Assembly Standing Committee on Transportation

Good afternoon. The Assembly Transportation Committee is called to order. Welcome everyone. The hearing room is open for watching in person and this hearing can also be watched from a live stream on the Assembly's website.

We seek to protect the rights of all who participate in the legislative process so that we can have effective deliberation and decisions on the critical issues facing California. In order to facilitate the goal of hearing as much from the public within the limits of our time, we will not permit conduct that disrupts, disturbs, or otherwise impedes the orderly conduct of legislative proceedings.

We will not accept disruptive behavior or behavior that incites or threatens violence. We encourage the public to provide written testimony by sending an email to—and I'm going to read this out for the purposes of those who may be interested—Atrn.committee, that's atrn, which is Assembly Transportation and then [email protected], so that's assembly.ca.gov. This email address is also posted on our website.

Staff will be reading all comments and we can have follow up conversations as needed.

Please note that any written testimony submitted to the Committee is considered public comment and may be read into the record or reprinting. At the end of this hearing, we will allow for one minute each for witnesses from the public to speak regarding the project.

If we are tight on time and there are lots of members of the public, we may shorten that time, but at this time, we will be allowing one minute each. We will be fair to all so everyone who are giving public comments will get the same amount of time.

During our hearing today, the High-Speed Rail Authority will be given the opportunity to make brief opening remarks. Then, for each panel, the authority will be limited to responding to the comments that have been made and to the responding—and responding to questions member may have.

This will allow us to keep our hearing focused on members' questions and comments. Today, we have the opportunity to hear from staff at the High Speed Rail Authority, the Inspector General of the High Speed Rail Authority, and the Legislative Analyst Office.

They will discuss the project's progress, the High Speed Rail Authority's most recent project update report, and outstanding recommendations made by the Independent Inspector General. This project has had a tremendous positive impact in the Central Valley and has created thousands of jobs and the State recently committed to provide $1 billion annually from Capita Invest through 2024—sorry, 2045.

Let me make sure I say that correctly, through 2045 to help fund the project. However, state funding alone is not enough, and additional federal support has been recently reduced. These funding challenges, combined with other issues related to delivering construction of this large and complex project, highlight the need for thorough oversight and transparency.

I'm looking forward to learning from today's panelists about the status of the project and how we can address some of the critical problems this project faces. In addition, on Saturday evening, we received HSRA's 2026 draft business plan. To the extent panelists are able to comment on the plan, I welcome those comments as well.

Members will be limited to two minutes each of opening remarks because we do have a full agenda and I want to allow for robust discussions. We do have a couple of members who have said in advance they wanted to make remarks and when, as they come in—I see one just arrived.

But as they come in, we'll also give it an opportunity to break for a moment to give those opening remarks. And so, we will start with actually, we'll start with Madam Vice Chair, if you have any opening remarks.

Thank you, Madam Chair. I just want to say thank you for putting this on. I think, obviously, transparency is very important, especially to people of California. It tends to be a question that I get when I'm out there in the community. So, I think this will be very good for us to bring up questions and get answers.

And I just respectfully ask—I know that the staff and everyone got this on a Saturday, this Saturday, which really didn't give our staff a lot of time to be able to go through this entire plan.

So, I respectfully ask that obviously, I guess be another two years, that they would give them at least a couple weeks to be able to go over this so that we could have a thorough meeting. Thank you.

Thank you. And we'll note that we'll be talking about the 2025 and supplemental where you guys deem appropriate where there might be changes to the—as it relates to the 2026 draft plan, please do. And there will be an additional hearing, likely in the Senate.

We both have an oversight responsibility as it relates to this plan and we'll encourage the Assembly to participate. With that, I'm going to give it over to Assemblymember Bennett, who is also Chair of Budget Sub 4, to provide opening remarks.

Thank you. Thank you very much. With Budget Sub 4, we will also do some oversight of high-speed rail, in terms of the budget request of a billion dollars a year that is out there.

And so, in response to my colleague about wanting more time, there will be multiple times when we will be taking a look at this in Budget Sub 4.

But the major thing I would like to discuss, just emphasize, is that this project has lots of questions about it and those questions remain and trying to get sort of a clear, focused leadership and clear, focused plan that everybody can finally start to say whether you like all of the plan or you don't like all the plan, at least we know this is definitely how we're going to move forward is something we're all looking forward to.

How do we move forward in a cost effective, efficient manner? Thank you very much.

Thank you. We do have another Member of the Committee who we've—who are our guest member, Assemblymember Erwin, who would like to make remarks, and we'll have her make them in the moment she arrives. But I'll open it up now to any other Member of the Committee that's here that wanted to give opening two-minute remarks. Okay.

Seeing none. With that, we will begin our hearing. I invite Mark Tollefson, he's the Chief of Staff for the High Speed Rail Authority to the table to speak briefly about the project. He's been given five minutes to make those remarks. Begin at your ready and that's when the time will start.

Great. Thank you, Madam Chair and Member. Really excited to be here today. Mark Tollefson, Chief of Staff of the High Speed Rail Authority. With me, I have our Chief Financial Officer, Jamie Matalka, with us.

So, as I start, first off, just wanted to say thank you, Chair Wilson, thank you to the Legislature and the Governor for supporting this project with a billion dollars per year through the Cap and Invest Program.

That is a huge shot in the arm to our project that will allow us to move forward and complete work in the valley from Merced to Bakersfield. Aside from the funding commitment, this past year has been a really big year for the project. That was outlined in our supplemental project update report.

And we've continued that momentum into this year. That started with really a rebasing of our project, really building a new foundation as set forward by our CEO at the time. This was brought in a new leadership team. We brought a business-minded approach to the project.

We took a bottom-up estimate and look at the entirety of, of our program. That meant reviewing design standards, implementing global best practices, sequencing the project appropriately, and really building the infrastructure we need for the time that we need it. This resulted in over $14 billion of savings, which we outlined in the project update report.

That was in the Central Valley alone. So, significant progress has been made along the 119 miles in the valley from Wasco to Madera as we continue to do design work onto our extensions. So, we have three construction packages in the valley. Construction package one, construction package two, three, and construction package four.

Our CP4 is substantially complete in the southernmost end, moving from Wasco North. CP's one and two, three are anticipated to be completed substantially by the end of this calendar year. So, what does that actually look like? In terms of construction, we have 87 of 92 structures either complete or under construction.

102 miles of our guideway of the 119, again, completed or under construction. This has resulted in the creation of over 16,000 good paying jobs in the valley. Right of way has historically been a challenge for us. I will say that along the 119 miles, we have acquired 99% of the over 2,300 parcels that we've needed to acquire.

Those remaining parcels will be acquired in the ensuing months. Last month, we actually celebrated the completion of our railhead facility, our southern railhead facility. What that means that allows us to actually receive materials to advance construction and basically laying track by the end of this year. So, what we're talking about is rail, ties, ballast.

This was an opportunity and something we outlined in our supplemental project update report where we are able to acquire materials in advance to combat inflation, as well as not paying the premiums through our design builders for those materials. We put out on the street one of our biggest procurements for our track and systems.

We are looking to award that by the end of Q2, ultimately allowing us to lay track by the end of this calendar year. Design work also continues on our extensions. So, that will be issued right likely later in the calendar year.

One of the things that we highlighted in our supplemental project update report was the renewed and continued engagement with the private sector. We held an industry forum last January. We had 400 plus attendees at that event from all aspects of the project, including some of the largest concessionaires and financiers who do investments globally.

We put out an RFEI, a Request for Expression of Interest, in June. That was to solicit interest from the private sector. We had over 30 responses from the private sector on that which gave us the confidence to then release a request for proposals for a P3 co-development partner to come on last December.

We are looking to award that this spring. We also put out a clean energy request for expression of interest as well, which will allow us to seek opportunities for clean power generation, which will help supply power to our project, once up and running.

So, this all leads me to the business plan, which, as noted, was released over the weekend. So, just a few highlights of that. This really builds upon the approach that we have in the supplemental project update report. There's really three components to that plan. One, it outlines the path to completion of Merced to Bakersfield.

Two, it allows us to look at opportunities to expand beyond the Valley, where we know that that's the first area where we will actually see revenue generating service and pouring revenues back into the project. And then third, we look at ancillary revenue opportunities for the project, based on global best practices.

So, we really are viewing this project as more than just a passenger rail project, but a program—really a corridor of opportunities where we are able to really help support the state's goals, as well as our project's goals. And I know I'm getting the look on time.

As I wrap up, we'll just say key highlights is that for the business plan, we have been able to shave off an additional $2 billion to complete Merced to Bakersfield, still within our 2030-2033 window, with operations starting in 2032.

San Francisco to Bakersfield remains our fastest pathway to revenue generation, actually with a cost recovery ratio between 171% and 199%, with the full phase one generating over 300% return. So, as we try to de-risk our program for the private sector, we also do need to de-risk the program for our project itself.

We continue to raise certain policy proposals that would help us move forward and stay on schedule and on budget. So, those are highlighted in the project update report as well as we continue to seek additional funding for the project to actually achieve some of those benefits that I talked about. And with that, I will conclude my remarks.

Thank you. I did give you an extra minute. Alrighty. With that, I'm going to invite up Helen Kirsten from the Legislative Analyst Office and Ben Belnap from the Inspector General Office to the table. We are now moving into agenda item number three. And so, they will each give their presentations.

And then at the end of those presentations, we will have members move to questions. And like I noted before, that Assemblymember Erwin, who is joining us today as the Chair of the Cap, Cap and Invest Work Group, she's going to make opening remarks—I mean, make remarks when she arrives.

And we've already did the call out for Members, but I will give another call out for Members if they wanted to, once she speaks, to speak for two minutes, beyond just asking questions and back and forth with our panelists. And so with that, we will start with the LAO's office.

Helen Kerstein with the Legislative Analyst's Office. Thank you so much for inviting me to participate in this afternoon's hearing. I'm going to be speaking from a handout which hopefully you all have. I think the sergeants have extras if you need them. It's also available on your committee's website and also on our office's website.

I would note that we prepared this prior to the release of the business plan and its focus is really the supplemental project update report.

I'm going to, so it's mostly—most of my comments are going to focus on that supplemental project update report, but I am going to provide a few comments just on the business—a few things to highlight on the business plan right at the end. So, I'm going to start with some background.

I'm going to highlight some features of that of the supplemental project update report, some of the issues that the report raises, and highlight some near-term issues for the Legislature to consider. And then I'll go into those brief comments on the business plan.

If you turn to page one, we just provide some very brief background on the project. One of the things I wanted to highlight is this project has been in progress for about 30 years.

So, the kind of impetus for this project was in 1996, believe it or not, when the Legislature passed statute that created the High-Speed Rail Authority. But it didn't really get sort of started and really get its feet under it until the voters approved Prop 1A in 2008.

