News

Rulings deal financial blow to high-speed rail

Monday decisions by Sacramento judge force rail authority to revise its funding plan

California's proposed high-speed-rail system ran into a legal barrier Monday when a Sacramento judge ruled that the funding plan for the $68-billion project must be rescinded and refused to endorse the selling of bonds for the project.

The two rulings by Sacramento Superior Court Judge Michael Kenny dealt what opponents of the project described as "dual body-blows" to the California High Speed Rail Authority, which is charged with building the rail line between San Francisco and Los Angeles. The project received a major boost in 2008, when state voters approved a $9.95-billion bond for the project, and another one in July 2012, when the state Legislature authorized spending the first $2.7 billion from this bond, as well as $3.2 billion in federal grants, on the line's first segment.

The Monday rulings, spurred by a lawsuit from Central Valley, threaten to halt the project in its tracks. One of them orders the rail authority to rescind the 2011 business plan that the Legislature had relied on to authorize the funds for the first segment of the line, a 130-mile stretch between Fresno and Bakersfield. In late August, Kenny ruled that the business plan violated state law because it only listed the available funds for this $6 billion "construction segment," rather than the first segment that could actually be used, as required by law. The first usable segment would cost more than $20 billion under current estimates and would stretch either from Bakersfield to San Jose or from Merced to San Fernando Valley.

The rulings came in response to a lawsuit from a group of Central Valley plaintiffs – John Tos, Aaron Fukuda and Kings County – represented by attorney Stuart Flashman; and to a request from the rail authority to "validate" the issuance of more than $8 billion in bonds. In both cases, Kenny sided with opponents of the rail project, though in some cases he didn't go as far as the plaintiffs had hoped. He declined, for instance, to order the rail authority to rescind its existing two contracts for the construction of the first segment, which total about $1.1 billion. He also did not challenge the rail authority's ability to spend the federal funds, despite arguments from Flashman that doing so would commit future expenditure of "matching funds" from the state.

Rail authority Chair Dan Richard said in a statement that the agency is "reviewing both decisions to chart our next steps" and stressed that the judge did not invalidate the bonds and that the court "again declined the opposition's request to stop the high-speed-rail project from moving forward."

Even so, the rulings could delay, if not derail, a project that become hugely unpopular in various parts of the state, including sections of the Peninsula, but that continues to garner the support of Gov. Jerry Brown. Last year's funding allocation came by a single vote in the state Senate, with several Democrats joining every Republican in opposition. Palo Alto, Atherton and Menlo Park had all been involved in lawsuits against the rail authority, with Flashman representing them in those efforts. Their most recent effort resulting in the rail authority rescinding its approval of an Environmental Impact Report and a revision of the report. The Palo Alto City Council, which supported the project in 2008, has since taken an official and unanimous stance against it.

Flashman called the Monday rulings "major roadblocks."

"If you're the captain of the Titanic and you've just been hit by two icebergs, what do you do?" Flashman told the Weekly. "It seems like what (rail authority board Chair) Dan Richard is saying is, 'Full speed ahead!'"

The timing of the decisions is particularly striking, he said. In refusing to validate the issuance of bonds, Kenny effectively rejected a March resolution by the High-Speed Rail Finance Committee, a body that oversees the 2008 bond, that the issuance of bonds was the "necessary and desirable." To get the funds, the rail authority would need the Finance Committee to make such a finding again. However, the second ruling, which rejects the 2011 funding plan and finds that the rail authority violated state law in approving it, would make it tougher for the committee to make such a finding.

In his ruling on bond validation, Kenny seemed puzzled by the Finance Committee's uncritical acceptance of the rail authority's request for funds. He wrote that the Court can find "no evidence in the record of proceedings" submitted by the rail authority that justify the committee's finding.

The record, Kenny wrote, "consists of little more than the Authority's resolution requesting that the Finance Committee authorize issuance of bonds, and the Finance Committee's resolution doing so."

"Specifically, the findings contain no summary of the factors the Finance Committee considered and no description of any content of any documentary or other evidence it may have received and considered."

