just the key points and try to do that pretty quickly.

So if you'll turn to page 16, that's where I'll start. And again, I'll try to cover these points quickly. I'll start with highlighting some key issues for legislative consideration, and then I'll go into some recommendations for near term actions that really flow from those.

So the first key issue that we identify is despite the significant federal grant award that you heard about $3.3 billion with a couple of different grants that the authority got this last year or two, there's still a significant funding gap.

And you heard about that, probably, depending on which numbers you use, depending on the range, probably about a $7 billion funding gap. So that's quite significant. As you heard, the authority has a target of another $4.7 billion in additional federal funds.

So that would be great if they're successful. We think there's a lot of uncertainty with regard to whether they'll be able to bring in that additional funding. In particular, we'd note that there's no clear, detailed plan for which specific federal grants they're going to secure and when and for which project components. And that makes it really difficult to assess the credibility of that number and determine whether that's a realistic target or not.

We'd also note that even if the authority is successful at securing that funding, there's still a remaining funding gap. And you heard about that from Mr. Kelly as well. So we think that's a challenge for the project. And we think, in particular, not having this real, fully fleshed out funding plan, it makes it hard for the project, it makes it hard for stakeholders, and it leaves some risk that the authority could start undertaking some work that maybe ultimately can't be finished.

So we think certainly a challenge. If you turn to page 17, we also highlight that we think that there's risk that this funding gap could grow. As you heard, this project has had a history of cost increases. It's a megaproject. It could certainly experience additional cost increases.

And there's also risk on the revenue side, because, as you also heard, this project gets money from the Greenhouse Gas Reduction Fund, and those revenues are volatile. And that program is set to expire in 2030 currently.

And so there's probably going to be even more volatility as we get close to that expiration, or at least there's a good chance there may be. Also, just wanted to highlight that the draft plan doesn't include any details on the timing of when the project would need additional funds. We think that's an important detail, and I think that's also one that my colleagues may mention as well.

If you turn to page 18, we also highlight, we've been focused so far, my comments have been focused on Mercedes Bakersfield. And I know a lot of the discussion today has been focused on that because that's the initial interim operating segment.

But there's a very, very large funding gap for the rest of phase one. Again, depending on whether you look at the top of the range or the bottom of the range, the exact number varies, but we're probably looking at, at least $80 billion.

And there's no plan to fund that, even if there's an extension of cap and trade, and that's securitized. Currently, the authority assumes that if cap and trade is extended to 2050 and they securitize it, they might be able to get between around 6.8 to $8.0 billion.

That's probably about what you'd need to fund Mercedes Bakersfield. Maybe in that range, but it's not going to get us phase one. So that's something that is a key issue for the Legislature to consider.

How are we going to fund anything beyond Mercedes Bakersfield? That's part of phase one. If you turn to page 19, we also highlight that we think project oversight continues to be so important for this type of very large, impactful, challenging megaproject. We think the Legislature made huge steps for the last couple of years establishing the office of the Inspector General. I know you'll hear from that office shortly.

We think that's a big step in terms of improving oversight of this project, but we think that's an area the Legislature can really provide a lot of value going forward. And there are a couple of areas that we think are particularly important. One is these grant agreements. So $3.3 billion.

We're going to be signing a lot of grant agreements, hopefully. And you heard from Mr. Kelly that in the past. Sometimes these grant agreements have constrained the state.

Sometimes it's meant we've had to move faster than we wanted to. Sometimes it's meant we had to start in different places. In other cases, it's committed the state to electrification when maybe that wasn't a commitment that was previously made.

So those are some ways that in the past, those federal grant agreements have really been impactful and sometimes detrimental to the project. In the case of kind of making the project move more quickly than made sense in terms of its timeline.

And so we think it's really important for the Legislature to have oversight in this area to make sure that those grant agreements are structured in ways that are consistent with legislative priorities and again, don't expose the state to unnecessary risk.

And additionally, big contracts, you also heard about that very big contracts related to train set procurements. I know that's an issue for some members, but also for track and systems, very large contracts, we think it's very important for the Legislature to be focused on.

Are legislative priorities being reflected in those contracts? Is the state being protected from unnecessary risk? So we think those are some key issues you'll want to have kind of basically that you'll want to be looking at for this next year.

If you turn to page 20, we highlight some recommendations that really flow from those key considerations. Again, I'll go through them quickly because they kind of naturally come from those key considerations.

One is that we recommend that the Legislature start developing its funding plan from Mercedes to Bakersfield because we do think that there's likely to be a funding gap, and we think it could take some time. There's some difficult choices you're going to have to wrestle with regarding how to address that funding gap.

And so starting sooner rather than later is probably wise. If you turn to page 21, we highlight that. We suggest that you require additional information from the authority to help inform that plan.

So we think it's going to be important to assess what's that size of the funding gap that you have, when are you going to need to provide that additional funding? And to do that, having a good sense of how credible that federal funds target is is going to be really critical.

And also having information from the authority on exactly when they expect to need the funds, we think will also be important. So we recommend that you seek that information from the authority.

That could be through supplemental report language, it could be through provisional budget language or another method. Finally, if you turn to page 22, we provide some recommendations on the oversight piece. We think one thing that's really important is to support a strong and independent OIG. The OIG has a budget proposal this year.

We have some separate recommendations on that, but we really think making sure that the office is adequately resourced and has all of the various authorities that are necessary to be able to be really strong and independent is critical.

