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U.S. judge tosses lawsuit to block All Aboard Florida; Money for Phase 2 still in question

By Ann Henson Feltgen, 

All Aboard Florida’s Brightline Express train

All Aboard Florida’s plan to operate regular passenger train service between Miami and Orlando survived a lawsuit filed by Indian River and Martin counties when a federal judge on May 10 dismissed the suit. But funding problems remain.

The counties, which opposed the train, sued the U.S. Department of Transportation (DOT) in 2015, stating the agency ignored the requirements of the National Environmental Policy Act when it agreed to issue $1.75 billion in non-taxable private activity bonds (PAB) for All Aboard Florida (AAF), which would mean up to $600 million in lost tax revenue over 10 years, according to court documents.

Phase 1 of the ambitious project, creating a passenger route and terminals at three stops along the Florida East Coast railroad line between Miami and West Palm Beach, is well under way. It is Phase 2 that is now precarious.

AAF, whose parent company – Florida East Coast Industries – is owned by the hedge fund Fortress Investment Group, approached the state nearly three 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 nearly complete in Miami, Fort Lauderdale and West Palm Beach; a second set of tracks is being installed, and new engines and passenger cars have been shipped. AAF estimates that both phases now will 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, gained traction last fall as their attorneys fended off DOT’s motion to dismiss the case while uncovering evidence that AAF has little or no money in hand to begin Phase 2 construction.

AAF withdrew its application for the bonds on Sept. 30, 2016 and requested another $600-million bond issue to complete Phase 1, possibly resolving the matter.

Attorneys for the counties argued that AAF will not limit the $600-million bond funding to Phase 1. As evidence, they stated in their earlier motion that AAF said the money would be used to pay for five train sets, which will service the entire route rather than just Phase 1.

Judge Cooper rules

After several hearing delays, Judge Christopher R. Cooper of the U.S. District Court for the District of Columbia now says because the train company pulled its request for the bonds, the issue is moot.

AAF continues work on Phase 1 that runs the trains from Miami to West Palm Beach and is expected to begin operating between West Palm Beach and Fort Lauderdale in late summer. The extension to Miami will open after that, company officials said.

While Cooper previously agreed that the environmental study was necessary for AAF’s second phase from Cocoa to Orlando if PABs were used for funding, he stated in his judgment that requiring the study is a case-by-case matter.

“Whether a particular PAB allocation constitutes ‘major federal action’ requiring compliance with [the National Environmental Policy Act] depends on a host of factors relating to the amount and nature of the federal assistance provided and the degree of control that federal agencies exercise over the project,” the judge stated in his order.

Both sides have hailed the order a victory.

“The ruling includes a severe warning to U.S. DOT should it issue another PAB request for the AAF project without first complying with the nation’s environmental laws: ‘if DOT were to do so, Plaintiffs could readily call it to the carpet by renewing their lawsuits in this Court,’ ” stated Brent Hanlon of Citizens Against Rail Expansion in Florida, which also opposes the trains, in a written statement.

In the meantime, AAF’s Brightline took delivery of two new trains that will provide service in South Florida later this year. Named BrightGreen and BrightOrange after the signature color schemes of the train cars, the sets were delivered simultaneously from Siemens Rolling Stock manufacturing hub in Sacramento, CA, according to a company statement.

They joined BrightBlue and BrightPink Saturday, May 13. Brightline trains are approximately 1,000 feet long. They are Buy America compliant, manufactured with components from more than 40 U.S. suppliers in 20 states. The trains are being held at Brightline’s 12-acre railroad operations facility in West Palm Beach.

“All Aboard Florida believes Judge Cooper properly dismissed the case, and we appreciate his thoughtful review and articulation of the facts and the law,” AAF officials said in a prepared statement. “We look forward to working with the Treasure Coast in a cooperative and more productive fashion as we advance this important infrastructure project.”

Phase 2 funding murky

Still murky is funding for Phase 2. In his order, Judge Cooper pointed out that obtaining additional funding from the U.S. government might be difficult due to the differences between former President Barack Obama and President Donald Trump.

“Any decision on a future application by AAF will be made by entirely different officials in the new administration. While the new administration has not publicly opined on the AAF project (as far as the Court is aware), its early actions with respect to publicly-funded rail transportation in general suggest that it might take a different track,” he wrote.

In his budget proposal to Congress, Trump would axe DOT’s Transportation Investment Generating Economic (TIGER) grants, which this fiscal year amounted to $500 million in grants across the country. Broward and Palm Beach counties were denied grants in 2014 for crossing improvements necessary for the railway tracks.

AAF stated it is evaluating several options for funding Phase 2 to Orlando.

Another Fortress company, Florida East Coast Railway, over whose tracks AAF’s trains will run, has been sold to Grupo Mexico Transportes. The $2.1-billion deal hinges on regulatory officials’ approval. Grupo Mexico has for years dominated the railway freight sector in Mexico, according to Reuters News Service.

And, Fortress itself was sold to Softbank, a Japanese telecommunications and technology conglomerate, in February. The deal, which as of Thursday May 25 had not closed, brought $3.3 billion.

However, according to The Straits Time, a Singapore-based media outlet, that transaction has not gone smoothly. On March 1, the Securities and Exchange Commission (SEC) froze assets of Maybank Kim Eng Securities, Singapore, and UK-based R.J. O’Brien Ltd.

The SEC is looking into charges of insider trading by customers of the two companies. Trades made just before Softbank announced the purchase produced $3.6 million in potentially illegal profits. Customers, who have been difficult to identify because they are masked in this type of trading, purchased the stock just prior to the Feb.14 offer, driving up stock prices by 28 percent. Buyers held the stock for just 24 hours before selling it for a profit.

AAF did not comment on whether or not the sale of the two companies would affect it. Instead, a spokesperson stated that it was “investing a significant amount on the extension to Orlando. We are in the process of finalizing the remaining permits and launching the South Florida segment in a few months.”

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