So, Prop 1A was critical to providing initial funding for the project and also providing some statutory direction about what the project was to look like. I also wanted to highlight a really important piece of legislation because we're going to come back to this I think multiple times in our discussion this afternoon, which is SB 198.

So, that was legislation that the Legislature adopted in 2022, so not too long ago, and it did a variety of things. One of the things it really focused on is more oversight over the project and it also really emphasized focusing on the Merced to Bakersfield segment initially.

And it was one of the things that—we're also come back to, so I really want to highlight it for folks is that that statute defined Merced to Bakersfield and specifically, it said the Merced station was to be downtown and was to connect to two other rail lines, the Ace Rail Line and the San Joaquin's, which is now—has been renamed the Gold Runner.

Also, I just wanted to highlight that state law requires the authority to provide annual plans. That includes these business plans that come out every even year. They have to certain information including about Merced to Bakersfield and Phase One and project update reports that come out every odd year.

If you turn to page two, just wanted to highlight that last year in March, there was a Project Update Report that the authority released. It didn't include all of the statutory requirements because they were undergoing that roundup analysis that was referred to previously. So, there was a Supplemental Project Update Report.

That's what we're going to focus on today. That was released in August. I'm very pleased we're having this discussion today about that report because it came out late enough. The Legislature really didn't have time to review it. So, it's really critical, I think, that we have this chance to discuss that really important report.

And then, of course, the business plan that was just released over the weekend and we will touch on that. So, if you turn to page three, I wanted to highlight some of the key pieces of the Supplemental Project Update Report. The first is that the report really looked at a variety of alternatives.

So, it didn't just focus on Merced to Bakersfield. It also looked at alternatives that would go from the Bay Area to either Bakersfield or Palmdale and would also extend in some cases up to Merced as well. There's kind of a little Y, so it's a little spur that would go off to Merced.

And the Supplemental Project Update Report found that there were ridership and operating revenue benefits from the options that went outside the Central Valley. So, not Merced to Bakersfield, but that those other options also cost more, so, tradeoffs there. The Supplemental Project Update Report also discussed some concept for—concepts—for statutory changes. So, these are important.

We'll come back to these again. I wanted to highlight some of the ones for you here that we show on page three. So, some of them include either exemptions or streamlining for environmental quality—California Environmental Quality Act regulations as well as environmental permitting, dedicated court resources for the project, third party streamlining.

So, this could be like defined timelines where local governments or utilities would have to conduct certain activities, various changes that might help facilitating facilitate borrowing against Greenhouse Gas Reduction Fund revenues. And again, we'll come back to this one, but they could include non-impairment language.

So, making sure that the program, Cap and Invest Program, isn't changed in ways that could impair this funding source and also removal of that SB 198 requirement that I mentioned to focus on Merced and Bakersfield. If you turn to page four, we highlight that that spur updated costs as well as funding for the project.

So, under that report, the available funding was updated to 43 billion.

If you assume that $15 billion of additional cap and invest funds from the extension of the Cap and Invest Program through 2045, and if you assume that the project keeps the 4 billion that the Federal Government has had, at that time, threatened to rescind and has subsequently rescinded. It updated the cost estimates and put them at about 37 billion for the Merced to Bakersfield segment.

It also identified a need to borrow because Cap and Invest money is going to come in through 2045. This project is hoping to be completed in the 2030s, and so, some of that money is going to have to be advanced to be able to match the revenues with expenditures.

And it provided some updated schedules based on assumptions that all of these statutory changes are made. And also, assuming that we have—that the project has all of the money it needs. If you turn to page five, highlight a few of the things that happened. After that August date—so, even since August, a lot has happened.

One, as you heard, the Legislature appropriated the billion dollars annually as part of SB 840 and the extension of Cap and Invest Program. The authority has actually also discussed the—its desire for additional statutory changes, even beyond those that were highlighted in the spur.

Those include, for example, excluding material purchases from sales taxes and also having some additional land use and zoning authority within a half a mile of station—of station locations. They've also discussed an interest in securing additional long-term funding for the project and finding a P3 partner.

And this P3 partner might help them develop this public private partnership, as well as potentially receive some of those contracts. They have also—the authority has also abandoned its effort to retain the $4 billion in federal funds, so those funds are no longer available to the project. And the authority has initiated discussions about moving that Merced station.

So, they've talked about moving it four miles south of that downtown location to a location kind of on the outskirts just outside the city limits there. If you turn to page six, we highlight some of the issues that we think are brought up by this plan.

One is, in our assessment, under the numbers in the supplemental project update report, we think it's likely that there's insufficient funding to complete Merced and Bakersfield. So, it was great for the project to get that additional money from GGRF, from the, from the Cap and Invest Program.

But with the loss of federal funds, that brings us down to 39 billion. And if you account for interest costs, which you really have to assume that there are going to be at least some interest costs because of that mismatch in timing, you get to, I think, at least a couple billion dollars of a funding gap.

And we have a figure on page seven that kind of breaks that down. We also think that there's a lot of risk that that funding gap could be even higher because there are some pretty big assumptions that are built into these numbers. One, they assume all of those statutory changes that we talked about are made.

And so, we don't know whether the Legislature is going to be—of course, that's your decision. Right? Are you all comfortable with those statutory changes? And if they're not made, there could be some impacts to cost and schedule. They also assume that all those projects—a bunch of project savings materialized.

You heard the authority talk about $14 billion in savings that they identified. So, it assumes all of those savings are actually captured and some of those changes they are required to then to do some changes that they can't do unilaterally. So, it sort of assumes other entities are going to agree to those.

It also assumes they're going to stay on budget. This project has had some challenges with that in the past. And we'd note that the OIG has talked about how this, in one of their recent reports, about how there's a relatively small contingency amount assumed.

So, we think there's some risk, of course, that the project could, you know, cost could grow. If you turn to page eight, we also highlight some of the challenges with the borrowing—with borrowing. In particular, we think GGRF is not a particularly well-suited source to borrow against.

So, it's helpful that the way that SB 840 changed the structure of this revenue source is helpful for the project, but it's still a tough revenue source to borrow against. So, one of those reasons is that the California Air Resources Board can change the program in ways that can reduce GGRF revenues. And this is not abstract.

They are currently undertaking a rulemaking which likely will reduce the share of GGRF revenues that go, sorry, share of cap and invest revenues that go to GGRF.

And in fact, in their regulatory documents, they have projections of future GGRF revenues that are quite low and, in some years, are actually less than a billion dollars total, which is pretty remarkable. And actually, quite a few numbers, years, I think it's about 12 years, they're under 2 billion.

So, there could be a number of years where there wouldn't be sufficient funding to support the allocation for this project. If those projections are true, which we don't, you know, there's a lot of uncertainty there. So, want to highlight tons of uncertainty.

But, you know, it's not an unrealistic possibility that there might not be sufficient money in every year to provide the full allocation to High Speed Rail. Also, of course, Cap and Invest is just subject to volatility and uncertainty. So, we think that if the state wants to facilitate borrowing, it might need to make some changes to that funding source.

And also, it might need to pay a higher interest rate than it would otherwise, just given the uncertainty there. So, one approach is you can use a public private partnership, but of course, there are costs associated with that. The private sector wants to be compensated for their equity if they put in equity, and also for taking risk.

So, if we ask the private sector to do that, we're probably going to pay more. If you turn to page nine, a couple more things to highlight. One is we think the project still lacks a funding path to get outside of the Central Valley. So, there's definitely not enough money to do that right now.

And we think, unless there's a plan to do that, the more money is put outside of Merced and Bakersfield, the less chance we're going to actually have enough money to do that initial segment. And then, we also wanted to highlight, we think there are some real trade offs in the statutory changes that are discussed by the authority.

They haven't provided any specific language yet, just kind of these concepts. But even conceptually, it's pretty clear there are some pretty big trade offs. And we're happy to talk about those if there's interest. So, turning to page 10, this is the last page of my handout.

We just highlight a few questions that we think the legislature's gonna wanna think about in the next couple of years. One is a question that it's not a new question, but it's such a fundamental question, which is what scope do you, as the Legislature, wanna commit to funding? And that's so important.

And there are a lot of different options. So, you can do downtown Merced to Bakersfield. That's what 198 envisioned. Is that still the legislature's preference? Is it sort of outskirts of Merced, which is—the authority's been talking about that to Bakersfield? You wouldn't connect it Merced to the other transportation lines. Be a little cheaper.

You could do Madera to Bakersfield. That's where you can also connect to those other lines if you want. Again, it would be cheaper, but you're not getting benefits to Merced. Or you could do—you could get outside the Valley for example, you could go to Gilroy at Bakersfield, costs a lot more money.

So, somehow the state would have to come up with that. But there would be probably some additional transportation benefits there. So, a lot of different options. These are just a few. There are more. A lot of different options. But fundamentally, that's a key question. A couple other questions we think are really important.

One, is the Legislature comfortable with the authority's approach to borrowing and a P3, does it have the information it needs to understand what they're planning to do and the risks and benefits? Also, is the Legislature comfortable with those statutory changes and understanding what the implications of those are for the project?

So, in terms of cost, in terms of schedule, you'll want to have that information. So, that's what I have on the handout. A couple, just a couple things I want to highlight real quickly about the business plan. Again, we just received it over the weekend, so I haven't had a lot of time with it.

But I think I wanted to, I want to point out a couple things that I noticed in reviewing the business plan. One is that $2 billion savings number that you heard. So that's certainly helpful to have a shoot up $2 billion lower cost from Merced to Bakersfield.

However, I just wanted to highlight because it's not super clear from the document in my read that my understanding is that that assumes that you would change the station locations both for Merced and Bakersfield, so you'd no longer be going into downtown Merced like is envisioned in SB 198.

So, it assumes you're not doing SB 198 and it assumes you're going to a different location in Bakersfield that shaved off a bunch of money. So, you may or may not want to do that, but just it's not super clear in the document, but that's my understanding. So, I wanted to highlight that.

The other thing I wanted to highlight is that for phase one, it appears that they are now blending the system south of Palmdale, so there'd be a lot more shared tracks. So, there may be trade offs associated with that. That does produce cost savings.

They say if they had used their traditional approach, the cost would be like 231 billion to do phase one. And this gets them down, I think, to about 126 billion. So, that and maybe some other changes, I'm not sure. The authority can probably speak to that, but there may be trade offs.

So, I think really understanding the specifics of what's in this plan, what's assumed for the scope and not just the names of the starting point and ending point, but really what is that experience going to be like? What are the ride times? All of those things are going to be really important and what specific station locations.

All of those details I think are going to be critical so the Legislature can assess is this, is this business plan consistent with your intent, with your priorities? So, those are my comments. Happy to take questions at the appropriate time.

Thank you. Now we're going to move on to our Inspector General.

Good afternoon, Madam Chair, Members of the Committee. My name is Ben Belnap. I'm the Inspector General for the California High Speed Rail and one of my office's responsibilities is to review the authorities and the reports.

