California sues feds over $1B canceled bullet train funds

UPDATE: May 23, 2019: The state of California and the California High-Speed Rail Authority have filed a lawsuit in federal court against the U.S. Department of Transportation and the Federal Railroad Administration in an attempt to stop them from canceling the $928.6 million bullet train grant.

In the lawsuit, the state argues that the FRA should not be able to cancel the award because:

The state is in desperate need of alternative forms of transportation.
California has already committed billions of dollars to the project.
Construction is "well-advanced," and the state has performed its obligations.
The FRA stopped performing its own obligations toward the project during the last year — i.e. failure to process critical environmental clearances and not applying millions of dollars of qualifying expenditures toward the state's grant funding requirements.
The grant's cancellation came after President Donald Trump spoke out publicly against it and threatened to withdraw funding.
The FRA did not take the required steps, as required by the grant agreement, to resolve alleged problems.
The FRA's decision to cancel the agreement "in violation of its own procedures and policies was arbitrary and capricious, an abuse of discretion, and contrary to law, and threatens to wreak significant economic damage on the Central Valley and the State."

The state of California has spent approximately $10 million filing more than 50 lawsuits against the Trump administration on many issues, including those related to border wall construction policies and declaring a national emergency in order to fund border projects, The Sacramento Bee reported.

Dive Brief:

The Federal Railroad Administration, in a 25-page, May 16 letter to the California High-Speed Rail Authority's CEO Brian Kelly, notified the authority that it has terminated a $928.6 million grant for the scaled-back $20 billion bullet train project.
Ronald Batory, FRA administrator, wrote that the agency was canceling the grant because the CHSRA failed to make "reasonable progress" on the project and "consistently and repeatedly failed" when it came to management and delivery of the bullet train — i.e., the inability to track and report near-term milestones and make long-term forecasts — thus violating the terms of the grant agreement. Batory wrote that for these and other reasons, including the CHSRA's major shift from San Francisco-to-Anaheim service to one that will only connect the California cities of Bakersfield and Merced for the foreseeable future, the FRA had lost confidence in the CHSRA.
The agreement is terminated effective immediately, and, in the announcement accompanying the letter, the FRA said would it would possibly take action on reclaiming an additional $2.5 billion of American Recovery and Reinvestment Act funds the rail project has received as well.

Dive Insight:

The Associated Press reported that California Gov. Gavin Newsom has promised to fight the FRA’s decision in court and possibly could be holding out for a change in political winds during the 2020 election cycle since the grant money wasn't scheduled to be delivered until 2021. Russ Fong, the high-speed rail's outgoing chief financial officer, called the FRA's cancellation "devastating."

The FRA first informed the CHSRA that it intended to cancel the grant back in February right after Newsom announced he was shelving the bullet train project with the exception of the 119-mile segment between Merced and Bakersfield. The authority responded to the FRA in an attempt to refute the Trump administration's conclusion that it would not be able to complete the project by the 2022 deadline in the grant agreement, but even the California state auditor noted that the rail would have to double the pace of construction in order to meet that milestone.

Earlier this month, the authority delivered its most recent project update to lawmakers. Even though the estimated costs have risen almost $2 billion to more than $20 billion — and could rise higher in the future — the authority has taken some measures to control costs, such as limiting the management and oversight work it contracts out to consultants. CHSRA board chair Lenny Mendonca wrote in the report that the authority would bring many of these functions back in-house.