In December 1991 San Mateo County Transit District (SamTrans) advanced $42,900,000 on behalf of the City and County of San Francisco and Santa Clara County to facilitate the purchase of railway right of way from the Southern Pacific Transportation Company. Nine years later, none of these advances has been repaid.

The grand jury recommends that:

• SamTrans should reopen negotiations with the City and County of San Francisco and Santa Clara County to restructure the original agreement and ensure that funds advanced by SamTrans, together with accrued interest, are repaid by June 30, 2002.

• If negotiations are unsuccessful, SamTrans should exercise its development rights outside San Mateo County.

• In the future, projects undertaken by SamTrans involving joint power agreements that include advances or loans of money should set forth specific repayment schedules for all participants.

In December 1991, the City and County of San Francisco, the San Mateo County Transit District, and the Santa Clara County Transit District established the Peninsula Corridor Joint Powers Board (JPB) to operate commuter trains using the Southern Pacific right of way (ROW) in the three counties. The purchase price of the ROW was $219,565,000. Through a bond issue, the State of California contributed $124,000,000; payment of the balance was allocated among the three counties based on a mileage formula. San Mateo's share was $39,100,00 (47.7%); Santa Clara's share was $34,600,000 (42.2%); San Francisco's share was $8,300,000 (10.1%). Due to the unavailability of funds from San Francisco and Santa Clara Counties, San Mateo County Transit District (SamTrans) was willing to facilitate acquisition of the ROW by contributing substantially all of Santa Clara's and San Francisco's share. All the parties to the agreement understood and agreed that neither San Francisco nor Santa Clara had any legal obligation to participate in the contribution; however, Santa Clara and San Francisco Counties could undertake a good faith effort to establish a repayment schedule for funds advanced by SamTrans, together with accrued interest, or contribute a lump sum or equivalent assets. The grand jury questions why amounts advanced have never been repaid.

During its investigation, the grand jury met with an attorney representing SamTrans and the JPB, two members of the management of SamTrans, and a member of the San Mateo County Board of Supervisors. The grand jury also reviewed copies of the original documents, agreements made between the JPB and SamTrans, and financial statements of the agencies involved. In addition, the committee received comments from SamTrans concerning why advances made are not disclosed in current financial statements.

As of November 30, 2000, none of the advances of $42,900,000 has been repaid. Accumulated interest on the advances through December 2000 is estimated to be in excess of $22,000,000.

The advances made are not reflected in the June 30, 1999, financial statements of either the JPB or SamTrans.

Interest accumulated on the advances is not reflected in the aforementioned financial statements of the JPB or SamTrans.

SamTrans has the right to terminate the JPB and exercise an option to acquire right of way property in San Francisco and Santa Clara counties that was paid for out of advances made to the JPB.

RESPONSES TO 2000-2001 SAN MATEO COUNTY CIVIL
GRAND JURY RECOMMENDATIONS 2.9 THROUGH 2.12

Recommendation 2.9

"To ensure equity between the parties, the San Mateo County Transit District should reopen negotiations with members of the Peninsula Corridor Joint Powers Board to modify the original agreement between the parties so that the $42,900,000 advanced by SamTrans, together with accrued interest, is reimbursed under a plan of repayment by June 30, 2002."

Response from Caltrain:

As previously reported to the Grand Jury, the CEOs of JPB member agencies are continuing negotiations initiated by SamTrans in early 2000 with the aim of effecting appropriate repayment to SamTrans and restructuring the Joint Powers Agreement in a variety of ways designed to (a) bring aboutlong-term stability of the organization; and (b) ensure predictability of financial participation for capital and operating responsibilities. It is anticipated that these negotiations will reach fruition during 2001.

Response from SamTrans:

As previously reported to the Grand Jury, the CEOs of JPB member agencies are continuing negotiations initiated by SamTrans in early 2000 with the aim of effecting appropriate repayment to SamTrans and restructuring the Joint Powers Agreement in a variety of ways designed to (a) bring about long-term stability of the organization; and (b) ensure predictability of financial participation for capital and operating responsibilities. It is anticipated that these negotiations will reach fruition during 2001.

Recommendation 2.10

"Should negotiations fail to result in repayment by June 30, 2002, the San Mateo County Transit District should exercise its development rights in San Francisco and Santa Clara counties."

Response from Caltrain:

This recommendation is specific to prospective policy action by the San Mateo County Transit District, and is addressed in a separate response on
behalf of SamTrans.

Response from SamTrans:

Based on legal protections incorporated in the Real Property Ownership Agreement among San Mateo, San Francisco and Santa Clara counties, the District concurs that SamTrans should exercise the rights made available to it under that agreement if negotiations are unsuccessful. Several options are open to SamTrans in this regard. Title is vested with SamTrans as to all right of way property in San Mateo County, subject to reconveyance only upon full reimbursement from JPB partners. SamTrans is entitled to all net non-operating revenues earned as station properties on the same basis. Depending on facts and circumstances at the appropriate time, the Board of Directors will consider all such options in order to be certain that the interests of San Mateo County taxpayers remain fully protected.

Recommendation 2.11

"The San Mateo County Transit District and the Peninsula Corridor Joint Powers Board should include complete footnote disclosure of the transaction in future annual financial statements until the advances are repaid to SamTrans."

Response from Caltrain:

The local increment in the corridor acquisition was identified as an expense in the District's 1992 Financial Statement and discharged as a single-year issue. District representatives are conferring with auditors to determine if any other appropriate means exists to identify the expense in subsequent statements until resolution is achieved.

Response from SamTrans:

The local increment in the corridor acquisition was identified as an expense in the District's 1992 Financial Statement and discharged as a single-year issue. District representatives are conferring with auditors to determine if any other appropriate means exists to identify the expense in subsequent statements until resolution is achieved.

Recommendation 2.12

"Any future joint power projects undertaken by the San Mateo County Transit District involving advances or loans of money should set forth a specific payment schedule for all participants."

Response from Caltrain:

As a specific recommendation for policy action by the San Mateo County Transit District, this issue is addressed in the SamTrans response to the Grand Jury's correspondence.

Response from SamTrans:

The District agrees that future projects involving fiscal advances undertaken by SamTrans in conjunction with its joint powers affiliation should set forth specific repayment schedules for all participants. In the case of the Southern Pacific right of way, acquisition was a unique challenge requiring bold leadership and decisiveness on the part of SamTrans. This was the case during difficult negotiations extending through most of 1991, and at consummation of the transaction in December of that year. Exigencies of the acquisition effort demanded a commitment to utilize local funds, even in the face of inability by all the JPB partners to guarantee their own financial participation. That commitment ultimately secured what has become an increasingly precious asset. Succeeding events and market conditions during the past decade, as the value of the property has increased several times over, have confirmed time and again that the investment was exceedingly sound. Moreover, the decision to acquire all available property from Southern Pacific -- an average 105-foot-wide corridor -- has facilitated maximum operating flexibility and related transit-oriented development potential to redound to the benefit of the public sector. Most importantly, as discussed with the Grand Jury and as evidenced in the response to Recommendation 2.10 (above), SamTrans protected its constituents in the decision to advance right of way funding by taking security interests in the corridor.