State says federal funds can be used to start bullet train work

California bullet train officials, responding to a judge’s ruling that the project has failed to comply with voter-imposed spending controls, argued Friday that they can use federal funds to begin construction of an initial 29-mile segment of Central Valley track.

The state’s high-speed rail agency asserted in a legal filing that using federal funds would not trigger restrictions imposed in 2008 on use of state bond money for the proposed $68-billion, Los Angeles-to-Bay Area high-speed train.

The filing followed an August finding by Sacramento Superior Court Judge Michael Kenny that the authority failed to follow a requirement that it identify all of the sources of funding needed to complete the first operational segment of the system.

FOR THE RECORD: An earlier version of this article referred to Treasurer Bill Lockyer as John.

The ruling is part of a tangle of legal problems threatening the momentum of the project as it nears a planned groundbreaking next year. State Treasurer Bill Lockyer’s office said Friday he is not willing to sell high-speed rail bonds, which would generate funds for the project, until a separate court case is resolved. A ruling in that suit may not come until late December.

The more immediate legal risk centers on a case filed by two Central Valley residents and Kings County. It argues the state violated key taxpayer and environmental protections contained in a 2008 bond measure. Among the protections was a provision intended to ensure the system would not be partially built and run out of money before a self-sustaining, operational portion is completed.

The first operational bullet train segment will cost $31 billion and run from Merced to the San Fernando Valley, according to state officials. But they have only identified about $12 billion in available funds.

The new spending strategy could bypass potential legal obstacles posed by the case in Kenny’s court. Attorneys for the California High Speed Rail Authority asserted in Friday’s court filing that legal restrictions apply only to state money and do not affect $3.24 billion in federal grants awarded for the project.

Originally, the state had to match the federal grant money with state money as the project progressed. But the Obama administration, which strongly supports the project, agreed last December that the state could use all of the federal grants before putting in matching state funds.

The modifications were sought because the project has fallen behind schedule and federal money had to be spent by September 2017.

Michael Brady, an attorney representing plaintiffs in the Sacramento case, said the state’s latest legal argument is “full of holes.”

Brady said the voter-imposed spending restrictions apply to all financial obligations, not just the expenditure of state bond money.

“If the federal government is advancing the money, the minute that occurs the state has incurred a financial obligation to match it,” Brady said. “The risk of all this is that someday California would find itself with a $3.8 billion debt to the federal government with nothing to show for it.”

Agency officials declined to discuss Friday’s filing. A hearing on the matter is scheduled in Kenny’s court for Nov. 8.

ralph.vartabedian@latimes.com