U.S. agency to cancel $929 million in California high-speed rail funds

(This February 19 story has been refiled to correct conversion to kilometers to show 836.8 km, not 826.8 km, in paragraph seven)

FILE PHOTO: California Democratic gubernatorial candidate Gavin Newsom speaks after being elected governor of the state during an election night party in Los Angeles, California, U.S. November 6, 2018. REUTERS/Mike Blake/File Photo

(Reuters) - The U.S. Transportation Department said on Tuesday it will cancel $929 million in federal funds awarded by the Obama administration for a California high-speed rail project and is “actively exploring every legal option” to seek the return of $2.5 billion the state has already received.

California Governor Gavin Newsom said last week the state will dramatically scale back a planned $77.3 billion high-speed rail project that has faced cost hikes, delays and management concerns, but will finish a smaller section of the line.

The Transportation Department’s Federal Railroad Administration said in a letter it wanted to halt funding because the state had “failed to make reasonable progress.” It cited Newsom’s announcement to scale back the project.

Newsom, in a statement, linked the Trump administration action to California leading 15 other states in challenging what he called “the President’s farcical ‘national emergency,’” to obtain funds for building a wall along the U.S.-Mexico border.

“This is California’s money, and we are going to fight for it,” Newsom said of the rail funds.

A coalition of 16 U.S. states sued Trump and top members of his administration on Monday, saying the emergency declaration would cause them to lose millions of dollars in federal funding for national guard units dealing with counter-drug activities and that the redirection of funds from authorized military construction projects would damage their economies.

California planned to build a 520-mile (836.8 km) system in the first phase that would allow trains to travel at speeds up to 220 miles per hour (354 kph) in the traffic-choked state from Los Angeles to San Francisco and begin full operations by 2033.

The Obama administration awarded the state a total of $3.5 billion in 2010 and California voters in 2008 approved nearly $10 billion in bond proceeds.

California can challenge the government’s action.

Reporting by David Shepardson; Editing by Phil Berlowitz, Dan Grebler and Susan Thomas