Senate Standing Committee on Transportation

State transportation committee will come to order. For today's hearing, we're hearing from all the panels on the agenda prior to taking any public comments. So if you hear public comment, we'll hear that at the end.

Once we've heard all the witnesses and their testimony on the panels, we'll have that public comment period. And for those who wish to comment on the topic on today's agenda, which is the high speed rail and its 2026 draft business plan, you'll have one minute per person.

For those that are hearing that for the first time, it's not a me too public hearing, but one minute per person when that time comes. We will be timing folks, and I'll keep you to the one minute.

I also want to announce that all hearing materials, including the agenda background and handouts are posted and can be accessed on the Senate transportation's committee web page.

I wanna first thank all of our panelists for taking the time to testify today, and I wanna thank all our committee members for attending and participating in the hearing today. And I know people will be coming in as the committee hearing moves forward.

The point of today's informational hearing, as I noted, is to review the California High Speed Rail Authority's 2026 draft business plan and discuss the next steps for the project. Two years ago, this committee held a hearing on the 2024 business plan.

And since then, the authority has gone through major changes, including a new CEO. Welcome. Our new executive staff and a bottoms up review of the project.

Also a shift in the initial operating segment, scope changes in Central Valley, a loss of key federal funds and renewed search for private footing and value capture opportunities.

Many of those changes are igniting renewed interest and excitement about the project's future. However, many are causing concern and controversy, so today is an opportunity to hear more about that.

As one of the committees responsible for the oversight of the authority and the project, We plan to dive into some of those issues today. As many of you know, I'm excited about the authority's plans to encourage private investment in the project.

I've long believed that there are significant development opportunities along the alignment with station communities being the focal point, but beyond that as well.

I'm encouraged by the recent actions of the authority to bring on private partners and develop options for ancillary revenue generation, and I look forward to hearing more details about those plans today and after today as well.

However, there are concerns about the lack of safeguards and protection for the state and local governments as the authority pursues pursues potential private borrowing and p three financing options.

We look forward to the testimony of the LAO to help us better understand those risks and options for the legislature to consider.

Additionally, the authority has proposed major adjustments to the Merced to Bakersfield segment as currently defined in law, specifically moving the locations of Merced and Bakersfield stations, having only a portion of the alignment be double tracked.

I've met with Merced officials. I've heard their concerns. Certainly, as chair of the committee, I've met with the CEO and heard on some what I consider to be good explanation of those concerns, good answers to those questions,

and I hope there's an opportunity for those to be well presented today. Although these changes present opportunities for completing the first usable segment of high speed rail, they do raise questions as they noted, and we would encourage folks to get those questions answered today.

On the financial side, the project has recently secured an ongoing $1 billion annual appropriation from Cap and Invest.

However, the project also recently lost $4 billion in federal one time funds. The 2026 draft business plan forecast that the authority will have the funds to complete the Merced to Bakersfield segment.

However, questions remain about aligning cash flow with the projected schedule. Beyond the Central Valley, there is still not an absolutely clear path to connections to Silicon Valley or Los Angeles, especially in terms of the need to secure funding,

and I know the CEO and others have been vocal about that. Additionally, the cost and schedule estimates in the draft business plan reflect conditions that have not occurred yet, such as approval of the scope changes and successful passage of numerous legislative proposals.

Hopefully, we can parse much of that out today in the couple of hours that we've allocated for this committee hearing. Finally, I'd like to acknowledge the initial review of the draft business plan by the inspector general, who we thank for being here today.

He noted that it is missing statutorily required elements and that if those emissions are not addressed, the draft business plan will not be compliant.

We wanna hear more about that, and, of course, we'd like to hear from High Speed Rail Authority's administration as to, their feelings about the OIG's, assertion and and how that compliance can be brought to bear.

Also, he notes that it will mask the true cost and timeline for completing the project's initial operating segment.

I look forward to the authority's attention to these concerns, the committee's attention to these current concerns and how the final business plan will reflect them.

So today, we'll hear from the authority and our respected oversight partners from the LAO and the Inspector General's office. That's really the bottom line. I will now ask our Vice Chair if he's here yet. He's not.

I had a nice spot for him in my notes to offer some opening remarks. I'm sure Senator Strickland is here later. We'll hear from him. Now let's get to, our first presenters. Panel one, Ian Chaudri, CEO of the California High Speed Rail Authority, Mark Tolleson, chief of staff of the California High Speed Rail Authority.

I'd like to welcome both of you here and welcome you as soon as you're ready to make your opening presentations. And we would ordinarily keep those to five to seven minutes. We understand. I just asked you to cover a lot of ground, so we'll do our best to accommodate you. Thank you.

Good afternoon. Good afternoon, Chair Cortese, and when Vice Chair Strickland comes and joins us and Members of the committee. Thank you for the opportunity to present the California High Speed Rail 2026 business plan.

I'm Ian Chaudri, CEO of the Authority, and I'm here to outline where we are, what we have achieved, and how this plan puts the program on a realistic, disciplined, and deliverable path forward. Let me begin with a short video that shows the progress that we have made to date on the program.

These are just some of the people making the dream of high speed rail in California a reality. Each day, as many as 1,700 workers report to the 119 miles of construction in the Central Valley.

These workers have already helped complete nearly 60 structures and in the coming year they will help us take an even bigger step toward the future of transportation. This is the winter 2026 high speed rail progress report.

Just a handful of structures remain closed in construction package one, the 32 miles that stretch across Madera and into Fresno County. Road 26 is the last remaining structure under construction in Madera County.

This overpass will take cars and people over high speed rail tracks. It's made up of 49 precast girders, and the deck itself took more than 6,500 cubic yards of concrete to complete.

That's enough concrete to fill two Olympic sized pools. Striping and paving still needs to be done as well as hauling in 2,500 cubic yards of embankment before this structure will be completed. Over the summer, work began on the Shaw Avenue grade separation.

The first step was realigning the road away from construction so it could remain open during the build out. Sub structure work is underway. building vents and placing concrete abutments for the structure.

This project will eliminate cars having to wait at the busy freight tracks that currently cross Shaw Ave. It will also allow cars, bikes and pedestrians to safely pass over high speed rail tracks. The 65 miles of construction package two three is buzzing with construction work.

Soon, every structure needed in this stretch will either be complete or underway. Manning Avenue in Fresno is one of the many grade separations in this section. Work is underway there on the diaphragms, which run between the girders providing lateral support and improving stability.

One of the more recognizable projects in CP 23 is the Tide Arch Bridge. It crosses over State Route 43 and continues to take shape. Over the summer, the arches were poured and the formwork should be removed in the coming weeks. Forms have been striped, and the arch formwork is remaining.

More than two dozen gigantic tub girders have been placed for the Dutch John Cut Bridge and the Cole Slough Bridge.

These girders weighed nearly a quarter million pounds each and required two cranes working in tandem to be placed. The largest structure so far on the project, the Hanford Viaduct, is seeing the final portions of the deck being completed.

The last section over the San Joaquin Valley Railroad will require nearly 1,000 cubic yards of concrete to complete it. The Hanford Viaduct is more than a mile long and will serve as the future home of the King's Tulare Regional Station.

28 girders across seven spans have been placed at the Corcoran Highway grade separation. Formwork for the diaphragms has begun. This project will take traffic over a canal, fifth street, and high speed rail tracks.

Rebar is being tied and concrete is being poured on various sections of the Tule River Viaduct that's more than 3,500 feet long. This project will take trains over the existing BNSF tracks, the Tule River, and State Route 43. Work is also underway tensioning various sets of interior support cables and bars along the structure.

Some signs of progress on the high speed rail project are not as visible, but just as important. In November, the authority released one of its largest contracts ever in a request for proposals for track and systems construction.

This step comes as we have completed track installation at the railhead facility in Kern County. This area will serve as the logistics hub for high speed rail materials. Both of these moves mark a major acceleration toward track installation later this year.

In Southern California, the authority also released the draft environmental documents for the Los Angeles to Anaheim project section. This release initiates the final step toward full environmental clearance for phase one of the alignment. Approval for the EIR EIS will come later on in the year.

All of this means 2026 will be a monumental year for this program as the dream of high speed rail comes closer to reality.

So a lot of progress, a lot of work being done. As you can see from the video that we just played, that work in the Central Valley right now continues to progress. The big thing here that you can see is not about plans anymore.

It's about construction getting done and entering into the next phase of the project where we will start laying tracks this year.

87 of our major structures are either in progress or completed out of the '92, and 80 of the 119 mile, which is our initial operating segment, is complete now, ready to receive tracks.

80 miles are ready to receive tracks. We will be contracting with the track builder within the next five to seven weeks, and so we will have a track builder on board to make that a reality as well. Utilities and relocations, which was a major challenge for us through the last ten years.

Now eight years of the project, 93% is done. 99.8, which is almost, like, very few parcels remaining out of the 2,300 right of way parcels we had to acquire.

That included also temporary construction easements. We are almost done within the 119 mile. We have also reached a critical point now, the launch of track and system, which is what it means to us is like we are ready now after that track and systems are installed to run trains.

And so we are actively working this year to get the construction of tracks starting towards the end of this year, and it will take about three to four years to lay tracks and put the systems in place and then get the trains to start testing.

