High-Speed Rail wants to capture local taxes. Central Valley cities are willing to sue

Nine California mayors, including Fresno’s Jerry Dyer and four others from the Central Valley, say cities would likely sue the California High-Speed Rail Authority over its proposal to capture a portion of local tax dollars and zoning power in its future station areas.

The agency says it would use the money and zoning power to build infrastructure and make sure its station areas are correctly planned. But a letter signed by Central Valley mayors and sent to rail authority CEO Ian Choudri says the plan is likely unconstitutional in California and an attempt “to divert local tax growth through a legally dubious scheme.”

“It represents an unprecedented intrusion into local governance and sets a dangerous statewide precedent,” the letter, dated April 23, says of the rail authority’s proposal.

Local governments use their portions of sales and property tax revenues to pay for various essential public services, including public health, safety and local transportation, according to the letter.

The rail authority is not proposing new or increased taxes, but it would like a portion of the rise in property and sales tax revenues — known as tax increments — created within a half-mile of a station by the bullet train project. The proposal’s details have not been finalized, but the agency said it would like to work with local governments to form special districts to administer infrastructure financing.

The funding model, known as tax-increment financing, is based on the idea that property values and sales tax revenues will rise with the arrival of the new high-speed rail and stations, so some portion of the extra money should help pay for the project.

The proposal is one of several put forth in the past year by Choudri, who’s led the project since 2024, that could require changes to state law but that he says are considered best practices for rail delivery around the world. The CEO has sought alternative ways to advance money to pay for a train that’s lost federal money and that the rail authority says has never been fully funded.

The project’s current focus is completing a 171-mile Merced-to-Bakersfield segment that the rail authority says it can do for $34.76 billion. It’s become controversial in the 17 years since the state’s voters first approved a system intended to connect Los Angeles and San Francisco that at the time carried an estimated price tag of $45 billion.

But the tax increment financing proposal has drawn sharp criticism this year even from the high-speed rail’s supporters — including Dyer, who has long described high-speed rail as a potential economic boon for downtown Fresno.

Other Central Valley mayors who signed the letter to Choudri include: Merced’s Mathew Serratto, Bakerfield’s Karen Goh, Hanford’s Mark Kairis and Stockton’s Christina Fugazi.

“The responsibility for funding a state megaproject lies with the state, not with local taxpayers whose revenues are constitutionally protected for local purposes,” says the mayors’ letter to Choudri.

Rail Authority proposal would ‘almost certainly’ trigger lawsuits, CA mayors say

The letter sent to Choudri cites Prop 1A, an amendment to California’s constitution approved by voters in 2004 that limited the state’s power over local government revenues.

A 2004 analysis from the California Legislative Analyst’s Office says the constitutional amendment prohibits the state from “changing the allocation” of local sales tax revenues. The analysis says any change in how local governments share property tax revenues within a county requires the approval of two-thirds of each house in the Legislature.

The mayors’ letter says any mandatory diversion of those revenues to state agency that isn’t legally recognized as a taxing entity “would almost certainly invite extensive litigation.” The letter adds that the proposal would financially hurt communities the state is asking to “accommodate this project.”

“Simply put: the state cannot solve a state funding problem by raiding local tax bases,” the letter says.

High-Speed Rail says it’ll work with cities on tax capture execution

State Sen. Tony Strickland, R-Huntington Beach, told rail authority leaders during an oversight hearing in late April that he also believes its tax increment capture proposal is unconstitutional.

“This Legislature would have to change that,” said Strickland, who last year introduced legislation to defund high-speed rail.

Choudri and rail authority Chief of Staff Mark Tollefson told Strickland and other lawmakers on the Senate Transportation Committee that the rail authority’s proposal is in the early-conversations stage with cities. They indicated that special financing districts that result could come about from agreements with local governments.

“We want to continue working with communities around how we actually execute on that,” Tollefson said.

Choudri said the idea is not unusual for infrastructure financing and that the rail authority believes it is appropriate because of the state’s investment and land purchases in station areas.

The CEO added that the agency is not proposing to take all of the tax increments generated by its stations.

“What we are proposing is to have some of it shared back so that we can build more,” he said. “The rest stays with the local jurisdiction.”