When Gavin Newsom is sworn in as California governor on Jan. 7, he’s already indicated he will take criticisms of the state’s troubled $77 billion high-speed rail project seriously.

That’s in sharp contrast to outgoing Gov. Jerry Brown, who described project critics as “declinists” with no vision for what the Golden State could become. Brown only offered vague pronouncements when asked about giant cost overruns and the $50 billion or more gap between available funding and what’s needed to build the high-speed rail linking Los Angeles and San Francisco.

If Newsom lives up to his word, he’s going to need to respond to profound issues raised by project watchers in and out of the state government over the last two months.

In November, state Auditor Elaine Howle issued a harsh report on poor management practices in the California High-Speed Rail Authority, especially the billions in cost overruns due to the decision to launch construction of the project’s $10.6 billion, 119-mile first segment in the Central Valley before the authority was fully ready. Howle’s audit led Newsom to tell a Fresno audience that he might shake up the leadership of the rail authority.

Among the few specifically positive observations that Newsom has made in recent months about the project was that the first segment held promise to link Silicon Valley workers with less expensive housing in the Central Valley.

Project seen as ‘notoriously unpopular’ in Central Valley

But a Dec. 23 Sacramento Bee analysis found that even though the bullet train project was generating thousands of jobs in the agricultural region, it was “notoriously unpopular” among residents.

“They resent how construction has carved up their farms and scrambled their highways,” the Bee reported. “Completion of just a partial segment through the Valley is still years away, and residents doubt the project will ever get finished. They question the promises that high-speed rail will lift the Valley out of its economic doldrums.”

This skepticism is increasingly shared by elected Democrats both in the Central Valley and the rest of the state.

A Dec. 28 Los Angeles Times report quoted Assembly Speaker Anthony Rendon as saying problems with the bullet train are so widespread that it should “be paused for a reassessment.” Rendon said the prospect that the project would run out of money before ever reaching the Los Angeles region left voters in the area feeling deceived.

Assembly Transportation Committee Chairman Jim Frazier, D-Oakley, has made clear that he will work to have rail authority chairman Dan Richard ousted because of cost overruns and management issues.

The bullet train’s image has also deteriorated among state pundits.

When California voters approved $9.95 billion in bond seed money for the then-$45 billion project in 2008, the ballot initiative was broadly supported by newspaper editorial boards.

“Americans who visit Japan or Europe and hop a bullet train get a stunning reminder of how far behind much of the industrialized world we are in swift, clean, efficient transportation,” the San Jose Mercury-News editorial page declared on Oct. 18, 2008. “Californians can change that by approving Proposition 1A, a bond to begin construction of a high-speed rail system that would whisk passengers from Los Angeles to the Bay Area through downtown San Jose in a mere 2 1/2 hours. It will be a catalyst for the economic growth of California and this region over the next 100 years.”

An editorial printed last month in the Mercury-News showed a 180-degree swing in opinion: “The incompetence and irresponsibility at the California High-Speed Rail Authority are staggering. … It’s time to end this fiasco to stop throwing good money after bad.”

Decision on cap-and-trade funding may signal Newsom’s intentions

An early sign of Newsom’s level of enthusiasm for continuing on Brown’s path is likely in coming weeks as initial work is done on the 2019-20 state budget. The California Air Resources Board reported pulling in $813 million from its Nov. 14 auction of cap-and-trade air pollution credits – a heavy haul.

If Newsom opposes diverting 25 percent of cap-and-trade revenue to the bullet-train project – as has been done since 2015 – that will be the clearest indication yet that he is ready to back away from the troubled project.

The Republican candidates – Assemblyman Travis Allen of Huntington Beach and Rancho Santa Fe businessman John Cox – reflect the GOP consensus that the project is a boondoggle that’s unlikely to ever be completed. But the major Democratic hopefuls – Lt. Gov. Gavin Newsom, former Los Angeles Mayor Antonio Villaraigosa, state Treasurer John Chiang and former Superintendent of Public Instruction Delaine Eastin – have all indicated they would continue with rail project, albeit with little of the enthusiasm shown by present Gov. Jerry Brown.

