Senate Budget and Fiscal Review Subcommittee No. 5 on Corrections, Public Safety, Judiciary, Labor and Transportation

Appropriately. So we're gonna go through this one more time. So give me one moment. Okay. The Senate Budget Subcommittee Number 5 on Corrections, Public Safety, Judiciary, Labor, and Transportation will begin in ten seconds.

The Senate Budget Subcommittee Number 5 on Corrections, Public Safety, Judiciary, Labor, and Transportation will now come to order. Good morning, everyone. We are holding our committee hearing here in the capitol, and I'm very thankful that all of our Members are present here in Room 112, so we can establish a quorum and begin our hearing.

Today's hearing will cover the High Speed Rail Authority, and we'll take public comment at the end after all items. Before we begin though, let's establish our quorum. Consultant, could you please call the roll?

[Roll Call]

The consultant notes that a quorum has been established. Let's start with issue number one, which is our project update on the high speed rail. We have here with us representatives from the high speed rail, Mr. Ian Choudri. Choudri? Close enough.

From the High Speed Rail Authority. We also have with us from the LAO, Helen Kerstein, and then we have with the Department of Finance, Neel Kishun and Matthew Macedo. Please begin, sir.

Good morning, Chair Richardson and Members of the Committee. I'm Ian Choudri, CEO of California High Speed Rail Authority. Thank you for the opportunity to present the High Speed Rail Authority's draft business plan for year 2026.

As you can see from the handouts we provided, work in the Central Valley continued to progress. We have completed 59 of 92 major structures and 80 of the 119 miles which was under construction is now complete. That's considered to be the guideway so we can start laying tracks towards the end of this year.

Utility relocations are now 93% complete, and the 100% of the parcels have been delivered to our contractors who are working on this 119 mile. We have also reached a critical point, which was very important for us to launch this year, is the track, laying tracks and electrifying the system so that we can proceed to complete the project by 2033 for the 171 mile we have in Merced to Bakersfield.

The procurement that will be awarded soon is going to be towards June 1. I want to take a moment to thank what happened last year, thank the governor and the legislature for securing last year's extension of Cap and Invest program.

Though it funds our current Central Valley section, we have to continue to look for more funding opportunities beyond what we have on the Central Valley. The state's commitment of $1 billion annually through 2045 does provide a critical and stable funding foundation for the program, which was never the case since the beginning of this program.

It positions the state to continue advancing the project despite ongoing uncertainty and challenges with the federal government. However, we acknowledge the fiscal constraints that have challenged this project throughout its history.

That is why we are maximizing available resources, financial resources, through a more dedicated approach to delivery, including design optimizations that generate significant cost savings, improved procurement and delivery strategies to increase efficiency and reduce risk, sequencing of the project appropriately and building the infrastructure needed when it's needed to match the current systems demand.

The approach has resulted right now, as you see in our business plan, is over $14 billion in savings in the Central Valley alone and reducing capital cost to $35.6 billion dollars for the Merced to Bakersfield early operating segment.

More than $1 billion of additional savings since the 2025 supplemental project update report that we released. Now it is important to recognize the large scale infrastructure projects inherently involve trade offs, including the need to balance available resources with cost, schedule, and risk.

On our side as the High Speed Rail Authority, it is our commitment to clearly communicate how those decisions impact project delivery and provide policymakers with clear, actionable options to navigate these realities while maximizing project outcomes.

To that end, we are continuing to work with the administration to evaluate options that sustain the project's momentum and advance delivery. As we finalize the business plan, we will provide additional details on these efforts, including strategies to achieve our priority of completing the Merced to Bakersfield early operating segment by 2032-33.

While also positioning the project to support the broader high speed rail build out across our state, laying out viable options to get beyond the Central Valley into population centers on both ends, north and south, with San Francisco to Bakersfield, presenting the fastest growth, fastest path to revenue generation, producing $47.1 billion in net operating profit over forty years of period of time.

In the last fiscal year alone, the project generated 2.9 billion in economic output across California, supporting jobs, businesses, and local communities. High speed rail must succeed as a transportation system and should be dealt as a business.

That is why this business plan introduces the first true corridor wide ancillary revenue strategy for the project beyond the fare box of the ticket revenue. We are building a model that captures value from real estate development, energy generation, broadband, digital services and logistics opportunities, such as express cargo that could be used on our railroad tracks.

This matters because early commercial success changes what is possible. Our revenues generating system, like it has done in Europe and Japan, allows us to finance future expansion through tools like revenue backed bonding and private investment that reduces long term reliance on state appropriation and taxpayers' money. It also enables meaningful public private partnerships where private capital can be they can take some risk on, bring innovation, and accelerate the delivery.

And we have launched a procurement to bring in a private partner through co-development agreement in the coming months. We are hoping to have that partner on board before June 1, so that will be an update we will provide before our completion of the business plan, I think it's towards the end of the month, this month.

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 will link the Bay Area to Los Angeles through fastest growing Central Valley communities.

The plan before you sets out a clear sequence, complete the Merced to Bakersfield segment with an updated delivery target of 2032-33, expand the service to major population centers to achieve revenue positive operations connecting North and South, begin early commercialization of assets to generate the capital needed to continued build out. This plan identifies policy and implementation reforms necessary to streamline delivery and maintain schedule certainty going forward.

