The Tos, Fukuda/Kings County Prop 1A case was heard on Friday, November 8th with heavy press coverage and an attentive audience. The purpose of the 50-minute hearing was to give both the state and the plaintiffs the chance to offer their opinion of how to correct the violation the court ruled on last August. A decision is expected the first part of December.
As background, Judge Kenny ruled that the Authority had abused its discretion when it did not follow the plain language in the Prop 1A statute. First, the law required all environmental work to be completed for the Merced to the San Fernando Valley usable segment the High-Speed Rail Authority chose. Next they had to identify all funds to complete that segment. These two requirements had to be in place before the Rail Authority wrote the first funding plan. HSRA has approximately $6 billion allocated for a much smaller segment but not the entire segment (which is estimated to cost $31 billion). The Authority has finished the environmental work for about 29 miles but is required to complete a total of approximately 300 miles to comply with the environmental clearance mandate of the court’s order and the ballot measure.
Here are some highlights of the hearing:
1. The court ruled the Authority violated prop 1A in their funding plan. From the tone of the judge’s questions, there appears little doubt he will dole out some kind of consequences because of it.
2. The Attorney General’s office (AG) believes they are in compliance with Prop 1A despite the judges ruling, noting a valid legislative appropriation.
3. Legislature aside, the Judge asked the AG’s office if the Authority had the right to create a funding plan that was not compliant with Prop 1A. The Deputy AG, Michele Inan said she wasn’t sure but felt if the Legislature did not agree with the funding plan they could have decided not to appropriate funds.
4. According to the AG’s office if the judge ordered a new funding plan as part of the remedy of this case, it would have no effect on the Authority since they believe they have a valid appropriation from the legislature and they would build anyway.
5. The judge appeared reluctant to stop the spending of federal money.
6. The expenditures of state bond funds hadn’t reached a high enough level to be considered a violation. It seemed to be a question of “ripeness” as evidenced by the following quote from the Judge: “Mr. Flashman, isn’t your argument a better argument for a later day”
The remedies hearing:
The Authority, represented by Deputy Attorney General Michele Inan, did not offer any remedies in either the legal briefs or in court. Like a child covering her ears, saying “I can’t hear you”, Inan persisted in the argument that the Rail Authority had not violated Prop 1A. Like a patient parent, the judge reminded the Deputy AG that “they already had that discussion, “ and in fact later he reminded Inan again that he had ruled the Authority was not in compliance with Prop 1A.
The AG’s office continued to insist that what they violated were reporting requirements to the legislature and not promises to the public in Prop 1A. They reminded the court that the public is represented by elected officials. At the earlier hearing back in May, Deputy Attorney General (AG) Michele Inan stated the legislature approved the funding plan even though the funding plan was not perfect.
The plaintiffs represented by co-counsel Stuart Flashman and Michael Brady, offered the court a variety of remedies in court briefs and in the hearing including invalidating the funding plan and canceling construction related contracts, a stoppage of state construction activity (not planning) and a temporary restraining order while the case is heard.
Flashman disagreed with Ms. Inan’s contention that the funding plan requirements were only for the legislature. He pointed out there were requirements in the enabling legislation that were not in the bond act. He insisted those conditions noted in Prop 1A were mandatory provisions “to reassure voters the money would be handled responsibly. They were financial protections so the money would not be wasted. “
See and hear the first part of the hearing. It seemed that the judge almost enjoyed the debate of the issues, quizzing primarily the state’s side. See the 10 mm to around 15 mm. http://youtuJvKZJOpU-HU
Federal verses state funds and spending vs. obligating
The state also contended that they were only spending federal money and it would be improper for the court to stop them. The plaintiffs represented by co-counsel, Stuart Flashman, argued that indeed they had obligated state funds in signing 2 contracts and more contracts were on the immediate horizon and in fact required to be signed, for the two contracts to be fully effective.
Flashman asks rhetorically how you can “break ground,” in January or February of 2014 if you haven’t purchased the land. “They’ll have to do it very soon,” he told the court. Flashman told the court that the Authority has opened an office in Fresno in order to work on acquisition and stage construction activity and they were signing contracts with landowners for the purchase of their properties. He strongly contends that the spending of federal funds obligates the spending of state funds since they did not have enough federal funds to go forward without the use of state funds.
Ms. Inan disagreed, “The Rail Authority is walking a fine line between moving the project along and complying with the bond act,” says Deputy AG Inon. She insisted that today, they were in compliance. She also noted that the Tutor Perini contract had planning activities and they wouldn’t be ready immediately to break ground. She also offered that the state was not obligating state funds since it has the right to cancel both contracts. There was a 30-day cancelation clause in the Tutor Perini and the second contract was an interagency contract with Caltrans and could be canceled at any time.
While the judge did not make any rulings at the hearing, the judge seemed to indicate that some of the plaintiffs’ arguments regarding the level of actual spending of state funds were premature. When asking Mr. Flashman, “Isn’t your argument a better argument for a later day,” the judge seemed to be suggesting when other contracts were signed and monies were spent it might be ripe for ruling. Flashman insisted that the spending of federal monies is promising the bond funds, the only funds the state has properly allocated by the legislature. Dipping into any other state funds not appropriated by the legislature is a violation of the state constitution, Flashman argued.
Rescinding the original funding plan?
The judge asked why it wouldn’t be sufficient if the court simply instructed the Authority to simply rescind the original funding plan?
Flashman asked, as the court pointed out earlier, about the practical impacts if you don’t go beyond rescinding the original funding plan; going on to say “The Authority is engaging in committing bond funds improperly”. Flashman added, there are additional violations that are on going. He reminded the court that the Authority shouldn’t be engaged in construction activity, including obligating state funds, since it has not done the funding plans required.
