The Morning Report
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A company under increasing scrutiny nearly made life easy on county transportation officials this month, when a missed lease payment almost negated its contract to rebuild a cross-border freight line.
Now, if public officials want to undo the deal, they’ll have to work for it.
The Desert Line is 70 miles of defunct rail in southeastern San Diego County that’s a critical leg of the 148-mile “Impossible Railroad,” a stretch that if rebuilt would better connect auto factories and other manufacturers in northern Mexico with lucrative markets in the eastern U.S.
But the company running the rail line, Pacific Imperial Railroad, has come under fire amidst accusations of mismanagement, graft and misrepresenting their finances to public officials.
And two congressmen have added their voices to an increasing cacophony of detractors to the project and many of those critics have now laid blame on the San Diego Metropolitan Transit System for ever allowing Pacific Imperial into the room.
The company nearly defaulted on its lease earlier this month, a scenario that would have likely confirmed critics’ fears about Pacific Imperial’s viability but also provided MTS with an escape hatch.
Instead, Pacific Railroad came up with the money and has made clear it has every intention of sticking around.
MTS purchased 108 miles of rail line in 1979 that included the Desert Line and, noting that it is not in the freight business, other companies have since come in to try and revive the line and turn a profit.
Pacific Imperial is the latest to try. It was awarded a lease in 2012 that stipulates it pay MTS $500,000 every six months and meet certain milestones along the way. Those milestones – and other lease conditions – are among the few weapons MTS has left to keep Pacific Imperial to its word.
At an executive meeting this week of rail line executives, project leader and businessman Charles McHaffie made it clear the most recent $500,000 payment had been made and there was more where that came from.
MTS Chief Executive Officer Paul Jablonski half-jokingly told McHaffie that he could make the next payment early if he wanted. McHaffie declined, saying he would milk this one a bit longer.
Jablonski declined an interview about the line but issued a statement saying the project is moving forward.
“A contract’s a contract’s a contract,” said board member Al Ovrom Jr., a Coronado councilman. “I’m assuming nothing. I’m not assuming success, I’m not assuming failure.”
One board member who does seem concerned about what will happen next is San Diego City Councilman David Alvarez, who requested an update this week regarding Pacific Imperial’s agreement with MTS and the status of all performance milestones.
In an earlier April 2014 letter, Alvarez wrote to Jablonski indicating he was worried performance milestones like completing initial repairs on the line and train testing may not have been met.
Other members of the MTS board defended Pacific Imperial and the agency.
Board member Bob McClellan, of the El Cajon City Council, said Pacific Imperial had a reason for making its payment late and he “understand(s) their position.”
“Of course it concerns us that a congressman is concerned, but we’ve got our own information, so it’s not like he’s telling us anything we don’t already know,” said George Gastil, a Lemon Grove councilman, in response to an inquiry from Reps. Duncan Hunter and Jeff Denham about the line.
But in a new letter to MTS Wednesday, Hunter wrote that it appears “MTS does possess the ability to control the lease terms.”
Hunter also said a property in Mexico that Pacific Railroad has used as “cornerstone asset” for its involvement in the project “might not be owned or controlled by PIR or any of its principals – and never has been.”
Oh, that, and he says the property — which he believes Pacific Imperial touts as worth $563 million — may only be worth $1.4 million.
Cryptically, he wrote in parenthesis: “It is my understanding that this issue is being examined by federal authorities.”