JudicialTransportationDallas to Houston High Speed Rail Project Faces Legal and Financing Obstacles and Criticisms

Several legal and financing issues concerning the progress of Texas Central have come to light in recent weeks.
October 26, 2021
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The Texas Supreme Court has granted a motion for rehearing in the eminent domain case, Miles versus Texas Central Railroad. Oral arguments in the case are set for January 11, 2022. In June, the court denied the appeal, but the landowner filed a motion for rehearing in July.

Waller County Judge Trey Duhon, who is also president of Texans Against High-Speed Rail, told The Texan that he is pleased that the Texas Supreme Court has decided to hear the case. “This is an extremely important issue for private property rights in the state of Texas, and we look forward to our day in court,” said Duhon.

“We remain confident that, ultimately, the Texas Supreme Court will conclusively resolve this issue in Texas Central’s favor, agreeing with the Court of Appeals’ well-reasoned decision and concluding that Texas Central qualifies as an entity entitled to use survey and eminent domain authority under the Texas Transportation Code,” Texas Central wrote in a statement to The Texan.

In May 2020, the 13th Texas Court of Appeals ruled that the high-speed rail project from Dallas to Houston can exercise the power of eminent domain because it qualifies as a railroad under Texas law.

According to an article in the Texas Bar Journal by former Texas Solicitor General Scott Keller, the Texas Supreme Court only grants less than 3 percent of motions for rehearing. And less than half of those granted result in overturning the underlying decision by the court of appeals.

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“What may be most notable about these statistics is that about two or three times per year in this timeframe, the Texas Supreme Court granted a motion for rehearing of an already denied petition for review and subsequently overturned the decision of a court of appeals,” Keller points out.

Another rather unusual development in this case is that the Supreme Court requested the state of Texas to weigh in via its solicitor general, Judd Stone II. Stone plans to file his brief with the court by December 17. 

The Texas Supreme Court has requested the solicitor general’s input in a case in each of the last three terms, so that practice may be gaining some momentum.

Station Landowners Form Separate Company, Hint at Problems in Acquiring Japanese Technology

The owners of the land that is proposed for the three stations along the high-speed rail route announced earlier this month that they intend to form a separate entity, Texas High-Speed Rail Station Development Corporation (SDC) for building the stations along the route.

Developer Jack Matthews and investor John Kleinheinz are forming the SDC entity and intend to begin discussions with “various third parties who have successful experience with high-speed rail.”

Their press release included hints that the agreement between Japan and Texas Central may not be as solid as once accepted. While saying that they believe that the United States and Japan will reach an agreement, they go on to say, “If a solution involving the Shinkansen system cannot be reached, our station sites will be used to make sure high-speed rail comes to Texas and integrates with the rest of the nation, using the best technology offered.”

The lynchpin of the eminent domain case in the 13th Court of Appeals rested on the finding Texas Central is an operating railroad. However, if Texas Central doesn’t have the land for stations on the line and the SDC developers are willing to speak to other parties about high-speed rail, that may raise new questions as to its legal argument as a railroad under Texas law and thus its right to use eminent domain power.

Financing Texas Central with Federal Loan Money

On a recent podcast, Texas Central CEO Carlos Aguilar admitted that it needs funding from the federal government for the project to happen. “I think whatever happens with the infrastructure [bill] is key to us. I believe that would be the final element that would bring us together,” he said, adding that they need about $12 billion in loans. Last spring, board chairman Drayton McLane admitted in a letter that the total project cost is now approximately $30 billion. 

Aguilar mentioned the Railroad Rehabilitation and Improvement Financing (RRIF) low-interest loans as a possible source for the needed funding. However, the RRIF program has rarely made loans over $1 billion, according to an article by the Reason Foundation. In addition, the infrastructure bill doesn’t need to pass in order for RRIF loans to be available.

In a letter to Transportation Secretary Pete Buttigieg, Reps. Kevin Brady (R-TX-08) and Jake Ellzey (R-TX-06) expressed their opposition to a loan of this size made to Texas Central.

“The $12 billion loan they are seeking would not only be the largest RRIF loan in the program’s history, but would consume more than one third of the total sum allocated to the program. We are concerned that Texas Central’s ability to skirt Buy America requirements, inflate ridership projections, and obtain federal loans without authority to construct will leave the American taxpayer on the hook,” the congressmen wrote.

Texas Central has yet to receive permission from the Surface Transportation Board to begin construction on the project. Additionally, the Buy America requirement for RRIF loans states, “RRIF Buy America means that the steel, iron, and manufactured goods used in projects funded by RRIF must be produced in the United States. This requirement includes the purchase of new or existing goods, or the refinance of assets, including rolling stock and railroad infrastructure.”

Another continuing criticism of Texas Central by Brady, Ellzey, and others is that the railroad has claimed it would be privately financed but is now openly seeking federal funding. 

Texas Central CEO Appointed to ERCOT Board

Aguilar was appointed to the Electric Reliability Council of Texas (ERCOT), which came under intense scrutiny after the power outages during the winter storm in February of this year when the power grid was only minutes away from a statewide blackout. 

Texas Rail Advocates speculate in an article that “Aguilar’s appointment to ERCOT surely sends a positive sign for high-speed rail from the state’s top three leaders, Governor Abbott, Lt. Governor Patrick and Speaker Phelan.” 

However, not everyone sees Aguilar’s appointment as a positive. Christie Parker, a landowner along the proposed route who has won a judgment in court to keep Texas Central from surveying her land, is concerned that Aguilar’s appointment is a conflict of interest. 

“There is a long record with this company not behaving ethically. Who will be looking out for the people of Texas?” Parker posed to The Texan.

Texas Central’s planned technology will use electricity to run its high-speed rail. The Federal Railroad Administration’s final environmental impact statement points out that “[t]he [p]roject would obtain electricity from the statewide grid, managed by ERCOT, resulting in an overall effect on statewide energy use. Power consumption for the operation of the HSR was estimated…to be 531,867 MWh per year, or 1,814,804 MMBTUs per year, including power losses from transmission and transformers.” This is equivalent to the power used by about 37,689 households per year. 

When asked about Aguilar’s appointment to the ERCOT board, Texas Central declined to comment.

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Kim Roberts

Kim Roberts is a reporter for the Texan in the DFW metroplex area where she has lived for over twenty years. She has a Juris Doctor from Baylor University Law School and a Bachelor's in government from Angelo State University. In her free time, Kim home schools her daughter and coaches high school extemporaneous speaking and apologetics. She has been happily married to her husband for 23 years, has three wonderful children, and two dogs.