North Coast Railroad Authority

 

The Five-Year Plan

 

 

I.             Sources of Funding

 

A.  Existing Private Funding Sources

 

1.  Freight Service – Rail-Ways, Inc.

 

The NCRA has a Lease and Operating Agreement with Northwestern Pacific Railway Co., L.L.C., a Colorado company (called Rail-Ways or Lessee) and Northwestern California Railway Engineering Corp, also a Colorado corporation (called NorCare).  Via this lease, NCRA transfers its common carrier obligations of providing rail freight service, formerly assumed by the NCRA, to Rail-Ways. This lease has a fifteen-year term and is contingent on the Lessee commencing freight rail operations for its own account.  The date for this start-up was initially to be prior to December 31, 1998, however due to Federal Railroad Administration Emergency Order 21, the parties have agreed to extend this date to June 1, 1999.     

An important element of this new public-private partnership agreement between NCRA and NWPRA relates to Maintenance of Way.  Due to the under funding of rehabilitation work by previous owners of this rail line and storm damage that has exacerbated the problem, the agreement in Section V, 5.01 states that 1) “… all Normalized Maintenance functions on the Premises (be) at Railways’ sole cost and expense, subject to the definition of “Normalized Maintenance” in Section 5.06(a) …” 2) “When Permitted Passenger Services are initiated … all Normalized Maintenance functions for said Permitted Passenger Services on the Premises (be) at the sole cost and expense of the operator of said Permitted Passenger Services …” and 3) “NCRA shall, however, bear all expense of storm damage repairs, rehabilitation and restoration of the level of utility of the Premises as defined in Subsection 5.01 (f)…”  At Section 5.06 (a) the Agreement states: “… ‘Normalized Maintenance’ is defined as the annual operating expenditure necessary to preserve the Level of Utility of the Track and Track Support Structures, as is reasonable and appropriate following restoration of the Track and Track Support Structures to the standards established in Section 5.01 (f) from the combined effects of actual freight railroad usage and the passage of time, excluding any effects of Force Majeure events provided however, that under no circumstances shall RAILWAYS’ or NORCARE’s obligation to maintain the Track and Track Support structures exceed twelve and one quarter percent (12.25%) of RAILWAYS’ gross freight operating revenues during any calendar year.”

The Lease agreement specifies that NorCare will annually submit its maintenance plan and budget to NCRA for consideration and consent.  This plan will identify, on a project-by-project basis, the nature and locations of the capital improvements together with its component costs, prioritization and recommended scheduling.  The plan will separately show the normalized maintenance.

 

Another significant element to recognize is that as a result of this public-private partnership, NCRA has secured the benefits associated with a firm experienced in railroad operations, as well as in railroad maintenance of way, railroad sales and marketing, and railroad accounting, cost, and financial analysis.  The Lease Agreement specifies at Section 5.02 (c) “Accounting for maintenance of way expenditures shall be performed in accordance with Generally Accepted Accounting Procedures as consistently applied to the railroad industry and subject to any and all orders of the STB or other entity with jurisdiction over RAILWAYS’ and/or NORCARE’S accounting.”

 

The lease has two payment components – Rent and Participation Fee. The Rent portion is based on payment by Rail-Ways of 4.2% of the adjusted net depreciated book value of all depreciable track, track support structures, and improvements owned or leased by NCRA & NWPRA.  The Participation Fee is based on Rail-Ways’ pre-tax net income at rates of 25% on the first $250,000/year, 15% on pre-tax net income between $250,000 and $500,000, and 5% on pre-tax net income over $500,000. 

 

The contract further provides that lease rental shall not exceed 20% of Rail-Ways earnings before interest, taxes, depreciation and/or amortization.  The Initial capital value is set in the contract at $5,800,000. The Lease states that: “…the Lease Rental Fee shall be reduced by the daily pro rata apportionment of such Lease Rental Fee for each day the railroad is embargoed because of natural disaster or other Force Majeure event and further prorated by the adversely affected mileage plus the amount of adversely affected volume of traffic as measured over the preceding twelve (12) months, divided by two.  However, no such reduction shall occur so as to reduce the annual amount to be received by NCRA below the level of …$240,000 on an annualized basis for so long as NCRA is obligated to repay the so called “Q” Fund Trust, provided that any such payment shall be deferred until the end of the first quarter following the resumption of service in any quarter when one quarter of the mileage has been embargoed for sixty…days.”

