California governor vows to fight federal funding cut to high-speed rail

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SACRAMENTO, Calif. — California Gov. Gavin Newsom has promised to fight the Federal Railroad Administration’s revocation of a $929 million construction grant, which could place the high-speed rail program in financial jeopardy, calling it “illegal and a direct assault on California, our green infrastructure, and the thousands of Central Valley workers who are building this project.”

The state’s senior U.S. Senator, Democrat Dianne Feinstein, said in a statement that she backed Newsom’s decision.

“Congress appropriated these funds and the president obligated them. They can’t be legally withdrawn without good cause,” Feinstein said.

But earlier Thursday, FRA Administrator Ronald Batory announced that the grant was being revoked because he says there is good cause: The project has changed since the grant was made in 2010 by the Obama administration and there have been dozens of instances when the California High-Speed Rail Authority failed to file adequate reports to fulfill the grant’s requirements.

“There is nothing in the FRA’s long working relationship with CHSRA to suggest that CHSRA would likely be able to initiate and complete the necessary corrective actions,” Batory’s letter said.

Loss of the grant would be a major blow to the project, said authority chief financial officer Russell Fong, but it might be possible to make up the deficit with high-speed rail’s share of revenue from California’s cap-and-trade market if they continue to run above projections. Budgeted at $500 million a year, cap-and-trade produced $767 million for high-speed rail in 2018.

The Trump administration and the rail project have been in full feud mode since February when Newsom said in his State of the State speech that there was only enough money on hand to build an operating railroad between Merced and Bakersfield, Calif., 171 miles apart in the Central Valley.

It was the fifth time since voters approved almost $10 billion in state Proposition 1A bonds for the project in 2008 that the initial operating segment — though not the total project — had been redefined. But it was the first under the Trump administration, which immediately announced that it would try to “claw back” $2.5 billion in federal grants that had already been spent and said it planned to revoke the $928.6 billion awarded in 2010 but unspent so far. That’s what happened Thursday.

Project CEO Brian Kelly wrote letters in March to both Batory and FRA program delivery director Jamie Rennert urging them to reconsider.

“The FRA's threat to terminate funding under the (2010 grant) on two weeks’ notice is a sharp departure from the productive, collaborative relationship previously enjoyed by the FRA and the CHSRA,” Kelly wrote to Rennert.

Nevertheless, the grant reporting inadequacies in the funding revocation letter date back to the Obama administration, which awarded all of the federal funding.

Beginning in the third quarter of 2016, the FRA’s letter said quarterly budget reports were inadequate and the FRA had rejected those quarterly reports since Q2 2017. Quarterly reports on state spending have been inadequate since Q4 2016 and rejected since Q2 2017. Annual deliverables reports on program management plans, work plans and the financial plan in the Central Valley have been either inadequate or rejected since 2016.

“Indeed, since 2014, CHSRA has not submitted a single satisfactory and acceptable (project management plan),” Batory’s letter said.

The rail authority foreshadowed the possibility of grant revocation two weeks ago in a project update report to the California legislature. It labeled “the FRA’s lack of engagement” with the project as “a major risk” in several areas including environmental clearances, funding to complete the first construction segment in the Central Valley, development of an operational contingency plan and certification of work and operations.

The federal engagement primarily concerns how to expedite environmental reviews for construction north of Madera to Merced and south of Shafter to Bakersfield, segments added to the Central Valley as a result of Newsom’s redefinition of it after taking office this year.

Ever since President Trump, who then was pressing for a huge federal infrastructure program, asked states in February 2017 to submit a list of infrastructure projects to be speeded up, high-speed rail has been on California’s list.

That summer, the rail authority suggested a mechanism to accomplish that: Let California do the federally required environmental clearance work under NEPA — the National Environmental Policy Act — at the same time it does environmental work to comply with state law. The state already builds highways with what’s known as “NEPA reassignment.”

That permission was never granted, adding cost and delaying the project, the rail authority’s report to the legislature said.

“The FRA’s environmental staff would not provide direction, participate in meetings, review documents nor act on critical decisions. These inactions have affected documentation progress in nearly all project sectors,” according to the state report.
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