And then we think focusing again on those areas that I highlighted this year in terms of the grant agreements and the contracts will be really important. And we think that the OIG might be well positioned to do work in that area.

So if that's something the Legislature is interested in, the Legislature could certainly task the OIG, such as through some type of formal request, with doing that kind of oversight, we think that they could be really valuable in that role. So those are my comments. Happy to take any questions, and I'll turn it over to the following speakers, if that's appropriate.

Yes, we'll take questions at the end of this particular panel. So, Mr. Thompson or Chair Thompson, my apologies.

Okay, I guess I've been nominated next. I will also try to be brief. Unfortunately, I cannot speak as fast as Helen Kerstein, so it may take me a little bit more time to cover the area. Chair Wilson, Members of the Committee, I appreciate the opportunity to speak to you today.

As you know, the peer review group was created by Proposition 1A and charged to report to you on matters of interest. So you can think of me as your employee.

Helen Kerstein's analysis is, as always, comprehensive and accurate. We in the LAO are in close agreement. I can say the same about the briefing paper your staff prepared for this hearing, and we fully share the four concerns stated by Ben Beldnap in his statement.

These papers parallel many of the comments in our letter of March 8th, which you have the authority, continues to learn from its experience, but project cross continue to rise and are subject to considerable risk.

On the upside, because most of the project remains at an early design stage or less, and there is no experience to date with major elements of the project. Schedules are stretching out, demand estimates have fallen, and financing is inadequate and unstable. I would like to focus instead, as I did last year, on the dilemma that emerges from these facts. The dilemma is simple.

The proposal to build a high speed, fully electrified segment from Merced to Bakersfield makes no sense without a commitment to build the entire phase one system. There would be a much more reasonable approach available for this segment if it were to stand by itself.

But building the phase one system would have to be based on a commitment to secure funding far beyond the funding available from existing or reasonably predictable sources. This is not critical of the HSRA staff.

As Brian said, the project has always been over promised and overfunded. It got off to a rough start partly due to inexperience and partly because the free federal money encouraged the authority to award contracts before they were properly prepared. Managers have learned some hard lessons and the procurement strategies have changed accordingly.

From the 2024 draft business plan, we now know that phase one will cost about three times what was promised when Proposition one a was passed. Added uncertainty arises because cost estimated for major elements of the project, 50 miles of tunnels, track work, electrification, signaling and rolling stock, are not yet based on actual bids, but only on engineering estimates.

Phase one will also take 15 to 20 years longer, will not realistically meet the trip times specified in Proposition 1A, and is now predicted to carry only about 70% of the passengers.

These results raise questions about the viability and priority of the project given the other financing needs the state faces and will so face. In light of these challenges the project faces, we made a series of suggestions and recommendations.

The most important ones are first, the Legislature could Commission an independent review of the economic and financial justification for the project, including the ability to operate without subsidy as required by Proposition 1A before recommitting to the full phase one system.

We continue to argue that this be done because there are and will be many other claims on the state's scarce resources. Next, request the authority to issue dashboard type information in the format used for the ARA dashboard so that the cost and schedule experience of awarded contracts can be evaluated and updated. We believe that they are now doing this and we commend them for doing this, but we feel that it is too far down on their website for people to find it.

Unless you know exactly where to go, it should be more prominently displayed. They should notify the Legislature and the IG of the results of the upcoming track systems and rolling stock stations and Mercedes and Bakersfield extensions contracts showing the contract value and expected completion time as compared with the 2024 draft business plans values.

We emphasize this suggestion because the performance on the new contracts will be an important precursor of the future experience when most of the money will be spent.

I note in passing because of the discussion earlier about Los Angeles area in the southern part, that one of the key aspects of this project, the through tracks at LA Union Station, are now being held up because of a lack of funding, and I would certainly strongly urge the Legislature to see what it can do to resolve this problem.

I think our most important recommendation is that you request a development by the LAO or another appropriate agency of an analysis with options and trade offs available to the Legislature for how to fund the potential $7 billion gap for completion of Mercedes Bakersfield suction and the $93 to $99 billion gap between this section and the remainder of the phase one system. It is critical that any funding approach be fully funded and stable and predictable from year to year.

This has not been done, and it is ever more important. We cannot emphasize too strongly that inaction by the Legislature and Governor to identify an adequate and stable source of funding for the project is increasing its costs and hindering management's control of the project.

The authority's statement in the 2024 plan that, quote, no megaproject that will take years to construct and is built to operate for decades can be fully realized with its only ongoing funding source ending in 2030, is particularly relevant. We fully agree.

Next Commission independent study of the experience of the project and the lessons the state should learn that must be applied to future megaprojects, if not just this one, that the state undertakes or supports. This has not been done, and it should be.

This will not be the last megaproject the state undertakes, and it would be a good idea not to repeat the mistakes made on this project. We have an additional request.

Over the past five business plans, the roles of the LAO and the peer review group have converged. The LA's work has been excellent, and their conclusions closely parallel ours. The Senate and Assembly transportation staff are unusually experienced and competent. The creation of the OIG adds another concurrent voice to the discussions. The peer review group has attempted to cooperate closely with all of these, and we believe their work is of great value.

The question is, what of any value the peer review can now add to the work of these well staffed and professional agencies. We would appreciate any guidance the Legislature may have. I realize this is not a welcome message, but as your employee, it's my duty to bring you bad news as well as good news. You need a balanced picture of the situation.