The authority's annual reports and these oversight hearings are critical—are a critical opportunity for state lawmakers to require transparency and accountability on the high-speed rail project. I have been in this position for two and a half years and somehow, this is my fourth annual report that I reviewed.

I'm not sure on the math on that one, but it's true. In past years, I have been able to provide, at least at these early hearings, my office's assessment of the completeness of the authority's draft, which I would later follow up with a full written examination.

However, given the timing of the receipt of the draft business plan, I won't be able to speak to the completeness of the draft report today. The authority did provide us an early draft which was, we appreciate, but most of the substance of what we typically review was not in that draft. It was not ready yet.

So, we were able to share a few insights with Mark and his team, but we haven't looked yet to see if those what happened as a result of those insights. Thus, I will focus my comments on 5 details that I would encourage project stakeholders, including members and staff, to look for in the draft business plan.

So, you should see a document in front of you that says top five details. You should see it there. It's a one pager. I hope that doing so will help stakeholders narrow in on key information they need for their respective roles and overseeing the project.

My office will likewise focus our review on these and other required aspects of the authority's business plan. And the first thing I want to talk about is the project funding plan.

My first finding and recommendation to the authority more than two years ago was for it to provide state lawmakers with a better, more exact funding plan for the Merced to Bakersfield segment. To varying degrees, arguably less so now than earlier, the project has faced funding gaps.

However, the authority has not, despite my repeated recommendations, provided analysis that lines up the timing of future expenditures with the timing of future revenues and that clearly demonstrates when exactly funding shortages will begin to slow or halt the project.

Although the authority appears to be comfortable speaking to and advocating for potential solutions to funding gaps, it has, based on my experience, been resistant to clearly defining the problem for which it is asking for a solution. As my office has done in the past, I'm going to raise a concern today.

There is a looming funding problem that needs immediate action. By my office's estimation, we are only two years away, give or take a few months, from the authority not having the funds on hand necessary to keep the project on schedule. Absent financing, future revenues from GGRF, cannot resolve this problem.

Given the posture of the current Federal Administration, new federal funds will not be awarded in time to resolve this problem either. Financing based on future GGRF revenues is a complex, nuanced endeavor, and upcoming procurements critical to the project schedule need to have clear, appropriately timed funding source.

Thus, I believe the time for the authority and state lawmakers to find a solution to this near term funding problem is this year. Second, I'll move on to financing costs and conditions.

After clearly establishing when and how much funding is needed to stay on schedule, the authority is positioned to explain the amount and timing of financing needed, as well as its associated cost and any additional assurances the state will need to provide to get the best interest rate possible.

I understand the authority is pursuing a public private partnership and that they believe that this partnership will solve the immediate term funding problem and even push high speed rail outside the Central Valley.

Certainly, a solid offer of private equity would be a game changer for the project, depending on the associated costs and assuming an appropriate sharing of risks.

However, the longer we wait, the closer we get to a funding crisis that delays the project and the less options the State has to solve this problem, the weaker will be the state's position to negotiate with a private equity partner, thus establishing a mechanism to get upfront financing to keep the project on schedule.

To essentially go it alone for a period of time is a necessary option to secure, even if other even offers of private equity partnerships eventually materialize. Third, procurement schedule. Another key piece of information stakeholders should be looking for in the business plan is a schedule of major procurements.

This procurement schedule should align with the project schedule and demonstrate that procurements will be completed in the proper sequence so that they do not delay other dependent activities.

Because procurements need to have a clear, appropriately timed funding source, reconciling the procurement schedule with the funding plan would highlight any procurements at risk of delay if future funding gaps are not resolved.

Finally, such a schedule, which my office has previously recommended, would provide readily available information to external stakeholders they can use to benchmark progress and ask ongoing questions about the project schedule.

Fourth, when I talk about schedule risks and assumptions, the draft business plan will have an updated baseline schedule that should be accompanied by a schedule window informed by an assessment of identified risks.

If the baseline schedule has slipped since the last annual report, the authority should be explaining what internal and external factors caused this condition to occur and why that slippage could not be mitigated.

Although we found that the authority's 2025 Supplemental Project Update Report was complete and generally accurate, we did express concern that it did not disclose that its statistical analysis, which formed the basis of its then 2033 schedule window, included certain mitigations of risk that it did not unilaterally have the opportunity or have the ability to implement, and those were already detailed in the LAO's presentation.

Many of these mitigations involve process reforms that could only be implemented with accompanying changes to state law. Although the authority described and recommended these reforms, it did not clearly state in the supplemental report that its statistical analysis indicated that near immediate implementation of these reforms was necessary to maintain the schedule window.

This lack of disclosure falls within the pattern I described earlier in which the authority advocates for solutions, but, in my view, shows a hesitancy to clearly define the problem for which they are asking for solutions.

In this and other instances, I believe we can acknowledge the incredibly difficult environment that authority personnel must navigate and still maintain that the authority must provide clear information on project conditions in its annual reports and other communications. Fifth and final point, there needs to be a clear distinction between cost cutting measures and scope changes.

As we state in our review of the Authority Supplemental Report, the authority reduced its cost estimate by incorporating certain design changes. These optimizations, as they were called, were generally associated with high-cost civil infrastructure, including certain viaducts and embankments that it believed could be eliminated or reduced.

However, the report contained only limited description of these design changes, some of which represent a shift in the scope of the project being delivered. Two examples being scaled down—stations and single tracking in certain areas of the project.

It was also not clear in the Supplemental Report that some of these design changes could only be implemented with revisions to existing agreements with local government entities.

In the business plan, stakeholders should be looking for a clear description of how the authority has defined the Merced to Bakersfield segment and be sensitive to cost cutting measures that represent fundamental project scope changes, particularly changes that do not comply with state law or that cannot be modified without amending existing agreements with local government entities.

In doing so, stakeholders should also expect clear information on the impacts to the project costs if these proposed modifications do not go into effect. So, Madam Chair, Members of the Committee, I thank you for your time. I hope my comments have been helpful.

At a minimum, I know that my comments give fair warning to my colleagues, the High Speed Rail Authority, of what my office is going to be looking at as we review the business plan, and I'll conclude my comments, and I'm available to answer any questions.

Thank you. Now, we'll move on to our final presentation within this third, the third agenda item, and that's the Chief of Staff for High-Speed Rail Authority.

Thank you. Madam Chair, just to clarify, are you looking for a General response to the comments that were just provided from LAO and the OIG?

Yes, we allowed for this time for you to provide that, to give that type of presentation. If you would like to forego that and just do it through questions from the Members, we can do that as well.

Yeah, I'm happy to respond to questions as they come up. Sounds good.

I'm sure many, I'm sure that Members appreciate that they're ready to dive in. Just to note, we did have a slide presentation that was playing inadvertently through the LAO's presentation. It should have been playing during the five-minute presentation earlier. So that was inadvertent, and so what? The slideshow was not related to the LAO presentation.

So I do apologize for that happening. With that, we're going to move to Members of the Committee. I have my own questions, but we will go to the Members of the Committee to see if they have them. I'm going to start queuing.

If I don't see you and nod, that means I don't have you in the queue yet. I'm going to start with Assemblymember Bennett and then look for folks who want to talk.

Thank you very much, Madam Chair. A couple of quick comments before I get to the question. And that is consistently we receive reports from the LAOs office. And I just have to tell you, it puts a smile on my face when I get these because they're so clear and easy to read.

And I look at some of the stuff, it's so dense, it's so presented so densely that you just go, oh man, I'm going to take hours to get through. And so this, my compliments because it, it's important for us to be able to efficiently get to the point.

And then on top of it, it clearly puts the whole project in perspective. It identifies, I think, those, those major points. And you've made a number of those major points.

The second thing is the Inspector General, I appreciate you having five major points here because you also have, you know, a follow up letter, you know, that we have.

But the combination of is very important at this point in time because high speed rail, the credibility of high speed rail has to be improved for us to be able to confidently, you know, continue to move forward.

And so the two questions that I have, the proposed changes are big deals, you know, from the Laos office and that's page three, you know, streamlining CEQA, I mean, you know, California Environmental Act, streamlining environmental permitting, court resources, third party streamlining all of that if you combine the LAOs report about these things and the risks that are involved in these major things with this, the Inspector General's report that basically says we consistently ask for.

And when the Inspector General has asked for this in the past, we have asked for this from the dais. We consistently ask for the specificity, exactly. That he's referring to, what, when is this cost expected to take place? What is the revenue source that is matched up with that? What is the.

What's the risk in terms of being able to move forward with that?

So I'd like to ask high speed rail in terms of the consistent request that's come from the Inspector General, and I realize you are the Chief of Staff and not the CEO that was here and doing all this stuff, so I'm not trying to be critical, but I'm trying to say, from your perspective, what can you share with us that would give us more confidence that we can get on the glide path that the Inspector General is saying is the most appropriate for us, which is to have far more specificity, specificity about the costs that are coming and the timing of the revenue that is coming and the.

Vagueness that gets created when you say, oh, we're going to solve that problem with this proposed solution. That is a solution that we have no idea whether it's going to happen and so it's not. Doesn't get clearly identified as a risk.

Well, great. Yeah, thank you, Assemblymember. Really appreciate the questions. And to the Inspector General's point about, you know, providing more detail and certainty regarding the cost and schedule, we believe that we do have that in our business plan and we will be following that up with the technical documents that ultimately support all of those assumptions.

The one thing that I will say, the challenge that we've always had is that we are, you know, a underfunded project. We believe with the Cap and Invest funding, we are able to still complete reset to Bakersfield within the window that we've identified in 2030-2033. That doesn't come without risk, though.

Completely agree with some of the comments that were made before. And that's why we have gone out to identify some of the potential solutions to that, to ultimately de risk the program for us, ultimately any large project. You know, the one thing that you are looking for is certainty.

I think some of the challenges that we have are some of the variables that we've dealt with, you know, over the years in the history of the project with respect to a utility, for example, that we have challenges relocating.

So that will delay some of the project, making sure that we do have sufficient judicial resources to allow us to move forward with cases where we have to go through the formal eminent domain process.

So we do want to be transparent about, you know, the need for some of those proposals and look forward to working with the Administration and the Legislature on those.

Quick, quick follow up, if I can. Inspector General, his response was that he believes that is actually in the business plan. And of course, you're saying you're not, you're not seeing it. Can the two of you try to help me? What's, what's the disconnect here?

So I'm speaking to past business plans. I'm not speaking to this current one. I haven't had time to review it. But I would ask which page, which page are we talking about in the current business plan? Because I'm happy to look at it right now.

Got a page number for us?

We can flip through the document if we'd like. But what I will say is that we do outline three different scenarios in the business plan. One, how we complete Merced to Bakersfield.

Two, moving from Bakersfield up to Gilroy, up the Peninsula to San Francisco, and then third, a phase one proposal to get ultimately from San Francisco to LA and Anaheim, of which, you know, the LAO didn't mention. You know, some changes to that with a blended approach as we move forward, for example, south of Palmdale.

