Florida Passenger Train Project Faces New Headwinds

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BRADENTON, Fla. – All Aboard Florida is assuring supporters of the private passenger train project that it will move forward despite the pending sales of its owner and an affiliate.

At the same time, AAF is warning that a bill being heard by state lawmakers could jeopardize plans to expand service from West Palm Beach to Orlando and beyond.

The new developments paint a murky future for the company as it plans to finance its initial route from Miami to West Palm Beach with $600 million of tax-exempt private activity bonds granted by the U.S. Department of Transportation.

Complicating matters further, the bond sale is on hold pending a final federal court ruling on suits challenging the PABs.

On Tuesday, Jacksonville-based Florida East Coast Railway Holdings Group – the freight train company that owns the tracks that AAF has agreements to use – announced an all-cash deal reportedly worth $2.1 billion to sell FECR to GMéxico Transportes S.A. de C.V., the transportation business unit of Grupo México.

GMéxico Transportes operates more than 6,200 miles of railway in Mexico.

Neither Florida East Coast Railway nor Grupo México responded to requests for comment about their plans for All Aboard Florida, which is a subsidiary of Coral Gables-based Florida East Coast Industries.

FECR and All Aboard Florida are affiliates owned by Fortress Investment Group LLC. Fortress was said to be exploring the spin-off of FECR last fall.

In February, Fortress announced that it had entered into a definitive merger agreement with Japan's SoftBank Group Corp. for approximately $3.3 billion in cash.

All Aboard Florida said in a statement Tuesday that the sale of Florida East Coast Railway will not impact the project, its agreement to use the railroad corridor or plans for its Brightline-branded train service.

"Brightline is a separate company that has dual ownership of the corridor and the right to operate passenger service," the statement said. "We have all shared operations-related agreements in place with the Florida East Coast Railway for us to fully build out and implement our passenger rail system."

The company did not respond to a question about whether the pending sale of FECR or Fortress would delay All Aboard Florida's ability to issue bonds for the Miami-to-West Palm Beach segment.

The bond sale has been delayed as the company waits for a final ruling in two federal court cases that sought to block All Aboard Florida from using public financing for the start-up venture.

Final arguments were filed in the case before U.S. District Judge Christopher R. Cooper on Jan. 30.

The USDOT and AAF have argued that the suits brought by two Florida counties should be dismissed.

Indian River and Martin counties, which have always contended their objective is to prevent the passenger trains from running through their heavily populated coastal areas, filed the federal suits in early 2015. The counties and other opponents of AAF have said they want the train route moved west of the coast, in less populated areas.

A change in AAF's financing strategy as the lawsuits proceeded was central to the counties' cases, and could lead Cooper to eventually dismiss the suits.

When the suits were filed, AAF had received a $1.75 billion PAB allocation and planned to use proceeds to finance construction between Miami and Orlando.

In a step designed to stop the legal challenge, AAF withdrew its application for the $1.75 billion of PABs, and received a $600 million authorization from USDOT to finance phase 1 of the project between Miami and West Palm Beach.

The second phase from West Palm Beach to Orlando, which passes through Indian River and Martin counties, currently has no PABs approved by USDOT, though AAF has said they will request that at a later date.

However, completion of phase 2 is in jeopardy, company officials say, because of bills pending in both chambers of the Florida Legislature which is just three weeks into a two-month annual session.

Both Senate Bill 386 and House Bill 269 propose to enact the "Florida High-Speed Passenger Rail Safety Act." The act would be Florida's first regulation of high-speed passenger train service.

"Clever opponents of the project are attempting to deceive legislators into taking a poison pill that will kill the future of passenger rail in Florida," Michael Reininger, the executive director of new development and growth opportunities at Florida East Coast Industries LLC, said in a newspaper opinion piece March 20.

His contention that All Aboard Florida could be derailed by the bills was echoed by a company colleague during the first hearing on SB386 on March 14.

"The bill unconstitutionally targets one company for extraordinary regulation," Rusty Roberts, vice president of government affairs for Brightline, told the Senate Finance Committee.

The sponsor, Sen. Debbie Mayfield, R-Melbourne, said the legislation establishes the framework for the future operation of all high-speed rail systems in the state.

Mayfield, who represents portions of Indian River and Brevard counties, said her bill is "not about a particular" company, though she mentioned All Aboard Florida and Florida East Coast Railway during her discussion on the measure.

