A Report to the California Transportation Commission

 

 The North Coast Railroad Authority

 

October 28 2004

 

 


 

NCRA 2005 Strategic Plan (Goals)

 

 

 

 

 

Strategic Plan Summary

 

North of Willits

 

South End Reopening 

 

In May of last year, the NCRA Board of Directors voted unanimously to apply for FEMA/OES Alternate Project funding so that approximately $8 million in funds, originally allocated to address storm damage in the Eel River Canyon, could be reallocated to the South End of the Railroad, which is the 142 mile stretch from Willits to the national rail interchange in Lombard. This decision was made in the interest of resuming freight and excursion service as soon as possible on the South End, while we await sufficient funding to complete the EIR/EIS and initiate repairs North of Willits.

 

                       

The pieces of this plan are finally coming together.  After a lengthy Environmental Assessment, this spring, FEMA approved up to $7.9 million for the South End Alternative Project. This approval includes a categorical exclusion for the purchase of $6,411,202 in materials and equipment. Environmental clearance for the balance of the funding ($1,493,610) will depend on a scope-of-work yet to be developed. These funds will be transferred to the State Office of Emergency Services (OES) and be available to NCRA after October 1, 2004.

 

                       

Additionally, Congressman Mike Thompson successfully inserted language into the Transportation Equity Act legislation, HR 3550, (TEA-LU) which releases $8.6 million to the NCRA to bring track conditions up to class II and III on the South End, and makes funding available for the required EIR/EIS work North of Willits.  If HR 3550 emerges from the Conference Committee and is signed by the President, the remaining $10.7 million Q-Fund loan to the NCRA for right-of-way acquisition will also be forgiven, thanks to Congressman Thompson’s efforts. This could make $5.5 million, set aside for repayment of the Q-Fund, available to the NCRA for Consent Decree compliance and Agency Budget needs.

 

                       

With lots of help from our state Senator Wes Chesbro and Assemblymember Patty Berg, the CTC has provided the NCRA with funding in recent years to retire debt, set-up a trust fund to repay the FHWA (which may no longer be necessary if TEA-LU is approved), compile a detailed assessment of the capital needs for the entire 316 mile line, make repairs on the South End, and initiate work under the court-ordered Environmental Consent Decree.  This commitment by the CTC, coupled with the FEMA/OES grant and Congressman Thompson’s efforts should make it possible for freight and excursion service to finally be restored on the Russian River Division of the Railroad.

 

                       

Discussions are currently underway with potential operators for the South End, including the new owner of the California Western Railroad, better known as the “Skunk” which intersects with NCRA at Willits.  We think a partnership with the new owners of the Skunk could be potentially beneficial for all concerned. 

 

                       

As anyone who has followed the history of this railroad knows, trains have not operated on the North Coast, to speak of, since 1998.  Thanks to FEMA/OES, the CTC, Sen. Chesbro and Assemblymember Berg, and Congressman Thompson we are finally on a schedule to bring the trains back on the South End, with service to the North following completion of the EIR/EIS process.

 

 

 

Environmental Impact Report (EIR) / Environmental Impact Statement (EIS) 

North of Willits

 

As mentioned, the federal Transportation Reauthorization legislation, HR 3550, names NCRA as the recipient agency for $8.6 million in previously authorized ISTEA funding. NCRA plans to utilize $5.6 million of these funds for railroad improvements South of Willits and the balance, $3.0 million, to begin a combined EIR/EIS for the remaining 160 miles of track North of Willits.

 

Environmental Consent Decree Compliance

 

            Mendocino Superior Court ordered the NCRA in 1999 to clean up, among other things, nine rail yards from Hopland to Eureka. A $696,000 task order, funded by the TCRP, was issued by NCRA in August 2002 to begin the compliance effort. The majority of the site characterization work, clean-up plans and specifications, and environmental clearances have been completed, under the watchful eye of the Department of Fish and Game, the North Coast Regional Water Quality Control Board, the Department of Toxic Substances Control, Caltrans, and the Attorney General’s Office. This process has been complex and time consuming because virtually any action taken must be cleared by all of the Environmental Consent Decree (ECD) state agencies.