It's a long term investment. It is already generating economic activity. It is already reshaping infrastructure in the Central Valley. As we continue to advance towards a system that is financially sustainable and commercially viable, maintaining continuity in our funding streams become essential.

To support progress and keep construction and design work moving without interruption, we have submitted two budget change proposals for your consideration that includes the re-appropriation of the $423 million of Prop 1A funding associated with the Link Union Station project in LA and 246 million of federal trust fund money for our four projects that are funded by the CRISI and RAISE federal grants.

Reappropriating these funds is a necessary step in order to keep them from expiring by the end of this year. These funds are vital for upgrading key regional infrastructure, advancing the initial operating segment, and supporting safety and design improvements in these regions. Thank you for your consideration, Members. I look forward to your questions.

Thank you very much. Do you have any comments, Kerstein?

Helen Kerstein with the Legislative Analyst office. Good morning, Chair and Senators. Really appreciate the opportunity to speak to you this morning. I'm gonna summarize briefly our review of the budget change proposals before you for the High Speed Rail Authority as well as just summarize some of the main budget issues that we see for this project.

I apologize because I know a couple of you are also on Senate Transportation, and I know I made some comments there. So there's some overlap, but I'll try to be a little bit more brief this morning. So first, with regard to the budget change proposals, we haven't identified any specific concerns about them. One issue we did raise, however, is just that we have some overall concerns with the draft business plan.

We understand the authority is working through some changes to that draft business plan, but the legislature could consider as part of its options if it does have share some of those concerns about the draft business plan withholding action until that draft business plan is finalized and has all of the information in a complete way.

On the broader budget issues, there are a few points I wanted to highlight for the committee. The first is that we think there's significant risk that funding will be insufficient to complete the initial operating segment that the authority is talking about.

And to be clear, that's a revised initial operating segment. So it's a segment that now would go from sort of the southern outskirts of Merced to the Northern outskirts of Bakersfield. So it's shortened versus the segment that we talked about the last time we were before the committee.

And it's also short, it's also less than what was envisioned in SB 198, which was legislation the legislature passed when it provided that last authority for Prop 1A dollars. So I would note that we think it's likely funding is likely insufficient for that segment for a couple reasons.

So the authority, I think, when they look at their numbers, they say, well, we have $39 million in estimated revenue. We have $36 billion of estimated costs. It looks like we are good. There are a couple challenges with that. One, those cost estimates don't include any borrowing costs, and we know the Greenhouse Gas Reduction Fund revenues are anticipated to come in through 2045.

Whereas the project's gonna need funding before then because it's hoping to be have this initial operating segment operational by 2033. So they'll likely need to be some kind of borrowing. There's likely to be some cost associated with that. We think when you include those costs, there may be a small funding gap that would emerge just right there.

Then we also note that we think some of the assumptions that are being made could be optimistic in terms of the cost and the revenues. So in terms on the cost side, for example, the authority assumes all of their proposed statutory changes are implemented basically immediately by the legislature. And there are some pretty significant statutory changes that they're talking about.

We haven't seen any specific language on them, but they are some there's some conceptual, changes that they have been sort of floating or proposing. And they're outlined really nicely on your agenda on page four. So you can see the types of changes that are being talked about.

There are things like CEQA exemptions for certain clean energy projects related to the project, streamline permitting, local sort of some local land use authority and tax increment kinds of issues, so a whole host of different types of changes, some of which have the potential to to raise real tradeoffs for the legislature.

So it's not clear whether the legislature will approve some or all or none of those. And so, you know, certainly to the extent the legislature doesn't approve those, there could be some cost and schedule implications. Second, we would note that the authority is assuming that all of the project savings that they've identified materialized and the project stays on budget. We know that there's a lot of uncertainty related to that.

Then fourth, I wanted to highlight the Greenhouse Gas Reduction Fund because I think there was a hope that this billion dollars a year would be kind of a certainty for the project. And there's I think growing uncertainty about that funding source and how reliable it will be in the future.

So I think one of the things to highlight for the committee is that the California Air Resources Board, which runs that program, is currently in the midst of a rule making process. And that rule making process, the current rules that they're considering for adoption at the end of this month would significantly reduce likely Greenhouse Gas Reduction Fund revenues.

So that could potentially result in the project in not an insufficient GGRF revenues to fully support that billion dollars for the project. It also could make it more difficult to borrow against that funding source because, of course, if you're wanting to lend money, you want to know you're going to get paid back.

And if there's uncertainty about whether that funding source is going to be there, that's going to make it harder to to make that case for investors. So we also just wanted to highlight that we, in our view, there's inadequate funding to go beyond that that revised Merced to Bakersfield sort of Southern Merced, Northern Bakersfield segment.

And there's likely a kind of probably a funding gap at least in the tens of billions of dollars to get outside the Central Valley. So at this point, there's no real clear path to get outside the Central Valley. So in terms of questions facing the legislature related to budget issues, we think the fundamental one is similar to ones we've raised in the past.

Really, what's the scope of this project that the legislature wants to commit to funding, particularly given the fact that probably to do even what the authority is talking about could require some additional funding even beyond what has already been provided by the legislature.

Also, whether you're comfortable with what's being discussed in terms of borrowing and a potentially a public private partnership, as part of that. Do you have the information you need and are you comfortable with that approach?

And then also the conceptual statutory changes. So those could, we don't know how those will be brought up. It could be through trailer bill. It could be through some kind of policy process, although again, we haven't seen those at least in the form that they've talked about yet.