The results of the 2020 tour draft business plan and the financial implications it has make it ever more urgent that the state review its commitments to the full phase one if it can find a way to pay for it, or start the process of defining and considering what your alternatives are. Thank you, and if I can answer any questions, I'll be happy to try.

Thank you, chair. Moving on to Mr. Belnap.

Good afternoon, Madam Chair Members. My name is Ben Belnap. I'm the Inspector General for the newly formed office of Inspector General of the High Speed Rail. My background is auditing I audited for 22 years at the California State Auditor's office until I was recently appointed to this position.

My team and I have reviewed the draft business plan, and although our review is ongoing, we do have some initial observations that we'd like to share. You will find these observations in greater detail in the testimony brief.

I believe you were just handed. In its 2023 project update report, the authority provided an updated schedule and cost estimate for the Merced to Bakersfield segment in its draft business plan. The authority continues to reflect this same schedule and cost estimate.

With these two key elements of the plan holding in place, the authority has an opportunity to focus its efforts on refining other portions of the plan. To date, we have identified four key improvements the authority needs to implement.

First, it needs to publish a more detailed funding plan for the Merced to Bakersfield segment. Second, it needs to formally establish a policy on when it will update project costs and then third, it needs to more clearly address each statutory required reporting element and then finally needs to increase transparency in certain parts of the plan.

Those first two improvements I listed, a more detailed funding plan and adoption of a cost update policy stem from recommendations my office made as a result of our review of the 2023 project update report. As indicated in the authority's response to that review, the authority intends on implementing those recommendations, both of those recommendations concurrently with the board's adoption of the final business plan. If fully implemented, the benefit of these recommendations will be as follows.

First, project stakeholders, including the Legislature, will know when the current gap in secured funding for the Mercedes Bakersfield segment will begin to negatively impact the authority's ability to stay on the current schedule.

Second, project stakeholders will also have a better understanding of how realistic that $4.7 billion target for future federal grants is and will therefore have a better understanding of the extent to which the state may need to provide additional funding to keep that segment on schedule.

And then finally, decisions related to updates of project costs and the authority's annual reports will be subject to a formally board adopted, publicly vetted policy, the development of which will include an opportunity for project stakeholders, including ourselves, to provide input and feedback.

As I mentioned, we've looked at the statutory requirements. We did this initial comparison, and we see some inadequacies in some of the disclosures in the document.

In particular, for the 10 reporting requirements that predated SB 198, the plan does not appear to fully address roughly half. I'll give you two examples. One is the draft funding plan does not describe the authority's level of confidence for obtaining the types of funding the authority identified in the plan. Although this item should be resolved with the implementation of the recommendation I described earlier.

Another example, the discussion of all reasonably foreseeable risks, narrowly focuses on a selection of five risks which do not represent the top five risks identified by the authority. As a result, the plan does not describe, for example, the strategies the authority intends to utilize to manage the threats to its schedule, monitoring and management, which the authority identified as its second highest risk.

The plan also does not adequately address some of the new reporting requirements imposed by SB 198.

For example, it does not provide information required by SB 198 related to right of way acquisitions, and then the plan does not clearly list all funding commitments beyond that are said to Bakersfield segment. In addition to complying with statutory reporting requirements, the plan could be improved to provide additional transparency in some important areas.

For example, the business plan needs to explain why no demonstrable progress on the initial operating agreements that are defined in the plan occurred in 2023 and why stakeholders should not be concerned with this apparent lack of progress.

Additionally, the plan's discussion of project risks uses similar, if not the same, language to describe both controls it has already implemented and controls it plans to implement in the future. This ambiguity decreases not only clarity, but accountability.

We have shared and will continue to share these concerns with authority, and they've indicated that they will work with us up to and until they publish the draft, and we will continue to provide that feedback to them. So with that, I will conclude my testimony and welcome any questions.

Thank you. I now bring it back to Members to see if there are any questions. Did you have.

I actually don't have a question. I want to thank all three of the presenters for being super clear and aligned, and I know that Mr. Kelly and Mr. Aanis are here listening carefully, and we have an opportunity to correct the misalignment on this draft version of the plan before the final plan is done, and I think that's going to be really important. We'll all be looking carefully at that. So thank you.

Ting.

I just want to align my comments with my colleague from Santa Barbara. Really appreciate that the three of you all spend a lot of time focusing on the fiscal gap, the $8 billion gap, $80 billion gap. Is that the primary hurdle to getting this project done? Meaning if we could somehow find that $8 billion in your mind, would this project be able to be completed?

I guess the question is just because in the previous presentation we didn't see very detailed schedule, we saw some fairly broad deadlines, trying to figure out what it will take to get this, at least this initial stretch done and then obviously the next phase done, too.

I think there are two aspects to that question that I would like to deal with. First is if you don't have the money, you can't do it. That should be clear. So it's very difficult to plan and impossible to manage a project when A, you don't have the money and B, you don't know when you will get it and it doesn't come to you in a form that permits you to plan and manage stably.

So when I said that the lack of a known stable funding plan is hindering the project, I didn't just mean they don't have the money to do it. I meant that they don't have the money to plan it and manage it the way you should.

The comparison I would give you would be the Interstate Highway project, where there was a known stable source of funding, where they could plan for the years that they needed to plan, and they could manage it in an effective way within the budget that they had available. That does not exist here, and it is making it very difficult for them to manage the project.