He rejected the argument that the rail authority request, in itself, "constitutes sufficient evidence to support the Finance Committee's action." Rather, Kenny argued, the rail authority's opinions do not necessarily represent the views of the broader taxpayer public or the state government as a whole.

"An agency that is specifically assigned the task of building a project, like the Authority in this case, may have a very different view of what is desirable than the public officials who sit on the authorizing committee, whose responsibilities include taking a view of the State's finances that is broader than a single project," Kenny wrote in a decision not to validate the bonds. "Some evidence other than the Authority is necessary to establish that the Finance Committee actually exercised its discretion in deciding on that request, and did not merely accept it without question."

In approving Proposition 1A and giving the Finance Committee the authority to accept or deny bond authorization, the voters intended to "empower the Finance Committee to serve as an independent decision-maker, protecting the interests of taxpayers by acting as the ultimate 'keeper of the checkbook,'" he wrote.

"Treating the Authority's request, by itself, as sufficient evidence to support the Finance Committee's action authorizing issuance of bonds tends to negate the Finance Committee's independent decision-making role in the process," Kenny wrote. "The Court cannot conclude that this is the result the voters intended."

Though the rail authority's two existing contracts -- with the state Department of Transportation and the company Tutor-Perini – are unlikely to be impacted by the rulings, Kenny's findings could have major repercussions for future expenditures. Flashman noted that the rail authority only has a budget of about $900 million, along with the $3.2 billion in federal funds, for a project whose price tag has climbed from $33 billion in 2008 to $68 billion today. Given the timings of both the Tos and the bond decisions, the Finance Committee might have a hard time justifying any more expenditures, he said.

"How is the committee supposed to find evidence to be able to say that it is 'necessary and desirable' to issue bonds at this time when they know they can't use those bonds probably for another two years?" Flashman told the Weekly. He also noted that the federal government may reconsider its grants if matching state funds become unavailable, which means the "project will never break ground."

Attorney Michael Brady, who joined Flashman in representing the Central Valley plaintiffs, shared Flashman's enthusiasm about Monday's rulings. He said the protections of Proposition 1A, the 2008 bond measure, "have served their purpose well."

"Our litigation to enforce those provisions will protect the state from financial risk," Brady said in a statement. "Our clients are very pleased."

Comments

Posted by PaulLosch, a resident of Community Center
on Nov 25, 2013 at 6:26 pm

How appropriate that this HSR turkey gets its head chopped off again this week. The problem is that the heads seem to grow back.

This particular turkey never should have passed a vote of the people via proposition, and now it is saddled with highly paid lawyers on both sides, rather than the people.

This whole thing is just disgusting. My turkey will not be.


Posted by Norman, a resident of Menlo Park
on Nov 25, 2013 at 6:34 pm

If the judge wanted more proof that the Authority is shooting from the hip he might want to see how they came up with the $66B cost they are now projecting (and the ones for $33B and $98B).


Posted by common sense, a resident of Midtown
on Nov 25, 2013 at 7:03 pm

Prop 1A wrote specific rules about being able to spend bond money, and the state legislature violated those rules.

This is why it is very dangerous to approve bond measures, especially if the safeguards are subject to the state legislature. The state legislature cannot be trusted (Jerry Hill & Rich Gordon).


Posted by John, a resident of Leland Manor/Garland Drive
on Nov 25, 2013 at 7:44 pm

The Fresno Bee has a included a copy of the judges ruling in their story about this:

Web Link


Posted by Casey, a resident of Mayfield
on Nov 25, 2013 at 8:01 pm

HSR has always been a fraud disguised as a public benefit. Follow the money and it goes from your pocket, to the CA Treasury, and into the pockets of Parsons Binckerhoff and assorted partners. Parsons Binckerhoff brought Prop 1a to the ballot, has always been the staff of the CA High Speed Authority in Sacramento, and one of their alums now leads that disgraced agency. It is the epitome of the inside job.

