Tag Archive for Proposition 1A (2008)

Revised: A Timeline of Activity Concerning What Will Be $9.95 Billion Borrowed through Proposition 1A Bond Sales for California High-Speed Rail

UPDATE – April 13, 2014: I’ve added information at the bottom of the chart below based on two additional Official Statements issued by the State of California since I wrote the original article.

“Long-Term Bonds Outstanding” for California High-Speed Rail Prop 1A remained at $703,530,000 as of September 1, 2013 but dropped (for the first time) to $623,705,000 as of February 1, 2014.

I presume some of the money borrowed by the State of California through these bond issues is being used to fund the “connectivity projects” authorized for $950 million in a part of Proposition 1A (now California Streets and Highways Code Section 2704.095):

2704.095. (a) (1) Net proceeds received from the sale of nine hundred fifty
million dollars ($950,000,000) principal amount of bonds authorized by this
chapter shall be allocated to eligible recipients for capital improvements to
intercity and commuter rail lines and urban rail systems that provide direct
connectivity to the high-speed train system and its facilities, or that are part of
the construction of the high-speed train system as that system is described in
subdivision (b) of Section 2704.04, or that provide capacity enhancements and
safety improvements. Funds under this section shall be available upon
appropriation by the Legislature in the annual Budget Act for the eligible
purposes described in subdivision (d).

SB 1029 (enacted in July 2012) appropriated $819,333,000 for state, regional, and local agencies other than the California High-Speed Rail Authority to help fund connectivity projects. (Note: this does not include the $1,100,000,000 appropriated for “bookend” projects, which includes $600,000 to electrify and update the Caltrain rail system and $500,000 to upgrade unspecified rail systems under a Southern California Memorandum of Understanding with the California High-Speed Rail Authority.)

Some questions to which I don’t know the answers:

  1. Why did the amount for “Long-Term Bonds Outstanding” go down between September 1, 2013 and February 1, 2014?
  2. How was the California State Treasurer able to issue bonds under Proposition 1A before the state legislature appropriated money in July 2012?
  3. Have any of the proceeds from Prop 1A bonds been spent on “bookend projects?” What happens if some of the $1.1 billion appropriated for “bookend” projects is spent but doesn’t become part of the California High-Speed Train System in the end? Will that money be transformed into connectivity funding?

Are the $1,274,000,000 in appropriations listed below for “Connectivity?” Or are they for “Bookends?” (Only $950,000,000 Can Be Spent Outside of High-Speed Train Service)

$706,000,000 Peninsula Corridor Joint Powers Board (Caltrain) – Electrification Installation of an electric rail system that phases out diesel trains and blends the Caltrain system with the high-speed rail line. With matching funds, total spending is $1.456 billion.
$42,000,000 Peninsula Corridor Joint Powers Board (Caltrain) – Advanced Signaling System: Communications Based Overlay Signal System (CBOSS) Positive Train Control (PTC) Project Design, installation, testing, training and warranty for an intelligent network of signals, sensors, train tracking technology, computers, etc. on the Caltrain Corridor to meet mandated federal guidelines. With funds from BART and the Santa Clara Valley Transportation Authority, total spending is $231 million. This work began in September 2013.
$26,000,000 Santa Clara Valley Transportation Authority (Caltrain) – Advanced Signaling System: Communications Based Overlay Signal System (CBOSS) Positive Train Control (PTC) Project Design, installation, testing, training and warranty for an intelligent network of signals, sensors, train tracking technology, computers, etc. on the Caltrain Corridor to meet mandated federal guidelines.
$500,000,000 Southern California Memorandum of Understanding Regional rail projects that improve local networks and facilitate high-speed rail travel to Southern California. Projects will be selected by local transit agencies, in conjunction with the High-Speed Rail Authority, and state funding will be matched by additional investments to make the total investment in these projects $1 billion.

Original Post – May 13, 2013: It seems that 99.999% of Californians are unaware of how, when, and how much the State of California has borrowed for California High-Speed Rail by selling bonds to investors. My requests at two board meetings of the California High-Speed Rail Authority to be open and transparent about the details of the bond sales – even to the point of having an agenda item at each meeting dedicated to the topic – have been ignored, of course. Their strategy is to keep the public and the news media uninformed, probably because the details are not comforting.

It appears the California State Treasurer has sold about $700 million worth of Proposition 1A bonds to date. While early bond sales for California High-Speed Rail appear to be segregated from bond sales for other purposes, recent sales suggest that California State Treasurer Bill Lockyer was correct when he said the high-speed rail bonds were “mixed together” with bonds for other purposes. That was his response to my questions at the California League of Bond Oversight Committees annual conference on May 10, 2013. Someone in the bond industry told me this mixing was “unusual,” but perhaps we’re misunderstanding what’s going on.

People have asked me how the state was able to sell California High-Speed Rail bonds before the legislature and governor first authorized the sale of bonds in July 2012. I do not know.

I have not been able to figure out how much in interest has been paid so far, where the money was obtained to pay the interest so far (perhaps appropriations for the California High-Speed Rail Authority from the General Fund?), and the current debt service on the bonds.

Basically, we’re all ignorant peons left in the dark by the forces that control everything.