 

The Rail-Ways forecast estimates the following carloads, Net Income, and NCRA Participation Fees:   

Rail-Ways Participation Fee

      

Fiscal Year

Carloads

Rail-Ways Net Income ($1,000's)

Participation Fee ($1,000's)

98/99

1,000

36.2

0

99/00

6,891

457.7

102.7

00/01

9,078

780.5

114.0

01/02

10,635

879.1

119.0

02/03

11,166

912.7

120.6

Five Year Total

 

$3,066.2

$456.3

                     


The first year’s participation fee is based on two months’ operation and is deferred until year two.

 

Rail-Ways has also forecast the investment base used to calculate the Lease payment, the depreciation in that base, the additions, and depreciation on the additions to be as follows:

 

Rail-Ways Lease

 

Fiscal

Depreciation

 

Additions

 

 

Adjusted

Lease Payment

Year

Base

98/99

99/00

00/01

01/02

Base

@4.2%

 

 

 

 

 

 

 

 

98/99

$5,460.8

$381.5

 

 

 

$5,842.3

 

99/00

5,091.5

763.1

$2,595.8

 

 

8,450.4

416.3

00/01

4,722.3

711.5

5,191.6

$2,121.9

 

12,747.3

535.4

01/02

4,353.1

659.9

4,840.6

4,243.9

$515.2

14,612.6

613.7

02/03

3,983.8

608.3

4,489.5

3,956.9

1,030.3

14,068.9

590.9

Five

Year Total

 

 

 

 

 

$2,156.3

 

 

 

Depreciation is based on 15-year group life, straight line, half-year convention with 5% residual. In addition, it should be noted that the first year’s rental is for two months only, and will be deferred until the North End reopens, which is anticipated in fiscal year 1999/2000.

 

2.  Passenger Service - California Redwood Coast Co.

 

The Proceeds received by NCRA from its Contract with passenger service operator, California Redwood Coast Co. (CRC), a California Limited Liability Company, derive from a flat percentage for Net Passenger Fares and a flat percentage of CRC’s net income. This contract has a ten-year term commencing with the first full year of operation.  Rail-Ways will provide the train and engine crews.  The Passenger Operator will provide the locomotives and cars. For trips when NCRA rolling stock is utilized by CRC, additional fees are to be paid. 

 

The passenger excursion service operator, California Redwood Coast Co., has developed  its forecast based on historical passenger counts and surveys and advertising/marketing research prepared internally, as well as by consultants.  The base level in the forecast reflects operation at 67% of capacity.  Seasonal maintenance shutdowns in the Eel River Canyon affect this forecast minimally. 

 

The CRC’s analysis reflects the demographics of the region:

·       12 million people live within a 2 ½ hour drive, supporting weekend and 3-day

travel opportunities.

·       It is located only 1 ½ hours from San Francisco, with its 60 million annual visitors.

·       There are phenomenal winery and vineyard tourist draw to Sonoma and Mendocino Counties, accompanied by the opportunity to visit the redwood forests, coastal rivers, magnificent coastline, and quaint villages.

 

With fares comparable to those of other excursion rail trips, and the offer of trips of varying length, a long tourism season, and the potential for “special event” and special service offerings, the likelihood of seeing return customers is significant.

 

The California Redwood Coast Company forecast estimates the following trips and NCRA proceeds:

 

California Redwood Coast Contract

 

Fiscal Year

Trips

NCRA Proceeds

 

 

($1,000's)

98/99

0

$0

99/00

91

118.9

00/01

274

363.6

01/02

521

705.7

02/03

837

1,174.3

Five Year Total

 

$2,362.5

 

 

3.  Property Management - Real Estate Leases, Sales, Easements, Quarry Royalties,      

     Scrap Sales and Miscellaneous Asset Sales

 

The Proceeds received by NCRA from its real estate leases, real estate sales, easements, quarry royalties, scrap sales, and miscellaneous sales help fund the NCRA’s activities. 

