The state Senate voted 21-16 on a party-line vote after intense lobbying by Gov. Jerry Brown, Democratic leaders and labor groups.
The bill authorizes the state to begin selling $4.5 billion in voter-approved bonds that includes $2.6 billion to build an initial 130-mile stretch of the high-speed rail line in the Central Valley. That will allow the state to collect another $3.2 billion in federal funding that could have been rescinded if lawmakers failed to act Friday.
"The Legislature took bold action today that gets Californians back to work and puts California out in front once again," Brown said in a statement. He later celebrated with Senate President Pro Tem Darrell Steinberg of Sacramento, a fellow Democrat.
Brown pushed for the massive infrastructure project to accommodate expected population growth in the nation's most populous state, which now has 37 million people. He said the project is sorely needed to create jobs in a region with higher-than-average unemployment.
The bill, which passed the state Assembly on Thursday, now heads to Brown for his signature.
The first segment of the line will run from Madera to Bakersfield. The final cost of the completed project from Los Angeles to San Francisco would be $68 billion.
Senate Republicans blasted the decision, citing the state's ongoing budget problems.
"It's unfortunate that the majority would rather spend billions of dollars that we don't have for a train to nowhere than keep schools open and harmless from budget cuts," Sen. Tom Harman, R-Huntington Beach, said in a statement.
Sen. Ted Gaines, R-Granite Bay, said the project would push California over a fiscal cliff.
"It will require endless subsidies and will blast a massive hole into our budget," Gaines said in a statement.
The Bay Area Council, a group of business leaders from the San Francisco Bay and Silicon Valley areas, cheered the vote. The council backed the 2008 statewide bond measure regarding the rail line and had been working to sway legislators in support of the project in recent weeks.
"This is a courageous step forward for California's future," said its president and CEO, Jim Wunderman. "California has grabbed a golden opportunity to build the nation's first high-speed rail system, create the backbone of a new, clean 21st century transportation system and support our future economic growth."
Dan Richard, chairman of the California High-Speed Rail Authority, which is managing the project, said California would have lost billions of dollars in federal aid if the Senate fails to pass the bill before adjourning Friday for a monthlong recess.
Richard said California entered a contract that called for the federal government to provide money for building the Central Valley segment if the state also put up its share.
California was able to secure more federal aid than expected after Florida, Ohio and Wisconsin turned down money.
Before the vote, at least half a dozen Democrats in the 40-member Senate remained opposed, skeptical or uncommitted. Some were concerned about how the vote would impact their political futures, while others were wary about financing and management of the massive project.
One dissenter, Sen. Joe Simitian, D-Palo Alto, said public support had waned for the project, and there were too many questions about financing to complete it.
"Is there additional commitment of federal funds? There is not. Is there additional commitment of private funding? There is not. Is there a dedicated funding source that we can look to in the coming years? There is not," Simitian said.
In recent days, Democratic leaders included more funding to improve existing rail systems in an effort to entice support for the bullet train. The bill now allocates a total of $1.9 billion in bonds for regional rail improvements in Northern and Southern California. The upgrades include electrifying Caltrain, a San Jose-San Francisco commuter line, and improving Metrolink commuter lines in Southern California.
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