Talgo seeks $65.9 million from state for abandoned high-speed rail line [Milwaukee Journal Sentinel]

Nov. 07--MADISON -- The U.S. arm of a Spanish train-maker filed a $65.9 million claim against the state Thursday, setting up a likely lawsuit and reviving debate over Gov. Scott Walker's rejection of $810 million in federal stimulus money for a high-speed rail line.

In its filing with the state Claims Board, Seattle-based Talgo Inc. also maintained Wisconsin owes bond holders an additional $70 million because it borrowed that much for two train sets but never took possession of them.

If the train company's reasoning is correct, taxpayers would have to pay Talgo$65.9 million and immediately refund $70 million to bond holders rather than paying that sum off over the coming years. Even then, the state still wouldn't own the trains.

The request for more money comes on top of about $40 million the state has already paid Talgo.

At issue are two train sets that were to be used for Amtrak's existing Hiawatha line from Milwaukee to Chicago, as well as for a proposed high-speed rail line from Milwaukee to Madison that eventually could have extended to Minneapolis.

In all, Talgo is seeking $65.9 million from the state Department of Transportation -- including $18.6 million in unpaid invoices and interest, $23.5 million in lost business, $10.5 million in damage caused by state officials "continually defaming" Talgo's reputation and $9.8 million in lost maintenance work. The remainder covers an array of others costs, such as for insurance and legal work.

Speaking to reporters Thursday, Assembly Speaker Robin Vos (R-Rochester) emphasized that the Talgo contract included a provision voiding the deal if lawmakers didn't provide money for the trains in the state budget. Vos said Republicans had simply used that clause and refused to hand over the remaining money for what they saw as a bad deal.

"There's an out" in the contract, Vos said.

But in its filing, Talgo says the state had improperly invoked that provision, writing that "Wisconsin's purported funding shortfall was deliberately staged by Governor Walker and the DOT in an effort to evade the state's contractual commitments to Talgo."

Part of the dispute revolves around whether the state or Talgo was responsible for the cost to test the trains.

Talgo maintains the state invented the disagreement over testing as a ruse to claim a breach in the contract. Its filing includes an email from Transportation Secretary Mark Gottlieb to Walker's office in February 2011 -- less than two months after Walker was sworn in -- discussing attempts to sell the trains to other states.

"The state manufactured this contractual dispute out of its desire to kill the train project," the claim states.

The claim also contends the DOT recognized it needed to pay for testing -- and tried to come up with a way to pay for it without seeking more money from the Legislature.

The department proposed advancing money to Talgo under its maintenance agreement so the firm could use the funds to pay for testing. That way it appeared Talgo, rather than the state, was paying for testing.

"The DOT personnel involved were aware that this unorthodox strategy was being utilized to cover its miscalculation and were cautious with the related documentation and electronic communication thereof. To this end, numerous calls and meetings took place to deal with this issue and representatives at the DOT attending these meetings would testify, if required, confirming this point," the claim says.

The DOT later canceled the payment, "presumably because the DOT's management realized the arrangement was inconsistent with Governor Walker's goal to reject the train sets rather than complete the purchase," according to the claim.

DOT spokeswoman Peg Schmitt said in a statement the state has incurred $52 million in costs -- most of which has gone to Talgo -- for the trains. The trains have not been turned over to the state, do not meet specifications and are not compliant with the federal Americans with Disabilities Act, Schmitt said.

"We're waiting for delivery of completed trains that will provide the state with ownership of an asset for which public dollars were used," Schmitt said in her statement.

Talgo is represented by Lester Pines, a Madison attorney and Democrat who has repeatedly clashed with Walker. He has been involved in lawsuits against Walker over restrictions on collective bargaining, limits on abortion and a law requiring voters to show ID at the polls.

Thursday's filing follows a lawsuit Talgo filed against the state in November 2012 seeking a judge's declaration that it had the right to terminate its contract with the state and properly did so. That litigation is ongoing.

Winning that suit would allow Talgo to keep the trains, as well as the money it has already received from the state so far. That would make it easier for Talgo to sell the trains to other states because potential buyers would know Wisconsin wouldn't have a claim to them.

Its latest filing begins a new, lengthy legal process.

The Claims Board consists of Corey Finkelmeyer, an assistant attorney general and the chairman of the board; Greg Murray, chief counsel at Walker's Department of Administration; Brian Hagedorn, Walker's chief legal counsel; Sen. Joe Leibham (R-Sheboygan); and Rep. Pat Strachota (R-West Bend).

Hagedorn will recuse himself from considering Talgo's filing, Walker spokesman Tom Evenson said.

Leibham and Strachota are members of the Legislature'sJoint Finance Committee and in that capacity have voted against funding for Talgo in the past.

If the Claims Board sides with Talgo, it would then recommend the Legislature approve funding for the firm. With Republicans controlling both houses of the Legislature, that appears unlikely.

If Talgo's claim is rejected -- either by the Claims Board or lawmakers -- the train company would be free to file suit in circuit court.

Talgo in 2009 reached agreement on the trains with then-Gov. Jim Doyle, a Democrat who sought and championed the federal money for the Madison-to-Milwaukee rail line. The project would have created hundreds of construction jobs and backers maintained it would boost the region's economy.

Walker made opposition to the train line a centerpiece of his 2010 campaign, saying it was a boondoggle that would cost state taxpayers over the long term. After Walker was elected, the federal government redirected the rail money from Wisconsin to other states because of Walker's promise to end the project.

Talgo in 2010 began using a Milwaukee building at the northwest corner of W. Townsend and N. 27th streets to build two train sets for the state to use on Amtrak'sMilwaukee-Chicago service.

Talgo leased around half of the 300,000-square-foot structure, which is owned by the city of Milwaukee. The building is part of the former Tower Automotive/A.O. Smith complex, which the city is redeveloping into the Century City business park, housing and retail space.

The train-maker continues to lease that building on a month-to-month basis, said Jeff Fleming, Department of City Development spokesman.

Journal Sentinel reporters Jason Stein in Madison and Tom Daykin in Milwaukee contributed to this report.

Twitter: twitter.com/patrickdmarley

___

(c)2013 the Milwaukee Journal Sentinel

Visit the Milwaukee Journal Sentinel at www.jsonline.com

Distributed by MCT Information Services