SAFE, RELIABLE HIGH-SPEED PASSENGER TRAIN BOND ACT
Legislative Bond Act

THE QUESTION

Should the state of California be authorized to issue $9.95 billion of general obligation bonds to partially fund a high speed rail system in California?

BACKGROUND

California is served by urban, commuter and intercity passenger rail services. Urban and commuter rail services, such as BART in San Francisco and Metrolink in Southern California, primarily serve local and regional transportation needs. These services are generally planned by local or regional governments and are funded with local, state, and federal monies. Intercity rail services primarily serve passengers between cities as well as between regions in California and other parts of the country. Currently, the state pays for with Amtrak to provide such intercity rail service, with trains that travel at maximum speeds of up to about 90 miles per hour. There are intercity rail services in three corridors: the Capitol Corridor service from San Jose to Auburn, the San Joaquin service from Oakland to Bakersfield, and the Pacific Surfliner service from San Diego to San Luis Obispo. None of the existing state-funded intercity rail services provides train service between northern and southern California.

In the 1980s, promoters began to advocate for high-speed train service, a concept already in use in Asia and Europe, as a possible alternative to overcrowded highways and expensive air travel. In the 1990s, increasing interest in high-speed rail led to the creation of the California High-Speed Rail Authority (the “Authority”), a state board charged with designing a high-speed train system for California. The Authority has a nine-member policy board (five members appointed by the Governor, two appointed by the Senate Rules Committee, and two by the Speaker of the Assembly) and a small core staff. All environmental, planning and engineering work is performed by private firms under contract with the Authority.

Over the past 12 years, the Authority has spent about $60 million for pre-construction activities (such as environmental studies and planning) related to the development of a high-speed train system that would use electric trains and connect California’s major metropolitan areas. The Authority introduced a business plan in 2000 for a system that would link all of the state’s major population centers including the San Francisco Bay Area, Los Angeles, Sacramento, the Inland Empire, Orange County, and San Diego. Beginning in late 2005, the Authority began implementation of the 800-mile long high-speed train system. It is contemplated that the high-speed trains will be capable of maximum speeds of 220 miles per hour, with an estimated trip time from San Francisco to Los Angeles of 2 hours 40 minutes. The system is forecast to potentially carry over 100 million passengers per year by 2030.

The Authority estimated in 2006 that the total cost to develop and construct the entire high-speed rail system under its 2000 plan would be about $45 billion. While the Authority plans to fund the construction of the proposed system with a combination of federal, state, local and private monies, no funding has yet been provided. The bonds provided by Proposition 1A would provide part of the needed funding.

There have been several delays in placing a high-speed passenger train bond measure on the ballot. A measure was originally scheduled to appear on the November 2004 General Election ballot. It was delayed and the bond measure was then scheduled to appear on the November 2006 General Election ballot. However, that measure was later removed from the 2006 ballot as part of a compromise between lawmakers and the Governor involving other public spending plans.

The Legislature then approved a high-speed rail bond measure which was to appear on the November 2008 ballot as Proposition 1. However, due to the passage of AB 3034 (Galgiani), which was approved by the Legislature on August 13, 2008 and signed by the Governor on August 26, Proposition 1 was removed from the ballot and replaced by Proposition 1A. The Secretary of State will issue a Supplemental Voter Information Guide to provide voters with the text, analyses, arguments and other information about Proposition 1A.

Proposition 1A differs from Proposition 1 in a number of respects. Among other things, Proposition 1A limits the percentage of bond proceeds that can be used for administrative expenses and for environmental studies, planning, and preliminary engineering activities; requires completion of specified funding plans and financial analyses before bond funds are requested and committed; establishes an independent peer-review group to review the Authority’s plans; and requires the State Auditor to conduct periodic audits of the Authority use of bond funds.

THE PROPOSAL

This proposition authorizes the state to issue $9.95 billion in general obligation bonds to fund (1) pre-construction activities and construction of a high-speed passenger train system in California, and (2) capital improvements to passenger rail systems that expand capacity, improve safety and/or enable train riders to connect to the high-speed train system. The bonds must have a final maturity of not more than 40 years. The bond funds would be available when appropriated by the Legislature. General obligation bonds are backed by the state, meaning that the state is required to pay the principal and interest costs on these bonds. This bond measure requires a simple majority vote for approval.

The High-Speed Train System. Of the total bond proceeds, $9 billion would be available, together with any available federal or other funds, to develop and construct a segment of the high-speed train system from the San Francisco Transbay Terminal to Los Angeles Union Station and Anaheim (Phase I). The bond proceeds may be used for planning and engineering for the high-speed train system, and for capital costs, as defined, including acquisition of rights-of-way and the acquisition or construction of trains, tracks, power systems, and stations. The Authority is required to seek other public and private funds to augment the bond funding, and the use of the bond proceeds is limited to no more than 50 percent of the total cost of construction of each corridor or segment of a corridor.

If the Authority determines that construction of other segments of the proposed system would advance construction of the entire system and would not adversely impact the construction of Phase I, it may request funding for capital costs for any of the following high-speed train corridors:

• Sacramento to Stockton to Fresno
• San Francisco Transbay Terminal to San Jose to Fresno
• Oakland to San Jose
• Fresno to Bakersfield to Palmdale to Los Angeles Union Station
• Los Angeles Union Station to Riverside to San Diego
• Los Angeles Union Station to Anaheim to Irvine
• Merced to Stockton to Oakland and San Francisco via the Altamont Corridor

Other Passenger Rail Systems. The proceeds from the remaining $950 million in bond funds would be available to fund capital projects to improve other passenger rail systems that provide direct connectivity to the high-speed train system or that are part of the system’s construction, or to enhance these other rail systems’ capacity or safety. Of that $950 million, $190 million (20 percent) is allocated to the state Department of Transportation to improve the state’s intercity rail services, divided among the three intercity rail corridors, and $760 million (80 percent) would be used for other passenger rail services, such as commuter rail and light rail.

