On July 31, the Sacramento-based 3rd District Court of Appeal overturned Sacramento Superior Court Judge Michael Kenny’s rulings that required the California High-Speed Rail Authority to rescind its funding plan and blocked the validation of bonds for the rail project.

Kenny had concluded that the authority had failed to meet two requirements established by Proposition 1A, the 2008 ballot measure providing $9.95 billion in bond funds to the bullet train project.  The requirements were that before the funding plan was submitted to the legislature that the state have adequate funds identified or in hand to build the 300-mile operating segment.  It was also to have completed all environmental reviews. Today, the state has only a fraction of the $31 billion its business plan estimates for its Initial operable segment and is still not complete with the environmental review though the funding plan was submitted in November 2011.  

Kenny also refused to validate the state’s sale of bonds because the authority failed to bring evidence to the High-Speed Passenger Train finance committee that showed why it was necessary or desirable to appropriate bonds for the rail project, as required by state law. At the committee’s March 18, 2013, meeting,  members read the motion, had zero discussion and rubber-stamped the authority’s request for bond allocation in one minute and 43 seconds.

Attorneys for Kings County said that by overturning Kenny’s decisions, the appeals court imperiled California’s bond initiative process. If allowed to stand as precedent, it would allow future Legislatures to go back on promises made to voters about stringent protections for ballot bond measures.

Appellate court deferred to state lawmakers

In its ruling overturning Kenny’s decisions, the appellate court said there was nothing it could do since the Legislature had voted on the funding plan, deficient as it was, and there are no consequences for the authority which submitted the deficient plan.  The court said the bond measure did not have explicit language that forbids legislative tampering. The court said it had no choice due to the separation of powers doctrine, which forbids it from interfering with the legislators’ decision. Only if there was very particular language in the bond measure that forbid the Legislature from changing the terms, the appeals panel held, could it have disallowed the funding plan.

But in their request for Supreme Court review, Kings County attorneys strongly disagreed with that characterization of the court’s role.

In a past case, they noted that a California court “held that the provisions of the governing statutes at the time the bonds were approved, even though they were not expressly placed on the ballot before the voters, were part of the conditions under which the bonds were approved, and could not be modified later. Specifically, the court rejected the argument that a later act of the Legislature permissibly modified the voter-approved bond provisions.”

The brief goes on to say, “This principle, that the terms and conditions placed before the voters in a bond measure may not be unilaterally modified, even by the Legislature, after the voters’ approval, has been confirmed multiple times in subsequent decisions.”

Kings County co-counsel Stuart Flashman said,  “The Court of Appeal ruling overturns long-standing precedents in the interpretation of bond measures. If these decisions stand, voters will lose trust in future bond measures.”

Appellate court: Try again after second funding plan

The appeals court, however, said that the time to challenge the legality of the project was when a second funding plan was put forth — one that approves construction spending.

Flashman says that doesn’t make sense.

“If the purpose were solely to prevent construction, a single funding plan, to be submitted and approved prior to the expenditure of construction funds, would have sufficed. Yet the bond measure required not one, but two funding plans, the Initial Funding plan and a second, follow-up pre-expenditure Funding Plan. Logically, if the pre-expenditure funding plan was intended to prevent expenditure of funds unless the required conditions in that plan had been met, the conditions in the first funding plan had to be aimed at the appropriation of funds, not their expenditure.”

He noted the context in which Proposition 1A was presented to voters: “As perhaps the biggest public works project in California’s history and a project committing almost $10 billion of public funds, the high-speed rail project raised significant concern in both the Legislature and among the voters, causing the Legislature to include in the bond measure a series of stringent provisions that the Court of Appeal itself called a ‘financial strait-jacket.’”

Despite this acknowledgment, the appeals court ruled for the state.

The silver lining in the appellate decision

But while attorneys for Kings County decried the appellate ruling for the precedent it set, they also said much of its language affirmed restrictions and conditions that would doom the rail authority’s bullet-train project in the long run.

