DALLAS — A recent California court ruling that stopped the state from selling $8 billion of general obligation bonds to fund a proposed high-speed rail line could result in the cutoff of billions in federal matching funds as well, a House lawmaker warned Wednesday.
Rep. Jeff Denham, a Republican from California who chairs the House Transportation and Infrastructure Committee's subcommittee on railroads, pipelines and hazardous, said at a hearing that he will introduce legislation later this week to suspend the payments the bullet train project is receiving from the Federal Rail Administration until the state can ensure it can provide its required 50% share.
The California High-Speed Rail Authority intended to use the proceeds from the general obligation bonds to provide the required match federal stimulus grants, Denham said at the hearing, which focused on the high-speed rail project.
Without the bond sale, Denham said, the federal government cannot be sure California will pay the $180 million in matching funds due April 1.
"Despite the loss of the matching funds, FRA has continued to reimburse California for spending on the project," Denham said.
Sacramento Superior Court Judge Michael Kenny blocked the bond sale in a ruling issued Nov. 25. Kenny said the high-speed rail authority failed to adequately disclose what factors it considered when it authorized the bonds.
The California project has been awarded $3.9 billion in federal funding, almost 40% of the high speed rail grants authorized by the federal stimulus act and fiscal 2010 budget. Of the total, $2.55 billion comes from a single agreement with the FRA that requires a 50-50 split of state and federal funding.
"Under FRA's grant agreement, the administration has the ability — today, right now — to suspend reimbursements until the high-speed rail authority presents a viable plan to identify a new source of the required state match," Denham said.
A separate state court ruling found that the rail authority's financial plan did not comply with provisions of the voter-approved bullet train program.
Proposition 1A, which narrowly passed in 2008, authorized $9.95 billion of GO bonds as initial funding for a 500-mile rail system with trains that could operate at speeds up to 200 miles per hour.
The state cannot guarantee it has the money in hand to make the first match payment of $180 million due April 1 without the bond proceeds, Denham said,
"Given so much uncertainty around this project, why wouldn't FRA take the prudent step to hold off spending more taxpayer dollars until they are satisfied that California has remedied these legal setbacks?" he asked.
FRA deputy administrator Karen Hedlund said federal officials are concerned about the uncertainty over the matching funds but are working with the state rail authority to resolve it.
Hedlund was not able to provide copies of recent invoices from the California project, which prompted Denham to suggest the FRA is keeping information from the subcommittee.
Denham said he had asked FRA officials four weeks ago for copies of invoices for more than $100,000 that came in since the court ruling.
"We expect answers and cooperation from the FRA," he said. "What are you trying to hide?"
The invoice information was still being gathered, said Hedlund, a former public finance attorney.
"We have nothing to hide," she said. "We will discuss this situation with your staff."
Dan Richard, chairman of the California rail authority, said Gov. Jerry Brown is committed to an on-time payment of the required state match.
"Our plan said we intended to make the matching payment from bond funds," Richard said at the hearing. "If bond funds were not available, then the payments will come from other sources of state funds."
Brown's proposed fiscal 2015 budget includes $250 million of state matching funds for the rail project. The revenue would come from California's cap and trade emissions program, which has generated more than $350 million over the past 12 months.
The authority will amend the bond authorization process to comply with the court ruling rather than appeal it, Richard said. If that is acceptable, he said, some of the bond proceeds could be available by the April deadline.