I suspect that the strategy HSR will follow now will be to spend all the Federal grant dollars they have. Since that grant funding likely requires matching dollars from the state, HSR force (Jerry will fall all over himself to help his legacy agency) the state to cough up an additional $3B in matching funds. Without the $10B in Bond dollars invalidated by todays ruling, the state does not have $3B to spare. That means something useful will be cut to pay for the train, which is not. After spending $6B, the CA HSR will then go back to the Legislature and Moonbeam Jerry, argue that they have dug a really big hole with $6B, and now they need an additional $50B to fill it in! A classic public works fraud.


Posted by Bruce, a resident of Barron Park
on Nov 25, 2013 at 11:28 pm

Willful violation of the law by the High-Speed Rail Authority will now be compounded by this judge's ruling. Everyone in the State knows HSR will continue down its track of destructive behavior and prodigious spending as if nothing happened.

To continue spending freely on this HSR turkey is the height of arrogance practiced by Jerry Brown and the California Legislature currently controlled by Democrats.

Can nothing stop these guys?


Posted by Jim, a resident of Crescent Park
on Nov 26, 2013 at 12:23 am

Another win for the oil companies. As if we needed any more proof of who controls politics in America.


Posted by Morris Brown, a resident of Menlo Park
on Nov 26, 2013 at 4:27 am

An excellent article, to be sure.

I want to note, however, that these rulings, may well affect the Tutor-Perini contract and the construction of the first 29 miles from Madera to Fresno.

Without being able to use Prop 1A bond funds, only the Federal funds are available; this $3.2 billion in federal funding, consists of two grants.

1. Grant 1, is from the ARRA funding, about $2.4 billion. This $2.4 billion by terms of the grant agreement can only be spent on construction from Fresno south. It cannot be used to fund the Madera to Fresno Tutor-Perini contract, all of which is north of Fresno.

2. This leaves only the FY-2010 grant, about $800 million. The whole cost of Madera to Fresno is about $2 billion. Again, without Prop 1A funds, where is the rest of the $2 billion funding going to be obtained?

I have left out another requirement of the Federal funding and that is matching funds must be provided to those grants. Without Prop 1A funding, there are no matching funds.

Morris Brown
a founder of DERAIL (the original grass roots group against the HSR project)


Posted by Better Uses of Money, a resident of Menlo Park
on Nov 26, 2013 at 10:32 am

If this high speed rail project was on the ballot now with the current economic conditions and the increased costs it would lose by a landslide.

Morris - you seem to know the details. What needs to be done to stop wasting money on this project?


Posted by Cur Mudgeon, a resident of Greenmeadow
on Nov 26, 2013 at 11:09 am

A better use of all that money would be to improve LOCAL mass transit for the traffic nightmare we've gotten ourselves into. As in the buses that many of the local high tech companies provide for their workers. But we got sucked in . . .

FWIW, I too was hoodwinked by the original proposition. Never again.


Posted by resident, a resident of Charleston Meadows
on Nov 26, 2013 at 11:45 am

The HSR is depicted in the CA news a the ANSWER for the USA for HSR. IAW the New York Times 11/19/13 Japan wants to enter in to a program with the USA east coast for a magnetic levitation train. Very highly placed people in New York, New Jersey, and Pennsylvania (former governors) have a Northeast Maglev organization that is pushing for this to happen. Japan wants to showcase their technology to compete with France and Germany. It is very expensive to do this in Japan because of the requirement to have tunnels through mountains. Cheaper to go on the USA East Coast on existing rights of way. A lot of horsepower at the federal level is working this issue. I think you have more horsepower on the east coast for a partnership with an acknowledged leader - Japan - in HSR for a USA venture. The biggest cost in CA would be creating a tunnel through the Tehachapi mountains which no one is talking about.


Posted by j99, a resident of Barron Park
on Nov 26, 2013 at 12:11 pm

Kill this turkey project. No more welfare state socialism programs to build things the public does not need and will not use in order to put money in a few pockets.


