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Indian River County v. United States Department of Transportation

United States Court of Appeals, District of Columbia Circuit

December 20, 2019

Indian River County, Florida and Indian River County Emergency Services District, Appellants
United States Department of Transportation, et al., Appellees

          Argued September 24, 2019

          Appeal from the United States District Court for the District of Columbia (No. 1:18-cv-00333)

          Philip E. Karmel argued the cause and filed the briefs for appellants.

          Steven L. Brannock and Tracy S. Carlin were on the brief for amicus curiae Indian River Neighborhood Association in support of appellants.

          Joan M. Pepin, Attorney, U.S. Department of Justice, argued the cause for federal appellees. With her on the brief were Jeffrey Bossert Clark, Assistant Attorney General, Eric Grant, Deputy Assistant Attorney General, Kevin W. McArdle, Attorney, Steven G. Bradbury, General Counsel, U.S. Department of Transportation, Paul M. Geier, Assistant General Counsel for Litigation and Enforcement, and Charles E. Enloe, Trial Attorney.

          Eugene E. Stearns argued the cause for intervenor-appellee. With him on the brief were David H. Coburn, Cynthia L. Taub, and Matthew Buttrick.

          Before: Garland, Chief Judge, Srinivasan, Circuit Judge, and Edwards, Senior Circuit Judge.



         In 2011, Intervenor AAF Holdings LLC ("AAF") announced plans to construct and operate express passenger railway service connecting Orlando and Miami, Florida. Phase I of the All Aboard Florida Intercity Passenger Rail Project (also "AAF Project" or "Project"), connecting Miami to West Palm Beach, has been completed. Phase II, which will extend service to Orlando, is presently under construction. In 2014, AAF applied for an allocation of tax-exempt qualified Private Activity Bond ("PAB") authority to partially finance Phase II of the Project. In December 2017, the Department of Transportation ("DOT") allocated $1.15 billion in tax-exempt PABs to be issued by the Florida Development Finance Corporation to finance Phase II of the Project. AAF, the sponsor of the Project, received the proceeds of the bond sales to fund the Project and is responsible for repaying them.

         In February 2018, Indian River County, the Indian River County Emergency Services District (together "County" or "Appellant"), and other parties filed a complaint in the District Court claiming that DOT exceeded its authority under 26 U.S.C. § 142(m)(1)(A) when it allocated $1.15 billion in PABs to fund Phase II of the AAF Project. The complaint further alleged that the allocation violated 26 U.S.C. § 147(f), which requires certain state or local governmental approvals before tax-exempt PABs may be issued. Finally, the complaint challenged the adequacy of the Environmental Impact Statement ("EIS") prepared by the Federal Railway Administration ("FRA") pursuant to the requirements of the National Environmental Policy Act ("NEPA"). See 42 U.S.C. § 4332. With respect to all of its claims, Indian River County raised causes of action under the Administrative Procedure Act ("APA"). See 5 U.S.C. § 706(2)(A) (an agency action may be set aside if found "to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law"); id. § 706(2)(C) (an agency action may be set aside if it is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right"). On December 24, 2018, the District Court rejected Appellant's claims and granted summary judgment to the federal defendants. Indian River Cty. v. Dep't of Transp., 348 F.Supp.3d 17 (D.D.C. 2018).

         The District Court ruled that because the complaint arguably fell within the zone-of-interests protected or regulated by § 142, Indian River County was among the class of parties authorized by Congress to pursue a cause of action under the APA. However, the District Court found no merit in Indian River County's claims. The court ruled that the disputed Project constituted a "surface transportation project" under § 142(m)(1)(A), as required for DOT's allocation of PABs qualifying for tax-exempt status. The District Court also ruled that the use of the disputed PABs did not violate 26 U.S.C. § 147(f). And, finally, the District Court ruled that the FRA's preparation of the EIS as required by NEPA was neither arbitrary, nor capricious, nor an abuse of discretion, nor otherwise in violation of the law. On appeal, Indian River County challenges only the District Court's rulings with respect to § 142 and NEPA. DOT and Intervenor AAF, in turn, contend that Appellant's claims should be dismissed because its interests are not within the zone-of-interests protected by 26 U.S.C. § 142(m). In the alternative, they seek affirmance of the District Court's judgments on the merits.

         For the reasons explained below, we affirm the judgments of the District Court. We agree that Indian River County's interests are within the zone-of-interests protected by 26 U.S.C. § 142 and, therefore, the complaint raises claims that are cognizable under the APA. However, we hold that DOT permissibly and reasonably determined that the Project qualifies for tax-exempt PAB financing under 26 U.S.C. § 142(m). We also hold that the EIS for the Project adheres to the commands of NEPA.

