News at the Board Meeting
As Marvin Gay once sang, “What’s going on?” – something is definitely going on with the California High-Speed Rail Authority. The big hint was at the board meeting last week when a surprise occurred. Out of the blue, Board Member Ernest Camacho from Pasadena, under the banner of a fresh look asked for by the Governor, requested a side-by-side comparison of the Central Valley and the Bookend (North and South) segments in regard to ridership, congestion relief, completion date, environmental benefits, economic benefits, private investment, availability of matching local funds, etc.

Here is a 13-minute segment with Camacho’s comments at the front end with reaction from other board members toward the end. It seemed this motion wasn’t known by all board members. Tom Richard, Vice Chairman who hails from the Central Valley, seemed surprised and a bit hesitant wondering if fulfilling this new request would take away from the ongoing work in the Central Valley. The staff did not think it would interfere and promised an update in June with delivery for the report scheduled by the July meeting. They obviously knew what was going on while some board members did not.

There was one more interesting part. During the board meeting Vice Chairman Tom Richard reminded the audience that the board had not yet approved interim service from Bakersfield to Merced. This is a three-minute clip.

Remember all that was promised in the federal contracts was finishing a 119-mile segment (Madera to Shafter) in the Central Valley. According to the 2018 Business Plan, the extension up to Merced added 51 miles but was not required in the FRA agreements. It’s possible that the Authority board might choose to spread the rest of their money elsewhere, abandoning the Merced extension.

California Sues the Federal Government
Meanwhile, with the absence of almost 1 billion dollars, grabbed back by the feds will cause a shortage of building funds. (See the 25 page decision of the feds.) Now unless there is a massive increase in cap-and-trade funds or money drops from the sky, there isn’t enough money to do what the Authority planned in their May 1, 2019 update, which is to extend to Bakersfield and Merced.

The Assembly oversight meetings were held after May 1, 2018 with a report delivered to the Legislature.   There were some difficult conversations primarily by Republicans unfettered by allegiance to the Governor. Assembly member Jim Patterson (R) Fresno questioned the rail authority on May 8th about the clear violation in the May 1^st report, that a subsidy will be needed which is forbidden by Prop.1A (it has to be independent with no subsidy required.) Next on May 21^st, Assembly member Vince Fong (R) Bakersfield questioned the Authority representatives in this 14-minute YouTube about the lack of funding and lack of any relationship with the federal government.

Governor Newsom announced a lawsuit against the federal government since the feds formally notified the state they are de-obligating the yet unfunded $928 million awarded to California in 2010. The 25-page notification provided various examples of how the state didn’t meet their obligations.

Newsom does not believe the criticism is warranted. He blames the President who he described as a “petulant president” for what he believes is a political action against California. It’s true the President does not favor California who has described the state as “out of control.” It’s no secret that the state did not vote for Trump, opposed wall funding and provided constant irritation of its sanctuary city status.

The feds 25-page decision terminates the agreement which in turn de-obligated the grant for missing deadlines and providing incorrect or incomplete reporting among other violations. See Secretary of Transportation Elaine Chao’s 2-minute video. Bottom line, she thinks it’s bait and switch. Also, note that Elaine Chao is married to the speaker of the Senate, Mitch McConnell.

But no one would deny that President Trump is gleeful about getting back at California since he likes to “punch back” but this time he is on sound ground. See Columnist Dan Walters commentary who believes Trump is doing California a favor.

There is no doubt the feds tried to work with the Authority demonstrated by six amended contracts for the American  Recovery & Reinvestment Act  (ARRA).  The ARRA fund contracts gave the Authority more time and the biggest break of all since it allowed the government’s money to be spent first followed by the state matching funds spent last. This “tapered match” approach was forbidden when the first contract was originally drawn up. Using the federal money first allowed California to move forward when Prop 1A bond funds were unavailable to the state due to an unfavorable lawsuit ruling in 2012 called Tos 1.  This was acknowledged in the new state lawsuit against the federal government for de-obligating a federal grant. Since no private investment or additional federal funds were granted and in the end, was probably unwise for the federal government to agree to this since it put US Taxpayers funds at greater risk.

Here’s part of the May 2011 letter written by Roy Kienitz, then Under Secretary for Policy for the US Department of Transportation (DOT) to then CEO Roelof van Ark which stated spending the federal dollars first was not permitted. 

“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 prerequisites for this project to go forward.”

But something changed and the feds suddenly allowed it. Perhaps a coincidence but Kienitz left the Department of Transportation (DOT) and went to work for Parsons Brinckerhoff in December 2011, who was managing the HSR project at the time.

Governor Newsom had it right when he came clean with his first announcement that there wasn’t the money to continue with the entire project from Los Angeles to San Francisco. He backtracked that message perhaps due to political pressure but certainly after the federal government announced they would not fund California the $929 million-dollar grant and to boot, they might claw back the $2½ billion back already funded to California. Here is the lawsuit CA filed to keep the FY10 funds: COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, State of Ca. & CHSRA vs. US Dept. of Transportation & FRA.

Recent reports show the Rail Authority cannot meet the terms of the ARRA grant contract which demands the segment be completed by December 2022. The state auditor does not believe it’s going to happen.  According to a November state audit, “If the Authority continues to work at its current rate, it will not complete all anticipated work until 2027.” In the meantime, spending will continue and yet in the end the state may have to give back federal funding.

There is one more shoe expected to drop soon and it’s from the US Inspector General, which was looking at the High-Speed Rail project and the state’s compliance with the federal contracts. The audit results are expected this summer. If critical as expected, it would put another nail in the coffin for the Authority.