And then by 2032, complete the testing and put in revenue service, the initial operating segment by early two thousand and thirty three.

I want to take a moment to thank the Governor and the legislature for securing the last year's appropriation that we had the extension of Cap and Invest program. That was very, very important.

This is now the state's commitment of $1 billion annually through 2045 that provides a critical and stable foundational funding. That's not for the entire thing, but it does give us enough to get private sector excited to come and invest.

This sustained investment supports long term stability, enables our continued progress, and positions the state to continue to advance the project despite ongoing uncertainty and challenges with our federal partners.

At the same time, we acknowledge the fiscal constraints that have challenged this project throughout its history. This is why we are maximizing available resources through a more disciplined approach to delivery, including some of the things, Jerkurt, as you mentioned.

Design optimization is part of it. We are looking at how to optimize and build just in time for what we need and not overbuild and not underbuild. Anything we build, it's the clock starts the moment you put the infrastructure in place.

The life cycle begins to go towards its end. It could be fifty years, seventy five years of life cycle, but the moment you put in place. So if you're not going to use the infrastructure, we don't want to build it at a time. So that's design optimization. We upgraded the grades on which we were building on.

We looked at our seismic criteria. We updated that. And then we also improved our procurement and delivery strategies.

One other thing that I brought up in 2025 was to improve our time to procure different types of packages and contracts and also remove constraints that we were using contractors for the type of activities that they were not well suited for.

For instance, if we had to buy rail, we were using general contractors to go buy rail for us. Instead, we have decided that all those commoditized materials that we have to purchase directly, a rail is a rail. It doesn't change which contractor do you bring. A tie is a tie, and a pole is a pole.

So we ended up pulling those items out of the general contractor's scope and made sure that we go and visit the factories and purchase those directly from the suppliers in The United States. And so that is something we said last year that we'll put in place.

We did. And now we have a rail production steel manufacturer on board, and the rail manufacturing will start September, October this year. So we'll start receiving materials in our Vasco yard that you saw on the video. This approach has resulted in our $14 bilion in optimization of cost.

Now optimization means that we not that we are not going to build the rest of the system, but we definitely have optimized in a way that is a permanent savings in the Central Valley.

Reducing capital cost now has reached to about $35.66 billion for the Merced to Bakersfield early operating segment. More than a billion dollar or additional savings since the 2025 supplemental project update report has been identified.

We are continuing to evaluate options to address the timing, the sequencing, and the resources available to us. In doing so, it's important to recognize that these large scale infrastructure projects inherently involve trade offs, and that's just the practice that we have to go through.

It's very common that I've seen in nine, ten other countries where I've worked, including the need to balance available resources with cost, busy casual, and related risks.

What High Speed Rail Authority is committed to is clearly communicate those decisions, impact on project delivery, and provide policymakers with clear, actionable options to navigate these realities while maximizing projects' outcome.

To that end, we are continuing to work with the administration to evaluate options that sustain the project's momentum and advance delivery in a manner that reflects both current and anticipated resources.

As we finalize the business plan, we will provide additional details on those efforts, including strategies to achieve our priority for completing the Merced to Bakersfield early operating segment by 2032, while also positioning the project to support the broader high speed rail build out across our state that is the Phase one.

Laying out viable options to get beyond the Central Valley into population centers with San Francisco to Bakersfield presenting the fastest path to revenue generation producing $47.1 billion in net operating profit over forty years.

In the last fiscal year alone, the project generated $2.9 billion in economic output across California, supporting jobs, businesses, and local communities. But construction, let's remember that is not and the funding are not the only part of the story.

High speed rail must succeed as a transportation system and as a business as well. That is why this business plan introduces the first true corridor wide ancillary revenue strategy for this project.

Beyond the ticket revenue, which we call the farebox recovery, we are building a model that captures value from real estate development, energy generation opportunities, broadband digital services, and logistics opportunities such as express cargo.

Now we want to treat this corridor like any other European country and in Japan, as the corridor of opportunities. This matters because early economic commercial success changes what is possible.

Our revenue generating system allows us to finance future expansions through tools like revenue backed bonding and private investments that reduce long term reliance on the state appropriations. It also enables meaningful public private partnerships where private capital can take on risks, bring innovation,

and accelerate delivery, and we have launched a codevelopment agreement procurement to bring in a private partner by 2026 with a strong my market interest already demonstrated. Globally, this model has worked. A lot of countries have done that. In Japan, high speed rail transformed regional economies.

In Europe, cities have become economic hubs. Through high speed connectivity, California has the scale, the demand, and the economic depth to achieve similar outcomes that would link the Bay Area and Los Angeles through fast growing Central Valley communities.

This is not just about faster trips. It is about expanding labor markets, increasing housing access, and creating new economic opportunities across the state.

The plan before you sets out a clear sequence, completes the Merced to Bakersfield segment with an updated delivery target of 2032, expand services to major population centers to achieve revenue positive operations, and begin early commercialization of assets to generate the capital needed for continued build out.

We are also addressing lessons learned. This plan identifies policy and implementation reforms necessary to streamline delivery and maintain schedule certainty going forward. Members here, high speed rail is a long term investment. It is already generating economic activity.

It is already shaping infrastructure in the Central Valley. And with this plan, it is positioned to become a commercially viable system that can sustain and expand itself over time.

The 2026 business plan reflects a program that has matured, one that is grounded in data aligned with fiscal realities and focused on delivering measurable progress.

Our responsibility at the authority is to build this system in a way that earns public trust, delivers economic value, and creates a durable transportation backbone for the state. This is the path that we are all on. Thank you, and I look forward to your questions.

Alright. Thank you, Mr. Choudri. Mr. Tolleson, were you gonna make remarks yourself or your hero just in support?

I'm in support. Okay. Thank you.

Thank you. Appreciate that. We'll go to we'll come back to the committee for questions at this time and or comments. Anybody? Yes.

Yes, Senator. Go ahead.

Yes. Thank you. Thank you for your testimony. Good to see you. Hello.

I my question is about economic development as part of this project, which seems like a really good idea. And it also seems like it's a good idea for transit throughout our state. And I have floated it multiple times with different heads of transit agencies.

And also, I have a subcommittee on the low sand rail corridor, which is, the 350 miles that goes, a lot along the coast, but also inland through LA Union Station.

And I'm wondering why it is you think that we haven't been able to actualize that in California yet, and why you think this will be different.

And I say that because it does seem like there are there is a model in Europe and in Japan that recognizes, the economic development potential that's on property that's owned by the transit districts.

And then we also see really good success with our airports in The US, having a lot of commercial activity that generates revenue for the airport. And I was on the San Diego Airport Authority Board as well when I was in local government.

But our transit agencies do not seem to be doing that very effectively, and I don't fully understand why that is. And I know this is part of what your vision is for high speed rail and how it will be successful.

And so I just wanted to hear your insights about our thoughts on why it is that we are not doing that more, along the Los Angeles Corridor or other parts of California, and how and what how it is that you think you're gonna be able to make that happen for this particular corridor.

Thank you, Senator. Two or three things different in California then. And then within California transit agencies, how they operate and the regional rail, how they operate and how we are thinking differently.

One, metro systems in general, they either feel that they don't have the jurisdictional powers to go and commercialize on the real estate like the airports.

The airports are a very good example in The US of how concessions work and and how the property of the land they own, how they can capitalize by any way possible, they can generate revenue, and they're always profitable.

They have gate fees for airlines that they use for generating revenue, then they have concessions all across terminals. We don't do that.

And the reason could be, and I have to look into it, why a system like BART or the one that you are talking about, LoSAN or Metrolink cannot generate those kind of revenues.

What you mentioned about Europe and Japan, what's different, high speed rail systems are part of their rail program, and so that includes regional, intercity and high speed altogether combined.

And in their approach, and this is I'm going to refer to Italy, France, Spain and Japan in general, they do take farebox recovery ratios very similar to us, which is ranging between 35 to 45%, but they're always profitable, and they expand their system as they go forward.

And the reason of that is is not the fare box that is gonna give them the revenues. It is all the ancillary revenues that they are generating from the system. And what is that? Commercial development on their land.

If the nation of Japan decided that they will build high speed rail and they will build five star hotels on the station grounds and or they will put a convention center in place or they will have concessions with a lot of different merchants, then that's decision made within their laws,

and they're doing it, and they're generating over 160% to 170% of their operational cost.

What they do with the rest of it is they put it back into the system. Currently, what we are doing at High Speed Rail is looking at that model.

And for us, at at the state level, with a program that goes about 860 miles long when we combine phase one and two, There is a lot of opportunity for us to capitalize and value capture. So that's the difference in the way we are looking at it.

I believe that the local systems like metros and subways, they were set from the past to not have those opportunities given to them.

And I think that's just because it's not in the statute for them to go do those developments. I think we should open up as well for them.

Just through the Chair. So you're saying you do feel you have the tools to make that happen?

That's right. And so we when we come to land value capture that we put in the business plan, we have a discussion with local jurisdictions to see how that works. We have opened the dialogue on that with local jurisdictions in Central Valley.

We think that's the right thing to do because the state have already invested and purchased the land, and so now local permitting and and the use of those lands should be given to the state taxpayers that have already paid once.

