As a backstop, however, rail officials and the Brown administration said California's new carbon cap-and-trade program -- which will sell pollution credits to industries in the state through auctions -- can plug any funding gap.

The Kempton panel said the changes between November and April made the plan better "in a number of significant ways." By making earlier investments in the Bay Area and Southern California, the review group said "services currently carrying the most passengers will be improved at the outset."

The group remains skeptical, however, over the plan's long-range reliance on the federal government. The Republican-controlled House of Representatives has pledged to block any future money for high-speed rail, and winning any long-term federal commitment "will clearly be a challenge in today's constrained economic climate," Kempton wrote.

The panel is also wary about whether the new cap-and-trade program can generate enough money to plug the funding gap if the federal government fails to come through.

The review group said completion of the Madera-to-Bakersfield stretch could be used to increase the speed of Amtrak's existing San Joaquin passenger trains through the Valley. It would "provide valuable design and construction experience ... that would form the basis for future cost estimates" on later portions of the system.

But an abridged system that falls short of reaching either the Bay Area or Los Angeles would leave California on the hook for repaying $2.7 billion in Prop. 1A bonds "on a segment that ... could clearly carry fewer passengers than originally planned."

The panel also warned that "work could become so snarled in litigation or cost overruns that it would never be completed."

The rail authority already faces a lawsuit over its proposed route through Kings County. On Friday, the Madera and Merced county farm bureaus joined other opponents in filing a lawsuit against the agency in Sacramento over its recent environmental certification of the Merced-to-Fresno section.

Richard didn't address the review group's funding concerns in his response, but acknowledged that the rail authority "is committed to working constructively with [the peer review group] and others to continue to refine and improve our work."

It remains to be seen how state legislators will respond to the review group's report and Richard's response. Assembly members and senators continue to wrangle over the state's 2012-13 budget, in which Brown has requested the $2.7 billion California must put up to receive the $3.3 billion from the federal government for initial construction in the Valley.

Staffers for several Valley legislators, including Assembly Members David Valadao, R-Hanford, and Henry T. Perea, D-Fresno, said Thursday that their bosses were unaware of the peer group's report before The Bee sought their comments.

Republicans in both the Assembly and Senate typically have opposed the high-speed rail plan. And key Democrats, including Sens. Alan Lowenthal of Long Beach, who chairs the Senate's select committee on high-speed rail, and Joe Simitian of Palo Alto, a member of the budget and transportation committees, have repeatedly expressed frustration with the authority's leadership, concern over the program's cost and skepticism over the agency's ridership and revenue estimates.