Vol. 24, No. 12 www.innobriefs.com

August 20, 2013

A Major Court Rebuke for the California Bullet Train

The California High Speed Rail project was dealt a serious blow when Judge Michael P. Kenny of the Sacramento Superior Court ruled on August 16 that the California High-Speed Rail Authority "abused its discretion by approving a funding plan that did not comply with the requirements of the law."  Specifically, Judge Kenny ruled that the Authority failed to identify "reasonably expected" sources of funds required to complete the Initial Operating Segment from Merced to the San Fernando Valley and failed to carry out Environmental Impact Reports (EIRs) for the entire segment (The Authority had argued that these requirements applied only to the first  130-mile segment  from Madera to Fresno, a contention that the judge rejected). Although the suit was based on a business plan that has since been updated (by introducing the"blended approach" and lowering the estimated project cost from $100 billion to $68 billion) the two key issues raised by the court remain unaffected.

Judge Kenny declined to immediately halt the project. Instead, he announced that he will be holding a hearing on how the Authority's violations should be remedied. No date has been set for that hearing as yet.

The immediate effect of the court ruling, as many commentators have noted, is not to invalidate the state legislature's decision to release the bond money but to introduce an element of uncertainty into the project's construction schedule, as indeed into its very long term future.

As was to be expected, the decision sparked an avalanche of reactions, most of them approving of Judge Kenny's ruling. All major California papers and television stations carried extensive coverage of the decision. Speculations as to the decision's implications and potential consequences have been rampant. We reprint  a selection of them below.

"The plaintiffs are gratified that Judge Kenny has found that two critical requirements of Proposition 1A have been violated.  This was precisely our position in this writ portion of the case.  In the remaining part of the case (to be tried shortly) there are several more critical requirements that we will prove have been violated.  Things  are definitely moving in the right direction for us; after all, all we are trying to do is make the state comply with its own laws.  We're now on the way to accomplishing that."  ---Michael J. Brady, lead attorney on the suit, responding to our query

"Today's ruling is that the legislative appropriations for high speed rail...remains valid, and our work on the project continues. ... We take our commitment to Proposition 1A seriously and continue to work towards developing a high-speed rail project that benefits all Californians.""We are moving forward with this plan because the judge told us that we could move forward with this plan."  ---CHSRA Board Chairman Dan Richard in statements to reporters

The judge's ruling reaffirms what the people in California already know, they were deceived when they voted in good faith for the $10 billion Prop 1A High Speed Rail bond in 2008. Hopefully this ruling releases the Governor from honoring previous administration's wishes and allows him the flexibility to make infrastructure improvements that the people of California need and want.  Spending billions to tear up prime agricultural land in the Central Valley is of no value to the people of California with regard to employment or transportation.---Diane Harkey, Assembly Member 73rd  AD,  responding to our query

"While the judge deferred to another hearing a decision about the consequences, the carefully worded opinion strongly hints that the consequences may be very significant indeed ---possibly even a death blow to this rendition of high speed rail in California. ... "The judge strongly hinted that the Authority cannot sign any contracts that commit them to spending bond dollars beyond the limited funds specific for planning and some right-of-way acquisition until they find a lot more money and make a lot more progress planning the project. In the meantime it will be open season for injunctions and taxpayer lawsuits. ..."--- CA|RR|D, Californians Advocating Responsible Rail Design,  a volunteer watchdog group

 Todays ruling reaffirms what Californians have known all along about California high-speed rail ---  we cant afford this boondoggle that relies on a fundamentally flawed business model This project should not move forward. I will continue to work to deny any federal funds going to this project in order to ensure Californians arent left on the hook for this flawed project.--- Rep. Kevin McCarthy, House Majority Whip, in a press statement

"It [Judge Kenny's ruling] destroys the state's timetable for the project." ---Former state Sen. Quentin Kopp, an early architect of the project, quoted in a press report

"The Authority's published estimate was that the IOS's (Initial Operating Segment) cost is at least $31Billion. In the forthcoming hearing, the Authority must prove that it has commitments for the remaining $25 billion.  That is a very high bar for them to climb over.  ... The Authority continues to spend, continues to claim private sector funds are '"just around the corner", and continues to claim they will start the project very soon.Our guess is that if they ever start, it will be mid-to-late 2014.  ... In an August 16 article in the LA Times, investigative reporter Ralph Vartabedian quoted  Ron Tutor, head of the winning contractor  for the first 29-mile segment , as saying he had no signed contract as yet, and that "the way I see it, the earliest any real construction can start, ... is after the first of the year." We assume the Authority will appeal Judge Kenny's decision but this is the beginning of the end."--- William Grindley, an independent analyst and longtime HSR critic, co-author (with William H. Warren) of "Diminishing Prospects for the Central Valley Project" (July 17, 2013)

"This ruling is a much more serious threat to the project. The clock is already ticking on the stimulus funds, which must be spent by September 2017. That's four short years away. The HSR project can handle a few more months of delay, but probably not much beyond that. And while an EIR can be amended and revised, it will be harder to come up with a solid source for the other funds needed to complete the Initial Operating Segment, should Judge Kenny and other appeals courts insist on that."--- Robert Cruickshank, blogger, in the California High Speed Rail Blog, August 16 (excerpt)

 "Based on the publicly available information, I do not believe they can make the case.  They need, to complete the IOS, about $25 Billion more, less the $5B they have left in Prop 1A funds.  So they need a net of about $20B.  To date no one has publicly committed to any of this missing $20B, not the Feds, not foreign HSR operators/investors, not private investors.  So the only source that is public is the claim of the Governor that he will use Cap & Trade funds.  Right now it is not clear how much could be contributed per year, that would add up to $20B over the next 8 to 10 years.  It is also not clear if Cap & Trade will win a current law suit that claims that it is a "tax" and was therefore not approved by the voters. Even If Cap & Trade gets through these two issues, it is not clear how it can be counted on as a "commited source" for years in the future."---William H.  Warren, an independent analyst and longtime HSR critic, responding to our query

"Timing is everything, we are told. The judges decision comes as lawmakers in Washington are fighting over the federal budget. Rail appropriations may come into the crosshairs of those that are looking for places to trim the budget."--- Joel Fox, Editor, Fox & Hounds, from his August 19 column  "It's been a great afternoon since the ruling came down. To read the judge's statement that the Authority 'abused its discretion ---'abused' is an understatement."

---Aaron Fukuda, one of the plaintiffs in the lawsuit, as quoted in a press report "Shelley wrote the projects likely epitaph in the closing lines of Ozymandias; round the decay of that colossal wreck, boundless and bare, the lone and level sands stretch far away. ---- Richard Little, Director, Keston Institute for Public Finance and Infrastructure (ret.)  "I don't envy Judge Kenny the task of having to reach a resolution that will satisfy every one as reasonable and fair. On the one hand, the project richly deserves to be burried but no one wants (or rather have the political courage) to kill it outright just now. So, I see the project continuing to lurch from one crisis to another until one day an empty treasury will inevitably deliver a final coup de grace."---Name withheld by request

  

### Kenneth OrskiEditor/PublisherInnovation NewsBriefs (celebrating our 24th year of publication) Note: the NewsBriefs can also be accessed at www.infrastructureUSA.org ;   They are often posted  on www.newgeography.com; www.cascadiaprospectus.org;  heartland.org;  and the National Journal Transportation Experts Blog  (http://nationaljournal.com/insiders/transportation).  A listing of all recent NewsBriefs can be found at www.innobriefs.com  

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