Part 1: Hedge Fund Railroad: The Truth about ‘All Aboard Florida’
In 2007, Fortress Investment Group, a multinational, financial investment firm, which, as of December 2013, has over $61 billion in assets under management, purchased two Florida-based companies: Flagler and Florida East Coast Railway. Flagler is largely a holding company for real estate, which includes a railroad corridor that runs along Florida’s east coast, from Miami to Jacksonville. Florida East Coast Railway operates rail service, transporting freight between the Port of Miami, Port Everglades and Jacksonville.
From these and other investments, Fortress now owns a massive shipping, infrastructure and rail conglomerate called Florida East Coast Industries (FECI), LLC. Among the companies under this umbrella is All Aboard Florida, which is FECI’s only consumer business.
All Aboard Florida is a high-speed passenger rail service between Orlando and Miami that is scheduled to begin operating in 2015. Initially, the service was going to offer many stops along the way, but as the company’s plans crystalized, many along the rail corridor have learned that the train would merely be going through, rather than to, their area.
FECI owns the rail lines and rights of way along the proposed route for the new passenger service. Flagler acquired the land for the rail corridor in the late 1800s and, as Florida’s coastal communities developed, they local governments were granted the right to build and maintain road crossings to traverse the corridor’s train tracks. Today, this arrangement is still in place, so, provided their projects meets building code and land-use requirements, it’s perfectly within FECI’s right to expand and upgrade its rail service. However, as the launch of the passenger service approaches, Flagler’s old arrangement is causing new problems.
County and city taxpayers are responsible for upgrades and maintenance to the rail crossings. When the regional planning groups approved this project, they understood that passenger trains would be stopping in their area, bring tourists and providing a valuable service to their residents. Then, FECI disclosed that the trains would only be stopping in Miami, Fort Lauderdale, West Palm Beach and Orlando. The cities and counties in between were left with large, ongoing costs and no benefits.
Despite growing anger and frustration in areas that will not benefit from the 32 high-speed trains going by each day, there is little recourse available, if the facts about FECI and Flagler’s legacy arrangement are true. Or is there?
All Aboard Florida makes a point of describing itself as a “private company”, perhaps as a means of preempting challenges to its property rights. However, a private company, whose projects are not privately funded, is not the same thing and does not enjoy the same privacy rights as a private company.
As it turns out, despite FECI’s enormous wealth, the vast majority of their projects and those that their projects depend on to be successful are highly subsidized by federal, state and local government taxpayers. For example,
- It’s hard to have a successful passenger rail service without a train station. The passenger line’s terminus in Orlando will be entirely paid for by Florida taxpayers to the tune of $230 million.1
- According to Progressive Railroading, In November 2013, the U.S. Department of Transportation awarded a $14 million Transportation Investment Generating Economic Recovery (TIGER V) grant to FDOT to cover a portion of the project for FECI.2
- Because the railroad needs to connect to other public transportation to be useful to consumers, FECI’s value is dependent on its ability to link to South Florida Rapid Transit Authority (SFRTA) lines at South Florida stops. Fortunately, the taxpayers spared FECI from having to make that investment as well by committing $600 – 800 million of their own money to expand SFRTA and connect the two lines.3
- In an attempt to offset some of the costs to local governments along the rail corridor for the rail crossing upgrades, the Florida legislature allocated $10 million in the 2014 – 2015 budget. Now all Floridians are helping to pay for rail service most cannot use. Unfortunately, the upgrade estimates for just one county,Broward, are over $13 million, so the small appropriation from Tallahassee is not going to have much of an impact on the cost for Broward and the other five counties involved.4
- All About Florida, as its own entity, a limited liability corporation (LLC), has applied for federally subsidized Railroad Rehabilitation & Improvement Financing (RRIF) loan for about $1.5 billion in taxpayer money. These loans do not require the borrower to provide collateral.5
Why all the subsidies? Find out in the next segment: Was it ever about passenger rail? Connect the dots…and the ports.
Part 2: Was it ever about passenger rail? Connecting the dots … and the ports
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