Issues Arising under FRA's Implementation of California High-Speed Rail Authority Grant Tapered Match Provision
No. B-325583
Comptroller General of the United States
December 18, 2015
Susan A. Poling General Counsel
The Honorable Jeff Denham Chairman, Subcommittee on Railroads, Pipelines, and Hazardous Materials Committee on Transportation and Infrastructure House of Representatives
The Honorable Mario Diaz-Balart Chairman, Subcommittee on Transportation, Housing and Urban Development, and Related Agencies Committee on Appropriations, House of Representatives
Dear Chairman Denham and Chairman Diaz-Balart:
This responds to your request for the Government Accountability Office's (GAO) legal opinion regarding issues arising under the Federal Railroad Administration's (FRA) ongoing implementation of a cooperative agreement with the California High-Speed Rail Authority (Authority). Federal funding for the agreement, totaling about $2.5 billion, was appropriated by the American Recovery and Reinvestment Act of 2009 (Recovery Act) [1] and is being used primarily for construction of an initial Central Valley subsection of California's planned high-speed rail (HSR) system. In addition to this first agreement (Recovery Act Agreement or Agreement), [2] FRA has entered into a second cooperative agreement with the Authority, also for construction of the initial Central Valley subsection. Federal funding for this second agreement, totaling about $928 million, was appropriated by the Fiscal Year 2010 Consolidated Appropriations Act (FY 2010 Agreement). [3] We mention the FY 2010 Agreement in this opinion for context only.
We agreed to address:
(1) whether the Authority has failed to provide its matching share contributions consistent with Agreement payment deadlines and if so, whether that violates the Agreement and what remedies the federal government has to address such violations;
(2) whether, pursuant to a tapered match provision in the Agreement, FRA's ongoing disbursement of federal funds toward its 50 percent share of grant project costs, without the Authority concurrently paying its 50 percent matching share, violates the Antideficiency Act or other key federal financial management laws; and
(3) what responsibilities, if any, FRA has to re-evaluate the Agreement in light of developments in ongoing state court litigation, Tos v. California High-Speed Rail Authority.
Our practice when preparing legal opinions is to obtain the views of the relevant agencies in order to establish a factual record and obtain the agencies' legal positions on the subject matter of the request. GAO, Procedures and Practices for Legal Decisions and Opinions, GAO-06-1064SP (Washington, D.C.: September 2006), available at http://www.gao.gov/products/GAO-06-1064SP. In response to our requests, we received oral and written responses and documentation from U.S. Department of Transportation (DOT) and FRA officials (collectively DOT officials) and from Authority officials. [4]
I. SUMMARY OF CONCLUSIONS
For the reasons discussed below, we conclude that while the Authority has paid less than had been required under the original terms of the Agreement, the Authority has provided its matching share contributions to date consistent with the Agreement as amended, and thus is not in violation of the Agreement. The amended Agreement includes a legally-authorized tapered match provision, permitting changes to interim payment dates and amounts as specified in the Agreement's Funding Contribution Plan (FCP), and the Authority has made its contributions consistent with these revised dates and amounts. If the Authority fails to make its interim payments consistent with the FCP, or fails to pay its full matching share by the Agreement's final payment deadline (currently September 30, 2017, but FRA is considering an extension), FRA would have several remedies available. These include suspension or termination of further funding under the Agreement; use of the federal debt collection laws to seek recovery from the Authority or the State of California of up to the entire amount of federal funds already disbursed; and suspension or debarment of the Authority from further participation in DOT surface transportation assistance.
We further conclude that FRA's ongoing disbursement of federal funds pursuant to the Agreement's tapered match provision, without the Authority paying its matching share concurrently, does not violate the Antideficiency Act or other key federal financial management laws, specifically, the Federal Managers' Financial Integrity Act and the Cash Management Improvement Act.