 

            Despite this often-times unwieldy, complicated process worsened by delays caused by last winter’s storms and state budget uncertainties, the contract to begin the surface clean-up has finally been awarded to PSC of Benicia, California. The $345,126 contract is within the budget established under the TCRP allocation, and Notice to Proceed (NTP) was issued on July 12, 2004. The ECD agencies have requested “submittals” outlining disposal protocols prior to the initiation of work. As soon as those submittals are approved, work can begin and should be complete within 60 days. PSC will remove scrap metal, railroad ties, vehicles, steel drums, hazardous materials and other debris from the eight rail yards and one rail station identified in the Consent Decree (Eureka Yard, Scotia Yard, South Fork Yard, Fort Seward Yard, Alderpoint Yard, Island Mountain Yard, Dos Rios Yard, Willits Yard and Hopland Station).

 

            This work was all made possible thanks to a $1.146 million allocation by the Commission under NCRA’s project 32.5 - Environmental Remediation. The PSC contract should finally bring the first phase of this project to a successful conclusion.

 

            The next phase required by the Consent Decree involves the testing and clean-up of sub-surface contamination, clean-up in sensitive areas along the river bank and the development of management plans to prevent future problems. $3 million is currently available for allocation in TCRP project 32.5 to address phase II of the Consent Decree clean-up.

 

 

Strategic Plan

 

South End Reopening (Russian River Division)

 

As explained by NCRA Chairman John Woolley at the April, 2004 CTC meeting, the NCRA Board unanimously agreed in May, 2003 to commit FEMA/OES funding to the reopening of the Russian River Division (Willits, mp 142 to Lombard, mp 1). The NCRA Board has also agreed to commit $5.6 million of the $8.6 million in ISTEA funds towards capital improvements South of Willits.

 

Accordingly, NCRA’s Strategic Plan for the South End calls for approximately $7.9 million in FEMA/OES funding for the purchase of equipment and materials. The materials and equipment purchased under the FEMA/OES grant, along with $5.6 million in ISTEA funding that will be committed to the project, will be sufficient to bring the South End into conformity with FRA Class II standards (25 mph for freight). It should be noted that service will not resume between Willits and the national rail interchange until agreement is reached between NCRA and an Operator and ISTEA funding becomes available.

 

Sources and Uses of Funds 2004-2006

 

                                                                                    FEMA/OES Grant                 ISTEA Grant

 

·        Track, Bridges & Signals                              $2,716,430                              $5,600,000

·        Equipment                                                      $3,050,250

·        “To Be Determined”                                     $1,493,610

                (Primarily relates to signal needs and transport costs)

 

·        Engineering Services and Sales Tax            $644,522                                

 

TOTAL                                                           $7,904,812                              $5,600,000*

 

*This will bring track up to FRA Class I and II 

 

Construction Schedule

 

 

2004    October:           Award of $7.9 million grant along with NEPA clearance to begin purchase  

                                    and storage of materials and equipment.

 

2004    December        Complete procurement of equipment and materials and store at 4 sites

                                    along the railroad.        

 

2005    March              Finalize agreement with South End Operator and begin repair of track,   

                                    bridges and signals.

 

2005    May                 Freight and excursion service resumes from Willits to Lombard.

 

 

 

 

 

South End Reopening (Russian River Division)

 

Business Plan Assumptions

 

There is a market for inbound freight from the national interchange in Lombard (mp 1) to Willits (mp 142). There is also a market for outbound lumber and aggregate materials from Mendocino County, and outbound lumber from Humboldt County that could be trucked to a rail transload facility in Willits. Likely shippers include forest products mills, feed mills, aggregate producers, and local governments exporting solid waste.

 

In addition, there is the potential for excursion service between Petaluma (mp 38) and Willits (mp 142). Excursion trains could be entirely compatible with freight service on the Russian River Division.