Here’s a preliminary timeline of activity concerning bond sales for California High-Speed Rail, with links to source documents. It’s nothing great, but it’s a step in the right direction for people to fill in the blanks and try to figure out what’s going on. If you see a mistake or know something to be added to it, please let me know.

Amount Borrowed Through Bond Sales (Principal, Does Not Include Interest) Date and Action Link to Source Documents
$0 August 26, 2008 – Governor Schwarzenegger signs into law Assembly Bill 3034, which puts the “Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century” (Proposition 1A) on the November 4, 2008 California ballot. According to the bill, the state would borrow $9.95 billion through bond sales in order to “encourage the federal government and the private sector to make a significant contribution toward the construction of the high-speed train system.” Borrowed money would be available for the California High-Speed Rail Authority to spend under specified conditions and criteria for planning, land acquisition, design, engineering, and construction. The California High-Speed Rail Authority would be required to pursue and obtain other private and public funds, including, but not limited to, federal funds, funds from revenue bonds, and local funds. The California State Treasurer would sell the bonds as authorized by an appointed California High-Speed Passenger Train Finance Committee under terms and conditions specified in committee resolutions. Bonds could have a maturity period as long as 40 years. The committee would consider program funding needs, revenue projections, financial market conditions, and other necessary factors in determining the term for the bonds to be issued. Each year, the state would collect taxes and fees for the General Fund that would pay principal and interest to bond investors. In addition, the board of the California High-Speed Rail Authority could request a loan from the Pooled Money Investment Board to make a loan against the amount of authorized but unsold bonds. Assembly Bill 3034 – Proposition 1A
$0 November 4, 2008 – 52.7% of California voters (including 78.4% of San Francisco voters) approve Proposition 1A. November 2008 Election Results
$0 January 16, 2009 – the High-Speed Passenger Train Finance Committee approves Resolution I under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $32,010,000. The committee also approved Resolution II under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $32,010,000. January 16, 2009 Minutes – Resolution I – Resolution II
$0 February 1, 2009 – Long Term Bonds Outstanding State Public Works 2009
$0 April 6, 2009 – “The High Speed Rail Authority had been financed via a commercial paper issue.” April 6, 2009 Minutes
>$0< April 15, 2009 – the High-Speed Passenger Train Finance Committee approves Resolution III under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, (i) amending the provisions of Resolution I authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $32,010,000, and (ii) authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed (a) the principal amount unissued under Resolution I of $32,010,000 and (b) an additional principal amount not to exceed $448,790,000, for a total principal amount not to exceed $480,800,000. The Committee also approves Resolution IV under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $480,800,000. April 15, 2009 Minutes – Resolution III – Resolution IV
$90,045,000 April 22, 2009 – the California State Treasurer sells $90,045,000 of Safe Reliable High Speed Passenger Train 21st Century Series A Build America Bonds, Federally Taxable.CDIAC Number: 2009-0940 Standard & Poor’s Rating: A Moody’s Rating: A2 Fitch Rating: A –Term: 30 years Rate: VAR%

At the August 6, 2009 board meeting, the Authority executive director noted that this money was a piece of a $4-5 billion state bond sale and would be used by the Authority in FY 2009-10.

