On Friday August 16th, Judge Michael Kenny ruled that the “funding plan” the Authority adopted was an abuse of their discretion. Read the opinion.
While the judge deferred to another hearing a decision about the consequences, the carefully worded opinion strongly hints that the consequences may be very significant indeed – possibly even a death blow to this rendition of high speed rail in California.
What the heck is a funding plan?
Stakeholders in California, while excited about the possibility of a bullet train, were wary about going down the path of so many mega-projects which were quintessential money pits, costing much more than advertised, siphoning off money from other worthy causes but being far enough along that without additional cash, you would be left with nothing.
Somewhere along the tortuous path to put the high speed rail train bond on the ballot, someone dreamed up a safeguard against such concerns. The rail authority would have to submit a funding plan, which demonstrated that it had all its ducks in a row to be able to actually deliver a viable high speed rail route. It would not have to be the whole system, but it would have to be enough to stand on its own and not require an operating subsidy. Regional transportation entities were concerned that a high speed rail system would compete for the precious, limited public operating funds available.
The funding plan required the Authority to lay out its proposal and make a series of certifications. The Authority did this at their November 4, 2011 board meeting (staff memo funding plan) , even though several of the claims were blatantly false.
This plan had to be done before going to the legislature for their blessing to spend the money. The need for the Legislature to appropriate the money was yet another safeguard. In July 2012, eager not to leave Federal funds on the table, the legislature approved the use of state bonds to fund some of the initial infrastructure work by a narrow vote in the State Senate and a wide margin in the State Assembly.
The safeguards didn’t end there. Before committing these bond funds (e.g. signing a contract), the Authority was supposed to go back and add additional information to the original funding plan. As far as we know, this step has not been taken (even though certain contracts like one with Caltrans to move Highway 99 have presumably been signed).
What parts of the funding plan did Judge Kenny say were not okay?
Judge Kenny’s ruling focused on two specific claims. The first issue was the funding plan needed to identify the source of all the money required to construct the usable segment, which is currently designated as Merced to San Fernando Valley. The cost of this, in the Authority’s own funding plan was $33 billion. The Authority does not have this much money, and even said that they are not sure about where it is going to come from in the business plan they attached to the funding plan. They tried to say that they met the criteria because they had the money for what they were planning to build (130 mile stretch of unelectrified, unsignalized rail). In fact the actual project definition is however many miles get built until they run out of money. Judge Kenny ruled that they will not have a viable funding plan until they really have some certainty about where that money is coming from. As one State Senator grilled the Authority Board Chairman Curt Pringle at a hearing, ” Is this money a plan or more of a hope?”
The second issue was that the plan required the completion of all the project (detailed) environmental reviews required for the segment. At the time the Authority approved the final plan, they had completed exactly zero environmental reviews completed. In the funding plan, they didn’t even bother to claim they had approvals. They simply promised that they would eventually have them.
The judge not only rejected the Authority’s obvious non-compliance but also made it clear that a valid funding plan requires ALL the approvals, not just those for the portion of the construction that they do have money for. These are many years away, especially as the current routing will require the approval of a new high voltage power corridor between Bakersfield and Palmdale.
What are the practical implications of the ruling?
The judge has deferred a final decision on the remedies. He declined to simply order the funding plan approval to be rescinded because unless there are additional consequences, this would be an empty action. In the next month or two, the Authority and the plaintiffs will fight this battle. The judge strongly hinted that the Authority cannot sign any contracts that commit them to spending bond dollars beyond the limited funds specific for planning and some right of way acquisition, until they find a lot more money and make a lot more progress planning the project.
In the meantime, it will be open season for injunctions and taxpayer lawsuits.
Is this judge just an anti-high speed rail hack?
Hardly. Judge Michael Kenny was appointed to the bench by Gray Davis, following a long tenure as the executive officer of the California Air Resources Board. (More here) He is a judge who knows California state government inside and out, who will give an agency the benefit of the doubt, but not more than that.
Is it even possible to comply with the bond measure and build the rail system on the table?
Probably not. It should be noted that the bond measure safeguards were developed based upon the Authority’s cost estimate of $33 billion and assertion that all the planning work from San Francisco to Anaheim would be finished by 2012.
In reality, Authority staff and consultants had to know that planning was at a very preliminary stage. The cost estimate was clearly outdated, even when it was made. In September 2008, after the legislature had finalized the ballot measure, the Authority board meeting minutes reported that the Authority’s executive director stated, “the Financial Plan needed to be updated since documents reflected cost estimates from as far back as 2004. Also, there have been alignment changes to the draft documents which need to be updated as well.” These updates, revealing costs of the promised system to be $98 billion, were not made before the vote, were not included in the 2009 Business Plan and only came to light in the 2011 Business Plan.