Reality Check

Reality Check

Vets the truthfulness of claims and measures the efficacy of public policy

Reality Check: Train to Somewhere...or Nowhere?

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    NEWSLETTERS

    In this edition of Reality Check, Sam Brock looks at the claim high-speed rail has been dealt a deadly blow by the courts. (Published Friday, Dec 13, 2013)

    True to the form of California’s sleek, zippy bullet trains, spectators of the ongoing high-speed rail debate may feel like they’re the ones being whipped around at 220 miles per hour.

    In 2008, voters signed off on Proposition 1A, a measure that set aside nearly $10 billion in taxpayer bonds for high-speed rail.

    Then in 2012, the legislature narrowly passed a measure authorizing the use of about half those bonds to kick start the mega project.

    So what’s the holdup?

    Several recent rulings by a Sacramento judge find the California High-Speed Rail Authority to be in violation of the law, casting doubt on whether the agency will ever be able to touch those taxpayer funds.

    Critics say the recent court developments essentially put high-speed rail on “life support.”

    But High-Speed Rail Authority CEO Jeff Morales says those accusations are untrue. He stresses the importance of focusing on just the facts of the court rulings.

    “The problems that were identified we can fix and we will fix,” Morales said in a recent interview with NBC Bay Area. “We’re in compliance with [Prop] 1A. We will be in compliance with 1A. We will be able to get the bonds. And we’re going to go through whatever processes we have to in order to access them- we’re looking at the options of how to do that now.”

    Here’s a breakdown of the legal hurdles now before the California High Speed Rail Authority, or CHSRA.

    Judge Michael Kenny made two rulings last month that impact high-speed rail.

    The first, a bond validation hearing, denied the agency’s request to essentially “consolidate all of the legal challenges to issuing the bonds up front,” Morales said.

    He described the bond validation ruling as about “process,” with the agency still needing to prove the need for those bonds through the proper channels.

    In his ruling, Judge Kenny ripped the agency’s Finance Committee for rubber stamping a request to issue $8 billion in taxpayer bonds without any persuasive evidence or rationale for the action.

    “The voters, in approving Proposition 1A, intended to empower the Finance Committee to serve as an independent decision-maker, protecting the interests of the taxpayers by acting as the ultimate ‘keeper of the checkbook,’” Kinney wrote. “Treating the Authority’s request, by itself, as sufficient evidence to…authorize issuance of the bonds tends to negate the Finance Committee’s independent decision-making role in the process.

    The Court cannot conclude that this is the result the voters intended.”

    Bottom line, the judge’s ruling means the CHSRA still has to demonstrate and meet the legal standards for issuing taxpayer bonds.

    Morales said the agency will be working with the Treasurer’s Office, the Attorney General’s Office and the administration to address the legal shortcomings.

    He declined to offer additional details.

    It’s the second ruling, however, that’s raising eyebrows and drawing the lion’s share of attention.

    In his findings regarding the “Tos” case, named after one of the plaintiffs on the suit, Judge Kenny dealt a potentially crippling blow to high-speed rail.

    Kenny said the Authority must show in court it can identify the funding for all 300 miles of the project’s initial operating segment, from Merced to the San Fernando Valley, at an estimated cost of $31 billion.

    Failure to do so would constitute a violation of Prop 1A.

    Currently, the agency has staked out $6 billion for the first 120 miles of that segment, well short of the requirement.

    “It required the Authority to identify sources of funds that were more than merely theoretically possible,” Kenny wrote, “but instead were expected to be actually available when needed.”

    One of the attorneys for the plaintiffs, Michael Brady, says the agency now finds itself boxed into a situation that’s nearly impossible to solve.

    “Where are they going to find $28 billion in new money?” Brady questioned. “The state doesn’t have it. The federal government has cut them off. No local government has ever said that they would give them a dime.”

    Brady also points out that the judge found a second violation, too. The Authority hasn’t completed all of the necessary environmental clearances for all 300 miles that the law requires.

    “It’s taken them four years to do 28 miles,” Brady observed. “How long will it take them to do 272 more? There’s a big issue about delay here.”

    Morales told NBC Bay Area that the agency has been working simultaneously on all 10 environmental segments of its high-speed map to gain the appropriate clearances.

    When asked about the interpretation that the law requires all 300 miles cleared before state taxpayer bonds can be unlocked, Morales disagreed.

    “What the judge said is whatever you say you’re building you have to have all these things in place,” he said. “So it’s a question of clearly identifying what we’re moving forward with, that that piece complies with the law and that we meet all the requirements.”

    Morales explained that if this all-or-nothing standard for funding and environmental clearances were applied to other major transportation projects in California’s history, those projects would never have been built.

    Nonetheless, the agency finds itself in quite the predicament. It is authorized to utilize the bonds by the state legislature, but cannot *sell the bonds or *use bond proceeds until the legal hurdles are cleared.

    Is that even possible?

    “I don’t see how they come up with a funding plan with that kind of money,” said State Senator Mark DeSaulnier, D-Walnut Creek, who serves as chairman of the Transportation and Housing Committee.

    DeSaulnier said he started out an advocate of high-speed rail in California, and still supports the concept but had to flip his vote when he saw that the CHSRA had no practical plan for funding the project.

    He was one of four Democrats to vote against the 2012 measure to authorize the bonds, a measure that squeezed by 21-16 in the Senate.

    “I’m at a loss for where they identify those funds,” DeSaulnier continued. “The governor, the administration, the High-Speed Rail Authority, they would have to come back- as I foresee it- to the legislature for additional appropriation, and I don’t see it.

    “I look at our budget and we’re doing much better, but we have a lot of needs,” DeSaulnier concluded.

    Morales said it’s important to point out all the areas where high-speed rail is moving ahead, in spite of the recent rulings.

    The judge denied the plaintiffs’ requests to stop the project, to invalidate the legislature’s approval of bonds and to invalidate the contracts already signed.

    CHSRA is moving ahead right now with $3.3 billion in federal funds that have already been secured.

    Morales reemphasized that the rest of the money will come, and the agency will be in compliance with the law.

    “There’s a broad range of people with whom we’ve had ongoing discussions at different levels of detail and different interests,” Morales said.

    Those possible investors range from “developers, operators and manufacturers” to foreign governments, he said. “We had a high-level meeting [this week] with representatives from Japan who are expressing interest in having Japanese participation in the program.”

    The proof will be in the pudding.

    The Authority has been ordered by the judge to submit a new funding plan addressing the aforementioned shortcomings.

    Morales says that plan is currently being crafted and will be submitted in the next few months.

    Should a revamped plan identify $25 billion or more in new funding, the whole landscape for high-speed rail in California could shift. Luckily, we don’t have to wait too long to find out.