Other Provisions. Proposition 1A requires that revenues from the high-speed train system operations in excess of the amount needed for the system’s operating and maintenance costs and financing obligations be used for construction, expansion, improvement, replacement, and rehabilitation of the system. Bond funds cannot be used for operating or maintenance costs of trains or facilities. No more than 10 percent of the bond proceeds can be used for environmental studies, planning, and preliminary engineering activities, and no more than 2.5 percent can be used for administrative expenses, except as specified.

The Authority is required to revise its business plan by September 1, 2008 and to submit the revised plan to the Legislature, such plan to be consistent with the Authority’s existing certified environmental impact reports. The bond proceeds would be available to the Authority only when appropriated by the Legislature. The measure generally requires the Authority to complete various funding plans and financial analyses prior to submitting a request for appropriation of bond funds for eligible capital costs and prior to committing bond proceeds for expenditure for construction and real property and equipment acquisition. However, up to 7.5 percent of the bond proceeds may be used for specified expenditures outside of those requirements. In selecting each segment for construction, the Authority must give priority to those corridors that are expected to require the least amount of bond funds as a percentage of total cost of construction, among other considerations.

The Authority must establish an independent peer review group that would review the planning, engineering, financing, and other elements of the Authority’s plans and issue an analysis of appropriateness and accuracy of the Authority’s assumptions and an analysis of the viability of the Authority’s funding plan for each corridor. The State Auditor is required to perform periodic audits of the Authority’s use of bond proceeds.

FISCAL EFFECT

Bond Costs. The costs of these bonds will depend on interest rates in effect at the time they are sold and the time period over which they are repaid. While the measure allows for bonds to be issued with a repayment period of up to 40 years, the state’s current practice is to issue bonds with a repayment period of up to 30 years. If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year.

Operating Costs. When constructed, the high-speed train system will incur unknown ongoing maintenance and operation costs in unknown amounts, probably in excess of $1 billion a year. Depending on the level of ridership, these costs would be at least partially, and potentially fully, offset by revenue from fares paid by passengers.

WHAT A YES OR NO VOTE MEANS

A YES vote would mean that the State of California would be authorized to issue $9.95 billion of general obligation bonds to fund (1) pre-construction activities and construction of a high-speed passenger train system in California and (2) capital improvements to passenger rail systems that expand capacity, improve safety and/or enable train riders to connect to the high-speed train system.

A NO vote would mean that the State of California would not be authorized to issue these bonds, and other funding sources would have to found to fund a high-speed train system in California.

SUPPORTERS SAY

• High-speed rail will bring California a safe, convenient, affordable, and reliable alternative to high gasoline costs, freeway congestion, and expensive and declining airline service.
• High-speed rail will reduce our reliance on foreign oil, reduce greenhouse gases that cause global warming, and use less energy than air and auto travel.
• Proposition 1A will improve our mobility and inject new vitality in California’s economy by creating nearly 160,000 construction-related jobs and 450,000 permanent jobs in related industries like tourism.
• Proposition 1A is a bond measure that will not raise taxes. It protects taxpayers’ interests by imposing public oversight and independent review of financing plans, by requiring that 90 percent of bond funds be spent on construction, and by giving priority to the most cost-efficient construction segments.
  
  

OPPONENTS SAY

• Proposition 1A is a boondoggle that will cost California taxpayers at least $20 billion in principal and interest. With the current budget crisis and essential services being cut, now is not the time to add to our bond debt.
• California has higher priorities. The $20 billion could be used for teachers and public safety personnel, children’s health care, improving the state’s water system, and upgrading and expanding existing transportation systems.
• Proposition 1A is being promoted by out-of-state interests, many of which stand to make millions if the measure passes.
• Politicians, bureaucrats and special interests will control the money, with virtually no accountability as to how bond proceeds will be spent. In fact, while $58 million has already been spent on this project, not one foot of track has been laid.
  
  

SUPPORT AND OPPOSITION

Ballot arguments in support are signed by Steven B. Falk, President, San Francisco Chamber of Commerce; Gary Toebben, President, Los Angeles Area Chamber of Commerce; and Fran Florez, Vice-Chair, California High Speed Rail Authority.

Ballot arguments in opposition are signed by the Honorable Tom McClintock, State Senator; the Honorable George Runner, State Senator; and Jon Coupal, President, Howard Jarvis Taxpayers Association.

FOR MORE INFORMATION

General Resources:
California Secretary of State:
http://www.sos.ca.gov/elections

Legislative Analyst’s Office:
http://www.lao.ca.gov/ballot/2008/1A_11_2008.aspx

Berkeley Study of High Speed Rail:
http://igs.berkeley.edu/library/htHighSpeedRail.htm

Ballotpedia.org:
http://ballotpedia.org/wiki/index.php?title=California_Proposition_1_%282008%29

Supporters:

Californians for High Speed Rail:
http://www.californiahighspeedtrains.com

California High Speed Rail Authority:
http://www.cahighspeedrail.ca.gov

California Public Interest Research Group:
http://www.calpirg.org

Opponents:

Derail HSR:
http://www.derailhsr.com

California High Speed Rail Land Impacts
http://www.hsrlandimpacts.org