While the new business plan was depicted by the California High-Speed Rail Authority’s new CEO, Brian Kelly, as a constructive step toward salvaging the project, the plan’s key details were daunting:

The estimated cost of the project, which has yo-yoed from $34 billion to $98 billion to $64 billion, changed once again. The business plan abandoned the previous $64 billion estimate for an estimate of $77 billion – accompanied by a warning that the cost could go as high as $98 billion.

Even at the lower price tag, the state didn’t have adequate funds to complete a first $20 billion-plus bullet-train segment linking populated areas. The present plan for a Central Valley route has an eastern terminus in a remote agricultural field north of Shafter. That’s because the $9.95 billion in bond seed money that state voters provided in 2008 has only been buttressed to a relatively slight degree by additional public dollars from cap-and-trade pollution permits.

The business plan cites the possibility of additional federal funds beyond the $3.3 billion allocated by Washington early in the Obama administration. It doesn’t note, however, that domestic discretionary spending has plunged in recent years amid congressional concern about the national debt blowing past $20 trillion.

The business plan also promotes the possibility of outside investors. It doesn’t mention that such investors have passed on the project for years because state law bars the California High-Speed Rail Authority from offering them a revenue or ridership guarantee.

From 5 years behind schedule to 10 years behind

The initial operation of a bullet-train link serving California residents went from five years behind schedule, in the estimate of the Los Angeles Times, to 10 years behind schedule. The business plan said the project would begin operations no sooner than 2029.

The potential immense cost overrun of the bullet train segment in the mountains north of Los Angeles was fully acknowledged for the first time. A 2015 Times story laid out the “monumental” challenge.

Democratic candidates to succeed Brown have chosen to focus on housing, single-payer health care, immigration and criticism of President Donald Trump in most early forums and campaign appearances. But front-runners Newsom and Villaraigosa in particular seem likely to be pressed on how they can square their claims to be experienced, tough-minded managers with support for a project which seems less likely to be completed with every passing year.

Proposition 70 on the June primary ballot also will keep the bullet train on the campaign’s front burner, to some extent. It was placed on the ballot as part of a 2017 deal cut by the governor to extend the state’s cap-and-trade program until 2030. If Proposition 70 passed, it would require a one-off vote in 2024 in which cap-and-trade proceeds could only be used for specific needs with two-thirds support of each house of the Legislature. Republicans may be able to use these votes to shut off the last ongoing source of new revenue for the high-speed rail project.

The California High-Speed Rail Authority’s rough year continues with the departure of another top executive at the agency overseeing the state’s $64 billion bullet-train project.

Jon Tapping, the agency’s director of risk management since 2012, is leaving, the Los Angeles Times reported in a story that quoted an unnamed agency official describing internal “chaos.” Authority Chief Executive Jeff Morales left in June. Morales’ second-in-command, Dennis Trujillo, quit in late 2016.

This leaves the authority with three high-profile vacancies as it tries to move ahead with a long-troubled project that’s taken a series of hits throughout 2017. Among the bad news:

– On Oct. 1, the Times printed a report that internal authority documents showed the initial 119-mile segment being built in the Central Valley would cost $8 billion, 27 percent more than the authority’s public declarations that the segment would cost $6.3 billion. The overrun estimate may prove low. In January, documents surfaced that showed federal rail officials expected an overrun in the 50 percent range.

– On Sept. 24, a critical Fresno Bee analysis showed how the authority’s original plan to complete a Merced-to-Bakersfield segment by Sept. 30, 2017, had long since been abandoned because of the authority’s unrealistic expectations about how quickly property could be obtained and environmental approvals be secured. The analysis also cited ongoing lawsuits. The Bee noted that the starting date for passenger service was now projected to be 2025 – 17 years after California voters approved $9.95 billion in bond seed money for the project, initially estimated to cost $32 billion.

Court ruling clears way for potent CEQA lawsuits

– On July 27, the California Supreme Court overturned a lower-court ruling and said state-owned rail projects were not completely exempt from the California Environmental Quality Act and other state environmental laws. The case involved another state project besides the bullet train, but legal analysts said there was no question it would apply.

CEQA has been a powerful tool against projects large and small in California for decades. The state Supreme Court ruling paves the way for a wave of CEQA lawsuits by deep-pocketed interest groups against now-pending environmental impact reports for bullet-train segments in Silicon Valley and the Los Angeles area.