And if the Legislature really want, especially phase one, if you really are thinking about phase one, I really stress as hard as possible get some thought done on long range funding for this project, be it a gas tax, be it a sugar tax, be it whatever kind of source of funding you want, but please don't put that off any longer. You need that now.

So I echo many of those comments. I think that it's absolutely a super important consideration is providing stable, adequate funding, having that funding plan, I would say I don't think that's the only risk. Certainly there are other risks that the project faces. The project has a history of various challenges. It's had number of disagreements with contractors.

It does look like the authority is learning from some of those lessons, and we very much hope that we're past the worst of that and that we won't have quite the level of challenges going forward. But there always are risks with this kind of large megaproject, and the authority has identified a number of those, as the Inspector General mentioned. Some of them are highlighted in the business plan, but there's a whole host of them.

So we think that sort of a first step, certainly, or an important step is having a clear sense of how you're going to pay for whatever project segment the Legislature wants to do. If that's Mercedes Bakersfield, we're going to need to figure out how to fund Mercedes Bakersfield.

If that's something smaller, then it's a smaller amount. If that's something bigger, then that's a bigger amount. But how are we going to pay for whatever the Legislature's vision is? What's the funding plan for that? That's step one.

But recognizing there are other project challenges and other project risks that are real, we don't know which ones will end up being problematic. But certainly there's litigations. Certainly there's issues with third parties. There's issues, as was briefly referenced, there's potential risk with having a third party operator.

We could probably spend all afternoon talking about various project risks. So happy to answer any more specific questions you have on that, but I think it's probably a both.

I'd like to add. Yes, funding risk is number one. What's missing in the plan right now are elements of the analysis that push those strategic decisions forward. We've got to progress in the strategic decisions around funding, and those are the focus of our recommendations. And focus of many of our criticisms is the lack of progress on that critical portion of the plan.

Meaning that if the authority wanted to close the $8 billion gap, they would present a bond tax, some sort of revenue proposal to us. Is that what you're referring?

Yeah, I think step one in that is to identify exactly when the project needs funding to stay on schedule. You can get there by looking at some of the exhibits, but it's not super clear. The first step is to know exactly when, and the next step is to look at what federal funding matches with that timing and how much of that federal funding is left.

There's an exhibit in there that shows the total appropriation for federal funding, but we need to know how much is left and how much of that is realistically coming to California's way. Those are initial steps that need to occur.

Great. Thank you.

I'd like to say thank each, as was noted for my colleagues, and I think you noted it in the peer talking from the peer review group point of view of what is the ultimate role, given all the voices that we have.

And each one of you play a critical role in this project and providing, you talk about the opaqueness of some of the documents, of providing clarity and showing us where truly the pitfalls are, where you don't have the level of passion and detail as the authority does as it relates to the project.

You care about the project, of course, but I just meant when you're in the project, it's much harder to have a critical eye than when you're outside looking in, and that's the role that you bring, and it's vital. And so I wanted for the Inspector General to ask you, so this is a new role that you have related to this. And you talked early on in your testimony about the variety of operational reviews that you plan in the coming year.

And so could you give a little bit more detail that for the Members and the members of the public about your office and that work plan and what you plan in the next year?

Yeah, I'd love to. Thank you for that question. So after we get done reviewing the draft business plan, we will do a formal risk assessment where we identify the greatest areas of risk that we want to review. We did enough of that from just my own experience, where we could put together a BCP that lines out how much resources will this office need? And we did identify in that BCP six operational reviews. Again, that's subject to that formal risk assessment. So therefore, subject to change.

But nevertheless, I'll give you an example of two of those operational reviews. One is a deep dive into the funding strategy. So what's going on behind the scenes? Not necessarily what's just in this document, but what's going on behind the scenes to make sure we secure as much federal funding we can.

Another one of those reviews is a deep dive into their procurement practices. So that's a look at how are they bringing on bids? How are they evaluating those bids?

Is it in the best interest of the state, the way those contracts are being put together? That's another one of those operational reviews, and there's others, all of which we're very excited to start once we're fully staffed in the next fiscal year.

And those you expect to be released around, is that at the end of the year?

So it won't be in this fiscal year? It'll be next fiscal year. About two every quarter.

Two every quarter.

Yeah, we're kind of rolling them out. And the reason it adds up to six instead of eight, there's four quarters, is there's a pause in that year to work on the what would be 2024 project update report. Okay, so that's a quarter where we'll just focus on that.

Sounds good. Thank you. And then last but not least, and this is for Chair Thompson or LAO, is that there's a significant risk, as been stated, that there won't be enough funding to finish the high speed double track rail line between Merced and Bakersfield. And so what would you recommend the Legislature do to best ensure that the funds we do have available are maximized to their greatest potential.

So I think one of the key steps is thinking about kind of what's the Legislature's commitment? To the extent the Legislature wants to preserve some flexibility, say, there isn't enough money, and we're currently in a very difficult budget situation, we're looking at deficits. It's possible that even though this is a very high legislative priority, it may be just very difficult to come up with additional funds.

Say, if that's the case, it seems like one important, critical step is thinking about what are sort of the off ramps, how can we make this project as useful as possible? And that could be, for example, thinking about, are there ways that we can better integrate, make sure that whatever system we have integrates really well with the existing San Joaquin's. So if you don't make it up to Merced, how do you make sure that in Madeira there's a great integration?

How do you make sure that, do you go all the way to Bakersfield, or do you go a little bit less far? Do you think about single tracking versus double tracking?

