There is a 70-mile stretch of defunct rail line along the Mexican border in southeastern San Diego County known as the Desert Line. It’s a leg of the “Impossible Railroad,” a nickname earned decades ago that once again rings true.

A group of border-region business interests are eager to see the dream of rebuilding the Desert Line become reality, but the project is now mired in conflicts involving its latest owners and the Metropolitan Transit System – and at least two U.S. congressmen want to know just what the heck is going on.

The intoxicating possibilities of restoring a line first envisioned over a century ago has lured investors and drawn support from politicians, business and civic leaders on both sides of the border. A rebuilt Desert Line would provide a crucial link between auto factories and other manufacturers in Mexico and lucrative eastern U.S. markets. Supporters claim a fully functioning line would save money and reduce pollution as thousands of trucks would no longer have to take the trip across the border to connect with a rail line.

Two years ago, county transportation officials signed off for yet another company to take on the challenge of restoring the Desert Line.

And so far? Impossibility looms again.

Some investors want their money back or have shied away. Former project leaders have turned against current ones and the mess has brought allegations MTS officials were reckless with a valuable public asset.


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

Last week, two members of the House Transportation and Infrastructure Committee demanded answers about the project.

Their first question for MTS: Why did you let this company take over?

An Impossible History

The idea of building a roughly 148-mile rail line from San Diego to El Centro began more than a century ago and to say it has been prone to disaster is an understatement. Its chronology is basically a list of catastrophes, one after the next.

Crews broke ground on the Impossible Railroad in 1907. Four years later it was attacked by Mexican revolutionaries. Six years after that the federal government halted construction to conserve resources during World War I.

Then in 1926, 1927 and 1929 rains wiped out huge portions of the track. In 1932, floods, fires and landslides (basically everything except frogs and hail) closed key tunnels along the line. Fast-forward to 1976 and Hurricane Kathleen took out some bridges.

MTS purchased 108 miles of the Impossible Railroad line in 1979 that included the Desert Line for $18.1 million.

But as if on cue, a storm damaged parts of the Desert Line a year later and fires destroyed a couple bridges two years after that.

Since then, various owners of the lease have tried to work out other ways to make some cash off the asset, but those efforts pale in comparison to what a fully built railroad might yield.

Two years ago MTS was presented with a deal that would let another company, Pacific Imperial Railroad, have a go at the Desert Line while it collected half a million dollars every six months on a restructured lease.

Under the new lease, if Pacific Imperial failed, MTS would get the line back without having put a dollar of taxpayer money into the project. And that nearly just happened.

The company missed the most recent payment, due July 1, and was at risk of losing the lease. On July 2, Pacific Imperial told MTS the House letter spooked its board of directors and the company expected to make the payment on time.

Indeed, Pacific Imperial submitted a $500,000 lease check just before a deadline set by MTS. That payment in many ways was a counter-punch from Pacific Imperial to the growing cacophony of critical voices.

The company said it has a $150 million investment agreement with another company to help rebuild the line and is meeting with other potential funding sources of funding.

Still, MTS is getting its share of blame for ever entering into an agreement with the company in the first place.

An Impossible Present

The company currently in jeopardy of defaulting on its 99-year lease of the Desert Line is Pacific Imperial Railroad, and businessmen Charles McHaffie and Dwight Jory are leaders in the company’s effort.

The pair has had an array of lawsuits filed against them over the years, some with investors alleging they were swindled.

Gina Seau, Chargers star Junior Seau’s ex-wife, reportedly claimed McHaffie spent a $2.5 million loan designated for the Desert Line project on something unrelated. That case was dismissed.

Even the public face of Pacific Imperial Railroad makes it look like the company doesn’t have its act together. The clients on its website are “coming soon,” as is contact information for potential investors.

Its most recent press release is from November 2013 announcing David Rohal as president. Rohal is now one of the company’s harshest critics.