So you'll want to make sure I think that you have the time to review those because they are potentially so significant and to really weigh the trade off there. Those are our comments. Happy to take questions at the appropriate time.

Thank you. Before we go to the Department of Finance, could you clarify what were the missing components in the draft business plan that you were concerned with?

Yeah. So there's a whole host of them, and I'll provide you with the written document following the hearing that the OIG actually identified. They did a nice, some nice tables. So they include things like there's supposed to be an identification of the funding gap for the Merced to Bakersfield segment as defined in SB 198.

So it has to be from this station in Downtown Merced that also connects with the Gold Runner to the Altamont Corridor Express down to Bakersfield. There's supposed to be a funding gap. There's supposed to be kind of a plan.

So the OIG has identified that, actually, none of the new requirements that were added as part of recent legislation that was passed last year. AB, I think it's 177, although I feel like there's so many numbers floating around. I might be getting that number wrong. None of those were implemented.

And there were a number of other statutory changes that were also or statutory requirements for the draft business plan that they also identified were not met. So those were, again, I can provide you with that documentation. Our review is consistent with what the OIG identified, but those are some examples of the types of information that the legislature has asked for and has wanted that that we're lacking in that review.

Thank you. Department of Finance.

Neel Kishun, Department of Finance. Nothing to add.

Okay. Alright, Members. Durazo was first last week, so we'll do you, Mr. Seyarto.

Thank you very much. Just I was at the Transportation hearing, so I'm pretty aware of most of the presentation. One of the questions I did have was this package of things that need to be done to be able to put together the $39 billion that would be required.

There are several elements of that. And some of them don't seem to be, they seem to be more at risk than others. My question is, do all of those have to come to fruition to create this package? Or if we only achieve a couple of the things, where do we get the rest of it to make up for it?

Because one of the big parts is this incremental financing for communities. When you get into incremental financing of property, even if it's around the station, you're talking about property tax increment, basically. And you're taking land that's almost $0 value when you begin because it's dirt and it's next to the track.

And you're potentially putting buildings that can boost sales, I mean, boost property taxes up, which and all of that represents incremental financing. But that's also the financing that school districts use and cities use and for services that are ancillary to where these stations might be or where the tracks are laid.

So that's a that's a piece that I would be skeptical that the legislature would wind up having the stomach to be able to put through, given its impact on the school districts and things like that. So how much of all of it needs to be accomplished in order to make this work?

Senator, we have multiple proposals on the legislative changes that we asked for. This is one of them that you just mentioned. For the Merced to Bakersfield operating segment, this is not a top priority for us to get it done for that section.

But we do need in the long term similar solution like every other high speed rail in the world, which is when you bring national level funding or the state level funding for our program, then you do invest in these areas, and then do you work with the local communities to come up with the incremental capture of the value? Long term, we need to solve that.

What we need in this package are the other requirements that were about the utilities relocation. Those, us having no jurisdictional powers over moving utility out of the way has impacted negatively to this program for a decade, and that is critical for us.

So when we propose this plan with this time frame and we say we will get it done in 2032-33, we do say also at the same time that all these other things need to be resolved as well. It because those things do coexist together. Schedule and cost certainty can only work if we resolve those other returns.

So some of the issues that you're talking about are more for the maintenance and operations part of it someday. If we can ever get through the process that every single entity that wants to build anything in California has to get through now, which includes trying utility locations and things like that.

If you've ever had a project in a city that needed to get done and gets delayed two or three years because of utility relocation issues. And all that does is add more costs. And so we're going to be chasing, chasing a higher amount of costs given that it's very difficult for us to penetrate.

Because if we haven't done it by now, I can't imagine how we're going to all of a sudden magically get everybody to cooperate and start moving lines and doing all these other things. So that's my concern is a lot of these are based on, boy, we sure hope we can do that. And at the end of the day, you know, and I've said this before, you know, we have huge confidence issues.

It's not, the public likes the idea of the high speed rail, but they don't have confidence that it's gonna ever get done in a manner that is respectful of their taxpayer dollars and respectful of how, yeah, long they're going to live. This concept started when I was in my thirties.

It was supposed to run through our town. We already had a station marked out where we're gonna have the high speed rail train. We were all very excited about that. So I'm closer to 70 than 30. And, in fact, I'm closer to 70 than 60.

And I would like to see it sometime in my life if it's going to happen, but it has to be done in a way that we can afford. And if we can't afford it, then we need to find some other things to do with those dollars because we are struggling with infrastructure. We can replace all the jobs.

It's just the infrastructure issue will will continue to drag on. And I we can employ every single person that works for high speed rail doing other things. But at some point, the public needs to have confidence in this, and right now, they just don't. And it's hard to be a real supporter of it when that's the case. Thank you.

Senator Durazo.

It's good to see you. Good to see all of you. Thank you for your work. This is about the Link US project piece of it. It's probably in here somewhere in these documents, but what is the total cost expected to be?

That's the this is the LA Metro project for, so I don't know what the...

Union Station.

Yeah. Yeah. Senator, Mark Tollefson, chief of staff at the authority. I believe that LA Metro is working on a revised cost estimate. We are funding a portion of that through the Prop 1A bonds that were going towards the bookend project.

So today, we are asking through this budget a re-appropriation of 423 million towards that project. But in terms of the overall cost, I'm not sure if, you know, Ms. Kerstein knows, but it is a LA Metro driven, driven project. So, you know, we are part of the funding package to complete that.