 

Recovery of historic traffic levels will take 24 months, with only 65% of the historic traffic base recovered by the end of the first 12 months of operations. New traffic will not begin to appear until the railroad has been in continuous operation for 12 months.

 

The return of the Skunk Train between Fort Bragg and Willits could create freight interchange opportunities at Willits and facilitate the return of excursion service from Willits to Healdsburg, and as far South as Petaluma.

 

NCRA Freight Estimates for the Russian River Division: First 2.5 years of Operation

 

July – Dec 2005                                    2006                             2007

 

Gross Revenue                          $445,000                                   $2,900,000                     $6,000,000

Operating Expenses                   $863,000                                   $2,700,000                     $4,000,000

Net Operating Income               $(418,000)                                 $200,000                       $2,000,000 Depreciation                         $104,000                                   $148,000                       $175,000

Other Exp and Interest              $178,000                                   $316,000                       $303,000

 

Net Pre-Tax Income                 $(700,000)                                 $(264,000)                     $1,522,000

 

Potential South-End Freight Customers

(Representative Sample)

 

Adobe Lumber                                                                         Mead Clark Lumber

Dairyman’s Co-op                                                                                Mendocino Forest Products

Dairyman’s Milling                                                                                Redwood Empire Lumber

ECDC Waste Solutions                                                                        Santa Rosa Wholesale

Friedman Brothers                                                                                Shamrock Materials

Granite Construction (Parnum Paving)                                       Skip Gibbs Rail Bridges

Hunt and Behrens                                                                                 Standard Structures

Kelleher Lumber                                                                                   Ward-Way Lumber

Kendall Jackson                                                                                   West Sonoma Disposal

McPhails

 


The following portion of this report responds to specific questions asked of the NCRA at the April 2004 CTC meeting.

 

1.                   Completion of the amended TCRP application for project 32.5 – Environmental Remediation.

 

Response:  See Exhibit 1.  This amended application, which was mailed to CTC on July 28, reflects an agreement reached with the ECD agencies on June 1.  This agreement allows a $68,000 shift in site characterization funds and a $26,000 shift in CEQA/NEPA compliance funds to cover $94,000 in increased Project Management and Contract Management costs.  This shift in funding made possible the award of a $345,126 construction clean-up contract on July 12.  The $68,000 in reduced scope for site characterization ($303,000 - $235,000 = $68,000) will be included in NCRA’s request for funding for the next phase of the ECD clean-up i.e. subsurface, sensitive areas, and management plans.  Please see p.4 of exhibit 1 for a more detailed explanation of the purpose for the amendment.

 

2.         A funding Plan (FY 2002-03 through 2013-14) to address the negative funding for FY 2004-05 through 2008-09, for administrative function, outstanding debt, and other pertinent issues.

 

Response: See Exhibit 2. With respect to the administrative function 2004-05 through 2008-09, without a dedicated source of administrative funding commensurate with the mandated responsibilities contained in 93000 of the Gov’t Code, NCRA has relied on its property revenues and the lease revenues rail service would generate as its only dedicated sources of Agency funding. Rail service would generate an estimated $20,000 per month, hence the estimate of $120,000 (for June 1 – June 30,2005) for FY 04-05. It should be noted that it is unlikely any operator will agree to pay track rental fees until a profit is realized. I have attached NCRA’s 04-05 agency budget as part of exhibit 2. As you can see, even with rail service for the last six months of 04-05, NCRA is showing an agency budget deficit of $127,349 and a cash-flow shortfall that will hit in October or November 2004 (see spreadsheet as part of exhibit 2).

 

To address the shortfall, on September 9 the NCRA will request a $200,000 bridge loan from the Humboldt Bay Harbor District. This loan will provide the agency funding needed to administer the Consent Decree and $16.5 million in Capital funding provided by FEMA/OES ($7.9 mil) and ISTEA ($8.6 mil). The loan will be repaid in one of two ways:

1.)                Funds generated from crossing leases from a major real estate development in Sonoma County;

2.)                Funds generated by reallocation of the Q-Fund (LAIF), once HR 3550 is enacted. This reallocation may require legislation specifically authorizing the use of TCRP for administrative purposes.