Those are all the kinds of discussions the Legislature could certainly have to make sure and really making sure that as part of that conversation, there's a discussion of, well, are there ways that we can make sure that whatever we start building is still useful, even if we maybe don't have enough money to complete all of it?

So I don't think I have the answer of this is exactly what you would do, but having the, especially if the Legislature wants to preserve some flexibility, that will be important. I guess another thing I would highlight is that these big contracts that are coming up are going to be so important and grant agreements so important for this discussion, because once we sign as a state on the dotted line saying, contractor, this is the scope we want you to do.

It's going to be harder and harder not to go forward with that full scope. Once we say to the Federal Government, this is the scope that we're committed to do to get these federal funds, it's going to be harder and harder not to do that. So I guess I would say that's another consideration to think about.

To the extent the Legislature wants to preserve sort of more off ramps or recognizes that there's some chance that perhaps funding won't be available to go beyond what we already have, making sure that we're thinking about that as we're kind of committing to those agreements, I think would be important.

Thank you.

If I might add, the authority has said that it has adopted a strategy of not contracting in such a way that they can award pieces in accord with the funding that they have available. And that will help, but it will only solve part of the problem, because the electric rolling stock is either useful or it isn't. You don't buy pieces of it. And there are other aspects of this that are not going to be amenable to that.

But one point I would like to make, in line with what Helen just said, it will surprise you to learn how early we are in this project. Despite the fact that it's been going for 15 years, we still don't have any bids on much of the work that's associated with Merced to Bakersfield, like the electrification or the rolling stock or the signaling or the track or the stations. And we don't have any experience with anything outside Madeira to Poplar Avenue, really.

So an immense amount of the project is still hanging there without actual bids or management experience. So we have to keep in mind that the risk in terms of what the variation in their budgets could be is really very high as of now. So the approach to funding it should be what do we do if we don't get all of the money that we'd like to get? How do we plan for a fallback position in that event?

And I think, as Helen said, that would be a very good thing for the Legislature to look at. What are our fallback positions?

No, thank you. And I think that proves the point that we really need to be focused and have these discussions now and how important this hearing is today. Thank you so much. I don't see any other questions from Members. Thank you for being able to be here today and provide a much needed voice to this discussion. With that, we're going to move on to our third and final panel, which is the operation of the Merced to Bakersfield segment.

Our participants include Chad Edison, Chief Deputy secretary for rail and transit from CalSTA, Bruce Armistead, chief of rail and operational delivery from California High Speed Rail Authority and then finally, Dan Leavitt, the manager of regional initiatives from San Joaquin Regional Rail Commission, San Joaquin Joint Powers Authority.

Once we are completed with this segment, we will then move on to public comments and closing remarks. With that at your convenience, you may begin.

Thank you very much, Chair Wilson and Members of the Committee, thank you for giving me a few moments to address you. I am Chad Edison, Chief Deputy secretary for rail and transit at the California State Transportation Agency.

Our agency is involved with many of the policy and funding topics related to the operation of early service that will utilize the first completed sections of high speed rail construction, including the network of inner city and regional services that will connect to the high speed rail line.

Since 2015, CalSTA has awarded over $10 billion of funding to transit and inner city rail projects throughout the state, with a significant amount of that funding going towards the Valley rail service that my fellow panelist Dan Levitt will describe in a few moments.

We have also worked closely with Caltrans on developing the capital funding recommendations for the rail projects in the interregional portion of the state transportation improvement program, the STIP. and for SB 1 funding applications, making sure that key projects that benefit the services that connect to the high speed rail line in Merced are prioritized for funding.

Future San Joaquin and ACE Services will provide critical connections to high speed rail, and we will continue to support their development.

The integrated rail network that is being developed will extend the benefits of high speed rail to communities throughout the state, and we have the responsibility to support the developing of that network well. The secretary of transportation at CalSTA is also involved in approving the business plans that are proposed by our inner city rail joint powers, authorities, partners throughout the state, and this slide here indicates the important evolution of the relationship that is occurring with the launch of early service in the Central Valley.

Every year, the San Joaquin JPA submits its plan for managing and operating the inner city rail services, and as high speed rail develops, they will include the expanded service in their business plan. The High Speed Rail Authority will enter into lease and access agreements with JPA that ensure full compensation for the train sets and infrastructure used and operated in the service.

The JPA, in turn, will present the full financial requirements and service to Kelsta for approval and funding as part of its business plan.

For our part, we will ensure state budget resources are sufficient to operate San Joaquin and other inner city rail services throughout the state through the development of the Caltrans budget that funds them. And Caltrans will continue to provide a modernized and new regional rail and inner city rail fleet, increasingly zero emission to connect to the high speed rail services expected to utilize many of the State of the art and passenger comfort benefits that are also being procured in the high speed rail train sets.

There are many more details we could get into should you have specific questions, but I'd like to close in saying that we are fully engaged in supporting the policies, agreements and funding necessary to have a successful integrated rail network. I'll let my fellow panelists get into more detail. Bruce.

As was mentioned, I'm Bruce Armistead, Chief of rail and operations delivery with the High Speed Rail Authority I'm going to talk a little bit about operations along the Merced to Bakersfield segment. The Central Valley service will connect millions of Californians to high speed rail.

We're going to meet conventional rail services in Merced as can be seen on the map to the left, and we'll meet buses to Los Angeles, Union Station, Westwood and Pasadena on the bottom to the right.