So it is a core hub, but it's the only bookend project not yet under construction. So if you could identify what the issues and if you could address the funding as you as you see it that would be needed for it.

Right. I mean, for bookend on the Northern California, we have the Caltrain electrification that is all done. This one, our portion or appropriations that we have for them has been since 2019 or 2020. This amount was appropriated for that. Their consideration for going into construction has evolved over time because of the LA Metro design concepts.

So we don't know yet, I don't have personally the information of what's the cost of that entire Link US program because we are not implementing. We are a funding partner with them. So we have Caltrain done, and this one is just funds committed, but construction has not started on this one.

Right. I'm just trying to think of what are what are the bottlenecks that we would be facing since, since it's a bookend.

And, Senator, we did have, you know, one major milestone for the project. I think you likely aware that we do have what's called NEPA assignment that allows the authority to step in for the federal government to move forward the NEPA process.

So that was something that did conclude towards the end of last year. So the environmental process is is complete, and now it's a matter of value engineering and getting that project into contract in which then our funding would be committed.

Okay. And in the governor's, budget, he proposes allowing high speed rail to draw from, as we're, as was in the report, from the GGRF allocation for state operation costs, which would apply to the same pool of funds for Southern California. So how much of the 1 billion GGRF allocation do you estimate will go to the operations versus capital, and how much would be available for this partnership activities in Los Angeles?

The current appropriation of 1 billion a year, 2045, is entirely for Central Valley section to complete. We are required to spend that amount in Central Valley, Merced to Bakersfield under SB 198. And with our budgets that we have forecasted, this amount that we have through 2045 will complete the Merced Bakersfield section.

So you're saying there would be no funds that remain available for pre-construction and partnership in Los Angeles?

So all the concepts that we have put in the plan, we have multiple options there. Like, this is when this got appropriated, we proposed options of $1 billion a year for X number of years. We said $2 billion, $2.5 billion all the way LA to San Francisco.

This was the option that was approved by the legislature and passed. So this was the baseline only. It was not about the LA to San Francisco investments because that was way bigger and for a number of many years. So this one only helps in getting Central Valley done.

But overall, the Merced to Bakersfield cost assumption that we do have, the cash that we have available, Ms. Kerstein referenced the 39 billion, all of that assumes that not only completion of the Valley, but completion of the bookend projects as well. So that would include the commitment of that 423 million for LA Union Station. So that is factored into our cost estimates.

Okay. On a different subject that we've also discussed is the kinds of jobs that would be created, could be created. The authority just really sort of describes and you've mentioned to me is the largest track and systems RFP in US history, maybe.

That is correct.

And so the question for me is, how will you require bidders or will you require bidders to disclose the number, location, the wages, the benefits, the jobs that the contract is going to create? LA Metro, as I mentioned to you, has used manufacturing standards resulting in hundreds of good manufacturing jobs.

And so I've raised this issue several times before with our previous leadership. And I got a very clear yes, but then it became not so clear. So I'd like to know from you, how will you make sure that we really are, not just the concept, but that we really are gonna make sure that these are good jobs, especially for the more local?

We do track all different types of job categories that we have today on the program. With track and system, it is bringing a very different high level skill set labor that we will need for that kind of work. This is electrification and high speed systems are all computers. And so this technology is very advanced in terms of what kind of workers we need to work on these programs.

Our contractors, whoever we select, are actually required to bring those skill sets. We are working with local universities and colleges also to explore options for training younger people into these technologies so they are actually staying in state of California instead of coming in, doing the project, and then leaving.

That what happens. Most of these projects, this is how the labor works. So we are trying to do this within the state in a manner that the worker skill set that gets developed stays in the state of California because we need them for operations and maintenance for long term. So that's for the jobs and category of jobs.

And also the contractors are required to provide all that information, and we'll be posting it every month on our website. The second part, manufacturing. That it's, so we are sourcing materials. We spoke about it last year that our new strategy was to go and take all the commoditized materials that we don't need the contractor's input or their engineering on. We can just go. Rail is a rail.

We can buy the rail from anywhere we want. We looked at options in the state of California. There are very few factories who can actually do any of the things that we want, so we had to go around the US, and we found factories who can produce the type of rail, type of concrete ties in different states just because of the timing that we need to get these things done.

When we reviewed steel factories in California, we were not able to find the one who can do the European standard UIC 60 rail that we need. Same is for the copper, aluminum, and other products that we need. We have to source it from where the factories are, and that's just the way our business will continue to go as long as we don't have any manufacturing facilities in the state.

Well, you know, we've been through this a number of times of how do you make sure that we're taking advantage of the tax dollars, as my colleague said. How do we get the most out of those tax dollars? And we're investing tens and billions of dollars.

And we need to be able to make sure that our communities in California get the most out of it, not just the end result, which is a beautiful, efficient, high speed rail. But the process of helping communities and helping people get trained and creating new jobs.

So we have the opportunity here not just for what exists, and we keep having this conversation and it's great because it has to result in something very reliable. We have to hold ourselves accountable for the best use of the tax dollars.

And one way of doing that because we that and one way of doing that and one reason that we've been supportive of the high speed rail is because of the jobs it's created. That's been a big issue. So why not make the most out of it? Not just the minimum, but make the most out of it. And I mentioned the LA Metro having the manufacturing policy.

