Wednesday, April 25, 2018

Marco Rubio questions legitimacy of Brightline train financing

Posted By on Wed, Apr 25, 2018 at 3:19 PM

click to enlarge PHOTO VIA BRIGHTLINE
  • Photo via Brightline
On Tuesday, U.S. Sen. Marco Rubio raised questions about Brightline’s intension to sell up to $1.75 billion in federally authorized, tax-exempt private activity bonds to help fund the construction of its passenger rail service connecting South Florida to Orlando.

The Republican senator joins Reps. Brian Mast, R-Palm City, and Bill Posey, R-Rockledge, in this skepticism. Mast and Posey led a congressional challenge of the appropriateness of the bonds during a hearing last week of the U.S. House Subcommittee on Government Operations.

In a letter sent to the U.S. Department of Transportation, the Republican senator stated that “it is not clear” whether Brightline’s express trains meet the federal standards to qualify for the tax-exempt, private activity bonds, which are key to the service’s ability to fund the second leg of its project: new rail lines and safety upgrades between West Palm Beach and Orlando.

“When federal financing mechanisms are utilized, it is critical that the utmost transparency is provided to taxpayers,” Rubio wrote in the letter to U.S. Transportation Secretary Elaine Chao.

Rubio continued by saying Brightline’s “project has raised questions regarding whether federal financing was appropriately used. I urge the Department of Transportation to provide clarity as to the standards applied to determine tax-exempt funding mechanisms.”

The Palm Beach Post reports that Brightline has already sold $600 million in tax-exempt, private activity bonds to help fund its Miami to West Palm Beach service.

From the Post:
The company last year also won approval from the U.S. Department of Transportation to sell an additional $1.15 billion in tax-exempt bonds to help finance its second phase between West Palm Beach and Orlando. Brightline executives have said the bonds provide a lower-cost alternative to other financing options.

“Brightline, the nation’s only privately owned, operated and maintained intercity passenger rail system, is already solving mobility problems for southeast Florida and is poised to disrupt the nationwide transportation discussion and help transform the state’s infrastructure,” a Brightline spokesperson said Tuesday. “ By the federal statutory definition, Brightline qualifies and in combination with $1.5 billion of our own investment has created thousands of jobs and economic impact throughout the state of Florida.”

An amendment to Internal Revenue Code set aside $15 billion at the federal level for private activity bonds to pay for transportation projects, including high-speed trains that move up to 150 mph. Brightline’s trains will operate at a maximum speed of 125 mph.

Instead, federal transportation officials determined Brightline qualifies for the bonds because it fits the definition of a surface transportation project. 

In Rubio’s letter, which came just days after members of the congressional oversight committee raised similar concerns about Brightline's use of the bonds, he writes, "It is not clear that Brightline's proposal should have qualified for these funds."

He goes on to ask

– "Is DOT’s interpretation that any surface transportation project that utilizes Title 23 funds, no matter the dollar amount, would qualify for funding through private activity bonds?"

– "Is there precedent for other rail projects that did not meet the 150 mph threshold receiving funding?"

– "In the same vein, has DOT previously denied rail projects based on the 150 mph threshold not being met?"

Private activity bonds are tax-exempt bonds issued by local or state government to fund privately owned projects. According to the IRS's Publication 4078, these are 15 types of projects that meet the standard for these bonds, including "high-speed intercity rail facilities."

However, opponents of the Brightline project have alleged the bond amounts to a taxpayer subsidy for the rail service, although project officials have argued that neither taxpayers nor federal, state or local governments would be held accountable for the money if the project fails after all.

At the congressional committee hearing last week, Brightline’s president and chief operating officer Patrick Goddard said the company is also seeking a federal Railroad Rehabilitation & Improvement Financing loan to help afford the project. If bonds aren’t sold, the loan money could reportedly be used to help pay for Brightline’s extension to Orlando.

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