The Tos/Fukuda/Kings County case, commonly known as the Prop 1A case, is heating up. The court found that the High-Speed Rail Authority violated the law and had an inadequate funding plan. They asked each side to come forward with what they thought should be the remedies. Here’s the article about the court ruling.
The Attorney General’s (AG) office replied in their court brief on Friday. In short, they said there should zero remedies in their legal brief for violating the law in fact since they are using federal funds in their contracts and in fact the court should dismiss the case. Curiously, they did not address the court findings about the inadequacy of funding and the incompleteness of environmental work for the Initial Operating Segment.
Co-counsel Stuart Flashman said the AG's brief basically asked the court to reverse itself and to reject the challenges to the funding plan. He also said the AG's office ignored the idea that "the whole procedure should go from the Initial funding plan to the 2nd funding plan and all the steps in between." It was supposed to be a logical process. Each step was to be dependent on the one before. He didn't see a convincing argument why this shouldn't be so from their legal brief.
Michael Brady, co-counsel on the Prop 1A suit comments. Since the Authority concedes that Judge Kenny is right in saying that they are in violation of Proposition 1A, the sensible thing to do for the Authority would be to accept Judge Kenny's offer to let them comply with the law by starting over and satisfying the inadequate funding problem and the failure to complete environmental clearances.”
Brady says the Authority “insists on plunging ahead, spending billions of federal and state funds on a project that has been found illegal. This is consistent with the attitude of the Authority and the Governor when Judge Kenny first ruled on August 16--they said the ruling makes no difference, doesn't apply to them and that all construction activity would proceed. I think this is what is called HUBRIS!"
A glimpse into the AG brief:
The Attorney General’s office offered some interesting and creative arguments as to why there should be no consequences to them. A dear friend with Italian heritage who read the brief says the Authority is “Arrampicarsi sugli specchi” (literally translated as climbing on mirrors) or in English, trying to make up imaginative explanations for something unknown or impossible. United States equivalent is clutching at straws but climbing on a mirror is much more visual.
Here are a few highlights of AG’s brief filed this past Friday:
It says the second funding plan, doesn’t have to necessarily be the same usable segment identified in the first funding plan. It could totally different and they don’t need to do one until they begin spending state bonds.
Comment: This cannot be true. The judge found that all environmental work had to be completed before the first funding plan was submitted. There is no reference to environmental work in the requirements for the second funding plan because it was supposed to have previously been completed. This second plan, is clearly meant as an update, a refinement. Plus this is the only location that the state legislature appropriated funds for.
Stuart Flashman agrees that while it's true the 2nd funding plan digs in deeper into the issues, there is no environmental review requirement in plan 2 and if what the AG's office contends is true, you would have essentially eliminated the environmental review because the first funding plan is the "whole ball of wax."
He adds "that an appropriation from the legislature requires a funding plan and if the Rail Authority is changing the IOS, they need a new appropriation and if they need a new appropriation, they need a new first funding plan." It all goes in logical sequence.
It says we’re not spending Prop 1A funds but instead spending federal money with the two-signed contracts, one with Tutor Perini (signed the morning of the Tos ruling) for planning and construction of the first 29 miles and the other contract is with Caltrans for the relocation of Hwy 99.
It also warns the court it has no jurisdiction over federal expenditures and the legislature authorized spending of those federal funds in the appropriation.
Despite all their arguments why the court shouldn’t grant any remedies, they were apparently worried that the court might issue a temporary restraining order (TRO) on construction. They warned the court that if it did order one, a bond would have to be posted and they estimate that the Authority would lose $300 million in a six-month period.
It also says that spending federal funds does not necessarily obligate Prop 1A funds as matching funds since in the federal agreements it doesn’t say “Prop1A funds,” it says matching state funds.
Comments that show the bond funds were intended as the match and therefore the spending of federal funds does obligate the state bond funds:
· In the December 2012 Federal funding agreement it identifies the Prop 1A funds as the primary source of matching funds It says, “FRA recognizes that unless otherwise stated herein, the Grantee anticipates using proceeds of Proposition 1A bonds to provide the Grantee’s match funding as required by Subsections 5(c), 5(e), and 5(f) hereof, but that the issuance and sale of Proposition 1A bonds are subject to certain other state legal requirements.
In the event the Grantee does not expect such proceeds to be available in time to provide the contributory match concurrent with its request for grant funds, the Grantee shall make all reasonable efforts to secure a substitute funding source to deliver the required funding.”
Use of other funds were obviously meant as a plan of last resort.
· In the bill analysis for SB 1029, it says specifically, “This bill appropriates to the Authority $3.24 billion from the Federal Trust Fund and $2.61 billion from the High Speed Passenger Train Bond Fund for the construction and acquisition of a portion of the initial operating segment.” http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_1001-1050/sb_1029_cfa_20120706_100049_sen_floor.html
Also in Senator Leno’s speech the day of the July 6th appropriation vote he states at the 51:50 mm that “the intent is to move forward with voter approved bond funds matched by federal dollars.”
