Federal Grant Fraud

What was promised

The FSP Agreement was the culmination of fifteen years of federal grant applications. To secure it, CHSRA made specific representations to the Federal Railroad Administration:

• Completion by 2033 for the 171-mile Merced-Bakersfield segment
• Financial capacity to fund and deliver the project
• Ridership projections justifying the federal investment
• Rolling stock procurement within 90 days of the agreement

Each of these representations became a federal obligation. Each carried legal consequences under the False Claims Act if made with knowledge of their falsity — or with "reckless disregard" for their truth.

What actually happened

The evidence

1. The funding gap was known at signing

CHSRA requested $8 billion from the FRA and received $3.07 billion. The resulting $5 billion shortfall was not a surprise — it was the starting condition. CHSRA's own 2024 Business Plan documented costs of $33-36.75 billion for the Merced-Bakersfield segment, against roughly $28 billion in identified funding.

The contingency budget tells the same story. CHSRA allocated $618 million in reserves for a project that had already produced a single change order of $672 million (CP1's cumulative overrun). The FRA flagged this as inadequate — reserves smaller than a known historical change order.

2. The ridership model was debunked — and still on file

The ridership projections CHSRA used in federal grant applications were based on a model built by Cambridge Systematics in 2005 and revised through 2012. Three independent reviews found it unreliable:

CHSRA continued using the model for thirteen years after the UC Berkeley critique. The numbers it produced are striking in their implausibility:

The 73% highway diversion assumption. CHSRA's model assumed 73% of riders would switch from driving. European high-speed rail systems — with established networks, dense populations, and high fuel costs — achieve 11-16% highway diversion. The FRA called the gap between CHSRA's assumption and international reality "a discrepancy suggesting intentional exaggeration."

The survey methodology. The 2005 stated-preference survey was conducted at airports and rail stations — inherently oversampling people predisposed to choosing rail. Cambridge Systematics then made unpublished changes to the model after peer review, producing a final version that was "significantly different from the documented one."

The ridership collapse. The numbers tell their own story:

For context: Amtrak's Northeast Corridor — the densest passenger rail corridor in the United States, connecting Boston, New York, and Washington — carries 12.1 million riders annually.

3. The electrification budget defied reality

CHSRA budgeted $1.4 billion for 119 miles of electrification — approximately $11.8 million per mile. In the same state, during the same period, Caltrain spent $2.72 billion to electrify 51 miles of existing railroad: $53.3 million per mile.

The FRA flagged this as Violation #6 in its June 2025 compliance review. Either Caltrain massively overpaid, or CHSRA's electrification budget was not credible. The FRA concluded the latter.

4. The rolling stock deadline was impossible

The FSP Agreement required CHSRA to initiate rolling stock procurement within 90 days. By January 2025 — less than three months after signing — the deadline passed without action. The project had not yet completed the environmental review for several segments, let alone reached the stage of ordering trains.

5. The pattern across fifteen years

The FSP Agreement was not an isolated incident. It was the culmination of a systematic pattern: CHSRA made federal commitments using one cost basis, then revised upward in subsequent business plans.

The FRA's conclusion

The FRA's June 2025 compliance review — 315 pages based on 80,000 pages of project documents — did not mince words.

The review documented nine specific violations, including the funding gap, the debunked ridership model, the unrealistic electrification budget, and inadequate contingency reserves. In July 2025, the FRA terminated approximately $4.2 billion in remaining grant obligations. By February 2026, Congress had rescinded an additional $929 million.

The fraud standard

The legal framework

Federal grant fraud triggers two statutes:

18 U.S.C. § 1001 (False Statements) requires proof that a specific individual knowingly made false statements to a federal agency. This requires naming the person who signed the FSP Agreement and establishing what they knew at the time.

31 U.S.C. §§ 3729-3733 (False Claims Act) applies a lower bar. It allows organizational liability — no need to identify a specific individual. It applies when claims are made with "reckless disregard" for their truth or with "deliberate ignorance" of falsity. Continuing to use a model that UC Berkeley (2010), the Peer Review Group (2011), and CHSRA's own peer reviewer (2022) all called unreliable meets the "reckless disregard" standard.

The False Claims Act also provides treble damages and per-claim penalties. On $6.9 billion in obligations, potential exposure exceeds $20 billion.

The defense

The strongest innocent explanation: CHSRA signed the FSP Agreement in a good-faith effort to secure the best available funding, intending to close the gap through future state appropriations, cap-and-trade revenue, and operational efficiencies. The 2033 timeline was aspirational, not fraudulent. Cost estimates are inherently uncertain for megaprojects, and the FRA's compliance review was conducted by a hostile administration with political motivations to terminate the project.

This defense has three weaknesses:

1. The FRA's finding preceded the political termination. The compliance review documented specific, technical deficiencies — not political objections. The 73% diversion assumption is either defensible or it isn't, regardless of who is in the White House.

2. CHSRA's own Inspector General confirmed the gap. This was not an external political actor. This was the agency's own independent oversight body, established only sixteen months earlier, finding what the agency should have disclosed before signing.

3. The pattern undermines the "good faith" argument. A single optimistic projection could be good faith. Fifteen years of systematically favorable federal representations followed by upward revisions in business plans is a pattern. The FRA documented this explicitly.

What we don't know

Sources

Tier 1 (Primary documents)

• FRA Compliance Review, June 4, 2025 (315 pages)
• FRA Termination Letter, July 16, 2025
• CHSRA Response to FRA, June 11, 2025
• CHSRA FSP Agreement, September 30, 2024 (agreement terms detailed in FRA Compliance Review; agreement text not independently published)
• OIG Supplemental PUR Review, November 2025
• OIG Schedule Engagement Report, February 2025 — $6.5-7B funding gap confirmed

Tier 2 (Government reports)

• UC Berkeley ITS, Brownstone/Hansen/Madanat, July 2010
• Peer Review Group report to California Senate, November 2010
• California State Auditor Report 2018-108, November 2018
• GAO Report 13-304, 2013
• LAO Analysis, January 2010
• ARRA Cover Letter, October 2009
• CHSRA 2024 Business Plan — $33-36.75B cost estimate
• CHSRA 2008 Business Plan
• CHSRA 2024 Ridership Report
• CRRM 2024 Model Documentation

Tier 3 (Investigative journalism & Congressional)

• House Oversight investigation, August 2025 (full letter)
• Senate Commerce Committee report, February 2026
• Rep. Kiley FBI referral, March 2025 (ABC10 coverage)
• CapRadio on AB 1889 secrecy
• Eno Center: DOT withholds $929M
• Eno Center: FRA redirects $3.1B to other states
• Times of San Diego: Biden restores $929M (2021)
• Amtrak FY2023 ridership report