 

In addition, the Operating Agreement for the Northwestern Pacific Line by and between the North Coast Railroad Authority and the Northwestern Pacific Railroad Authority (NWPRA), provides that “property revenue, saving and excepting revenue generated from the Material Leases identified in Exhibit 1 to the Amended and Restated Agreement of Purchase and Sale for the Healdsburg and Lombard Segments dated April 11, 1996 between Southern Pacific Transportation Company and NWPRA as buyer (the “Acquisition Agreement”), and saving and excepting any revenue generated from grants, leases or development of station sites … are hereby dedicated to capital improvement projects approved by NWPRA … after payment of NWPRA’s reasonable administrative expenses in the administration of this Amended Agreement, (hereinafter “Increased Property Revenue”).”

 

The NWPRA has just recently retained a property manager.  That Property Manager is already working to increase NWPRA’s revenue from real estate activity that will be available to NCRA.

 

Rents and easement fees are forecast to increase substantially as the result of the property management efforts of Logan Business Opportunities Lake Management, the firm providing property management services to both the NCRA and the NWPRA.  The rent and easement fee forecast is shown in the table below.

 

The sale of the Willits Depot closed in March 1999 for $300,000. The sale of property to permit the Cloverdale Bypass was concluded in the current fiscal year.  That sale generated $90,000.  Sale of a portion of the Ukiah Depot for an estimated $570,000 is expected to be completed during Fiscal Year 2000/2001, with $70,000 of these funds received in Fiscal Year 1998/1999.

 

Current property management projects in the development stage by Logan Business Opportunities Lake Management include longitudinal easements for effluent pipe in the railroad right-of-way and longitudinal easement lease for fiber optics at various locations  in the right-of-way of NCRA and of NWPRA. In addition, NWPRA is negotiating fees for railroad crossings, which are included in this forecast.  The forecast includes only a fraction of what these opportunities will bring to NCRA. 

 

Scrap sales have been conservatively estimated at $25,000 per year. The sales include Other Track Materials and Roadway Equipment.

 

Quarry royalties are based on the existing Island Mountain Quarry Contract minimum “take or pay” guarantee of $40,000 per year.  The funds, however, have not been collected in spite of this guarantee.  The Contract is with a firm that is included in the NCRA’s Judgments described in Section II B 1.

 

Property Management

 

Fiscal Year

98/99

99/00

00/01

01/02

02/03

Total

 

 

(in

$1,000's)

 

 

 

Rents:

 

 

 

 

 

 

NCRA

$122.4

$142.4

$172.5

$207.5

$237.5

$882.3

NWPRA

40.0

75.0

95.0

115.0

155.0

480.0

Property Sales:

 

 

 

 

 

 

NCRA

460.0

 

500.0

 

 

960.0

Easements:

 

 

 

 

 

 

NCRA

 

 

400.0

800.0

 

1,200.0

NWPRA

 

1,200.0

250.0

250.0

250.0

1,950.0

Scrap Sales:

 

 

 

 

 

 

NCRA

25.0

25.0

25.0

25.0

25.0

125.0

Quarry Royalties:

 

 

 

 

 

 

NCRA

0

0

0

0

0

0

TOTAL

$674.4

$1,442.4

$1,442.5

$1,397.5

$667.5

$5,597.3

 

 

While the forecast above does not include any funding from NWPRA in fiscal year 1998/1999, the NWPRA has provided NCRA with $250,000 to fund track work in that year.  This item is separately listed in the Sources and Uses of Funds Table.


 

B.  Existing Government Funding Sources That Have Been Utilized,     

     That Have Funding Still Available to NCRA, Other Than Loans.