Even individual citizens without high-powered legal teams can stall projects using CEQA. San Francisco’s plan to add bicycle lanes to encourage bicycle commuting was delayed for five years by a self-described “dishwasher from Mendocino.”

– On July 17, the Legislature approved a measure to extend the state’s emissions cap-and-trade program by 10 years, with a handful of Republicans providing crucial support after then-Assembly GOP leader Chad Mayes of Yucca Valley secured support for a provision that could eventually halt the bullet-train project.

“The concession … places a constitutional amendment drafted by Mayes before state voters in June 2018,” CalWatchdog reported in July. “If passed, it would lead to a one-time up-and-down vote in the Legislature in 2024 on whether to continue allowing the use of cap-and-trade revenue to fund the project. But the threshold wouldn’t be a simple majority. A two-thirds vote would be required to allow continued use of the funds – presumably giving GOP lawmakers a prime chance to pull the plug.

This amounts to a bet that the bad news about the project would continue. With the exodus of top staff, the confirmation of major cost overruns and the new certainty about another round of legal challenges, so far that’s what’s come to pass.

Train company owned by Germany may win key contract

Rail authority officials, however, say critics of the project ignore the steady progress it is making, with more than 400 small businesses and 1,400-plus “craft workers” proceeding in building the initial segment.

The rail authority board is likely to make a crucial decision at its meeting Thursday. DB Engineering & Consulting USA, a subsidiary of Deutsche Bahn AG, is expected to be given a $30 million contract to design and operate the initial segment from San Jose to the Central Valley.

Deutsche Bahn AG, which is owned by the German government, is competing with companies from Spain, Italy and China for the contract. In 2015, it was the world’s largest railway company based on revenue and the ninth-biggest carrier of global freight, according to industry reports.

Will news about the California bullet train’s cost overruns and

These are the key questions prompted by a concession that some Republican state lawmakers gained in return for helping Gov. Jerry Brown keep alive the state’s greenhouse-gas emissions cap-and-trade program until 2030. The provision could eventually end the state’s high-speed rail project, leaving a massive white elephant in the agricultural fields of the Central Valley. Or the concession could end up yielding a second vote validating a project first approved by state voters in 2008.

The concession – secured by Assembly Republican leader Chad Mayes of Yucca Valley – places a constitutional amendment drafted by Mayes before state voters in June 2018. If passed, it would lead to a one-time up-and-down vote in the Legislature in 2024 on whether to continue allowing the use of cap-and-trade revenue to fund the project. But the threshold wouldn’t be a simple majority. A two-thirds vote would be required to allow continued use of the funds – presumably giving GOP lawmakers a prime chance to pull the plug.

So far, the funding has been substantial in one sense but marginal in the big picture of trying to pay for a $64 billion project. After the fifth year of cap-and-trade distributions, about $1 billion has gone to the California High-Speed Rail Authority, with another $500 million expected this fiscal year. But it is considered crucial because it is the only new funding source Brown has found for the project, which has been unable to gain outside investors because of rules banning public subsidies for bullet-train operations.

Rail authority chair Dan Richard says he isn’t worried about a public veto in seven years: “By 2024, we’re going to be deep into construction. We’re going to be on the verge of opening the first service. We’ll be seeing Google and others making massive investments in areas around high-speed-rail stations. The case will be there for the importance of continued funding,” he told the San Francisco Chronicle.

The authority’s 2016 business plan said the state expected to have $21 billion in hand from state bonds, federal grants and cap-and-trade funds to build a segment from San Jose heading south.

Feds expect cost overrun of 48% or more on first segment

But Mayes and other GOP lawmakers are betting that from here until 2024, the bad news about the project will never stop.

Lawyers for the Central Valley farmers and the government and civic officials they represent in lawsuits against the state government like to point out that – apart from court victories allowing the project to continue to spend public monies – there has been no substantial encouraging news about the project in years.

In January, the Los Angeles Times reported that it had obtained a confidential Federal Railroad Administration risk analysis that predicted a cost overrun of 48 percent or more on the initial 118-mile segment in the Central Valley. What the Brown administration has been saying would cost $6.4 billion is instead likely to be $9.5 billion to $10 billion, federal officials warned.

The idea that voters will be pleased with what they see in 2024 could be difficult to square with what rail authority officials told a visiting congressional delegation in August 2016: that construction is expected to stop in the middle of an almond orchard 30 miles northwest of Bakersfield when the money runs out.

