An Open Reply to the Palm Beach PostBy Tom Monahan

For the sake of the public interest, I feel the overwhelming need to counter the editorial in the Palm Beach Post on May 17, 2014. It is unfair.

First of all, it is a classic example of the universally condemned ad hominem argument. Without any factual support or mature arguments, the Post asserts that the opponents of “All Aboard Florida” are “paranoid” or “conspiracy theorists.” Apart from outright lies, this is the lowest form of argument in either philosophy or rhetoric. The argumentum ad hominem has been recognized for centuries as being designed to appeal to prejudice rather than the intellect.

Not only did the Post avoid any supporting arguments with reliance on facts, the paper seeks to demonize the opponents instead of countering the opponent’s arguments with contrary facts. The real concerns of the opponents are not only not addressed, they seem to be carefully avoided.

A key element in the opposition is that one FEC subsidiary, Florida East Coast Industries (FECI), has applied for a taxpayer loan from the Federal Railroad Administration for $1.5 billion in taxpayer money. That would be by far the largest loan ever granted by the FRA. The largest loan previously wasonly $563 million. Serious and rational questions have been raised because the railroad is owned and operated by Florida East Coast Railroad (FECR), which the president of FECR claims is a completely independently owned and operated company from FECI. As a matter of record, both FECR and FECI are owned by the same hedge fund, the Fortress Investment Group. At this time, and we can expect far into the future, FECR will conduct the freight-hauling business on the railway right of way developed by Henry Flagler a hundred years ago. In its application for the loan, FECI, claiming to be the other, said to be separate subsidiary, relies on the receipt of an “easement” to use the tracks of FECR to operate the passenger service. It is open and notorious that the taxpayer loan will be used to upgrade the tracks and infrastructure of FECR. It is an obvious fact, that if FECI’s passenger service does not succeed, FECR will still have all the new improved infrastructure. Is that really and truly a “conspiracy theory?”

Sure Fortress Group and its subsidiary, FECI hope that the passenger service will be a success. As the editorial says, “If the company’s business model seems odd, it’s for good reason. There is virtually no precedent for it in the modern-day United States.” Clearly any reasonable person realizes that passenger trains cannot expect to be profitable. They require taxpayer subsidies just like the airways and highways. It is this actual reality that

leads to bona fide skepticism. No amount of speculation on paper will make this proposal viable nor deny the prospect of heavy subsidies to keep it going. Any taxpayer has to seriously consider whether an unsuccessful passenger service can justify an expensive subsidy.

The citizens of Florida actually have a recent experience that can be considered a serious, well thought-out precedent, contrary to the editorial’s argument that there is virtually no “precedent. In 2000, Florida voters approved a referendum to Florida’s constitution to bring a high speed passenger rail system to Florida. One aspect proposed was a passenger service from Miami to Orlando. Governor Jeb Bush endorsed a repeal early in 2004 and the voters repealed the amendment in November, 2004. Later the project was revived, and the White House announced on January 28, 2010, that it would provide $1.25 billion, which would be about half of which would be needed for a Tampa-Orlando route.

Governor Rick Scott formally rejected the federal funds in 2011 because it would be “far too costly to taxpayers” and “the risk far outweighed the benefits.” So taxpayers have a solid right to be wary of a sustainable passenger service in Florida. Two administrations in this state studied passenger rail service for years and rejected it on economic and feasibility grounds. With all that analysis, over years, skepticism cannot be attributed to paranoia or conspiracies. It is based on extensive state and federal studies that did not conclude it was worth taxpayer money. Governor Bush was able to use that argument to persuade the voters of Florida to abandon the constitutional amendment,

The editorial in the Post states “a common variant of the ‘’conspiracy theory” is that “the company” would use the $1.5 billion taxpayer loan to fix up the Florida East Coast Railway tracks and then let the passenger service “tank.” That is a twisted, unfair mischaracterization of the argument offered by the opponents. They argue that factually based state and federal studies, as well as the actual history of passenger rail service in the United States provide a reliable predictor that the proposed Miami passenger service will not be successful. At best, sometime in the future taxpayers will have to decide whether a costly taxpayer subsidy is justified.All that the advocates will be able to come up with will be expensive private studies commissioned for a fee, loaded with assumptions and wishful thinking. That pales in comparison with the government studies and actual history.