The bill would give the Florida Department of Transportation the authority to regulate railroad companies operating a high-speed passenger rail system as long as those regulations are not preempted by federal laws.

State requirements that could be imposed as a result of the act include requiring that a railroad company install safety technology such as positive train control – an advanced system that automatically stops a train - and remote health monitoring technology capable of detecting crossing signal malfunctions and false crossing activations at crossings.

The bill would also require FDOT to adopt standards for the installation of fencing on both sides of the tracks to prevent pedestrians from crossing. A railroad company would be required to install and maintain the fence at its expense.

Companies operating high-speed passenger trains would be responsible for all rail corridor operation and safety improvements or upgrades, unless local governments or the state agree in writing to be responsible for those costs.

Roberts said that All Aboard Florida has already complied with "an unprecedented level of safety requirements" established by the Federal Railroad Administration, such as "sealed" corridors.

Sealed corridors are improvements "at-grade" crossings where streets, roads and pedestrian walkways intersect with trains. The improvements can include enhanced warning devices such as four-quadrant crossing gates and longer crossing gate arms.

There are hundreds of at-grade crossings along the east coast tracks that Florida East Coast Railway uses to ship freight.

FECR will share its tracks with All Aboard Florida's 32-daily Brightline passenger trains – a plan opponents criticize because of the mix of passenger trains with freight trains transporting hazardous materials such as liquefied natural gas.

SB386, which would take effect July 1, would require any company transporting LNG on the same tracks as a high-speed rail passenger train to submit to FDOT an annual report detailing insurance coverage, the trains carrying LNG, and information demonstrating the company's ability to "pay the costs of remediating a reasonable worst-case unplanned release of LNG," according to an analysis of the bill.

The regulations proposed by the bill would jeopardize AAF's ability to expand intercity passenger service train service across the state, Roberts told the Senate committee.

He said AAF designed its system to begin with service at the state's most populated metro areas in Miami, Fort Lauderdale and West Palm Beach to capture the "most number of riders," a plan that would provide the financial resources to support expansion to Orlando and beyond.

AAF has said it expects to begin service in late July between West Palm Beach and Fort Lauderdale, followed by service to Miami in late August.

Roberts said HB386's "onerous regulations threaten our ability to complete the planned connection to Orlando, and as a consequence will affect future expansion to Tampa Bay and a northeast extension to Jacksonville."

The Senate Transportation Committee voted 4-0 to pass the bill without debate. It is now waiting for further hearings to be scheduled by the Senate's community affairs and appropriations committees.

SB386 and HB269 are opposed by organizations such as the Florida Chamber of Commerce, the government watchdog group Florida TaxWatch, and several local governments in south Florida where train stations are being developed.

The National Association of Railroad Passengers has also opposed the legislation saying it amounts to "government intervention" into how a private railroad company can develop its property, which has long been an active railroad.

"These bills also blur the lines of federal and state authority with an ambiguous bill that penalizes both freight and passenger rail for doing business in Florida," NARP said in a March 8 letter to lawmakers.

On Tuesday, HB269 was temporarily postponed by the House Transportation and Infrastructure Subcommittee, which currently has no plans for further meetings.

Roberts said in a statement that the postponement meant that "overwhelming" opposition to the proposed law had an impact on lawmakers.

"We have been saying this bill is not about safety but an attack against private property rights and is targeting our company," he said. "Legislators are comprehending these facts and we are appreciative."

Citizens Against Rail Expansion, or CARE FL, issued a statement saying the group was disappointed that HB269 was not debated Tuesday, though they look forward to more discussion on it.

"All Aboard Florida is taking a victory lap today in its public statements, but its latest actions are nothing more than a special interest group flexing its political muscle in a desperate attempt to protect its profits," said CARE FL Chairman Brent Hanlon. "AAF continues to put the communities of South Florida on the hook for millions in upgrades to enhance safety measures and make a grab for taxpayer subsidies."

CARE FL has said it believes financing AAF with private-activity bonds amounts to a taxpayer subsidy because the federal government forgoes receiving tax payments on the securities.

The postponement of HB 269 by the first of three House committees required to consider it doesn't necessarily mean that the bill is dead. House leaders could revive it or the regulations could be tacked onto another bill.

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