RECENT APPELLATE COURT RULING PROVIDES GREEN LIGHT FOR CALIFORNIA HIGH SPEED RAIL FUNDING PLAN

A panel of California appellate court judges recently upheld the California High Speed Rail Authority’s funding plan, unanimously authorizing State officials to sell $8.6 billion in bonds required to construct the train.

Filed by Kings County farmers and residents, the lawsuit sought to stop the project on the basis that the funding program approved by the California Legislature failed to satisfy the requirements of Proposition 1A. Proposition 1A provided the state with the ability to sell nearly $10 billion in bonds to get the high speed rail project started. To access that money, however, the Authority must meet a long list of strict standards specified in the text of the ballot measure, such as a requirement that no more than $950 million of bond proceeds can be used for non-high speed rail connectivity with high-speed rail lines. Plaintiffs’ lawsuit alleged that the funding plan failed to satisfy these requirements and that the project could not go forward as a result. Sacramento Superior Court Judge Michael Kenny agreed, finding that the state failed to identify all the funds needed to complete an initial “usable segment”—a requirement of the bond measure—and that the state had failed to obtain all of the necessary environmental clearances. Judge Kenny also found that the voter-approved bond funds could not be spent until the plan was redone, despite the fact the Legislature had already appropriated money from the approved bonds.

The appellate court panel disagreed, holding that state law required two funding plans: (1) an initial one that was not required to meet all of the voter-imposed requirements and which was mainly intended to help the Legislature decide whether to appropriate money for the project, and (2) a plan that would meet all of the legal requirements. The Appellate Court also provided an explicit warning to the Authority, stating that “substantial legal questions loom” regarding whether the project is consistent with the $9 billion bond that voters approved in 2008, including important financial and environmental issues that need clarification. According to the Appellate Court, the Authority has until the date on which they file their second funding plan to resolve some of these issues. Although there is no deadline for when the second funding plan must be filed, all environmental work must be completed prior to filing and the Authority must demonstrate that they have the funding necessary for the entire initial operating segment. The Appellate Court further held that the second funding plan must be filed before the state spends any of the bond money.

In response to the outcome, Plaintiffs alleged that the bond requirements have been rendered essentially meaningless and that the appellate court has controverted the intent of the voters. According to plaintiffs, the appellate court failed to analyze whether the state violated Proposition 1A, and instead concluded that the plan was valid because the Legislature approved it. Plaintiffs allege that the state is now free to move forward with the project without first establishing that it will be able to complete it. Plaintiffs have yet to announce whether they plan to appeal the decision to the California Supreme Court.

The appellate ruling sends the case back to Sacramento Superior Court with orders for the Superior Court Judge to enter a judgment that allows issuance of the rail bonds. While this would likely result in an influx of funding for the project, the rail authority has improved its financial position since the Superior Court ruling was issued. At that time, the rail authority was seeking federal grants which required the rail authority to match the federal dollars with state money. The rail authority had been unable to locate a source for the cash, but in recent months the Legislature appropriated $250 million in funds from so-called cap-and-trade revenue, which consists of fees that businesses who produce greenhouse gases pay to offset the environmental impact.