Feds suspend review of $5.5B loan for Vegas-to-California train

Shown here is a computer rendering of the XpressWest project. (XpressWest)

A proposed high-speed train connecting suburban California to Las Vegas may have just been stopped in its tracks, after the Transportation Department halted the review of what would have been its largest taxpayer loan in history.

In a letter obtained by FoxNews.com, Transportation Secretary Ray LaHood informed developer XpressWest that he would "suspend further consideration" of the company's request for a $5.5 billion federal loan.

If approved, the loan would be the department's largest ever. Though the project was a favorite of Senate Majority Leader Harry Reid, of Nevada, the request had been the subject of intense Republican criticism, as lawmakers cited concern about "subsidizing" a costly and potentially risky project at a time of mounting federal debt. Consideration of the massive loan also came as the government imposed across-the-board sequester spending cuts.

LaHood, in his June 28 letter to the company, cited "serious issues" with the application in the decision to cut the project off. He suggested the company was having difficulty ensuring that the project would be built with enough American products like U.S-made steel and iron.

Some of the letter was redacted, but LaHood also suggested concerns about the sheer size of the loan and the risk, and the company's apparent failure to submit additional documentation on other participants in the project.

"After several years of engagement with no resolution to the threshold issues addressed in this letter and the significant uncertainties still surrounding the project, we have decided to suspend further consideration of XpressWest's loan request," LaHood wrote. The request had been under consideration with both his department and the Federal Railroad Administration.

The decision is a major blow to the project, as the federal loan was expected to make up the bulk of funding for the $6.9 billion rail line.

The 185-mile line was billed as the most advanced and fastest in the U.S. According to the company, it would connect Southern California and Vegas with an 80-minute train ride.

Yet critics warned that costs could spiral and ridership projections might be too rosy, and that such a massive federal investment was not wise.

The XpressWest line is running into a wall after another project -- a proposed magnetic levitation train with a similar route -- also ran into recent problems, as state planners backed away from that project and federal funding ran dry.

Sen. Jeff Sessions, R-Ala., top Republican on the Senate Budget Committee, and Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, had earlier revealed they'd been told about the department's decision on XpressWest. The two lawmakers had been among the toughest critics of the project and loan, calling it "costly, wasteful and risky."

The letter from LaHood was not made public until today.

The company is not throwing in the towel yet. In a statement, XpressWest claimed it was waiting for more information from the administration.

"While the loan process for XpressWest has been suspended, it is our understanding the project is still being reviewed," the statement said. "We believe high-speed rail in the western United States is both feasible and desired. We await further information and direction from the administration.  We at XpressWest have always known that a project of this magnitude would undergo painstaking and diligent review."

A Transportation Department spokesman, however, told FoxNews.com that the statement from the company is "incorrect."

"We are no longer considering it," the spokesman said.

The Transportation Department later said in a statement that "XpressWest has the ability to revive its application by significantly revising its request."

The project still has a powerful supporter in Congress -- Senate Majority Leader Reid, as well as Republican Nevada Sen. Dean Heller.

According to the Las Vegas Review-Journal, Reid claims the administration has not "permanently foreclosed" the possibility of an investment. He stressed Friday that he plans to keep pushing for "this vital investment."