A ruling by the Sacramento County Superior Court has presented a major roadblock to the California High-Speed Rail Authority’s (“Authority”) high-speed rail project (“Project”).  On November 25, 2013, Judge Michael Kenny ruled that the Authority was not authorized to sell $8 billion of the $10 billion in state bonds designated for project funding under Proposition 1A and ordered the Authority to rewrite its $68 billion funding plan.  

Proposition 1A requires the Authority to identify the source of funding, complete the environmental review process, and have a valid financing plan for the first segment of the Project prior to seeking state bond funds.  The measure also includes provisions that would not allow the Authority to move forward with the Project if it does not have the necessary funds for the first segment.  The plaintiffs argued that this requirement meant that the Authority had to secure funding for the first 300 miles of the Project under a valid financing plan.  The Authority’s commitment of bond funds for construction contracts without a valid financing plan was a violation of Proposition 1A , according to the plaintiffs.  However, the Authority argued that under the measure, it was only required to secure funding for the first “useable” segment, the 28-mile stretch from Madera to Fresno.  Furthermore, the Authority argued  that committing state bond funds for future uses did not mean the funds had been spent, and therefore did not violate the bond measure. 

Judge Kenny held that the plaintiffs’ interpretation was correct, and that there was no evidence that it was “necessary and desirable” to start selling the bonds, as argued by the Authority.  The court did not invalidate the Project or the bonds entirely, but noted that it would need more evidence as to when and why the bonds needed to be sold.  Also, the court did not block spending of the Project’s $3.2 billion in federal funds or rescind construction contracts, despite plaintiffs’ requests that the court to do so. 

Today, Senate President Pro Tempore Darrell Steinberg of Sacramento, a staunch supporter of the Project, said in an interview on Sacramento’s KFBK radio that the decision was clearly a “setback,” and observed that ultimately the Project will require a private partner to help finance the construction.  The Authority remains confident that it will be able to address the judge’s concerns quickly and minimize any disruption to the project’s schedule.

Co-authored by Juliet H. Cho and Michael N. Mills.