On Tuesday, lead counsel Michael Brady said,  “The authority is now on life support; it has been granted a stay of execution by the Court of Appeal. Today’s filing seeks to lift that stay.”

Brady thinks the appellate ruling really wasn’t a green light for the project to go forward — just a decision that gave the rail authority more time to assemble a second funding plan in order for them to obtain access to bond funds for construction. The authority still has two huge hurdles to clear.

1) It must complete all environmental reviews for the initial 300-mile segment before construction begins.

2) An independent financial consultant must attest the funding plan is a viable, plausible way to pay for the $31 billion initial operating segment.

The rail authority has had six years to find an investor in the project and has found no one willing to partner with the state on a big project without revenue or ridership guarantees, which are illegal under Proposition 1A. Now it appears to be pinning its hopes on the use of pollution-rights fees that the private sector pays to the state under AB32’s cap-and-trade program. This budget cycle, the Legislature diverted $250 million in cap-and-trade funds to the project, with more promised — but not guaranteed — in future budgets.

But even under a scenario in which one-third of these funds went to the bullet train, that still would be far short of the $31 billion the state needs to finish the initial 300-mile segment. Lou Thompson, chairman of the official high-speed rail peer review committee, says the state would still be $13 billion to $14 billion short. You can see his remarks in the first minutes of this You Tube clip of a high-speed rail hearing.

To see Kings County’s full 86-page petition for a California Supreme Court review, go to here.

Correction: The paragraph beginning “Kenny had concluded” has been modified from the original to make it more clear.  Note: Both the funds had to be identified  and the environmental work at the project level before the Authority submitted their first funding plan, not before construction.

Kathy Hamilton is the Ralph Nader of high-speed rail, continually uncovering hidden aspects of the project and revealing them to the public.  She started writing in order to tell local communities how the project affects them and her reach grew statewide.  She has written more than 225 articles on high-speed rail and attended hundreds of state and local meetings. She is a board member of the Community Coalition on High-Speed Rail; has testified at government hearings; has provided public testimony and court declarations on public records act requests; has given public testimony; and has provided transcripts for the validation of court cases.

Essentially, the Fresno establishment bought the idea of the project as economic salvation for a struggling region — even as evidence emerged that undercut the happy talk.

But now — even as the project allegedly gains momentum because of new state funding from cap-and-trade fees — the Fresno consensus has vanished.

On Tuesday, county supervisors voted 3-2 to drop their support for the project and to file legal briefs supporting  pending lawsuits vs. the project. This is from the Bee:

The Fresno County Board of Supervisors on Tuesday switched tracks in its position on California’s proposed high-speed rail project, voting 3-2 to oppose it.

Supervisors Andreas Borgeas, Debbie Poochigian and Phil Larson supported Poochigian’s resolution to oppose California’s bullet-train plans. Supervisors Judy Case McNairy and Henry R. Perea voted against the motion.

The action rescinds earlier county votes dating to at least 2009 to support high-speed rail, and asks that the state Legislature place the issue back on the ballot. California voters originally approved Proposition 1A, a $9.9 billion high-speed rail bond measure, in 2008.

The Bee editorial board will not be happy

You can expect a Fresno Bee editorial criticizing Fresno County supervisors before long. On July 14, the Bee’s editorial board ripped supervisors for even considering ending support for the bullet train:

The supervisors have supported high-speed rail for seven years. Now the board majority is teetering. Shame on them if they lack the backbone to remain united so that Fresno County finally can break free from the shackles of double-digit unemployment and overreliance on bountiful rains to power its agriculture-based economy.

We agree with critics that the California High-Speed Rail Authority has made mistakes. But to those who contend that current plans aren’t what originally was passed by voters, we answer: Some of the changes, such as blending high-speed rail with commuter trains, came in response to critics’ concerns about escalating costs. Moreover, all major infrastructure projects change during planning and construction. Ideas are refined and adjustments are made in response to real-world challenges. …

Should the majority of supervisors bend in the wind and oppose high-speed rail, they should be called out for what they are — job-killing politicians.