2009 Annual Report
$90,045,000 July 1, 2009 – Long Term Bonds Outstanding 2009 Treasurer Publication
$90,045,000 August 1, 2009 – Long Term Bonds Outstanding Official Statement
$90,045,000 October 1, 2009 – Long Term Bonds Outstanding Official Statement
$258,395,000 October 8, 2009 – the California State Treasurer sells $168,350,000 of Safe Reliable High Speed Passenger Train 21st Century Series B Build America Bonds, Federally Taxable. CDIAC Number: 2009-1481 Standard & Poor’s Rating: A Moody’s Rating: Baa1 Fitch Rating: BBB Term: 30 years Rate: 6.933% 2009 Annual Report
$258,395,000 January 20, 2010 – the High-Speed Passenger Train Finance Committee amends Resolution III with resolution V and Resolution IV with Resolution VI. These two resolutions reflect changes to the General Obligation Bond Law that became effective January 1, 2010, and other technical amendments. January 20, 2010 Minutes – Resolution V – Resolution VI
$258,395,000 February 1, 2010 – Long Term Bonds Outstanding Official Statement
$258,395,000 June 30, 2010 – Long Term Bonds Outstanding Official Statement
$258,395,000 October 1, 2010 – Long Term Bonds Outstanding >Official Statement
$309,060,000 November 19, 2010 – the California State Treasurer sells $50,665,000 of Safe Reliable High Speed Passenger Train 21st Century Series C, Federally Taxable.CDIAC Number: 2010-1714Standard & Poor’s Rating: A-Moody’s Rating: A1Fitch Rating: A –Term: 30 yearsRate: 7.438% 2010 Annual Report
$410,050,000 November 22, 2010 – the California State Treasurer sells $100,990,000 of Safe Reliable High Speed Passenger Train 21st Century Series D. CDIAC Number: 2009-1695Standard & Poor’s Rating: A-Moody’s Rating: A1Fitch Rating: A-Term: 30 yearsRate: 5.133% Official Statement – see earlier Official Statement
$410,050,000 June 30, 2011 – Long Term Bonds Outstanding 2011 Annual Report
$410,050,000 September 21, 2011 – High-Speed Passenger Train Finance Committee approves Resolution VII, which amends Resolution III authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $480,800,000, and (ii) authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed (a) the principal amount unissued under Resolution III of $70,750,000 and (b) an additional principal amount not to exceed $59,250,000, for a total principal amount not to exceed $130,000,000. The Committee also approves Resolution VIII under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $540,050,000. September 21, 2011 Minutes – Resolution VII – Resolution VIII
$410,050,000 August 1, 2011 – Long Term Bonds Outstanding Official Statement
$499,285,000 October 25, 2011 – the California State Treasurer to sell $91,225,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series E. Official Statement
$499,285,000 November 1, 2011 – Treasurer Lockyer Comments on Revised High-Speed Rail Business Plan. November 1, 2011 Press Release
$499,285,000 January 1, 2012 – Long Term Bonds Outstanding Official Statement
$499,285,000 February 1, 2012 – Long Term Bonds Outstanding Official Statement
$499,285,000 June 30, 2012 – Long Term Bonds Outstanding 2012 Annual Report
$499,285,000 July 18, 2013 – As required under Proposition 1A, Governor Jerry Brown signs into law Senate Bill 1029, which appropriates $2,609,076,000 in Proposition 1A funds plus $3,240,676,000 in federal funds for the first operating segment of the High-Speed Rail between Madera and Bakersfield, $1,100,000,000 for “Bookend” funding, $106,000,000 to CalTrans for capital improvement projects to intercity and commuter rail lines and urban rail systems that provide direct connectivity, and an appropriation of $713,333,000 for “Connectivity” funding. Senate Bill 1029 (2012)
$499,285,000 February 1, 2013 – Long Term Bonds Outstanding Official Statement
$499,285,000 March 18, 2013 – California High-Speed Rail Authority approves Resolutions #13-03 and #13-04 requesting the California High-Speed Passenger Train Finance Committee to authorize the sale of $8,599,715,000 in bonds. Resolution #13-03 – Resolution #13-04
$499,285,000 March 18, 2013 – the High-Speed Passenger Train Finance Committee approves Resolution IX and Resolution X to authorize sale of $8,599,715,000 in bonds. Resolution X
$499,285,000 March 29, 2013 – the High-Speed Passenger Train Finance Committee previously adopted Resolution III authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the Principal Amount Not to Exceed $480,800,000 (“Resolution III”) and Resolution VII authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the Principal Amount Not to Exceed $130,000,000 (“Resolution VII”). As of March 29, 2013, the State had issued $100,990,000 State of California High-Speed Passenger Train Bonds, Series D, currently outstanding in the principal amount of $99,000,000 (the “Resolution III Bonds”) pursuant to Resolution III. $38,775,000 remains in principal amount of bonds or commercial paper notes under Resolution VII, and the Committee now desires to authorize the issuance of bonds to refund any bonds issued from time to time under Resolution VII (the “Resolution VII Bonds”). Resolution XI
$538,060,000 April 11, 2013 – the California State Treasurer to sell $38,775,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series F. Official Statement
$703,530,000 April 11, 2013 – the California State Treasurer to sell $165,470,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series G. Official Statement
$703,530,000 September 1, 2013 – Long Term Bonds Outstanding Official Statement
$623,705,000 February 1, 2014 – Long Term Bonds Outstanding Official Statement

My Public Comments on Bond Finance for California High-Speed Rail Entered into Record for Pivotal Bond Validation Lawsuit

My March 15, 2013 written comments to the California High-Speed Passenger Train Finance Committee outlining several concerns about its plans for bond financing were the ONLY written comments submitted to the committee before its March 18, 2013 meeting, at which it authorized borrowing more than $8 billion for California High-Speed Rail through bond sales (a requirement under Proposition 1A).

In addition, I was one of four people to speak in person at the March 18, 2013 California High-Speed Passenger Train Finance Committee meeting at which committee members voted to authorize the bond sales.

My written and oral comments to the California High-Speed Passenger Train Finance Committee have been entered into the record for the validation lawsuit (High Speed Rail Authority et al. v. All Persons Interested et al. – Case No. 2013-00140689) filed on March 19, 2013 in Sacramento County Superior Court concerning the legal validity of the bond sales. My comments help to boost the case of the respondents (“All Persons Interested”) that the California High-Speed Passenger Train Finance Committee failed to fulfill its legal responsibilities under Proposition 1A before it authorized the bond sales.

My written comments are submitted to the court as Exhibit G (public comment letter to the HSPT Finance Board by Kevin Dayton, March 15 , 2013) in the August 19, 2013 declaration of Rita Wespi of Californians Advocating Responsible Rail Design (CARRD) based in Palo Alto. Her declaration states that “Based on a series of Public Records Act requests I submitted to the High-Speed Rail Authority and the High-Speed Passenger Train Finance Committee, it is my opinion that the Finance Committee voted to approve over eight billion dollars of state bonds with little more information than a resolution from the High Speed Rail Authority.”

The declaration goes on to state the following:

On March 25, 2013, I made a similar request of the HSPT Finance Committee for “copies of all reports, analyses and recommendations provided to the HSPT Finance Committee members.”

