Analysis of the 2007-08 Budget Bill: Transportation

High-Speed Rail Authority (2665)

The California High-Speed Rail Authority (HSRA) is responsible for planning and constructing an intercity high-speed rail system. Chapter 796, Statutes of 1996 (SB 1420, Kopp)-the California High-Speed Rail Act of 1996-established HSRA as an independent authority consisting of nine board members appointed by the Legislature and Governor.

The authority was due to expire December 31, 2003. Chapter 696, Statutes of 2002 (SB 796, Costa), repealed the expiration date, making HSRA permanent. Chapter 696 also authorized the sale of $9.95 billion in general obligation bonds, including $9 billion of which would be for planning and construction of a high-speed rail segment between San Francisco and Los Angeles. The bond measure was scheduled to be placed on the November 2004 ballot.

Since Chapter 696, the bond measure has been postponed twice. First, Chapter 71, Statutes of 2004 (SB 1169, Murray), postponed the measure to the November 2006 ballot. Chapter 44, Statutes of 2006 (AB 713, Torrico), further pushed back the bond measure to the November 2008 ballot.

Time to Bite the Bullet for the Bullet Train

The Governor proposes to indefinitely postpone submitting a high-speed rail bond measure to the voters. The budget provides $1.2 million to support the High-Speed Rail Authority through 2007-08, however, it provides no funds for contract services. We recommend that the Legislature decide whether or not to continue the project. If the Legislature decides to terminate the project, we recommend deleting the authority’s funding and disbanding the High-Speed Rail Authority.

Budget Proposes to Stop High-Speed Rail Project Indefinitely. As part of the 2007-08 budget, the administration is proposing $29.4 billion in general obligation bonds for various infrastructure projects, principally in education, to be placed on the ballot in 2008 and 2010. The administration believes that setting aside bonding authority for high-speed rail would take up the state’s capacity to issue bonds for most other purposes. Therefore, the administration proposes to indefinitely postpone submitting the high-speed rail bond measure to the voters. This would essentially end the project unless another source of funding is provided. The budget, however, requests $1.2 million to support the continued operation of HSRA during 2007-08. This amount does not include funding for the authority to continue to contract for work related to the development of a high-speed rail system.

The HSRA has worked since its creation to develop a high-speed rail system in anticipation that the bond to fund the first segment would go to voters. In the current year, HSRA entered into several contracts for that purpose. These contracted services would develop processes and plans to manage and finance the project, as well as perform preliminary environmental and engineering work on segments of the high-speed rail line. Discussions with the authority indicate that $13 million has been committed toward these efforts in the current year. Although these contracts are funded on a year-to-year basis, the work outlined in them spans several years. The HSRA estimates that the cost to continue funding the contracts in 2007-08 would be about $70 million. (This cost does not include the cost to acquire any rights-of-way.)

Legislature Should Decide Fate of Project. Each year the authority operates, it is getting further along in the development of a high-speed rail system, and more money is being spent on the project. Through 2006-07, the state will have spent approximately $47.4 million on this project.

Not knowing if the state is committed to the project makes it difficult for HSRA to determine how quickly it should develop the project. For instance, if a system is to be constructed, certain critical rights-of-way should be acquired before they are taken up by growth and development. However, without certainty that the system will be constructed, HSRA does not know whether funds should be expended for rights-of-way acquisition. Additionally, repeatedly delaying the decision on whether the state will seek voter approval of project funding creates uncertainties and makes it more difficult for the state to seek financing from other sources. For instance, funding support from the Federal Railroad Administration may not be forthcoming until it is clear that the state is committed to the project.

Discussions with the authority indicate that if the project is to proceed in a timely manner, several hundreds of millions of dollars will be needed in the next few years to acquire critical rights-of-way and to complete preliminary engineering on various segments of the rail system. We recommend that the Legislature decide on whether the state is committed to the project before substantial amounts of additional state resources are expended.

If the Legislature decides that the project should proceed, it should provide funding for HSRA to continue its system development work in 2007-08. Otherwise, there is no reason to continue funding the authority. In that case, we recommend deleting the $1.2 million from the budget and enacting legislation to disband the authority.

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