This is contrary to promises made to voters in 2008 to get them to provide $9.95 billion in bond seed money for the project. They were guaranteed no construction would begin until the state could guarantee its initial segment would have financial viability without any more train tracks being laid.

The chief executive of the California High-Speed Rail Authority – former Caltrans director Jeff Morales – is resigning in June from the agency after five years overseeing the state’s $64 billion bullet train project.

The announcement Friday prompted Gov. Jerry Brown and others to praise Morales for leading the authority during a contentious period in which it managed to break ground on the bullet train’s system initial 118-mile segment but struggled to find funding that would actually allow for construction of a statewide network. That’s what voters were promised in 2008 when they approved Proposition 1A, which provided $9.95 billion in bond seed money to a project then estimated to cost $43 billion.

But the timing of Morales’ departure could lead to a melancholy final two months on the job for the rail executive if House Republicans get their way. House Majority Leader Kevin McCarthy, R-Bakersfield, and the other 13 California House GOP members have launched a several-pronged front to try to get the Trump administration to prevent already-committed federal dollars from ever being spent on the project.

Their most visible effort came in February. That’s when their lobbying was seen as prompting Transportation Secretary Elaine Chow to put on hold a promise made late in the Obama administration to provide $647 million to electrify tracks in Silicon Valley leading to San Francisco – a crucial part of the governor’s plan to have a “blended” system of high-speed and regular rail.

Key Obama administration decisions could be rolled back

But California House Republicans also want to “claw back” some of the funding and procedural decisions in Washington made related to the project. This push received an unexpected boost in the final weeks of the Obama presidency when a confidential Federal Railroad Administration report was leaked to the Los Angeles Times. It predicted the first segment of the bullet train that the rail authority had long said would cost $6.4 billion could instead cost $9.5 billion to $10 billion.

Based on this evidence of dubious management and on the rail authority’s inability to attract investors – raising questions about financing – the U.S. Transportation Department appears to have grounds to rescind decisions made in 2009 and 2012 that enabled the project to end up getting about $3 billion in federal funds.

The 2009 decision was the original DOT move to make the California bullet-train project eligible for federal funding from the massive omnibus stimulus bill adopted soon after President Obama took office. The decision required an analysis concluding the project was properly funded and had responsible and thorough planning that substantiated expectations of success.

The 2012 decision was in the form of an agreement that allowed California to bypass the tradition of state and federal infrastructure projects being jointly funded on a dollar-for-dollar basis. Instead, California was allowed for at least three years to get an advance on federal dollars in return for guaranteeing eventual matching funds – totaling $200 million as of June 2015. The federal government has the authority to demand the state match what it has already spent before allowing another dollar to go California’s way.

Is new state law a tweak or a ‘material’ change?

A revocation of these bullet-train-friendly decisions isn’t the only possible twist that Morales faces in his final two months on the job.

Central Valley farmer John Tos, Kings County, the city of Atherton and several other Central Valley groups – the same coalition that previously filed, with some success, legal challenges against the state project – may have their first hearing this week on a new lawsuit in Sacramento Superior Court. (A previous hearing scheduled for last week was delayed, so another delay is possible.)

The lawsuit challenges the legality of the December vote of the California High-Speed Rail Authority to authorize the selling of $3.2 billion in state bonds for the project under the authority granted it by Assembly Bill 1889, a measure by Assemblyman Kevin Mullin, D-South San Francisco, that was enacted last year. It loosened bond-spending restrictions in Proposition 1A, the 2008 measure funding the rail project.

Mullin and other Democrats depicted the change as a routine tweak in the law. Attorneys for Tos, Kings County and Atherton will seek an injunction against any sale of the bonds on the grounds that there is no provision in Proposition 1A allowing for it to be subsequently “materially” altered by the California Legislature.

It shouldn’t have. Multiple indicators have suggested both Harris and Lt. Gov. Gavin Newsom — the perceived rising stars of the California Democratic Party and the frontrunners to replace Sen. Barbara Boxer and Brown, respectively — want no part of the controversy-plagued $68 billion project.