Mr. Mark Paxson, General Counsel for the Treasurer’s Office, replied that “other than the agendas, resolutions and minutes from the prior meeting that are due for approval, there are typically no other documents provided to Finance Committee members prior to their meetings.”

In his response, Mr. Paxson stated that, for the March 18 committee meeting, the HSPT Finance Committee received in total one public comment letter and a briefing memo from the Public Finance Division’s staff. The staff briefing memo simply reiterated the agenda.

The March 15, 2013 public comment letter requested the Finance Committee to add language to Resolutions IX and X which would a) prohibit 40-year terms of maturity, and b) prohibit the use of Capital Appreciation Bonds. The letter argued that without this language, the bond sales and resulting repayment schedule would deviate from what was described in the 2008 voter guide for Proposition 1A. To the best of my knowledge, this letter was not acknowledged or discussed by the Finance Committee.

The declaration is correct: the only indications that my public comment was received was a subsequent email dated March 20, 2013 from Timothy Aguirre in the State Treasurer’s office informing me that “The State Treasurer’s Office will be holding the High-Speed Passenger Train Finance Committee meeting on Friday, March 29, 2013 at 2:00 pm at STO Room 587. Please see the attached meeting agenda” and a March 25, 2013 email from a general mailbox for the State Treasurer’s Office stating “You have indicated you would like to be contacted on items relating to the High Speed Passenger Train Finance Committee. The resolutions to be taken up during the March 29th meeting have been posted to the State Treasurer’s website.  You can find the resolutions by following the web link provided below. http://www.treasurer.ca.gov/financial/meeting.asp.”

My comments in person at the California High-Speed Passenger Train Finance Committee meeting on March 18, 2013 were submitted as Exhibit A (transcript of the meeting) as part of an August 19, 2013 declaration of Kathy Hamilton of Menlo Park, who writes articles about California High-Speed Rail for the Examiner web site.

Kevin Dayton: Note: Tape was turned on a little late, missing his intro. Kevin is CEO of
Labor Issues Solutions.

“Will the bonds be sold separately or at the same time for state bonds for other purposes? What rate do you expect to sell them at? I heard the chairman say 6.25% but I’m going to guess that was probably made that number up out of his head. The bonds selling last week were between 3.5 and 3.8%, something like that. I’d like to hear more about what you think you will get out of this. How will the bonds be structured? Will we be selling capital appreciation bonds at all for this? If the lawsuit that is coming up in Kings County is lost by the High-Speed Rail Authority and you’ve sold bonds, what happens to the money? These are questions I think that regular Californian who voted for this want to know. [They want to know] a lot more about this. We need to know a lot more about this [because] it’s a lot of money for us especially when you consider the interest etc will be about $20 billion [interest on bond funds] total for the whole thing. Thank you.”

Carol Ferris breaks in: “I’d like to thank you for your comments. I would also like to say that the purpose of this is to hear public comment and certainly the committee members can then take your comment into consideration. It’s not a question and answer session at this time.”

As noted in Kathy Hamilton’s declaration about the California High-Speed Passenger Train Finance Committee, “There was no evidence presented, questions asked or witnesses called. There were no discussions that the approval of the High-Speed Rail resolution was necessary or desirable. There were no discussions at all…none of the appointed committee members were in attendance, and all were substitute representatives.”

In other words, it was a farce. My article California High-Speed Rail: One-Way Ticket to Debt in www.FlashReport.org on March 25, 2013 described my experience speaking at the March 18, 2013 meetings of the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee. Also related to this meeting are my March 15, 2013 post Message to California High-Speed Rail Authority and California High-Speed Passenger Train Finance Committee: No 40-Year Bonds, No Capital Appreciation Bonds, What If You Lose Lawsuit? and my March 30, 2013 post Reality of Crushing Public Debt from Bond Sales Eclipses the Fantasy Vision of California High-Speed Rail.

Additional Background on Bond Validation Lawsuits

Documents filed in California High-Speed Rail Bond Validation Lawsuit – on the web site of Transportation Solutions Defense and Education Fund (TRANSDEF)

Sacramento Judge Has a Full Plate of Rail LawsuitsFresno Bee – September 9, 2013

Legal Challenges Plague the California Rail Projectwww.Examiner.com, by Kathy Hamilton – September 8, 2013

Bullet Project Attempts Legal Maneuver to Limit Damage by Lawsuits – www.Examiner.com, by Kathy Hamilton – April 2, 2013

California’s High-Speed Rail Authority Sues Everybody, Invites You to Argue Case in CourtSan Jose Mercury-News – March 28, 2013

Here’s the August 16, 2013 Court Decision Against California High-Speed Rail

On August 16, 2013, a Sacramento County Superior Court judge ruled in Tos, Fukada, and County of Kings v. California High-Speed Rail Authority that “the Authority abused its discretion by approving a funding plan that did not comply with the requirements” of law approved by voters in November 2008 as Proposition 1A and implemented as California Streets and Highway Code Section 2704.09. Here’s the text of the court decision:

August 2013 court decision against California High-Speed Rail Authority

 

Proposed Route of California High-Speed Rail Through Kings County

A proposed route of California High-Speed Rail through Kings County.

