California high-speed train in default on $4 billion in federal grants: DOT

The endless delays and cost overruns plaguing California’s “Sisyphean endeavor” to build a high-speed train amount to an event of default on $4 billion of federal grants, the Trump administration declared Wednesday in a 315-page report that blasted the bond-financed project.

The California High Speed Rail Authority, which oversees what is one of the nation’s most expensive projects, is officially “on notice,” Transportation Secretary Sean Duffy said in a statement Wednesday.

“If they can’t deliver on their end of the deal, it could soon be time for these funds to flow to other projects that can achieve President Trump’s vision of building great, big, beautiful things again,” Duffy warned.

The DOT has given the CHSRA a week for its initial response to the findings and a month to present evidence in support of retaining the federal dollars.

A spokesperson said the CHSRA would “fully address and correct the record” in a formal response to the FRA. The authority “strongly disagrees with the FRA’s conclusions,” and “substantial progress” has been made, the spokesperson said.

Echoing comments made last month by CHSRA CEO Ian Choudri, the spokesperson said federal funds may not be necessary to complete the initial Central Valley segment.

“While continued federal partnership is important to the project, the majority of our funding has been provided by the state,” they said, noting that Gov. Gavin Newsom’s revised budget, now before lawmakers, proposes $1 billion per year in funding for the next 20 years. That money will provide “the necessary resources to complete the project’s initial operating segment,” the spokesperson said.

Choudri said last month that the authority was eying a public-private partnership backed by the securitization of the $1 billion of cap-and-trade funds.

Duffy announced in February the Federal Railroad Administration would launch a probe into the construction problems plaguing the only publicly funded high-speed rail network in the U.S. While criticizing the California project, Duffy has also praised Brightline’s privately funded high-speed line between California and Nevada, which has received more than $3 billion in federal grants.

“Our country deserves high-speed rail that makes us proud – not boondoogle trains to nowhere,” he said.

The FRA’s 315-page report found “patterns of unattainable proposals and unrealistic assumptions on a wide range of issues,” including the stability of cap-and-trade proceeds that provide some of the funding and ridership projections for the initial Central Valley portion.

The authority’s “inability to deliver the Central Valley Segment within the budget and schedule agreed to by CHSRA and FRA … constitutes a project material change and event of default,” the report said.

The “FRA cannot continue to commit taxpayer dollars to CHSRA’s Sisyphean endeavor, which now stands as a fraction of what was promised back in 2008,” the report said. “In short, the CHSR project is a story of broken promises and of waste of federal taxpayer dollars.”

Voters in 2008 approved $10 billion of GO bonds for the rail line, which at the time carried a $33 billion price tag and was estimated to be completed by 2020. After years of delays and cost overruns, the estimated cost has ballooned to $128 billion with no clear completion date on the full San Francisco to Los Angeles route.

The full route’s shortfall is as high as $99 billion, according to the watchdog California High-Speed Rail Peer Review Group.

The authority’s initial response is due within seven days, according to Duffy’s letter. If the CHSRA disputes the event of default, it must provide evidence of its compliance with 30
days. Alternatively, a proposed corrective plan is also due in 30 days.