In fall 2013, the attorney general declined to appeal a Sacramento Superior Court ruling that held the state could not begin spending state bond funds on the project until it had adequate financing and sufficient environmental reviews for the first 300-mile link of the project. Harris’ office filed a “remedies brief” responding to the ruling with no remedies. Instead, the brief argued it was premature to block the project — not that the judge was wrong about its fundamental inadequacies.

This led to an appellate court ruling that allows the state to keep spending federal funds and some state dollars for now but eventually will require the High-Speed Rail Authority to identify $31 billion in funding and to complete hundreds more environmental surveys than it’s managed to complete to date before it begins major construction.

Newsom: Financing plan doesn’t work

Newsom’s objections to the project don’t stem from its legal issues. The former San Francisco mayor’s reservations pertain to financing. This is from his interview with the L.A. Times in February 2014:

He thinks the bullet train’s financing is too risky and would drain money from other, more necessary infrastructure projects such as roads, transit and waterworks. …

Voters in 2008 authorized $9 billion in bonds to begin building a 500-mile high-speed rail line from Los Angeles to San Francisco, with later extensions to San Diego and Sacramento. That L.A.-San Francisco first phase was to cost $33 billion. The federal government and private investors, voters were told, would kick in the rest of the money.

But the state received only $3.3 billion from the feds and have repeatedly been told by Congress that there’ll be no more. Private financiers haven’t put up a dime. The projected cost has more than doubled to $68 billion. …

Says Newsom: “You’d be hard pressed to find a bigger champion of high-speed rail than me when the bond went to voters. I believed in it. But my current problem with it is the financing. I can’t in good conscience square what I was supporting then with what we’re doing today.”

He says Brown is confident the project eventually will attract private investment. “If so, that changes the game.”

“But absent something significant — and I mean, really significant — I can’t see supporting something that would come at such a high cost to other infrastructure. I don’t see how we could go forward. There’s got to be a different financing plan. Without it, the math doesn’t add up.”

Will governor call them names, too?

Brown’s go-to response has been to depict critics as people who are scared of change. In January, he said were they around when the Golden Gate Bridge was being built, they would have objected to that project as well.

But while Newsom’s general objections have been on the record for 14 months and Harris’ legal concerns have been on view for 20 months, the governor hasn’t commented on them specifically — preferring to speak broadly of bullet-train foes as “declinists.”

After more than a century in California’s political spotlight, the state’s initiative process will be getting a major revise next year. Even more surprising, both Democrats and Republicans in the famously partisan Legislature are happy to see it happen.

While Republicans made up most of the limited opposition when SB1253 made its way through the Legislature, the two GOP leaders, state Sen. Bob Huff of Diamond Bar (Los Angeles County) and Assembly member Kristin Olsen of Modesto, both voted “aye.”

“It was a bipartisan effort,” said former state Sen. Darrell Steinberg of Sacramento, the Democrat who authored the bill. “People like the initiative process but believe it can be improved.”

The measure opens the way for increased collaboration between lawmakers and backers of initiatives by requiring the Legislature to hold a joint public hearing on a proposed initiative as soon as 25 percent of the required signatures are collected. It also calls for the attorney general to open a 30-day public review before approving an initiative for circulation and lets supporters amend the initiative during that time.

A much-bigger problem: Slanted ballot language

These reforms make sense and should lean to cleaner ballot measures.  But if one looks back over the past 15 years, all of the biggest outrages in the initiative process involved another problem that the Legislature declined to try to fix: the extraordinary way that the last three attorneys general — Bill Lockyer, Jerry Brown and Kamala Harris — have slanted ballot language to achieve the outcome that Democratic special interests prefer.

Gov. Schwarzenegger’s bid to use a 2005 special election to force through major reforms was hurt badly by Lockyer’s ballot titles and language. Proposition 76 would have created a rainy-day fund and a less chaotic budget process. Lockyer made it sound like an attempt to hurt school kids, titling it “State Spending and School Funding Limits. Initiative Constitutional Amendment.”

In one week alone in 2010, then-Attorney General Jerry Brown had his ballot language thrown out by judges who agreed that Brown wasn’t playing fair on a ballot measure challenging AB 32 and one making it easier to pass a state budget without Republican votes. (He tried to sabotage the first one, Prop. 23, and promote the second one, Prop. 25.)

Kamala Harris has continued this unfortunate tradition. This CalWatchdog post looks at her attempt to help trial lawyers with their misleading 2014 ballot measure.