Posted by galen, a resident of Ventura
on Nov 26, 2013 at 12:22 pm

Governor Moonbeam should go to jail for his outlandish support for this criminal fraud masquerading as a "public works" project! Unless we start holding "elected" officials personally liable for such criminal racketeering and blatant betrayal of the Public Trust, this disgusting "politics-as-usual" will never change.

Come on! These mobster "insiders" are outright stealing billions of dollars from the taxpayers of this State. If a child steals a Snickers bar, the State deals with him/her harshly. How ironic that we're being bilked out of billions of our hard-earned cash by the exact same jokers that give people years for the victimless "crime" of smoking an herb!

Only in an insane world, full of insane people, would such a travesty of "justice" be allowed to exist.

-- galen


Posted by John, a resident of Barron Park
on Nov 26, 2013 at 12:25 pm

If you build it they will come.


Posted by Garrett, a resident of another community
on Nov 26, 2013 at 3:01 pm

Lets see here. Aircraft noise complaints about planes flying over head, air travel to and from the bay area will only grow, Surf Air the flight operate operated a sir travel club. A fancy way to hire a pilot with a plane, with a the wealth that is being created, this sounds like a good alternative to the SFO-OAK-SJC mess.

Growth in the Central Valley and the Santa Clara/Silicon Valley, we are sending workers to live in the big valley, we are going to need more freeways. A freeway from Gilroy to Los Banos, the over to 99, route 84 needs to be run from East Palo Alto to 580.

Reading about the HSR which it seems in the process of being built, the freeway idea is even being planned.


Posted by resident, a resident of Charleston Meadows
on Nov 26, 2013 at 6:46 pm

Suggest you all go to Google / Northeast Maglev - great information and a video. WOW - this is the real deal - and Japan wants to help finance it to showcase it as a product. Now this is the way to run a railroad - looks like a winner. It rides 4 inches above the track using magnetic levitation - even explains the technology. This has nothing to do with rails so is independent of the HSR that was sold to us.


Posted by Midtown, a resident of Midtown
on Nov 26, 2013 at 9:35 pm

Let's just vote on it again.


Posted by Paul Losch, a resident of Community Center
on Nov 26, 2013 at 10:46 pm

MagLev:

I have traveled to Shanghai China, which has a mag lev train from town to the international airport. I have not ridden it, but as I was cruising in a car on the adjoining modern highway at 70mph, the train passed us by, going at least twice the speed.

I know nothing about the economics Of Shanghai's mag lev rail operation. I do know it is a finite service, I do know that the Chinese government operates and finances things differently than is the case in the States, and I do know that HSR, as proposed, is not mag lev. If it were, the costs of this boondoggle would be magnitudes greater than has already been presented, which is over the top.

Put a fork in the CA HSR turkey. I enjoy thoughtful discourse about how things could be, I find tiresome conversations about how to a square a proverbial circle. Too may people are spending too much time trying to salvage what we have discovered since the vote is a bad idea.


Posted by Only on paper, a resident of Esther Clark Park
on Nov 27, 2013 at 6:18 pm

HSR is a nice idea in theory, but the only HSR in the world, so far, that has been truly profitable is the Shinkansen in Japan. Most barely break even, even with government subsidies, and some, like France's TGV, are losing money big time. Other countries, like Germany, have scaled back their HSRs.

This is a no-win situation.


Posted by mag lev rider, a resident of Crescent Park
on Nov 29, 2013 at 3:25 pm

I've ridden the Shanghai maglev, and it is indeed very fast and quiet. But it must lose a bundle of money every day, since it was basically empty except for me and a few other western tourists. Like our HSR, it seems it is more about their Government Officials making a boastful statement rather than economically trasporting people. Every car had a speedometer readout to show just how fast it was going. No other information was displayed (arrival time, schedule, etc.), just the speed.

For part of its route, the Shanghai maglev travels over a marshland that reminded me of our baylands. I wonder if the baylands area just beyond the power towers was ever considered as a possible Peninsula route for HSR.


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