And the company’s online description of the project reeks of fantasy. Pacific Imperial Railroad CEO Donald J. Stoecklein has even trademarked a fake name – “Maquilatropolis” for the area in Mexico Pacific Imperial says will be its customer base.

Stoecklein, through his assistant, initially agreed to an interview but later pushed it off.

One June 27, Reps. Duncan Hunter and Jeff Denham demanded in a letter to MTS head Paul Jablonski that the agency explain why it entered into an agreement with Pacific Imperial Railroad.

“Information brought to our attention suggests that the San Diego and Arizona Eastern Railway line, a public asset, is significantly mismanaged,” they wrote.

In the letter, Hunter and Denham wrote they were worried MTS was not utilizing the asset “to provide the best services possible to the general public.” (Kind of the agency’s primary mandate.)

Among the questions they asked:

• Did the transit agency give its board an accurate picture of Pacific Imperial Railroad’s finances or ability to run a railroad before it signed the lease?

• Why did it give the 99-year lease straight to that company instead of casting a wider net of potential candidates?

• Is what MTS did legal?

MTS responded, admitting it took no “position as to the appropriate financing method for the project and therefore did not substantially participate in any discussions about how PIR planned to finance the project.”

Instead, the agency said it was well within its rights and that the terms of the lease were structured to protect taxpayers, so there was no need to “second guess” the company’s finances.

MTS spokesman Rob Schupp said the agreement to lease the line to Pacific Imperial Railroad was not explicitly sought after by the board but ended up being the best move for the agency in 2012.

“Virtually no money was being made,” Schupp said. “What we wanted to do is renegotiate the lease to protect this public asset.”

And he said that in addition to MTS purchasing the Desert Line in 1979, the total 108-mile purchase came with what is now the trolley’s 15.5-mile blue line from San Diego to San Ysidro, which has more than paid for itself.

The purchase also came with what is now the trolley’s orange line from San Diego to El Cajon and a 7.2-mile line from National City to Imperial Beach.

Hunter’s deputy chief of staff, Joe Kasper, wrote in an email that MTS deserves credit for responding but that it didn’t explain “the level at which PIR was scrutinized before it awarded a lease that’s in the public interest.”

“It’s quite possible that based on the response from MTS that Congressman Hunter and others will call on MTS to terminate the lease,” Kasper wrote.

So as MTS collects its money and waits for Pacific Imperial to fail or somehow actually pull through, the Desert Line is at a crossroads – again.

There is intense interest throughout San Diego in making the line happen, its promise for radical change in international border trade is too alluring.

An Impossible-to-Predict Future

One civic leader who sees the defunct line as a chance to improve the border economy is philanthropist Malin Burnham.

He’s on the board of a group called the Smart Border Coalition that’s meant to improve efficiency along the border. To him, it’s bizarre that nothing’s happening with the Desert Line and that MTS is not more interested in investigating PIR to see whether it’s capable of getting the line running.

“Heavy manufacturing in Tijuana comes across the border via trucks, and about 3,000 trucks come across the border every day,” he said. “It’s slow, it pollutes the air with all the waiting time and it adds a lot of traffic to the roads.”

Burnham and the coalition see the Desert Line as a chance to completely change the way heavy goods manufactured in Mexico are brought to the U.S. – and save serious money in the process.

Despite any current problems or allegations against Pacific Imperial and MTS, Burnham is confident rebuilding the line can happen.

“There’s a Toyota plant in Tecate, they are building 55,000 pickup trucks a year,” he said. “They go on a truck, haul them to Los Angeles to put on a train to go to the Midwest and then the east, where the market is.”

For the rail line to be a good investment, Burnham said it would need to fill 300 rail cars a day. The coalition expects factories in Tijuana to fill up to 1,000 rail cars a day, taking roughly 3,000 trucks off the roads and out of clogged border crossing lines.