We could become the hub for the nation. We could become the hub if we dream and think big. We could become the hub where other cities, counties, and states look for the very products that you talked about and make them here in California. So I really think that should be a part of a very explicit part of our campaign.

And we've raised this way early on, and I know, I believe that because of your support of the building trades that the construction work may be unionized and have great apprenticeship programs. But in addition to that, we should be thinking more explicitly and make that a part of this plan. We're looking at dates, as my colleague said...

I mean, this isn't just stuff that's gonna be done, you know, next year. I could see if it was, then we'd see how much more difficult it would be, but we could really open this up. We did in LA.

Two factories were were built as a result of the LA Metro policy. There's no reason why dozens of factories couldn't be, built as well. So, madam chair, I would really encourage that and everyone to make that explicit part of our of our planning. Thank you. Thank you very much.

Thank you, Senator Durazo. And, yes, I echo your comments. Before I get into my questions, I wanna make a note, to build on Senator Durazo. It's my understanding we've had more than, what, 600, building trades working on this project over the last period.

We have in terms of number of jobs we created, it's about 16,000 in total over a period of time. And then any given day is more than 600 that are on-site every day.

Yes. So first of all, I wanna commend the commitment of the workers who despite some of the confidence that's been expressed and the challenges that we've had, they've remained on the job and working and doing their utmost best to get us to land this plane, as I would say. So let me ask you a few financial questions because this is the budget subcommittee. You alluded to what the legislature originally approved. That was 1,000,000,000 per year for how many years?

Twenty years.

Twenty years. And that was supposed to end when?

2045 is when it expires as it stands currently.

So if the project was is supposed to be completed in 2032 and this is good for 2045, is that the money coming in just to pay their remaining expenses, or is this to pay ongoing construction costs that would be taking place after 2032?

We have to advance. So 2045, twenty billion is the total amount, billion a year, and we have to find a way to advance that cash to build the program by 2032, 'thirty three. Two ways to do it. One, that we can find some internal instrument that we can advance the cash through bonds and loans and there are many other ways to do it. Or second is private sector investors.

They look at it if they come in, but they need to know how the payback period is gonna be. So, the 20,000,000,000 and 2045, to build it in 2032 and '33, we need to find a way to advance the cash, and then we'll pay it back over time.

Okay. Yeah.

Alright. And so what happens how does this total financing and some of these questions I'm asking you for the record, so for the public who may not be familiar with this. So, okay, you're anticipating 20,000,000,000 from the state. What happened how in addition to that 20,000,000,000, you were expecting 4,000,000,000 from the Federal Government. So how does the loss of that $4,000,000,000 impact the potential of this project being done by 2032, or is that part of some of the delays that you're anticipating?

So when we originally looked at our previous report, we said that if we have the 4,000,000,000 from the Fed available and then 20,000,000,000 that we had through the legislature, from Capital Invest, we will have some surplus to go do beyond Merced Bakersfield. Now with the current situation, with no Federal dollars available, with our appropriations as they stand today, we can complete Merced to Bakersfield with the current funding mechanism.

Meaning the $4,000,000,000 missing does not really impact the Merced to Bakersfield in that same way because we were having that extra length. We could have gone to do more beyond that. The question that was the comment that was made here about station locations and what's happening in Merced and what's happening in Bakersfield, these are our ongoing discussions with the city and counties.

We are talking and discussing with their planning departments. They have their own plans for how they want to develop part of their sections of their city and incorporate into the new extensions of their town. And so we have not committed. When we made the business plan, we have to make an assumption of where potentially this location is going to be based on our ongoing discussions with the cities. That is what is reflected in the business plan.

Not final, the design is not final, the construction for Merced or Bakersfield not finalized yet. It will get updated the moment we have concurrence with the counties and cities. And that's just to reflect, we have to put something in the business plan, which is more around the realities of what the cities and counties are discussing with us versus what was back in SB198.

And so that's the reason for us to say, okay, if we go and do this, then the cost will be optimized further, and we can actually build it as fast as

we can.

So what happens and there has been concerns that have been brought forward to the committee and to the legislature in general about, the attempt to seek authority to take control over the tax increment, within the districts, of these cities and counties. What happens if you don't get that money?

So that's a long term proposition because we do want to find a mech many ways, many tools that we have proposed in our plan from broadband, from power generation, from real estate development. This is one of the four or five options. One of them is capturing value through tax increments or EFIDs. If we don't get those, we have to then look at what does it do to the payback period of time Right.

And that's

is really the yeah.

And, you know, just so we can stick to answering the questions clearly, Senator Sciardo just asked you a similar question to what I'm asking you. If in the event you do not get approval to do the Tax Increment Dollars from local government, how will that impact the project? Do you have other options that you'll be able to backfill that's not going to cost us additional time to complete the project on time of 2032? That's what I'm trying to understand.

Yes. So if you don't get any of these options, if you don't get one, for example, this one, then the financing and the funding goes longer, and then we have to find other ways to generate revenue. We will have a gap, and then that gap need to be recovered from some other way. So it will just take longer to get there.

It'll take longer to pay off the note, but but not necessarily longer to do the project. That's what I'm trying to understand from you.

Correct. Yeah. I would say, Senator, in terms of the $39,000,000,000 projection of cash that we'll have available to complete Merced to Bakersfield, That does not assume additional revenue from value capture. That is, as the CEO had mentioned, something longer term that will help us reinvest within communities, allow us to move forward, allow us to potentially pay back sooner. But as far as Merced to Bakersfield, the civil construction that needs to occur, it won't be impacted by value capture.