So building, working really through a building block approach to the project. But we do outline a plan of how we could deliver what funding we would need under a variety of scenarios to ultimately get there. We do provide our cost estimate. So I do believe that that information is in the proposal.

And happy to work with you all, as well as the OIG and the LAO on more detail.

Thank you.

Thank you. Moving on to Assemblymember Ransom.

Thank you, Chair. And I want to thank you all for being here to review this project in this oversight hearing. I just wanted to follow up on something that the Inspector General Note noted in the five details, top five details. And I appreciate the clear and conciseness of this because it's very dense and overwhelming.

And normally when folks are talking about it's so big, it's really hard to hone in on what we can do. So I really want to applaud you for looking at the how do you eat the elephant one bite at a time, right. The first five bites. So thank you for that.

You mentioned that GGRF will not solve some of the concerns. And we as legislators are constantly hearing how GGRF is going to be, you know, a big part of the solution.

So I wanted to know if you can give us a little bit more of your concern or just walk us through when you say it will not solve. Can you fill in the, close the gaps, fill in the details like where, where will we be left after the current proposals regarding GGRF?

Right. Thank you for that question. So there's a major timing problem with that revenue. So we have expenditures that need to occur now and until the project is completed in 20, in the 2030s, 2032 that revenue of 1 billion, minimum of 1 billion a year goes out to 2045.

So all that between that gap between 2032, let's say, and 2045, that's revenue. That's not helping the going to help construct it. So it's a timing problem. The business plan is typically built on totals, not timing. The funding plan should have timing because that's what's critical.

And when the solution be like clearly to identify the sources of what you would, how you would fill that gap until the time, you know, time catches up with the funding.

And have you, do you have any suggestions for that or have you heard of any ideas that are being pondered in regards to being able to address that?

Yeah, certainly the authority has put in ideas in their business plan. One of them is financing GGRF. I think the LAO has said that's more complex than it sounds, like there's going to have to be assurances. The authority brings that up, I believe, in their draft business plan as well.

That's probably the most clear today option for resolving this problem. What could materialize and would be great if it did, would be a private equity partnership that could resolve the issue, depending again, what we said, the associated costs and what's the sharing of risk there. So those are the two things that I've seen discussed.

Is there a concern that the proposal that the authority has come up with, as well as the need to be able to resolve this or the need to figure out where it's going to come from, could potentially add even more cost to the project?

Because the longer it takes to find those sources, typically the cost continues to rise? I just want to know if that is part of the concern.

You're 100% correct that there's going to be financing costs associated with any of those options. One of the concerns we have is that the expenditure estimates do not include any financing costs right now. So when the authority shows that there's a surplus.

It doesn't have all the expenditures because financing is going to be necessary and those costs need to be estimated and included in those totals.

Thank you for your time.

Thank you. Moving on to Assemblymember Papan, then followed by following Assemblymember Carrillo.

So I would concur with my colleague from Ventura. The materials are very easy for us to get through because this project is a behemoth of a project that seems to be a moving target, both with respect to the timing, the scope, and then the time value of money. And that's not a good combination where I sit.

But I applaud the ability to work through it. So I do have one question that really relates to expenses. And my question is, is there anything in the procurement process that deals with this idea of incentivizing completion by various contractors?

I noted in the auditor's report, we're talking about a process called IDIQ, which is indefinite delivery, indefinite quality. Needless to say, that causes me some heartburn just by virtue of its name. And then when we read further in some of the reports, that procurement process hasn't fully been identified. Further heartburn.

And I feel as though if we can give contractors incentives to expedite completion to. That's the primary one that comes to mind as I sit here.

But if you achieve something even faster, then there's bonuses, you know, whatever it might be, rather than you're going to be indefinite quality, indefinite delivery, and we're just going to keep paying you as we go along because you've been predetermined to be somewhat talented. And so let's just keep going.

Those kinds of blame checks don't help us with the bottom line. So is there something that you can tell me about in the procurement cost process of finding contractors? Have you looked at. We're not going to give you everything up front. You're going to meet certain milestones, and then we will incur certain expenses.

Yeah. Thank you, Assembly Member, for the question. I think there's a lot of opportunities for us to look at different models for procurement. I will say that as we move forward with a P3 partnership, if that materializes, if we're able to come to commercial terms, those are actually absolutely things that we will be pursuing.

The one thing that I will mention with respect to you mentioned IDIQ, this follows up also on what we call the Maytalk and multiple award task order contract. Right.

So those are two items where we actually believe that that will allow us to be a lot more nimble with our approach to getting work done rather than going through our design builder, for example, being able to pull from the local communities, engage with small businesses to do smaller jobs as we need to move forward.

So we think this is actually a practice that is going to help accelerate our project. This is something that's used quite a bit at the federal level. There are other entities throughout the United States that do this Sound Transit, for example, up in Washington.

So there are cases where we are looking at best practices with respect to procurements. So this is something that would be task order based. We would still have to go to our board for any of the procurements that are over a certain dollar threshold. So there will be those checks and balances in place.

But this is really going to be task order driven. So it isn't a blank check for any one entity.

Yeah. If I may, I can appreciate the wanting to be nimble, I certainly get it. But you got to be very, very careful that the incentives are there. Otherwise people think, yeah, I used to do a lot of construction, so I some familiarity.

But the next thing I would be remiss if I didn't, you know, coming from the area that I come from, which is the San Francisco Peninsula, quite tight quarters as High Speed Trail contemplates one day coming through there.

And we'll be keeping our eye on the ability to do work as it relates to grade separations because it really does impede the ability of the cities I represent to go east-west. It's not a question, it's just to keep in the back of your mind. But thank you all for the work you're doing.

Thank you. All right, moving on to Assembly Member Carrillo, followed by Vice Chair Davies.

Thank you. The the P3 model keeps coming up. I'm sure that the private investors are looking at ridership as being one of the motivators for them to invest in High speed rail. Without a doubt in my mind, that ridership is from Palmdale to LA and from Merced to San Jose and eventually to San Francisco.

There are other ways that funding can help in getting that project from south of Palmdale and thus through the High Desert corridor through the nctc. There is some money available to create that partnership for the Palmdale station connecting to Brightline on the Apple Valley side, which will eventually get to Vegas.

There's also a bullet point on page three, the last one that says removal of SB198 requirement to focus on Merced to Bakersfield. And maybe that's a question for legislators, but in your opinion, what would be the cleanest way to do that? So not forgetting, and I want to be clear, I support that initial segment, Merced to Bakersfield.

But in getting again back to the interest of the P3s, the ridership is important for them to be able to invest in a system like this. So in your opinion, what would be the cleanest way to deal with SB 198?

So for us, I think really as we think about SB 198, you know, we are committed to completing, you know, Merced to Bakersfield.

As you mentioned, Assemblymember, certain things, you know, with respect to how we move forward to ultimately de-risk our program for the private sector, is something where early investments, and we have up to 500 million currently available to us to do so.

That will have to go through a review by the OIG to speak to the benefit of using those funds. But that is an opportunity for us to make some of those initial investments, to do geotechnical analysis, to do strategic right of way acquisitions, identify utilities, some of the challenges that this project ultimately had from its inception.

So this is something where, you know, we could look to those types of opportunities there. Ultimately what I will say is that, you know, our business plan does outline where we do have potential for revenue generation coming back through the project.

So we would hope that as we outline this in our business plan, look to a Bakersfield to San Francisco scenario, look to a scenario getting to Palmdale, ultimately down to Southern California. Those do generate revenue based on our ridership modeling.

So we do see a cost benefit ratio of 200% for that first segment for a full system over 300%. So different things that we want to definitely engage with the private sector on timing wise. So I think I had mentioned that we do have a procurement right now out on the street.

We will get responses back in the ensuing months. Our goal is to ultimately bring someone on board by the end of Q2, what that will look like in the initial phase. Bringing on a co development partner is really seeing what is in the realm of possibilities from the private sector. Where is that interest?

Where do they see that opportunity for revenue generation? Again, trying to get into more of a revenue risk type model versus just an availability payment structure which is more of just private financing. So I think we will know a lot more likely this summer on what the realm of possibilities are.

And then we would spend that time working with that partner to see if we could ultimately get to commercial terms with whatever ideas they're bringing to the table.

Thank you. Now we'll move on to Vice Chair Davies, followed by Assemblymember Rogers.

Thank you. Madam Chair, just a few questions I'd like to start out with. Inspector General in regards to the note that you had that with review, six contract amendments were looked at. How many change orders or amendments for contracts have been made? Can you just give me an idea?

I definitely don't know that number off the top of my head.

Okay. And obviously, I'm just curious is once you did find out that one was definitely questionable and was really not lawfully able to do it, what were the actions taken?

Yeah, just to be clear, this is. This question is coming from a different part of the presentation. So not one we've done yet, but. But one we're going to get to. And I'll answer your question now. So when we found that it violated state law, we asked the authority for their response to it.

We asked them, why did this happen? We got to a point where we said, we're reporting on this. When we reported on it, you'll see a footnote where there are still some open questions. And those questions remain open. We're still working on them.

Do we have a. Do they have a deadline to respond to those questions?

Not right now, no.

Do you foresee giving them a deadline if it moves on for a while?

Yes.

Okay. And then obviously, you know, you've got. You did on six contract amendments. I mean, I know you can't do it all, but I'm just curious. That's about 16, 17% of the contracts right there in regards to one that wasn't really following through.

Do you go back to all of these contract amendments or change orders to actually see?

Before you answer ID what we'll do is because we have a whole presentation and we don't want to get. He'll get an opportunity to talk about how they do an operational review and then how the process for correcting those issues. So we'll get into that in a.

Fair enough, I appreciate that conversation. Thank you. Also, then, obviously, the Federal Government pulled the $4 billion. Has there been communication with them in response, perhaps bringing it back or, you know, some type of compromise?

I wouldn't be able to answer that. I think that would be.

Gentlemen.

Yeah. Thank you, Vice Chair. So at this stage, the $4 billion from the Federal Government, from our Fed State Partnership grant, as well as our FY10 grant has been rescinded. I will say that, you know, we have baked that into our cost estimates as part of the business plan, similar to what Ms. Kerstein had reported on.

We have made some updates since the numbers that she spoke to. So we have that 2 billion of additional savings from Merced to Bakersfield.

So with our funding now at about 39.3 billion available to us to complete the project, with a estimate of 34.8 billion, we have about 4.5 billion remaining, which can help with some of that financing that we had talked about in order to accelerate those funds forward and allow us to deliver on the schedule that we have outlined.

Okay, so there has not been any more communication with transpiratory Secretary Sean Duffy on the funding.

Yeah, unfortunately, we just don't have a partner that is willing to really work with the project.

Thank you. And then also, when we look at, we've got about two years left of funding on this project and we're obviously going to have to find ways to support it.

