Tuesday, November 26, 2013

Judge blocks use of state bond money for California bullet train

Michael Kenny
Sacramento County Superior Court Judge Michael Kenny questions attorney Stuart Flashman, who is representing opponents of California's high-speed rail project, about the lawsuit seeking to halt funding for the bullet train on the grounds that the project violates promises made to voters. (Rich Pedroncelli / Associated Press / November 8, 2013)

In a major legal blow to the California bullet train, a Sacramento judge ruled Monday that the project cannot tap bonds that voters approved for construction, a decision that could cause indefinite future delays.

Superior Court Judge Michael Kenny issued two decisions Monday, both of them based on findings that the state made key errors and failed to comply with voter-approved requirements as they moved the project toward a long-awaited groundbreaking. The decisions do not immediately stop the project, but they could sharply curtail the state’s ability to pay for the high-speed rail system in the future.
Construction of the Los Angeles-to-San Francisco train, more than a year behind schedule, was most recently slated to begin in the second quarter of 2014. The state still could start construction, though as a result of Kenny's rulings officials wouldn't have access to nearly $9 billion in rail bonds approved by voters in 2008.

Kenny ruled that the state does not have a valid financing plan, which was required under the 2008 bond measure, Proposition 1A. The measure included provisions intended to ensure the state did not start the project if it did not have all of the necessary funds to complete a self-supporting, initial operating segment.

The state rail agency created a funding plan, but it was an estimated $25 billion short of the amount needed to complete a first working section of the line.

Kenny ruled that the state must rescind the plan and create a new one, a difficult task because the state High-Speed Rail Authority hasn't identified sources of additional revenue to allocate to the project.
“It could be a fatal stumbling block that the state can never satisfy,” said Michael Brady, a Bay Area attorney who represented Kings County and two of its residents in a lawsuit that Kenny ruled on Monday.
Separately, in an action brought by the state to support its actions, Kenny found officials made critical errors in approving the sale of the bonds and declined to legally “validate” the sale. California Treasurer Bill Lockyer has said he will not sell bullet-train bonds without a court validation. It appears to be the first time in state history that a judge refused to validate a bond sale.

Kenny did not grant a request to stop the project or major construction contracts that were issued earlier this year to Tutor Perini, a construction firm, and Caltrans, the state transportation agency.

The state has argued it can use federal grant funds, which are not subject to the conditions of Proposition 1A, to start construction. But eventually the state will have to match federal grant funds. Without access to bond funds, the legislature would have to appropriate money from a different source.

State officials on Monday appeared to be seeking ways to press ahead with the project.

“We are reviewing both decisions to chart our next steps, but it is important to stress that the court again declined the opposition’s request to stop the high-speed rail project from moving forward,” said rail board chairman Dan Richard.

“Like all transformative projects, we understand that there will be many challenges that will be addressed as we go forward in building the nation’s first high-speed rail system.”

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