         I. Background

         A. Statutory Background

         1. Private Activity Bonds

         Under 26 U.S.C. § 103(a) of the Internal Revenue Code ("Code"), interest on state or local bonds is generally not subject to federal taxation. 26 U.S.C. § 103(a). However, a PAB issued by state or local governments to finance private activities is not tax-exempt unless it is a "qualified bond." Id. § 103(b)(1). As the District Court explained:

Congress has authorized interest earned on certain types of PABs to be exempted from federal taxation. See 26 U.S.C. §§ 103, 141. Because this exemption allows the bondholder to keep all the interest, bond issuers can sell the bond at a lower interest rate. . . .
Section 141 outlines certain types of PABs that can constitute "qualified bond[s]," including "exempt facility bond[s]." Id. § 141(e)(1)(A). Under § 142(a), a bond is an "exempt facility bond" if at least 95% of proceeds from its issue are used to finance one of fifteen enumerated categories of projects. Id. § 142(a). One such category is "qualified highway or surface freight transfer facilities." Id. § 142(a)(15). Section 142(m) defines "qualified highway or surface freight transfer facilities," id. § 142(m)(1), and authorizes the Secretary of Transportation, "in such manner as [she] determines appropriate," id. § 142(m)(2)(C), to allocate up to $15 billion of PAB authority to eligible projects, id. § 142(m)(2)(A). Put simply, Congress has enacted a mechanism through which the Secretary can allocate tax exemptions to bonds used to finance construction of, or improvements to, certain types of facilities. These exemptions lower the cost of selling the bonds, better enabling state and local governments to finance the projects.
The Secretary's allocation is necessary . . . for a bond to be tax-exempt because it finances a "qualified highway or surface freight transfer facilit[y]." Id. § 142(m)(2)(A).

Indian River Cty., 348 F.Supp.3d at 28 (alterations in original)

         As noted, an "exempt facility bond" includes a bond whose proceeds from its issue are used to finance "qualified highway or surface freight transfer facilities." 26 U.S.C. § 142(a)(15). Section 142(m)(1)(A) defines "qualified highway or surface freight transfer facilities" as "any surface transportation project which receives Federal assistance under title 23, United States Code." Title 23, in turn, authorizes federal funding for, inter alia, "the elimination of hazards of railway-highway crossings." 23 U.S.C. § 130(a).

         2. National Environmental Policy Act

         As we recently explained in Mayo v. Reynolds, 875 F.3d 11 (D.C. Cir. 2017), Congress enacted NEPA in part "to promote efforts which will prevent or eliminate damage to the environment and biosphere and . . . enrich the understanding of the ecological systems and natural resources important to the Nation." Id. at 15 (internal quotation marks omitted) (quoting 42 U.S.C. § 4321). To achieve these ends,

NEPA requires all federal agencies to include a detailed environmental impact statement ("EIS") "in every recommendation or report on . . . major Federal actions significantly affecting the quality of the human environment." Id. § 4332(2)(C). This process ensures that an agency will consider every significant aspect of the environmental impact of a proposed action and inform the public of its analysis. In other words, agencies must take a hard look at [the] environmental consequences of their actions, and provide for broad dissemination of relevant environmental information.
. . . .
Where NEPA analysis is required, its role is primarily information-forcing. As the Supreme Court has explained, "[t]here is a fundamental distinction . . . between a requirement that mitigation be discussed in sufficient detail to ensure that environmental consequences have been fairly evaluated, on the one hand, and a substantive requirement that a complete mitigation plan be actually formulated and adopted, on the other." Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 352 (1989). NEPA is not a suitable vehicle for airing grievances about the substantive policies adopted by an agency, as NEPA was not intended to resolve fundamental policy disputes.
It is now well-established that NEPA imposes only procedural requirements on federal agencies with a particular focus on requiring agencies to undertake analyses of the environmental impact of their proposals and actions. It is equally clear that NEPA does not impose a duty on agencies to include in every EIS a detailed explanation of specific measures which will be employed to mitigate the adverse impacts of a proposed action.

875 F.3d at 15-16 (alterations in original) (citations and quotation marks omitted).

         In sum, because NEPA's requirements are "essentially procedural," the statute does "not mandate particular substantive environmental results." Theodore Roosevelt Conservation P'ship v. Salazar, 661 F.3d 66, 68 (D.C. Cir. 2011) (internal quotation marks and citations omitted). Instead, NEPA "focus[es] Government and public attention on the environmental effects of proposed agency action." Id. (alteration in original) (internal quotation marks omitted). Those requirements "simply . . . ensure that the agency has adequately considered and disclosed the environmental impact of its actions." WildEarth Guardians v. Jewell, 738 F.3d 298, 308 (D.C. Cir. 2013) (internal quotation marks and citation omitted).

         B. Factual Background

         The dispute in this case emanates from financial and environmental concerns relating to the construction and operation of an express passenger railway service connecting Miami, Fort Lauderdale, West Palm Beach, and Orlando, Florida. The rail service, known as the All Aboard Florida Intercity Passenger Rail Project, has been spearheaded by AAF. The new rail service will run along an existing rail corridor designed in the late 1800s by the Florida East Coat Railway ("FECR"). The FECR corridor accommodated both passenger and freight rail service until 1968, when passenger rail service was terminated. The AAF Project is designed to restore portions of the existing rail corridor between Miami and ...

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