Kings County posted its briefs and other documents related to its argument. Find them at Prop 1A Lawsuit Against High-Speed Rail. The case number is 34-2011-00113919; go to the web site of the Court Index System of the Sacramento County Superior Court to obtain all documents related to Tos, Fukada, and County of Kings v. California High-Speed Rail Authority.

Proposition 1A was enacted with 52.7% of the statewide vote in November 2008. (It won in San Francisco with 78.4% of the vote.) That statewide ballot measure authorized the State of California to borrow $10 billion (actually $9.95 billion) by selling bonds to Wall Street investors, thus providing seed money to start construction of a high-speed rail system estimated at that time to be $45 billion. That estimate turned out to be woefully low.

This court decision – combined with the lack of additional federal funding and the lack of interest from private investors – could mean the end of California High-Speed Rail.

News Media Coverage

Judge: California High-Speed Rail Violates Initiative – Associated Press (San Jose Mercury-News) – August 16, 2013

Judge’s Ruling Could Bring Valley’s High-Speed Rail Project to Screeching HaltFresno Bee – August 16, 2013

Bullet Train Funding Plan at Odds with State Law, Judge RulesLos Angeles Times – August 16, 2013

Sanity May Finally Prevail on Bullet TrainUT San Diego (editorial) – August 16, 2013

California High-Speed Rail Violates Initiative, Judge Says – KABC (Los Angeles) – August 16, 2013

Reality of Crushing Public Debt from Bond Sales Eclipses the Fantasy Vision of California High-Speed Rail

Originally presented to Californians as a $45 billion statewide high-speed rail system to transport people between major metropolitan areas, the “Safe, Reliable California High-Speed Passenger Train for the 21st Century” has been distorted by the state’s leftist ideologues and corporate and union special interests into the California High Speed Rail Scam.

My article California High-Speed Rail: One-Way Ticket to Debt in www.FlashReport.org on March 25, 2013 described my experience speaking at the March 18, 2013 meetings of the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee. I asked pivotal questions about how the State of California planned to sell the $9.95 billion in bonds authorized by 52.7% of California voters through Proposition 1A in the November 2008 election.

My questions were reported throughout the state in a March 18, 2013 Associated Press article Board Seeks $8.6 Billion in California High-Speed Rail Bonds:

Several speakers challenged the timing of the authorization during the board’s public comment period, asking why the board was acting on the bulk of the bonds approved by voters now when it could be years before the money is needed. Kevin Dayton, a public policy consultant from Roseville, questioned whether the board was rushing to beat the outcome of the lawsuits attempting to block the railroad.

“That’s the obvious question that comes up,” Dayton said. “I think it’s reasonable to assume they’re very worried about it.”

TV viewers also saw (and read) my comments in Nannette Miranda’s story Board Seeks $8.6 Billion in California High-Speed Rail Bonds for various local news programs of ABC affiliates throughout the state:

“What’s your current estimate of the total amount of debt that will be assessed including the interest on this?” high speed rail opponent Kevin Dayton asked the board.

During media interviews after the board meeting, California High-Speed Rail Authority chairman Dan Richard claimed the cost of interest payments for the entire project could eventually reach $700 million per year. He also claimed that interest on the first $2.61 billion in bond sales authorized by Senate Bill 1029 (2012) would cost $175 million per year over 30 years.

As stated in this article California Bullet Train Clears One Obstacle; Land, Legalities Remain, “It all depends on Wall Street, but for estimation purposes, the state is using a 6.5 percent interest rate for 35 years.” This was the rate cited by Chairman Richard during the media interviews. According to California Municipal Bond Advisor, yields for State of California 30-year general obligation bonds were 4.80% on September 20, 2012 and 5.03% on October 19, 2012.

My Questions Reveal One Surprise: Truckers Will Pay for the Bond Interest

California High-Speed Rail Authority chairman Dan Richard responded to my comments by declaring that my questions should be addressed to the California State Treasurer, Bill Lockyer. But later in the meeting, he said that the state would pay interest on the bonds NOT from the general fund, but from vehicle weight fees paid by truckers.

Fox News 11 in Los Angeles reported on this revelation with its March 28 story Money Shell Game? Potholes or High Speed Rail. I was interviewed for the story, and an excerpt from the interview appears in the segment. I am also quoted in the associated article:

Those are fees paid when trucks are too heavy. And that money is supposed to go to highway construction projects. This is typical of the entire way the rail authority operates. Things change. You don’t know what’s going on, there’s very little transparency and openness. Essentially, all they’re doing is taking the money, transferring it into another fund and pretending the general fund is not paying for it. In reality, California taxpayers are still paying the interest.

Assembly Bill 105 (2011) authorized vehicle weight fees to pay interest on bonds for transportation projects. The March 13, 2013 California Legislative Analyst’s Office Overview of Transportation Funding explains how vehicle weight fees will pay interest in 2013-14 on transportation-related bonds:

In addition to ongoing revenues from fuel taxes, the state has issued general obligation bonds in order to pay for transportation projects. The largest such bond measure was Proposition 1B (2006), which authorized the state to sell $20 billion in bonds to finance transportation projects. The Governor’s budget estimates that the debt-service costs on Proposition 1B and other outstanding transportation bonds will be about $1.1 billion in 2013-14.

