Rick Scott killed a high-speed rail plan. Then All Aboard rolled up and he bought it.
BY MARY ELLEN KLAS Herald/Times Tallahassee Bureau
August 16, 2018 06:00 AM Updated 3 hours 20 minutes ago
TALLAHASSEE — As one of his first acts in office in 2011, Gov. Rick Scott canceled a $2.4 billion federally funded and shovel-ready bullet train from Orlando to Tampa because it carried “an extremely high risk of overspending taxpayer dollars with no guarantee of economic growth.’’
It was a political slap to then-President Barack Obama, who considered the high-speed rail project central to his infrastructure reinvestment initiative. Now, the idea has returned — revived by All Aboard Florida, a Coral Gables-based company that has heavily supported Scott — and the governor has reversed course.
Scott said in June he believes a high-speed rail line from Orlando to Tampa is a good idea and, in a quiet testament to his confidence in the project, he and his wife last year invested at least $3 million in a credit fund for All Aboard Florida’s parent company, Fortress Investment Group, according to recently disclosed financial documents.
Rick and Ann Scott are multi-millionaires with an undisclosed amount of wealth. Fortress Investment Group is the parent company of Florida East Coast Industries which owns All Aboard Florida. All Aboard now operates as Brightline — the system of diesel-electric trains that has been running between West Palm Beach and Fort Lauderdale since January and from West Palm Beach to Miami since May.
The Scotts’ investment in Fortress Secured Lending Fund — the credit and lending division — produced at least $150,000 in income last year, according to Rick Scott’s 2018 federal financial disclosure report. He was required to file the report last month to run for U.S. Senate.
It is unknown how much the Scotts have in total investments in the fund. The federal financial reports revealed for the first time that the couple is much wealthier than Scott had previously disclosed, with the bulk of the couple’s wealth held by his wife in a portfolio worth at least $170 million. But the federal disclosures are imprecise, and allow for investments to be disclosed in a range.
For example, two of Ann Scott’s three holdings in Fortress identify the amount as: “over $1 million” and Scott’s disclosure states that his blind trust holds between $500,000 and $1 million in Fortress.
Scott reports he’s worth at least $255 million. His wife holds most of family fortune
Scott reported his individual net worth of $232 million in 2017 and valued his assets at about $82 million in 2018. He maintains that the bulk of his investments are held in a blind trust and that he has no control over his investments or his wife’s, even if they mirror the investments in his trust.
Scott’s campaign spokesperson Lauren Schenone said the governor does not discuss with his wife what she invests in and “the governor’s blind trust is managed by an independent third party to shield his investments from his direct control and to avoid any potential conflicts of interest. As such, the governor has no control of what is bought or sold in the blind trust. “
According to Fortress’ May 2017 news release, the credit division was launched to “become the primary funding source for the firm’s established specialty finance lending business.” It raised $590 million in 2017 “from 56 external investors, including 30 investors new to Fortress.”
Fortress Investment Group managing director Gordon E. Runté said the fund “is not providing financing for unrelated projects, including Brightline.”
The parent company of the FECI rail line hasn’t always been such an attractive investment for Scott and his wife. In 2014, the last time Scott disclosed the companies included in his blind trust, he did not list Fortress Investments, indicating the fund was acquired after Scott started actively backing the plan.
But the company’s rail investment, All Aboard Florida, has been a project that Scott and his transportation team have given special attention to since before its inception, steering state money to assist the project as the Florida Department of Transportation and the Florida Development Finance Corporation provided regulatory assistance and funds.
Scott canceled a federally-financed high-speed rail project in February 2011, and sent the $2.4 billion in stimulus funds back to Washington.
The letter to the federal government rejecting the bullet train was drafted by Adam Hollingsworth, the member of Scott’s transition team who, records show, also vetted Scott’s candidates for secretary of Florida’s Department of Transportation. He would later go to work for a sister company of All Aboard Florida at FECI.
Scott’s transportation transition team recommended state investment in an “intercity rail project from Jacksonville to Miami on the Florida East Coast railroad tracks.” In May 2012, Hollingsworth, who had spent a decade at CSX transportation, become Scott’s chief of staff.
Prior to that, All Aboard Florida and its parent company had given $188,750 to Scott’s 2010 campaign and $25,000 to his inauguration. It also hired Hollingsworth to work at Parallel Infrastructure, a company owned by FECI.
As FECI prepared to build the nation’s first “privately funded high-speed rail line” from Miami to Orlando, its staff coordinated with the governor’s top deputies, text messages produced during unrelated litigation show. The plan was to combine 200 miles of existing track owned by Florida East Coast railway, and build 40 miles of new track between Miami and Orlando, and “eventually the system could be expanded with connections to Tampa and Jacksonville,’’ the company said.
Scott also met privately in January 2012 with FECI officials who sought his support — a meeting that was never disclosed on his calendar — after which his deputy chief of staff, Carrie O’Rourke, sent a text to Hollingsworth reporting that the meeting “went very well today” and “he is interested.”
As the announcement date for the project approached, Hollingsworth sent a draft of the press release to O’Rourke. “If you see any hiccups, let me know,’’ Hollingsworth wrote. “Thanks for all your help.”