The Central Valley service will increase system wide annual ridership to about $6.6 million. The Central Valley 6.6 million riders, the Central Valley service almost doubles the existing ridership and high speed rail service. Fare structure will be fully integrated with the San Joaquins and Ace services. The high speed rail systems takes drivers off highways and provides fast, sustainable modes of transportation.

The service is planned to consist of six high speed rail train sets for the Central Valley service, four in service, one protect train set and one in maintenance. The hourly high speed rail service is both directions between Merced and Bakersfield, up to 18 daily round trips and seamless rail to rail and rail to bus transfers at Merced in Bakersfield.

The journey time is 82 minutes on high speed rail compared to 192 minutes at approximately 180 miles an hour for the 82 minutes service from Merced to Bakersfield.

The service saves 499,000 annual hours in passenger travel compared to other rail transportation options. 97 million fewer miles traveled by private vehicles annually and will remove 92,000 metric tons of CO2 emissions.

The early operating segment will create an employment boom and broad economic output growth in the long term. Investment in high speed rail sparks labor income and generates value from these activities, driving overall economic output throughout the Central Valley region.

The labor income this economic output is fueled by 28 billion and roughly 330,000 job hours. Economic output throughout the project high speed rail will create jobs throughout California and raise overall economic activity via indirect and induced spending in operation.

High speed rail will create jobs and continue to drive economic growth in California. Direct, indirect and induced effects will be realized high speed rail impacts on the economy via three channels.

Our program funding feeds direct effects by contractors, construction workers salaries, manufacturing production employee salaries and that translates to indirect effects of concrete and steel supplies, transport, computers, parts, office supplies, et cetera. The induced effects are housing and groceries and retail. High speed rail increases job and income outputs.

The estimated annual economic impact from staffing high speed rail facilities roughly 390 full time employees, 58.5 million in labor income and for every dollar invested in high speed rail, it creates $4 in economic benefit.

High speed rail state of the art American made trains will have world class interiors that inspire customers on the onboarding spirits and interior design is one of the main drivers of customer satisfaction. A world class interior that is accessible by all Californians is important to maximize travel time, comfort and enjoyment. What can Californians inspect? A State of the art, resilient and passenger centric interior. And now turn it over to Dan.

Thank you. Good afternoon, Chair Wilson, Members of the Transportation Committee, thank you for this opportunity to speak. I am the manager of regional initiatives for the San Joaquin Region Rail Commission and the San Joaquin Joint Powers Authority. The San Jokin Regional Commission is the owner operator of the Ace Commuter rail service which goes between Stockton and San Jose. We've been operating for over 25 years.

In 2015, the San Joaquin Joint Powers Authority became the managing agency for the San Joaquins inner city pasture rail service, which runs between Oakland and Bakersfield and Sacramento and Bakersfield. We also have an extensive through a bus network which takes passengers really throughout much of the rest of California.

Our program includes 21 new stations to be built, as well as new track and other improvements along the largely single track freight railroads that both of our services run on. Give you a little scale for the project: the distance between Merced and Chico is over 200 miles. Since 2018, we've secured over 1.6 billion dollars for the program, with most of the funding coming from the state.

The implementation of the program will be done incrementally and in phases, and we are expecting to start construction on initial improvements and on key initial stations by early next year, and we'll begin operating our first new round trips by the end of 2026. This figure really shows you how our Valley Rail program integrates with the high-speed rail early operating segment, which is shown in sort of the yellow color on this figure.

Our ACE service will extend to Merced to connect with high-speed rail in Merced, whereas the San Joaquin service will actually truncate its service. We run to Bakersfield today, but we will truncate service in Merced and meet directly platform to platform with high-speed rail at their elevated station in Merced.

In addition to our two rail lines providing service to much of Northern California, as you see on this figure, the green lines, those represent the through a bus connections which are throughout California that will provide service to link the high-speed rail early operating segment to the rest of the state, including the real key connection between Bakersfield and Southern California. This network will be fully integrated and passengers will be able to purchase a single ticket to travel throughout California.

As Chad mentioned and Brian Kelly said earlier, my agency, the San Joaquin Joint Powers Authority signed an MOU with High-Speed Rail and CalSTA at the end of 2020, which identified our JPA as the operating agency for initial high-speed rail operations. We are currently working with both the High-Speed Authority and CalSTA on many additional detailed agreements that will be binding agreements which are needed in order for us to take on this role.

The arrangement with the High-Speed Authority, we believe, is actually pretty similar to the current model which we operate with the San Joaquins, in that currently we don't own the track. We lease slots from the freight railroads--in this case, BNSF from Merced to Bakersfield--and we lease slots to be able to run trains for that service. Now, instead, we'll be leasing slots from the High-Speed Rail Authority, as well as leasing equipment from the High-Speed Rail Authority to run those trains on that new infrastructure.

And then this is my final slide. This slide really shows the train services which we are working to have implemented by the time high-speed rail starts operating between Merced and Bakersfield. Each line on this figure represents a single round trip. The blue lines represent inner city service, and the purple lines represent commuters. The darker blue are existing slots that we already have available. The lighter lines are--those are new slots which will be part of the Valley Rail program to come.

The goal for us is to meet each one of the 18 round trips that High-Speed Rail is planning in Merced with either a San Joaquins train or an ACE train. In order to reach this goal, we do need substantial additional funding to implement this expansion. For example, the critical connections at Merced with both ACE from Turlock to Merced and with the San Joaquins to make the direct connection to High-Speed Rail's platform, we do need funding for those parts of the program.

