USDOT properly authorized bonds for Virgin Trains USA, appellate court says

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The U.S. Department of Transportation properly determined that Florida’s privately owned passenger train project qualified to use federal private activity bonds, according to the U.S. Court of Appeals for the District of Columbia.

In a unanimous decision penned by Senior Circuit Judge Harry T. Edwards on Dec. 20, the appellate court said that Indian River County, Florida, had standing to bring its complaint challenging the USDOT’s allocation of PABs for Virgin Trains USA and to contest the project’s environmental impact statement, or EIS, as part of the National Environmental Policy Act review process.

The county, however, failed to prove that Virgin Trains improperly benefited from federal funds allocated under Title 23, the federal code defining the projects eligible for credit assistance that USDOT used to determine that the passenger train project was qualified for PAB financing.

“We hold that DOT permissibly and reasonably determined that the project qualifies for tax-exempt PAB financing [and] we also hold that the EIS for the project adheres to the commands of NEPA,” Edwards wrote in a 32-page decision.

Virgin Trains declined to comment on the appellate court's decision. The USDOT didn’t immediately respond to a request for comment.

Indian River County spokesman Brian Sullivan said the county is studying the Dec. 20 ruling.

“The county is disappointed in the D.C. Circuit’s decision and is currently reviewing the opinion to determine what the next steps in the process will be,” Sullivan said.

The appellate ruling confirmed findings by U.S. District Judge Christopher Cooper in a Dec. 24, 2018 decision, in which he granted motions for summary judgment sought by the USDOT and Virgin Trains USA, also known as Brightline and All Aboard Florida.

Cooper’s decision cleared legal obstacles for the PABs at the federal district court level, which led to the sale of bonds through the Florida Development Finance Corp. as the conduit issuer.

Since federal litigation over the project began in 2015, the USDOT has authorized three tranches of tax-exempt PABs — $600 million issued in 2017; $1.15 billion issued in April; and $950 million issued in June. The $600 million of bonds issued in 2017 were redeemed in conjunction with the April sale.

The appellate panel consisting of Chief Judge Merrick B. Garland, Judge Sri Srinivasan, and Edwards heard oral arguments in September.

The panel endorsed the District Court’s opinion, calling it “an impressively thorough and thoughtful examination of the record.”

“The bottom line is that the final EIS,” the appellate justices concluded, “clearly complies with the requirements of NEPA.”

Indian River County could appeal the ruling to the U.S. Supreme Court, though its battle with Virgin Trains/Brightline isn't over.

The county also filed a lawsuit in January asking a circuit judge in Florida to determine who is liable for funding railroad crossing improvements needed for the private passenger train.

Duval County Judge Katie Dearing is being asked to determine if the train can benefit from the county’s 31 at-grade highway crossing agreements with Florida East Coast Railway, which granted train owners an easement to use its tracks.

FECR is owned by Grupo Mexico.

At issue in the complaint is who will pay for “substantial” safety improvements and upgrades to the tracks to support 32 daily passenger trains that will run at speeds up to 110 mph through Indian River County, the 13-page suit said.

The county said it hasn’t agreed to make any changes in its crossing agreements with FECR that would allow Virgin Trains/Brightline to use the tracks. Both Brightline and FECR are named in the suit.

Indian River County Attorney Dylan Reingold said in January that public statements by Brightline and FECR made it clear that the two companies expected Indian River County taxpayers to pay for the installation and maintenance of Brightline’s highway-railroad crossing safety improvements “forever,” an obligation that he said is unacceptable.

The costs, Reingold said, are why the county refused to sign amendments to the existing crossing agreements with FECR to allow the passenger train to be a third-party beneficiary to the agreements.

The suit for declaratory relief is requesting that the court find that neither Brightline nor FECR can charge Indian River County for construction and maintenance costs needed for the passenger train. The county is seeking relief valued in excess of $10 million.

In November, Virgin Trains said it achieved record ridership surpassing the 100,000 mark for the first time since service began in January 2018 between West Palm Beach and Fort Lauderdale. Service to Miami was added four months later.

“For the month ended Nov. 30, 2019, we carried 100,627 passengers and generated total revenues of approximately $2.2 million, an increase of 25% and 50%, respectively, over the prior year period,” the company said in its monthly ridership and revenue report.

Virgin Trains said its average ticket fare was $17.54 for the month and ancillary revenue totaled $0.4 million.

“On a 2019 year-to-date basis, we carried a total of 885,114 passengers and recognized $19.2 million of total revenues, an increase of 84% and 147%, respectively, over the prior year period,” the report said.

Virgin Trains said growth in ridership is expected with the construction of new train stations in south and central Florida, and the extension of service between West Palm Beach and Orlando, which is expected to commence in 2022.

Some new train stations have generated controversy because they rely on public funding for the privately owned project.

On Dec. 10, the Boca Raton City Council approved a $1-dollar-a-year lease agreement for a 1.8-acre city owned site where Virgin Trains will build a new station in the city’s primary business and shopping district. The agreement provides more than $11 million in city funding for the design and construction of a 455-car parking garage for train riders and the public. Virgin and Boca Raton will split the parking revenues.

Virgin Trains has also inked publicly subsidized train station deals with Miami-Dade County.

In October, Miami-Dade County approved an agreement to allocate up to $77 million of public funding for land acquisition and construction of a train station, parking and rail infrastructure for a stop at Aventura Mall, which sees about 28 million shoppers annually.

Also in October, Miami-Dade County Commissioners approved a memorandum of understanding with Virgin Trains for the construction and operation of new train station at PortMiami, often called the largest cruise port in the world.

Virgin Trains said negotiations on a definitive deal are underway and a final vote by county commissioners on the development agreement and $5 million grant is expected in January.

“We believe the three new south segment stations…will contribute over two million incremental annual passengers once ridership at these stations ramps up and stabilizes,” the company said in the November report. “In total, the three new in-line stations will involve the investment of approximately $120 million between Virgin Trains and local governments, of which approximately $90 million will be contributed through grants and government contributions.”

Company officials have said they plan to replace Brightline logos on trains and other facilities with the Virgin Trains USA name in 2020.

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