 

1.   California Assembly Bill 2782

 

This bill amended and supplemented the Budget Act of 1998.  It provided $2,000,000 to the California Transportation Commission for the North Coast Railroad Authority.  The Bill received Governor approval in September 1998 and was filed with the Secretary of State.  The Bill stated that:

 “(A)  The funds shall be available to provide for the immediate and critical needs of the     NCRA, including, but not limited to, the following:

(i)            Implementing an accounting system that complies with commission requirements for receipt of state and federal funds.

(ii)          Addressing environmental concerns raised by the Departments of Fish and Game, Toxic Substance Control, and Justice

(iii)         Payment to contractors and vendors for services rendered prior to June 30, 1998, excluding any contractual obligations to Railways, Inc.

(B)        Any remaining funds shall be available for additional needs of the NCRA, including, but not limited to, the following:

(i)            Necessary actions to meet the requirements of the compliance order of the Federal Rail Administration concerning the operation of the railroad

(ii)          Necessary capital improvements to safely operate and maintain the rail service

(iii)         Any other expenditure necessary to comply with the findings or recommendations of the commission or any other government agency with jurisdiction or involvement with NCRA activities.”

 

A first allocation of $243,000 of these funds was supposed to have been made in October 1998.  That promise allowed work to progress on the Accounting Project, Office Administration, and Environmental Testing.  As of March 28, 1999, NCRA was still awaiting the release of these funds. 

 

The most recent impact of the delay in funding is NCRA’s loss of the services of its accounting consultant pending NCRA’s ability to pay for his services.  This means too that NCRA cannot fund the single year audit requested by CTC.  The preparation of this Five-Year Business Plan was delayed due to lack of funding.  It is likely that the hiring of a new Executive Director will be further delayed due to the lack of funding.

 

Without the receipt of the AB2782 funds, the hard fought progress of recent months is threatened. The funding received has been the mid March release of $163,000 in AB2782 funds which was applied toward the payment of payroll tax deficiencies. No funding of private sector efforts has been received.

 

 

 

The $2,000,000 will be utilized for:

 

a)   Accounting project/office administration ($774,000).

b)   Environmental issues ($88,000).

c)    Former employee claims for unpaid compensation from February and March 1998, accrued vacation for employees terminated in 1998, reimbursement of medical insurance payroll deductions, and legal costs anticipated for employee disability claims ($210,000).

d)   Unpaid payroll tax deposits for 1998, unpaid CT-1, employer taxes for 1996 and 1997, plus penalties ($163,000).

e)   Payment to general creditors each with claims under $1,000 (156 accounts totaling $53,000), and partial payments for all others ($514,000).

f)     Payment of FRA Emergency Order 21, signals and crossings work ($165,000).

g)   Attorney fees and expert witness fees for environmental suit and FEMA

appeals ($33,000).

 

2.    California Proposition 116, the Clean Air and Transportation Improvement

       Bond Act of 1990.

 

An allocation of $756,795 in Proposition 116 Clean Air and Transportation Improvement Bond proceeds was made to NCRA in the California Transportation Commission, Commission Project Allocation Approval Mass Transportation Bond and TCI Projects, Resolution No. MBFP 95-01.  The current plan calls for utilizing these funds as part of the rehabilitation work discussed in Section II C 1 of this Plan.

 

Proposition 116 funds were utilized by NCRA to acquire the Eureka Southern from the bankruptcy court in 1992.  NCRA requested and received $6.05 million for the purchase.  The components were $5.25 million for acquisition of the Eureka Southern Right-of-Way and all assets, and another $0.8 million for administration, environmental audits, right-of-way appraisals and title searches, and preliminary engineering.  The purchase encompassed the line from Arcata to Willits.  Subsequently, another $3.1 in Proposition 116 funds were utilized by NCRA for rehabilitation work.  To date, NCRA has expended $9.2 million in Proposition 116 funds of the $10 million allocated to NCRA, the $756,795 mentioned above completes the allocation.

 

Interest has been expressed by some government agencies that NCRA recognize the terms associated with receipt of these funds.  To respond to that concern, it should be noted that Financial Guidelines For Local Agency Reimbursement for the State rail bond programs (Proposition 108 and 116) and the Transit Capital Improvement program, and other programs (via which NCRA has not received funds) states at page 14, “Projects with right-of-way earnings”: 

 

“ In situations where land initially acquired as part of the project and reimbursed with state funds is declared excess at a later date, the local agency must reimburse the state for either the fair market value, assessed at the time disposal or retention is decided, or a pro rata share, whichever is greater, of the excess property no later than 120 days after project completion.” 