That's a longer term proposition.

Okay. And of the 20,000,000,000 that you're getting from the state, how much are you hoping to get from your private public partnership funds?

So they are not onboard yet. They will look at the program. So this is the funding commitment from the state. They will do the financing, meaning they can advance the cash. So if they were to put money in the program, they may choose to build other sections of the line.

For instance, if they are going to invest their own dollars on top of the 20,000,000,000, then they will look at how quick they can get paid back through the system itself.

So is your public private partnership looking to, finance to give you the cash to do the 20,000,000,000 from the state, or are you asking them for additional money?

We have not received it is under solicitation right now. But what I can tell you what we have heard from them, they can go and do two things. One, finance against the 20,000,000,000, and then they can add their own financing on top of the 20,000,000,000.

And how much is that?

This could vary. Depends on who the companies are because these are multiple

All due respect, sir. What I'm what I'm getting at, and if you're hearing following along the lines of the questions that I'm asking, if the state let's say the state is providing 20,000,000,000, and we're going to be paying it, you know, over the term of 2045. Now if you're going to add additional money to that, then that's gonna add the additional money that we're gonna need to pay. Right?

Two options there too. There are two ways these guys get money paid back. Availability payment, which is what you just mentioned, is that payback through the state funds. Then there is the revenue risk they take, which means they will build it and they will generate the revenue from the system itself and not looking for a state to pay back.

This is where I said earlier that they could choose, they build the Merced Bakersfield, but they choose another project, for instance, San Francisco to San Jose or Palmdale to LA.

They could pick that, finance it themselves, and generate the revenue from the system and pay themselves out. That's the second option that I was referring to when I said they could pay. They could bring more money above and beyond 20,000,000,000.

When are we gonna get the details of what you're talk you're talking about options, but this is a budget subcommittee. We do need to vote on this. So we do also have a constitutional authority to know what we're doing. So at what point do you anticipate having the details of these are no longer options we're talking about? What are you what are the amounts?

What are the terms? When is it gonna be paid back? Who's gonna pay it back? How are we gonna pay it back? When are we gonna get those details?

We are expecting to have these p three investors on board by June 1. And then they will take their time to develop their feasibility financial feasibility. That takes about six to eight months from there. So bringing them on board is June 1, and then they will need time to evaluate what financing they can do.

If I might too, just one thing to note. The authority, believes, I think, that it has relatively broad authority to do a p three without coming before the legislature with those specific, details. And so I think that's one of the key questions before you is what information do you wanna have? Do you wanna have guardrails?

Do you wanna have check ins or some kind of mechanism for ensuring that you're comfortable with whatever type of agreement is entered into, or are you comfortable, with sort of the delegation of that to the authority and having them kind of proceed, without that direction?

So I think that's a key question because they are currently in this process of of going through the solicitation, but there is a lot of uncertainty about how that will end up, you know, what will end up materializing out of that process.

So that's was getting to my next question is who has the actual authority to sign this note and to put the state on the line for whatever is being agreed to? What is the process? Or is there a process? You you just do that yourself or we have the option to, through legislation, say, hey. You know, the legislature has to do final review of whatever this agreement with the finance, company.

Currently, in the statute, we have the the authority to do p three partnership deals. It is in the law, and that's what we are exercising. So we bring back to our board all the information, full transparency there, and we publicly report out what is those contracts or p three arrangements that we are putting together. That's generally our routine. We have been doing it, right, from day one on this.

So this is not gonna be any different. We will provide all the information, in public manner. We post these things on our website.

Okay. So, could you get to the committee next week, information on what you understand to be your authority and how far that extends? And I'd like to respectfully request from the LAO and Department of Finance to also provide us what your understanding is of their authority and where can our potential authority be. I'm not objecting to the project. I'm not objecting to your options.

What I'm asking questions on is that we need to have a clear understanding of what we of the state, are committing ourselves to do. And because we do have limited resources, it's a little concerning to me that I have a outside agency, you know, that's gonna decide, hey. We're gonna put you on the hook for maybe not only 20,000,000,000, but could be 20,000,000,000 more, and we don't even know it.

We don't even know what our financial obligation is gonna be, and we we have to know that. Not disputing what we do, but we do need to at least have that information to know what our fiscal responsibility is.

Okay. So if you could at least provide us with, one, what you understand your authority to be, and I'm asking Department of Finance to and LAO to assist us with that as well.

And then two, it's my understanding what I'm hearing you say is that you would have this potential financial entity that you're working with starting June 1, and within about six months or so, you would think you would, at that point, which puts us at the end of the year, some sort of proposal that would have, okay. This is how we plan on financing. This is how much we need.

This is the time period that we're gonna need it, and this is how we're gonna pay it back. Right? Is that a correct

The six months, they will identify projects where they want to do the financing model. And then from there on, once we we, the authority, agree with them that this is the project that they want to build, then they will do the investment level modeling on that. That's again an exercise fully transparent because it's provided to our board. That will take another period of time. They are not on board yet, so I cannot tell you exactly how much time they will need for the second step.

But the first step is six months where they will identify the programs.

And so what if they were to say, hey. We don't wanna do Merced Baker Bakersfield. We wanna fund, you know, LA to San Francisco. How do you are they still required to still help with the funding mechanism for Merced to Bakersfield?

