United States congressmen Duncan Hunter and Jeff Denham have put Metropolitan Transit System on notice: Explain the reason for delays and the transit authority's reasoning for granting a non-experienced, allegedly corrupt company a 99-year lease to operate the binational railroad formerly known as Carrizo Gorge Railway.
On June 27, Hunter and Denham sent a formal letter to MTS CEO Paul Jablonski asking for explanation on their decisions.
"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," wrote Hunter and Denhem, both of whom serve on the House Transportation and Infrastructure Committee, in a letter obtained by the Reader.
Allegations of corruption have swirled around the company for years. The owners and major stockholders are longtime associates and former Las Vegas land speculators that took control of Carrizo Gorge Railway in 2008, rebranding the company as Pacific Imperial Railroad in 2011.
Since the 2008 takeover, the only items moving over the 100-year old railway have been tumbleweeds. During that time, former employees accused Pacific Imperial's principals Charles McHaffie, Dwight Jory, Sheila LeMire, and attorney and CEO Donald Steocklein of skimming from the top, spending investments made to get the railroad back on track. Former employees say the group has used the railroad in a penny-stock scheme.
Adding to the accusations is the fact that on July 1, the company is required to make a $500,000 lease payment to MTS to use the tracks. As of today, June 30, no payments have been made. CEO Stoecklein has not returned requests for comment on the lease.
Officials from Metropolitan Transit System are also not aware if the company will pay the lease on time.
And yet, despite the allegations and overall lack of progress on the Desert Line, MTS CEO Jablonski has supported the company.
“[Pacific Imperial Railroad] asked us to renew the lease in order for them to raise funds and we did. And, as of this time, that lease is in good standing,” Jablonski said during an April 15 board meeting of the San Diego and Arizona Eastern Railway, the nonprofit that manages the Desert Line.
The missive from congressmen Hunter and Denham will test Jablonski's defense of the company and force him to explain the reasons for his support.
"The lease, as a sole-sourced procurement, appears to violate California law," is among the concerns put forward by Hunter and Denham. "The lease appears to have been granted ahead of adequate investigation of the ability of Pacific Imperial Railroad to run a railroad company in a very challenging corridor.
"The lease appears to have been granted without adequately addressing an insolvency charge or addressing evidence of improper spending presented in a report by an independent entity."
The report the congressmen referred to was one commissioned by former employees Ernie Dahlman and David Rohal. The report raised questions regarding payments made to a "consulting firm" formed by one of Pacific Imperial's founders, Dwight Jory, as well as a number of other questionable expenditures.
In their letter, Hunter and Denham also mentioned what Pacific Imperial claim to be "the centerpiece of its financial plan, the Mexican Tembabichi property."
"[The property is located on] approximately 21,326.73 acres on the Sea of Cortex [sic] in Baja California, Mexico," wrote Stoecklein in an April report to MTS. "The primary parcel is 5,685.30 acres, with 12 miles of ocean front, a natural lagoon with an estimated area of 12.36 acres, set on a gentle sloping site with a view of the Sea of Cortez."
Pacific Imperial's owners and stockholders valued "Rancho Tembabichi" at $550 million and used the property to lure investors.
However, despite repeated requests from Dahlman and others, at no time has Stoecklein or anyone else ever given proof of ownership.
"Principals of Pacific Imperial Railroad used the Mexican Tembabichi property to demonstrate financial strength, which is a matter of growing interest among federal authorities.”
The railroad is part of a much larger push by local officials and members of the San Diego Regional Chamber of Commerce to link Baja's manufacturing industry with San Diego.
The chamber of commerce, led by former mayor Jerry Sanders, has lobbied the city to get involved. San Diego mayor Kevin Faulconer has responded, promoting the binational railroad during a recent trip to Tijuana.
Later Faulconer told the Reader, "There are some issues with ownership that need to be sorted out before moving forward."