So why now not to have the value capture and put the money back into the program? We don't have it now. We are discussing that.

Okay. So the status of the economic development effort right now is that you are what's the exact status?

On the land value capture is under discussions on putting fiber optic cables or doing broadband connectivity or doing energy through our corridor. We have the authority to do that. And that's again value capture in terms of revenue generation.

When it comes to land, when it comes to tax increment districts, that's a discussion that we are we just started through the business plan. We're not there yet on that.

Thank you, Chair.

Great. Senator Greyson.

Thank you, Mr. Chair. And I wanna commend you for your leadership since taking over and kind of maybe to help me understand better your answer that you just gave to my colleague.

I think what you were saying for economic development is while you're in the stage that you're in, you're putting everything into a station that needs to be there to accommodate any type of private business that would generate revenue.

I think that's like fiber optic and other things that would attract business for economic development. But I wanna go a step before that. First of all, I wanna thank you for just being innovative and in cost saving measures. For instance, direct procurement of materials is genius.

And instead of running through other parties where they put markups, just procuring those materials saves will save California billions and billions of dollars.

However, do we have in place what we need to foster private public private partnerships in getting this job, getting this project moving quicker or or closer to the end faster?

Yes. It's a bigger question. So we do have private sector's interest now. We never had it before. What we do now, they are engaged, they have submitted their proposals, and we are reviewing that.

And there are two parts of our strategy. One, we are looking at infrastructure private sector financing against the state backstop, which is state funding commitment.

And then second is energy, which is the we are required to put renewable clean energy grid in our system. So we are also looking at public private partnership with those folks who do business related to renewal and clean energy.

Both sides of those activities, we have received a lot of interest from the private sector.

The real question is that we are trying to work on and resolve is that when we have $1 billion a year Cap and Invest appropriations done, thanks to you all, and then now we are saying how do we bring that cash forward instead of building $1 billion a year till 2045

because the value of that dollar goes down as we move forward. So that is a tool or instrument that we need to advance cash through bonds or through some other ways. That is under discussion.

We are not there yet on that. Now private sector does financing against funding commitment or collateral that is available at the state level.

And in order for them to do that, we need to show them how quick we can pay them back as to bring the interest rate down. At this stage, we have seen that they are very, very interested, thanks to the 1 billion a year till 2045.

That helps us in building Merced to Bakersfield, but we need to get beyond that.

And and so we need to get them excited about building outside of that, and we are debating and discussing and deliberating with our colleagues in the administration to see how we can do that.

Vice Chair Strickland. By the way, I had an opening. I know you were moving around from place to place here, but no no problem. I just wanted you to know, we were hoping for some comments from you as Vice Chair,

and I'm sure you have questions and things you wanna talk about in addition to your your overall duties here. Thank you.

Thank you. I'm sorry about my tardiness. I wanna thank we had a really robust meeting in my office. I really appreciate it. You you are starting to think quite frankly, I wish you were here when this first transpired.

But I still have some real questions I would like to bring forward just because I understand where you're going, but my big issue is part of your plan is generating revenue from changes that will require this legislature to move forward, to move forward on your plan that you

have put forward with us today. Mine is and I go, Senator Blakesphere, I believe, brought this up, but you're proposing that we grant you the tax increment financing authority. Do you have a legal opinion? Because wouldn't that violate our state constitution to do that?

Yeah. Thank you, Senator. One of the things that, as CEO Choudri mentioned we want to continue to work with communities around how we actually execute on that.

Really, what we're looking at is, you know, taking some of those global best practices to recognize that a high speed rail system, a station does produce additional, development in those communities. So what we're looking to do is share in that opportunity, for that growth.

So there are existing tools available to us, EIFDs, a lot of variations to that. So we would like to, you know, continue to work with communities to see how those tools could be utilized or if there are changes needed to those tools.

Well, and I respect that because, as someone who served over a decade in this legislature, California doesn't always use global best practices, when we go through the legislature.

And I am gonna be very concerned about that being a component of your, issues moving forward because you're gonna get a lot of local government who are gonna push back. And right now, I I would believe it was unconstitutional and this legislature would have to change that.

The other one, This seems that the authority wants to exercise, you know, regulatory influence with the stations in the areas. Constitutionally, a reserve for local government.

My understanding is with a lot of electric side, you're gonna have to work and move some of the electric folks around based on your timeline. Do you have that commitment from the electric companies that you could

be able to do that? So our biggest challenge has been on this project has been the utilities in the way. And we don't have any jurisdictional authority over any of these companies, and we are asking to have that given to us because without that,

this program has significantly suffered in the past. Cost overruns are very simple.

They happen because of either we are having acquisition of land that got delayed because of the court cases that we couldn't resolve because we didn't see the date in court for years, or it is because a utility company that we are dealing with, and these are big ones,

these are for profit companies, who are either electrical or communications, if they don't move their lines out of the way in a timely manner and we have fully mobilized our contractors to go build,

it's very simple that those contractors are not going to be working there for the good of their heart.

They are going to be billing us every day until that is gone. We don't have those jurisdictional powers. We are asking. We asked it last year. We're asking it again.

We do need that in order to put some certainty in the schedule and the cost. We don't have it.

And I understand where you're going. In fact, I respect where you're going. Again, I would go back to I don't think California always does what are the global best practices. We talked about, you know, Europe and and Japan and what they've done. Yep.

They've given that authority to move this forward. But we would as a legislature have to give you that authority. And I'm not sure this legislature will move forward on giving you the authority over some of the electric companies.

And again, I'm just going through some of this and I understand where you're going. The other one this should have my opinion, it should have started in a population center and go from BART,

who is one of the few areas in the state that is actually built around the horse carriage and up and they have a mass transit that's a lot different than the rest of California.

Yep. I see that you're gonna start using some monies, into the l on this plan, the LA and Bay Area. I'm not objecting to that but the legislature, really, tied your hands in some ways and we'll have to untie it because we're now at a point where it's supposed to go from

Merced to Bakersfield. We don't have enough money from Merced to Bakersfield, but we're also going to move some money over to LA and San Francisco. Can you explain that?

So we're not asking about moving funds from Merced to Bakersfield because we have the funds to build for

what we have currently planned, Merced to Bakersfield. What we're asking is once we have private investors on board, they should be able to look at what the full high speed rail system phase one is, which is LA to San Francisco.

So the high speed rail system is not more set to Bakersfield. It is LA to San Francisco.

That's why we say, can we unlock the private financier's ability to look at the schemes of San Francisco to San Jose to Gilroy, and on the other end, look at LA Union Station going to Anaheim, Burbank, and coming to Palmdale.

Instead of us constantly going from inside out, bring it from outside in from both sides, and build the Merced because we did the same time. That is commercially viable.

And and not only that I'm saying it, I've built some of these projects in Europe, but I can tell you private sector is telling us that every day.

Well, and and again, I think if you're able to get private sector resources after you could take a project that was supposed to be 33 billion and then turn into 231 billion and is this far overdue.

I give you a lot of credit if you're able to raise a lot of that private capital. We talked about that earlier. The other part is now that we're going, to one track instead of two tracks, in the in the program.

I believe I have to look at my notes, but it was, I think originally, 171 miles, was supposed to be double tracked.

Now, we're going down to 20 miles and double tracked from my understanding reading the the document. If you go to that one track system, is it really high speed rail?

The system maintains the same speed as built to high speed standards. It's built to the speeds that are high speed.

And what is that standard? I'm sorry. I don't mean to interrupt. But what is the standard of high speed?

So which is the two over 200 mile per hour. I mean, systems in Europe run at 185. We have decided to go above 200. The entire European system today is at 185.

Because they have tested it at 200, and they thought after ten years of using it that it is cost prohibitive to maintain and operate.

But we have decided to go at 200 plus. That's the infrastructure that we are building. As it comes to double track or where you put the sidings, the system will run at the speeds that are high speed.

And if we choose that infrastructure should be built just in time for when you need it, Don't overbuild. That's part of our strategy is to say double track, meaning passing loops where the trains do not come.

In Riverside, Bakersfield, we'll be running six to eight trains a day. There is not a chance that you cannot run and have a siding that the train the other train passes.

That's what the double track does. If we build the entire system double track, we're not gonna be using it. And here's what happens, what I said at the beginning. You will build infrastructure that you will have it sit there and maintain it, but not use it.

And so what we are doing is right sequence these things. And as we connect further and send more trains, then put more track, build more longer platforms. This is how Europeans have done. They expanded the system.

Running the train first is our top priority, building tracks enough to do that, building it to the high speed itself, yes, that's what we're doing, and we are building enough tracks that give us the service that we need. Okay.

There's a bill going to the legislature right now that says you we're not gonna have to report, kind of spending on the high speed rail or public transparency and accountability, and especially where we've been.

And I know you weren't here during this, but we passed AB 2879. And to talk about large scale change orders, it was the largest change order in history of any project. It was a 537,000,000 change order on April 29.

What are your feelings about the bill that's going forward about the lack of transparency, from the from the high speed rail?

Because right now, I think the trust of the people and again, this is not you. But the trust of the people of this authority, has been say, I'll say it's been a major failure. Because what's been promised is almost been a three card monte.

