By Ann Henson Feltgen, FloridaBulldog.org
All Aboard Florida’s plan to operate regular passenger train service between Miami and Orlando is in jeopardy following a federal judge’s order questioning the company’s ability to borrow $1.75 billion in taxpayer-subsidized federal bonds to pay for the project.
At the same time, in a lawsuit filed by two Florida counties looking to block the project, the judge found that the U.S. Department of Transportation (DOT) ignored federal law when it issued bonding authority for Phase II of the private rail project from Cocoa to Orlando.
Another hearing in the case is set for Sept. 13, the same day DOT and All Aboard Florida (AAF) must file their formal answers to the complaint.
Phase l of the ambitious project, creating a passenger route and terminals at three stops along the Florida East Coast railroad line between Miami and Cocoa, is well underway. It is Phase II that is now precarious.
AAF, whose parent company – Florida East Coast Industries – is owned by the hedge fund Fortress Investment Group, approached the state more than two years ago with a plan to build and operate a privately owned railroad that would allow passengers to travel from Miami to Cocoa and from there to Orlando. AAF claims that trains would shave at least an hour off the drive time by car.
Railroad depots are under construction in Miami and Fort Lauderdale; a second set of tracks is being installed, and new engines and passenger cars are being built. AAF estimates that both phases will now cost more than $2.9 billion, excluding the cost of easements and land purchases it has already made.
But a lawsuit by Martin and Indian River counties, which challenged DOT’s bonding authority in federal court in Washington, D.C. in April 2015, has gained traction as their attorneys fended off DOT’s motion to dismiss the case while uncovering evidence that All Aboard Florida has little or no money in hand to begin Phase II construction.
Judge finds ‘legitimate questions’
On Aug. 16, after listening to both sides, U.S. District Court Judge Christopher R. Cooper said the evidence he saw raised “legitimate questions” about AAF’s commitment to Phase II without obtaining DOT’s private activity bonds.
Private activity bond-based “financing is not just the ‘current financing plan’ for the project – it appears to be the only financing plan,” the judge said.
Cooper’s finding allowed the two counties to continue to pursue their lawsuit alleging DOT violated the National Environmental Protection Act (NEPA) as well as federal law by approving $1.75 billion in tax-free bonds.
AAF, contacted several times by Florida Bulldog with requests for comment, did not respond. A U.S. Department of Transportation spokeswoman said the agency would not comment on pending litigation.
Any project that qualifies as a major federal action, which this project does according to the judge’s ruling, must comply with NEPA. The act provides for project reviews in this case by the Federal Railroad Administration, U.S. Army Corps of Engineers, U.S. Coast Guard, Federal Aviation Administration, Federal Highway Administration, U.S. Fish and Wildlife Service and the National Marine Fisheries Service.
An Environmental Impact Statement analyzes “a wide range of potential environmental and other consequences of the project and identified and evaluated measures that would avoid, minimize or mitigate impacts that would result from the project,” according to court documents.
A draft of that document was made public and comments taken, but then it was basically shelved, according to Indian River County Attorney Dylan Reingold.
“The evaluations were completed, but no record of decision was ever published,” said Reingold.
That action took place after AAF applied for a $1.6-billion loan through the Railroad Rehabilitation and Improvement Financing program in early 2014. Such loans are for the development and improvement of railroad tracks, equipment and facilities. The loan wasn’t approved, and AAF court filings say the company is no longer seeking that loan.
All Aboard Florida’s plan
In August 2014, AAF made another attempt at financing. It asked the U.S. Department of Transportation for $1.75 billion in tax-exempt bonds, which would mean up to $600 million in lost tax revenue over 10 years, according to court documents.
Four months later, DOT provisionally agreed to finance the $1.75 billion using tax-exempt private activity bonds (PABs). But the agency added several conditions, including a requirement that the bonds be sold by July 1, 2016, a deadline later extended to Jan. 1, 2017. The project must also complete the NEPA environmental review and prohibited from using the bond proceeds until 45 days following the issuance of the final environmental impact statement.