 

NCRA will continue to seek local funds and the State Public Transportation Account (PTA) as a means to provide a dedicated source of Agency funding. The UP escrow account ($293,627 in 03-04) and the signal crossing maintenance fund ($171,000 in 01-02) will no longer be agency revenue sources in the near term for the NCRA. As such, we have estimated the need for $464,000 in unrestricted revenues to cover the loss of these two sources. NCRA has also documented the need for two additional staff positions to address Caltrans/CTC capital funding requirements and auditing issues, as well as a project manager/project engineer to oversee the Consent Decree and other capital projects. Accordingly, NCRA estimates that it needs new state Public Transportation Account (PTA) funding of approximately $615,000 per year to cover its agency budget deficit and retain the staff necessary to carry out the mandate embodied in Gov’t code section 93000 and AB 2928 (Torlakson, 2000). Absent such a guaranteed amount of funding to be added to the approximately $180,000 per year generated from property revenues, NCRA will continue to rely on emergency local and state funding requests to meet its on-going agency obligations. Once rail service resumes and the operator begins to realize a profit, the need will be reduced by approximately $120,000 per year.

 

 

3.         Progress in remediating the environmental hazards and achieving consensus with the ECD agencies to move forward with the clean-up. A joint written statement from the ECD agencies and NCRA is requested. 

 

Response:         See Exhibit 3 – Combined Quarterly Report

                        See Page 3 -  Consent Decree Compliance

                        See Page 6 -  Response to Question #1

 

 

Progress is being made as evidenced by:

1)      Agreement to advertise contract was reached and contract was awarded in July;

2)      Submittals have been approved by ECD agencies and work will begin on September 13, 2004.

As cited previously, the removal of scrap metal, railroad ties, abandoned vehicles, steel drums, hazardous materials, and other debris will begin on September 13th under a $345,126 contract awarded to PSC of Benicia. This Phase 1 surface clean-up should be complete within 60 days at the nine yards.

 

The surface clean-up was made possible under a $1.146 allocation from TCRP project 32.5 – Environmental Remediation. The only deviation from the surface clean-up plan under the approved Task Order 4, was that $68,000 from budgeted site characterization funds, and $26,000 from funds budgeted for CEQA/NEPA compliance were shifted to contract administration and project management tasks, since NCRA does not have the Agency budget to hire an in-house project manager to manage the project. NCRA will request these funds to complete site characterization when it applies for the remaining $3 million in Project 32.5 to complete subsurface site characterization, clean-up in sensitive areas, and the development of management plans.

 

4.                   Progress in hiring a short-line operator and actual funding it would generate.

 

Response:  NCRA’s quarterly reports and previous operating agreements estimate $20,000 per month ($240,000 per year) in track lease payments to the NCRA once rail operations resume. As mentioned, these payments, in all likelihood, will not be realized until the operator begins to turn a profit.

 

The South-End Reopening plan assumes losses to the private sector operator of $700,000 and $264,000 respectively in the first 2 years of operations, with profits of $1.5 million in the 3rd year of operations.

 

NCRA’s Operating Committee has had several meetings over the last 6 months with potential operators of the Russian River Division (Willits-Lombard).  Discussions center on use of the $7.9 million FEMA/OES grant for acquisition of materials and equipment, with the restoration of freight service to the point of interchange when the ISTEA funds become available.  The current owners of the Skunk Railroad, Sierra Northern, have expressed an interest in operating excursion and freight service South of Willits at the earliest opportunity.  Implementation of the FEMA/OES grant is a key component of these discussions.  Despite verbal assurances from FEMA, OES and our elected representatives that the grant award is imminent, NCRA has not gotten official notification from FEMA as of this writing.  As soon as notice of award is given, acquisition of materials and equipment will begin.

    

      5.         Strategic plan for re-opening the entire line north of Willits. Address the impact on NCRA’s ability to comply with the ECD, if the line is not reopened north of Willits.