In addition, future extensions to Union City and Chico, those are only in the planning stage, and we will need funding for those portions as well. We will continue to work to obtain the funding needed to implement the entire overall program that we present here, and I did want to close by really emphasizing that this program will be implemented incrementally as funding is available and the operations will be done incrementally as well as operations are available. And we'd open up to any questions.

Thank you. I'll see if my colleague has any questions.

Well, it's reassuring to hear that you have an integrated plan to extend the service beyond the Merced to Bakersfield high-speed rail route, but it is, as you said, going to require additional state investment. I represent a district that is not connected to any of these systems and is in need of additional investment to maintain the viability of the LOSSAN Corridor, which is the second busiest rail corridor in the country.

And maybe I need some reassurance or some understanding that, Mr. Edison, you have a plan for being able to fund investments in the LOSSAN Corridor and also be able to ramp up the strategic investments that the San Joaquin Corridor also will require to work with High-Speed Rail.

Yes. Thank you very much, Senator Hart. CalSTA is involved in investing in every corridor of the state where we have inter-city and regional rail service. And we certainly are continuing to invest in other corridors. Currently, we have 3.7 billion dollars of state funding invested in the LOSSAN Corridor in projects, most of which are still entering into construction.

These are partnerships with LOSSAN Rail Agency, partnerships with Metrolink, partnerships with SANDAG and NCTD throughout the region, really making investments that will improve the rail services in the LOSSAN Corridor, as one example. We also are making fleet investments statewide that will refurbish our fleet, that will buy zero-emission train sets and start making the transition to zero-emission service throughout the state.

And those are ongoing investments that are being pursued and funded through existing funds and through the funds that are currently available through state budget resources. We continue to pursue federal funding to augment our funds. Many of these projects, as they became initially funded in 2018 or earlier, now as they're working on their final construction budgets, have additional funding needed to get completed.

And so we continue--as in many projects--continue to work with the project sponsors to identify those funds to pursue them, often from federal sources or other sources to make sure that everything gets delivered with both the scope and the scale that is desired out of those projects.

It does occur to me that the commentary from the previous panel about the degree of specificity and transparency about the planning that is required to operate and maintain the high-speed rail system is equally important for the integration of the interregional systems that you're supporting and planning on, and that we would all benefit from a comprehensive look at how these systems are going to be maintainable and affordable and invest, making sure we're investing dollars where we get the most bang for the buck.

And it's a daunting task, it's something that's really important, and I think it is vital for the future of California. But it is not apparent sitting here, seeing the path for the high-speed rail plan and also seeing the investments that are required to support and maintain the interregional systems. And they're in competition for very limited public resources. So the more clarity, the more specificity that you can add to this conversation over time, it's going to be critical.

Thank you. Mr. Leavitt, you noted the additional funding--and my colleague highlighted that and the need for funding in other places--has that been fully qualified, how much funding you need to be able to implement this portion of the program?

For what you see here, our current cost estimates are showing that the total network, for the core part of the network, we need over two billion dollars, and then in addition, the extension to Chico and to Union City is somewhere between five. That's in the planning stages. That's more between 500 and 800 million dollars for that additional extension.

And given the previous panel comments about timing as it relates to the High-Speed Rail Authority, have you looked at the timing of when you needed those resources?

Yes. At this point, we're working to get the resources as quickly as we can, but for this figure that you see here, our goal is to have all this implemented between the time of 2030 and 2033, but it can be done. If we're not able to do all of this by then, we will run whatever we can at that point.

At this stage, we think we're in line if we are able to get the funding in the next several years to be able to accomplish this network as whole, as you see, but that will be dependent upon us getting the funding, securing large portions of the funding in the next several years.

And you noted in your presentation that it's one ticket. So someone would purchase a ticket on high-speed rail, they'd make their way there all the way through the whole system, like if they were going to Chico.

Yes. You can go from Eureka all the way down to San Diego with one ticket.

Sounds good. And then last but not least, for you as the operator, affordability is a big issue, especially at all income levels. And so, could you give light to that at all?

Absolutely. Especially with the San Joaquins, different from other Corridors, I mean, the Surfliners and the Capital Corridor, we're all sort of sister agencies that work under the interstate program for the state, but where the San Joaquins are a bit unique is that we have--a much larger share of our riders are actually from disadvantaged communities, and are low-income passengers. About 60 percent of our passengers have household incomes of 50,000 or less. About 30 percent have household incomes of 25,000 dollars or less.

And so certainly being able to maintain those passengers be able continue to ride is very important. So we've been working with the High-Speed Rail Authority, and the assumptions for the early operating segment would be you'd have a fair structure that for the coach passengers, which are most of the passengers, you'd be able to buy similar priced tickets. But where High-Speed Rail will be different is that you'd have other classes of service as well.

And that as we have higher frequencies, it would enable us to grow sort of our business market, and so the idea of having business class travel as well, and then we would adopt that into our programs as well. So you could take a business class trip from Los Angeles, again, up to the Bay Area or Sacramento in the future, whereas right now we do not have that class of service.

So, if I can understand it correctly, you're going to be leveraging the business class or the other class tickets to be able to operate the subsidy for the others? And that would ensure the sustainability because that was a lot of conversation on the first one, the sustainability of operations.

That's how you can raise revenue without increasing the cost for other passengers, and that it also helps build new markets that we currently are not serving.