My question is, and we could go, I would say perhaps with the attorney General, excuse me, the inspector General or LAO, do you anticipate us having to have the taxpayers fund needs? Are we going to need to tax Californians additionally to actually make these cover these costs?

We have or perhaps put additional fees in other places to fund this project?

So to be clear, we are, by our estimation, two years away from not having the funds on hand to continue to keep the project moving forward or it would slow the project. That doesn't mean that there aren't future funds coming in. They would.

They would be coming in, but not at the pace we'd need to keep up with project expenditures. That's what we're two years away from. So I wanted to clarify that before we answer the next part of your question, which is, would the taxpayers be on the hook?

I have not seen proposals from the authority or elsewhere that have said let's raise funds through taxes or the General Fund. I haven't seen that proposed. I've seen the other things that we talked about financing private, public, private partnerships, but I hadn't seen what you described there.

In your own opinion, do you think that it might be needed to do that?

I don't know the answer to that question. A solution needs to be arrived at soon and it could be financing.

Okay, please. I can add maybe just a little bit to that. So I think the challenge is funding gap. Right. And so it depends on what scope.

If we're still looking at the Merced to Bakersfield scope that we talked about in the spur that was in SB198, in our assessment, there is insufficient, likely insufficient funding to do that. So you got to come up with the fund.

If you, if that's still the scope the Legislature wants, then some additional funding has to be found and that could come from other state funding sources. So it could mean or other programs or it could. Yeah, so you can raise revenues or you can cut it.

You know, there's sort of two things you can do if you want to keep that scope. But that's one of a variety of options. So the Legislature could also scope down as is actually proposed is in the business plan. Because Merced to Bakersfield is not the same Merced to Bakersfield that they talked about in the spur.

And I think that's a key thing to keep in mind. It's not super clear from the document, but they are assuming changes to the station location that shave off, I think billions of dollars of costs. But they come at trade-offs. You know, you're not going to get down to get to downtown Merced.

So you're going to get to the outskirts of Merced. Right. You're not going to get to the location that was originally planned for in Bakersfield. You might have to do. You could do other kinds of value engineering to shave off costs. We've already done that. They're single tracking a lot of that initial segment.

It used to be originally in SB198. Again it was originally, it was described as a dual track system. We're now down to single track through most of that route. So we've been down the other approach. So one way is find more money. Another is you can either tax or you can reduce spending.

Another is you change the scope. And so that's a lot of what's happened is trying to refine that. And admittedly you kind of have to work with what you have. But there are real trade offs because you may not get some of those transportation benefits.

Once you're stopping at the outskirts of Merced, I think you could really argue does it make sense to go to Merced at all or just stop at Madera, where the connections are? So I think those are the real questions that the Legislature has before it.

Thank you. And just one last question, if I may, gentlemen. In regards to we had 99% of property acquisitions taken care of, which is pretty good. And so we've got 1% left. How many is that?

So at this stage it's about 10 parcels remaining. So we expect to acquire those over the next several months. So that should not impact our ability to move forward with any of the construction, you know, in the valley.

And I don't know if you have this, but obviously you had budget was put there in regards to what the, what we would be spending in regards to the property acquisitions and if there were an imminent domain going on there, have we exceeded what that budget was?

So we have included our budget for right of way acquisitions. I will say that as we began this project, and this was one of the challenges, you know, and it goes back, you know, 10 years in the Valley. Right.

So there were a number of parcels that were initially identified and more that we had to acquire as time went on. So we have updated our estimates, you know that it gets updated every business plan, every project update report.

We believe that we have the budget to ultimately acquire those remaining parcels as well as updating our costs to acquire those parcels as we move into the extensions to Merced as well as Bakersfield.

Thank you. I appreciate it. Thank you, Madam Chair.

Before I go on to the next speaker, you noted that the gap wasn't real and you rattled off a few numbers that you still had 4.5. Can you repeat those for the benefit of the Committee?

Yes, happy to. So what I'll say to some of the comments from the Members is that ultimately in our mind, this is less of a budget issue, but more of a cash flow issue. So at the end of the day, we have about $39.3 billion available to us.

Our latest estimate from Merced to Bakersfield is 34.8 billion, which leaves approximately 4.5 billion available for financing.

Thank you. And that was where the LAO noted that the Merced, the Bakersfield is different than the. A different scope than the SB198. Okay. We have Assemblymember Macedo, and I just wanted to make sure there wasn't any. Oh, I'm so sorry. No. Yes. I'm sorry, Assembly Member Rogers, then Assembly Member Macedo.

Was there any other ones that needed to get in queue? Okay.

No, I appreciate that. Looking through the documents and reading about the CEO's update in November, there were two things that really caught my attention that I wanted to ask a couple questions about. One was the proposed or the idea of a sales tax exemption for purchased materials.

Do you have an estimate on how much money that would save? And as a kind of a follow up, do we have an estimate if the state just doesn't collect the state's sales tax portion and still retains sales tax for the local jurisdictions? For the local jurisdictions that they have on the books?

Yeah. Thanks, Assemblymember. So our estimate was in, you know, the several hundreds of millions associated with that, that was specific to just the safe share.

Okay, great. And then the other one that jumped out to me was boosting the land use authority and value capture mechanisms. Are you talking about enhanced infrastructure finance districts or tax increment financing schemes?

Yeah, this is one where we've really looked at global best practices of kind of how stationary development is driven. This is one where for us, you know, we would absolutely want to work with local communities on what this looks like. It could take the form of a enhanced infrastructure financing district.

We could work on kind of other tools that might kind of help support the project. The idea here is to share in that benefit. As we know, when high speed rail stations come into a community, there usually is exponential development associated with that.

So this would be assuring that revenue and ultimately pouring that back into the community to enhance stations, for example, build the requisite infrastructure, allow us to continue progress on the project.

Yeah, I appreciate that, and I'd like to learn a little bit more about what those options kind of look like. Prior to coming to the Legislature, I served on the Sonoma Marin area rail transit board of directors, I think, for six years.

And it went through the same iterations that we're talking about for high speed rail, where a ballot measure really set the scope that turns out it was not particularly reasonable. And so the board had to go through these same kind of trade offs about how do we limit the scope so that we can actually get something built.

How do we start with a segment? We're still actually trying to finish building out what the mandate from the voters was, but it's coming along each station, by each station, and this was one in particular that we were really interested in is as each new station comes online, that's a huge economic benefit towards the community that actually sees that realized.

And so if there's something that you don't have the statutory authority to do, that could help to front load that with what we know is going to happen once these stations open. I'd be really interested to hear what those options are.

Yeah, we definitely like to work with the Legislature as well as local communities on what that could look like.

All right, thank you, Assembly Member Macedo.

Thank you, Madam Chair. I may be wrong, but I'm pretty sure I might be one of the only Members up here that currently represents the Merced to Bakersfield portion. And just to put it into perspective for my colleagues, it was used as an attack ad in my campaign that I was pro high speed rail.

So anybody who believes that the Central Valley is super stoked about this, you might find some people that are, but those of us that are struggling with fundamental things like roads, that's the kind of transportation we need. So it is. We're so grateful for that investment and we want that investment to continue.

But my first question, it's to all Members on our dais. Do you ever believe that the high speed rail from San Francisco to Los Angeles will ever exist? Well, then, sorry, those Members.

So I'll go ahead and start off. And yes, I mean, we do believe that we have the funding right now to continue the work in the Valley. There is real private interest in the project. So we will learn a lot more over the ensuing months as to where the potential partnership is with the private sector.

You know, we do acknowledge that, you know, we only have the funding right now, as it stands today, to complete the Valley. But we do put forward in our business plan that value proposition of what we can get, you know, if we do expand beyond into the population centers.

And we believe that based on the ridership and the modeling that we've done, there is actual revenue generation that comes with that expansion. So I would say absolutely, I do see a path. We lay out a path here where with sufficient funding, we could deliver that system by 2039.

But obviously that does come with a significant infusion of resources. But right now we are absolutely focused on completing work in the Valley, looking at some of those other ancillary revenue opportunities to help benefit the project, benefit communities, and really think about our project as that corridor of opportunity in addition to delivering rail service.

Really quickly, before I have you guys answer, you said ridership. What surveys have you done in the Valley of who's going to ride this and have you figured out what the cost per ticket is going to be or utilization of the high speed rail?

Yeah, I mean, it's a good question. We actually have industry standard surveys that are done. They're in our technical documents. I don't have the exact number of which ones or who is called, but we can definitely send that over to your office.

Those type of ridership studies, the type of individuals that would ride the train, families, business all of that is done as part of the technical analysis.

So we can share that that was actually you reached out to people that live in the Central Valley and surveyed them, not just models of other places.

I'd have to find out exactly the process of how they did it, but I can go look through those documents and get that answer for you.

And did you figure out, in order for the state to not continue to have to bail this out in the future, how much a ticket is going to cost?

There are some projections of what that system would cost. Don't have the dollar value with us right now, but we can look to see what that, what that report has in it and share it with you.

Okay.

And I think it's noted in our business plan, right? Those estimates in the 2025 draft and you do have them in the 2026.

Yeah, but more, more of the technical pieces that Assembly Member was asking about. We'll have to share that.

Right. I just meant that there has been estimates laid out in the, in the business plan

Were equivalent to about the same price as a plane ticket back in those days.

Okay. I just want to make it clear that we do have it in written form in the thing that we're assessing as well as the draft that we're not assessing, but commenting on. So that's clear.

And so you, because there's time, we still have another presentation if you want to find that in your plan so you can address that to the Member. I will qualify. So for the question that you asked, do you believe I think is appropriate for the OIG? Our LAO sits as a nonpartisan assessment of what they say.

And so does the IG inspect. And so I think it would not be appropriate for them to opine on whether they think the assessment complete and then they can opine on what they said or assess. Better word than opine. Assess what was then just relayed.

But on to answer your question directly, it wouldn't be appropriate for them too. So if you guys want to comment on what was just relayed to by the chief of staff to High Speed Rail Authority, that would be appropriate. But otherwise we'll move on.

And I can rephrase my question. So it is more appropriate to the LAO financially, given the state budget, given what you're talking about with the volatility. Do you think the state of California has the funding mechanism to fund California high speed rail from San Francisco to Los Angeles?

So I think if the state wants high-speed rail from San Francisco to Los Angeles, it's very likely it's going to have to come up with tens of billions of dollars of additional funding and probably more than that. Right.

Because we're looking at, even under their, their revised approach of blended system, they're still at almost $130 billion. And granted we've got some of that with, you know, with the GGRF and the Prop 1A, but still we're probably, we're probably, when all is told, going to be close to $100 billion or more, is my guess.

And so I think it really comes down to priorities. Right. Does the Legislature want to find that money and dedicate that money to the project? Yes, there may be some private funding that comes in ultimately, but it's not likely to be near-term.

And I think one of the reasons for that is because the private sector is going to want to see something operating, something generating money likely or some guarantee that they're going to get paid. And so I think there's still likelihood the state's going to be on the hook for a lot of that.

