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Indian River County v. Rogoff

United States District Court, District of Columbia

June 10, 2015

INDIAN RIVER COUNTY, et al., Plaintiffs,
v.
PETER M. ROGOFF, et al., Defendants. MARTIN COUNTY, FLORIDA, et al., Plaintiffs,
v.
DEPARTMENT OF TRANSPORTATION, et al., Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, District Judge.

Indian River County and Martin County are located on the Atlantic coast of Florida, south of Orlando and north of Palm Beach. Along their ocean boundaries runs the Florida East Coast Railway, which was established in the 1880s and served as both a commuter and freight rail corridor until it ceased passenger service in the 1970s. AAF Holdings, LLC ("AAF"), a subsidiary of the private equity and asset management firm Fortress Investments Group, aims to renew passenger service along the corridor by constructing and operating an express railway between Orlando and Miami. Although the project, dubbed All Aboard Florida, will be privately owned and operated, AAF has sought public assistance to finance construction of the Orlando to West Palm Beach segment of the line. Among other sources of financing, AAF requested that the United States Department of Transportation ("DOT") exempt from federal taxes, subject to certain conditions, $1.75 billion in private activity bonds, or "PABs, " to be issued by a Florida development agency. AAF would be solely responsible for marketing and repaying the bonds.

Indian River and Martin Counties contend that construction and operation of the railway will cause a variety of environmental harms to them and their residents. The Federal Railroad Administration ("FRA") is currently conducting an environmental review of these potential environmental effects. The counties allege that DOT's authorization of the tax exemption prior to the completion of the ongoing environmental review violated the National Environmental Policy Act ("NEPA") and will slant the review towards approval of the railway as currently proposed. They also contend that the project does not qualify for tax-exempt financing under the applicable federal statute. Because the bonds may be issued as early as this month, the counties have moved for a preliminary injunction vacating DOT's authorization of the tax exemption.

DOT and AAF, which has intervened as a defendant, mount several defenses to the counties' motion. They first contend that the counties lack standing. They argue that because AAF would proceed with the project with or without the tax-exempt bonds, the counties' alleged injuries are not traceable to DOT's actions and would not be remedied ("redressed" in standing terminology) by the requested injunction. They also contend that the counties' alleged injuries are not irreparable as required for a preliminary injunction. Moving to the merits of the suit, the defendants assert that DOT's PAB authorization is not a "major federal action" triggering NEPA requirements due to the indirect nature of the tax benefit and the overall lack of federal control over the project's permitting and operations. Finally, the defendants insist that DOT acted within its statutory authority in granting the tax exemption.

The Court is mindful of the vigorous debate in Central and South Florida over whether the express railway should be built. But the relative merits of the project are not for this Court to decide. The questions currently before the Court are whether the counties have established standing to bring their suit and, if so, whether the relatively limited ongoing federal involvement in the project implicates the environmental statutes upon which plaintiffs have based their lawsuit. After careful review of the law and the evidence put forward by the parties, the Court concludes that the counties have stumbled at the threshold of standing. They have not, in the Court's view, met their burden at this stage of the case to establish that enjoining DOT's authorization of the PABs would significantly increase the likelihood that AAF would abandon the project. Nor have they shown that the bond issuance would tilt the FRA's ongoing environmental analysis towards AAF's preferred routing of the railway. The Court will therefore deny the counties' motions for a preliminary injunction.

I. Background

A. The All Aboard Florida Project

AAF Holdings LLC seeks to develop a 235-mile express railway that will carry passengers between Miami and Orlando with stops in Fort Lauderdale and West Palm Beach. According to AAF, the All Aboard Florida Project will "capitalize on the efficiencies and environmental advantages that trains enjoy over other modes of transportation" to provide less expensive and more convenient transportation options for both commuters and tourists travelling between the Orlando-area theme parks and the beaches and cruise ship terminals of South Florida. Declaration of AAF President Michael Reininger ("Reininger Decl.") ¶ 13; Supplemental Reininger Declaration ¶ 6. The project has been divided into two phases. In Phase I, AAF intends to provide rail service between West Palm Beach, Fort Lauderdale, and Miami. Indian River Ex. 1 ("Draft EIS") at S-1. It is constructing new stations in those cities, adding a second track along the railroad corridor currently used for freight carriage by the Florida East Coast Railway ("FECR"), and purchasing five train sets to conduct 16 round-trips a day. Id. Phase I has received private funding and is in development. Id. AAF and the FRA, an agency of the Department of Transportation, reviewed the environmental impact of Phase I and issued a Finding of No Significant Impact. Id. In Phase II of the project, AAF seeks to expand the line from West Palm Beach to Orlando. Id. at S-2. To accomplish the extension, AAF plans to add a second track to the FECR corridor between West Palm Beach and Cocoa, then construct a new railroad line alongside a state road inland to Orlando International Airport, where it will build a maintenance facility. Id.

AAF represents that the project will result in significant economic and environmental benefits. A 2014 economic report commissioned by AAF claims that the line's construction and operation will result in an economic impact of $6.4 billion and generate $653 million in federal, state, and local tax revenue. Reininger Decl. Ex. D. Washington Economics Group, Economic Impacts of the All Aboard Florida Intercity Passenger Rail Project (May 20, 2014) at 4. It estimates that construction will create over 10, 000 jobs per year between 2014 and 2016, and that operation of the railway will provide 5, 000 jobs on average per year through 2021. Id. at 9. AAF also predicts that the project will alleviate traffic along the overburdened Interstate 95, which runs parallel to the FECR corridor between Cocoa and Miami, as well as reduce air travel between the cities along the route. Reininger Decl. ¶¶ 27-28. According to AAF, the project will also improve the safety features of the FECR corridor and mitigate noise and vibration caused by passing trains. Id. ¶¶ 34-37.

