April 19, 2018 

The House Subcommittee on Government Operations held a hearing today to examine All Aboard Florida’s (AAF) use of private activity bonds (PABs) to help finance the first and second phases of Brightline, its new Florida-based passenger rail system.

At issue was whether AAF was eligible for the tax-exempt bonds. PABs are only available to a list of specific types of projects, and Brightline did not meet the criteria for high-speed rail as it will not reach speeds in excess of 150 mph as it takes passengers from Miami to Orlando (with stops in Fort Lauderdale and West Palm Beach).

However, DOT approved the two bond allocations—$600 million to fund Phase I connecting Miami to West Palm Beach, and $1.15 billion to fund Phase II extending the line northwest to Orlando—late last year under the eligibility expansion provision included in the  Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) enacted in 2005. That provision added highways and freight transfer facilities to the types of privately developed and operated projects for which PABs may be used.

Neither of those sounds like a passenger rail line. And during an at-times tense two-hour hearing, the debate largely came down to how SAFETEA-LU and DOT’s interpretation thereof defines “qualified highway or surface freight transfer facilities.”

On one side of the debate were subcommittee chairman Mark Meadows (R-NC) and Congressmen Brian Mast (R-FL) and Bill Posey (R-FL). (Mast and Posey both represent districts in Brightline’s path in Phase II). On the other side were AAF President and CEO Patrick Goddard and Deputy Assistant Secretary for Policy at DOT Grover Burthey, who oversees the offices that manage the PAB program.

First, the facts. The law reads (relevant portion emphasized):

“For purposes of subsection (a)(15), the term `qualified highway or surface freight transfer facilities’ means–

1. any surface transportation project which receives Federal assistance under title 23, United States Code (as in effect on the date of the enactment  of this subsection),
2. any project for an international bridge or tunnel for which an international entity authorized under Federal or State law is responsible and which receives Federal assistance under title 23, United States Code (as so in effect), or
3. any facility for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities directly related to such transfers)which receives Federal assistance under either title 23 or title 49, United States Code (as so in effect).” (Title XI, Section 11143)

The three legislators took issue with DOT’s assessment that Brightline counts as a “surface transportation project which receives Federal assistance under title 23″ (highways).

Surface transportation project. Chairman Meadows said that Transportation Sec. Elaine Chao would disagree with Burthey’s definition of surface transportation as including rail projects. (I cannot find a specific example of her defining surface transportation, though in her May 2017 testimony to the Senate Committee on Environment and Public Works, she did seem to use surface transportation and highways interchangeably.)

But it’s not just Burthey, and in fact we see several recent examples of both the legislative and executive branches defining surface transportation more broadly: The Fixing America’s Surface Transportation (FAST) Act, for example, included money for rail improvements (including highway-rail grade crossings, which were another common topic at this hearing, but also rail-specific programs like grants to Amtrak and commuter rail safety inspections). And the Surface Transportation Board, which was taken out from underneath DOT’s umbrella and made an independent federal agency in 2015, is charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers. Even TSA’s surface transportation page includes sections on freight and passenger rail.

So, it seems that Burthey’s office is on safe ground in defining “surface transportation” to include rail projects. But that doesn’t get to the more specific issue of…

Federal assistance under title 23. Title 23 is the portion of the U.S. Code governing federal aid, safety, and other matters related to highways. At issue here is the fact that several years ago, Florida East Coast Railway (FEC) received about $9 million in title 23 funding to improve highway-rail grade crossings along the corridor on which AAF is now building. But, as Rep. Mast pointed out several times, AAF and FEC are not the same company. So can AAF claim to have received title 23 funding – thereby making it eligible for PABs – just because title 23 funding was previously spent on underlying infrastructure that it now owns?

Burthey and Goddard say that it can; the three Republican Members disagreed. Mast went so far as to call DOT’s interpretation “an affront to the American taxpayer” and later accused the two of “using double-speak… where everyone is labeling this train something it’s not.”