And maybe the Federal Government will change too. Maybe there'll be other sources, but it's hard to count on those. And so I think it fundamentally comes down to how much additional funding does the state want to dedicate to this purpose. And the more money the state's willing to dedicate, the more we can construct.

But there comes with trade offs. Right. It means either potentially raising money through a new mechanism or dedicating money that would have gone to something else.

And so there's no easy answer to will it happen or not, because it really depends on how you all prioritize this project relative to all the competing interests and in the state budget.

And then to your point, I love reading your reports, in one of your reports, you said there was not a viable path forward. Correct. For the San Francisco to Los Angeles or something along those lines. So you believe there is still a viable path forward but for San Francisco to Los Angeles?

Yeah. I've never said in any report that there's not a viable path for phase one of this project. What I have said is that the clearest path to getting to phase one is successfully building Merced to Bakersfield and gaining momentum from there. That's what I have said.

Okay, so when we talk about cap and invest, because that's what the funding mechanism is, that is volatile.

But right now we also are saying that, you know, I'm talking about roads here, is there any chance that this project could increase potentially gas prices or that there would be an increase at the pump in cost, because this is funded through cap and invest, that is a essentially taxing refineries.

So we're talking about the cost of living and affordability. Although this is GGR funds, I get that from the LAOs perspective, is there a chance that this would impact gas prices?

So I don't think there's a direct connection there. I think it is true that the cap and invest program, you know, it includes the sale of allowances and a lot of probably the incidence of that of those funds. A lot of it falls on those, you know, drivers who are buying gas.

And then ultimately the state made the decision to dedicate a lot of those, you know, a significant share of the funding to this project. But there's not a direct connection, as I see it, between the two. I don't know if that's helpful.

I'm just from an affordability like people in the Central Valley aren't going to be able to ride the high speed rail to get to and from the middle of the country into town to get groceries or to the doctor. So we're still going to have to drive.

But has you, have you guys given them an updated budget without the 4 billion? Just so I know I haven't seen that yet.

Yeah, the business plan does reflect the precision of the 4 billion.

Just to clarify, the 2026 draft business plan. Right. Does the August

Correct, the 2026.

And have you. You haven't reviewed that quite yet. Are you in process?

We did our. We initially did a cursory review over the weekend, but we haven't had time to do a detailed review. But as I said, I mean if you take away that money, basically that's pretty consistent with what we had in the spur. We talked about that.

I think it was on page maybe seven where we have that figure where you take away the 4 billion. Then absent the scope changes that they're talking about, you have a funding gap. They made some scope changes that allowed them to capture, you know, to capture $2 billion worth of savings.

And so if you do that, then maybe depending on what your borrowing costs are, you might be okay. And depending on if all those assumptions that we discussed actually materialize.

So then my question is where did this $2 billion just disappear from? How did you guys magically make $2 billion disappear from a budget?

So this is similar to the approach that we took with the supplemental project update report where we continue to look for design optimizations.

One of the things that we did, and it's reflected in our Merced to Bakersfield section of the report is really working with communities on opportunities to get into those communities, you know, faster and more cost effectively. So we are looking at ways to still get into communities.

But, you know, ultimately, for example, you know, I will use, you know, Bakersfield in our 2023 project update report. We had looked at an opportunity to have a temporary station in North Bakersfield as we continue to build and acquire parcels to get into downtown, ultimately with the scenario where we go from the Valley into Palmdale.

So we are still working through the commitments that we had, but ultimately, you know, trying to work with communities on ways where we can actually deliver service into their communities faster, within schedule and within budget.

So you don't have a specific. We cut this line item to get to the 2 billion. That's just an arbitrary number you're trying to reach.

We can provide additional detail as mentioned in the technical documents. So we're happy to send those to you all, happy to continue to work with the Committee on providing all of those details, which are baked into our numbers in the business plan.

But the General idea, real quick, I'll note for the 2 billion, I thought I understood it from LAOs testimony that it is really the two station changes not going into the downtown of Bakersfield nor the downtown of Merced, which is inconsistent with SB 198, but that that's where the savings were from. Is that not correct?

And the single use, single road versus the dual track.

Yeah. So there are a number of factors that, you know, some costs have increased, other costs have decreased. So it is a combination of that ultimate review.

But you know, to your point, this does reflect a change in station location and we would under those scenarios, as we continue to work with communities, you have to look at opportunities to work with the Legislature on SB198.

Yeah. Because they are not in compliance. But the major primary to the Assembly Members question, the primary driver to those cost savings is basically not going far into the community, but stopping just short of each community at just the edge. And so an updated station.

So you're, you have station savings costs and the length that you're going into a community and not acquiring parcels. And those are the primary drivers. Right. And I get that you worked with the community, and I'm repeating your words because I don't know that you worked with the community.

But you were saying that that was driven by community. But just noting to her question that that is the primary driver.

That is correct. And we will continue to work with those communities.

So when the CEO was in front of me on Mr. Bennet's sub four, I was very certain that $4 billion was going to disappear. He assured me that was not the case. We were going to sue the Federal Government and get that money. And lo and behold, this is what happens.

And then, very quietly, this lawsuit is withdrawn on December 23rd of last year. And the only thing that Newsom has ever. Governor Newsom has said about this was that the action was illegal.

But then when we asked why or why was this lawsuit withdrawn, it was said, quote, the Federal Government is not a reliable, constructive or trustworthy partner. Is that correct?

The Federal Government has not been a reliable partner. Correct.

So you're not seeking any more federal funds to help this project?

We will absolutely continue to seek federal funds within this Administration. It's unlikely that we'll receive any additional federal dollars.

Why was the lawsuit revoked if you were so confident we were entitled to that money? And I know the CEO is not here, but you're here on his behalf.

Yeah. I think that is a broader conversation with respect to overall legal strategy in terms of how we are working with the Attorney General's office. And just looking at, again, our project and the likelihood of prevailing, I think there are a lot of.

I won't say sit here pretending to be a lawyer in terms of kind of all the rationale that went into that decision, but it was determined that we would not be pursuing that lawsuit. And given that we aren't likely to see any of those dollars within this Administration.

Well, I find that. And once again, I know these are not your words, but on February 17th, we just applied for another federal grant. Is that correct?

So this was a smaller grant that was already in the works. So in terms of that strategy, a lot of work goes into every single grant application. So in this case, we would love to see us be successful in that grant, but I just would also share the likelihood of that is probably slim.

I just really am trying to understand. $4 billion is a lot of money that, given what the LAO just told us, could be pivotal in even having some type of guaranteed timelines for the Central Valley. And you just walked away.

And the only thing that we're being told is that you don't think the Federal Government's a good partner. So we're walking away from $4 billion, but we're applying for more. So the rhetoric doesn't exactly match for me, and I think the public deserves to know why your legal counsel said, yeah, we should walk away from this.

And. And then turn around and use state resources, which I'm assuming to also apply for this build program. So the rest of my questions I will defer to the next panel. But I think the taxpayers deserve to know if you walked away from it because they weren't good business partners, how that's any different for this build program. Thank you, Madam Chair.

And just noting that high speed rail authority would not be considered state resources. It'd be resources of the high speed rail authority in terms of applying for credit grant funding. I want to follow up on a couple of things. You noted that.

Well, I think it was noted through testimony both from you and to the LAO that in order to be able to complete the Merced to Bakersfield and even go beyond, there needed to be statutory or administrative changes.

And so if this is what you need, what do you think your plans are, working with the Legislature to get those types of changes?

Yeah. Thank you, Madam Chair. So our plan is to continue to work with those communities, as mentioned, to see what ultimately is possible to get into those communities faster, more cost effectively, something that makes sense for the community itself.

We would then want to work with the Administration and the Legislature on what potential changes could look like at that point.

And do you have in your business plan the 2026 and I have not been able to do a cursory review given the activities over the weekend.

And so do you have in your business plan what it looks like under SB198 and then what it would look like with your changes are those do we have that comparative analysis in your new business plan?

Are you talking about, you know, what these savings would, I guess, absent a change, what the what the cost would be versus, you know, what the current plan is?

Or I guess what I'm saying is that the Legislature has it's been signed into law, SB 198. So saying where the Merced station is, where the Bakersfield station is, noting dual tracks. And so you note the savings of about $4.3 billion by adjusting the scope that the Legislature that is technically law.

And so my question is, do you have that a comparative analysis and as a part of your business plan?

So our business plan speaks narratively to, you know, our plan as we move forward between draft plan and final plan, we intend to, you know, work with communities to determine what those options do look like. And then that would be finalized before we get to the final report that we present to the Legislature May 1.

And so would it include a comparative analysis between current law compared to what you would like it to be.

Yes, we would intend to, you know, work with you on that. And that's something we can definitely work towards adding into that final plan.

And I think that's important for the Legislature to understand what it would look like under our current law and then what you all would propose it to look like with additional changes that would make it more cost effective or better aligned with where we are today. Let's see.

One of the things that you all talk about is financing as a means to deal with this cash flow issue and to ensure that the timing of the funds aligns with your project needs. And so what you didn't go into detail at all. You mentioned it at a high level.

So I wonder if there is any detail in terms of what your plans are for borrowing or financing.

So in the plan, we do signal the need for some sort of mechanism to accelerate those funds forward. As the inspector General mentioned, you know, in the past we've laid out different options. One would be financing against cap and invest. That does come with some challenges as noted by both the inspector General as well as the lao.

There are other tools that we could explore that we want to continue to work with the Administration on as well as the Legislature. So there are a lot of different opportunities as we engage with a private partner as well. Those are things that we'll be considering.

But at this stage, I think there are a variety of tools that we could explore, but we have not solidified a single option that we're going to be moving forward with at this time.

Thank you. And you brought up something that reminded me, and this is to the LAO in regards to GGRF and noting that CARB can adopt changes to the program that can drastically reduce the out.

And so based on your understanding of them being in their rulemaking process and when those could go into the fact, do you have any idea of what the earliest possible where the funding of a billion dollars annually could be threatened?

Yeah. So in their initial statement of reasons document, which is part of the documents that they release as they're engaged in this process, they do have an estimate of GGRF revenues. Again, a lot of uncertainty. But according to that, the first year where they may not 2 billion is 2035.

And that's really an important point because so this is so high speed rail is in tier 2 of SB840. So there's a few, few programs ahead of it like the state responsibility area, backfill manufacturing tax exemption. There's, you know, a couple things up above it.

And then there's a billion for high speed rail and a billion for legislative appropriation every year. And it's not clear which of those gets priority. Right.

So you basically need at least 2 billion and change in GGRF revenue in a given year to be able to ensure you have sufficient funding to support the full allocation for the high speed rail authority. So the first year where you don't have that, according to carbs projections, is 2035.

And that's 10 years before it expires?

Right, right.

Okay. Thank you. All right. I'm looking to the Members of my Committee to make sure there's no follow up questions. All right, thank you. We are going to move on to agenda item number four.