Saying this is gonna be only $33 billion and now the total amount is $231 billion and it's supposed to be done in 2020. And when there's a a bill going through, legislature has me very concerned that that there's not gonna be announcements of accountability.

What are your thoughts about moving forward, making sure that this committee and other committee and and the public knows exactly the steps that you're taking, to move forward on this project?

I don't know. We are not the sponsor of we didn't ask for any bill to change any of our transparency that we have currently. I mean, we get audited 14,12 to 14 times a year. Between the local, state, internal, and federal. How many audits do we get, Jamie? Can you talk about that?

Would you support those moving forward? That's what I'm asking. Absolutely. I mean, for us. For you guys, again, the legislature is the legislature, and you're telling me right now that you're not supporting.

Again, you're new to this, but I would say that any measure that moves forward that lacks accountability and transparency. I'm asking you as the head now, and I'm glad that you're here.

Would you be open and willing to continue, with any kind of change order at this size or any kind of transparency when we're spending money on the taxpayers' money?

We want to stay as transparent as we can. Absolutely, yes. And that's the goal of my entire team. Okay. And and and, Senator, you made a comment about, like, you know, we build in Central Valley, and, you know, it was Yeah.

Yeah. This this was a decision made way before

Way before for you. I know.

Way before in the sense, like there was different consideration at the time. But if you look at the European systems and and the rest of the world, it starts where the best value to the public goes as fast as we can.

If Central Valley was decided because there was environmental challenges there, I believe that that was the decision at the time was with that thought process, maybe maybe nothing else.

And I think a big part of the cost overruns is not different than doing any business in California. And I just wanted this committee to understand, and I know where you're going because Italy and and Europe and Japan,

they don't have these kind of cumbersome rules that they have here in turn of permitting here in California.

And in California, a lot of your plan does not comply with a host of authored, bills that are here in the legislature that you're gonna be asking the legislature to waive if my if I'm understanding correctly.

And I think quite frankly, it should have been done at the very beginning. The other question and again, I don't wanna dominate the time, Mr. Chairman, but just last question.

Yeah. I know you're going to private money.

How long will it take if things go smoothly and we get the 200,000,000, which I don't see as happening? I actually think, you know, I I am I'm I don't believe this bill this will be built as proposed people in California. I've been on record saying that.

I do want success though. When you go into private capital, they're gonna ask you the point blank question. How long will it take to get from LA to San Francisco on this train?

Well, currently, as we projected and I think our current business plan projects about $126, $130, $126 billion in total for phase one. That's LA 270.

No. I'm not talking about cost. I'm talking about time. Right. If you get on a train from San Francisco and you have a ticket to go to Los Angeles on the high speed rail under your authority, if we get the financing, how long will it take for a passenger to get from San Francisco to Los Angeles?

I believe it's under three hours. Under three hours. Under three hours. Yeah.

And how much do you think a ticket would cost?

That is calculated on an average somewhere between $68 to $84 depending on how do you use the system. Those models are done based on the economy of the state. I

understand. And are there any percentages now that if it's 68 to 84, will it go to the investors or will the state get back in terms of because now if we move forward, we're putting in $231 billion I assume a lot of that will be private enterprise if your plan goes correct.

Again, that's why I think we're going to have problems. But how much will come back to the taxpayers from that amount?

Sure. I mean, the private sector financing is there are two ways to pay them back. One is purely availability payments. You pay them back over time. They get the concession, $40.50, 60 years concession, and they run the system.

We, as a state, define what the tariff should be, what the fare box, what the ticket should be, and then they do the ancillary revenue generations. Now there are two ways you pay them back.

Availability payment is they advance the cash, and you pay them back over time, which is pretty much like normal p three financing. The one that we are going after that we think is more valuable to the taxpayers is revenue risk.

So we want them to take the revenue risk in terms of when they commercialize the assets, when they generate the revenue The money have two places to go, back to the taxpayers or pay the loan.

Okay. Right? And so we are keeping both options open. I mean, we can put that back to the program through these private investors or pay them back. And if you pay them back, it's better because then you're not asking for more appropriations because they are paying themselves out of the payment plan.

So we have both options on the table at this point.

Well, I'll just conclude, and yield back to the Chair, but I'll end with, I really appreciate your your communication. I really appreciate your leadership and what you're trying to do.

You're running into a lot of what, a lot of California business run into, over regulated state that doesn't do global best practices. There's a reason why we have these cost overruns. There's a reason why it's exploded from 33 billion to whatever it is now, 281 and growing.

I think you're doing a lot of the right things that they should have been doing at the very beginning. I wish you luck. I don't think this will ever be built as proposed to people in California. I just I know I wouldn't put my money and invest in this, but I wish you luck.

And, you know, in this legislature is gonna have to waive a lot of things that they historically have been against on on Sequoia exemptions, on being able to take away local government money, tax money, from a lot of different, items.

I don't see giving you the authority over the energy companies. I see what you're trying to do and I see that's what you probably had to do in Japan and Europe. But I don't see this legislature going along with, some of this plan. But I do wish you luck.

And I really appreciate your communication and thanks for your time. And I really appreciate you answering my questions today. Thank you. Thank you.

I'm gonna go to, Senator Archuleta followed by, Senator Richardson. We'll come back to Senator Wiener. And if there's a time constraint, you know, any of you are able to let me know. Senator Archuleta leave? Temporarily?

Okay.

I'm about to talk to him.

I'm sorry. No. No. It's a public hearing. We're this is what we wanna have happen.

We're gonna move on to Senator Richardson, then Senator Weiner, and Senator Seyarto.

Hi. I had a question for you. I recall hearing something about the Federal Government potentially removing their match or some portion of what they were intending upon paying towards this project. Could you give us an update of I kind of saw that in passing, frankly.

So, if you could give us an update of are there any federal funds that we're hoping to utilize, now and going forward?

And what the status, are those funds still real? Or in fact, did the president, withdraw them? And, any other things that you could share with us regarding that?

Sure. Last year, yes, we were challenged with two major grants that were already committed, and the Federal Government withdrew from those, roughly summing up to about $4.2 billion.

And and so there was a case presented by the state, and there was a lawsuit, and then at some point, that didn't go anywhere so that was withdrawn. I think, Jamie, can we talk more about if there are federal grants still available for us?

So the grants that remain are for various discrete scopes of work within Merced to Bakersfield project segment. But as our CEO mentioned, the largest thing that happened after a significant effort to show how we've been moving and advancing the project, they still pulled $44.2 billion from the program.

Absolutely. It's a great question because we still have about 270,000,000 worth of grants that we have left. We've completed the match on our largest grant, which was the R grant that came back, a number of years back.

And do you see us being able to get that back or how are you backfilling that?

Well, there the idea is if history repeats itself, then potentially we could see funds restored for the authority like it was and the Trump one point o presidency and then the Biden presidency, but that remains to be seen.

I don't understand what you mean.

Well, in the first Trump administration, a billion dollars was taken from the authority. And after that four year stint in the Biden administration, that billion dollars was restored back to the authority.

So am I hearing you correctly that you're banking on if there's a new administration in a couple years that they would restore the 4 billion that was originally promised?

I'll say this, Senator, that today in the program, the way we have allocated funds and appropriated for the construction of Merced to because we are good without the 4.2 billion. However, we are going to continue to apply for federal grants.

This year, next year, every year when the grants open because I think it's the right thing to do is is to apply for those grants. California contributes to a large amount of federal dollars through taxes. So we will continue doing that.

However, in terms of impact to the program, it is always about you took $4 billion away, we will build less of a house just because we don't have the money to do everything that we wanted. And so at this point, Merced Bakersfield plus some we can do.

But if we had 4.1 billion available, we would have done more of our construction outside of the Valley. We just have to adjust.

Last question. What was the reason given for withdrawing the funds?

This is was in between the attorney general office and and the federal the AG's office. The reason that as we read in the news was all about that this program does not deserve the funding from Federal Government. That's how far I understood it.

Thank you. We'll move to Senator Wiener at this time.

Thank you, Mr. Chair, and thank you for the update today and for all your work to move forward this critically important project for the future of California.

You know, I think a lot of times it's really it's sad to me that the sort of PR propaganda campaign against this project has sort of sunk in to some extent. Although the recent polling shows the voters still support us. Right?

After everything, all the propaganda about quote unquote train to nowhere as if LA, San Francisco, San Jose and Fresno are nowhere.

And all the other pieces of propaganda against the project whether it's Elon Musk and Hyperloop, the Hyperloop scam, It's a complete scam, but they use that for years and just propaganda after propaganda after just I won't use any curse words. And the voters still get it.

And the voters understand that we do not have a true statewide rail system in California. No offense to Amtrak. Amtrak's great.

But when it takes twice as long to get from the Bay Area to LA via train as it does by car, that's not a true statewide rail system. And it is to me embarrassing and harmful that California does not have a true statewide rail system.

And so all of these debates about what exact speed is it, to me is beside the point. It's fast and it will create a true statewide rail system for California.

And every time anyone goes to Europe or Asia or any of the other parts of the world that spend way higher percentage of GDP on rail than The US does.

