WASHINGTON – All Aboard Florida’s eligibility to use of $1.75 billion in tax-exempt private activity bonds to help finance its Brightline passenger rail service came under fire from Republicans at a House oversight hearing Thursday.

Rep. Gerald Connolly of Virginia, the only Democrat to attend the hearing by the House Oversight and Government Reform Subcommittee on Government Operations, said he was neutral about the project.

Rep. Mark Meadows, R-N.C. chairs the House Oversight and Government Reform Subcommittee on Government Operations
Rep. Mark Meadows, R-N.C. chairs the House Oversight and Government Reform Subcommittee on Government Operations
Brian Tumulty, The Bond Buyer

But Connolly said the controversy showed the difficulty President Trump will have selling his plan to spur $1.5 trillion in infrastructure investment over the next 10 years by relying significantly on private investment and the expansion of PABs.

“What we have here is a local dispute,” said Connolly, noting that the opponents are contesting the project’s eligibility for PABs as a way to stop it.

Trump's plan “could also be stopped in a similar way,” and the loudest critics are members of the president’s party, Connolly said.

Although the 235-mile rail project from Miami to Orlando is being private financed, there is federal involvement because the PABs were approved by the U.S. Transportation Department.

The first $600 million in PABs for phase 1 of the project between Miami and West Palm Beach were approved in November 2017. Phase 2 completing the service to Orlando received approval for $1.15 billion in PABs in December 2017, with an expiration date of May 31, 2018, for their issuance.

Because the PABs are exempt from federal taxes, the investors will save an estimated $250 million over the first 10 years, according to All Aboard Florida. One of the lawsuits estimated the savings in a higher range of $350 million to $600 million.

Rep. Mark Meadows, R-N.C., who chaired Thursday’s hearing, was joined by two Florida Republican lawmakers who aren’t members of the committee in criticizing DOT for approving the PABs.

Meadows questioned how a passenger rail project that runs at a top speed of 110 mph, shy of the 150 mph requirement to qualify for high speed rail PABs, could get approved under the PAB category for qualified highway and surface freight transfer facilities.

Meadows accused the project of “circumventing” the intent of Congress.

An official of the U.S. Department of Transportation said it was because the rail project was using $9 million in state funding for rail crossing safety improvements that fell into that category of PABs.

The North Carolina Republican stressed that he’s a big supporter of PABs and would have opposed the tax overhaul enacted in December if they had been terminated.

Patrick Goddard, president and chief operating officer of All Aboard Florida
Patrick Goddard, president and chief operating officer of All Aboard Florida Brian Tumulty, The Bond Buyer

Republican Reps. Bill Posey and Brian Mast of Florida raised safety issues and said that requiring local governments to maintain grade crossing represented an unfunded mandate.

Patrick Goddard, president and chief operating officer for All Aboard Florida, said his company is paying for all the upgrades to grade crossing that are required by the federal government.

The responsibility for grade maintenance belongs to local governments under longstanding contracts they have had with previous owners of the rail line, Goddard said.

Those contracts were signed with Florida East Coast Railway dating back to years before many of the existing roads were built, according to Dylan Reingold, county attorney for Indian River County.

“It is an unfunded mandate on the backs of local governments,” Reingold testified. The estimated maintenance cost to Indian County through 2030 is $8.2 million, he said.

Goddard agreed that All Aboard Florida will respond to Meadow’s committee within 45 days with an explanation of the company will address community concerns about maintaining grade crossings.

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