Over the past few months there has been quite a stir around High-Speed Rail in California. There has been Federal action plus action by the California Governor’s office, the California Legislature and the Agency. First a look at the Federal action.

FRA Audit and Claw-Back

The Federal action is the attempt to claw-back from CAHSRA two grants totaling $4 billion which are critical to completing the Merced to Bakersfield Initial Operating Segment. Overall, this is far from a “done deal”. There are many rounds to go before it is resolved.
Most importantly, all the funds in question have been “obligated”, which means there is a signed agreement between CAHSRA and USDOT for the funding and benchmarks for the spending. As a result, there is a very high bar for the “claw-back” of the funds. USDOT almost has to show fraud to win its case, i.e., the Authority purchased things other than bridges and right-of-way for HSR, etc.

The Administration’s claims revolve around three main issues, not enough funding to complete the project, the Biden Administration DOT’s prior review and approvals of the grants were illegal despite the fact these reviews met all the oversight requirements of grant administration and third, CAHSRA won’t meet its 2033 schedule to finish Merced to Bakersfield as outlined in the grant agreements.

The first claim, CAHSRA doesn’t have sufficient funding because the Administration is clawing back the funding, seems contrived and spurious.  In addition, extension of the Cap & Trade Program from 2030 to 2045 would negate the first claim since funding would be available to complete MCD to BFD.

The second claim, the grants and timelines are invalid because the prior Biden Administration DOT approved them (and they met all the requirements) is politics, not evidence of malfeasance as will be required when the court reviews the case.

The third main claim, the project won’t be finished until 2033, is speculative.  It will not be provable until January 1, 2034.

CAHSRA has two other things going in its favor. All of the construction cost increases due to lawsuit and political delays which resulted in additional costs due to construction inflation were paid with California funds, not with Federal funds. So, while the Administration may breathlessly cite them, they are not relevant for the core issues of a court case. CAHSRA’s other advantage is that every month it is changing the facts on the ground – completing overpasses, track ready right-of-way, design work on the MCD and BFD extension, etc. – all requirements of the grants. Also, by the time this gets a court date track will be being laid.

In many ways this claw back effort and House investigations are headline grabbing “political theatre”, lots of flash and smoke but little substance. The flip side of this initiative is that it has solidified support for the project among the public (67% approval rating in a recent poll), the legislature and Governor.

State Budget and Legislative Action

There is a major initiative within the Governor’s Budget that will help to solidify the flow of funds to the high-speed rail project. The proposal is to extend the Cap & Trade program from 2030 to 2045. This extension will create a stable and predictable funding stream for the HSR program with at least $1 billion annually for High-Speed Rail to enable greater certainty and deliver the project more efficiently.

This guaranteed minimum funding level will also improve the project’s ability to attract private capital and leverage additional funds upfront through the bonding of future funds, which will accelerate project delivery, lower long-term costs, and increase flexibility through alternative funding and construction strategies.

As I write this the final language of the proposal is being negotiated with the Legislature. The Authority continues to work with the Administration and Legislature to maximize the dollars available to the program and the length of time those funds are available.

Overall, Governor’s proposal indicates strong support for the High-Speed Rail Program.

One of the key goals of the Legislature this session is to address barriers to the timely construction of major projects, this includes high-speed rail. Being considered are initiative to lay more track sooner and reach population centers sooner.

Under consideration are initiatives to streamline processes and improve coordination for local government permitting, third-party agreements (i.e. utilities) and site-specific environmental reviews. One of the goals would be to establish time limits on all parties under which these tasks would be completed.

Changes are also proposed to increase flexibility for project sequencing outside the Merced – Bakersfield Initial Operating Segment. This was restricted under guidelines established in prior legislation (SB198). Unless changed, this will hinder the Authority from fully leveraging funding opportunities gained with the revised Cap & Trade program to unlock private sector engagement, funding, and innovation to start work on other route segments (Gilroy – Chowchilla, Palmdale – Bakersfield).

A final proposal being considered is to establish a special court for the efficient and timely adjudication of eminent domain cases. This court and staff would become subject matter experts for eminent domain cases.

All these key modifications will support more certainty around the efficient and timely delivery of the high-speed rail system, utilize limited public funds more prudently, and achieve significant project schedule savings.