The US is so far behind in terms of percentage of GDP dedicated to rail behind countries, I think, like India, not only the wealthiest of the wealthy countries. We under invest in rail in this country and so we need this system and we need it yesterday.

And it really is sad to me that it's become in some ways a partisan issue and that Trump keeps targeting it.

It's this benefits everyone and it's good for economic development and quality of life in addition to climate action and reducing traffic and reducing pressure on our airports. So we need to get it done.

And I know we will get it done. And I know we will get it done. I want to just know and you you talked about the permitting issues. I actually, as you know, had a bill last year as the chair knows as well to deal with the permitting issue.

And when we look at high speed rail, in some ways, it is a poster child for how California sometimes cannot get out of its own way in terms of delivering projects that we many people majority of people agree we need.

We see it with housing all the time. We see it in a lot of clean energy that Texas and Florida produce more clean energy than California. And it's true with high speed rail.

And the fact that you could have a project, a a project that is approved, is being built, is not fully funded but has the funding to move forward. And then you have this project that's been approved and has has funding, and everyone and their brother has a veto over it.

Every city or town, no matter how big or small, every water district, every school district, every community college district, every utility district, every sewer district, every mosquito abatement district, every utility, every cable company, every telecom company,

if it touches the geography of any political jurisdiction, if if you need to move one minor wire from Comcast or PG and E, you can the whole thing can get shut down. You've had to demobilize contractors because of this.

Because there's a minor encroachment perimeter or Comcast needs to move a cable that could be done like in a day and no one's responding. And it's it's to me, it's horrifying that we would that's like government at its absolute worst and that's why our bill would have created at least a shock

clock to say they have a certain amount of time. And if they don't respond, then you can just move forward and do the work yourself.

And what happened, the Chair remembers this, it was like an absolute orgy of opposition. I mean, just this just descending of everyone really showing what the problem was.

The cities and the special districts and the telecom and cable companies and the utilities and PG&E. And PG&E, of course, has this way of sort of upending everything and never doing it again here. And and it was like everything it was missing the forest for the trees.

And that's why I really think that and so we ended up our bill got eaten alive. It just got chopped down, chopped down, chopped down. It's not a criticism of of anyone. It's just the way sometimes things work in this building and then ultimately died. And I really do believe that that this is a a governor issue.

The administration needs to put its full muscle behind permitting reform for high speed rail and for other regional transit systems. We shouldn't have these multi jurisdictional projects get held up like this. So we took a good run-in it last year, got torn apart.

I hope it can happen because it's important for this project and other projects. I also think that a P3, I think to me makes a lot of sense for this project and I hope that that can be explored and and happen.

And the last thing I want to say is for high speed relative to really be truly all that it can be, it needs to truly go to from Downtown LA to Downtown San Francisco. And that means the portal.

And that means what we used to call the downtown extension, extending for rail from for Caltrain and high speed rail all the way to the Transbay Transit Center, which has been built, is open, is wonderful, and it needs to train to come there.

And we are working very hard to make sure we have the funding for that. I know there had there was supposed to be there was a commitment of $550,000,000 from high speed rail to the portal project.

I think it's really important for that to happen. And I wanna encourage you and urge you in the strongest possible terms to to to have the authority recommit to that $550,000,000 for the portal. Thank you.

Thank you, sir.

And could you could you comment specifically? First of all, on permitting, before we comment on it before, and I know you can't speak for the administration, but I really think the administration, in my view, needs to lean into it. And secondly, about the portal and the funding. Yes.

I spoke with you last year about the permitting issue. Now I can tell you the numbers of what happens if this is not resolved. Right? And so with all the bottom up estimates that we did and the cost optimizations and realigning and rightsizing the project,

it's clear to me that if we don't solve these uncertainties in the schedule and cost, meaning we keep bringing contractors in and subjecting them to the same challenges, the results are not gonna be any different.

It's just madness that we keep doing it because here is what happens.

One year of delay in construction is seven to 9% of the overall cost, escalation inflation. I'm not even talking about commodities. I'm not talking about steel, copper, aluminum. None of that. That goes up 200, 300% in ten years.

This is seven to 9% straight by year inflation escalation combined on a project, call it for 200 billion or 150 billion. 79% is billions.

And so we just need to know and recognize that we present a business plan with a cost and a schedule and other, jurisdictional authorities that we need, they're all together. It only works if they're all solved.

So we know we can build this 2032, 33 schedule, but we also are asking we need these controls over the destiny of this project, number one. Number two, when we say LA to San Francisco, we can build it by 2038, 39, meaning in our lifetime, we can see it.

Well, that also requires these reforms that we have we have been asking. We asked it first time in 2024, then '25. And thank you, Senator. You did supported a lot on this permitting issue. It's not there.

Well, next year when we will sit with the new update, we will have seven to 9% added to the program because those constraints do remain in place. So we need to be clear eyed about it. We are telling our team, make sure everyone understands.

If these things don't move, then this thing cannot stay constant here. The cost and schedule are not constant. They are gonna move along with the constraints that are provided.

When we come down to the DTX project, and I visited with them several times. I don't know about the $550,000,000 commitment, not that I have discussed that.

However, my view on that is extending the service from Fort and King at Townsend and into the portal is critical. But for what we can do right now, when I visited that with the team there, I think there's a commercial opportunity for the entire thing right now.

And we can put it on our P3 tracker that that structure that is in place is really not being commercialized.

And through our p three investors who are coming on board, I would love to put this on our program tracker and put those p three investors who actually look at how they can commercialize the real estate we already have built around that. So I will get back to you on that.

I will think about that and and and get back to you in a few weeks' time.

And and that's great. And I think all options should be on the table, but but cash is king as they say. I don't think that's true in all aspects of life, but in this here it is.

And I do think we need financial commitment from the state of California to make sure that that critically important piece of the project happens.

Thank you, Senator. And we'll certainly have ongoing discussions on the permitting also about the weaponization of some of those delay tactics on an intentional basis. I don't think I'm not gonna speak for Senator Wiener.

I think that's, it's suspicious how how things happen sometimes. It may be intentional. It may be, negligent. It may be through misunderstandings about what high speed rail is, attempting to do in a particular geographic area.

But it's certainly something in and of itself that needs to be addressed because we should all be pulling in the same direction especially in the local government and special district arena. Senator Seyarto.

Thank you. So, you know, I appreciate the the progress that you guys have been making trying to regain your footing on this project. You know, and and my colleague was talking about propaganda against the project. The biggest propaganda against the project is the project itself.

I was around when we were talking about the high speed rail going from San Diego right through the town I live in.

We were all excited about it. And then up through Anaheim, then LA, and then up to San Francisco. That made sense. It made sense to people. They were very excited about that.

And when we were looking at that price tag of 11 billion but the whole project was supposed to be $30 billion. People were really excited about that. When they thought by 2020, they'd be, they'd be on this thing.

They were really excited about that. That didn't happen and it didn't happen. It wasn't even close.

And in fact, the project that we're presenting now, even described by some of some of the people that are on the board for oversight and stuff, they they say this this in no way resembles what taxpayers thought they were gonna pay for in the '20 and that's not on you guys.

You guys have been hired to try to figure try to salvage this thing. And in doing so, sometimes there are desperate efforts to find any kind of revenue streams to make up for what's probably going to be a lack of ridership in ridership paying for the maintenance.

Because that was the other thing promised to people was it would be able to maintain itself with the ridership. And and then it wouldn't be a public it wouldn't be the drain on public finances.

And and this particular element, it appears that we're that you've moved the station away from the cities themselves. The city centers, you've moved them outside of those city centers. And and why was that decision made? And and how is that going to affect ridership?

Because I know one reason I would never take, the Metrolink, especially in the early days, was because no matter where I went, I still had another five or 10 mile journey from where it would let me off. And so it was just more worth it for me to to drive myself.

So how does this how does this new plan address that issue? Because at the end of the day, this train is supposed to have riders. That's what the appeal is for everybody. Because I'm gonna ride on a train and get somewhere easier.

But right now, we've gone to this to this in an area that does is not conducive to maintaining that ridership.

Senator, just question on that. Are we referring to a station in Bay Area or in Southern California? No.

We're talking about the stations in Madera and maybe

specifically about Merced and Merced. Hagerfield movement. If I may jump in. I think the issue has been there's been and and and in fairness, your predecessor last time we had a hearing, Senator Seyarto was here 2024.

There was some discussion about, well we're not gonna have stations in a fake orchard.

We're gonna have them in the downtown area. You know, I'm paraphrasing. We were kinda left with that note. As I understand it from discussions with high school authority with yourself and and then looking at the per, that's up in the air still.

And so I was gonna ask a similar question, but I'd like you to just explain, are there contracts or were those stations locked in and now you're gonna break contracts and move them elsewhere?

Has it always been up in the air? I should they be in the urban area? Should they not be in the urban areas or cost differentials? I think that's what's I don't mean to paraphrase the senator's question.

That's yeah. It's fine.

I think it's part and parcel of the same question.

Sure. I mean, none of those extensions are under contract by any means, so we have nothing there. What we have right now is in the Merced area. We are actually discussing with the city and the county, both of those entities. They do have their development plans.

That we have reviewed with them towards the Southeast Percent. And our view is, it's not about getting into the downtown. I mean, if you look at the European models or even the Japanese, they're always on the outskirts. High speed systems always come closer.