 

It goes on to add that:  “Local agencies are required to share with the state proceeds from income generating property in proportion to the state’s participation in the acquisition of the property, through the time of project completion.  Certain costs and expenses directly related to the rental property may be paid from the rental proceeds.  The state allows the same costs and expenses to be deducted from gross income as are allowed under federal-aid program guidelines and regulations. The Commission, in its project approval or Caltrans in the Program Supplement of Fund Transfer Agreement, may lay-out further or different specific agreements concerning rental income and expenses, in accord with specific commission policy.”

 

It is the opinion of NCRA that tacit agreement exists that funds generated from any right-of-way rentals should be directed to fund on-going operation.

 

3.    California Transit Capital Improvement Program (TCI)

 

An allocation of $703,990 of Transportation Planning and Development (TP&D) Account funds was provided to NCRA, $80,920 from the fiscal year 1994-1995 Transit Capital Improvement Program and $623,070 from the fiscal year 1995-1996 Transit Capital Improvement Program.  These funds have yet to be expended and are shown in the Business Plan as part of the funding for what is called the Rehabilitation project.

 

In addition, another $811,000 in TCI funds have been allocated to NCRA.  It is anticipated that these funds will be reprogrammed to fund part of the Q Fund Trust that is discussed in Section II B 2 c, Existing Government Funding Sources with Obligations for Repayment Outstanding.

 

To date, NCRA has received $4.1 million in TCI funds, $0.6 million went toward the acquisition of the NCRA’s line south of Willits, the remainder was expended on rehabilitation projects.

 

In total, $5.6 million of Transit Capital Improvement Program funds should be received; $4.1 million have been received to date with $1.5 million forthcoming.

 

See the section above on Proposition 116 funding for a discussion of the conditions placed on the funds.

 

4.    Department of Fish and Game Grants

 

The NCRA in March 1999 was awarded a $120,000 grant for removal of a barrier to fish migration at Bridges Creek in the Eel River Canyon.  This grant relates to culvert enhancement.  Other projects that would be beneficial to the fishery, as well as NCRA, are being evaluated and grant applications will be prepared as appropriate.


 

5.    Federal Highway Administration Signal Maintenance Funds

 

The NCRA has applied for $135,000 in FHWA 130 funds administered by the Rail Safety Branch of the California Public Utilities Commission for highway signal maintenance.  It is anticipated that $89,000 will be received.  This is the same amount that was received last year by NCRA. The funds received in the current fiscal year will be applied to the rehabilitation currently being performed. Although it is likely that the NCRA will apply for funding under this program every year, only current year funding has been included in this Five-Year Plan.

 

6.    ISTEA

 

The Joint Powers Agreement between the North Coast Railroad Authority, the Northwestern Pacific Railroad Authority, and the County of Marin provides in Section 15 that:  “If NCRA is approved as guarantor of the “Q” funds, ISTEA funds that are thereby released shall be allocated as follows: $2.3 million for the acquisition of station sites in Marin; the balance to be allocated to NCRA for use in the development of its portion of the former Northwestern Pacific Right of Way located north of Willits.”  Subsequently, approval was received and $8.6 million in ISTEA funding has been re-obligated to NCRA. 

 

The rehabilitation projects on which these ISTEA funds will be expended are discussed in Section II C 1 of this Plan. The $8.6 million in funding has not as yet been received.  It is anticipated that funding will commence in fiscal year 1999/2000.

 

7.    Federal Emergency Management Agency/ California’s Office of Emergency  

       Services

 

The Federal Emergency Management Agency and California’s Office of Emergency Services have provided NCRA with $9.6 million to repair the railroad after storms/natural disaster that took place in 1993 (Disaster 979), 1195 (Disasters 1044 and 1046), 1996 (State Disasters 96-01,02,05), and 1997 (Disaster 1155) to date.  Funding for an additional $4.6 million in expenditures for work performed has been denied.  This shortfall contributes significantly to NCRA’s inability to pay outstanding creditors. 