Then, a year after Scott’s rejection of the bullet train from Orlando to Tampa, he endorsed the rail project sought by Florida East Coast Industries to build a train the would operate at speeds of up to 110 mph from Miami to Orlando, about 60 mph slower than the bullet train Scott canceled. The governor also pledged at least $200 million in state money for a train depot at Orlando International Airport.
Although then-DOT secretary Ananth Prasad touted the project as “the nation’s first privately financed, operated and maintained passenger rail system,” the financing heavily involved taxpayers.
Unlike the bullet train, which would have been funded by stimulus money, had its environmental studies complete and was ready to roll, financing has been one of the most daunting challenges facing All Aboard Florida.
The company originally estimated costs for building the line from Miami to Orlando would be $1 billion but the estimated costs have soared to over $3.5 billion. And the Florida Bulldog reported last month that the company’s unaudited financial statement shows Brightline suffered a $28.2 million loss in the first quarter of 2018.
Using federally backed tax-exempt bonds, the company has raised $600 million to pay for the Miami-West Palm Beach leg of the rail line. It is now trying to sell another $1.15 billion to pay for the West Palm Beach to Orlando segment, but Indian River and Martin counties are asking a federal court to reject the bonds, potentially jeopardizing the extension.
“Brightline and their group of investors are adamant that they are privately funded, but they are clearly seeking deals with governments to keep this project alive,’’ said Dylan Reingold, general counsel for Indian River County, which has filed a federal lawsuit challenging the financing and safety of the project.
Another important source of funds for the company: real estate, and the leasing of the infrastructure along the route. Frank Chechile, the chief executive officer of an All Aboard Florida subsidiary, told a Congressional panel in 2013 that his company makes $17.7 million — about $50,000 a mile — from telecommunications, pipe and wire and land leases on the 351-mile rail corridor.
The initial proposal included $1 billion in private funding and $1.5 billion in tax-free federal loans, favorable leases for rights of way agreements, and other state and federal amenities.
By 2013, the state budget included $15 million for design work for the project. By 2014, Scott signed a budget that included $214 million for the train station to be located at the Orlando airport, and another $10 million for crossing improvements. Scott declared it “the right thing for the state,’’ and announced that his 2015 budget would have another $75 million.
For the next four years, as All Aboard Florida worked to obtain the taxpayer-backed financing from state and federal coffers, the Scott administration provided regulatory and financial support for the project.
Public sentiment against the project did not weaken the governor’s support for the project. When his office received hundreds of emails complaining of the project, particularly from people in the Treasure Coast where safety concerns prompted resident to urge the governor to halt the project, he responded: “I like people building things in our state, and I hope they’re very successful.”
In response to emails, his office supplied a routine answer: “The state has no involvement in this railway.”
But federal officials disagreed. In email exchanges provided to the Herald/Times, Frank Frey, an engineer with the federal railroad administration repeatedly reminded state officials that “FDOT has sole regulatory authority” over safety crossing and gate design.
State Sen. Debbie Mayfield, R-Vero Beach, urged the governor to have FDOT use its authority to increase oversight of the rail line. She filed legislation, sought meetings, wrote letters to Scott and his transporation advisers. The response from FDOT, she said: silence.
“This is a state responsibility when it comes to regulating grade crossing and the safety of the public,’’ Mayfield said this week. “They are just ignoring us.”
Despite those concerns, when All Aboard Florida submitted an unsolicited bid in March to build and run the Orlando to Tampa route that Scott canceled, Scott did not hesitate to commend the idea. FDOT invited bidders to revive the project Scott had killed eight years earlier.
Meanwhile, federal trade documents show that Scott’s financial relationship to the rail line also crossed continents.
In 2014, All Aboard Florida awarded a contract to Siemens to build rail cars for the Orlando-to- Miami project. That same year, a company in which Scott and his wife were majority owners, Continental Structural Plastics, signed a deal for a 50/50 joint venture with Qingdao Victall Railway Co. of China. Quindao Victall makes components for rail cars, including passenger
interiors that, the company says “use structural composite material similar to automotive exteriors.”
CSP was sold in 2017 to Japanese conglomerate Teijin, providing the Scotts with a massive increase in their financial wealth. According to securities disclosures in the U.S. and Japan, Scott and his wife received more than $550 million on the CSP sale.
Rick Scott and family made $550M in one transaction. How ‘blind’ is his blind trust?
U.S. Customs records show that Siemens has been importing components of train cars from Quigdao Victall Railway Co. in China from February 2015 to June of this year.
CSP’s former CEO, Frank Macher, told the Herald/Times that the primary goal of the partnership was to help CSP get into the domestic auto market in China and CSP is not currently supplying parts to the rail industry, but he didn’t rule it out as an option for the future.
“It would obviously be very good if we could provide low cost, low weight handles for those big passenger rail cars,’’ he said.
Mary Ellen Klas can be reached at email@example.com. Follow her on Twitter @MaryEllenKlas
Private rail company Brightline expanded service to Miami-Dade County this year. – firstname.lastname@example.org