Silicon Valley, Central CA both off the bandwagon

But this hectoring won’t change the political realities for Gov. Jerry Brown and the California High-Speed Rail Authority.

Local governments in Silicon Valley don’t like the bullet train no matter what its configuration and haven’t for years — and they have deep pockets for NIMBY lawsuits tying up construction for decades. Now another region — Central California — is unifying behind the idea that it’s time for the project to go away, as the Bee notes:

The vote aligns Fresno County with other San Joaquin Valley counties that have taken formal positions opposing the California High-Speed Rail Authority’s plans. Madera, Merced, Kings, Tulare and Kern counties are on record with opposition resolutions, and Kings and Kern are going to court with the rail authority.

The Bee coverage includes no comment from top bullet train officials, including Dan Richard, the board chair who’s been on a media blitz of late.

On Monday, he responded in Fox & Hounds to a Cal Watchdog story that F&H picked up ridiculing the idea floated by the rail authority that potential multinational contractors on the project are tantamount to potential investors.

On Saturday, he responded to a U-T San Diego editorial questioning whether the rail authority was meeting its legal obligations with an unusual rebuttal that focused much of its criticism on former state Sen. Quentin Kopp.

He’s also wrote a piece for James Fallows of The Atlantic earlier this month rebutting a CalWatchdog post knocking Fallows for his glossing over of bullet-train problems.

“There is a lot of disenchantment  among proponents of HSR; the voters have turned against the project; the politicians are looking for a graceful way to exit from what is now regarded as a ‘loser.’  Here is the solution, step by step — a simple and popular solution:

“1. The Legislature passes an initiative which is designed to go before the voters for approval; [the Legislature can do this; no signature gathering is necessary]; the measure could go on the November, 2014, ballot; there is time;

“2. The measure would be blissfully simple and would provide as follows:  all rounds remaining in the Proposition 1A bond fund are to be redesignated and transferred to a new bond fund and placed in that fund; the proceeds are to be used for the following four purposes:  water projects; law enforcement infrastructure improvements; freeway repairs; school building construction; each to receive 25% (avoids squabbling);

“3. This is a win-win for the Legislature:  popular programs that Demos and GOP both support; bipartisan approval;

“4. The voters will love it-high priority programs, much more popular than the ill-fated hsr;

“5. And look at the nature of the  projects:  all infrastructure, using union labor, thousands of jobs! 

“6. It passes; everyone’s a hero! LET’S DO IT!”

Upon examination, not much of a union concession

I don’t like the union payoff much, but it’s a logical way to grease this compromise to approval. And any big state infrastructure projects will have PLAs, so it’s not much of a concession, at least if you support capital-improvement spending on “water projects; law enforcement infrastructure improvements; freeway repairs; school building construction.”

How unusual: a trial lawyer proposing a way to quickly wrap up a case for which he’s probably billing $400 an hour.

Good for you, Mike!

The protections were meant to ensure the state wouldn’t spend huge sums on a train segment that wouldn’t be usable or have any utility if further segments weren’t built. One required the state to have funding firmly lined up for the 300-mile Initial Operating Segment, which the CHSRA estimates would cost $31 billion. The second required the state to have all environmental reviews completed for the Initial Operating Segment before construction began.

But Kenny’s ruling waffled on whether he had the authority to block construction. “Proposition 1A appears to entrust the question of whether to make an appropriation based on the funding plan to the Legislature’s collective judgment,” he wrote. “The terms of Proposition 1A itself give the Court no authority to interfere with that exercise of judgment.” He ordered the state to suggest “remedies” to address the deficiencies, which he will consider at a hearing this Friday in his Sacramento courtroom.

In legal briefs filed last month, Attorney General Kamala Harris’ staff responded in unexpected fashion: Instead of saying Kenny’s ruling was wrong and a misreading of Proposition 1A, the state’s lawyers argued that so long as the rail authority only used the $3.3 billion in federal funds it had been given for the project, it could proceed with work for now.