Vehicle weight fees are used to pay the debt-service cost on transportation bonds rather than the General Fund. For 2013-14, the Governor’s budget uses all $946 million in weight fees to benefit the General Fund. Of this amount, $907 million is to pay debt service and $39 million is loaned to the General Fund and set aside for future debt service.

In addition, the Governor’s budget proposes to use miscellaneous revenues in the SHA to pay transportation debt service on an ongoing basis.

I asked this question in a tweet during the California High-Speed Rail Authority meeting on March 18 after the Authority chairman talked about paying interest from vehicle weight fees:

Does California Trucking Association @Caltrux know truck weight fees to pay interest Prop 1A bond sales for high-speed rail? $10 billion.

This response came on March 28 after the Fox News 11 story aired:

@DaytonPubPolicy we are well aware that the weight fees we pay to maintain roads now go to non-road projects. Trucks pay their share.

(They certainly do, and more – trucks are a favorite target of the Left in California.)

What Were the 2008 Cost Estimates for Interest Paid on the Bonds?

The official legislative analysis of Proposition 1A provided voters with an estimated cost of selling bonds with a 30-year maturity:

If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year.

A July 7, 2008 Senate Appropriations Committee analysis estimated the cost of selling bonds with a 40-year maturity:

AB 3034 would extend the maximum allowable bond maturity term from 30 years to 40 years. Assuming the same interest and inflation rates, this bill could result in an increase in total General Fund costs of $3.78 billion if the term of the bonds is extended to 40 years (to a total cost of $23.2 billion). Annual debt service payments would be $580 million for 40 years.

According to Section 5.02(b)(vii) of the resolutions passed on March 18, the Treasurer is now authorized to borrow the $8.6 billion by selling bonds with a maturity period of 35 years

So does the Governor’s proposed 2013-14 budget adequately account for interest to be paid after the state borrows money for California High-Speed Rail through bond sales? It depends on how the California State Treasurer intends to structure and market them.

Message to California High-Speed Rail Authority and California High-Speed Passenger Train Finance Committee: No 40-Year Bonds, No Capital Appreciation Bonds, What If You Lose Lawsuit?

March 18, 2013 is a big day for the People of California: the Day of Debt.

There will be two votes at two meetings three hours apart to authorize the sale of the bulk of the $9.95 billion Prop 1A bonds. (Several hundred million were approved in 2010 and 2012, FYI.)

At 11:00, the California High-Speed Rail Authority will meet to authorize borrowing $8.6 billion through the sale of bonds authorized by 52.7% of California voters in November 2008 as Proposition 1A. Here is the meeting agenda:

http://www.cahighspeedrail.ca.gov/WorkArea/DownloadAsset.aspx?id=2147483707

At 2:00, the California High-Speed Passenger Train Finance Committee will meet at the same location to authorize borrowing $8.6 billion through the sale of bonds authorized by 52.7% of California voters in November 2008 as Proposition 1A. Here is the meeting agenda:

http://www.treasurer.ca.gov/financial/2013/20130318/1a.pdf

At these meetings, I will ask for amendments to the resolutions to prohibit the sale of 40-year bonds (this maturity term is allowed in statute, by the way, see California Streets and Highways Code Section 2704.11(b)) and prohibit the sale of Capital Appreciation Bonds. I’m also going to ask about what happens if the state sells the bonds and then the Authority loses the lawsuit alleging its failure to conform to the terms of Proposition 1A.

I also sent this message electronically to the California High-Speed Rail Authority (boardmembers@hsr.ca.gov) and the California High-Speed Passenger Train Finance Committee:

Dear California High-Speed Rail Authority leadership:

At your Monday, March 18, 2013 meeting, you will consider a resolution as part of the procedure to direct the state to borrow $8.6 billion for high-speed rail by selling bonds authorized under Proposition 1A (2008) to investors:

4. Consideration of request to the High-Speed Passenger Train Finance Committee to approve resolutions under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of bonds and commercial paper notes as follows: Resolution IX, authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $8,599,715,000. ($8.6 billion)

I am requesting you to add language to these resolutions that does the following:

1. Prohibit these bonds from being sold with 40-year terms of maturity.

2. Prohibit these bonds from being sold as Capital Appreciation Bonds.

Assembly Bill 3034, enacted in 2008, authorized sale of the Proposition 1A bonds as 40-year bonds. The bill analysis for the July 7, 2008 Senate Appropriations Committee indicated that the maturity extension from a 30-year to a 40-year term would increase interest payments and increase the overall cost at an estimated amount of $3,777,000,000 ($3.7 billion) in 2008 dollars, assuming 5 percent interest and 3 percent inflation. (Source: http://www.leginfo.ca.gov/pub/07-08/bill/asm/ab_3001-3050/ab_3034_cfa_20080707_114445_sen_comm.html)

These estimates were produced at a time when the official cost was estimated at $45 billion. Now the figure of $68 billion is being officially cited. Why add another $3.7 billion to the cost?