According to attorney Reingold, however, “they did this backwards. You have to go through a full NEPA analysis and Historic Preservation evaluation before authorizing allocation of funds.”
While DOT took the position that NEPA review was not required because the project is not a major federal action, Judge Cooper disagreed.
“The Court finds that the project does constitute major federal action,” he wrote in his ruling.
Without waiting for the NEPA findings, All Aboard Florida attempted three times last year to sell the bonds, each time with different terms, according to the judge’s findings. There were no takers, according to court records.
“NEPA is far more important than people realize,” said Steven Ryan, an attorney representing Martin County in this case. “This is a major procedural violation of environmental law.”
AAF initially told the court that it had $405 million in private debt funding held in escrow to begin construction of Phase II. In later court filings, however, AAF officials said that the $405 million is not for Phase II along with an apparent explanation of what the money is to be used for. The explanation was redacted from the public record.
That change was troubling for the court.
“Contrary to the court’s earlier understanding, [documents] do not show that AAF had already arranged financing for a significant portion of Phase II’s cost,” the judge wrote.
The need for taxpayer-subsidized bonds
AAF has said it can finance the project without government funding, yet also that it would be difficult if not impossible without the taxpayer-subsidized bonds.
AAF president Michael Reininger stated in a deposition that not approving the sale of the tax-exempt PABs “would certainly disrupt the current financing plan, make the project more expensive to complete and may delay its progress.”
In a letter to Paul Baumer of DOT’s Office of Infrastructure Finance and Innovation that emerged during discovery, Reininger went further, calling the funding a “linchpin for completing our project” and “a crucial factor in ensuring our project is financed and completed.”
According to The Bond Buyer.com, there is little interest in the market for high-risk, high-return bonds for a variety of reasons.
The owner of AAF’s parent company apparently cannot help. Court documents state that Fortress’ market capitalization has shrunk by nearly half in the past 14 months.
Likewise, Florida East Coast Investments, AAF’s parent company, has significant debt obligations coming due in three to four years, according to court documents.
While AAF appears to have no funding for Phase II, it does have equity in train stations, which it could sell, according to Ryan.
“You know, all along AAF has claimed that this is a private entity, but it is totally dependent on subsidies,” he said. “They should knock off this fiction. They have their hands in every government pocket they can find.”
FRANK DADDARIO / September 9, 2016 8:58 am
…….it doesn’t matter here in Broward County because the eighty MILLION dollar PLUS Ft Liquordale station is already building out, the land was bought for about twenty-nine MILLION, and the structure is mostly complete – so the good olde reneck boyz network have already paid off the county commissioners and taken their slice of the pie (which i estimate to be about one-third of the total costs)
FRANK DADDARIO / September 9, 2016 9:30 am
…………meanwhile the contrast between the GUGGENHEIM (it’s what i call the Ft Liquordale Brightline (or really WHITEline)) A A F train station as seen from Broward County Transit Central Bus Terminal is truely striking – especially in the morning sun splashing on the concrete structures of the A A F station from the cave like bus terminal………….”WHAT THAT IS ?” asked a homeless hobo at BCT Central Terminal……….”that’s the Guggenheim it’s a train to Orlando for WHITE people”…………..”THAT’S REALLY BIG!” said the hobo………..”well they have to cater to an estimated dozen or so WHITE riders who may have luggage and pets and need WiFi”…………………..what a show this is
FRANK DADDARIO / September 9, 2016 1:01 pm
………………a BCT bus operations Supervisor was just telling me AAF was private not public when i suggested the GUGGENHEIM would become the newest next homeless shelter so they would insist on keeping out the hobos but i questioned who would actually ride that train actually meaning the new building would be empty all day………..the Sup offered what a benefit to live in Orlando and work in Miami and have an efficient AAF commute when i mentioned could he just get me from Central Terminal downtown Ft Liquordale to DAVIE in less time than that Orlando / Miami commute………we can’t afford to ever wash the county bus windows – yet we have built an unnecessary multi-Billion dollar airport runway extention AND at $450 per square foot a new County Courthouse (apparently with additional courtrooms just to prosecute crooked county Judges and on=the=take BSO deputies post-Rothstein and various other county administrative crooks……and now flushed another one-hundred Million in a train station that resembles the GUGGENHEIM
Kelly Mahoney / September 9, 2016 2:14 pm
You are a racist loser. Go back to smoking your crack at the bus depot. Wait until TriRail stops at the AAF stations. We met led cars idiot! And by the way lol at all of the development going on along Dixie Hwy in the tri county area!
