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.

We Stand Up for You. Will You Stand Up for Us?

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.”

    This article relates to: Desert Line, Land Use, News, Public Transportation, Share

    Written by Ari Bloomekatz

    Ari Bloomekatz is an investigative reporter for Voice of San Diego, focusing on county government. You can reach him directly at ari.bloomekatz@voiceofsandiego.org or 619.550.5669.

    Joshua Brant
    Joshua Brant subscriber

    Slightly off topic, but possibly related: I live right on the Orange Line. Every so often, maybe once every 1-3 months a lone locomotive will use the trolley tracks after trolley service ends. I've always wondered what this was about.

    Rover subscriber

    @Joshua Brant  There are still a few rail served customers in El Cajon so freight can move during the window of time when the trolley is shut down only in the middle of the night.  Freight comes from the yard near the bay bridge. 

    Rover subscriber

    What everyone doesn't know about the recent past starting in 2000 about the Desert Line is incredibly amazing and shameful.  What actually happened would floor everyone instead of all the so called educated guesses that always flood the internet and the half baked attempts of reporters to find the truth.  First hand knowledge and records are available but who would actually want the truth.  Want to know how and why the economics don't work, talk to someone who was there, don't sift through paper from arm chair analysts.  Yes, I was there for 8 years!  Amazing what educated people don't know......

    Mark Giffin
    Mark Giffin subscribermember

    The lack of transparency concerning Pacific Imperial Railroad is suspect. If you look at the organizational connections concerning Donald Stoecklein there is very little info concerning any of them thus Duncan Hunter.................

    “It is my understanding that this issue is being examined by federal authorities.”

    Chris Brewster
    Chris Brewster subscribermember

    Why is our provider of public transit overseeing an attempt to develop a freight line?

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Keatts: Thanks. Any idea what their return on investment of this piece has been over the years?

    Andrew Keatts
    Andrew Keatts author

    @Chris Brewster MTS bought the line in the 70s as part of purchasing their true target, which became the orange and blue lines. Now they're leasing the property to a private company that is trying to develop it into a cross-border freight line. MTS is using the lease payment from the company on repairs and maintenance along the orange line. 

    Bob Hudson
    Bob Hudson subscriber

    @Chris Brewster

    The MTS has likely invested nothing more than staff time in that section of rail line through the mountains. It was a "bonus" when they bought the San Diego & Arizona Eastern Railway to get the track needed to start the Trolley system.  

    Being as MTS is a public transportation system that needs subsidies to stay in business, is it possible to measure an ROI for any part of the system? 

    Freight service has operated over the route to the desert since MTS bought the system. A history of that is at http://en.wikipedia.org/wiki/San_Diego_and_Imperial_Valley_Railroad

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Hudson: To me a question is whether they should have auctioned it off long ago, since running freight may not be their area of expertise? I wonder if this is analogous to the following: You buy a house you've been wanting to own and it comes with a "free" donut shop that is adjacent. You can't buy the house without the donut business, but you want the house so you buy the package. You have no expertise at running a donut business. Do you try to run or subcontract the donut business or do you sell it off? It seems like in this case MTS has made some bad decisions, perhaps related to lack of expertise in this area. MTS has had this "asset" for decades and it seems to have been ineffectively managed over many years (at least in context of how some see it as a potentially valuable and needed line that could generate meaningful income). Perhaps they would be better off to find out how valuable the investing community and freight railroad experts really consider it, and get out of a business that they are struggling to run.

    Bob Hudson
    Bob Hudson subscriber

    @Chris Brewster

    I don't know if MTS even has the authority to sell off such an "asset," but it's clear from the comments from some of the local city council members on their board that this agency - as is seemingly the case with so many public transit agencies - is not guided by the wisest of decision makers. 

    Here in the North County parochial thinking resulted in the NCTD spending almost half-a-billion dollars for a commuter rail line that pretty much does not stop within easy reach of homes, businesses or jobs. But, the council members on its board were bound and determined that if San Diego had its trolley, by gosh they were going to get one too, cost be damned!

    I see in the history of freight service on the MTS-owned right-of-way a similar desire for empire-building, apparently so these MTS board members can brag about how they don't just run the Trolley, they have a railroad under their wing too.

    It's also easy to see in the history that the line through the mountains doesn't have enough potential to attract operators who have real capital and real experience. We've had the mom-and-pop operators in the past, and now, the Vegas speculators hoping to collateralize worthless raw land in Mexico to fund a dubious transportation project. This latest venture doesn't pass the smell test - unless you're in the MTS boardroom where everything smells like roses. 

    The MTS board has no accountibility. They are all politicians, none of whom is ever going to face a serious re-election challenge based on what they did or did not do during MTS meetings. They have nothing to lose by continuing this decades-old game of trying to give the desert line the sweet smell of success. If freight does run on it one more time, even briefly, then they will all line up in front of the TV cameras to take their share of credit for success.

    John T.
    John T. subscriber

    @Andrew Keatts @Chris Brewster MTS didn't have a choice in the matter when it came to purchasing the Desert Line.  The previous owner, Southern Pacific Railroad, demanded it be an all or nothing purchase.  In other words, if MTS (at the time MTDB) wanted the track for the Orange and Blue lines, they had to buy the Desert Line as well.

    Since then, there have been several freight contractors on the Desert Line and none have been able to make a profit on it.