Also, in the Official Voter Information Guide for the November 2008 election, the Legislative Analyst’s Office stated this about the cost of the proposed Proposition 1A bond sales authorized under the Safe, Reliable High-Speed Passenger Train Bond Act:

The costs of these bonds would depend on interest rates in effect at the time they are sold and the time period over which they are repaid. While the measure allows for bonds to be issued with a repayment period of up to 40 years, the state’s current practice is to issue bonds with a repayment period of up to 30 years. If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year. (Source: http://voterguide.sos.ca.gov/past/2008/general/analysis/prop1a-analysis.htm)

The voter guide leaves the voter to assume that the state would maintain the current practice of selling 30-year bonds. It does not even mention the cost of 40-year bonds!

Regarding the Capital Appreciation Bonds, you are surely aware of the controversy surrounding California’s school districts selling these bonds for construction rather than the traditional type of general obligation bond (current interest bond). Please don’t hide the cost of this project by delaying repayment to investors with costly bonds that accumulate compound interest.

This project will assess huge debt burdens on future generations of Californians. Please avoid schemes that hide the cost from this generation.

Finally, at your March 18, 2013 meeting, please address what would happen if the state sells the Proposition 1A bonds and then the California High-Speed Rail Authority loses the court case John Tos v. California High Speed Rail Authority (Case No: 34-2011-00113919) (aka “the Kings County lawsuit”) regarding conformity to the provisions of Proposition 1A. A hearing in this case is scheduled for May 31, 2013 in Sacramento County Superior Court.

Kevin Dayton
President and CEO
Labor Issues Solutions, LLC
www.laborissuessolutions.com

 

We’ll see if the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee can explain their plans for borrowing money through bond sales in a simple, transparent manner at their meetings in Sacramento on Monday, March 18, 2013.

Estimated Costs of the California High-Speed Rail 1996-2012, with Links to Sources

It isn’t your imagination: cost estimates for the California High-Speed Rail have varied widely but generally have skyrocketed. The $9.95 billion that California voters authorized to borrow for the High-Speed Rail by selling bonds (through Proposition 1A in November 2008) isn’t going to get the job done, even if the Federal Railroad Administration does end up sending $38 billion to California. (Federal debt as of January 18, 2013 is $16,432,619,424,703.06 – $16.4 trillion.)

And don’t forget that money borrowed through bond sales has to be paid back, with interest and financial transaction fees. For the privilege of selling $9.95 billion in bonds, add another $19.4 billion to $23.2 billion for the cost of debt service, and hope that interest rates remain low and California stays out of bankruptcy.

While some experts blame inflation for the increase in the cost estimates, note that $16.5 billion in 1996 dollars should equal $24.1 billion in 2012 dollars, according to the Consumer Price Index (CPI) Inflation Calculator on the U.S. Bureau of Labor Statistics web site. In addition, the sharp decline in the prosperity of the California construction industry from 2007 to 2012 should have modified the market cost of construction services and labor. (Note that state-mandated wage rates – so-called “prevailing wages” – are determined for construction trades and certain professional services based on multi-year union collective bargaining agreements, and not wage surveys or statistics from the California Economic Development Department that might reflect actual market conditions.)

Cost Estimates for California High-Speed Rail 1996-2012
(if a range is given, the higher number is cited)
$16.5 billion 1996 September 1996 Final Report of the California Intercity High Speed Rail Commission
$25 billion 2000 2000 California High-Speed Train Business Plan
$37 billion 2005 August 2005 California High-Speed Train Final Program EIR/EIS 
$45 billion 2008 July 7, 2008 Senate Appropriations Committee Fiscal Study of Assembly Bill 3034
$45 billion 2008 Analysis by the Legislative Analyst in the Official Voter Information Guide for the November 4, 2008 Election – Prop 1A – Safe, Reliable High-Speed Passenger Train Bond Act “The authority estimated in 2006 that the total cost to develop and construct the entire high-speed train system would be about $45 billion.”
$33.6 billion 2008 November 2008 California High-Speed Train Business Plan
$43 billion 2011 May 2011 Report of the California Legislative Analyst’s Office
$98.1 billion 2011 November 1, 2011 California High-Speed Rail Program Draft 2012 Business Plan
$68.4 billion 2012 April 12, 2012 California High-Speed Rail Authority Revised 2012 Business Plan
$150 billion 2040 Common Sense! Huge infrastructure projects almost always end up costing a lot more than originally claimed.

San Joaquin Valley Farmers Funded Their Own Destruction! November 2008 High-Speed Rail Proposition Funded in Part by Committee Supporting March 2000 Water Bond

I’ve been researching the sources of campaign support for Proposition 1A, the November 2008 statewide ballot measure (“Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century”) that authorized the California High-Speed Rail Authority to borrow up to $10 billion by selling bonds to investors.

Not surprisingly, self-interested construction industry corporations, organizations, and unions comprise all of the top ten donors to the main campaign committee, Californians for High Speed Trains – Yes on Proposition 1A – A Coalition of Taxpayer, Business, Environmental and Labor Groups and People from Across California Tired of Being Stuck In Traffic. (See list below.)

But the #11 donor is mysterious. Something called Californians for a Safe & Reliable High Speed Rail contributed the oddball amount of $53,487.86 to the campaign to pass Proposition 1A.