“If [Toyota] could load those trucks on a railcar at their plant, and they have the track there, and let it go over this line we’re talking about, they’d save over $30 million a year,” Burnham said. “Now that’s real money.”

    This article relates to: Border Connectivity, Desert Line, 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.

    9 comments
    John T.
    John T. subscriber

    When MTS (operating as the Metropolitan Transit Development Board) bought the line is 1979, they weren't given a choice.  Southern Pacific Railroad, the owner at the time told MTDB "we'll sell the track in San Diego, but you have to buy the Desert Line as well." SP was looking to unload an unprofitable line and this was their way of getting rid of it.  Since then, there have been a number of contract freight operators on the line and none has ever made a profit.  Knowledgeable people railroading don't expect PIR to make one either.


    The only entity consistently operating over portions of the Desert Line has been the Pacific Southwest Railway Museum and they use their own money to maintain the portion of the line they are authorized to use.

    Mike
    Mike subscriber

    PIR may not seem like a competent developer of this rail line, but at least they're paying MTS a lot of money for it. For the time being, as a transit rider I'm happy MTS is able to get this income on a piece of property that they themselves don't really know how to develop. I'm personally more interested in how MTS spends that money to reinvest in local transit. In time, I hope the rail line does find a good suitor who can properly develop it and remove the promised 3000 trucks per day off the road. The current traffic congestion and air pollution issues are only going to get worse and cannot be solved by expanding highways. Finding more efficient transportation options will be a great contribution to this region.

    markg_sd
    markg_sd subscriber

    Funny that Duncan Hunter (the younger) is blasting the misuse of this "asset" when his father Duncan Hunter (the elder) did all he could do to block the improvement and use of this line back in the late 1990's as a "gateway for illegal aliens" 

    Matty Azure
    Matty Azure subscriber

    Interesting picture above...

    In the old days, there were wooden poles and telegraph lines running along the RR tracks.

    Nowadays, the tracks are shadowed by SDG&E's 500kV transmission line lattice towers.

    Signed,

    "I'm a lineman for the county"

    Chris Brewster
    Chris Brewster subscribermember

    Let’s deconstruct this issue a little further:

    The story says, “A rebuilt Desert Line would provide a crucial link between auto factories and other manufacturers in Mexico and lucrative eastern U.S. markets.” Really? Has anyone asked those auto factories and other manufacturers if they would use the railroad if it were functioning? Seems like they haven’t. So is this the pure fantasy/hokum that is what is sometimes known as a scam? Malin Burnham is a smart guy, but does it make sense to sink money into a freight train without first finding out if there is a firm client base? Finishing the railroad might be seen as an accomplishment, but not unless there are enough clients to offset the costs.

    To my knowledge, the Metropolitan Transit System was developed to help provide public transit in the San Diego area. At what point did they assume responsibility for moving freight and why? What expertise do they have in this area? Is freight a net contributor or drain on transit funds? Do we want MTS overseeing and diverting transit funds to the development of a freight railroad? What is the business case for this (i.e. is it a public service or is there a business case that it would help fund public services)?

    For me, there are a lot of questions with no answers, but a lot of public money being spent to the benefit of a few.

    hawaii_87
    hawaii_87 subscriber

    @Chris Brewster Most factories, when given the option, will choose rail over trucks. It saves money and they can ship quicker and in higher quantities which save more money. Baja California Railroad which runs the Tijuana-Tecate portion is investing $20 million into it's infrastructure. They are doing that to only because there is a client base.


    John Spreckels, who built the line died in 1927. His family sold their interest to Southern Pacific Railroad in 1932, which formed the San Diego & Arizona Eastern Railway (SD&AE) to assume operations on February 1, 1933. In 1976, Hurricane Kathleen blew into SD county. She destroyed large parts of the line. Southern Pacific tried to abandoned the line several times but was denied by the government. The Metropolitan Transit Development Board (MTDB) was looking for right-of-way to establish the trolley. They offered to buy the line from Downtown to San Ysidro and El Cajon. SP said yes but MTDB had to buy everything. This is how the trolley became a quasi freight operator. The freight is a contributor to public finds.But not much by comparison to the trolley. No public money has ever been spent as far as I know on the desert line. MTS has always leased it and the operators have been responsible for all upkeep. 


