~County officials, local leaders call it an extremely risky project~
Treasure Coast Region, FL—Indian River and Martin Counties along with Citizens Against Rail Expansion in Florida (CARE FL) have sent a letter to the U.S. Department of Transportation (USDOT) and the USDOT Credit Council regarding All Aboard Florida’s (AAF) high-speed passenger rail service. The six-page letter asks USDOT Secretary Elaine Chao to exercise extreme caution before considering or approving AAF’s request for a Railroad Rehabilitation and Improvement Financing (RRIF) loan to build out Phase II of the project connecting West Palm Beach to Orlando. The letter warns the loan is unlikely to be payable and creates a very high risk of default for taxpayers.
“We believe AAF is struggling to find a way to finance Phase II. In fact, they have unsuccessfully tried to sell tax-free Private Activity Bonds (PABs) on at least three different occasions,” said Dylan Reingold, Indian River County Attorney. “To date, they have been unable to find buyers, and as recently as November 28, 2016, withdrew the company’s PAB application.”
In 2015, CARE FL commissioned an economic impact study by Dr. John Friedman, former White House National Economic Council Special Assistant in the Obama Administration. Dr. Friedman’s study concluded that even when making all optimistic assumptions to favor AAF, the project would generate annual losses of more than $100 million and AAF would be unable to service its debt burden. Findings from the Friedman study were included in the letter that was sent to USDOT earlier this week.
“CARE FL urges USDOT to review the findings presented by Dr. Friedman, along with recent developments including ownership changes by the company that present unacceptable financial uncertainties for a project of this magnitude,” said Brent Hanlon, Chairman of CARE FL. “In the past three years, we have seen AAF pursue multiple government-subsidized funding options, and that alone is cause for great concern.”
The recent split in ownership between AAF’s parent company, Florida East Coast Industries (FECI), now owned by SoftBank, and Florida East Coast Railway (FECR), now owned by Grupo Mexico, is a red flag. USDOT needs to consider that AAF only has an easement to use the corridor and will not own the tracks, even if paid for by the RRIF loan. USDOT should also consider the financial health of Grupo Mexico.
Additionally, academic studies have demonstrated that most rail projects exceed the expected project costs, which would further impact the reasonable credit analysis for the AAF project. In fact, in a 2008 report prepared by the Federal Transit Administration’s Office of Planning and Environment, the authors reported that “[o]n average, for the 21 projects completed between 2003 and 2007, actual construction costs exceeded the inflation-adjusted estimates developed in alternatives analysis by 40.2 percent.”
“AAF is trying to pass off this project as privately funded when it is anything but,” said Taryn Kryzda, Martin County Administrator. “To help protect their profits, AAF is trying to shift the cost of rail safety upgrades and maintenance to Treasure Coast counties in perpetuity. This impacts every single taxpayer.”
The letter also urges USDOT to consider a very important factor; the proximity of the rail project to President Donald Trump’s often visited property, Mar-a-Lago, located near the West Palm Beach station. The U.S. Secret Service and others responsible for protecting the President should be asked to consider the safety implications that could result from high-speed passenger rail and freight trains (carrying hazardous materials including LNG) running on the same tracks.