Here’s the list of the top eleven donors, including in-kind (non-monetary) campaign contributions, to Californians for High Speed Trains – Yes on Proposition 1A – A Coalition of Taxpayer, Business, Environmental and Labor Groups and People from Across California Tired of Being Stuck In Traffic:

1

California Alliance For Jobs Rebuild California Committee Union-Affiliated Labor-Management Cooperation Committee

$600,000

2

International Union of Operating Engineers Construction Union

$250,000

3

Operating Engineers Local Union No. 3 (Union & PAC) Construction Union

$250,000

4

California State Council of Laborers Issues PAC Construction Union

$100,000

5

Professional Engineers in California Government (PECG) Public Employee Union

$100,000

6

Parsons Brinckerhoff Americas Inc. Construction Design/Engineering

$76,500

7

AECOM Tech Corporation Construction Design/Engineering

$75,000

8

International Union of Operating Engineers Local No. 12 Construction Union

$75,000

9

Members Voice of the State Building Trades Construction Union

$75,000

10

HNTB Corporation Construction Design/Engineering

$63,000

11

Californians for a Safe & Reliable High Speed Rail Remnant of $80 transferred from “Californians for Clean, Safe, Reliable Water – Yes on Propositions 12/13”

$53,487.86

It turns out that Californians for a Safe & Reliable High Speed Rail obtained all of its money from the leftover campaign funds of Californians for Clean Safe Reliable Water – Yes on Propositions 12/13, a committee meant to pass two statewide ballot propositions in the March 2000 election. Over the next five years, it spent some of that money on administrative fees and a few travel expenses for someone. It then terminated after transferring its remaining money to Californians for High Speed Trains – Yes on Proposition 1A – A Coalition of Taxpayer, Business, Environmental and Labor Groups and People from Across California Tired of Being Stuck In Traffic.

Here’s the historical record, in chronological order:

Californians for Clean Safe Reliable Water – Yes on Propositions 12/13 was formed in January 2000 to support two water-related bond measures on the March 2000 ballot: the $2.1 billion (not including interest) Safe Neighborhood Parks, Clean Water, Clean Air, and Coastal Protection Bond Act of 2000 (Prop 12) and the $2 billion (not including interest) Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Bond Act (Prop 13). Voters approved both statewide ballot propositions.

This campaign committee did not spend all of the money it raised. At the end of 2000 – ten months after Proposition 12 and Proposition 13 appeared on the ballot – Californians for Clean Safe Reliable Water – Yes on Propositions 12/13 still had $86,067.09.

In February 2003, the Californians for Clean, Safe, Reliable Water – Yes on Propositions 12/13 campaign committee was terminated. The leftover $80,800 was transferred to another campaign committee, Californians for a Safe Reliable High Speed Rail.

Californians for a Safe Reliable High Speed Rail appears to have been formed in the first three months of 2003, with the $80,800 contribution recorded as received on February 21, 2003. Initially, the campaign committee was making payments directly to James M. Costa for consulting and travel, as well as a $3,645.95 American Airlines bill and a $607.35 charge from the Fairmont – Le Chateau Frontenac in Quebec, Canada and also a $1,321.02 charge at the Manhattan Country Club in Manhattan Beach, California. But after 2003, the money trickled away almost exclusively as fees to Olson Hagel & Fishburn LLP, a law firm that specializes in campaign and political law for Democratic Party operations in California and for many construction unions. The treasurer was listed as Charlene Chessum with an address at the Fresno zip code of 93711 and a phone number of (559) 264-3078. This phone number appears to have been related in some way to Jim Costa, and Ms. Chessum held various positions in association with Jim Costa.

In 2008, Californians for a Safe & Reliable High Speed Rail rose from dormancy and dumped its remaining funds through a contribution of $53,487.86 in June 2008 to a new campaign committee called Californians for High Speed Trains – Yes on Proposition 1A – A Coalition of Taxpayer, Business, Environmental and Labor Groups and People from Across California Tired of Being Stuck In Traffic.

Californians for a Safe & Reliable High Speed Rail was then terminated on June 10, 2008 (even though the election date for Proposition 1A wasn’t until November 2008).

The Irony: Campaign Contributions from San Joaquin Valley Farm Interests Ultimately Transferred to the Campaign to Shoot the High-Speed Rail through That Farmland

As you can see from the contributor list to Californians for Clean Safe Reliable Water – Yes on Propositions 12/13, agriculture interests in the San Joaquin Valley were a significant portion of the campaign funding for Proposition 12 and Proposition 13. The Fresno County Farm Bureau and the Kern County Farm Bureau contributed to “Californians for Clean, Safe, Reliable Water – Yes on Propositions 12/13,” along with numerous farms in Fresno, Madera, Kings, and Kern County.

The “Californians for a Safe & Reliable High Speed Rail” money bridge between “Californians for Clean Safe Reliable Water – Yes on Propositions 12/13” and “Californians for High Speed Trains – Yes on Proposition 1A” appears to be the work of Congressman Jim Costadescribed in this July 13, 2012 Wall Street Journal article as “the project’s godfather”. An August 2003 article from the Los Angeles-based publication The Planning Report identified Costa as the “campaign chair” for Californians for Safe, Reliable High-Speed Rail.

San Joaquin Valley farmers who contributed to the campaign to pass the water bonds in March 2000 may want to ask Congressman Jim Costa why some of their money ended up in November 2008 supporting the high-speed rail project now cutting through their farmland.