Will Brightline passenger train survive as counties try to choke off funding?

By Ann Henson Feltgen, FloridaBulldog.org 

A Brightline train at Fort Lauderdale station

Brightline’s promise to extend its South Florida passenger train service to Orlando is in jeopardy again after two counties asked a judge this month to rescind federal approval of All Aboard Florida’s plan to issue $1.15 billion in bonds to fund the project.

The 2015 lawsuit filed in Washington, D.C. by Indian River and Martin counties against the U.S. Department of Transportation (DOT) and the Federal Railroad Administration was quietly reactivated in February after DOT gave approval last December for All Aboard Florida to issue private activity bonds.

News of the two counties’ effort to vacate federal approval for the project bonds comes as an unaudited financial statement shows Brightline suffered a $28.2 million loss in the first quarter of 2018. Brightline also reported carrying nearly 75,000 total passengers and collecting $663,667 in ticket revenue during the period.

The company commenced service between Fort Lauderdale and West Palm Beach in January and expanded service to Miami in May. A second phase would construct track from Cocoa to Orlando.

The bonds, however, appear to be pivotal for the company, especially in light of the first-quarter loss.

Case dismissed

U.S. District Court Judge Christopher R. Cooper dismissed the case after All Aboard Florida withdrew its application for the bonds on Sept. 30, 2016.

“The federal lawsuit was dismissed for mootness,” said Indian River County Attorney Dylan Reingold. “But we won the argument that the National Environmental Policy Act [NEPA] applies.”

The counties’ summary judgment motion was filed July 18. The federal agencies have until Aug. 15 to answer. The judge is expected to rule on Aug. 18.

The 66-page document states that issuing the public activity bonds – tax-exempt bonds issued by governments to provide special financing benefits for qualified projects – would be illegal because the project is not eligible for the bonds and because the counties did not approve the project, as is required by the Internal Revenue Code.

According to the motion, NEPA requires the federal agencies to take a hard look at the effects of the project on public safety, its environmental impacts, noise impacts and any alternatives to avoid harm. The counties contend that none of those concerns was addressed. Further, it argues that the bonds are only supposed to be available to finance high-speed trains running 120 miles per hour or greater. All Aboard Florida’s existing trains travel up to 110 mph.

“We do not comment on active litigation,” said Brightline spokeswoman Ali Soule.

Why This Case is Important

From the get-go, discussion of All Aboard Florida’s Brightline passenger train has drawn skeptical responses. Doubters say a privately funded train just can’t make it financially without some infusion of government funding.

Indian River Commissioner Bob Solari

Indian River County Commissioner Bob Solari is one of those skeptics. After seeing Brightline’s recent financial statement and discussing it at a July 3 commission meeting, he is even more convinced that the passenger train is heading in the wrong directions and could go broke within six months.

“They only have $59,000 in unrestricted cash and their restricted cash barely equals their current liabilities,” Solari said. “It appears that they badly need the second bond issue within the next six months” to survive.

County Administrator Jason Brown added during the meeting: “If I was holding bonds, I’d be worried.”

Solari added that Brightline congratulated itself for exceeding the company’s expectations.

“I can only guess that their expectations were very low,” he said.

All Aboard Florida originally sought $1.75 billion in private activity bonds, receiving $600 million to complete Phase I in South Florida and help provide operating capital. When they tried to get the rest – $1.15 billion – the two counties sued.

All Aboard Florida President Michael Reisinger (who was later transferred to Florida East Coast Industries as executive director in 2017 and left that company in February) had stressed the importance of the private activity bonds in a 2016 letter to the DOT, calling them “the lynchpin for completing our project” and “a crucial factor in ensuring our project is financed and completed.”

The new report

The new financial report paints a different picture, most notably that it is operating at a $28-million loss.  Solari said that while operating in the red is common with startups, the train’s projected revenues in 2018 of $20 million and another $60 million in 2019 seem out of reach.

Indian River’s Reingold said the reported ridership of about 75,000 was very low compared with a ridership study conducted by the company two years ago. He added that he recently rode on the train along with about 20 other riders.

“The train holds 248 seats and [the ride I took] filled about 10 percent” of those seats, he said.

These figures represent operations for now complete Phase l. Brightline operates up to 32 passenger trains per day from Miami to West Palm Beach and back.

A Brightline spokeswoman said, “These numbers only include ridership for Brightline’s introductory service between West Palm Beach and Fort Lauderdale, which opened Jan. 12. Our projections were based on Miami being open at the same time.” The Miami station did not open until May.

She added that ridership and revenue increased 35 percent on a monthly basis from January through March. “We’ve always projected a multi-year ramp-up period.”

According to Solari, another cost is piling on All Aboard Florida. He said there is an additional  $400 million cost of complying to the National Transportation Safety Board’s (NTSB) new requirement that Class I trains and commuter passenger trains install Positive Train Control by the end of the year. This new automatic braking system, NTSB says, can save hundreds of lives lost in derailments, collisions and accidents.

All Aboard Florida declined to provide a cost for these improvements, but stated the company would absorb them.

All Aboard Florida is the brainchild of its parent company – Florida East Coast Industries – both of which are owned by Fortress Investment Group. The passenger train company incorporated in 2007. It later became All Aboard Florida, and executives approached the state with a plan to build and operate a higher-speed, privately owned railroad that would allow passengers to travel from Miami to West Palm Beach, then on to Cocoa and from there to Orlando on state-of-the-art trains known as Brightline. The company says trains will shave off at least an hour of the drive time by car and will be a fraction of the cost of flying.

Reapplying for bonds

In December 2017, after Judge Cooper found the lawsuit moot, the company reapplied for and received permission from DOT to allocate the $1.15 billion tax-exempt private activity bonds with a sales deadline of May 31, 2018. When the company didn’t make that deadline, the expiration date was extended to the end of 2018.

County Commissioner Solaris and others monitoring the project say All Aboard Florida so  far has not sold any bonds dedicated to Phase II. An All Aboard Florida spokesperson was asked to confirm that statement, but the company did not reply.

Florida East Coast Holdings Corp, which operates Florida East Coast Industries and Florida East Coast Railroad, was sold to Grupo Mexico in mid-2017, but All Aboard/Brightline officials say the sale will not affect their operations. Fortress also completed its sale to SoftBank Group in December 2017.

The company originally estimated costs for Phases I and II at $1 billion. Now those estimates exceed $3.5 billion.

All Aboard Florida appears likely to miss the end-of-the-year deadline for installing Positive Train Control safety hardware and software. An extension could give the company until 2020 to complete the work. In June, Florida East Coast Railway petitioned the NTSB on behalf of All Aboard Florida/Brightline to accept an alternative braking system. The NTSB has not yet responded.

The Brightline spokeswoman wrote in an email that the company will have Positive Train Control fully implemented when operations begin in Orlando. She added that Brightline trains now operated on Automatic Train Control, “which has all the same features as Positive Train Control,” she stated.

This is not the first time new passenger trains have been contemplated. Florida has been studying interstate railroad systems for years, in large part to take pressure off its highway and freeway system. The last attempt at developing a railroad was in 2010 when President Obama’s administration offered $2.4 billion in federal funds to build an 85-mile segment from Tampa to Orlando, with future plans of continuing service to Miami. Incoming Gov. Rick Scott nixed the project and rejected the money in early 2011.

Scott later embraced All Aboard Florida’s rail concept primarily because it would be privately funded. PolitiFact Florida rated that statement “mostly false” in 2014, saying the company had already benefited through the bonds and through state funds to build a terminal in Orlando.