The railroad and its supporters have several other weak arguments that demonstrate the tenuousness of their position. One is that the northern and Treasure Coast towns oppose the project because they want to be blessed with railroad stations to justify their numerous disadvantages and sacrifices. Really, how lame can you get? Just seriously contemplate the

harmful effects of the new upgraded railroad and see if you think any thoughtful citizen or responsible public official would trade these detriments for a station consisting of a concrete platform and a modern, utilitarian waiting room. It is the harmful effects that motivate us. Keep your eye on the ball. The railroad should be defeated simply because of the harm it will do all along the line.

Another spurious argument in the editorial is that one that said “there is serious question about whether “South Florida” will even see a substantial increase in freight traffic as a result of the Panama Canal expansion. Hold on here. The editorial calls the plan to improve freight rails as paranoia, and the fact that if the passenger service turns out to be pie in the sky, the FECR will keep the improved rail rails and systems as a “conspiracy theory.”

Well there is much more substance to the argument about the Panama Canal than the concept of a successful passenger service in our lifetime. See if you can pigeon hole the actual facts into the term “paranoia” or “conspiracy theory.” Essentially the Panama Canal expansion project, expected to be completed in 2015, will double the capacity from 2015 through 2025 by providing a route for the giant Panamax ships. These giant container ships are as long as four football fields (1200 ft.).

These behemoths of the sea will be able to carry at least 12,000 cargo containers as large as truck trailers. Largely driven by imports from China, the aim is to transfer shipping destinations from the West Coast ports to the East Coast ports. For six years, the project has involved construction workers toiling virtually around the clock building the equivalent of a shopping mall every day.

Enormous projects have been undertaken in conjunction with the Panama Canal expansion in both PortMiami and Port Everglades (Ft, Lauderdale). PortMiami announced “Our relationship with Florida East Coast Railway is a strategic partnership.” PortMiami is Florida’s number one container port. Over the last two years, PortMiami has invested two billion dollars in infrastructure improvements. Port Everglades in Ft. Lauderdale also has a partnership with FECR. It is South Florida’s leading seaport for receiving petroleum products. Port Everglades said that it expected FECR’s freight business to double on the way to tripling with the completion of the Panama Canal expansion in 2015. Early this year, FECR ordered 24 state of the art diesel locomotives based on its optimism of increased freight hauling due to the Panama Canal expansion project. What really prompted the editorial writers of the Palm Beach Post to actually write that there is a substantial questionwhether South Florida will see a significant increase in freight traffic from the expansion of the Panama Canal. Well I submit that there is better evidence

of the Panama Canal benefit than there is of success for the business model for the passenger service, which the Post editorial has had to characterize as “odd.”

Furthermore, the hedge fund, Fortress Group, can fairly be seen counting on the Panama Canal expansion to justify its acquisition of FECR and the creation of FECI. Significantly, Fortress Investment Group knows the business. It has billions invested in container leasing and container ship leasing. It clearly has its eye on the future prospects of FECR. According to an article by the same Palm Beach Post a week before the editorial, Fortress Investment Group bought the railroad for $3.5 billion in 2007 but its investment has lost money since. The Post said that the freight railroad is now loaded with debt. As to projections for passenger service, the Post said a Wall Street analyst could see $515 million annual income based on “back of the napkin calculations.”

FECI, the holder of the easement, and applicant for the taxpayer loan

was down a cumulative 0.3% from 2007 to 2013. Further, according to the Palm Beach Post, “Fortress split off the freight railroad into a separate company Florida East Coast Holdings, which lost money every year from 2008 to 2012, reporting combined losses of $124 million. It finally turned profitable in 2013, reporting net income of $8,000.

Meanwhile, the railroad is loaded down with $641 million in debt. It has a junk bond rating, with borrowing costs of 10.5%. A board member of the former owner of the railroad, Allen Harper, told the Post that while his company owned the railroad it was always profitable. However when Fortress took over, “They just piled so much debt on it.”

