Battle Over Florida's Private Train Reaches U.S. Supreme Court

The Department of Transportation and Federal Railroad Administration, along with the parent company of Florida’s privately run Brightline train, filed a brief last week in the U.S. Supreme Court. It's their response to an argument that $2.1B in private activity bonds to fund the train were issued illegally. Now, it’s up to the justices whether to take up the case.

Indian River County, Florida — where the train is slated to pass through, but not stop — sued the Department of Transportation, the Federal Railroad Administration and Brightline’s parent company, AAF Holdings, arguing that the train should not have qualified for the bonds. The municipality contends the lower courts have allowed it based on a convoluted argument by federal agencies.

Courts deferring to interpretations by federal agencies is a major problem, according to both the county and the Americans for Prosperity Foundation, which supported the petitioners in the case.

Friday’s filings by the federal government and AAF Holdings argue that funds were indeed properly issued and asks that the Supreme Court decline to take up the case.

So far the lower courts have relied on a case, Skidmore v. Swift & Co., for their reasoning. Indian River argues that with Skidmore, courts should give “respect” to an agency position, but not give up their own decision-making power and defer to the agencies.

In the case of Brightline, federal law allows the issuance of tax-exempt bonds to finance "qualified highway or surface freight transfer facilities." That term is defined to include "any surface transportation project which receives Federal assistance under title 23." Yet the train does not receive assistance under Title 23 and is not even eligible for it, the petitioners argued.

DOT has allowed that a project can be considered one “which receives Federal assistance under title 23” so long as it “benefits from” federal Title 23 expenditures. The court of appeals accepted DOT’s argument, allowing the railway to raise $2.1B in bonds to finance more than 160 miles of new track “because a freight railway with an adjacent track was awarded $9M in highway funds to improve railway-highway crossings.”

“This case reflects an extreme example — bordering on abdication of the judicial role — of deference to an agency’s informal interpretation of statutory text," Indian River's attorneys wrote. "It arises in a case with profound implications ... redirecting scarce federal resources to fund private commercial ventures that do not qualify for federal assistance.”

Americans for Prosperity Foundation submitted an amicus curiae brief in support of Indian River, arguing that courts continually deferring to federal agencies is unconstitutional and messes with the balance of powers. It has “put a thumb on the scale in favor of the nation’s most powerful litigant — the federal government — thereby rigging the game against the American people.”

Friday’s briefs argue that funds were indeed properly issued and the court had upheld them because “because Title 23 funds were ‘used to upgrade railway-highway crossings’ along the railway’s corridor, and ‘railroad grade crossings are part of a railroad ‘project’ on any ordinary understanding."

The filings note that the district court and a unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit already heard court challenges and decided in favor of the train. 

It says the county can’t “offer the Court a good reason to take this case, out of the hundreds of appellate decisions that invoke Skidmore each year.” 

The Supreme Court accepts about 100 to 150 of the 7,000-plus cases presented to it each year. Attorneys for both sides were contacted but did not comment. 

Some people have been skeptical about Brightline’s feasibility since it broke ground in 2014. The South Florida Business Journal reported in a July 24 story that Brightline initially said the train would be built in two years at a cost of $1.5B without taxpayer funding, but costs more than doubled.

Ridership is also far lower than projected: In 2019, the train expected 2.1 million passengers and $78M in revenue, but attracted just 1 million riders and $22.1M in revenue. To break even, it would need 360,000 monthly passengers — before it stopped operating in March due to the coronavirus, it was carrying about 130,000 per month.

Brightline also changed its operating plan. It first planned to offer high-speed service between Miami, Fort Lauderdale, West Palm Beach and Orlando, but is now planning five commuter stations in Miami. Brightline executives have long insisted that business will improve when service to Orlando begins, projecting that it could bring in $840M in annual revenue.

Richard Branson’s Virgin brand had for the past two years begun to rebrand the train as Virgin Trains USA, but that deal was severed by AAF and the business will now continue to operate under the Brightline name.

A planned IPO was scrapped in 2019. Mary Talbutt, lead fixed income portfolio manager for Stanley-Laman Group Ltd., told the Bond Buyer in an Aug. 12 story, "I have had no confidence in a rail line on the east coast of Florida." 

Over the years, critics of the train have speculated that the passenger train is a pretext for investors to make money on real estate deals around train stations; on transporting liquid natural gas, which is controversial; and on increased freight train runs once the track to Orlando is finished. 

Wes Edens, head of Fortress Investment Group — which owns the Florida East Coast Industries, which owns AAF, which owns the train — and the impetus behind the trains, has repeatedly said train travel in the U.S. presents a huge opportunity.

Brightline is also working on a line between Las Vegas and Southern California. According to Forbes, Edens has put more than $100M of his own money into the venture, projecting that train's ridership could reach 20 million passengers in 2026, with annual revenue of $1.6B and operating profit of almost $1B a year. The Supreme Court briefs filed last week emphasize that the trains could get millions of cars off the roads.