Bob Martin / September 9, 2016 3:24 pm
From the beginning people have been saying: If the Fla East Coast Railroad is involved, be careful. These are ultra greedy corporate executives who have been rationalizing their questionable ethics for years. Getting rich via the public trough is business as usual.
Jayne Paul / September 10, 2016 10:15 am
I take issue with several points in this article. How refreshing to see representatives of the counties affected by the impact of the train to call on the NEPA rules when it serves their purpose. Meanwhile this area of the state of Fl has been DESTROYING our waters with Big Sugar dumping their waste into our ocean and this is all approved by our gov rick scott.. Look closely at who’s complaining about the AAF coming through their town, follow the money. To stand behind and claim it’s about protecting the environment is such BS. I live in Orlando. The thought of driving to south Fl is a nightmare. Blocking the AAF is blocking progress. I’d gladly take a train, less traffic and opens possibilities to way more residents then the handfuls of wealthy people in the counties that are fighting against it.
Richard Webb / September 10, 2016 10:38 pm
No wonder investors won’t buy the bonds. They realize the phony passenger projections must have assumed the ride would be FREE. No way!
Ports Miami & Lauderdale need a way to move their FREIGHT northward (funny how the rails are designed to FREIGHT standards). The passenger rail was designed to fail so FEC could buy the rails for pennies on the dollar out of bankruptcy court!
Terre Tulsiak / September 11, 2016 8:02 am
In light of the discovery that NEPA does in fact have some teeth, I wonder why the Sabal Trail is advancing unabated despite serious flaws in their plan. Is the Florida Bulldog waiting until another sleazy connection in the financing pro forma floats across their desk or are they going to do some journalistic investigating before it’s a ‘done deal’ and they bulldoze the Green Swamp?
Eminent domain has rules. Public convenience and necessity needs evidence, not opinion. Just because the governor has supported utilities profits before true clean energy doesn’t mean we should allow this potential horror. Conveniently en route to ports on both coasts of Florida…
Robert / September 11, 2016 8:47 pm
Jim Howell / September 13, 2016 6:37 am
If FEC wanted to increase freight and just add a 2nd track, they would not have needed to go through any of this. 4 stations are being constructed, tracks being laid. This is for passenger. I personally hate the drive, and will use the train. Stop standing in the way of progress! And the other poster is right, new stores houses, apartments, condos all along the tracks in Boca, Delray, Oakland Park, Wilton Manors, etc. Transportation will transform these neighborhoods for the better. If it is so much better by the turnpike, move there. The FEC owns property on the coast and that is what they are using!
Paul Harrison / September 14, 2016 4:51 pm
Your article refers repeatedly to “taxpayer subsidized bonds”. The bonds aren’t subsidized. They’re merely not taxed.
Joe DiFonzo / September 15, 2016 9:40 am
Does anyone know why Martin and Indian River counties are wrangling to block this train’s construction? I really think the NEPA concerns sound kind of shallow…
Kaya Wittenburg / October 12, 2016 10:47 am
This is really disappointing. Why can’t we get it together and move forward with this project, which will be good for everyone in Florida? I was working on some commercial real estate brokerage near the Miami central station and was beyond excited in learning everything about the project. It seemed like such a huge win for tourists and local residents alike. I’m leaving for Tampa today and then Orlando the following day. Dreading the five hour drive. Train rides in Europe and Japan are so pleasant. We need this as a safer and more convenient alternative to congested highways. I really hope that these issues get resolved.