    Hope this answers a few questions. I do not work for any party involved in this. I just like history. 

    davidedickjr
    davidedickjr subscriber

    @Chris Brewster Yes - these factories have been asked...and are interested...as are other maquiladoras in the Tijuana-Tecate region.  I've sat in on some of the conversations.  This railway MUST function for manufacturing in our binational region to thrive.  The business case is rock solid.  No transit funds are being diverted.  I am not aware of any US public money being spent on the project.  This is a complex project involving the legal regimes of 2 different national governments (US and Mexico), state governments in US & MX, and local jurisdictions in US & MX as well.  

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Dick: With respect to your statement that no transit funds are being diverted, the article states, "MTS purchased 108 miles of the Impossible Railroad line in 1979 that included the Desert Line for $18.1 million." Were those not public funds? Since MTS owns the line apparently, is the failure to develop it in a reasonable timeframe not preventing a return on investment for MTS (assuming that is their intention)?

    KUSI has reported, with respect to the company running the railroad, "A company called Pacific Imperial Railroad persuaded Metropolitan Transit System to lease the line to their company. But PIR has problems - namely, its principal owners have never run a railroad. What they have done is fight off lawsuits from dozens of investors who claim they've squandered millions of dollars on failed business deals." Would this not sound, to reasonable minds, like a scam and would it not concern reasonable people that MTS gave a company like this a 99 year lease? Where is the due diligence?

    If the business case, as you say, is, "rock solid," why is the effort being run by people of this low level of reputation? If the business case is rock solid, why wouldn't more reputable individuals be involved and why would this effort not have been completed long ago? If this railway must function for manufacturing in our binational region to thrive, then why aren't competent people involved in making it so?

    The story is a good one. The economics Mr. Burnham describes seem plausible on their face; but why then wouldn't competent managers and thoughtful investors have been attracted to complete this long ago? There are aspects of this that defy common sense.

    JChap1
    JChap1 subscriber

    @Chris Brewster Thanks for the terrific and insightful commentary.  I'm on the Smart Border Coalition with Malin and remark that the handling of the Desert Line "defies common sense" is a polite understatement.


    Tough questions are being asked, finally, and perhaps we will see some clearer thinking before its too late.  The decision announced earlier this week by Hyundai to locate its new auto plant in Nuevo Leon Mexico over its first choice - the Tijuana maquiladora region (a $1.5 billion investment with lots of spill over benefits for both sides of the border) - due to the lack of adequate freight rail infrastructure should serve as be a wake up call. 


    You, Keats, Ari and others are spot on.  


    I would only add that when sophisticated private capital and management talent cannot be attracted to an ostensibly sound commercial opportunity such as this, there is usually a structural issue.  The current fragmentation of the once unified rail line from San Diego to El Centro into 3 franchises with 2 government owners with disparate legal, economic and regulatory regimes is a non-starter.  Had the MTS bothered to retain some expert advice from financial advisors with expertise in structuring public private infrastructure partnerships, perhaps we would could have saved years of nonsense.   I hazard to say that even SANDAG could have done a better job in thinking through the proper ground rules.


    Establishment of a bi-national "joint power authority" (with full responsibility for development of  the system on both sides of the border) is a logical first step in attracting competent operators.   The business case for a $200- 300 million investment in a short line rail system is there, I've seen the models, but a harmonized and viable concession structure is not.   


    This does not have to be a Chunnel, and the federal, state and local governments on both sides of the border could potentially collect tens of millions annually from a properly structured public private infrastructure partnership.  Federal funding is available, capital markets are receptive and customer demand is robust.