Note: The Background, Proposal, and Fiscal Effect sections are taken from the LWVCEF In Depth publication, based in part on the Legislative Analyst’s Office analysis included in the Secretary of State’s official Voter Information Guide.

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 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:

1. Sacramento to Stockton to Fresno
2. San Francisco Transbay Terminal to San Jose to Fresno
3. Oakland to San Jose
4. Fresno to Bakersfield to Palmdale to Los Angeles Union Station
5. Los Angeles Union Station to Riverside to San Diego
6. Los Angeles Union Station to Anaheim to Irvine
7. 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.

LEAGUE POSITIONS AND DISCUSSION

The LWVC Transportation position supports a transportation system to move people and goods that includes a variety of transportation modes, with emphasis on increased public transportation services.

The LWVC Air Quality position supports development of effective enforcement and implementation procedures to attain established air quality standards that will protect the public health and welfare.

The LWVUS Environmental Protection and Pollution Control position also promotes measures to reduce pollution from mobile sources, and recently stated policies of the LWVUS encourage the reduction of greenhouse gas emissions that contribute to global climate change.

The LWVC State and Local Finances position on Long-Term Debt Financing supports the use of bond financing for construction of capital projects and purchase of facilities for public use, and for the repair and retrofitting of existing public facilities and structures when other means of financing are not available. The League believes that support of bond measures should take into account the state’s current bond rating and the impact of the measure on the ability to finance other projects; how the bond measure fits within debt management and infrastructure plans; and current urgent needs.

Discussion

The High-Speed Passenger Train Bond Act would provide partial funding for an innovative train project that would move people between distant areas of the state. The project would run with electric engines. It would provide an alternative to the need for increased automobile and air travel, and their associated facilities, as the population of the state grows in the future. The investment in train facilities would offset the need to construct new airport and highway facilities.

The nearly $10 billion in bonds that would be repaid by the state general fund over 40 years is of concern because of competition for general funds needed for education, health and welfare, and other ongoing state programs. However, we believe that the added financial oversight provided by the passage of AB 3034 (Galgiani) (which changed the measure from Proposition 1 to Proposition 1A) improves the requirements for sound financial planning and review by a qualified panel of experts. AB 3034 also provides restrictions that would discourage expansion of urban growth into sensitive habitats along the route between Merced and Gilroy.

The rebuttal to the supporters’ argument was signed by Hon. Chuck DeVore, California State Assemblyman; Richard Tolmach, President, California Rail Foundation; and Mike Arnold, Ph.D., Co-Chair, Marin Citizens for Effective Transportation.

The rebuttal to the opponents’ argument was signed by Jim Earp, Executive Director, California Alliance for Jobs; Bob Balgenorth, President, State Building & Construction Trades Council of California; and Lucy Dunn, President, Orange County Business Council.

RESOURCES

Irene Sampson, LWVC Transportation Legislative Consultant, transportation@lwvc.org

Charolette Fox, LWVC Natural Resources Director, natural_resources@lwvc.org

Linda Craig, LWVC Advocacy Director, legislation@lwvc.org

Trudy Schafer, LWVC Senior Director for Program
1107 9th Street, Suite 300, Sacramento 95814
916 442.7215, tschafer@lwvc.org

www.californiahighspeedtrains.com, Californians for High Speed Trains—Yes on Proposition 1A
916 551.2513

Opposition campaign: www.DerailHSR.com

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