Finally, we conclude that FRA has a number of responsibilities under federal internal control requirements, DOT grant regulations, and FRA grant management policies and procedures to monitor, assess, and mitigate risks under the Agreement. These risks include the possibility, due to the Tos litigation or otherwise, of the Authority's failure to provide its matching share consistent with the FCP interim payment dates or the final payment deadline. [5]
II. BACKGROUND
As we reported in 2013, the California high-speed rail system is expected to be one of the most expensive transportation projects ever undertaken in the United States. GAO, California High-Speed Passenger Rail: Project Estimates Could Be Improved to Better Inform Future Decisions, GAO-13-304 (Washington, D.C.: Mar. 28, 2013) (GAO 2013 High-Speed Rail Report) at 1. Phase 1 of the system as currently planned will consist of a rail line approximately 520 miles long between San Francisco and Anaheim, currently projected to cost approximately $68.5 billion and to be completed by 2029, with a travel time of less than 3 hours and a capability of operating at over 200 miles per hour. With the currently planned expansion of the system under Phase 2, the system would run between Sacramento and San Diego for a total of 800 miles. [6] Key factual and legal background is provided below about federal funding and funding-related legal requirements for the planned system. Appendix I to this opinion provides additional information and context about state funding and funding-related requirements for the system and about the ongoing state court litigation in Tos v. California High-Speed Rail Authority.
Federal funding for the California high-speed rail system began in 2009, when Congress appropriated $8 billion in the Recovery Act for high-speed rail corridors and intercity passenger rail service. [7] The Recovery Act directed DOT to give priority to projects that support the development of intercity high-speed rail service, and FRA did so by using its High-Speed Intercity Passenger Rail (HSIPR) competitive grant program established under the Passenger Rail Investment and Improvement Act of 2008 (PRIIA). [8] The Recovery Act required FRA to obligate funds no later than September 30, 2012, [9] and in January 2010, FRA selected the Authority to receive an HSIPR grant ultimately totaling about $2.5 billion.
The Recovery Act did not require high-speed rail grantees to contribute matching funds as a condition of the grant, [10] but in its selection criteria, FRA provided a preference to applicants that committed to cost-sharing and whose documentation demonstrated the applicant's ability to fulfill any pledged contribution. [11] In its grant application, California offered to pay a 50 percent matching share-it “pledge[d] to use [Proposition 1A bond proceeds] to match HSIPR funding dollar-for-dollar” [12] -and FRA selected the Authority based in part on this commitment. [13] As discussed in Appendix I, the Authority planned to pay its matching share using proceeds from the sale of state general obligation bonds authorized by California's Proposition 1A (Prop 1A).
FRA and the Authority signed the Recovery Act Agreement in September 2010, and since then, the parties have amended the Agreement five times. [14] The Agreement now obligates $2, 552, 556, 231 in federal funds for preliminary engineering, environmental, and other early system work, and for design and construction of an initial Central Valley subsection of the system. [15] Amendment No. 5 is the most significant for purposes of this opinion because it changed the requirements for the Authority's matching share contributions from a concurrent proportionate match to a tapered match. Initially, as the Authority had committed in its grant application, the Agreement required the Authority to pay a minimum of about 50 percent of grant project costs and FRA to pay a maximum of about 50 percent. [16] This 50/50 split has generally remained in place, [17] meaning the Authority's agreed matching share is, like FRA's obligation, approximately $2.5 billion. The Agreement also initially required the Authority to make its matching share payments concurrent with and proportionate to FRA's payments; that is, each party had to pay about 50 percent of ongoing costs. [18]
In 2011, when the Authority had not obtained access to Prop 1A funds, it asked DOT about using federal grant funds first and postponing its matching share contributions, but DOT declined. [19] In 2012, when the Authority still had not obtained access to most Prop 1A funds and state court litigation had been filed against it in the Tos case (discussed in Appendix I) regarding Prop 1A and other matters, the Authority requested an amendment to the Agreement to add a tapered match provision. The Authority explained it had “no authority to spend any state monies aside from Prop. 1A bond proceeds” and issuance of those bonds was “unlikely to occur in a timely manner.” [20] The Authority therefore submitted a proposal consisting primarily of a “tapered match funding strategy, ” which it explained “would... decoupl[e] the project schedule from the [Recovery Act funding] deadline” of September 30, 2017.” [21]
Pursuant to FRA policies and procedures as discussed...
