Trump administration to cancel $929 million in California high-speed rail funding

The fate of California’s high-speed rail project was cast into further doubt Tuesday when the federal government announced plans to cancel $929 million in grant funds, a move U.S. officials linked to violations of the grant agreement but some view as political payback.

The action marks an escalation in the battle between President Trump and the state of California since Gov. Gavin Newsom said last week that the project lacked a path to complete a statewide system and vowed to scale back the $77-billion mega-project.

The Transportation Department also said it was “actively exploring every legal option” to get back an additional $2.5-billion grant that is being used to finance the construction of 119 miles of rail line in the Central Valley.

The two federal grants represent about one-fourth of all the funding for the project to date — money critical to completing the Central Valley portion and finishing environmental reviews for other segments between San Francisco and Los Angeles. If the funds are lost or tied up in a long legal battle, the state would probably have to either make up the money elsewhere or further curtail the project.

Newsom on Tuesday vowed to block the move, arguing that it was political payback by the Trump administration.

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“It’s no coincidence that the Administration’s threat comes 24 hours after California led 16 states in challenging the President’s farcical ‘national emergency,’” Newsom said in a statement, referring to Trump’s emergency declaration to secure funding for his wall on the Mexican border. “The President even tied the two issues together in a tweet this morning. This is clear political retribution by President Trump, and we won’t sit idly by. This is California’s money, and we are going to fight for it.”

Earlier in the day, Trump had declared on Twitter, “The failed Fast Train project in California, where the cost overruns are becoming world record setting, is hundreds of times more expensive than the desperately needed Wall!”

Ronald Batory, chief of the Federal Railroad Administration, the transportation agency that made the grants in 2009 and 2010, laid out a lengthy legal argument Tuesday for why the state was out of compliance with the grant agreement. Batory said in a three-page letter to California High-Speed Rail Authority Chief Executive Brian Kelly that the state “has materially failed to comply with the terms of the agreement and has failed to make reasonable progress on the project.”

Batory alleged that the state had failed to spend required matching funds, falling short by $100 million as of December. He argued that it will fail to complete the Central Valley construction by a 2022 deadline required by the grant. Batory also said the state has not submitted required financial information — such as reports on what has been delivered to date — that would allow federal regulators to oversee the grants. It also has failed to take corrective actions after regulators raised concerns in 2017 and 2018.

The letter also cited Newsom’s State of the State speech last week that outlined a plan to build a limited operating segment between Merced and Bakersfield as a “significant retreat from the state’s initial vision and commitment.”

The rail authority said Tuesday afternoon that it would respond in detail to those allegations in coming days.

Newsom said in his speech that the project needed to be rethought and that the initial run would be within the Central Valley, not the San Francisco-to-Los Angeles route voters approved a decade ago.

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“But let’s be real,” Newsom said in the speech to lawmakers. “The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency.… Right now, there simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to L.A. I wish there were. However, we do have the capacity to complete a high-speed rail link between Merced and Bakersfield.”

In the hours that followed Newsom’s speech, Trump demanded that California return $3.5 billion in federal funds, and headlines proclaimed the Democratic governor was abandoning the ambitious project championed by his predecessors — a story line that Newsom denied and one that his team has scrambled to correct.

Although Newsom said the full project will eventually be completed, his tough remarks clearly sent a signal about his tepid support for the project and triggered some managers in the project office to consider leaving.

Whether the Trump administration can actually cancel the $929-million grant, which in legal terms is called “de-obligating” the funds, remains unclear. The possibility of ordering a refund of the $2.5-billion grant that is already being spent is even a bigger legal uncertainty.

Former congressman Jeff Denham, a Central Valley Republican who chaired the House rail subcommittee and is an outspoken critic of the project, spent years with his staff trying to figure out whether it would be possible to de-obligate the funding and ultimately decided it could not be done by congressional act.

The federal action to terminate the grant wades into uncharted legal territory.

“I can’t recall of any precedent,” said Art Bauer, a longtime state Senate Transportation Committee staffer who was deeply involved in the early planning on the high-speed rail. “They never claw back money. They are saying you are not getting money we committed to you. They are setting up a big fight.”

But in this case, Bauer said, “the governor unwittingly gave the federal government a reason to back away from the project.”

Although the federal regulators alleged that the state violated the terms of the grant, Bauer said such performance is typical in federal funding for transportation. “Just look at any highway project. They are never done on schedule or on budget. They are often not done within the original scope.

“The supporters of the project are really going to go through the roof,” he added. “I imagine a good part of the congressional delegation will gang up on the Department of Transportation and the federal Railroad Administration. But there is no love lost.”

The Trump administration action is likely to add further fuel to critics, including those in California, who want the project stopped. Assemblyman Vince Fong (R-Bakersfield) said Tuesday that the entire project should be scrapped and funds redirected to Central Valley projects that would benefit the state.

Assemblyman Jim Patterson (R-Fresno), a vocal critic of the project, said, “It doesn’t matter what the state says about not giving the money back,” he said. “The feds can, in fact, claw that money back.”

Times staff writer Sarah D. Wire in Washington contributed to this report.