As expected the High-Speed Rail Authority pushed through the Memorandum of Understanding (MOU) for Caltrain’s electrification project as well as a request that the Treasury get ready to sell $8.6 billion in bonds. It was an odd meeting, decentralized with the board members scattered throughout the state, Redwood City, Fresno, Costa Mesa and in the state treasurer’s office in Sacramento. Board member Michael Rossi, missing last week was present in Redwood City and Lynn Schenk who made it clear she would not vote to approve the Caltrain agreement was nowhere to be found for this meeting. Here is the Authority’s video posted today. http://stateofcalifornia.granicus.com/MediaPlayer.php?publish_id=78302eff-e216-1030-9122-24b3144c4264 “
It was no surprise that the MOU was approved after a no vote from Board Member Lynn Schenk earlier in the month, who stated she had to vote her conscience because she did not believe the blended plan was real high-speed rail.
At the Q and A for the press, Dan Richard was asked if it wasn’t an ambitious plan to pick a bidder, acquire property and deal with lawsuits before the start of construction in the summer. Richard replied that “Everything about this project is ambitious.” He also said they have smoothed out the process of moving forward with the federal funding. “We have the opportunity with the advanced Federal money to start the process. When the treasurer feels the best time to go to the market and when the treasurer is clear to do that with the resolution of the litigation. We’re not going to be hung up by that.”
High-Speed Passenger Train Finance Committee:
Next the Treasury Meeting occurred. The purpose to approve $8.6 billion in bonds for the project. They were not selling them at this time. The Rail Authority was just applying for consideration. None of the appointed High-Speed Passenger Train Finance Committee were present, such as the Treasurer (Bill Lockyer), Controller (John Chiang), Director of Finance (Ana J. Matosantos), Secretary of Business, Transportation and Housing (Brian Kelly) or the Chairman of HSR Authority Board, Dan Richard. Instead they sent subordinates to face the three camera crews and all the reporters in the room. No one ever attends these meetings according to a Treasury spokesman so the room with about 25 people attending was probably quite a surprise.
Before the meeting a lot went on behind the scenes, people and organizations wrote letters to the treasury and Stuart Flashman, one of the attorneys for the Prop IA suit filed last week advised Treasurer Bill Lockyer of legal proceedings.
“The motion for writ of mandate is set to be heard on Friday, May 31st. If the court grantsthe motion and orders rescission of the Funding Plan approval, there will be no projectavailable on which to expend Proposition 1A bond funds. Further, it may be severalyears until the Authority is able to submit a legally sufficient and compliant Funding Planfor the use of bond funds. Consequently, my clients believe it would be imprudent forthe Committee to approve issuance of bonds authorized under Proposition 1A until the court has ruled on that motion”.
So in the end without pomp or circumstance and no explanation for what this vote meant, they all voted yes to accept the bond application. The timing is the question. But one thing is known for sure, they can only actually sell the bonds for the funds the legislature has appropriated in SB1029. http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_1001-1050/sb_1029_bill_20120718_chaptered.pdf
The law says that it is not necessary that all the bonds authorized be issued and sold. The bond rates are low right now according to an expert in the financial business so perhaps it’s just good timing to sell. One reporter had a different idea. he asked Dan Richard if they were trying to beat the lawsuit by issuing the large amount of bonds now. Richard answered, " You can't really do that. I think until those matters are resolved I’m not sure that the treasurer would go forward with this. That’s why we have the Federal money is going to come in first so we’ve smoothed out the process of moving forward with the funding.”
Note that the funding plan with the FRA now shows an advance of $925 million coming in from the feds and more than $700K of those funds will be used for property acquisition and the state does not have to pay back this advance until April 2014 or at the time the bonds are sold whichever is earlier. See page 95-100 on the PDF file at the top. Dan Richard said he didn’t know if they received this Federal advance at the HSR meeting on 3/18/2013 but it appears from this document, they may have. http://cahighspeedrail.ca.gov/assets/0/79/103/c90bbbf4-fa19-4278-9799-058742907ed9.pdf
No one answered the question as to why apply for this many bonds when all the legal requirements haven’t been met, the properties haven’t been acquired and all the bids are not in for the Initial Construction segment.
No one answered the question what happens if the Authority loses the Prop 1A lawsuit.
The timing and requirements to issue the bonds:
Before bonds are issued an Attorney General has to deliver an opinion to the Treasurer that it is ok to sell the bonds. It has not been done yet. The AG’s office has a dual role here, on the one hand they represent the Authority in legal actions and number two, they have to act as the state attorney and advise the Treasurer. Some might say it’s a possible conflict.
Before bonds are sold, the Authority also must prepare a revised funding plan and an independent financial services company must issue an opinion that this is a viable plan and that the corridor or usable segment thereof would be suitable and ready for high-speed train operation and upon completion that another passenger service provider can begin using tracks and this segment will not require a subsidy.
The timing of these events could have something to do with the lawsuit brief filed late last week regarding violations of Prop 1A by Michael Brady and Stuart Flashman. The suit claims that the high-speed rail authority is breaking the contract they made with the voters and is not building a high-speed rail system. The suit challenges the segment in the Central Valley will not be high-speed rail ready. Retired High-Speed Board Chairman Quentin Kopp also believes there are issues with the way the program is being managed in the Central Valley. He also has issues with the funding of the Northern and Southern California rail projects using High-Speed Rail dollars. See his commentary: http://www.myfoxla.com/story/21725911/retired-judge-rail-project-may-violate-law (less than 2 minute clip.)
The Board Chairman of the High-Speed Rail Authority, Dan Richard, had some words about the Declaration that Judge Quentin Kopp wrote. "He's wrong with the facts and he's wrong with the law." Kopp, former HSR board chairman and state senator was instrumental in creating both the bond measure and the enabling legislation. For more information regarding the suit and Judge Kopp’s declaration read: http://www.examiner.com/article/former-chairman-declares-train-project-violates-the-law
For all documents about the Prop 1A lawsuit see: http://www.countyofkings.com/