· Also in the Validation suit hearing, heard by the very same judge as the Prop 1A case a couple of weeks ago, one would ask if the bond funds were not to be used to match the federal funds, why would Stephanie Zook, Deputy AG tell the court that the Federal Government is currently spending their money and they needed assurances. “Even a delay in terms of reaching a judgment is something that is material to the federal government and requires a report, that’s how urgent this issue is.” She stated, “It was urgent, every day is more critical.”
She also added it wasn’t for her, the defendents or the court to question the Authority about their decision in which they asked for $8.5 billion in bonds without providing evidence. The judge asked if it would ok if the Finance committee just flipped a coin and she said yes. See the five-minute video
· In the December 2012 FRA Funding Agreement, it indicates early spending of the Federal dollars must be matched not just by state funds, but in particular by Prop1A catch up funds- that’s bond funds.
· And last and extremely important, if the Authority was going to use some other source of state funds, they have to go to the legislature to get the alternate funding agreed to and then appropriated. The Authority doesn’t have any authority to obligate any state funds, even Prop 1A funds.
This point was made crystal clear by Senator Simitian and Lowenthal in an April 23, 2011 Senate meeting. Both Senators expressed their displeasure that the legislature was not looped in before the HSR Authority offered to match federal funds with 50% of state bond funds. The Senators told the Authority members, they did not have the authority to do that. In short, the Legislature must approve any funds being spent on High-Speed Rail.
The AG’s office contends the FRA will allow them to reach back as early as 1996 to categorize monies spent on the high-speed rail project as state matching funds. That is 17 years ago and 14 years before the first grant agreement was awarded in January 2010.
Comment: The ARRA funds were supposed to be used for shovel ready projects and the spending of state and federal dollars were supposed to act as a job stimulus. Why then would the federal government allow 1996 monies ($450 million of them less federal expenses during that period) to count as matching funds? The reason the Authority and the federal government worked this out is probably so they won’t be on the hook to scramble for money in case the state bonds are not sold in time to meet the April 2014 deadline to start contributing to the project.
In regards to counting jobs, the ARRA guidance document would allow a job to be counted prior to the funding of an ARRA award and then, only under very particular circumstances. See page 21, section 5.9 of this link.
It was clear this was after the award was granted but before funding. Along those same lines, why would the FRA allow money spent on HSR 14 years prior to ARRA award notification be allowed to count as a match? If the FRA allow this, it would take away the urgency of validating bond funds in the spring of 2014.
Unusual Changes in the Federal Railroad Administration (FRA) Funding Agreements
The state has had 5 Grant agreements that have been updated since the Rail Authority received the awards of federal funds. Each time a new agreement comes out, it seems to be customized to fit the position the Rail Authority is in, which seems to be an effort to help them since they are running behind or perhaps in lawsuits. Rumor has it a sixth agreement is being worked on.
Example: Roy Kientz, Undersecretary of Policy, Department of Transportation (DOT), sent a letter to the rail authority on May 25, 2011 with a rather unequivocal opinion on the subject of matching funds, which said in short “thou shalt not spend federal funds first.”
Kientz wrote in that letter, “ On the matter of using federal funds up front to postpone use of the State’s matching funds, we hope you will understand why this is not feasible. Both the fiscal year 2010 appropriations law and the FRA grant commitments require matching funds as a prerequisite for this project to go forward. California was awarded funding based in part on the impressive state match promised in the grant applications. Withholding these matching funds would put the California’s high-speed rail project in serious jeopardy.”
Kientz left the agency and within a year, he joined Parson Brinckerhoff, the primary consultant on the HSR project. Shortly thereafter a revised Funding plan was published which said the federal funds can be spent first and matching bond funds have to be spent on the project by the April 2014 time frame.
Why did they need to do this? Because the project was in no condition to ask for state bond funds since it was far behind in environmental work and were running out of time. The Fed funds evaporate in September 2017 if unused. The FRA cannot extend that September date. It requires Congressional approval. Using fed funds first would help the Authority get started and utilize all the federal funds.
The Plaintiff’s side:
The plaintiff’s (suit originators) sent in their response on September 17th. The article written last month highlights their approach including asking the court to order the Authority go back to square one and re-write a funding plan.
It seems logical for Judge Kenny to order that the Authority comply with the law, which he said they violated. Why bother having a law if there are no consequences if someone breaks it?
It seems logical he would require a new start. Why debate contract spending and whether the funds used are federal or state for a segment, which the court ruled, is inadequate in scope, funding and environmental work?
The court ruled that the Authority broke the law in regard to the funding plan but the plaintiffs could well prove many more broken promises in part 2 of this lawsuit. It is called a Declaratory Relief action (526a) and that has yet to be scheduled. It will cover specific promises in the bond act and determine if they can indeed be met such as travel time, the need for subsidy etc.
The Plaintiffs will have 15 days to file a response to the Attorney General’s brief. The remedies hearing for the first part of the case is Friday, November 8th.
The entire AG brief can be found at: http://www.scribd.com/doc/175441551/Attorney-General-s-reply-brief-in-Tos-et-al-vs-CHSRA
Kathy Hamilton has written several articles on the current lawsuits and many other subjects concerning the High-Speed Rail Authority. See them all on her site: http://www.examiner.com/transportation-policy-in-san-francisco/kathy-hamilton