Flashman said rescinding the first plan might work since it would be hard for the Authority to do a second funding plan without the first one legally in place. Flashman also contended not having a legal first plan would be like putting your shoes on in bed before you got out of bed. There was a certain order to doing things.
The court follows up and asks if it was a problem because the interplay of federal and state funds.
Flashman says while the federal funds are being spent the bond funds are being committed. If you grant the Authority’s argument that they can spend the federal funds ARRA funds, there aren’t enough federal monies without using matching state money so you are implicitly committing state bond funds.
Ms. Inan retorts, spending federal funds does not commit state bond funds. You can’t consider future spending commitment she offered. There is no geographic prohibition as the plaintiffs contend, the Federal Railroad Administration Plan says it covers the entire initial Construction Segment (ICS). They have no intentions to use FY 10 funds until the American Recovery and Reinvestment Act of 2009 (ARRA) funds are spent since the ARRA funds have a deadline.
Note: The FY10 funds are different than the ARRA funds and are just under a billion dollars. They have no practical deadline but they require the spending of state funds first and grant federal funds on a reimbursement basis only.
When it was the state’s turn to answer what would happen if the court required the Authority to rescind the funding plan, Ms. Inan confirmed that indeed that action would be no practical effect. “ So the plan means nothing?” asked the Judge. Ms. Inan said, “The plan means everything.” She stuck to her guns that the funding plan was a reporting requirement for the legislature.
The judge asked, “So the Authority would just simply go forward? Without directly answering the question Ms. Inan essentially answered yes. She offered that the Authority would just go forward since they have a legal appropriation from the legislature. “The appropriation controls the direction of the project,” Michele Inan said.
Judge Kenny asked, "The legislature aside, can the Authority approve a funding plan report that was deficient." The AG danced around the answer since the word deficient wasn’t clarified. She said she didn’t know. But in essence she added that “if the Authority produced a clearly deficient report, in the court’s view, it wouldn’t get an appropriation. “ See 17 mm on the first video. http://youtuJvKZJOpU-HU
The court followed up, “Let’s go backwards a little bit, the environmental certifications were required to be accomplished, what the Authority heard was that they will be required. That’s bound to be a violation.” He also said the second funding plan requires an update to something that should have been done. “What does the Authority do?”
The AG offered that the second funding plan doesn’t have environmental requirements but stated that in the first funding plan it indicated that construction wouldn’t start until environmental clearances were completed. The Legislature accepted that.
Note: If you examine the second funding plan requirement, it’s designed to be a pre-construction plan. It also examines changes that may have occurred since the first funding plan was written and examines the viability of the project through an independent financial expert before moving to construction.
The AG is right, there is no requirement for environmental work in the second funding plan but that’s because it was supposed to have been completed before the first funding plan was ever written.
Ray Carlson from the Central Valley:
At the end, Ray Carlson, Attorney from the Central Valley brought it all back to the reason they were in court today, remedies for the Authority’s violation. His client, the Kings County Water District filed an Amicus brief which focused on the financial protection provisions of Prop 1A. He reminded the court that its ruling said that the Authority violated Prop 1A. “They don’t have a proper funding plan, under subsection C, they still don’t have one and they have to have one and that’s the reason it can’t be sloughed over. “
“Let’s remember it’s the people’s money, it’s not the legislature’s, it’s not the Authority’s. They passed this law and they want it enforced. The Authority has to show they have the money.” Carlson ended with, “If they can’t show they have the money, it’s better to find that out now than any later time.”
What could happen?
The court has several options it could employ such as simply declaring that the High-Speed Rail Authority redo the first funding plan to be in compliance with the court ruling and prevent any other spending until the corrections are complete.
Co-counsel, Mike Brady’s offered that indeed “a complicating factor is that we are dealing with a combination of federal and state funds; the judge indicated some reluctance to get involved in preventing use of federal funds at this point. The AG argued that they will be spending only federal funds for a while.
Brady also thought the chances were better to get the judge to stop them from spending state funds and entering into any additional commitments to do so. He says this could be accomplished through what is known as declaratory relief and the court might order the following as a remedies solution:
"The initial funding plan does not comply in 2 fundamental respects with Proposition 1A; that being so, and pursuant to my power to issue declaratory relief, I declare that no 2nd or updated funding plan can be prepared, submitted, or approved until the initial funding plan is legally compliant with Proposition 1A. Furthermore, I declare that no spending of Prop 1A bond funds, and no financial commitments to spend Prop. 1A bond funds for construction purposes can take place until a valid 2nd and updated funding plan has been duly prepared, submitted to government officials, and approved."
“This would prevent the use of "matching" Prop 1A state funds, and might well cause the federal government to step back and not allow its funds to continue to be used, “ said Brady.
The court is expected to rule in this and the Validation case in the first part of December. On December 13th, a court date will be set for Part 2 of the Tos case called the 526A action. This is a taxpayers suit filed to prevent the state from spending bond funds on a project that it cannot finish, wasting billions of dollars.
To watch the hearing in its entirety see the three part you-tube lasting slightly less than 1 hour. If you follow the case closely you will find it very interesting. A must see is the Part 1 youtube, only 21 minutes.
Part 2: http://youtu.be/UDJR_9pgijY
Part 3: http://youtu.be/kqc8D90nWec
Links to the legal documents can be found at http://transdef.org/HSR/Taxpayer.html
Kathy Hamilton has written several recent articles on the current lawsuits and many other subjects concerning the High-Speed Rail Authority. See a brief synopsis by title on her site: http://www.examiner.com/transportation-policy-in-san-francisco/kathy-hamilton