WASHINGTON - Sponsors of a high-speed passenger rail train project in Florida want an authority to issue $1.75 billion of private-activity bonds for it as soon as June 22, while a U.S. District Court considers requests from two counties to enjoin or stop the Transportation Dept.'s allocation of the PABs to the project.

DOT has already allocated the PABs to the 235-mile, $3.5 billion proposed rail line, which would run from Miami to Orlando beginning in 2017. DOT stipulated that the bonds be issued by July 1. The project sponsor, All Aboard Florida, is also seeking a $1.6 billion rehabilitation and improvement financing loan from the Federal Railroad Administration.

But Indian and Martin counties in Florida filed first-of-a-kind lawsuits against the DOT and top officials in late March and April challenging DOT's authority to allocate the PABs to the project and asking for preliminary injunctions against the allocation.

In complaints filed with the U.S. District Court for the District of Columbia, both counties claim, among other things, that DOT violated the National Environmental Policy Act by allocating the PABs before the final environmental impact statement for the project is completed. Martin County also argues the bond allocation was based on a statute that does not permit use of the PABs for the project.

At a U.S. District Court hearing held here on Friday, lawyers for the two counties, All Aboard Florida, and the Justice Department (which is representing DOT), sparred against each other.

Lawyers for the counties said they need the injunction because once the bonds are issued, there will be too much money in the project to ensure environmental, safety and other impacts will be adequately considered.

"Once the bonds go forward and … subsidies will have been provided to AAF, it will be too late for the Secretary of Transportation to say this project" is not a good one, Philip Karmel, a lawyer with Bryan Cave representing Indian County told Judge Christopher Cooper. "It would be an irrevocable, permanent, commitment of resources."

"If this court does not rule in our favor … then we will never be truly heard," said Stephen Ryan, a lawyer with McDermott Will & Emery representing Martin County. Once the bonds are sold to investors, their interests will have to be addressed as well and they will become a third party to the project that will want it to succeed, he said.

AAF officials recently stated publicly that the tax-exempt bonds are not critical to the financing of the project. But the county's lawyers said this counters earlier AAF statements and that the group has not given any details as to how project financing would work without the bonds.

Judge Cooper asked if taxable bonds could be sold for the project. These would be much more costly, AAF's lawyers responded.

"The project is more viable, success is more likely, with the tax-exempt bonds," said Eugene Stearns, a lawyer with Stearns Weaver Miller Weissler Alhadeff & Sitterson representing AAF.

The tax-exempt PABs "are an incentive for private investors to come into an infrastructure market that is failing," said Stearns. "This is a critical project for Florida."

The counties argued DOT ran afoul of the National Environmental Policy Act in allocating the bonds before considering the final environmental impact statement. It is not clear when the FEIS will be completed. One lawyer at the hearing said possibly the end of June, but others noted the date has slipped repeatedly.

Luther Hajek, a tax attorney at the Justice Department, said the PAB allocation was not a major federal action that requires DOT to conduct a NEPA review. Hajek also pointed out that DOT did not approve the project, does not exercise control over the project and has not provided any significant funding for the project. The bonds are to be issued by the Florida Development Finance Corp. for AAF.

Stearns agreed and said the counties' complaints would be better directed at the $1.6 billion loan requested from the FRA, rather than the PABs, because the loan would be actual money.

Ryan said Section 142 of the Internal Revenue Code on exempt facility bonds, which was amended by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), allows DOT to allocate up to $15 billion of PABs for surface transportation projects that receive federal assistance under Title 23 of the U.S. Code on highways. It does not apply to HSR projects, he said.

Hajek said the code clearly permits PAB financing of high-speed rail passenger trains. The counties' lawyers countered by saying that section of the code refers to trains reasonably expected to be capable of attaining speeds of 150 miles per hour or more and that AAF's rail project would much slower than that.

At the end of the hearing, Stearns said that AAF will try to get DOT's credit quality committee, at its June 19 meeting, to extend the $1.75 billion PAB allocation past July 1. However, he said AAF would like for the bonds to be sold around June 22.

Ryan complained that AAF has controlled the timing of key dates and asked why the bond financing can't be delayed until the lawsuits are heard on the merits of the law rather than the counties having to seek an injunction.

Stearns replied that the credit quality committee schedules meetings two years in advance and that AAF does not want to delay the project. Any extension would be limited to six months, he said.

"This is a critical infrastructure project and time is money," Stearns said. "This is a huge amount of money. We don't want an extension for six months, we don't want an extension of six days."

Several lawyers said that the June 19 credit quality committee meeting will likely pressure Cooper to rule on the request for a preliminary injunction before then.

Stearns ended the hearing by telling Cooper that his ruling and what he says about the bonds and project, "will be extremely important on how the market views the bonds."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.