The Obama administration threw the California bullet train project another lifeline Wednesday, extending the schedule by four years for construction of 118 miles of rail through the Central Valley, according to congressional officials.
The extension came through modification of a $2.5-billion grant that originally required completion of a segment of rail structures from Madera to Shafter by 2017.
The changes also allow the Department of Transportation to extend a cash advance to the state, which potentially means the California High-Speed Rail Authority can continue spending long after the original deadline that was set in 2009 under the American Recovery and Reinvestment Act.
The change brought an immediate attack by Republican critics, who said the Transportation Department and its Federal Railroad Administration awarded the project an unprecedented concession.
"This is the oversight agency that is suppose to monitor taxpayer money," said Rep. Jeff Denham, (R-Turlock) chairman of the House rail subcommittee and a longstanding critic of the project. "For them to give a blank check and authorize a cash advance is a clear conflict of interest."
The rail authority said the grant modification was largely a technical fix necessary to accommodate recent changes to its business plan.
"The misconception that this amendment somehow delays California's high-speed rail project is completely false," said spokeswoman Lisa Marie Alley, adding that such changes are common to complex and long-term projects.
Authority Chief Executive Jeff Morales said the new agreement "is consistent with our efforts to connect Silicon Valley and the Central Valley."
The Obama administration has made five previous modifications of the grant in recent years, including one that allowed the state to provide required matching funds after first using the federal money. Normally, grants require states to match federal funds on a dollar-for-dollar basis as they are spent.
The grant modification comes shortly after the Obama administration sent a letter to the rail authority calling for an immediate acceleration of the pace of its long-delayed construction activity in the Central Valley. The letter demanded that the state take "aggressive steps" to improve its lagging performance or risk losing a portion of the federal funding.
Victor Mendez, deputy secretary of Transportation, told the rail authority it must speed up the rate of property purchases, finalize construction schedules that remain fluid and complete its project design faster — fairly obvious issues that have long defied solutions.
A spokesman for Mendez said the letter was a routine step to remind the rail authority of requirements under the federal funding. The department declined to answer detailed questions about the grant modification.
A Federal Railroad Administration spokesman said the agreement will not amend the 2017 deadline for spending the grant, but acknowledged that it would allow the state to make its required match several years later. Denham believes the amendment may also attempt to allow spending the federal dollars after the deadline.
The project was supposed to be "shovel ready" when it received the grant in 2010, but has been hobbled by a series of political, legal, environmental and financial problems. One original purpose of the project was to help the nation recover from the Great Recession, which officially ended long ago.
In addition to the stimulus grant, the California project is receiving about $500 million a year from state greenhouse gas fees and an additional $1 billion federal grant approved in 2010. But it faces an estimated $43.5-billion shortfall to complete the San Francisco to Anaheim system by 2029.
The rail authority has had difficulty acquiring property since early 2013, when it claimed publicly that it was going to start construction by that summer even though it hadn't bought a single piece of land. Even today, fewer than half of the parcels it needs for the 118 miles are in hand. The Central Valley was supposed to be the easiest section of the 500 miles system to build, but has proven to be a virtual minefield.
The delays have forced contractors leave to equipment idle, which is likely to result in multimillion-dollar claims of losses. Some outside construction experts are projecting the first 29 miles of construction alone could be as much as $400 million over budget.
The Central Valley segment had been running about two years behind schedule, based on the start of construction last summer. But this year, the rail authority said that under its new business plan, that segment would begin service from San Jose to Shafter in 2025, about three years past the previously scheduled start.
The federal grant modification would put it four years late, if it reflects the start of eventual service.
It is still unclear how much the authority could get under a cash advance. The Mendez letter suggests the Transportation Department would advance three months' worth of working capital to the project.
But Denham said he is alarmed by the potential for Transportation officials to advance far more than that just before the 2017 deadline, allowing the state to bypass the normal process under which grant recipients submit invoices after spending the money.
"We are looking into the legality of it," Denham said.
Denham said he is not aware of any federal grant that has been handled in a similar manner. He said he plans to call a hearing before his subcommittee on the matter soon.
Without the cash advance and the grant modification, Denham asserted that the state rail authority would have been unable to spend all $2.5 billion by the 2017 deadline and would have forfeited it back to federal treasury.
The rail authority had spent only $1.1 billion of the $2.5-billion federal grant as of February. If it had not received the grant modification, it appears the rail authority would have had to spend nearly $3 million of the federal money and a similar amount of required state matching funds every calendar day through June 30, 2017. That $6 million per day burn rate would be far higher than any transportation project in U.S. history.
But rail authority officials have said they were on track to spend the grant. Michael Rossi, a board member who takes the lead on financial matters, said recently that the project would fully meet the requirements of the grant.
Obama administration officials backed up that assessment. "California is currently projected to spend those funds by the deadline, and the project is moving forward with construction underway in the Central Valley, supporting jobs and small businesses across the region, consistent with the goals of the Recovery Act," a department spokesman said.
The cash advance also raises again the issue of whether the project is facing a cash flow problem. The Mendez letter asks the state to document why it "lacks sufficient working capital."
The rail authority has had past cash problems that result in late payments to contractors, evoking strong protests by small businesses who said they were being forced to finance the project for the state.
8:15 p.m.: This article has been updated with additional details on the possible impact of the deal.
6:57 p.m.: This story has been updated with comments from Mendez's office and other details.