Harris’ position both elated and baffled attorneys for Kings County and two Kings County residents who are the plaintiffs in the case against the bullet train. They were elated because the state’s top lawyer accepted without challenge Kenny’s conclusion that the bullet-train project would break state law if it used state funds. But they were baffled at the AG’s opinion’s that taxpayer safeguards in Proposition 1A didn’t apply to federal funds, since they were supposed to be matched dollar for dollar by the state.

How do bullet-train advocates see path to construction?

What could be driving this legal maneuvering? How do bullet-train supporters — whose ranks at least nominally include the attorney general — see a path to construction?

Based on interviews with insiders and close observers of the bullet-train fight, the scenario builds off this assumption: “They don’t think the judge will have the [guts] to block this unilaterally,” one county supervisor from Silicon Valley told me. “He already signaled in the August decision that he didn’t want to do it … by raising the question of whether he even had the power to do it.”

After another ambiguous court ruling, the theory holds, Controller John Chiang and Treasurer Bill Lockyer will hold their noses and go along with the sale of state bonds. Where will the $20 billion or more that the state would still need to complete the Initial Operating Segment come from, given the lack of interest from private investors who can’t legally be given subsidies or revenue guarantees? The assumption is that the federal spigot will reopen if Democrats take back the House in November 2014.

In the sequester era, the idea that there will be a surge in discretionary domestic spending anytime soon seems unlikely. The disastrous rollout of the Affordable Care Act also seems certain to be a huge damper on House Democrats’ hopes to reinstate San Francisco Rep. Nancy Pelosi as speaker.

But the initial premise of the scenario also is open to question. The judge, a 2003 appointee of Gov. Gray Davis, may not be the controversy-wary milquetoast that bullet-train admirers hope.

He has been dealing with high-speed rail litigation for years and has issued several decisions unfavorable to the state before his Aug. 16 ruling. In 2009, he agreed with Menlo Park, Atherton and environmental groups who challenged the environmental reviews used in the decision to route high-speed trains through the San Francisco Peninsula instead of East Bay. This forced the rail authority to rescind its approval of an environmental study for a major section of the bullet train’s northern route. In 2011, he rejected the rail authority’s environmental reviews for a plan to send the bullet train through Gilroy in the San Francisco Peninsula.

A ‘remedies’ hearing in which the state offers no remedies

And a rereading of Kenny’s 16-page ruling shows it to be a thorough condemnation of the rail authority’s efforts to get around Proposition 1A’s taxpayer protections. Its language also suggests that he hasn’t ruled out a range of actions because of his concerns about legislative authority. Rather than rule out injunctive relief, the ruling suggests plaintiffs will have a better chance of achieving it if they make the case on limited grounds rather than by seeking a broad ban on construction spending.

But Kenny could also strike a decisive blow against the bullet train without ordering a moratorium on construction until funding had been firmly identified and environmental reviews completed for the first 300 miles of the project. In his “remedies” ruling, he could again conclude that the final authority on spending decisions rested with the Legislature — then warn bluntly of the impropriety of issuing state bond funds for a project that violates plainly written state laws.

There’s also the chance that the state’s decision to respond to his request for remedies by not offering any might incense him into more decisive action. Kenny’s Aug. 16 ruling treated it as a given that the state would take his concerns seriously. The attorney general didn’t. Instead, Kamala Harris gave the rail authority a fig leaf and a questionable temporary reprieve.

Will Kenny’s judicial temperament prompt him to overlook this diss? We shall see.

This prompted the state Attorney General’s Office — acting on behalf of the rail authority — to file a brief on Oct. 8 that argued that the state could begin building the bullet train project without violating Proposition 1A, the state law providing $9.95 billion in bond seed money to the project, if it only used the federal funding it had been provided by the Obama administration.

This was odd enough — Attorney General Kamala Harris refusing to defend the legality of the state’s bullet-train business plan yet arguing that it should be allowed to proceed for now. But according to the lawyers for Kings County and two of its residents — the plaintiffs in the lawsuit still being heard by Kenny — even the state’s use of federal funds for the first 29 miles of the project may not be legal.