And then because they are massive structures and people generally avoid to bring them into the old downtown. So our discussions has been ongoing.

We have not contracted anything. It's still open. So we don't know where it will end up in terms of conversations in Merced. In terms of Bakersfield, it's pretty much the same. These are discussions.

There is no contract in place. There is nothing that we have decided. In order for us to put a business plan together, we had to make some assumptions, and those assumptions are the one that you see that are there.

If during the discussions with the city of Merced and County Of Merced or the current county, Bakersfield, we end up somewhere that makes sense to the city and county in both sides, that will become the final destination or the station in agreements with the locals, local cities and counties.

So we are not there. We have not contracted anything on those locations.

Okay. Because our report makes it seem like there was going to be they had moved the the stations outside of.

We did make an assumption there and it could evolve as we go in our conversations with both the city and county.

The risks of increment tax increment financing were of great concern to the legislature in 2012, then they stripped cities of the ability to do just that for redevelopment agencies.

And so do you feel like there is any risk to doing tax increment financing for areas that have well, basically nothing right now. So any incremental financing means that the the property tax added is all part of a financing which takes away from, you know, guess who?

The school districts and everybody else who usually benefits from that property tax. Do you are you are you anticipating that there's gonna be a little bit of a fight about that?

We started the discussion. There will be definitely a discussion. This is not unusual. I mean, you know, as you know, the rest of the country does it every day, all day, and they've been you know, we have been doing it for over a hundred years.

So value capture, because of the investment done in high speed rail at a state level by the taxpayers to get into those localities where there will be significant economic activity within the high speed rail, real estate that we have and around high speed rail system.

All what we proposed in the plan is to have sharing of the value so we can pay back the program of what we invested to build more. That's a very common practice. Now discussion started.

Of course, we we sat down with a couple of cities and counties, and the dialogue just started, like, last week, two weeks ago, where we are proposing some details around what that could look like. We have not reached any agreement with any of the entities.

We are not also saying anything that comes out of High Speed Rail owned properties, which is state owned, and what goes around the development within a radius of certain that we want all the value back to the state. We're not saying

half a mile, isn't it?

That's what we were proposing, and we are like, have some of it shared back so that we can build more. Right. And then the rest stays with the local jurisdictions.

Because the the impact to local jurisdictions when sale when property taxes are distributed, if you've taken out the property taxes from something that is actually generating the need for more infrastructure in other parts of the community to be able to attach to that.

In other words, those connector routes from where the station winds up to being where it would be convenient for people. If there is a job center there, that's the draw.

If if there's a job center there, there's not a lot of tourism going on in in in those communities out there. Their big need is attaching where they live to job centers, and those job centers are generally San Francisco and LA.

So this portion would have to find a way to stay alive, And that way is gonna be us, legislature and the state. Trying to subsidize it. Now, that's the honest truth about how we're gonna keep this alive. While we try to do the actual hard parts of putting this system in.

This is just $34 billion and we're struggling with that.

How much of the the 34 do we actually have on hand? And I thought it was like, we had the report was 24 billion is still out there.

Yeah. I mean yeah. Good question. Cash on hand is about 3 and a half billion dollars.

Okay.

And and we're we're including in because it says we have the money. But you're including in that we have the money, future money from GGRF funds.

What's the projection of what's coming.

With the with the billion dollars. And is that cap is that is that securitized on bonds? Or is it a combination? Or is it just the billion dollars that we hope the GGRF funds can give it every year?

Currently, it's just revenue that comes in. It's cash flow.

It's not bonded.

Okay. So that's kind of I mean, that's that's kinda risky. And and going forward, when you're looking at what will no doubt be a $200 billion project at the end, if we're able to do it, we're talking about the environment here in California.

Everything you are experiencing is what everyone else experiences in this state when they're trying to build something. And and yet the legislature responds to the little the just these little things.

And this isn't a little thing, but their things that they're interested in. In the meanwhile, the person trying to build bring a business in so that we would actually have some workers that would like to ride the train to go work at the business.

They can't even do it because they can't get through that process that you guys can't get through either. And so that's for the legislature, that's something that we have to change.

Because if we don't change that, this doesn't work for not only that, but your public private partnership, well, the private has to happen for that to happen.

And then it won't be private if we don't change how we do business as far as our permitting, our regulatory environment, our legal environment, our labor environment, all of those things have created a vacuum in California that does not allow businesses to come here and set up to kind of,

and be successful in a way that would support what we're trying to build for everybody. I would love to have a high speed rail train.

Four years ago when we were doing this, my comment was, unfortunately, California's environment is not very conducive to us getting one done and in the time frame or monetarily that gains the confidence of the public. So when you ask the public, you think high speed rail is awesome?

That's like, yes, we support having one. But if you ask, how about if it costs you this?

How about if it sucks all the money out of transportation dollars even if the feds decided to give bunch of money for transportation dollars and it all goes to this, but it doesn't go into the roads that they're stuck on out there in my area while we grow. And we have no we have no train coming our way.

All of those things come into people's minds. So it's not really a propaganda thing. It's not really a a a partisan thing.

It is normal people who thought they're gonna get something and didn't. And now they're super distrustful of it. And and so that's a big hill for you guys to climb. And, you know, I wish you luck while you're trying to climb it.

But I also if there is an inability to get the things done that you you're this is depending on, we need to know about it sooner than later because we need to stop throwing good money after bad after this after this segment.

Because we have lots of projects that we could put people to work doing. Lots of projects. Infrastructure projects galore. We could put everybody everybody to work if we would do those things. So anyway, I don't think I asked any more questions in that.

If you had any more comments, you're welcome to to

I definitely would say is, like, you're right that, you know, we are looking at permitting issues, but we're also looking at CEQA, the exemptions on things that are renewable energy sites. That's we are talking about the green energy. And we are asking, exempt those sites. Why?

Simply because we do national level clearance, which is the NEPA process that got further streamlined so we can do very quick all the fair things that we are required by federal law to do.

And this is, for us, is redundant, number one. Number two is about air quality. We are talking about green energy. And so if we have a side that we have to put solar or or other systems to generate energy, exemption means two to three years of scheduled saving.

Two to three years scheduled saving also means a lot of costs that we just take out of the system. And we have put it in our proposals that this is one of the things that we would like to have your support on. So thank you, Senator. Yeah.

Great. Great discussion. We'll try to get to the next panel in a moment here. A couple of comments and and and then eight question, one question. We heard a lot of things.

I'll try to summarize that before this panel before this panel concludes. The first of all, I want to acknowledge the very first topic that came up, Senator Blakespears' comments about economic development.

This is certainly a public works project, a train project, like every other train that was built in California, but different in a sense that it's also the largest economic development project potentially in North America for sure, probably in the Western Hemisphere right now, and that has to get going in my opinion.

We had a bill last year, SB 545, that had the funding identified for the bill study that was held assembly appropriations. As as you know, that's without explanations.

We're not real clear why that happened. But whether it's the sequel to that bill, a new version, or or whatever, I just wanna say I appreciate others bringing this up because we have a 400 mile corridor, in the largest public investment in the history of the state of California. It's not an aqueduct.

It's something that people want to be around, stations and transportation. We should at some point continue to to check on the change orders and make sure that there is no waste, there's no fraud, all of those things that we get accused of right, wrong, or indifferent.

But we also have to talk about this as something more than just a public works project.

It's extremely striking to me listening to the conversation that I may be one of the few people and could be happenstance just where I ended up, where my upbringing was, could be I'm an older guy now, but I grew up in an area and was born in an area that looked almost

identical to the most rural parts of Merced, the most rural parts of Kern County without the oil wells and the most rural parts of Fresno, and it's now called Silicon Valley. And the road I lived on, the two lane road was called Rural Route 3. Rural Route 3, two lanes. Go see it today.

It was it was all built with public private partnership. It was all built with benefit assessment districts, exactions, that came from land owners who were speculating on residential and commercial development and ultimately built residential and commercial development to the tune of a million in population.

I'm talking about a community that was 85,000 people, the city of San Jose. It's 1,000,000 people. The county's 2,000,000 people. It now creates more GDP than any county in the world. It would rank twenty fourth as a community among nations in in GDP, one county.

And it looked like Merced not that long ago. So I agree that these aren't these tools that we have are not new tools necessarily or we might not even need new tools. The tax increment fight's always gonna go on.

I appreciate colleagues bringing that up. Not much of Silicon Valley was actually built, aside from the downtown area with tax increment. The rest of it was all voluntary agreements. There were Mello Roos districts, benefit assessment districts.

Those aren't and for the people in Merced, you know, I think they know that. I think their attorneys know that. But those aren't those aren't put out by the state of California as a burden on local governments. It's quite the opposite.

There are a half a dozen of those benefit assessment tools that allow local governments to engage local property owners who believe you, me, are gonna come in and start speculating around these station areas soon because they're seeing the public investment. They see the same thing that we saw on the video.

The speculation is gonna start and the opportunity for local governments to go to those property owners and say, you can enter into voluntary agreements.

