High-speed rail financing proposal could derail local housing and infrastructure funding

By Damon Conklin, legislative advocate (transportation), and Ben Triffo, legislative advocate (revenue and taxation)

Cal Cities and other local government groups are pushing back on an unprecedented proposal from the California High-Speed Rail Authority that would threaten local revenues and local control. The plan would allow the agency to collect property and sales tax revenues within a half-mile radius of station areas to fund rail construction and commercialization through state-run Tax Increment Financing districts.

The coalition, which includes the California State Association of Counties, sent a letter to state leaders and the High-Speed Rail Authority board on Monday, urging them to withdraw the proposal and work with local governments to identify funding strategies that work for everyone.

“California's local agencies support the vision of a modern, statewide, high-speed rail system,” the group wrote. “However, funding that system must not come at the expense of constitutionally protected local revenues, local land-use authority, or the fiscal stability of our communities. We cannot lift up communities with a project that is built upon their backs.”

Can the High-Speed Rail Authority actually do this?

The High-Speed Rail Authority has yet to flesh out all the details. However, diverting local tax increment to a state entity would almost certainly invite legal challenges. The state constitution specifically prohibits reallocating local tax proceeds imposed for local purposes. Proposition 1A (2004) safeguards local property tax shares. Proposition 13 (1978) allocates property tax among constitutionally recognized districts, and the High-Speed Rail Authority is NOT one of them.

California already provides lawful, locally driven tax increment tools, including Enhanced Infrastructure Financing Districts and Community Revitalization and Investment Authorities. These mechanisms require local initiation, consent from affected taxing entities, and transparent public processes. Participation in both is voluntary. The proposal put forth by the High-Speed Rail Authority departs from this model.

There are more constitutionally sound funding proposals that the state could pursue, such as voter-approved bonds or dedicated state revenues, if it needs additional revenue. In fact, the Legislature did just that last year when it allocated $20 billion dollars from the state’s Cap-and-Invest program to the project.

How would this impact cities?

City officials and even some transit advocates have raised concerns about the proposal’s impact. A new, state-controlled district could conflict with existing financing districts that have already pledged revenues to housing, infrastructure, and economic development.

A decades-long diversion of revenue growth in station areas would significantly constrain local governments’ ability to fund public safety, roads, parks, and essential services. In Fresno, for example, the proposal would capture much of the tax revenue generated in the downtown area. Residents and city officials in Merced have also raised concerns, in part because the exact location of the Merced station has not yet been confirmed.

Equally concerning is the suggestion of state regulatory authority over station areas. Local planning power is constitutionally guaranteed: While the state may establish policy frameworks, it cannot assume total control over local zoning and development decisions.

What’s next?

While there is no official language in print, this item will likely be discussed at future High-Speed Rail Authority Board meetings and potentially state budget negotiations. If you are a city with a planned high-speed rail station, or are concerned about potential state overreach, please reach out to Cal Cities lobbyists Damon Conklin and Ben Triffo. All cities should contact their legislators to express their opposition due to the precedent it seeks to establish.