Lockyer, Brown and Harris all say they don’t draft the language; instead, they depict it as a chore that they leave to their “professional staffs.” But if that were the case, then why have all three AGs opposed reforms transferring ballot-language responsibilities to the FPPC, the LAO or a panel of retired judges?

Because they know being able to compose ballot language on measures digging with the biggest issues of the day gives the California attorney general extraordinary power.

The worst ballot-language abuser of all

But the twist to all this is that the single worst abuser of the privilege of writing ballot descriptions was the Legislature itself. In 2008, Democrats in the Assembly and Senate directly wrote the highly misleading title and summary for Proposition 1A, the measure which provided $9.95 billion in bond seed money for the bullet-train project. Here’s the summary:

SAFE, RELIABLE HIGH-SPEED PASSENGER TRAIN BOND ACT. To provide Californians a safe, convenient, affordable, and reliable alternative to driving and high gas prices; to provide good-paying jobs and improve California’s economy while reducing air pollution, global warming greenhouse gases, and our dependence on foreign oil, shall $9.95 billion in bonds be issued to establish a clean, efficient high-speed train service linking Southern California, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area, with at least 90 percent of bond funds spent for specific projects, with federal and private matching funds required, and all bond funds subject to independent audits?'”

This prompted a Howard Jarvis Taxpayers Association lawsuit. That suit led a state appellate court to issue a jaw-dropping decision that forever banned the Legislature from writing ballot language.

In theory at least, courts and ballot referenda are checks on legislative tyranny. A California appellate court has effectively done away with both by ruling that the legal requirements of a bond measure approved by voters for the state’s bullet train are merely “guidance.” … 

Six years ago voters approved a referendum authorizing $9 billion in bonds for high-speed rail construction, including language with stringent “taxpayer protections.” These stipulations were, among other things, that the state high-speed rail authority present a detailed preliminary plan to the legislature identifying funding sources and environmental clearances for the train’s first “usable segment” prior to a bond appropriation.

The legislature in 2012 green-lighted the bonds while ignoring these stipulations. The rail authority had pinpointed merely $6 billion of the estimated $31.5 billion necessary to complete the first 300-mile segment from Merced to San Fernando. Only 30 miles of environmental clearances had been certified. 

Last year Sacramento County Superior Court Judge Michael Kenny ruled that the authority “abused its discretion by approving a funding plan that did not comply with the requirements of the law.” But in July Sacramento’s Third Appellate District sanctioned the lawlessness with a decision as impressive for its cognitive dissonance as its legal afflatus.

On the one hand, the court opined that “voters clearly intended to place the Authority in a financial straitjacket by establishing a mandatory multistep process to ensure the financial viability of the project.” But then the judges ruled that the challenge to the legislature’s invalid bond appropriation and authority’s preliminary plan, “however deficient,” was in effect moot.

The court could require the authority to redo its plan, but the judges say that would be unnecessary since the Director of Finance must still approve a rigorous final plan before the authority can/spend/ the bond revenue. In other words, the law’s procedural requirements don’t matter. ….

California’s Supreme Court now has an opportunity to do what the appellate judges did not and order Sacramento to follow the bond language. At stake are the rule of law and democratic governance in the Golden State.

Key provisions of Prop 1A acknowledged by appeals court

I certainly agree that the appellate court ruling was strange in that it seemed to ignore the clear sentiment of Proposition 1A about the strength of taxpayer protections. But I don’t think the WSJ writers read the decision as closely as they should have. The appeals court ruling affirms Kenny’s basic theories about the project being unlawful — it just says he stepped in prematurely.

The appeals court that vacated Sacramento Superior Court Judge Michael Kenny’s ruling to block the project did not say that Kenny’s conclusion that the HSRA violated Proposition 1A was wrong. Instead, the decision held that a trial judge had no authority to block construction until the legislature and the High Speed Rail Authority approved a final business plan. “The scope of our decision is quite narrow,” the judges wrote in the first paragraph. The decision went on to reinforce two key protections contained in Proposition 1A—both meant to ensure that the state didn’t spend billions on initial construction only to run out of money before a financially viable train system could be built. Judge Kenny ruled that the state had to identify “sources of funds that were more than theoretically possible” in explaining how it would pay for the project’s $31 billion, 300-mile initial operating segment. He also said that the HSRA had to complete environmental reviews for the entire segment before construction could begin. The appeals court contradicted him on neither point.