Voluntary agreements, not mandates, not requirements, not exactions to to leverage the very development that we're going to entitle through local government entitlement processes, not through high speed rail, through local government entitlement processes to pay for curbs, gutters, streetlights, parks, community centers, libraries, and it goes on. It goes on.

And to the extent that those general plans are approaching the high speed rail corridor, and they are, because I've checked with Bakersfield and Fresno. I've talked to the mayor of Merced.

I've talked to county supervisor Merced. Those general plans are already designed to to head towards the anticipated station sites.

And when that confluence happens, what ends up happening is a a beautiful thing in terms of California development process is the private developers and the local governments work together to put together the basic elements of infrastructure that are needed so that subdivisions have fire hydrants in them

so that there's fire stations located to the extent that Mello Roos districts allow transportation projects and transportation tributary projects to be paid for with those same kinds of devices. It needs to be explored.

So I think all of that is, but can be even more so headed, you know, in a very spectacular direction. But we have we have a lot to do. Going back to rural Route 3, it was a road, San Felipe Road. I said it's four lanes now.

You can go through 64 miles of expressway system, highway systems, interchange systems, BART to the South Bay, the Barriasa BART Station, which is the the most recent station on the BART line, is surrounded by Korea's EIFD opportunities,

and the builders are coming in 4,000, 5,000 units at a time, commercial development. We see what's happened.

We saw what happened around Oracle Arena in in San Francisco, which was frankly a dump. It looked like a wrecking yard there before that public private investment, essentially a public private investment that created that stadium. We'd walk through there.

You'd never think that was a a place in need of of any kind of investment subsidy today. This is the potential that we have all the way along, the rail system, and I have faith that we'll get there.

But I do believe that everything folks have said here about transparency, about locking down these station locations and making sure we're engendering trust with people about, obviously, this horrible, problem of permitting obstacles. All of that is gonna need to be done.

And we're gonna need to have the trust of local governments, not just in the Central Valley, but imagine the trust that's gonna need to be engendered, on the Peninsula at some point to get from San Jose to San Francisco where it's already developed.

And now we're dealing with infill development in a 101 local governments just in the Bay Area alone. It's a tremendous amount of work, and I don't know how much staff time it's gonna take to to meet with these folks.

I know if anything that the legislature needs to do other than try to provide help in financing that kind of work, those kind of studies that and those kind of convenes that bring people together to determine what it is that the local governments expect to get out of this and

what it is that the local and not so local private developers expect to get out of this at the end of the day.

And so far Vice Chair's right. I mean, so far, he's right that what was promised hasn't been delivered and, you know, that can't continue.

That's what's gonna drive ultimately the cost that we capture, but but it's gonna end up paying for the bulk of high speed rail well beyond well beyond what we see with GGRF or not.

But nobody ever asked about Rural Route 3 when I was 15 years old or when I was 20 years old or was I 25 years old or 30 years old before the road was widened?

Nobody ever asked, is it gonna cost as much to widen it to six lanes? First to four lanes as we predicted in 1956, in 1960. No one ever asked that question. People said, keep investing. Keep widening the road.

Keep building the infrastructure. Add another fire station. Nobody asked, should that be done at a 1960 or '65 or 1970 general plan cost. What what was what was called for in 1970 will never be built at the same cost in 2026, and and and that area is still building out to this day.

And and nobody's questioning the inflationary cost of of the public works investment.

So I think we have to be real about that. We're we're creating jobs. It's public investment. So long as there's not fraud, so long as there's not mismanagement, what we're ending up with is what we're paying for. That's the bottom line.

The question I had was this, and then if there's nothing else, we can move to the next panel and try to get out of here before it's way too late.

And we're ending up with a lot of infrastructure that we're aware of and a lot of jobs being created. So I for one, am fine with that, but we need to figure out the rest of it real quick, the P3 and the rest of the economic development.

The question is the inspector general talked about statutory requirements that weren't met in this per. And what we're really here today for is to accept the per from you and and to ask our questions about it.

And to me, that's really that's really the ultimate question that's left hanging with the per. I think you've walked through and answered many of our questions, at least as best you can for now, but we haven't heard from you on the compliance issue.

And before we bring that panel in, which includes COYG, and and rather than necessarily keep you here all night, I hope you can stay longer. I wanted to make sure we we give you an opportunity to to say, is that a problem? If so, how are you gonna remedy it?

If it's not a problem, if you wanna rebut that, you're welcome to do that. But whatever your position is on the statutory noncompliance of the per I think that's critical for us to hear. Otherwise, the hearing's a sham, really. We're we're here to hear about that, really Sure. At the end of the day.

Yes. Thank you, Senator. And we did receive the the report. We appreciate the OIG pointing out some of the things we put in the draft business plan. And and I think my view is that those will be addressed when the business plan is finalized and final version is issued.

The questions around infrastructure, how we build and how we sequence construction, one other thing is that, oh, well, is the station in this location or the other?

That's ongoing discussion with the cities and towns, and we may not have an answer to that until that is agreed upon with the jurisdictions that we are dealing with. So I think that will continue to evolve as we move forward for the locations.

But other items that OIG has identified, those will be addressed. Those will be addressed in our final report.

Maybe we can conclude this this way, and and hopefully, I can get an affirmative question answer from you. Transparency was brought up here in a big way and also a lot of gratitude.

Evidently, you've been making sure to to speak to members of the committee on a one on one basis and answer questions. The compliance issue is really the purview of this committee, not necessarily the full legislature or anybody else.

Would you commit to resolving that issue, the issue of of per compliance? I heard you say you're committing to it. But then coming back to each member of this committee, we can certainly help with the distribution of any response.

But what I'd like to see is the same thing we would ask for if there was an independent audit, for example, by an outside audit firm, reconcile the audit comments and and come back to us and specifically say in writing whether you're moving toward compliance,

whether you have now complied since the hearing, or whether you, you know, take issue with, you know, with the assert the assertions that have been made. I think that we all need to to get that from you.

If we're not gonna get it in written form today, it doesn't look like we are or, you know, or an absolute testimony. If it's something you're still working on, we can't wait till next year to get the answers. Yep. I'm saying it.

Yeah. My commitment on that, we will address all those issues.

And your expectation for when you can get that resolved? It sounds like a few days, but give me a realistic time frame.

No. I think I think we are getting all the public comments as we go now, and I think, you know, what is the schedule on closing the public comments?

Yeah. We have several more days for public comment, but our commitment is to address all the OIG's findings in the final business plan.

Yeah. And understanding that your board's taking up the business plan this week, again, it would be important for us not just to to hear their acceptance of the plan, but also to specifically hear, not to be redundant, but to hear your final response on the noncompliance issue.

Absolutely. Yes. And the final business plan will incorporate all of the OIG comments.

Alright. I accept that time line. Is any objection from members of the committee on that? Alright. Thank you. Alright. Well, appreciate you taking up these questions and and responding to them. At least from my part, I didn't feel like anything was glossed over.

He gave us the best answers that you seem to have at this point in time about everything from station locations to communications that are going on with local governments. So we look forward to the next report, but hopefully, we'll hear a lot more from you between then and now.

Absolutely. Thank you.

Thank you. Thank you. Next panel, please.

Office of Inspector General and the Legislative Analyst Office.

Helen Kerstein in the Legislative Analyst Office and ROIG, Benjamin Belnap, high speed rail Inspector General. Thank you for being here. Mister Reinerdy, also from the office of Inspector General. Good to have you here.

Please proceed

Thank you.

Whatever order you wish. Thank you.

Perfect. Thank you so much. Helen Kerstin with the Legislative Analyst Office. Thank you for inviting me to participate in this evening's hearing. I know we've already had a very robust discussion, which I really appreciate.

I'll try to I have a lot of content. I'll try to move pretty quickly because I know the hour is late. But I think this is really an important project. There are billions of dollars at stake, so I wanna make sure we also give it the time it deserves.

So I have a handout which the surgeons, I think, should have passed out to you. It's also available on our website and on the committee's website, and so I'll try to go through that handout briefly with you.

If you turn to page one on the background, I'm not gonna go through all of this. I just wanna point out a couple things, because I'm gonna come back to them, about recent legislation.

So SB 198, you all are probably pretty familiar with that legislation, but that the legislature really told the authority focus on Versailles to Bakersfield, and actually specifically defined that segment.

So in the legislation, it's defined as an electrified dual track segment between Bakersfield and a downtown station in Merced that also serves the Goldrunner and the Ultima Corridor Express.

So that was actually in the legislation. That legislation also required some additional components of business plans. I think we'll hear about that later as well.

And then last year, actually, the legislature added even yet some additional requirements and so those were added as part of AB 377. If you turn to page two, I wanted to focus on a few of the major features of the business plan.

There's a lot in there. The first one, and I know there's been a lot of discussion about this, so I wanted to provide hopefully a little bit of clarity about, what the scope is for this initial operating segment.

So the plan never never specifically mentions that the station locations are being changed. That's in a technical appendix, a separate technical document. The plan itself doesn't mention that.

However, the cost estimates assume that. In fact, there are billions of dollars of savings that are included because there's an assumption that we're gonna cut off nine miles, and we're not gonna go to the outskirts of Merced, to the outskirts of Bakersfield.

