Pacific Imperial Railroad, the company that leases the binational track — also known as the Desert Line — from San Diego's Metropolitan Transit System, is in financial peril and has been for some time.
According to business records obtained from the State of Delaware, where Pacific Imperial Railroad is registered, the company has failed to pay annual taxes for two years, now owing $267,794 in back taxes. The document lists the company's current status as "a corporation that has not filed the required annual report and there are delinquent taxes due."
The tax-debt revelation is the latest in what has been a rough couple of months for the company, its principals, and for Metropolitan Transit System officials.
During that time, allegations that the railroad is nothing more than a vehicle for investment fraud have appeared in press reports and at monthly transit-board hearings. In addition to the alleged fraud, information regarding a $1.6 million penalty for transporting marijuana from Mexico in 2010 has come to light. Combined with the lack of progress in getting the railroad operational, all these factors have prompted congressman Duncan Hunter to get involved.
During the past month, Hunter has written multiple letters to Metropolitan Transit System CEO Paul Jablonski, asking for reasons why Metropolitan Transit System thought it was in the public's best interest to award a railroad company with nearly no railroad experience a 99-year-lease. The congressman also asked about allegations of fraud and a potential financial scam by the company's top shareholders.
But Jablonski has continued to back the company and the lease.
In a July 29 letter published in the U-T, Jablonski fired back, dismissing Hunter's concerns and asking for the source of his information.
"The [Metropolitan Transit System board of directors] reaffirmed their support for the contract with [Pacific Imperial Railroad] and [our] management of this asset," Jablonski wrote. "[Metropolitan Transit District] is closely monitoring compliance with the contract and will continue to do so. [Metropolitan Transit District's] interest in seeing the project succeed and fulfilling [its] contractual obligations."
As for the $267,794 in taxes owed to the State of Delaware, Pacific Imperial Railroad's president Donald Stoecklein says the number is all wrong.
"It is an assessment by Delaware in the event you choose not to file your annual report and your franchise tax filing based on your authorized shares," said Stoecklein in a voice mail. "Clearly, we would file on our authorized shares which would make our payments about $300 not $267,000."
Stoecklein, however, did not respond to the fact that according to state business records, Pacific Imperial Railroad has 510 million authorized shares, which were included in the company's certificate of incorporation as well as the four stock designations filed during the past two years.
From Delaware's official website: "Every corporation that authorizes shares of stock in their certificate of incorporation or subsequent amending documents has an annual tax assessed on those authorized shares. This field reflects the tax assessment for the current tax year."
A spokesperson for Metropolitan Transit System says the agency was not made aware of the back taxes nor is there a policy in place requiring contractors to report any tax liens or debts.
"[Metropolitan Transit System] does not have a formal policy about contractors who do not pay taxes. Contractors and lessees are expected to remain in good standing and be eligible to do business in the states where they operate. [The agency] has referred this matter to [Pacific Imperial Railroad] to resolve."
Massive tax debt is not a new problem for the railroad. In July 2013, a federal tax court ordered former president of Carrizo Gorge Railway (Pacific Imperial Railroad's predecessor) and current self-proclaimed "consiglieri" to the railroad, Charles McHaffie, to pay $359,148 in unpaid taxes plus interest. According to the judgement, the harsh penalty was handed down due to McHaffie's "repeated failure to comply with court orders and participate in the discovery process."
"It appears this is the way [Pacific Imperial Railroad] does business and its unsettling,” Joe Kasper, Congressman Hunter’s spokesman. “What’s no less confusing is that questionable practices and patterns don’t seem to matter to [Metropolitan Transit District] — and that is truly frightening.”
Kasper says Hunter will continue to look into the matter.
"If [Metropolitan Transit System] really thinks none of that matters, then taxpayers have good reason to suspect that [the transit agency], regardless of whether it knows it or not, could be complicit in perpetuating a fraud. At this point, the next step is to meet with federal authorities from various agencies to determine the best way to proceed to ensure the right light is shined on this situation. The only suitable outcome at this point is termination of the lease."