In this context, the Post editorial dares to say anyone questioning the “business plan” (napkins anyone?) is espousing a “wild-eyed theory. It assures us that:

to pay for the federal loan, the company has had to put up its railway and other assets as collateral. Before receiving any money, the viability to repay the loan – will be intensely scrutinized.

Well start scrutinizing right here. FECI, the borrower does not have sufficient assets to post collateral. Many of the assets it does own have been already encumbered in the ordinary course of business. Where actually are the assets that the Post says “the company has had to put up its railway and other assets as collateral.” In light of the financial facts that are public knowledge, it is hard to fathom how the Post can state so assuredly that collateral has been posted. The financial details submitted by FECI are not open to the public. The misleading statements handed out by “the company have been overwhelming. The FECI website at feci.com says:

Florida East Coast Industries, LLC (FECI), is one of Florida’s oldest and largest full-service commercial real estate, transportation and infrastructure companies. Headquartered in Coral Gables, Florida, it has a rich history dating back more than a century.

The actual truth is that FECI was incorporated December 2, 2013 in the State of Delaware. It was registered in the State of Florida shortly thereafter. It has a short history of a few months. To further confuse the issue, Michael Reininger, president of All Aboard Florida attacked a well-done column by Frank Cerabino by calling it a “fictional tale” suggesting a “conspiracy.” (Maybe that is the origin of the Post detecting “conspiracy theorists.) Reininger incorrectly stated that Mr. Cerabino made an argument that the FECI loan “is designed solely to result in new capacity for freight traffic on the historic Flagler corridor.” Then he went on to insist that FECI was distinct from FECR, with independent ownership and management. ”First of all Mr. Cerabino is too smart to get his fundamental facts all scrambled up. He did not say the loan was “solely” to help freight. The below-the-belt rebuttal to Mr. Cerabino exposes the depth to which the All Aboard Florida crowd will sink to get a taxpayer loan. Mr. Cerabino gave the facts accurately. But contrast the claim of independence with the FECI website, above, claiming the system, (dating from 2013) “has a rich history dating back more than a century.”

You have to watch the sleight of hand involving “the company,” FECR. FECI, Florida East Coast Holdings, All Aboard Florida, and Fortress Investment Group. I seems we are expected to be victims of a shell game where the subsidiaries are peas under walnuts you can’t keep track of. This strategy of obfuscation has a long history. Long ago corporations, holding companies, trusts, interlocking trusts, conglomerates, and other business combinations were exposed as hiding their economic agenda from the public. The tactic of “piercing the corporate veil” has long been recognized as a necessary method of protecting the public. We must be mindful of it throughout this process.

With respect to the claim that passenger trains are so fast that they will only block crossings for 60 seconds, I am assured by Jupiter Vice Mayor Wendy Harrison that its true. She told me she had actually seen it in Boca Raton.

However the amount of time the crossings will be blocked by the new passenger service are not nearly as significant as the crossing times we can expect from the increase in freight traffic. Port Everglades says we can expect freight traffic on FECR to double on the way to tripling when the Panama Canal expansion is completed in 2015. We now have 14 freight trains a day now. Before the economic downturn there were 26 freight trains a day. Many are a half-mile long. Many have 400 freight cars. Very often

they consist of 200 freight cars. The Jupiter Inlet District has been trying to get a handle on the possible disruption for some time. It has been taking a photo every 20 seconds to gather reliable statistics. They show the average blockage of crossing traffic to last 12 minutes, not counting not-infrequent mishaps. Based on projections of increased freight traffic from the Panama Canal expansion and anticipated economic growth, the crossings could very easily be blocked 30 minutes an hour, possibly more, all in addition to the projected blockages from the passenger service.

There are numerous issues not touched on by the Palm Beach Post, and the actual facts we will need for this debate are hard to come by. The depth of the safety, environmental, economic, traffic, marine navigation, and other vital issues remain obscure and undeveloped. We would all be well served if the Palm Beach Post devoted its efforts to helping the public get the best facts on these pertinent issues. The editorial of May 17 is disdainful of the public interest in a topic of paramount importance to property values and our way of life.