Can USDOT kill California high-speed rail?

In February, U.S. Transportation Secretary Sean Duffy launched a review of the California High-Speed Rail Authority, which is building a portion of the proposed Los Angeles-to-San Francisco HSR project in the state’s Central Valley. The review will determine whether the authority gets to keep about $4 billion in previously obligated federal grants.

The project has come under criticism for many years due to delays and rising costs. In 2008, when California voters approved a $9.95 billion bond measure to start the project, the authority estimated the total cost of the LA-Bay Area line at $33 billion, and it promised that trains would be running by 2030. Last year, the authority’s business plan estimated that a 171-mile section between Merced and Bakersfield, California, could be running sometime between 2030 and 2033 — at an estimated cost of $28.5 billion to $35.3 billion just for that section.

The Feb. 20 DOT press release on the review referenced a California inspector general’s Feb. 3 report, which said the authority faces a $6.5 billion funding gap to complete the initial segment and that it is “increasingly unlikely” the authority will be able to finish that portion by its target date of 2033.

“That is why I am directing my staff to review and determine whether the CHSRA has followed through on the commitments it made to receive billions of dollars in federal funding,” Duffy said in a statement. “If not, I will have to consider whether that money could be given to deserving infrastructure projects elsewhere in the United States.”

For the authority, this is deja vu. During Trump’s first term, the Federal Railroad Administration canceled a $928.6 million agreement with it, alleging that the authority had “repeatedly failed to comply with the terms of the FY10 Agreement and has failed to make reasonable progress on the Project.” The Biden administration restored that funding in 2021. The FRA in 2019 also sought the return of $2.5 billion in American Recovery and Reinvestment Act funds, which was not achieved.

A DOT spokesperson told Smart Cities Dive that the current review includes the same FY10 $928.6 million grant and a $3.1 billion grant awarded in December 2023 under the Federal-State Partnership for Intercity Passenger Rail Program.

In a Feb. 21 statement, the authority said it welcomes the investigation and the opportunity to work with its federal partners. “With multiple independent federal and state audits completed, every dollar is accounted for, and we stand by the progress and impact of this project,” CEO Ian Choudri said.

Reaction to the DOT’s investigation came quickly. “The California High-Speed Rail (CAHSR) project is the most ambitious and innovative transportation project in the entire country,” said Greg Regan and Shari Semelsberger, president and secretary-treasurer of the Transportation Trades Department, AFL-CIO, in a Feb. 20 statement. “It has created thousands of middle-class jobs, putting more than 14,600 Americans to work already, and been an economic boon to more than 800 small businesses that are involved in the project.”

Can the DOT claw back these already-awarded funds? The terms of the grant agreement and the authority’s compliance with those terms will largely determine that, said Joshua Schnell, a partner at the Cordatis law firm, who represents grant recipients and federal contractors as head of the firm’s litigation practice. If the investigation finds a violation of either the grant agreement or the grant regulations, or indications of fraud or abuse, that could be cause for clawing back those funds, he said.

The authority is not totally reliant on federal grants. Referencing the state inspector general’s report, a spokesperson said that of the approximately $13 billion spent on the project, $10.5 billion came from the state.

Those funds come mainly from California’s emissions cap-and-trade program. The program sets limits on emissions and issues a shrinking number of allowances each year under that cap. Emitters the program covers must have an allowance for each ton of their carbon dioxide emissions; they can buy and sell allowances at an auction depending on their needs, with some of the proceeds going to the state’s Greenhouse Gas Reduction Fund.