(a) An interagency transfer agreement between the department and a joint powers board, when approved by the secretary, shall do all of the following:

(1) Specify the date and conditions for the transfer of responsibilities and identify the annual level of funding for the initial three years following the transfer and ensure that the level of funding is consistent with and sufficient for the planned service improvements within the corridor.

(2) Identify, for the initial year and subsequent years, the funds to be transferred to the board including state operating subsidies made available for intercity rail services in the corridor, and funds currently used by the department for administration and marketing of the corridor, with the amounts adjusted annually for inflation and in accordance with the business plan.

(3) Specify the level of service to be provided, the respective responsibilities of the board and the department, the methods that the department will use to assure the coordination of services with other rail passenger and feeder bus services in the state, and the methods that the department will use for the annual review of the business plan and annual proposals on funding and appropriations.

(4) Describe the terms of use by the board of car and locomotive train sets and other equipment and property owned by the department and required for the intercity service in the corridor including, but not limited to, the number of units to be provided, liability coverage, maintenance and warranty responsibilities, and indemnification issues.

(5) Describe auditing responsibilities and process requirements, reimbursement and billing procedures, the responsibility for funding shortfalls, if any, during the course of each fiscal year, an operating contract oversight review process, performance standards and reporting procedures, the level of rail infrastructure maintenance, and other relevant monitoring procedures.

(b) Use of the annual state funding allocation, as set forth in the interagency transfer agreement, shall be described in an annual business plan submitted by the board to the secretary for review and recommendation by April 1 of each year. The business plan, when approved by the secretary, shall be deemed accepted by the state. The budget proposal developed by the department for the subsequent year shall be based upon the business plan approved by the secretary. The business plan shall be consistent with the interagency agreement and shall include a report on the recent as well as historical performance of the corridor service, an overall operating plan including proposed service enhancements to increase ridership and provide for increased traveler demands in the corridor for the upcoming year, short-term and long-term capital improvement programs, funding requirements for the upcoming fiscal year, and an action plan with specific performance goals and objectives. The business plan shall document service improvements to provide the planned level of service, inclusion of operating plans to serve peak period work trips, and consideration of other service expansions and enhancements. The initial business plan shall be consistent with the immediately previous State Rail Plan developed by the department pursuant to Section 14036 and the January 2014 business plan developed by the High-Speed Rail Authority pursuant to Section 185033 of the Public Utilities Code. Subsequent business plans shall be consistent with the immediately previous plans developed by the department and the authority. The business plan shall clearly delineate how funding and accounting for state-sponsored intercity rail passenger services shall be separate from locally sponsored services in the corridor. Proposals to expand or modify passenger services shall be accompanied by the identification of all associated costs and ridership projections. The business plan shall establish, among other things: fares, operating strategies, capital improvements needed, and marketing and operational strategies designed to meet performance standards established in the interagency transfer agreement.

(c) Based on the annual business plan and the subsequent appropriation by the Legislature, the secretary shall allocate state funds on an annual basis to the board. As provided in the interagency agreement, any additional funds that are needed to operate the passenger rail service during the fiscal year shall be provided by the board from jurisdictions that receive service. In addition, the board may use any cost savings or farebox revenues to provide service improvements related to intercity service. In any event, the board shall report the fiscal results of the previous year’s operations as part of the annual business plan.

(d) The level of service funded by the state during the first three years following the effective date of the interagency transfer agreement shall in no case be less than the number of intercity round trips operated in a corridor and serving the end points served by the intercity rail corridor as of the effective date of the interagency transfer agreement. Subject to Section 14035.2, the level of service funded by the state shall also include feeder bus service with substantially the same number of route miles as the current feeder system, to be operated in conjunction with the trains. For that same three-year period, the board shall continue to provide at least the same level of intercity rail and feeder bus services as were in operation on the effective date of the interagency transfer agreement, except that the interagency agreement shall not prohibit the board from reducing the number of feeder bus route miles if the board determines that a feeder bus route is not cost effective as provided in Section 14035.2.

(e) Nothing in this article shall be construed to preclude expansion of state-approved intercity rail service.

(f) Local resources may be available to offset any redirection, elimination, reduction, or reclassification by the state of state resources for operating intercity rail services identified in subdivision (b) only if the local resources are dedicated by a vote of the local agency providing the funds, with the concurrence of the board.

(Amended by Stats. 2012, Ch. 802, Sec. 5. (SB 1225) Effective January 1, 2013.)