In February, U.S. Transportation Secretary Sean Duffy initiated a review of the California High-Speed Rail Authority (CHSRA), which is developing the Los Angeles-to-San Francisco high-speed rail (HSR) project in the state’s Central Valley. The review is set to determine whether the CHSRA will retain approximately $4 billion in federal grants previously allocated to the project.

The California high-speed rail project has been met with significant criticism due to repeated delays and escalating costs. In 2008, voters approved a $9.95 billion bond measure to begin construction on the project, initially estimating the total cost of the Los Angeles-to-Bay Area line at $33 billion, with trains expected to begin operation by 2030. However, a 2024 business plan projected that a 171-mile section between Merced and Bakersfield would only be operational between 2030 and 2033, at a revised cost of $28.5 billion to $35.3 billion.

A February 20 press release from the Department of Transportation (DOT) referenced a California inspector general’s report from February 3, which indicated that the authority is facing a $6.5 billion funding gap to complete the first section of the rail line. The report also stated that it is “increasingly unlikely” the authority will meet its target of completing the Central Valley segment by 2033.

In response to these concerns, Secretary Duffy emphasized the need to review whether the authority has adhered to its commitments in order to retain federal funds. “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 stated. “If not, I will have to consider whether that money could be given to deserving infrastructure projects elsewhere in the United States.”

A Recurring Challenge for the Authority

This review is reminiscent of previous confrontations between the CHSRA and federal authorities. During President Trump’s first term, the Federal Railroad Administration (FRA) canceled a $928.6 million grant agreement with the authority, citing its failure to meet project requirements. However, the Biden administration reinstated the funding in 2021. The FRA had also sought the return of $2.5 billion in funds from the American Recovery and Reinvestment Act in 2019, though that effort was unsuccessful.

A DOT spokesperson clarified that the current investigation includes the original $928.6 million grant as well as a more recent $3.1 billion grant awarded in December 2023 under the Federal-State Partnership for Intercity Passenger Rail Program.

Authority’s Response

The California High-Speed Rail Authority has responded to the investigation, welcoming the review and expressing confidence in its financial oversight. “With multiple independent federal and state audits completed, every dollar is accounted for, and we stand by the progress and impact of this project,” said CHSRA CEO Ian Choudri in a statement on February 21.

Despite the concerns raised by the federal government, supporters of the California HSR project argue its benefits far outweigh the challenges. “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. “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.”

Potential Consequences for Federal Funding

The possibility of the federal government demanding the return of these funds hinges on the results of the ongoing investigation. According to Joshua Schnell, a partner at the Cordatis law firm, the terms of the grant agreement and the authority's compliance with those terms will play a critical role. “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.

However, the CHSRA is not fully dependent on federal funding. The authority has already invested approximately $13 billion in the project, with around $10.5 billion of that amount sourced from the state of California. Much of this funding comes from California’s emissions cap-and-trade program, which sets limits on emissions and issues a diminishing number of allowances each year. Businesses covered by the program must buy allowances for every ton of carbon dioxide they emit, with proceeds from the auction used to fund initiatives like high-speed rail.

The program is expected to generate substantial revenue for the project. The authority’s 2025 project update estimates that between 2023 and 2030, the Greenhouse Gas Reduction Fund (GGRF) will yield between $26.7 billion and $29.7 billion, with annual revenues ranging from $750 million to $1.25 billion.

Broader Implications for Infrastructure Projects

As the investigation into the California High-Speed Rail project unfolds, it raises broader questions about how infrastructure projects are funded and held accountable. Given the high costs and extensive timelines associated with large-scale transportation projects, ensuring proper oversight and adherence to agreements will be critical in determining the future of such initiatives. The outcome of this review could set a precedent for how federal funds are allocated and monitored for major infrastructure projects across the country.

Despite the uncertainty surrounding federal funding, the project continues to be seen as a vital component of California's future transportation network. If completed, it would not only revolutionize intercity travel in the state but also provide long-term economic and environmental benefits by offering a more sustainable alternative to road and air travel.

Originally reported by Dan Zukowski in Construction Dive.