By David Shepardson

WASHINGTON (Reuters) – The Trump administration said Thursday it was formally cancelling $929 million in previously awarded funding for California’s high-speed rail program after rejecting an appeal by the state.

The U.S. railway regulator, the Federal Railroad Administration (FRA), said on Thursday it had canceled the funding awarded in a 2010 agreement after it said the state had “repeatedly failed to comply” and “failed to make reasonable progress on the project.”

In a statement on Thursday, FRA said it was still considering “all options” on seeking the return of $2.5 billion in federal funds the state has already received.

The decision is the latest salvo in an ongoing battle between the administration of U.S. President Donald Trump and California. The largest U.S. state has repeatedly sued the Trump administration and officials expect the state will sue over the rescinding of rail funding.

The Trump administration moved to end funding after California Governor Gavin Newsom said in February the state would scale back the planned $77.3 billion high-speed rail project after cost hikes, delays and management concerns, but would finish a smaller section.

The traffic-choked state had planned to build a 520-mile (837 km) system in the first phase that would allow trains to travel at up to 220 miles per hour (354 kph) from Los Angeles to San Francisco and begin full operations by 2033.

Newsom said in February the state would instead complete a 119-mile high-speed link between Merced and Bakersfield in the state’s Central Valley.

U.S. Transportation Secretary Elaine Chao, who overseas FRA, in February said California’s drastically scaled back rail project “is a classic example of bait and switch… We have a right to ask for that $2.5 billion back as well.”

The state said in March that ending funding “would cause massive disruption, dislocation, and waste, damaging the region and endangering the future of high-speed rail in California.”

The Obama administration awarded California $3.5 billion in 2010 and California voters in 2008 approved nearly $10 billion in bond proceeds.

In March 2018, the state forecast project costs had jumped by $13 billion to $77 billion and warned costs could be as much as $98.1 billion.

(Reporting by David Shepardson, Editing by Rosalba O’Brien)