 

All Federal Disaster Projects prior to 1998 have been closed with incomplete work being transferred to Disaster 1203.  The total estimated cost of the work included in the new composite Disaster 1203 is  $22 million.  This includes $3.6 in completed work, leaving a balance of $18.4 million in work to be completed.  Of this $3.6 million, $1.3 million has been deducted from amounts due NCRA as a result of audit exceptions that FEMA has made, leaving a total anticipated funding amount of $20.7 million. 

 

The Business Plan includes the completion of this $18.4 million in work.  The NCRA is counting on being permitted to work cooperatively with all agency personnel to assure that all work that has been placed in a DSR and been approved for funding will in fact be funded.  Surprises that result in lack of funding for work that has been performed are the NCRA’s biggest risks in the near term.

 

              Forecast Receipt of Funding for Storm Damage / Disaster Repairs

        

FY 98/99

FY99/00

FY00/01

FY01/02

5 Year Total

$3,180,000

$10,000,000

$5,000,000

$2,500,000

$20,680,000

 

 

Should the funding be received, it is anticipated the timing of expenditures will be as follows:

Forecast Expenditures for Storm Damage / Disaster Repairs  

 

FY 98/99

FY 99/00

FY 00/01

FY 01/02

5 Year Total

$4,456,000

$10,000,000

$5,000,000

$2,500,000

$21,956,000

 

 

If NCRA does not receive approval of a DSR included in the above repair plan, then NCRA will not perform the work.  In other words, the NCRA plans to only perform work and incur expenditures if that work is funded.  In this interim period, as NCRA is working to reopen the railroad and spending money on storm damage/disaster repair work, as well as spending money for rehabilitation work, NCRA is in some jeopardy that government funding may not be available.

 

It is anticipated that an addition $2.6 million in Hazard Mitigation Proposal funding will be available to NCRA as a result of the above work (minimum allowance 15% of permanent repair cost).  This amount has not been included in the Business Plan funding.

 

In addition, the NCRA has filed the following appeals regarding funding which was denied to date:

 

Bell Springs Appeal

$736,000

Audit Appeal

150,000

Small Projects Appeal

250,000

Disaster 1155 -

 

Indirect Cost Rate Appeal

110,000

TOTAL

$1,246,000

 

 

This $1.246 million has already been spent by NCRA.  If these appeals are successful, there is no offsetting additional expense to be incurred.

 

The NCRA feels that it has a strong case and thus will be successful in these appeals. The receipt of these funds has not been included in the Sources and Uses of Funds Table.  As additional information becomes available, it is anticipated that more appeals will be filed, further reducing the shortfall of funds to cover payments for work completed.

 

Five hundred thousand dollars in funding has been requested for State Disaster 98-01.  This $500,000 has been included in the category Sources – FEMA/OES, Uses – Storm Damage/Disaster Work in fiscal year 1999/2000.


 

 

II.   Uses of Funds

 

A.  North Coast Railroad Authority Operating Expenses

 

The North Coast Railroad Authority’s operating expenses consist of salary for a small staff and the related payroll taxes and other fringe benefits, office expenses including rent, utilities, supplies and incidentals.  In addition, they include the use of professional services including legal counsel, accounting and computer services, and other consulting services as are required from time to time.  After the current fiscal year, these expenses are forecast at $310,000 per year. 

 

During the fiscal year 1998/1999 the NCRA’s operating expenses have been considerably higher than that which has been forecast for the future.  This is the result of the need to:

a)   pay salaries from February and March 1998,

b)   pay accrued vacation pay for employees terminated in 1998,

c)    reimburse medical insurance payroll deductions,

d)   pay legal costs related to employee disability claims,

e)   fund payroll tax delinquencies

f)     pay current salaries and fringe benefits

g)   pay attorney and expert fees for an environmental suit and FEMA appeals,

h)   pay for professional services for development and implementation of an accounting system that complies with commission requirements for future receipt of federal and state funds,

i)     pay for various other professional services.

