California’s high-speed rail project and Trump administration are no longer on speaking terms

Support piers stand as part of the Cedar Viaduct section of California’s bullet train project, south of downtown Fresno.

May 10, 2019 5 AM PT

The California bullet train project, for much of the last decade, enjoyed no more important partner than the U.S. Department of Transportation.

The federal agency was supplying the state with billions of dollars in grants, showering the project with political affection and later making repeated amendments to its funding deals to help the state weather construction delays.

For the record:

8:00 a.m. May 10, 2019An earlier version of this article had an incorrect amount in one reference to a federal grant. The grant is for $929 million, not $929 billion. The article also misidentified Brian Kelly, who is CEO of the rail authority, not board chairman.

But today, federal agencies and the California High-Speed Rail Authority are like a couple filing for an unseemly divorce and alleging mutual mistreatment of their child — a partly built bullet train from Merced to Bakersfield. The two sides aren’t even speaking, foreshadowing further setbacks for an already troubled endeavor.

In March, Transportation Secretary Elaine Chao let it spill out in a speech at the Conservative Political Action Conference.

The project is a “classic example of bait and switch,” she said in a speech, referring to Gov. Gavin Newsom’s plan to focus on building an isolated Central Valley rail segment of the original Los Angeles-to-San Francisco system. It gives the federal government, she said, the right to ask for the return of grants that date to 2009 and 2010.

The federal government notified the state in February of its intent to terminate a $929-million grant that has yet to be transferred and may seek to get back a $2.5-billion rail grant that has already been spent.

In turn, California officials detailed their view of the soured relationship when they released a project update May 1 that alleged a “disengagement” in the relationship had occurred. Until February, the two agencies were still talking, the report said, though the federal bureaucrats would no longer “participate in meetings, review documents or act on critical decisions.”

After February, officials at the Federal Railroad Administration, a part of the Transportation Department, no longer took their telephone calls, responded to written communication or processed their environmental documents.

“This now obstructs the authority’s ability to advance the program and meet the mutual intent of the federal grant agreements,” the report added.

The rail authority has responsibility for administering California’s environmental laws on the project and has sought jurisdiction to administer the federal laws. The Federal Railroad Administration, however, has not granted that authority or processed environmental documents under its own authority, state officials say.

Both sides are accusing each other of damaging the nation’s largest infrastructure project, the first serious effort by the U.S. to build a high-speed rail system more than half a century after Japan made technological history by unveiling its Shinkansen bullet train.

The Federal Railroad Administration is expected to move on its grant termination any day, though it has delayed the move since first notifying the state. The agency is taking a cautious approach, based on an expectation that the state will file suit against the move. At the same time, the Transportation Department inspector general is close to completing two audits of the grants, which could add further fuel to the fire.

Trump’s increasingly contentious relationship with California over such issues as immigration and environmental regulation — including dozens of lawsuits filed by the state against the Trump administration — is undoubtedly one aspect of the standoff.

“It is a partisan political attack,” said Rep. Grace F. Napolitano (D-Norwalk), a member of the House rail subcommittee. “There is a lot of animosity.”

Napolitano, who has supported the rail project though she doesn’t like the routes and doubts it will benefit her working-class constituents, said Democrats will sue over any grant termination.

No doubt, the rationale for high-speed rail, with its claims to reduce greenhouse gases, create European-style city centers and reduce jetliner traffic between Los Angeles and San Francisco, ran headfirst into conservative ideology. But the political standoff probably does not explain the entire situation, say knowledgeable individuals close to the project.

Behind the scenes, Obama administration officials were sounding alarms at least as far back as December 2016, when they presented a risk analysis to their California counterparts at a meeting, projecting a 50% cost increase for the Central Valley construction and a long delay. When The Times obtained a copy of the report and published it in January 2017, the rail authority said the analysis was wrong.

In the final days of the Obama administration, federal bureaucrats had begun tightening control of the grants, requiring that the state match all of the $2.5-billion initial grant before it could begin tapping the second pool of $929 million. It essentially pushed back the state’s ability to use that money by half a decade, even before the action to terminate the grant.

It was the Obama administration that wrote the crucial language, buried deep in the grant agreements, that now looms as a hammer over the state: “Any failure to make reasonable progress on the project or other violation of this agreement that significantly endangers substantial performance of the project shall provide sufficient grounds for FRA to terminate this agreement.”

The fuzzy language in the 2010 grant of “reasonable progress” was signed before the rail authority had an in-house counsel. It relied on the state attorney general for legal advice — another example of how the rail authority’s skeleton staff left it vulnerable.

For nearly two years after he was elected, Trump did not actively target the California bullet train. Indeed, in 2017 he complained about the lack of high-speed rail in the U.S. compared with foreign countries. “I don’t want to compete with your business, but we don’t have one fast train,” Trump told airline executives at a White House meeting.

But the “switch flipped” last fall, according to one official close to the matter.

The railroad administration began to reject invoices submitted for reimbursement under the original $2.5-billion grant. The rejections included those for the state’s main consultant, WSP, forcing the authority to a $30-million negative entry for WSP in financial statements last year, rail authority records show.

In a letter sent in mid-February, the federal agency disclosed its intent to terminate the grant because the state was failing to make the sustained progress necessary to meet a 2022 deadline to complete 119 miles of rail construction in the Central Valley that was required under the grant agreement, along with other provisions.

“This all sounds very unusual to me,” said Eloise Pasachoff, a professor specializing in federal grants at the Georgetown University Law Center. “If an agency thinks that a grantee is not making satisfactory progress, there are many steps, including much more direct oversight and monitoring, that the agency typically takes before deciding to terminate the grant.

“And ceasing communication is most unusual,” she added. “Especially with sums at stake of this size, it’s hard to understand the agency’s actions as a sensible choice to protect taxpayer funds.”

Pasachoff said federally funded programs in states often have serious implementation problems, and the sponsoring agency does not tend to start termination even when it might be plausible.

“The fact that the president has tweeted several times about cutting off federal funds to California because of various policy disagreements suggests that something else might be going on,” she said.

Brian Kelly, chief executive of the rail authority, is taking a cool approach, saying, “We have respectfully sought the restoration of a functional partnership and we are hoping the federal agency will respond favorably.”

But Chao took a much different viewpoint in her speech, saying the Transportation Department would not only go after the $929-million grant but also find a way to claw back the $2.5-billion grant. “On behalf of the American people,” she said, “we have the right to ask for that $2.5 billion back, as well.”

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