On July 9, officials from the Metropolitan Transit System responded to a letter from congressmen Duncan Hunter Jr. and Jeff Denham listing their concerns regarding what they felt to be a "significantly mismanaged" public asset.
"Information brought to our attention suggests that the San Diego Arizona and Eastern Railway line, a public asset, is significantly mismanaged. In particular, we have become aware of the circumstances surrounding the December 2012 lease of the [railway] to Pacific Imperial Railroad for an extended period of time (50 years plus a 49 year option) by way of a sole-sourced procurement," penned Hunter and Denhem, both members of the House Transportation and Infrastructure Committee.
The congressmen criticized MTS for signing over the rights to the binational rail line without obtaining proposals from other companies, ones with a history of running freight. They also objected to an MTS decision to enter into the agreement despite repeated warnings about Pacific Imperial's principals, including Charles McHaffie, Donald Stoecklein, and Dwight Jory, all former land speculators from Las Vegas.
But for MTS, the lease with Pacific Imperial was needed for several reasons: first, if Pacific Imperial is unable to get the rail company on track, the rights to the Desert Line would be returned to MTS without the restrictions placed on it in a 1984 agreement that allowed then-lessee RailTex an option to purchase the line for a fraction of its value. The other plus, according to MTS: even if Pacific Imperial was successful in getting the railroad operating, MTS would receive the $1 million lease payment that could go toward other transit improvements.
"Leaving aside that this was not a procurement of services or goods, sole-sourced or otherwise, MTS's enabling legislation gives it broad, unrestricted authority to 'lease, mortgage, sell, or otherwise dispose of any real or personal property necessary to the full or convenient exercise of its powers,'" reads the July 9 letter from MTS. "MTS may contract with 'any person upon such terms and conditions as the board as the board finds is in its best interest.'"
The transit authority's letter also addressed the congressmen's questions over Pacific Imperial Railroad's financial integrity, despite the numerous lawsuits and the fact that the people behind the company were the same people who were incapable of repairing the line and running freight after a stockholder takeover of the old Carrizo Gorge Railway Inc.
"At the time the [Pacific Imperial Railroad] agreement was approved in 2012, MTS was aware that [Pacific Imperial] was financed by a small group of shareholders…. MTS was aware that [Pacific Imperial] was attempting to raise additional 'seed funding' to support a larger financing effort. [Pacific Imperial] informed MTS that it owned a large property in Baja California that its shareholders were willing to put up as collateral for a project loan, if this was something that was requested by investors/financial institutions. MTS did not take a position as to the appropriate financing method....”
But what MTS failed to address was that no one from Pacific Imperial was ever able to provide proof of ownership of a "large property" in Baja California, otherwise known as Rancho Tembabichi. In fact, Pacific Imperial Railroad's former president, Ernie Dahlman, objected to using the property as an investment strategy because no one was ever able to show him proof of not only ownership but whether such a property exists.
"Given these contractual provisions, there was no need for MTS to 'second guess' the financial solvency of [Pacific Imperial Railroad]. If [Pacific Imperial Railroad] was unable to finance the project, the milestones would not be met and MTS would be able to take back control of the line."
Officials from MTS and boardmembers of the San Diego Arizona Eastern Railroad are planning to meet on July 15 at MTS headquarters. As of now, no agenda has been posted.