PHOENIX – California’s $1.6 billion bond sale this week provided savings for California and pumped more money into the state’s ambitious high-speed rail program, which still faces a long journey to completion beset by lawsuits and political opponents.
The state sold the bonds Oct. 17 in three separate competitive bids.
The sale included $509 million of taxable new money general obligation bonds, $199 million of tax–exempt new money bonds, and $881 million of tax-exempt refunding bonds and each of the three bid groups accounted for around one-third of the total money.
Money for the high-speed rail project came from the taxable new money bonds, which also included money for the California Stem Cell Research and Cures Bond Act of 2004 and the Housing and Emergency Shelter Trust Fund Act of 2006.
Two of the bid groups received eight bids, while another received seven bids, said California Treasury spokesman Marc Lifsher.
The $508.6 million of Bid Group A taxable GO bonds were won by JPMorgan with a true interest cost of 2.16%, the $557 million of tax-exempt Bid Group B bonds were won by Wells Fargo with a true interest cost of 1.79%, and the $523 million of tax-exempt Bid Group C bonds were won by Morgan Stanley with a TIC of 3.11%. Lifsher said the refunding bonds will save taxpayers $210.6 million on a present value basis, though those numbers were preliminary and subject to revision.
Wells’ winning bid came only a day after California Treasurer John Chiang announced that he was extending sanctions against the San Francisco-based banking giant because of the revelations that it defrauded retail customers by opening phony accounts in their names.
The sanctions, first put in place in September 2016, prevent Wells from serving as lead underwriter on negotiated deals but do not prevent the company from bidding competitively.
While the treasurer's office was able to celebrate a successful sale, both backers and opponents of the high-speed rail project are still hunkered down for a years-long struggle before the train project, kicked off when voters approved $10 billion bond measure in 2008, is running its planned route from the Bay Area down to Los Angeles.
Lawsuits remain a glaring obstacle, despite some wins for the California High Speed Rail Authority. The project has already faced several suits, and the offering documents for the Oct. 17 sale disclose the risk of at least one ongoing legal battle in Sacramento Superior Court.
That suit, Tos v. California High Speed Rail Authority, seeks to invalidate the use of the bonds on the grounds that the legislature unconstitutionally altered the voter-approved mandate when it passed Assembly Bill 1889 in 2016 to allow high-speed rail bonds to be spent to electrify the existing Caltrain commuter train system in the San Francisco Bay Area. The high-speed trains are to use the Caltrain tracks and electric power delivery system between San Jose and San Francisco.
The court earlier this year rejected the plaintiffs’ requests for an injunction to prevent the sale of high-speed rail bonds, but the plaintiffs filed an amended complaint challenging the state’s right to expend the bond proceeds post-sale. The docket shows that the court will hold additional hearings in the case Dec. 8.
The offering documents warn that if the state eventually ends up losing the suit, the federal government might end up wanting California to pay it back.
“In the event a final decision in this matter prevented the use of bond proceeds, it is possible that the federal government may require the state to reimburse federal funds provided for the high-speed rail project if the state failed to provide other matching funds consistent with the federal grant agreement,” the preliminary official statement said. “As of August 2017, the amount of unmatched federal spending on the project was approximately $2.1 billion."
The project is also expected to face a slew of additional lawsuits targeting different segments of the route after a July ruling by the California Supreme Court that the rail project is not exempt from strict environmental laws. Various local groups have formed to challenge the rail routes planned for their communities, such as Save Angeles Forest For Everyone (S.A.F.E.), a group that has spent the past two years voicing concerns about the potential environmental impacts in the San Fernando Valley region impacted by the project’s Palmdale-to-Burbank section.
The Los Angeles Times reported earlier this month that the High-Speed Rail Authority’s director of risk management would be retiring and leaving the project next month, following the departures this summer of the project’s chief executive and his deputy.
But while opponents focus on multi-billion-dollar cost overruns as well as the environmental concerns, the authority is stresses what it says has already been an economic boon to the state. The authority put a more positive spin on the federal money granted for the project, announcing earlier this month that the money has helped to create “thousands of new jobs” and generated “approximately $4 billion” in economic activity in the Central Valley and across California. The money, granted under the American Recovery and Reinvestment Act of 2009, required the state to fully invest the federal funds by Sept. 30, a milestone the authority announced it had met.
“All of the ARRA funds for the project were spent prior to the statutory deadline of Sept. 30, 2017 and thanks to these federal funds, thousands of people are working in good-paying jobs to build a new transportation system that will improve quality-of-life for generations to come,” said Dan Richard, the authority’s Board chair. “High-speed rail workers are also investing money back into their local communities, boosting local economies and generating up to $4 billion in new economic activity.”
According to the authority’s current timeline, a segment of train connecting San Jose to just north of Bakersfield will be up and running by 2025. The full phase one, connecting San Francisco to just south of Los Angeles, is targeting a 2029 opening. A later second phase would add extensions from Merced to Sacramento and Los Angeles to San Diego.