Brightline, DOT argue against Supreme Court review of bond financing

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Municipal bond financing takes center stage in briefs filed to the Supreme Court by the U.S. Department of Transportation and Brightline, Florida's privately owned passenger rail project.

Both briefs argue, in detail, about how federal tax-exempt private activity bonds have been properly authorized to help finance the construction of the train system's 235-mile route between Miami and Orlando International Airport.

The Florida company that owns the Brightline passenger train line argues that the U.S. Supreme Court should not grant Indian River County's request for a writ of certiorari.

Brightline, which recently terminated a branding agreement with Virgin Trains USA, is owned by AAF Holdings LLC.

The company, which began running passenger trains between Miami and West Palm Beach in 2018, stopped service in South Florida on March 25 because of the COVID-19 pandemic's "unprecedented impact on travel activity," according to a market notice.

Both the USDOT and Brightline argue in Aug. 21 filings that the U.S. Supreme Court should deny Indian River County's request for a writ of certiorari.

The county is asking the high court to review a federal appeals court's December 2019 determination that the USDOT "permissibly and reasonably determined" that the project qualified for PAB financing.

Indian River County has exaggerated the importance of its case to the Supreme Court because the federal code authorizes exempt facility bonds for qualified highway or surface freight transfer facilities, AAF Holdings argues in its 44-page filing.

The code "authorizes the Secretary of Transportation to allocate tax-exempt bonds with an aggregate face value of $15 billion to qualified highway or surface freight transfer facilities,” the brief said. "Most of that $15 billion has already been allocated."

When the balance has been doled out, the section of the code referring to highways or surface freight facilities "will be a dead letter absent further legislative action by Congress," it said.

Of the $15 billion authorized by Congress, $14.4 billion of PABs have been issued or allocated, according to the USDOT's Build America Bureau website.

The USDOT authorized three separate PAB allocations totaling $2.7 billion for the AAF-Brightline project. The bonds were sold by conduit issuer Florida Development Finance Corp. on behalf of the train owners.

The USDOT's website said $1 billion of PABs has been allocated for the Virgin Trains West Expansion Passenger Rail Project, which is now known as XpressWest, a Brightline Company.

The XpressWest project consists of a high-speed passenger train running about 185 miles between Las Vegas and Victorville, California. The California Infrastructure and Economic Bank has approved $3.25 billion of PABs for project financing, which includes $850 million of the USDOT's allocation.

In its brief to the Supreme Court, the USDOT said the appeals court correctly rejected Indian River County's contention that Transportation Secretary Elaine Chao exceeded her authority by allocating PABs to the project.

The appellate decision doesn't conflict with any prior decision of the Supreme Court and "does not implicate any lower-court conflict that might warrant this court’s review," the USDOT said, urging justices to reject the county's request for a writ.

Indian River County is on the east coast of Florida, where county commissioners and many residents believe the train — which won't stop there — poses a safety hazard running through their downtowns.

County attorney Dylan Reingold said Tuesday that a reply to the USDOT and AAF Holding's briefs will be filed the week of Sept. 7. Justices are expected to consider the writ request during their Sept. 29 conference, and a determination may be released by the court on the Monday after the conference, he said.

Few writs of certiorari are granted by the high court.

Even if Indian River County's writ request is denied, its litigation over the passenger train project will continue.

In January 2019, the county sued Brightline and Florida East Coast Railway LLC in state court, asking a judge to determine who is liable for funding railroad crossing improvements needed for the passenger trains.

The lawsuit will determine if the train’s private owners can benefit from the county’s 31 at-grade highway crossing agreements with Florida East Coast Railway, which granted Brightline an easement to use its tracks.

FECR is owned by Grupo Mexico.

At issue, the complaint says, is who will pay for “substantial” safety improvements and upgrades to the tracks to support Brightline’s 32 daily trains that will run at speeds up to 110 mph through Indian River County.

The county said in its filing that it hasn’t agreed to make any changes in its crossing agreements with FECR that would allow Brightline to use the tracks.

The lawsuit was originally filed in the 19th Judicial Circuit Court for Indian River County, but several months later it was transferred to the Fourth Judicial Circuit Court in Duval County where FECR maintains an office in Jacksonville.

The litigation moved slowly for much of 2019, then stalled when courts shut down because of the pandemic. A deposition in the case was scheduled via Zoom video conferencing in June, according to the court docket. There have been no entries since.

"The coronavirus has slowed the Jacksonville case, but the parties will be meeting soon to set a schedule," Reingold said.

The circuit court case number is 2019-CA-003051.

Although the passenger train isn't running in South Florida, the company said work continues building the infrastructure to extend train service West Palm Beach to Orlando International Airport.

All material permits and government authorizations have been obtained for the project, the company said in a monthly construction report posted on the Municipal Securities Rulemaking Board’s EMMA filing system Aug. 20.

"Construction and development on the Orlando extension is largely unaffected and we anticipate no adverse impact due to COVID-19 on [the] timeline," the report said, noting that it is considered an essential project by the state of Florida. "We continue to progress aggressively on all construction activity with over 750 construction personnel employed on the project."

The company said it expects to complete construction and begin revenue service in 2022.

AAF Holdings is a subsidiary of Florida East Coast Industries LLC. AAF and FECI are owned by Fortress Investment Group LLC, which was sold to Japan’s SoftBank Group Corp. in December 2017.

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Transportation industry Private activity bonds Lawsuits Florida Development Finance Corp. DOT Florida Washington DC