The appellate court underscored that the law requires the state to establish “financial viability” for the bullet train’s first segment by adhering to a voter-approved “financial straitjacket.” It said that bond funds could only be spent after a funding plan gained approvals from the state finance department, the Joint Legislative Budget Committee, and an independent financial analyst who certified the plan’s soundness—specifically that if built as planned, the bullet train could operate without a taxpayer subsidy. The appeals court judges also agreed with Judge Kenny that the rail authority had to obtain “all the requisite environmental clearances before construction begins.”

These are shortcomings that Brown … cannot easily finesse. The state has less than $10 billion left from Proposition 1A and from federal stimulus funding. The prospect of obtaining additional federal funding from House majority leader Kevin McCarthy, a Bakersfield Republican and ferocious critic of the project, is virtually nil. And the HSRA reportedly has 10 percent of the necessary environmental clearances in hand—and a long list of lawyers lined up to fight future reviews.

Bullet train cheerleaders may be excited now, but Proposition 1A’s financial safeguards (and California’s budget problems) remain formidable obstacles.

That is from my piece last week for City Journal. The appellate ruling is now seen as a triumph for the bullet train. When the history of this fiasco is written, it will be seen as a devastating blow.

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.

At a May hearing, judges signified their readiness to defer to the Legislature — at least so far — in determining whether state efforts were meeting the safeguards in Proposition 1A, the 2008 ballot measure providing $9.95 billion in bond seed money for the$68 billion project.

Below is the initial reaction of Michael Brady, one of the attorneys representing Kings County and other plaintiffs targeting the California High-Speed Rail Authority. In a nutshell, he says this isn’t a sweeping victory for the state — just a victory at a very early stage of years of court fights that is tempered by the appeals court’s acknowledgment of the project’s shortcomings:

1. We are disappointed in the decision in that we think it ignores  150 years of precedent which respects the intent and the protection of the voters who engage in the initiative process.  Proposition 1A had various safeguards and protections which do apply to this case, and we question whether the court has properly interpreted those protections; the court itself on several occasions even conceded that the initial funding plan was “deficient.”

2. However, the court was dealing with what is called the INITIAL funding plan procedures of Proposition 1A; it seems to be saying that those requirements were meant to provide notice to the legislature only and not to provide a measure of protection to the voters themselves (we disagree with that);

3. We still have (and the court so indicated) an opportunity to challenge the legality of the Authority’s actions when the Authority moves to the NEXT STEP and  actually tries to access the monies in the bond fund; they have to apply for that money through a different section of the law-a section which is actually much tougher on the Authority with respect to what it has to prove;

4. For example, when the Authority applies under the 2d/updated funding plan, they have to make a stronger showing that they have enough money in the bank or firmly committed  to be able to complete the usable segment that they picked-a segment costing, in today’s dollars, about $35 billion.  They only have $6 billion of that, or 20%; that will not suffice and they will not be allowed to access Proposition 1A for construction costs until they have the full $35 billion; that will be a heavy burden;

5. We also believe that the Authority when they apply for Proposition 1A bond funds will have o demonstrate that they have obtained all the environmental clearances for the entire 300 mile usable segment that THEY picked; they have at present nothing  beyond Bakersfield , nothing through the Tehachapi’s all the way to the Los Angeles Basin; those clearances  will take years to obtain and they have delayed doing this for years; these are both heavy burdens;

6. Finally, under the 2d/updated funding plan requirements they must show that the project will be successful financially and in other respects; actually the financial situation on funding, the increased costs, the lack of private investors, the likelihood  of government subsidies (forbidden by 1A) have all deteriorated in the last 2 years, making the prospects for success very remote; this project , state -wide, will cost well above $100 billion, and currently they have 6% of that available with no prospects for significant further financial help from the federal government or from private investors. Californians will bear this enormous cost by themselves and alone.  This was never intended and is a bleak prospect.

7. Therefore, we look forward to litigating these further issues where the burdens on the Authority to meet the requirements of 1A are even heavier;

8. We are also evaluating the possibility of going to the Supreme Court on issues such as respect for the protection of the voters in the initiative process when measures were specifically enacted for their protection and are then brushed aside, contrary to the intent of the initiative.