The California rail authority delivered a sharp rebuttal Monday to the Trump administration, saying its threat to cancel and rescind $3.5 billion in grants for the state bullet train project is "rash and unlawful."
In two letters to the Federal Railroad Administration, state officials said they have not breached the terms and conditions of the grants and are making progress in building what would be a transformative passenger rail system.
The federal agency said two weeks ago that it intended to terminate a $929 million grant issued in 2010 for the high-speed rail system and was exploring options to seek recovery of a $2.5 billion grant in 2009 that the state already spent. The notice asserted that the state had violated the terms of the grants, was not making adequate progress and would not meet a 2022 deadline to complete 119 miles of construction in the Central Valley.
The grants are critical to Gov. Gavin Newsom's plan to build a 171-mile partial bullet train segment from Bakersfield to Merced, a plan he announced after saying that a more ambitious Bay Area to Central Valley system would cost too much and take too long to complete. Even with the federal grants, the state will have a difficult time paying for the $16 billion to $18 billion partial system.
The action by the FRA, which is part of the U.S. Department of Transportation, is rare, grant experts said. They could not recall any instance in which grants as large as those to the California bullet train were taken back.
The rebuttal letters, written by rail authority Chief Executive Brian Kelly, assert that Newsom's plan does not change the purpose of the project and increases the amount of work that will be done in the Central Valley by extending construction south to Bakersfield and north to Merced.
Kelly disputed the FRA's assertion that the authority was not making progress, and said the project has 24 active bridge and roadbed construction sites and employs 2,600 workers.
Kelly also noted that federal officials made 450 payments under the initial $2.5 billion grant to the state after determining that it met the conditions, and that the second grant had the same terms.
He disputed the allegation that the state would not meet a 2022 grant deadline to complete construction from Madera to Wasco, saying the federal agency did not document that claim and that the grant did not make such a failure a "breach, much less a material one."
Finally, Kelly rejected the FRA claim that it was not meeting requirements to match the federal grant. He argued that the termination letter identified only one instance of not meeting a projected payment, which occurred in the last quarter of 2018 when the California High-Speed Rail Authority missed about $90 million in matching funds. Kelly said the payment was an estimate and missing it does not represent a breach. Rather, the state is ahead of schedule in meeting its match requirements, he said.
Kelly wrote a letter to a federal grant administrator that disputed in detail the federal notice, and a second letter to FRA administrator Ronald Batory. In the second letter, Kelly said: "Any clawback of federal funds already expended on this project would be disastrous policy. It is hard to imagine how your agency _ or the taxpayers _ might benefit from partially constructed assets sitting stranded in the Central Valley of California."
Kelly asked Batory to "restore the functional relationship between our agencies," in which challenges they are facing are the consequence of many past decisions by both agencies. He went on to charge that the federal agency is not participating in the project's environmental review process, which has "negatively affected the project schedule."
It is unclear whether the Kelly letters can change the Trump administration's plans.
"Whole project is a 'green' disaster!" President Donald Trump said on Twitter last month. He said he would seek to get the $3.5 billion back. That assertion prompted Newsom to claim the action was "political payback."
Transportation Secretary Elaine Chao last month criticized Newsom's plan for a Central Valley segment, calling it a classic political bait and switch.
And, in a statement provided to The Los Angeles Times Friday, the FRA said it does not plan administrative hearings on the grant termination and has no appeals process.
If the FRA does terminate the grant and try to recover the $2.5 billion grant, it would leave the state with some difficult choices. It could sue in federal court, a lengthy process that would force the state to find an interim source of money to keep construction going. Or it could hope that Democrats take over the White House and Congress in 2020 and reverse the Trump actions.