Federal dollars supposed to go to Fresno-Bakersfield link

In a court filing last week, attorneys Michael Brady and Stuart Flashman cited an amendment to the 2009 federal stimulus bill, the American Recovery and Reinvestment Act (ARRA), the largest source of the $3.3 billion in federal funding for the project. That amendment “restricts the use of the ARRA grant proceeds to the Fresno to Bakersfield segment of the Authority’s Central Valley rail construction project.”

This is a major problem for the state because of costly contracts the rail authority has already signed.  “Virtually the entirety of both the Caltrans [construction] contract and the Tutor-Perini-Parsons contract for design and construction of the CP-1 segment of the Authority’s Central Valley rail project cover an area between Madera and Fresno. None of the work currently planned to proceed involves the area between Fresno and Bakersfield,” the Brady-Flashman brief noted.

That means that only federal funds not from the 2009 stimulus bill can be used — about $929 million. But the total design and construction costs for the Caltrans and the Tutor-Perini-Parsons contract are $1.196 billion.

Brady’s and Flashman’s brief also targets Harris’ premise that federal funds can legally be spent on the project without violating Proposition 1A’s restrictions on the use of state bond money, noting the ARRA requirement that the federal funds be matched by state funds. “The legislature explicitly expected Proposition 1A bond funds to be used to match the federal grant funds, not some other hypothetical future fund,” the brief notes.

But even if federal waivers remove the matching-fund requirement, the available federal funding for the 29-mile Madera-Fresno link still doesn’t cover the total cost of the contracts the state has already signed.

A ‘remedies’ hearing without any remedies proposed

The Brady-Flashman brief calls for Judge Kenny to ban the rail authority from beginning construction on the project until it resolves the funding and environmental-review deficiencies identified in Kenny’s Aug. 16 ruling.

The next major chapter in the fight in Kenny’s courtroom is going to be unusual. The veteran judge is holding a Nov. 8 “remedies” hearing at which the state explains how it will resolve its funding and construction plans’ violation of the state law established by Proposition 1A’s 2008 approval.

Yet the attorney general’s “remedies” brief of Oct. 8 offered no remedies addressing Kenny’s conclusion that the state was on track to break state law.

State media coverage has focused on the fact that Harris’ office says it is legal to proceed with work on the project for now using federal funds. What has received inexplicably little emphasis, however, is the fact that the leading law-enforcement official in California government agreed with a judge that the state would break the law if it started using state funds on the project without having firm funding for the first 300 miles of the project.

The rail authority, which has at most $13 billion available, estimates the cost of the 300-mile initial segment at $31 billion. This is not a gap that cash-poor state government can address or finesse, and the prospect for more federal funding in the sequester era seems far-fetched.

Has the bullet-train end game began?

What’s going on here? A veteran Democratic elected official from  Silicon Valley, who spoke with me on the condition of anonymity, suggested we may be seeing the beginning of the end game for the bullet train.

“There are a lot of angles to this. … The support for the train isn’t nearly what it was, the cost is way up, it’s gotten a lot of bad press. People in Sacramento understand that,” the politician told me.

Harris will face major pressure from building-trades unions to let the project go forward. But she will not certify as legal something that her office has already agreed is not legal.

State Treasurer Bill Lockyer and Controller John Chiang also have fiduciary responsibilities that preclude them from approving or proceeding with the sale of billions of dollars in state bonds of shaky legality.

And all three have political motives to disassociate themselves from the increasingly unpopular project. Harris is running for governor in 2018. Chiang is running for treasurer next year. And Lockyer is retiring from politics in 2014 with his most cherished possession being a reputation as an independent maverick.

It’s tough to imagine a better final flourish to Lockyer’s career than deciding not to sell the Prop. 1A bonds in December, as is now planned, on the grounds that he will not be a party to an assault on both state law and California taxpayers.

“That might appeal to Bill,” the Democratic elected official told me. “I could see that.”