B. Funding and Environmental Review of the Project

Not surprisingly given its scope, the costs of the project are expected to be substantial. AAF currently estimates the cost of both phases at over $2.9 billion, along with $600 million for the purchase of land and easements. Id. ¶ 20. Thus far, AAF and its parent company-which is owned by private equity funds controlled by Fortress Investments Group-have spent over $240 million on development and construction, have committed to spending an additional $160 million, and anticipate committing a further $400 million in the future. Id. ¶ 64. They have also spent $600 million to purchase land and easements for the project and have escrowed $405 million in high-yield private debt to cover any gaps in funding. Id.

To fund Phase II of the project, AAF applied for $1.6 billion in federal funds through the Railroad Rehabilitation and Improvement Financing program ("RRIF"). RRIF is both a loan and loan guarantee program administered by the FRA for the development and improvement of railroad tracks, equipment, and facilities. 49 C.F.R. § 260.5. RRIF loans are subject to NEPA review of the proposed project's environmental effects. 49 C.F.R. § 260.35. FRA is acting as the lead agency in preparing an Environmental Impact Statement ("EIS") and Record of Decision ("ROD") to determine the environmental effects of Phase II prior to making a final determination as to AAF's loan application. Draft EIS at S-1. FRA, in cooperation with the U.S. Army Corps of Engineers, U.S. Coast Guard, and Federal Aviation Administration, issued a draft EIS in September 2014. Id. The draft EIS identified the primary objective of the project as "[p]rovid[ing] a reliable and convenient intercity rail service between Orlando and Miami... that is sustainable as a private commercial enterprise." Id. at S-5. Against that objective, the draft EIS evaluated a number of alternative routes to connect the Orlando and West Palm Beach stations, as well as a "no action" alternative. Several alternatives were then eliminated as infeasible, based largely on the lack of existing rail infrastructure and the high cost of acquiring private land. The remaining alternatives vary primarily based on how they will follow the state road from Orlando International Airport to Cocoa. Id. at S-5 to S-8. The draft EIS analyzed a wide range of potential environmental and other consequences of the project, id. at S-22 to S-23, and proposed numerous measures to mitigate adverse effects, id. at 7-1 to 7-14. With these mitigation measures in place, the draft EIS concluded that "the combination of the AAF Passenger Rail Project impacts with other impacts would not result in serious deterioration of environmental functions or exceed applicable significant thresholds." Id. at S-21. FRA has not issued a Final EIS or a Record of Decision, nor has it made a determination as to AAF's loan application under the RRIF program.

While the RRIF application process was ongoing, AAF requested that DOT exempt from federal taxes $1.75 billion in PABs to finance the remainder of the project. Reininger Decl. Ex. F, letter from Michael Reininger to Paul Baumer, Office of Infrastructure Finance and Innovation, DOT (Aug. 15, 2014) ("PAB Request"). PABs are bonds issued by state or local government agencies to finance projects of public utility. Under Section 11143 of Title XI of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA-LU"), Pub L. 109-59 (2005), DOT may designate up to $15 billion in PABs as tax-exempt in order to encourage private development of certain types of transportation projects by giving project owners access to lower-interest debt than might otherwise be available. Reininger Decl. Ex. G. The PABs at issue here would be issued by the Florida Development Finance Corporation ("FDFC"), a Florida development agency, and then sold to investors by AAF, which would be solely responsible for the repayment obligation. Reininger Decl. ¶ 46. The FDFC scheduled a meeting for May 28, 2015 to approve or deny the PAB issuance, but the meeting has been delayed until mid-June. Id. ¶¶ 54, 65. AAF may begin selling the bonds as soon as it receives authorization from the FDFC. AAF's application letter to DOT described the PAB financing as "the linchpin for completing our project" and "a crucial factor in ensuring our project is financed and completed." PAB Request at 1. The letter explained that AAF would use the bond proceeds "across the length of [the] passenger rail system, including the Miami-to-West Palm Beach segment." Id. The bond proceeds also would be used to pay off the $405 million in debt AAF had already obtained, as the company was concerned that investors would be unreceptive to a loan structure in which "existing high-yield financing would remain in-place alongside the newly issued debt." Id. at 1-2. The letter concluded: "we are fully committed to deploying the time, energy and resources necessary to complete this project.... The private activity bonds... will enable us to bring a safe, efficient, cost-effective and environmentally friendly transportation alternative to South and Central Florida." Id. at 2. AAF has represented to the FDFC that none of the bond financing will be used for work within Indian River County or Martin County. Reininger Decl. Ex. I.

DOT provisionally authorized the requested $1.75 billion PAB allocation in December 2014. Reininger Decl. Ex. H, Letter from Peter M. Rogoff, Under Secretary of Transportation, to Michael Reininger (Dec. 22, 2014). The authorization came with several conditions, including that: (1) the bonds must be issued by July 1, 2015 or DOT's authorization automatically expires; (2) "regardless of whether [AAF] pursues the RRIF [loan] application, ... [it must] facilitate FRA's completion of the environmental review process;" (3) AAF cannot "use the bond proceeds until 45 days following the issuance of the Final [EIS;]" and (4) AAF must "complete and implement the measures specifically set forth in the EIS... to avoid, minimize, or ...


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