All Aboard Florida has started work on its new station in Miami, shown here, but a group opposing the train says its economic analysis questions the project's viability.

BRADENTON, Fla. — Officials at the All Aboard Florida passenger train project say they are confident they will meet a financing deadline despite hiccups at the conduit issuer the private developer plans to use for $1.75 billion in private activity bonds.

As the financing deadline looms, a group opposing the project released an economic analysis questioning the viability of the deal and the project.

AAF, a subsidiary of Fortress Investment Group, plans to run 32 passenger trains daily between Miami and Orlando, and has estimated the project's start-up cost at $3.2 billion, including financing.

"All Aboard Florida will generate annual losses of more than $100 million and will be unable to service its large debt burden," concludes the analysis, released in February.

The 15-page report by John Friedman, associate professor of economics, international affairs and public policy at Brown University, was commissioned by Citizens Against Rail Expansion in Florida, a coalition of community leaders and residents, also known as CARE FL.

All Aboard Florida did not provide any facts or figures the Friedman study used for its "assumptions," said Lynn Martenstein, vice president of corporate communications.

Martenstein also said the study relies on speculation.

CARE admitted that All Aboard has not publicly said how much tickets would cost or how much debt it would use to finance the 220-mile rail system, which promises 3-hour travel times between Miami and Orlando.

The infrastructure work for the passenger train project is also expected to facilitate more freight traffic on the Florida East Coast Railway, which is also owned by Fortress. The All Aboard Florida passenger route will use an upgraded Florida East Coast freight right of way for 195 miles.

The plans have encountered opposition from homeowners, boaters, emergency responders, and some elected officials in counties that would be traversed by the passenger and freight trains but where no stations are currently planned.

Several organizations like CARE are also fighting the rail plans.

All Aboard has largely been embraced by public officials where stations are planned or under construction in West Palm Beach, Fort Lauderdale, Miami, and at the Orlando International Airport, which has begun a $1.1 billion capital plan featuring an intermodal transit facility that will also serve AAF.

Friedman, in his study, said his examination of the project for CARE relied in part on the private activity bond application AAF submitted to the U.S. Department of Transportation, and published information about a prospectus All Aboard released for a $405 million corporate bond sale last year.

Citing an "optimistic scenario" based on financing, market rates, and other cost assumptions, Friedman said AAF could generate $95.8 million in annual revenue and have $81.5 million in annual operating costs plus another $125 million in interest costs for tax-exempt bonds and other debt.

The company's annual losses could range between $110.7 million and $125.9 million, the analysis said.

"In either case, AAF has annual losses that are greater than annual revenues - put another way, one could arbitrarily double revenue projects and still not project that AAF would be able to pay off its debt," said the study.

For the project to break even, assuming that ridership remains stable, All Aboard Florida would need to charge $273 for a one-way ticket from Miami to Orlando, which is about $145 more than the average airline fare for the same route, Friedman wrote.

The study also said that the private train owners face "serious problems" generating enough operating profit to cover the cost of debt service.

He estimated that the use of tax-exempt private activity bonds would cost taxpayers $37 million to $50 million in foregone taxes on interest, and predicted $13 million in state level subsidies for the Orlando station and safety and maintenance along the rail line.

"As an entity that is entirely privately owned, All Aboard Florida represents an inefficient use of tax-exempt bonds," the study said. "These subsidies distort the allocation of capital towards this project and away from others that are potentially more efficient yet lack tax subsidies," Friedman wrote.

He did not cite any examples for other projects; the roads and airports the report cites as All Aboard Florida's competition also benefit from tax-exempt bonds.

The report by Friedman, who was special assistant to the President for Economic Policy at the National Economic Council in the White House from 2013-2014, has been sent to Peter Rogoff, USDOT undersecretary of transportation policy, according to CARE.

The organization has asked USDOT to "carefully consider" the private activity bond approval as well as the project's cost impact on taxpayers, said CARE treasurer Brent Hanlon.

The USDOT awarded the project $1.75 billion in private activity bonding authority shortly before Christmas with the stipulation that the bonds be issued by July 1.

The USDOT was asked if it is reviewing the CARE study, and if it potentially has any bearing on the decision to allocate the PABs.

The agency said that because the authorization enables private entities to borrow from private investors, the investors are responsible for evaluating creditworthiness of the bonds.

The railroad needs to use a public conduit issuer; the Florida Development Finance Corp. board gave preliminary approval to act as the conduit last year, and still needs to finalize the deal as well has hold public hearings to comply with the Tax Equity and Fiscal Responsibility Act of 1982.

The FDFC currently does not have enough board members to complete the application approval process.

The board had two of the required five members as of Feb. 13, according to information obtained by The Bond Buyer through a public records request. State law requires a five-member board appointed by the governor and confirmed by the Florida senate.

Former board chairman Peter Tesch, one of the two board members identified by the FDFC, said he resigned as of Jan. 1.

All Aboard Florida still plans to use the FDFC to issue its bonds even though there are governance issues.

"Once the administration appoints members to the finance board, we expect quick consideration of our application," Martenstein said.

Gov. Rick Scott’s appointment office is actively reviewing new board appointments, Scott spokesman John Tupps said. Tupps also said the governor received Tesch’s resignation on Tuesday.

The All Aboard Florida project is still waiting for final approval from the Federal Railroad Administration, which is the lead agency for an evaluation required by the National Environmental Policy Act.

On Feb. 17, commissioners in Indian River and Martin counties approved using $4.1 million in public funds to oppose All Aboard Florida, including potentially using the funds to take legal action.

The train will run through those counties using Florida East Coast Railway tracks, but no stops are planned there.

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