This is our presentation from the IG on our operational review and summary of unimplemented recommendations from past operational reviews.

Thank you, Madam Chair. I'm going to break this into two parts. One is I'm just going to talk about the operational review first. And you've got a one pager in front of you that has a summary of what we found on our procurement review.

I'll be referring to that document first and then I'll move on to talking about unimplemented recommendations in a moment.

So our overall conclusion from our procurement review that we published a little over a month ago was that the Authority generally met state requirements for procurements we reviewed, but could improve the timeliness of its procurements, its reviews of bidder's potential conflict of interest, and its process for ensuring that all contract amendments comply with state law.

So a little background. The authority's 2025 construction schedule indicates that over the next two years it needs to procure key goods and services totaling 13 billion to finish building the Merced to Bakersfield segment. With these large and time sensitive procurements. On the immediate rise in, my office decided to review the Authority's procurement practices.

For the five procurements we reviewed. We found the Authority met or exceeded advertising requirements, awarded contracts in accordance with established criteria, and used appropriate methods to ensure that contract prices were reasonable. Although in the interest of time, I'm only summarizing those positive results, I don't wish to understate their value.

These elements of the Authority's procurement process appear to be functioning well and are important in making sure that project funds are used appropriately. We also found that the Authority has a conflict of interest code that aligns with statutory requirements for preventing individual conflicts and it followed that code and related safeguards for the procurements we reviewed.

However, it did not have a sufficient process for reviewing whether bidders had organizational conflicts such as existing contracts with the Authority that might advantage them with information not known to other bidders.

We recommended that the Authority revise its policies and procedures this month to begin using readily available information to proactively and independently identify bidders potential conflicts and thus not over rely on bidders self disclosure of those conflicts.

Moving on to the last bit, the negatives are construction criticism, constructive criticism we also found that the Authority did not complete any of the five procurements we reviewed by the targeted dates that they had set out when they began the process.

In some cases, these delays threatened to disrupt needed services and to avoid falling behind schedule, the Authority had to reallocate existing resources or pay for an extension of existing contracted services.

Although the Authority could not have avoided all causes of delay, it could have better managed the timing of its own processes by standardizing its approach to scheduling procurements. We therefore recommended that the Authority revise its procurements its procedures to standardize the practice of establishing clear deadlines for each procurement.

The final area of constructive criticism was in regards to contract amendments. We reviewed six contract amendments and determined that five were allowable, but that one added a new type of service to the contract that it amended, which was not allowable under the authorities regulations required by state law.

Specifically, this amendment added design work and a questionable $1 million performance fee to the contract of the project construction manager for construction package. Four of particular concern was that the Authority executives did not obtain approval from the Authority's legal counsel before getting this contractor started on this design work and before executing this amendment.

In fact, we found that the contractor ultimately completed the design work in question before the Authority and the contractor had signed an agreement in place for them to do so.

We also found a lack of legal counsel approval for two other recent contract amendments, although in these particular cases we were not concerned that the scope of the amendments violated state law.

Even so, with these contract amendments not having documented legal approval, we expressed concern regarding this condition and recommended that the Authority immediately adopt a practice and develop procedures to clearly document legal review and approval of its contracts and contract amendments.

We continue to monitor progress in this area and other areas of procurement, and we'll update our assessment of implementation of these recommendations when we publish our annual report and work plan for the coming fiscal year. Madam Chair, with that summary I will pause my testimony and be able to answer any questions you might have.

Thank you. Looking to Members of the Committee and I don't know if it's appropriate time for Vice Chair Davies to ask your one question that we didn't get to in the first.

Thank you very much. I appreciate it. I know that you'd said that you were still waiting for them to respond to this information. When did you actually do the review and how long has it been since they haven't responded?

Right. So you're referring to a footnote in which we indicated that the PCM, the project construction manager, CP4, had not responded to our request for communications on this matter. They have since done so and we've analyzed those that communication.

What's still open is we, after analyzing all this communication, can still not clearly see who decided to go forward with this amendment, who decided to give this work to that particular company. So that's the piece that we still are looking into.

With that information, isn't it? I would just think, you know, it would be easy enough to go, who told you you can move forward with this? So you know, where, where you. I'm just kind of like surprised. Like, you know what?

No one can come up with who told them that it was okay to move forward with this.

Yeah, there's. There's some in the people that we interviewed, there was some uncertainty, some lack of remembering exactly who did. And it was. It's a critical issue very. That we are going to get to the bottom of.

Okay, and then once you do get to the bottom of it, what are the repercussions to that person?

Could be none. Number one, if there's no conflict of interest, for instance, then there's no repercussion to that individual. There could be repercussions for the contract itself. We laid that out in the report. If there is for instance, a conflict of interest and a person is directing work to that particular company, that would be a problem.

That'd be illegal. Correct.

That would be reported to the Fbbc. I don't know. I don't know what's legal and not. I want to do on a pine on that. That would be reported the appropriate individuals.

Okay. I'm really grateful that you guys are, you know, digging into this and you know, I'm sure there's a lot of it going on, especially just doing a review of six contracts and one out of six is here. So is this something we're going to continue to do to review these past contracts and future contracts?

Yes.

Okay, thank you. I really appreciate your time.

I do want to follow up on the conflict of. Interesting because I think it is important. But one follow up question to Vice Chair Davies, you noted one. One out of six and she said is there more?

So I had the opportunity to be an Auditor in the past, a little different than Inspector General, but in some ways similar. And one thing, when we found an exception, we actually did a larger scope of review. So is the 1 out of 6 the initial, or is it the 1 out of 6 because you expanded?

1 out of 6 was the initial. We also looked at other amendments to look for a particular problem. And what we were looking for was a lack of legal counsel review and approval. And we found two others that I mentioned in my testimony and in our report.

Enough that we could see a potential pattern that needed to be resolved immediately.

Okay. And so given in your presentation and the line of questioning, I just want to be clear for conflict of interest during your procurement review. So could you tell us in the quantity possible of the extent of your office reviews of conflict of interest in General?

Sure. Yeah. On that operational review of procurements, we looked at 28 different individuals that were involved in the evaluation of awards. So that would be looking through Form 7002 that would be looking through their disclosure documents. Again, on individual conflicts, we found no problems.

And we stated that clearly in the report and in my testimony for organizational conflicts. So that's where bidders self disclose whether or not they have these conflicts that could advantage them, for instance, in the bidding process.

We looked at 125 disclosures from 125 different firms, and we identified 12 instances we were concerned about where they did not disclose that they had existing contracts, for instance, with the authority. When they don't disclose that, the process doesn't trigger at a review by legal counsel to see if that truly is a conflict.

And that was our concern, that they have information at their disposal, the authority does, to look through their own contracts and see that these bidders did have a potential conflict that needed to be analyzed by their legal counsel.

Okay, and so your recommendation is that those things they would do that additional step with their legal counsel. Yes. To be able to do that. Okay, Sounds good. And just one last question on this. It's just related to. Especially because we're in the conversation of making sure you have the authority to do your job. You have.

Are you limited by any lack of statutory authority to review our conflict of interest related to individual both organizations and anything in that nature? No. Great. Thank you so much. Okay. Assemblymember Herabedian.

Thank you, Madam Chair. Just to quickly follow up on this to the Inspector General. So just so I'm clear, is it your office's opinion that having an existing contract on the project poses a potential conflict of interest? Because if so, it would seem super problematic.

Just in terms of trying to get a project of this scale done over any period of time. If you're just. Because obviously I don't think that's conflict of interest. You want firms and companies that actually have experience and have worked with the Authority working continuously, hopefully, if they're doing a good job.

So I just want to clarify, you don't actually think that it's a conflict of interest if a firm has an existing contract and is bidding on a new contract? That wouldn't be a conflict of interest, correct?

Certainly. I'll answer that. Excellent question. So it's not a per se conflict, meaning evidence in and of itself, but it's something to examine. So if someone has an existing contract that puts them in a position to have information that other bidders wouldn't have, then they need to mitigate that and there's steps to do that.

Likewise, if the future contract would put that firm in a position that they're reviewing their own work on another contract, and that would also be a problem that would need to be mitigated or possibly not allow that bidder to bid.

So it's not a per se conflict, but rather they need to disclose those things so that the authority can look at those issues.

Who needs to disclose it. So I guess just so we're on the same page, if the authority is contracting out for various phases of a phase one, Right. And then you have phase two, phase three, and the authority knows that company X and company Y have been doing certain things, who's disclosing what? Because I guess I'm confused.

In practicality, this is all in theory, makes all the sense in the world, practically speaking. What are they supposed to disclose? That they are. They have some information that someone views as proprietary that a company that is bidding might not have. They may have.

I mean, that company probably has no idea what company the other companies know and what they don't know. All these conversations are having are happening in real time with the authority. So what exactly are they supposed to disclose?

They disclose the existence of those other contracts, that other work they're doing for the High Speed Rail Authority, that needs to be on their disclosure forms.

I see. Because we don't. And again, this is just for me. We assume that the authority doesn't know about those existing contracts because you would think that the agency, the owner of the project knows.

So I guess I'm trying to get to a point and before this becomes a big political issue, this seems like much ado about nothing. This to me does not seem like a huge issue given the expanse of the project and all the other things that we'll talk about.

And I have other questions after the finality of the testimony. This seems like something that to me is curious why we would even be highlighting this in a Executive summary of issues. Because I touched to me it's not an issue.

It doesn't appear to be an issue because the project owner would already know about what you are referring to. So I'm just going to leave it at that. And before we kind of go down a rabbit hole on that, that's the way I view it. But I appreciate you bringing it up. So thank you.

Thank you. All right, I think that wraps it up for this first part, like 4A. Now we'll do 4B.

Okay, thank you, Madam Chair. I will now summarize the status of the Authority's implementation of my office recommendations. A summary table and all related details were provided in the Committee package for this hearing.

Of the 31 recommendations my office has made, 11 are still pending in that the recommended recommended deadline for implementation has not yet passed and two are not applicable in the current federal grants environment. So of the remaining 18, the authority has fully implemented five, made some progress on eight, and has not implemented the five remaining recommendations.

In my previous testimony regarding the business plan, I have already covered unimplemented recommendations regarding the funding plan and procurement schedule, and I'm not going to rehash that now. So given the late hour, I'll keep my comments to just a few few items.

First, many of the recommendations the Authority fully implemented were done so with the information it provided in its 2025 supplemental report. Obviously, that report was provided later than state law required, but even so, we have acknowledged that the report was complete and generally accurate and included much of the information we had previously recommended.

We also credited the Authority for conducting a statistical analysis consistent with best practices which when developing the schedule envelope provided in that report. But that brings me to the unimplemented recommendation I'd like to highlight for Committee Members and for the authority.

In our February 2025 review of the Merced to Bakersfield schedule, we raised a concern that the Authority had not completed a risk analysis as described in federal guidance published by the U.S. government Accountability Office and the Department of Transportation.

