Michael Horne
Plenty of Horne

State Delays on Talgo Claim

State claims board won't hear Talgo complaint at next meeting, and officials delay release of Talgo's legal filing, though it's a public record.

By - Dec 12th, 2013 10:51 am
Talgo trainset Wisconsin may never use. Photo by Brendan Murphy.

Talgo trainset Wisconsin may never use. Photo by Brendan Murphy.

On November 5th, 2013, Spanish train manufacturer Talgo, Inc. filed a $65,889,158 claim against the Wisconsin Department of Transportation [DOT] over the state’s refusal to fulfill its 2009 contractual obligations regarding trainsets it had built here for service on the Amtrak Chicago-Milwaukee Hiawatha line and for a future expansion of rail service to Madison and beyond.

Since the filing, the Wisconsin Claims Board, a rather obscure, 5-member panel that considers claims made against the state, has scheduled a meeting for December 19th.

But the Talgo case is not on the agenda, and there are no future meetings scheduled at this time, so it looks like Talgo will have to wait to have its claim heard.

The board meets “approximately four times a year,” according to its website, but in fact has met only 27 times in the past decade, or less than three times a year.

As has been reported, Talgo contracted with Wisconsin to build two trainsets for the state and a maintenance facility in Milwaukee. Talgo also built two trainsets for the state of Oregon here, “establishing a regional manufacturing base for passenger train sets in the Midwest,” according to the claim.

It appeared that Milwaukee was on the way to regaining its role as a major producer of rail rolling stock.

But the DOT analysis came up with several actions to scuttle the project and to kill the maintenance facility.

Claim of Talgo Inc. Click image to open document.

Claim of Talgo Inc. Click image to open document.

Governor Scott Walker emerges as the heavy just 3 pages into the 27-page claim.

“In light of the Governor’s oft-stated intent to kill the train project, the DOT’s analysis was politically motivated and contained several critical misrepresentations of fact, leaps of logic and incorrect assumptions,” Talgo’s claim charges.

The analysis was based on DOT’s assumptions that the state would spend no money on new or refurbished cars over 20 years although existing cars were 20-30 years old, and in “fair condition at best.” It did not include in its calculations lower fuel costs for lighter Talgo trainsets and fare increases from increased ridership (which has happened). DOT also fudged the impact of Governor’s rejection of $810 million in stimulus funding, which would have paid for the maintenance facility.

According to the claim, the DOT may also have jeopardized the credit of the State of Wisconsin, since the $70 million it issued in Talgo bonds had to be secured by capital assets [the trainsets] or be refunded to the state’s bond fund.

Another issue was federally mandated pre-revenue testing of the trainsets prior to delivery. This testing, according to federal regulations, was the responsibility of the state (here in its role as a railroad operator) and not the manufacturer.

But, “at some point in 2012 the DOT determined that its budget for the project did not include sufficient funding for Pre-Revenue testing of the train sets,” according to the claim.

“In an effort to cover these costs without requesting additional funding from the Legislature, the DOT proposed to Talgo that it would advance payments to Talgo under the Maintenance Agreement, in exchange for Talgo applying those State-paid funds to testing costs. 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,” the claim states.

“On April 4, 2012, Talgo more formally gave the DOT written notice that the train sets were available for delivery for the DOT’s testing. The DOT refused to take delivery of the train sets for this purpose, refused to arrange for testing, refused to pay for any testing and instead delivered a written notice to Talgo that the DOT did not intend to place the train sets into service and the DOT was unilaterally cancelling the Maintenance Agreement.”

According to the claim, “In other words, 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, contrary to both the Maintenance Agreement’s clear language and Wisconsin law.”

“To date, the State has paid Talgo $39,925,392 on the amended purchase price of $50,673,392. It owes Talgo $10,748,000 in unpaid invoices, not including interest, under the Purchase Contract alone.”

Talgo also claims damages for “loss of reputation associated with the State’s personnel continually defaming Talgo’s professional reputation in every conceivable forum, etc.”

Talgo CEO Antonio Perez. Photo by Brendan Murphy.

Talgo CEO Antonio Perez. Photo by Brendan Murphy.