They that's not an option. Merced Bakersfield is what they have to start with.

And I'm looking for other options if they have outside of that.

Okay.

Okay. And, again, before you would sign a note to confirm, let's say they wanna put in money and do LA to San Francisco, at some point, would you be statutorily required to come to us and say, hey. They're willing to pay x amount of this, but the state is gonna need to chip in x amount.

If that happens, absolutely, yes. I mean, if they're asking for any well, we cannot commit any funds we don't have. So that's very any investor who would like to invest in the program would need to know what's the payback mechanism. If the payback mechanism is they will pay themselves back through the program, then maybe it's not the issue for the state at all because they are doing it themselves.

But, however, if they say, we need to stay at backstop beyond 20,000,000,000, of course, we have to come back and we have to ask.

If we don't have it, we cannot commit.

And, Senator, this is where I believe the next six months are gonna be extremely important to understand what type of project, what type of capital that an investor wants to bring to us. As the CEO mentioned, there are two different, you know, mechanisms, the availability payment model or revenue risk model. Each of those would require likely different commitments, you know, from the state as we move forward.

So a lot more to be determined there, but we do believe that, you know, a equity partner or private investor would be bringing the billions of additional capital to the project.

Okay. So speaking of that, and I wasn't here ten, twenty years ago when we first started doing the project, did the state anticipate we were gonna use revenue from this project to also pay the state back for some of the money that we've invested? Or did the state just think, hey. We're putting in 20,000,000,000 and not expecting any additional revenue once the line would open? Does anyone know what was the

I think the idea was always that the state was gonna have to front quite a bit of money to get the project built initially. I think originally when prop one a was adopted, there was an expectation that it was gonna be significantly less money than it's currently been. In fact, all the g g r f was not anticipated as a funding source when the project was originally, approved by the voters. It was originally gonna be like the bonds were gonna be, you know, a third.

The feds were gonna provide a third, I think, and then the private sector was gonna come in.

So a lot has changed over the course of the years. And, you know, a number of years ago, the project ended up having some funding challenges, and DGRF was provided by the state to help address those. And then, again, as you as you heard last year, there was an extension of cap and and invest, now we call it, through 2045, an additional funding provided. But, I think there was always an expectation that there the state would have to make an upfront investment.

I will note there was one other piece of prop one a I just wanna highlight, though, that that proposition required that the that the segment not require an operational subsidy.

And so I think there was always an idea that it should become self sustaining at least. Maybe it wouldn't pay back the state for the capital cost, but at least it would become self sustaining. And one of the challenges with the shorter segment is it's harder to make that self sustaining. So there are lots of real tensions. I don't know if that's helpful, but

It is because it gets to then again what this committee is about is what is ultimately gonna be the financial requirements on the state, not only to complete the building of the project, but then are we gonna need to be able to pay additional money for the, you know, continued operation of it.

And then the question is gonna become, which is what the questions I was asking you, is based upon whatever financing mechanism we come up with, are we gonna have to pay more for that as well? So I understand what you've said that you're bringing someone on in June.

I would just ask that you be very well prepared come January to give us a very clear understanding of where we are with these financial options that are being considered and how much money are you anticipating asking the state to do? So meaning continuing x amount of the original commitment of the 20,000,000,000.

Is there gonna be additional money we're gonna have to pay to assist with this note? And then what because this is going to be a line that may not, have the higher traffic that some other potential lines would have, is there gonna be a financial exposure of the state to keep that running in order to pay off these other, now, financial responsibilities that we're gonna have? I think we owe it to people to at least answer those basic questions, which is what this committee is about.

What are the financial implications to the state of this project?

Agreed.

Okay. Fair enough. Alright. And then, sir, the LAO mentioned that there were some missing components in your draft business plan. When and I'm am I safe to assume that you have a copy of what they've noted that the missing items are?

We do.

Okay. When do you think you'll have those items completed?

Our current plan is business plan will be completed by the end of this month, and so these all these comments will be incorporated

Towards the end.

Okay.

So would I be safe to assume that you'll be able to give to the committee by the end of the month the updated business plan that LAO is requesting?

That is the plan.

Okay. And back about the finances, you're aware that, the GGRF funds have not come in at the level that we anticipated, and there could be discussions of changing the amounts that come in, not necessarily maybe the total commitment, but I don't know if the full 1,000,000,000 would be on the table. So I anticipate that you're gonna be having those discussions with this finance entity, about the vulnerabilities that we're seeing with the GGRF funds.

For me, we are project execution. So if there are no funds or the funds are less than what we can build the Merced Bakersfield, that will be the evaluation we have to do after that is to see how much we can build. So right now, we are going in with the assumption that we can use the billion for 2045. If that changes, we'll reevaluate.

Okay. Perfect. Alright. Let's see. I think I had a couple other questions here.

We talked about the tax increment, which there has been much discussion that we've received of local government not being in support of that. Given the fact that they typically use those funds for schools and all other things that they also project, needing those resources. Actually, I think that completes, the questions. Give me one second to make sure. Is there anything else?

So yeah, the project budget schedule as presented in the 2026 draft business plan assumes that all the authorities legislative asks are passed and signed into law. Which of these proposals are currently, are you currently pursuing in the legislature, and what costs and schedule increases does the authority expect if their proposals are not successful? So that's getting back to the question, I asked you specifically about the tax increment, but you noted some other items as well. Have you

I believe there is only one or two of our proposals are in the works. We have, the big one for us is utilities to get them out of the way on time.