So it's a really critical assumption, because it affects the cost estimates and and other things so much. So I wanted to highlight that that Merced station location is not consistent with the SB 198 requirement. It is not downtown.

It does not connect to those existing services. Also, the business plan assumes most as we heard, most of the, that segment is single track. It also seems pretty basic stations that we we heard about the just in time, but we're talking pretty basic stations.

So the ability would need to be additional infrastructure to do that kind of big development.

The second point I wanted to bring up is that there also assumed significant reductions in scope for phase one, and a lot of that is related to additional blending of the system.

So we'd have more of the system share existing tracks, for example, with Metrolink. And that does have some time implications, so we likely would not be able to according to the authority, actually,

we would no longer be able to meet the requirements under Prop one a for the travel times. If you turn to page three, we highlight that the plan assumes the approval of a variety of statutory changes.

We've discussed that at length, so I'm not gonna go through all of them, but just wanted to highlight that. Also, we identify that the plan does provide updates to the funding and the costs of the plan, and I think most of it was covered, already, so I'm not gonna go over that in too much depth.

And then on page four, we highlight again that, there is this mismatch in timing. So we have green greenhouse gas reduction fund revenues that are anticipated to come in through 2045. The project needs them sooner.

So there is this need to borrow, and there is discussion of a P3 as one potential approach. And then, again, there's a timeline that's provided, and I think we heard about that from the authority.

Again, that timeline is really assuming all the statutory changes that were discussed are implemented and also that there are no funding constraints.

So I think those are important aspects. If you turn to page five, we highlight some issues that we think are important for the legislature to consider in reviewing this plan.

The first is, and I think, the OIG will discuss this at greater length, so I'm not gonna spend much time on it, but the draft plan, appears not to meet many of the statutory requirements, and I think that's the OIG's analysis,

including not meeting any of the requirements in last year's legislation, AB 377. And so that makes it harder for the legislature to make decisions around the project.

The second point I wanted to bring up is that the in our view, the draft plan's approach lacks transparency.

And that's because, again, they're assuming that they're changing station locations, including changing the Merced location to a location that's not consistent with state law.

That is never clearly identified in their plan. So you could read the entire business plan, and you would not come away with that view.

And we think that's a very substantive change to the program and the plan, and it should be called out, so that folks really understand what's happening.

It's not just kind of optimization in terms of a little efficiency. This is really a scope change in our view. It also makes it really hard to compare costs. Right? It looks like, oh, costs are pretty much the same, but it's a really a different scope.

So it's less meaningful to compare the two. If you turn to page six, this I think is one of the most important, points I want to make sure to get across, which is that unilaterally assuming a different location from Merced,

we think doesn't really recognize the legislature's prerogative to set that scope. So the legislature identified the scope in law. It's perfectly reasonable to revisit that approach.

It in fact, we may need to downsize because, as I'll get to, there's not a lot of funding for this project relative to the needs.

However, simply assuming that law is gonna change in a different location than is actually identified in law kind of assumes legislative action, and kind of takes away that authority.

Whereas I think it would be more appropriate perhaps for the legislature for the authority to come forward and propose a change if that's what they're interested in doing. The next point I wanted to highlight is this is kind of along the same theme.

The draft plan assumes a lot of changes to state law, and those are embedded in those cost estimates. So, again, you know, I think that's an issue.

We think it's premature to assume those, given, as we heard, some of them have some controversies. Some of them have been things that, the legislatures maybe had some challenges passing or, you know, concerns have been raised. They're not simple.

We're talking about CEQA, we're talking about local land use authority, we're talking about lots of things that are difficult questions. If you turn to page seven, we highlight that we think there's significant risk that funding won't be sufficient even for that shorter segment.

So it looks on paper like there's enough money, and the authority indicates they believe there's sufficient funding. However, there's no borrowing costs assumed, and that could be billions of dollars.

So right there, that could potentially push the project over into not having sufficient funding. We also think there's a lot of risk. Again, this assumes all that statutory changes are made.

We don't know if that's gonna happen. They're assuming project savings materialize, including changes to agreements that they have with local governments that may not happen.

They're assuming they're going to stay on budget, and we know that hasn't always happened. So we think there's quite a bit of risk here, so it's just unclear to us whether that smaller segment is achievable within the existing funding.

And then that kinda brings us to the next point, which is that larger percent to Bakersfield segment.

And looking at the numbers, we don't think, it's likely that there's sufficient funding to do that currently. So again, we might have to value engineer it.

The legislature doesn't want to provide additional funding, because that is likely to be within outside of the existing budget. And then there's a very large funding gap for anything beyond.

And I know there's a lot of hope that a P3 is going to come and solve it, and it might be part of the solution.

But even the initial responses that the authority got indicated that ancillary revenues at this point, they said, are not considered credit worthy sources of funds to raise financing at this stage. That's a direct quote from their summary of the responses.

So I think we're at this point where it's unclear how much that's gonna be able to contribute to the capital costs, from Merced to Bakersfield.

If we turn to the next page, page eight, we talk a little bit about borrowing and the challenges with borrowing, and I want to highlight, the Greenhouse Gas Reduction Fund and some of the challenges that are really unique to that funding source.

So one of them is that the amount of funding that that revenue source brings in are really dependent on the program structure.

And the California Air Resources Board, for example, right now is undertaking a rulemaking that could potentially significantly reduce the amount of funding that comes into DGRF, potentially threatening whether the authority gets a billion dollars a year.

So I think there's a not, it would not be, unsurprising if even in the next few years, there is insufficient funding to provide everything in that tier, tier two, to fully fund that.

So that it's hard to borrow against a funding source where you just don't know if you're gonna have that funding materialize. And then also there's just inherent volatility. You can have undersubscribed options, for example.

So we think there would probably need to be changes to facilitate borrowing. To date, we haven't seen a plan from the authority about what they're specifically proposing or exactly when they would need it, but it looks like probably '27, '28, so coming up.

And then P3, again, they could be part of the solution, but for a bar from a borrowing perspective, if it's just gonna be availability payments, that can sometimes be a pretty expensive way to borrow.

So I think we're gonna have to think about the trade offs there. And then finally on page nine, we talk about the the statutory changes really presenting difficult trade offs.

So, again, some of them might make a lot of sense, but some of them might also have downsides, and those are gonna be things the legislature's gonna wanna really have time to weigh. So the key questions facing the legislature, I start on page 10.

Really, all of those flow through. I'm not gonna I'm gonna go very quickly. One is the lack of compliance. Again, we heard that commitment, so that's great. The second one is whether the what scope the legislature wants to commit to funding.

This is an issue we've brought forward to the legislature for a number of years, and it's a critical question. What do you wanna make sure you fund? Because some of the scope might require significant additional state funding.

And if that's the case, where is that funding gonna come from? The next point on page 11 is about the legislature's comfort with the authority's borrowing approach and P3 approach, and whether the legislature has sufficient information necessary to allow it to understand those,

those plans. And then finally, related to the statutory changes, again, does the legislature have the information it needs to make sure it's comfortable with whatever is being proposed? So those are my comments. Thank you for your indulgence at this late hour.

Happy to take questions at the appropriate time.

Thank you. We'll get back to you on the questions. So, Mr. Belnap.

Good evening, Mr. Chair, members of the committee. My name is Ben Belnap. I'm the inspector general for high speed rail. I have Mark Reinardy with me, my chief deputy, here to answer questions. One of my Office's responsibilities is to review the Authority's annual reports.

State law sets forth a series of required elements for business plans, including a requirement that the Authority's cost estimates be prepared in such a way that stakeholders can compare current estimates with cost estimates from previous years.

My office has reviewed the draft business plan and has found that it falls short of complying with statutory requirements that allow the legislature to to have a clear view of project conditions and to be able to hold project officials accountable for those conditions.

Staff has provided you with a series of tables that summarizes my office's assessment of the completeness of the draft business plan.

As indicated in table one of that handout, the authority's draft business plan includes most of the original requirements established in state law.

However, as indicated in tables two and three, the draft business plan does not comply with newer, more specific requirements established by SB198 and AB377.

I will First, unauthorized changes in the statutorily defined scope of the Merced to Bakersfield segment. Second, the inadequate funding plan. And third, the absence of a project of projected dates for significant procurement related milestones.

In its draft business plan, the authority provided the legislature with a cost estimate schedule for a shorter, largely single track system that does not have a station in Downtown Merced and has no connection to the Altamont Corridor Express, which does not comply, with state law.

As a result, the legislature has no ability to compare the cost estimates in the draft business plan to previous year's reports, which then limits the legislature's ability to question why.

Scope reductions aside, costs for the Merced to Bakersfield segment have actually increased by hundreds of millions. According to the authority's draft business plan, these projects scope reductions often lumped under the term optimizations have contributed to a one year

delay in the baseline schedule for the Merced to Bakersfield segment. So not only is California getting less trained under these scope reductions, the redesigns and delays in procurements associated with

these optimizations have pushed out the project delivery date at least one year.

These facts are obscured by the presentation of the draft business plan and the legislature is thereby limited in its ability to interrogate why costs have risen and schedules have slipped and what can be done about these problems.

The second concern I will discuss is the lack of an adequate funding plan. SP 198 requires that the authority prepare a funding plan for the Merced to Bakersfield segment.