 

Response:   The August, 2002 Strategic Plan presented to the CTC assumed, among other things, $31 million in TCRP funding (AB 2928) for bank stabilization north of Willits. The fundamental assumptions of the August 2002 Strategic Plan remain, but the suspension of at least $31 million in expected TCRP funding changed the timing, for obvious reasons.

 

The August 2002 Strategic Plan envisioned a combined EIR/EIS for “the canyon” which is defined as from Willits north to South Fork with a more limited programmatic Environmental Assessment for the South – End (Willits – Lombard) and the North End (South Fork – Samoa). The August 2002 Strategic Plan also envisioned restoration of rail service in phases:

 

            Willits – Lombard          (Summer of 2003)

            South Fork – Samoa      (Winter of 2003)

            Through the Canyon      (Winter 2006)

 

We have obviously not met the timeline, and the schedule for reopening the entire line north of Willits has changed with the suspension of TCRP.

 

In May 2003, when it became clear $31 million in TCRP funds would not be available for the segment North of Willits, NCRA turned its attention to the South End, and hence the updated Strategic Plan which commits $7.9 Million (FEMA/OES) for acquisition of equipment and materials, and $5.6 million (ISTEA) for track repairs to the Willits to Lombard segment, as well as $3 million for the combined EIR/EIS north of Willits.

 

Returning the entire line (Lombard – Samoa) to service remains NCRA’s number 1 priority. Capital funding availability is the only impediment to the achievement of this goal.

 

A delayed reopening north of Willits will not impact the ECD efforts. The surface clean-up of all nine sites was initiated September 13, the subsurface characterization will begin as soon as additional funding is allocated under project 32.5.

 

The funding sources for reopening north of Willits are:

 

            $3 million          ISTEA

            $31 million         TCRP

 

The timing of the reopening north of Willits is entirely dependent on the availability of TCRP or private sector funding to stabilize the banks and make other track improvements.

 

     6.    Estimates of the revenues and the number of clientele that would use the line south of Willits, as well as north when the entire line is open.

 

Response:    I have provided a representative sample of clientele and revenue estimates with respect to the South End of the line. See Page 5.

 

With respect to Willits, North – I refer you to page 18 of the NCRA August, 2002 Strategic Update. It should be noted that two factors could greatly increase freight traffic originating North of Willits:

1.       The development of a quarry operation at Island Mountain (mp 194).

2.       A partnership between the Port of Oakland and the Port of Humboldt Bay that would greatly increase the need for freight movements South of Humboldt Bay (mp 284).  

 

     7.     A final proposal to CTC and Department District staff regarding the repayment of the $166K in disallowed Proposition 116 costs. 

 

Response:   See Exhibit 4  This Resolution was adopted at the August 18 NCRA Board meeting in Humboldt County with the assistance and approval of CTC staff. The Resolution was adopted  by the CTC at its September 15 meeting.

 

 

 

 

8.                 Develop a proposal for use of the balance of funds in the Q-Fund account should forgiveness of the federal loan be included as part of the approved Federal reauthorization bill.

 

Response:       See Exhibit 5.  NCRA completed the proposal last July, and has engaged in several discussions with the ECD agencies regarding this proposed reallocation of Q-Fund repayment proceeds. NCRA has shared this proposal with its elected representatives and continues to believe it is an equitable distribution of Q-Fund repayment proceeds, should the Q-Fund loan be forgiven.

 

Finally, NCRA has explained in great detail through this letter and accompanying exhibits all the progress that has been made relative to ECD compliance. I suggested ECD sign off on the combined quarterly review document (see Exhibit 3) as a means to satisfy the request for a joint written statement demonstrating that the clean-up is moving forward.

 

It has been determined that this would not be sufficient to demonstrate that progress is being made. Rather than further documentation of progress from NCRA, I think it would be appropriate for the ECD agencies to draft a joint statement of progress for NCRA’s review and approval.

 

 

I sincerely hope this information responds to all the issues cited in your letter of August 11, 2004.