Okay. Sounds good. All righty. I don't think there's any other questions. Was there something we didn't ask you that you felt you want to say since there wasn't enough Members left to do robust discussion? You're good. Okay. Happy about that. Thank you so much.

Thank you. I appreciate it.

Would really like to thank all of our panelists for their participation today as we looked at the draft business plan and provided feedback so that when it comes back to the Legislature, it includes the conversations it's had today, and I know there's going to be many more conversations. I would like to take this time as we move into public comments to see if there's any members of the public in the room who would like to provide testimony in support of our discussion today.

Thank you, Madam Chair and Member. I appreciate the opportunity. It's a lot of information presented today. I'd like to just focus on Mr. Thompson's comments. He always does such a great job of getting right to the point, and that is we have priorities that need funding.

As this body and the Administration go into this session and start talking about climate bonds potentially, extensions of greenhouse gas funds, I'd like to remind us all that when we talk about climate change as an esoteric threat to our society, that that's something we need to remember to consider and that the largest contributor that could help with that impact is the high-speed rail system here in California. So it's big numbers. There's a lot of information to go over. Happy to discuss all that with you.

And I'm here, by the way, on behalf of the District Council of Iron Workers as well as the Association of California High-Speed Trains. Keith Dunn. I apologize. I jumped right into it. But as we start having those discussions, funding is going to be critical. We can't continue to rely on the federal government after the large grant that we received. We need to do our part as we have. The state has invested in this project over the years.

We need to continue to do that as we have these funding discussions. I hope that the Legislature and those of us that are supporting this program from the Third House can continue to have those discussions. So thank you very much.

Thank you so much. Was there a second as a primary witness? If there are none, then I will move to additional witnesses in support, limited to name, organization, and position.

Thank you, Madam Chair. Matt Cremins, on behalf of the California-Nevada Conference of Operating Engineers, here today in strong support of the draft business plan.

Thank you.

Good afternoon, Madam Chair and Members. James Thuerwachter with the California State Council of Laborers. We're also in strong support. Thank you.

Thank you, Madam Chair. Jeremy Smith, here on behalf of the State Building and Construction Trades Council. I didn't realize you were doing primaries. Could I do be the primary witness just for--

For the second one?

Yeah, for the second one. Is that okay?

Yes, you can.

All right. I didn't realize you were doing that, so I just wanted to ask before I launched into it. I just wanted to raise a couple of points. First, you guys heard a lot of numbers today from the Authority. A lot of good numbers. A lot of maybe scary numbers. How are we going to get there? But I wanted to drill down on just a handful of numbers one more time. 12,983 total jobs have been created from this program already. From this project--not program. Excuse me.

8,493 journey-level workers and over 1,600 apprentices so far. This is working for what we wanted it to do, which is create economic activity in the Central Valley. We need to make sure that it works for the entire state. We need to build it out and make sure we have the money. We understand that, but we wanted just to highlight that fact that this is really helping an area of the state that needs some investment.

And lastly, I wanted to go back to something that was said in the very beginning. We are disheartened a bit by Siemens, one of the bidders for the train sets, and their hostility towards organizing their workers. I just wanted to reflect and remind that this stance that they're showing our organizers at the Boilermakers Union at least, is not consistent with the high road policies this Legislature has championed over the last several years.

On top of the fact that the State Workforce Development Board also has this high road construction career, high road training partnership stance, where these jobs need to be real careers, not just jobs. And that's what the organizing effort is about at Siemens. So we look forward to the help that the Authority will give us in that space, and I'll end with thanking CEO Brian Kelly, not only for all of his years at the Authority, but really for almost a 30-year career as a public servant.

He has dedicated his life to serving the people of California, and we're very grateful that he's been here at the end of his career helping get this project moving the right direction. So thank you for your time.

Thank you. All right, the remaining for name, organization, and position. Can you--thank you.

There you go. Short. Velek Tang with the American Council of Engineering Companies, in support of the Authority's business draft plan. Thank you.

Good afternoon, Chair Wilson and Members. Adam Van de Water, Executive Director of the Transbay Joint Power Authority in Downtown San Francisco. We're here in support of the business plan and encouraged by the forward progress the agency has been able to make in starting to bring things to the urban centers in the north and south. Thank you.

Thank you. All right, moving on to two primary witnesses in opposition. Are there any? Seeing none, just to be sure, are there any witnesses in opposition who would like to just note their name, organization, and position? All right, seeing none. Closing the public comment portion. Thank you all for taking the time today to be here during the hearing as it relates to the draft business plan from the High-Speed Rail Authority. This really is, as was stated, a megaproject.

It is exciting, the investment that has been made not only in the Central Valley, but the investment that has been made for future generations. It's extremely important when we think about our goals as a state and how much this aligns with it. And it is early in the project, as was stated from Chair Thompson, but it's early in the project, but the project is underway. When you go into the Central Valley, you see the economic activity, you see the building, you see the increase.

As was noted, over 12,000 jobs. Related to that, I think there's almost 900 small businesses or businesses that are receiving economic benefit. It is an investment, and so it's extremely important that we, as the Legislature, focus and cooperation with our Governor and our federal partners and figure out how to get this, how to bring this to the finish line, not only for this generation, but like I said, this is about the next generation and ensuring that we have a project like this in our state.

And so I'm glad to be a part of this discussion and look forward to getting us to the final business plan being given to the Legislature and all of us working together to ensure high-speed rail comes to fruition in the State of California. With that, the hearing is adjourned.