As the saying goes, “When a person with money meets a person with experience, the person with the money walks away with the experience and the person with experience walks away with the money.” This is especially appropriate in rail transportation deals.
In theory, Public-Private partnerships seem like a valuable tool for cities and other municipalities to utilize in making infrastructure investments. In practice, the public contribution and return are often difficult to measure and are less than the returns to the private partner.Think about it – Why would a private enterprise need a public partnership (our tax dollars) to fund and to develop a profitable business? Often the answer lies in managing risk, which means putting taxpayers at risk …
Storm clouds on the horizon
I am among many who favor the notion of a train station in Boca. This perhaps is the most important project to come to Boca in a long time. But, as we know, “the devil is in the details.” Why is it being rushed? The city is undertaking an extremely complex multi-million dollar negotiation with a railroad that has decades of experience. Our Mayor, city staff and Council Members are very good at many things, but they have zero experience in the economics of rail transportation. How can we be assured that these negotiations will end up being in the best interests of the taxpayers of Boca?
The big concern of many
Train operations are run by Virgin Trains USA Florida, LLC (“VTUSA”). Since beginning operations, the Company has continuously missed projected ridership and has accumulated losses in the millions. In January 2019, the Company pulled their IPO as the private sector indicated they did not have an appetite for the risk of the venture. Instead they looked to the public sector for financing and received $1.75 billion in revenue bonds from the Florida Development Finance Corporation in April 2019 to construct the rail system from West Palm Beach to Orlando and to extinguish $600 million in bonds previously issued in 2017. With staggering losses and mounting debt, it is only a matter of time until the VTUSA venture can no longer fund operations. So why would the parent company of VTUSA continue to fund this losing venture?
The answer lies in real estate deals.
As explained in our recent video segment Boca Deserves a Better Train Station Design, Virgin Trains and the Mayor Singer insist on locating the parking garage in the corner of the lot. By not placing it in its natural location in the center of the lot, they are purposely leaving space for a future Transit Oriented Development (TOD). To do that, the public land parcel would have to be rezoned. That rezoning for a TOD then becomes an off the record “perk” whose terms are not included in the current public facing documents. Similarly, future Virgin Trains TODs will benefit from the parking garage paid for by taxpayers. That is also an “off the record perk”.
Lastly, separate legal entities from VTUSA can very well acquire land zoned commercial or light industrial near proposed station sites. For an explanation of what’s already happening to local businesses next to the library, see our BocaMatters video segment: Will Brightline Development Run Over Small Businesses?
As part of the Public-Private partnership negotiations, local officials get lobbied to rezone the surrounding properties to mixed use/high-density residential. The acquired properties become instantly more valuable. These properties are then developed into cash generating TODs. Because these properties are owned in legal entities separate from the train operating entity, if VTUSA goes bankrupt there could be no recourse against the separate legal entities.
The bottom line burden of Brightline
Local cities pursuing rail transportation deals are being sold a story of reductions in traffic, increased workforce mobility and an influx of tourism. But Brightline is a boutique regional railway and lacks a steady economic base of commuter revenue. Also, its fares are out of reach for the middle class constricting its revenue potential. The risk for Boca Raton is that eventually, from a business standpoint, the parent company of VTUSA could stop funding the operating losses and when they do Brightline will become a burden of the Florida taxpayers while the parent company walks away with the profits from the real estate.