Taking a bite of the bonds: Rail agency will seek $2.6 billion from Prop. 1A for Valley construction

More than eight years have passed since California voters approved a $9.9 billion bond measure to help pay for construction of a high-speed rail system in the state. On Tuesday, the California High-Speed Rail Authority may take its first step toward getting its hands on a sizable chunk of that money for work now taking place in the central San Joaquin Valley.

The authority’s board, meeting in Sacramento, will consider approving two funding plans required by state law before the agency can use any of the money from Proposition 1A, the 2008 high-speed rail bond.

One of the plans is for the 119 miles of the route from north of Madera to north of Bakersfield; the second is for electrifying and improving Caltrain commuter train tracks between San Francisco and San Jose to be shared with high-speed trains.

Under the provisions of Proposition 1A and subsequent 2012 legislation providing construction funds for the rail authority, the agency has to submit a funding plan that, among other things, details the estimated construction costs for a “usable segment” of the system, identifies the sources of money to build it and provides an assessment of projected ridership and operating revenue.

“We’ve been using federal funds on the program to date, and we are advancing rapidly through them,” said Jeff Morales, the rail authority’s CEO. “We need to get the bond funds in place to continue moving forward, and we’re at a point now where we can meet all of the requirements of Proposition 1A.”

In the funding plan for the San Joaquin Valley, the authority estimates that it will take $7.8 billion to build what it describes as a fully electrified test line where it will eventually conduct trials of its electric trains at speeds above 200 mph.

The federal government has provided California with about $3 billion in American Recovery and Reinvestment Act stimulus funds and federal railroad transportation money. About $2.6 billion is expected to come from Proposition 1A, and another $2.2 billion from the state’s Greenhouse Gas Reduction Fund.

The federal money comes with strings that are putting some pressure on the state: the ARRA stimulus grants amounting to about $2 billion have to be spent by Sept. 30, 2017; California also has to put up a share of matching funds, expected to come from Proposition 1A. Morales said that the rail authority has spent all but about $400 million of the ARRA grants, “and we expect to spend them all” by the September 2017 deadline.

If the rail authority board approves the financing plans on Tuesday, Morales said he expects to submit them to the state’s director of finance and to the chair of the Legislature’s joint budget committee in the first week of January. That submission starts the clock on a process for the finance director to approve the Proposition 1A bond funds in 60 days or less, Morales said.

In the funding plan for the San Francisco Peninsula, the rail authority states that it will operate its high-speed trains on a “blended system” that shares tracks with the Caltrain commuter rail line on more than 50 miles between San Jose and San Francisco.

The cost of converting Caltrain from its current diesel trains to an electrified system and upgrading the tracks to serve both Caltrain and high-speed trains is estimated at just under $2 billion. With the Peninsula funding plan being considered Tuesday, the authority will be seeking about $600 million in Proposition 1A money for the electrification project.

Both funding plans are likely to spark immediate legal challenges from high-speed rail opponents to block use of the bond money.

Stuart Flashman, an Oakland attorney who represented Kings County farmer John Tos, Hanford resident Aaron Fukuda and the Kings County Board of Supervisors in an unsuccessful 4 1/2 -year lawsuit against the rail authority over whether the agency’s statewide plan complied with Proposition 1A, said he believes a new law passed by the Legislature and signed by Gov. Jerry Brown earlier this year to establish parameters for what constitutes a high-speed rail segment that is “suitable and ready for high-speed train operation” violates the state constitution.

“It leaves it pretty open-ended” compared to the requirements that voters approved when they passed Proposition 1A in 2008, Flashman said of Assembly Bill 1889. “We believe that it’s unconstitutional, and any funding plan that (the authority) approves relying on that law is also unconstitutional.”

“After the legislation was passed and was waiting on the governor’s desk, we sent letters to the governor, the state controller, Caltrain, the rail authority, anyone who might be involved in this,” Flashman said. “Obviously they didn’t pay a whole lot of attention. … They’re planning to move ahead on Tuesday, and I’m planning to show up, and I would expect there to be fireworks.”

Morales said he believes the authority’s funding plans will withstand any legal challenges. “We are very confident that we are complying with all of the requirements of the law and moving forward as intended,” he said. “We do expect a lawsuit, but we do expect to prevail.”

While Sacramento County Superior Court Judge Michael Kenny ruled in favor of the rail authority in Flashman’s Kings County lawsuit earlier this year, his ruling nonetheless sounded some warnings for the rail agency.

Flashman had argued that the rail authority’s plan for a blended system in the Bay Area was inconsistent with what voters approved in 2008; that the system could not meet Proposition 1A’s requirements to provide a 2-hour, 40-minute nonstop ride between Los Angeles and San Francisco; and that the system could not be realistically expected to operate without a subsidy of public funds.

“It appears at this time that the authority does not have sufficient evidence to prove the blended system can currently comply with all of the bond act requirements,” Kenny wrote in March. However, he added, “the authority may be able to accomplish these objectives at some point in the future. This is an ongoing, dynamic, changing project.”

Because the rail authority had not, at that time, submitted a finance plan to seek Proposition 1A bond funds, “currently all that is before the court is conjecture as to what system the authority will present in its request for bond act funds,” Kenny said. But, he added, the Kings County case “raises substantial concerns” about whether the state could ultimately comply with Proposition 1A requirements.

The rail authority is moving ahead with plans to build an initial operating section from the San Joaquin Valley to San Jose at a cost of about $20 billion, with a goal of starting to carry paying passengers in 2025.

The broader statewide plan, to link San Francisco to Los Angeles and Anaheim by way of Fresno and the San Joaquin Valley, is expected to cost about $64 billion. The agency has not issued a cost estimate or potential schedule for future extensions of the system to Sacramento and San Diego.

This story was originally published December 10, 2016 at 9:00 AM with the headline "Taking a bite of the bonds: Rail agency will seek $2.6 billion from Prop. 1A for Valley construction."