Florida Train Project Gets $1.7B PAB Allocation

aaf-west-palm-beach-station-rendering-credit-aaf.jpg

BRADENTON, Fla. - The All Aboard Florida private passenger train project has received a $1.75 billion federal private activity bond allocation along with conditions that impose a tight timeframe to issue the debt.

The U.S. Department of Transportation's Federal Highway Administration awarded the bonding authority shortly before Christmas, along with what some experts describe as an unusual stipulation that requires the bonds to be issued by July 1.

The USDOT is also prohibiting All Aboard Florida, which is building a passenger train service between Miami and Orlando, from using any bond proceeds until 45 days after the release of a final environmental impact statement.

"If AAF does not comply with the conditions of the allocation, DOT reserves the right to pursue every remedy, including withdrawing the allocated tax-exempt authority," the USDOT said in a statement.

If All Aboard Florida complies with the conditions, it is expected to issue the bonds in a private placement to partly finance the $3.2 billion, 235-mile project. The company plans additional stops in Fort Lauderdale and West Palm Beach between the Miami and Orlando endpoints.

The Florida Development Finance Corp. has preliminarily agreed to act as the conduit issuer of the bonds.

Private activity bond authorizations granted under the federal Safe, Accountable, Flexible, Efficient Transportation Equity Act are typically more broadly written for qualifying projects, according to one bond attorney, who asked not to be named.

"The strings attached seem unique to this project," he added, when asked about conditions imposed on AAF's allocation.

Another attorney, who has worked on several large projects that received federal PAB financing, said his clients were given up to a year to issue the debt. None of his clients' project bond allocations were conditioned on finalizing the environmental impact statement, the attorney said.

A financial advisor who concentrates on transportation projects said the deadline to issue the bonds seemed "fairly artificial and tight."

It is unclear how long it could take to complete the environmental study, which is being conducted by the Federal Railroad Administration.

The FRA released the draft environmental impact statement in September, giving the public 75 days to comment on the document. The agency received more than 12,000 comments from the public by the time that process officially closed on Dec. 3.

The number of comments is "significantly high" compared to other projects, and will take some time to review, said an FRA spokesman.

The final step in the federal environmental review process is the FRA administrator's signature on a document called a record of decision, which certifies that the project complies with the National Environmental Policy Act.

Once the ROD is approved, the project could be subject to an appeal, an expert said.

AAF, whose parent company is Fortress Investment Group-owned Florida East Coast Industries, will run its new service largely along Florida East Coast's existing rail freight right of way on the east coast of the state.

All Aboard Florida is planning to run 32 trains a day, with service between West Palm Beach and Miami to start in late 2016. Service between West Palm and Orlando, which will require construction of 40 miles of track on a new right-of-way next to an expressway, would start the following year.

The company declined to answer a number of questions submitted by The Bond Buyer, including whether the time frame for issuing the bonds could be met and other details such as the firms chosen to underwrite them.

"We look forward to the completion of the private activity bond process," the company said in a brief statement.

AAF also noted that work is under way on various segments of the project in south Florida. Demolition is taking place at some sites where stations will be built.

"Over the past week, we started laying portions of the second main track in Palm Beach County, announced Moss & Associates as the general contractor for the Fort Lauderdale and West Palm Beach stations, and will begin vertical construction on the three South Florida stations at the end of the first quarter," AAF's statement said.

The company could become the largest sole private sponsor receiving a federal transportation private activity bond allocation, a benefit some project opponents have questioned.

AAF billed itself as "the first privately owned and operated passenger rail system" in Florida when it was first announced in March 2012.

According to the Federal Highway Administration, PAB-qualified projects include certain rail projects that received federal assistance under Title 23 of United States Code.

All Aboard Florida has benefitted from some federal assistance, including a $13.75 million discretionary grant under the federal Transportation Investment Generating Economic Recovery program.

The Florida Department of Transportation applied for the TIGER grant in 2013 toward a partially state funded $47.25 million freight and passenger rail project in south Florida to upgrade "deteriorating linkages and improve connectivity" between four rail operators, including All Aboard Florida and Florida East Coast Railway, according to USDOT documents.

State officials, including Gov. Rick Scott, have said that no state funding would go toward the new passenger rail service.

The project has thousands of opponents who have signed petitions claiming it will create more traffic and marine congestion in communities already facing such problems.

They have also cited lower property values along train corridors. Several anti-AAF organizations, and some county officials, also oppose the project.

K.C. Traylor, founder of Florida NOT All Aboard, lives in Martin County - one of four counties along the coastal passenger route where no train stations are planned.

She said she was disappointed that the USDOT gave provisional approval for the bonds, and said they could be a "tough sell to savvy investors."

"We believe, as we have from the start, AAF is struggling to obtain financing and we do not support risking any taxpayer money on this project," Traylor said. "I will also add that PABs are still a loss for the U.S. taxpayer in that they are a type of corporate welfare bond in which taxes are not paid on income earned."

Traylor said that counties not benefitting from train service are "pushing to fund a war chest" to fight it with legal challenges.

In order for AAF to issue the bonds, the Florida Development Finance Corp. still must give final approval to the company's application for conduit financing, agency spokesman Sean Helton said Tuesday.

In addition, at least one public hearing must be held under the Tax Equity and Fiscal Responsibility Act to comply with Internal Revenue Service requirements.

For reprint and licensing requests for this article, click here.
Transportation industry Infrastructure Florida
MORE FROM BOND BUYER