Legislature eyes 11th-hour changes to High-Speed Rail bond

Could this really be the year? In 2002, the legislature and Gov. Gray Davis placed a measure on the ballot that would provide $10 billion in state funds toward the development of a high-speed rail system. But after a few false starts, it looks like voters will actually get a chance to vote on the plan in November.

The project has been met with opposition from environmentalists on the left and some on the right who want there to be a private investment component to the plan.

Caught in the middle is the Legislature and the five-year old state budget crisis. Since 2004, the Legislature has exercised its right to shove the bond proposal off the ballot, in hopes of waiting for a rosier set of fiscal circumstances to increase the chances voters would open their wallets for the proposal.

The budget picture hasn't gotten any rosier, but soaring gasoline prices and a governor concerned with his environmental legacy have provided new momentum for the bond. Secretary of State Debra Bowen has already certified the measure for the November ballot. But a bill by Assemblywoman Kathleen Galgiani, D-Tracy, would make some last-minute changes sought by both business groups and environmentalists, to the November ballot measure.

The bill makes one major concession to environmentalists, explicitly stating that there will be no rail station in Los Banos. Environmental groups including the Sierra Club opposed the Los Banos station, saying it would damage protected grasslands in the Central Valley.

Galgiani's changes would also make it easier for private investors to put money into the rail bonds. The drive to attract more private investment in the project has been pushed by Gov. Schwarzenegger and his appointees to the high-speed rail authority board — Anaheim Mayor Curt Pringle and gubernatorial special adviser and pal David Crane.

The bill "would remove and conceivable legal obstacle to private investment," said Quentin Kopp, chairman of the High Speed Rail Authority board and a former chairman of the Senate Transportation Commission and a long-time advocate for high-speed rail. "Two weeks ago, we had a meeting that produced (dozens) of private investors" interested in purchasing high-speed rail bonds.
Crane, who has taken the lead in forging public-private partnerships in the administration, said that was a big part of why he wanted to be on the commission in the first place.

"That was a concern I had when I first came on the board. Their financing plan called for $10 billion from the private sector but they hadn't paved a route for that investment."

The Galgiani bill would also provide opportunities and incentives for local officials line up regional funding for their segment of the rail project. The original bond mandated that the first segment to be built would be the San Francisco to Los Angeles route. If the Galgianis changes are accepted, locals could effectively compete with each other, and the authority would grant funding to the segments that were the most ready to go.

"It's a way to introduce competition," said Galgiani.

The first phase of the rail project is expected to cost $30 billion. Under the modified proposal, one-third of that money would come from the state, one-third from the federal government, and one-thrid from private investors.

In his testimony on the Galgiani bill this week, Kopp indicated there has been an explosion of institutional investment funds, including CalPERS and STRS, dedicated to buying infrastructure bonds. Kopp said there was 37 such funds around the world, and some would be natural investors for the state's high-speed rail project.

But big questions about the bond remain. First is whether state voters will be interested in investing in a high-speed rail plan as the state faces an enormous budget deficit. The plan itself faces some continued opposition from environmental groups, which could complicate any bond campaign.

Another question is whether the federal money for the program will ever materialize. A delegation of state high-speed rail board members recently went back to Washington D.C. seeking an answer to that very question. And the answers, according to Crane, were encouraging.

State officials say they have received indications from members of Congress that there will be roughly $60 billion set aside for high-speed rail projects nationwide in next year's federal transportation bill. And they are further encouraged that California, which is further along than any other state in its high-speed rail development, is well positioned to capture some of that money.

But, said Crane, "it will require a strongly unified and aggressive California Congressional Delegation" to capture some of those funds for the state high-speed rail program.

The changes in the Galgiani bill are seen as pivotal to attracting Gov. Schwarzenegger's support for the November bond. Schwarzenegger spokeswoman Sabrina Lockhart said the administration has not taken a formal position on the bond, but is working closely with the High Speed Rail Authority, which is sponsoring the Galgiani bill.

Meanwhile, some environmental opposition remains. The Sierra Club's Tim Frank said that while his group is encouraged by the decision not to build a rail station in those protected grasslands between Gilroy and Merced, his group still has concerns with the project.

"High-speed rail will be growth-inducing in the Central Valley," said Frank. "The question is, will it be good growth or bad growth?"
Frank said he wants to give the High-Speed Rail Authority some say over land use decisions as the Central Valley continues to grow.

"Now is the time when we have some leverage," Frank said.