(Ranking Member Gerry Connolly (D-VA), the only Democrat to attend the hearing [the House was in recess for the rest of the week, aside from Thursday morning’s pro forma session], mentioned in his opening remarks that use of PABs should be “held to the statutory terms of Congress” but didn’t take a stance on this specific project.)

It was clear the Members and representatives from AAF and DOT were not going to find common ground on either point.

But, they don’t need to: there is already a lawsuit pending before the U.S. District Court for the District of Columbia, in which litigants say the $1.15 billion bond allocation for Phase II should be thrown out as “arbitrary, capricious, an abuse of discretion, in excess of statutory authority and otherwise contrary to law.” The court system will have to make the decision on whether AAF was indeed eligible for its PAB allocations.

This isn’t the first time Brightline has gone to the courts: the same counties sued in 2015 after DOT approved a $1.75 billion bond allocation for Brightline that would have helped fund both phases of the project. The counties argued that DOT approved the application before the necessary environmental reviews were complete. A year into that litigation, All Aboard Florida decided to instead pursue the separate, smaller bond allocations for each phase, and in late 2016 DOT withdrew its original approval and the judge dismissed the case. DOT simultaneously approved the smaller $600 million allocation for Phase I, and approved the $1.15 billion for Phase II a year later, in December 2017. The new lawsuit was filed in February 2018. As a result of the old lawsuit being dismissed, the larger question of eligibility was never settled.

Safety—and who should pay for it—another important topic

Joining Burthey and Goddard at the table were Robert Crandall, the legendary former CEO of American Airlines who is on the leadership team of Citizens Against Rail Expansion (CARE); Dan Wouters, Division Chief of Emergency Management for the Martin County Fire Rescue; and Dylan Reingold, county attorney for Indian River County. CARE and Martin and Indian River Counties are the complainants in the aforementioned lawsuit, but most of their remarks focused on public safety concerns surrounding Brightline, which will run through those and other counties without making stops.

Safety is a hot topic right now regarding the new rail line, as Brightline trains have struck and killed six people since initial service began this January.

Both Martin and Indian River counties have around 30 highway-rail grade crossings, and while both have had freight and/or passenger rail service before, Wouters and Reingold contended those trains were slower and less frequent. Brightline, they said, would pose a safety risk for motorists and pedestrians at those crossings, and would also result in more delays for emergency services trying to get around town.

Goddard pointed out that four years ago, AAF worked with the FRA and the impacted communities to go “crossing by crossing” and determine the proper safety instrument to implement at each crossing. But while AAF is footing the bill for installing those safety instruments, DOT expects the counties to pay for maintaining them. Reingold said that would cost Indian River County $8.2 million through 2030; Rep. Posey called this an unfunded mandate that was “a horrible injustice” to county taxpayers.

Past is prologue again here: FEC had a cost-sharing agreement for rail safety with the counties back when it ran its passenger rail service, and AAF seems to be piggybacking onto that. But, as Rep. Mast again pointed out, “FEC is not All Aboard Florida.”

No Easy Answers

Ultimately, neither of the major questions—on Brightline’s eligibility for PABs and whether communities should have to pay to maintain the rail safety improvements—were answered at the hearing. Though Goddard and Burthey both got some homework to supply more information to the committee on either issue, it is doubtful whether that will satisfy any of the concerns. While Phase I of Brightline is already complete, whether Phase II is able to move forward with the $1.15 billion PAB allocation likely comes down to what the courts decide.

Though, a seemingly exasperated Chairman Meadows remarked towards the end of the hearing that “I guess we need to change the law” to bring DOT’s management of the PAB program into line with Congressional intent.

(The law pertaining to PABs is part of the Internal Revenue Code, which is the jurisdiction of the House Ways and Means Committee, not of the Oversight and Government Reform Committee of which Meadows’ subcommittee is a subunit.)

Video of the hearing and written testimony can be found here.