After holding his tongue for months, in 2012, Talgo President Antonio Perez said the Walker administration  “used every conceivable excuse, whether fair or not and whether lawful or not, to ensure that Talgo did not receive what it bargained for, including by refusing to pay for the trains that Talgo completed. I don’t see how any company would in the future choose to do business with the State of Wisconsin when the state has shown that it cannot be trusted to honor contracts that it signed.”

Perez told Urban Milwaukee that any companies “should be careful of doing business here because Gov. Walker does not keep his word. It’s like we’re talking about a Third World country, where people don’t have respect for their contracts.”

Perhaps Perez was being too harsh on Third World countries — the company has successfully done business with Bosnia-Herzegovina, Uzbekistan and Kazakhstan, totalitarian nations that, unlike Walkerstan, honor their contractual obligations.

What’s Next?

The Claims Board may not make any award over $10,000. According to the claim, “Because Talgo’s claim against the State exceeds $10,000, Talgo requests that the Claims Board submit a recommendation to the Legislature to pay the claim in the full amount of $65,889,158, plus interest.”

Well, that’s not going to happen.

Much more likely is that the legislature would refuse to pay this claim, which would allow Talgo to sue the state in court, possibly yielding a much greater judgment than sought administratively.

Fun Fact:

Score one point for the Walker administration’s cost-cutting: Oregon was counting on the Wisconsin pre-revenue testing to qualify its trainsets, but the delay caused in Wisconsin brought the train to Colorado where it was tested at Oregon’s expense. The Oregon certification now also applies to the Milwaukee trainsets.

About the Claims Board

The Wisconsin Claims board hears all claims brought against a state agency in the sum of $10 or more. Its five members are appointed, and serve without compensation. It is attached to the Department of Administration for administrative reasons. It has a $190,000 annual budget and no employees. It is staffed by DOA workers.

The board members are:

  • Chair Corey F. Finkelmeyer, a Department of Justice Attorney [UW Law ‘99] responsible for civil litigation, appointed by the Attorney General.

  • Secretary Greg David Murray, a Department of Administration attorney [UW Law ‘98] appointed by the Secretary of Administration.

  • Brian K. Hagedorn, the Governor’s Chief Legal Counsel  [Northwestern Law ‘06], appointed by the Governor.

  • Rep. Patricia Strachota [R-58th AD], appointed by the chair of the Assembly Committee on Finance

  • Sen. Joe Leibham [R-8th SD], appointed by the chair of the Senate Committee on Finance

The Claims Board and the Press

Urban Milwaukee requested a copy of the Talgo complaint from the Claims Board on November 25th, 2013, and its receipt was promptly acknowledged by Patricia Reardon of the DOA. However, as of this writing, December 10th, 2013, the board has yet to provide this document, which was ultimately leaked to Urban Milwaukee by another source.

Talgo Trainset and Milwaukee Facility

More about the History of Talgo in Milwaukee

Read more about History of Talgo in Milwaukee here

Categories: Plenty of Horne

6 thoughts on “Plenty of Horne: State Delays on Talgo Claim”

  1. Michael James says:

    The Wisconsin Department of Transportation should officially change its name to the ‘Wisconsin Department of Automobile Transportation’!

  2. Dave K. says:

    Who’s going to be the first right-wing shill to say “Choo Choo Train?” Bob Donhal? Come on! Dust off those talking points and pejoratives!

  3. Bruce Thompson says:

    Great journalistic coup in getting the claim. It certainly does make Wisconsin look like a trustworthy business partner. This also explains why the case is not yet listed in CCAP, since it is not in the courts.

  4. Tyrell Track Master says:

    God this depresses me. Lets tie walker to that train and chug him right outta town.

  5. Tom D says:

    Bruce, I wouldn’t expect to see this in CCAP ever. I hope that Talgo has the sense to sue in FEDERAL court. The problem with Wisconsin state courts these days is that big cases ultimately wind up in Wisconsin Supreme Court, which has become little more than a GOP rubber stamp.

  6. Nathanael says:

    This is going to end up in federal court, because Talgo is being denied equal protection of the laws.

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