This risk analysis would have allowed it to better determine whether its plan for completing the Merced to Bakersfield schedule was realistic, was realistic, and achievable. We also noted that the Authority's policies and procedures provided no framework for when the Authority would conduct this type of detailed risk analysis.

We therefore recommended that the Authority specify when a risk analysis would be conducted and updated. I should note that despite our recommendations deference towards the Authority's establishment of its own policy and procedures on this matter, Federal guidance does indicate that a schedule risk analysis should be conducted with each new schedule an agency develops.

However, we are not aware of any progress toward these recommended policy policies and procedures.

As such, it is not particularly clear if the project stakeholders should expect a schedule risk analysis in the supporting detail of the 2026 draft business plan for one of the recommendations that the Authority fully implemented, the Authority established a board approved policy on when it will update estimated cost for different elements of Phase one.

As a result, Authority staff have clarity on what necessitates a cost estimate update and my office and project stakeholders can hold them accountable for that policy. That fully implemented recommendation provides a clear point of comparison with this unimplemented recommendation regarding the Authority when the Authority will conduct a schedule risk analysis.

I therefore use this moment to encourage the Authority to consider this recommendation made more than a year ago and take steps necessary to fully implement it. Without going into all the details of the other recommendations, they each have their own respective value and I would argue generally for a more timely and diligent implementation than by the Authority.

So with that, Madam Chair, I appreciate the time afforded to me and they will answer your questions.

Thank you. Looking to Members of the Committee, Assemblyman Macedo followed by Assemblymember Herabedian. Is there more testimony after this or is this. This. This would be our final testimony.

Okay, really quickly, were you able to get that information that I had asked earlier in the hearing?

So we weren't able to get it within this window, but we'll follow up.

Okay, we have Selma Lackey here, who. He passed AB 2879 requiring large contract changes be discussed and approved at a public meeting. Are you familiar with this particular piece of legislation? I'm sure the Attorney General or Inspector General. Sorry, the change order of half a billion dollars that recently happened.

My first question was, I probably should have asked it previously, but it kind of feeds into it. Have you worked that into your new business plan?

Yes, yes, it's in our estimates.

So my next question.

It's not a executed change order as of today. The Board authorized a settlement negotiation path with our CP23 contractor and we are working towards that. So it's still just a proposed change order at this time.

So what is. What's the missing component for it to be executed?

Signatures by both parties, but it's been

negotiated and agreed, just not signed.

It's going through the negotiation process.

Negotiate. So what. What is still missing? Is that dollar figure not correct?

That dollar figure is the ceiling that the board of directors provided to the authority to settle that claim.

And what is that? That total amount?

530, $37 million.

Okay, why was that? Now the author of the legislation is here, so I would love for him to speak to this. But when I read that that would appear to me over $100 million, that that would be in public, discussed and voted on. Why was this taken behind closed doors?

The item that has was brought to the board for consideration has been around since 2022. We have talked about this item delay and damages that we need to correct with this contractor for multiple years.

But this is state law. So the negotiations, I mean, as of now, you would have to follow that state law, correct?

We follow state law. We didn't do anything that would not have followed state law.

But the legislation says a public hearing. You took it into closed door hearing. Correct.

But it has not been approved to be finalized yet. Right. Only at this moment in time is it a negotiation of various disputes and arbitration items that could lead to litigation that has given a pathway forward to be resolved with the contractor. It has not actually been signed officially yet or approved by the board officially yet.

Just the pathway to settle.

Who has been involved in that negotiation? Which parties? The entire parties.

Both parties. Okay. The entire High Speed Rail Board.

The entire board. Members of the board?

Yeah. The item was brought forward to the board for consideration and that that resolution was put on. It's on the website as well. I can share it with you if you like.

So when will we be able to see what if you had to guess timelines because obviously this is going on behind closed doors. When do you think the public will see those terms that have been negotiated? Like what timeline are we looking as far as settlement of this?

Yeah, our goal is to settle it as soon as possible since they are legacy issues. And as directed by the board in their resolution, we are to bring this back for the public viewing in both the finance and audit Committee and also the board.

So before it's signed, it will become forward for a public hearing.

The board has to authorize it. They have to approve it.

Has to approve what?

The actual change order. At the end of the day, they have to approve the change order.

In a public hearing, correct?

Yeah, they have to vote on it. Correct.

Okay, thank you.

And just to note, it's behind closed doors because it's Pending litigation. Correct. Is it not? Which is allowable by state law? Yes. Assemblymember Harabinian.

Thank you. Madam Chair. Just two, thank you for all of you for being here. Just two quick questions about how do we get to the end of this project? Not just phase one, but I look forward to seeing this project from San Francisco to LA and I think it will be a fantastic legacy project for the state.

And I guess the big thing obviously in all the materials, it's very clear that the big delay and a lot of the cost overruns have come from the right of way issues with the utilities at Amtrak.

So I guess my main thing is going into hopefully finalizing this phase and the next phase is what lessons have we learned and what systemic changes have been made by the authority to make sure that once we're done with this phase and we go into next phases, we don't spend the amount of time or waste the amount of time and money on these right away negotiations processes with the utilities and Amtrak.

Yeah, I appreciate that. And there are a lot of lessons learned from this project stemming back to its origins a decade plus ago. Some of the things that we are taking away is really thinking through the sequencing of the project.

I think one of the things that I shared earlier and this is something where as we think about completing Merced to Bakersfield and how we prepare ourselves to get beyond the valley, there are some strategic investments that will help to de risk the project as we embark on the construction and design in those segments.

So it is one of the things where doing the early geotechnical analysis, doing early utility identification, using technology to help us kind of learn in a kind of more detailed way about where those utilities are looking at strategic waterway acquisition for parcels that become available sooner, actually acquiring those when they become available to avoid a lengthy back and forth or that increase in cost.

So there are a number of lessons learned. Those are just a very small snapshot of them, but definitely as we proceed forward beyond the valley, definitely looking to approach the project differently.

Yeah. And I think building those in right to the structure of your authority and making it very clear it's part of the ethos of the organization. Because I think that that standing here, I'm not on the board and I know we have an ex officio board Member here who knows much more about this than me.

I think that's the key here. I mean the key here is showing us efficiency, showing us that you can get this done and not being at the mercy of some of these entities who have made it very Very difficult for you over and over again to deal with this project. So I look forward to seeing that.

And then I guess just lastly, what sort of benchmarks, Obviously on this P3 implementation, obviously you went out to bid, if you will, in December looking for the market to respond. What sorts of benchmarks do you think you're going to need to meet in the near term to make this, I guess, attractive for private investment?

And that's it. Thank you, Madam Chair.

Yeah, really appreciate that and completely agree with all the points that you brought up.

What I will say with respect to a P3 partner and the reason why we are structuring that engagement in the way that we have of really bringing in a co development partner through a co development agreement is to have some of those early learnings about what might be in the realm of possibilities.

Then beyond that point, you know, we would have the option to move forward if we are able to come to commercial terms. Otherwise, you know, we'll decide, you know what, this isn't in the best interests of the state or the project.

So I think there's a lot of kind of optionality as we move forward, but a lot is going to depend on that interest that comes in from the private sector. And that initial award will be to ultimately evaluate kind of what the potential is there. So trying to really be smart about how we approach this.

I know there are a number of concerns that were raised by, you know, the lao, for example, about, you know, the different risks, the costs and making sure that, you know, this actually is a good deal for the state and those are things that our team will be evaluating.

Thank you. And follow up to that. So how do you plan to communicate with the Legislature when it comes to the feasibility of these loans and other private funding options?

Yeah, I would say that, you know, we will have, I'm assuming, plenty of hearings and other opportunities for us to, to discuss these issues.

But what I will say to that is that if there are different tools that we need, for example, to help us actually effectuate a financing structure or as we move forward and work with a P3 partner, and there are potential things that we need to actually again, effectuate what they're bringing to the table, we will absolutely be working with the Administration and the Legislature on those.

We don't know today ultimately what that looks like and whether or not we will need to actually get additional authorities to do so. But we do want to be absolutely transparent about how we move forward with this project.

Thank you. Now, it's noted in the risk register for the 2026 business plan, the importance of communication with stakeholders. And so there hasn't been and the reason why I asked you the question about the private funding because there hasn't been regular meetings with legislative staff to communicate what's going on with the project.

We've left it to these meetings, these oversight hearings which are typically based on you I was presenting a report. The the 2025 report was delayed because of the transition between CEO. We got the supplemental we just got as people noted over the weekend, the 2026 draft report.

And so I'm going to ask that there are quarterly updates to the appropriate legislative staff in a bipartisan way so they can get updates, you know, on what you all are doing and how you're proceeding on all aspects of completing this project or the program as you noted, not just around the private as I noted the question earlier, private funding or private options but just really I think it's really important to keep the Legislature updated and the best way to do that is through our staff so that we have an idea of what you all are doing so that we could take appropriate action whether having additional hearings or including you know, changes to administrative procedures or legislation, our laws.

So before I want to make sure there's no other before I'm going to ask a follow up. zero you have one. Okay, quick two more and then I'll ask my final question. Vice Chair Davies thank you.

Madam Chair, in regards to the recommendations, do we have some type of timeline? What I would love to see especially with the quarterly updates and I greatly appreciate that if we could actually get with the status obviously a lot of them are partially implemented. Some will not implement.

But can we get dates added to these so that I could see when you expect these to actually be implemented or decided that you're not going to do it. That'll allow us to be able to keep an eye on what's happening. Thanks.

And so adding that column of expectation and resolve by and I know when you work on when you have recommendations, you work with the HSRA to figure out how you're going to re implement it and that nature and so having that when their expectations to be resolved by so we know when they're being really overdue in comparison.

So I think that would be a nice add.

We will add that. Thank you. We'll have to obviously work with the authority on what those dates are. Right. That's their commitment. But we can add that. Thank you.

Yep. Assembly Member Macedo thank you Madam Chair.

So I went to that document that you referred me to about the settlement. So with your permission, would I can I read that? Yes, go ahead.

The CEO or his designee is authorized to work with authority, legal counsel and to take all steps necessary to negotiate and finalize an appropriate settlement change order with DFJV for an amount of 537.3 million.

Consistent with the staff presentation in closed session, the Finance and Audit Committee will exercise oversight and report back to the Board regarding changes not contemplated in that presentation. Any material change in terms will come back to the Board for approval prior to execution of a settlement change order.

So I just want to be clear to what you're committing to because that's when I read that I'm hearing only if there's a material change behind closed doors will this come back to the Board. So you're committing there will be a public hearing the that this information will be reviewed and then it will be signed.

Is that correct?

Well, what I'm committing to is that the Board will follow state law, they will approve the change order as required and that when we come back to the Board with what has resolved or what might change, it will be known.

It will be expressed in either the Finance and Audit Committee or at a board or in an update report.

But you're not committing to that at a public hearing. Correct?

We're in a public hearing now talking about it once it's settled and completed.