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(CNN) —  

The US Department of Transportation announced Tuesday it is canceling $929 million in grant funds for California’s high-speed rail system, escalating the Trump administration’s efforts to regain all the federal money for the canceled rail project.

If built, the high-speed rail system would have run from San Francisco to Los Angeles. The department added in a statement that it “is actively exploring every legal option to seek the return from California of $2.5 billion in Federal funds (Federal Railroad Administration) previously granted for this now-defunct project.”

The statement from the Department of Transportation heightens the Trump administration’s quest to recoup federal money spent on the project that was originally granted in 2009. California Democratic Gov. Gavin Newsom announced last week that he was scrapping the project because it was too costly and would take too long.

That decision led President Donald Trump to demand all the money appropriated for the project by the federal government be returned.

Trump tweeted that California owed the federal government about $3.5 billion for the canceled project. “We want that money back now,” he wrote. “Whole project is a ‘green’ disaster!”

The American Recovery and Reinvestment Act of 2009 provided a federal grant of $2.553 billion for the high-speed rail project and the Consolidated Appropriations Act for the fiscal year 2010 gave a grant of $929 million for the project. Trump derived the $3.5 billion figure from these two grant amounts.

Newsom replied to the President in a tweet: “We’re building high-speed rail,” adding, “This is CA’s money, allocated by Congress for this project. We’re not giving it back.”

Despite the legal threats from the administration, California is not under any obligation to return the money.

The grants are based on agreements that require the California High-Speed Rail Authority to complete a 120-mile high-speed train track for the “initial central valley section” by the end of December 2022.

The agreement does not require the California High-Speed Rail Authority to build trains for the track. This means the state could build out this segment of the high-speed rail track, and, based on the agreements, California would not owe any money to the federal government – even if no trains were built for the track.

The FRA writes in the letter that the state “has materially failed to comply with the terms of the Agreement and has failed to make reasonable progress on the Project,” which they said was supposed to be on track to be finished by 2022. The agency writes the state failed to “submit required critical grant deliverables,” and “failed to take the appropriate corrective actions to ensure delivery of the Project.”

In response to the Department of Transportation’s cancellation of the grant, Newsom told CNN in a statement, “It’s no coincidence that the Administration’s threat comes 24 hours after California led 16 states in challenging the President’s farcical ‘national emergency.’ The President even tied the two issues together in a tweet this morning. This is clear political retribution by President Trump, and we won’t sit idly by. This is California’s money, and we are going to fight for it.”

Newsom was referring to the President’s tweet earlier on Tuesday when he took aim at the Golden State.

“As I predicted, 16 states, led mostly by Open Border Democrats and the Radical Left, have filed a lawsuit in, of course, the 9th Circuit! California, the state that has wasted billions of dollars on their out of control Fast Train, with no hope of completion, seems in charge!”

Sixteen states on Monday evening filed a lawsuit challenging Trump’s national emergency declaration concerning the US southern border. The group of states is led by California Attorney General Xavier Becerra.

CNN’s Holmes Lybrand contributed to this report.