Court Signals Green to $8.6bn California High-Speed Rail Bond Issuance


The Third District Court of Appeal reversed a Sacramento Superior Court Judge’s ruling that prohibited the High Speed Rail Authority (HSRA) from selling bonds under  Proposition 1A to construct the High Speed Rail Project (the Project) and ordered the HSRA to draft a new funding plan for the construction and operation of the Project.  (See California High-Speed Rail Authority v. The Superior Court of Sacramento County, No. C075668 (Cal. Ct. App. 3d Dist., July 31, 2014).)

Proposition 1A, originally approved by voters in 2008, authorized the HSRA to issue and sell general obligations bonds (upon appropriation by the Legislature), to begin construction of the Project.  Pursuant to Proposition 1A, the HSRA prepared, published, adopted, and submitted a preliminary funding plan to the Legislature that was also made available for public review and comment.  The plan included the total anticipated federal, state, local, and other funds the HSRA intended to access to fund the construction and operations of the system.  A final funding plan must also be approved by the Director of the Department of Finance before committing any bond proceeds, but such a plan has not yet been prepared by the HSRA.

In 2013, the HSRA requested, and the Legislature appropriated, the issuance of $8.6 billion in general obligation bonds for the Project.  In order to preclude any future lawsuits, the HSRA filed a validation action in Sacramento Superior Court to obtain a judgment validating the bonds to be sold on the capital markets.  Subsequently, several real-parties-in-interest filed a responsive pleading requesting that the court issue a writ of mandate directing the HSRA to rescind the preliminary funding plan for failure to comply with statutory requirements.  On November 25, 2013, the trial court issued a writ of mandate directing the HSRA to rescind its approval of the preliminary funding plan for failing to comply with the statutory requirements.  On the same day, Judge Kenny issued a ruling denying the request for a validation judgment on grounds that the Legislature’s determination to issue the bonds was not supported by evidence in the record.

The appellate court reversed Judge Kenny’s ruling, and held that the Legislature’s authorization to issue the bonds was proper because nothing in the governing statues requires the Legislature to make any factual findings or to explain the basis for its authorization, only that the findings be “necessary or desirable.” (Slip Op. at p. 24.) Moreover, the appellate court refused to intrude on the administrative process because it recognized that case law provides broad discretion to administrative/legislative findings and “judicial review is at the far end of a continuum requiring the utmost deference.” (Slip Op. at p. 23, quoting Carrancho v. California Air Resources Board (2003) 111 Cal.App.4th 1255, 1265.)

As for the preliminary funding plan, the appellate court narrowed its decision only to whether the HSRA was required to rescind and redo the plan after the Legislature had appropriated the bonds. The appellate court determined that the preliminary funding plan functions as an interlocutory and advisory document, midstream in the Project’s approval process. The second and final funding plan, however, would serve as the document that will contain the most important and expansive information and ultimately provide the decision maker with the final determination of whether the Project is financially viable. Even if the preliminary funding plan was deficient—a determination the appellate court avoided—it held that it would be meaningless to require the HSRA to redraft the preliminary funding plan since the Legislature’s approval simply appropriated the bonds, and did not commit the bond proceeds or authorize any construction work for the Project. The appellate court noted that the HSRA’s duty moving forward is to ensure the final funding plan comports with the statutory requirements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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