The what?

I'm sorry. Utility all the utilities that we deal with, we need to have jurisdictional power with a certain schedule. When we notify utility, we want to give a time frame for them to respond, and then we address their concern, another time frame. So we wanna put some schedule, certainty on that. And the reason I we are asking for that because the moment I came on this program, I've seen it, that the most of negative impacts on the programs were coming out of three or four things.

One was the right of way acquisition cases. The second was really the utilities being in the way, and then we couldn't get them out. So at this point, I've not seen anything moving on that side. There is a cost implication, a significant one. We cannot quantify yet because we are hoping that this is not gonna be the case that we continue having the utilities in our way.

So that's very important for us as top priority if we can get that through this year. We brought it up last year as well, Senator, and so I think Senator Weiner was kind of leading the charge in that, but that that did not go I think, did not got approved. I don't know the how the mechanism works, so I'm hoping that we can solve this one this year.

Okay. If you could provide us more details about what you're seeking with the authority specifically, and how those challenges may impact ultimately with the project and financing and so on. So we understand the timing and the need. Okay. With that, that concludes, I believe, all the member questions, that we have.

We're now gonna turn to the public. To ensure that everyone has a chance to be heard, please limit your comments to one minute. Thank you, and let's begin.

Thank you, madam chair. Keith Dunn on behalf of the State Building Construction Trades Council. I appreciate members' comments and having the authority here. A lot of uncertainty identified by the LAO. I wanna say that there is one thing for certain, and that is that there's one individual who's actually built high speed rail, and that's the CEO who's sitting here before you.

I hope that we have the foresight to listen to the request that he has. The legislature appropriates the budget that he has to work with, which is restrained by some of the policies that we have here in the state. So as the building trades continue to work to support those policy changes, we hope that the legislature will consider them too. It directly impacts the cost of this project.

He's worked closely with the state building construction trades, not only on the Central Valley project, but we're gonna be meeting with him down in Los Angeles in the near future, talking about opportunities there as well.

So I appreciate the time today. Appreciate the leadership of CEO Chaudhry and his team. And We look forward to continue to find ways to save money and build this project faster. Thank you.

Thank you.

You start that one.

Good morning, chair and members. Marcus Detwiler with the California Special Districts Association, CSDA. It's been mentioned a few times, today's committee proceeding, but I'd like to reaffirm that CSDA, as well as other local government association stakeholders, have expressed our profound concern with a number of the legislative proposals being articulated, advocated here by the authority.

Precisely, the tax increment financing proposal, that is something that we believe should not advance without requiring the express meaningful and freely given consent of all the affected taxing agencies, special districts, school districts, city and county, and otherwise. And we also continue to have concern with these conversations that relate to land use, utility relocation, betterments, etcetera.

So thank you for your consideration.

Thank you.

Thank you. Good morning. Mark Neuberger providing comments on behalf of the California State Association of Counties as well as the League of California Cities. Definitely wanna agree with all the comments provided by the California Special Districts Association. We have very serious concerns around the authority's proposal around the tax increment financing and land value capture mechanisms that they've proposed and outlined in their business plan and and had a previous discussions on.

Definitely appreciate the conversation this morning, the questions asked of the committee as well as the responses by the high speed rail authority providing us a lot more information we've heard in the past in this, but we still note concerns going on with the authorities' efforts in this area. Also wanna agree and align on the your concerns around utilities. Our the legislation kinda advanced last year.

Our understanding was the authority was having a lot of issues with investor owned utilities and other large scale utilities, not necessarily the utilities provided by counties. So definitely concerned about, potential legislation in that direction, but I wanna thank you all for your time and conversation today.

Thank you.

Hello. Pam O'Dell from Climate Action California. We continue to be in strong support of the project.

Thank you.

Robert Pearsall. I'm the California political director of US High Speed Rail. I would encourage the chair and the members to, consider the utility relocation issue, which is one thing that has really has bogged down this project for some time. We'll be happy to work with Senator Cortese and others. We'd be happy to talk with your staff and your office about some of those issues, some of the other, opportunities around the, the line as it gets built.

And we'd be happy to work with your office, to educate you guys and to talk a little bit more about what some of those issues are and how to get resolved. Thank you very much.

Thank you. Good morning, chair and members. Matt Kremens here on behalf of the California Nevada Conference of Operating Engineers. Wanted to be here today in strong support of the authority's budget request, and thank them for all their progress they've made in recent years and in strong support of the project. Thank you.

Thank you.

Good afternoon, madam chair and members. James, director of the California State Council of Laborers. We're represented by 80,000, workers throughout the state who build California's infrastructure. Just wanna, emphasize our strong support for the project, and we look forward to continue working with the authority and the legislature. Thank you.

Thank you.

Alright. Having heard from all members of the public, members, are there any additional questions or comments? Alright. Seeing none, thank you to all the individuals who participated in the public testimony today. If you were not able to testify today, please submit your comments or suggestions in writing to the budget and fiscal review committee or visit our website.

Your comments and suggestions are important to us, and we want to include your testimony in the official hearing records. Thank you, everyone. Excuse me. Excuse me. Thank you, everyone, for your participation.

We have concluded the agenda for today's hearing. The Senate budget subcommittee number five on corrections, public safety, judiciary, labor, and transportation is now adjourned. Thank you.