In their quest to build the nation's first high-speed rail system, California officials have been banking on a wide range of potentially dubious funding sources, from federal programs that don't exist to private investments that have yet to materialize.
Now, a fresh verdict from a Sacramento County judge threatens the one source of money that rail officials felt was a sure thing -- the $9 billion in state funds that state voters approved for the $68 billion project in November 2008, when the price tag of the San Francisco-to-Los Angeles system was pegged at $45 billion.
In his ruling, Judge Michael Kenny found that the rail authority "abused its discretion" and violated the law when it failed to identify funding for the rail line's first usable segment, a roughly 300-mile stretch that would extend from Merced to San Fernando Valley and cost about $21 billion.
Instead, the rail authority only identified the funding needed for the "initial construction segment," 130 miles between Bakersfield and Fresno, which does not include electrification and which will cost about $6 billion.
The consequences of the ruling won't be clear until Nov. 8, when the California High-Speed Rail Authority and the plaintiffs from Kings County are scheduled to return to Kenny's courtroom to hear his ruling on the remedies the rail authority would have to pursue.
Lisa Marie Alley, the rail authority's deputy director of communications, said that until the litigation concludes, it's impossible to predict the impact of Kenny's decision. In the meantime, however, the rail authority is hiring workers in the Central Valley in preparation for construction.
The agency is refining its design for the initial section and proceeding with relocating utilities, purchasing right-of-way and paving the way for the actual "heavy construction" of bridges, overpasses and trenches.
"Our stance has always been that we will continue to move the project forward," Alley told the Weekly.
At least one vocal proponent of the increasingly unpopular project -- Gov. Jerry Brown -- thinks the ruling will ultimately do little to halt construction of the train system. Last week, Brown told reporters at a summit in Lake Tahoe that while Kenny's ruling raises some questions, "it did not stop anything," according to the Associated Press. The decision, he said, leaves "a lot of room for interpretation, and I think the outcome will be positive."
Michael Brady and Stuart Flashman, the attorneys representing plaintiffs John Tos, Aaron Fukuda and the County of Kings, voiced similar sentiments, though to them the term "positive" has the opposite meaning. Brady, a longtime and outspoken opponent of the rail system, said he would like the court to either require the rail authority to correct its myriad errors or to put the brakes on the controversial project.
"We hope the court will say: 'We already found you're in violation of Proposition 1A. What are you going to do about it?'" Brady told the Weekly. "'Are you going to comply? Should the project go ahead if you can't comply?'"
Rail authority officials had argued in a court brief that it was perfectly legal for the agency to proceed with the shorter segment before laying out all the plans for the larger one. The bond act "clearly authorizes construction of the high-speed train system in portions, like the ICS (Initial Construction Segment), that are smaller than an entire corridor or usable segment," Deputy Attorney General S. Michele Inan wrote in a brief.
It is significant, the rail authority argued, "that the Legislature omitted the term 'corridor' or 'usable segment' from the authorization to use bond proceeds: It is not limited to corridors or usable segment.
"Since the train system envisioned by the bond act will be built over a long period of time, such phased construction allows the Authority to manage the development process, costs, and funding over time," Inan wrote.
She also argued that because the Legislature had already appropriated the funds despite complaints that the funding plan did not meet the requirements of Prop. 1A, "an order setting aside the funding plan will have no legal effect and would be an empty act."
The Kenny ruling is the latest setback for high-speed rail, a project that has generated a tide of opposition along the Peninsula since the 2008 vote. Palo Alto, Menlo Park and Atherton had previously sued the rail authority, forcing the agency to decertify and revise its environmental analysis, and the Palo Alto City Council had unanimously passed a resolution officially opposing the project.
Despite a list of critical audits and concerns from lawmakers about the rail authority's ridership projections and revenue forecasts, the legislature voted in July 2012 to approve $2.6 billion in bond funds and $3.4 billion in federal funds for the first construction segment. The appropriation came by a single vote, with several Democrats joining every Republican in opposition.
Now, opponents of the project hope that Kenny's ruling will tarnish this victory by invalidating the appropriation, which they argue is shown to be based on an incomplete financial analysis.
"We think that it's appropriate for the judge and we understand his reticence to consider rescinding the legislative approval of appropriation," Flashman, who has represented Palo Alto, Atherton and Menlo Park in prior lawsuits against the rail authority, told the Weekly.
He acknowledged that such a move would be unlikely, given the separation of power between the legislative and judicial branches. But even if Kenny doesn't rescind the appropriation vote, he could effectively invalidate it, Flashman said.
"We do think it would be perfectly within his right to declare that because the funding plan was invalid and because the Legislature relied on that funding plan in making the appropriation to say the appropriation was not properly supported and therefore declare it invalid."
In discussing potential remedies, Kenny was vague in his ruling. He noted that he could direct the rail authority to rescind its funding plan, though he acknowledged that he is not convinced this would have "any real, practical effect" given that the money has already been appropriated. He also said the court cannot determine whether it should "invalidate subsequent approvals" of bond proceeds and directed both parties to issue supplemental briefs addressing this issue.
In his ruling, Kenny also pointed to another provision of Proposition 1A that could complicate the rail authority's ability to spend the bond money. The provision prohibits the agency from committing the bond funds until it submits a second funding plan, which would have to be accompanied by a report from independent parties and which would have to be approved by the state's director of finance and the chairperson of the Joint Legislative Budget Committee.
Though this supplemental plan has yet to be prepared, once released, it will present opponents of the rail money with another target for legal challenges. Flashman noted that the supplemental plan is required to get into greater detail than the initial one about sources of funding for the first usable segment of the rail line.
"Only after language has been prepared, submitted and approved can the authority spend any bond fund money," Flashman said. "It's a padlock on the strongbox containing that bond money."
Flashman and Brady are also looking forward to Kenny's response to the second part of their legal challenge one that focuses on a Proposition 1A provision that requires high-speed trains to be able to get from Los Angeles to San Francisco in 2 hours and 40 minutes. Kenny will consider this challenge at a later date.
Though the ramification's of Kenny's decision won't become apparent until at least November, the recent opinion has given fresh hope to the Peninsula's legion of rail critics, many of whom have toned it down over the past two years as the rail authority's focus shifted to the Central Valley.
John Garamendi Jr., Palo Alto's high-speed-rail lobbyist in Sacramento, called Kenny's ruling "an enormous deal" and a huge victory against high-speed rail. The judge's determination that the rail authority must identify funding sources and get environmental clearance for the entire "initial operating segment" rather than the first constructed section "may be a hurdle too high for them to cross," Garamendi told the Palo Alto City Council's Rail Committee on Aug. 22.
"However, it would appear the governor and high-speed rail staff are not concerned in the least about it," Garamendi said. "I still believe we're a country of the rule of law. We'll see what the judge thinks about that."