 

In total it is anticipated that NCRA’s Fiscal Year 1998/1999 expense of operation will be $903,000.  These sums are shown in the Sources and Uses of Funds statement under the categories: Operations – Administration and Professional Services and Accounts Payable Professional Services.  

 

B.  Existing Liabilities

 

1.    Accounts Payable, Judgments, and Other Claims

                                          

Accounts Payable

 

As of December 31, 1998, NCRA’s Accounting Consultant, Mustola Management has determined that the following amounts are payable:

 

Professional and Administrative Services

$  163,897

General Expenses

1,750,740

FEMA Expenses

6,136,224

Subtotal

$8,050,861

 

 

In the categories General Expenses and FEMA Expenses, there are several vendors that should be moved to the Judgments and Other Claims Categories.  In addition, these line items include expenses for Rehabilitation and for Storm Damage/Disaster Repairs which have been removed to better categorize the work performed for these the 1998/1999  expenditures.  Also obviously the NCRA has been incurring expenses performed since December 31, 1998.  Rather than include these additional expenses as line items in Accounts Payable, these added expenses are included in the line items Track and Structure Rehabilitation and Storm Damage/Disaster Work.

 

After these adjustments, the estimated Accounts Payable through June 30,1999 becomes:

                                                 

 

(in thousands)

Professional/Administrative

$   163.9

General

  1,346.1

FEMA

  3,169.8

Total

$ 4,679.8

 

 

 

Judgments and Other Claims:

 

Judgments and Other Claims total $2,444,100.  Of this amount, $912,700 was included in Accounts Payable and has been removed from that classification and placed in the Judgment and Other Claims category. 

 

In addition, it must be noted that this $2,444,100 includes $550,000 in claims which NCRA has taken exception to and another $50,000 may well have been paid, however until all the accounting system updates for prior years are completed, this is not a certainty.  Deducting these two items, the Total Judgments and Other Claims should be reduced to $1,894,000.

 

Highway Crossing Funds Payable

 

This represents amounts received by NCRA for construction and repairs to Federal and State highway crossings installed with Federal and State funds.  The funds, however were not used to reimburse contractors.  The NCRA needs to replace these funds. The amount due is $277,520.

 

2.     Government Funding Sources – Used to Fund Acquisitions and Past Rail

       Projects with Obligations for Repayment Outstanding

 

a.    The City of Willits provided the NCRA with $300,000 in loans that were in default until March 1999.  At that time the loan was repaid at a total cost of $390,000 including interest and other charges.

 

b.    The Redwood Regional Economic Development Corporation provided NCRA with a $210,000 loan at the time of the acquisition of the Eureka Southern in 1992.  The loan, repayable over 15 years at 10% per annum, is presently in default with the last payment made in July 1997.  Currently, $52,000 is due with $27,000 due per year thereafter. 

 

c.    Federal Highway Administration Right-of-Way Revolving Funds – Q Funds

 

This $12 million loan was originally authorized by the FHWA on January 22, 1993 for use by the Golden Gate Bridge, Highway and Transportation District (GGBHTD) for advance acquisition of sections of the Northwestern Pacific Railroad from the Southern Pacific Railroad. 

 

In 1995, NCRA signed a Joint Powers Agreement with the GGBHTD and the County of Marin.  As part of that Joint Powers Agreement, NCRA: a) received assignment of GGBHTD’s purchase rights in the Willits Segment (Willits-Healdsburg), b) $8,572,172 in ISTEA funds were made available for obligation to the NCRA, and c) NCRA assumed the obligation to repay the Q funds. 

 

The Northwestern Pacific Railroad was acquired in 1996.  The NCRA acquired the Willits Segment from Healdsburg to Willits  (74.5 miles) for $6 million, the Northwestern Pacific Railroad Authority (NWPRA) acquired the Healdsburg Segment and the Lombard Segment.  In total, approximately $27 million was paid for these three segments utilizing Federal, State, and Local money.  The only loan used to fund these properties was the $12 million FHWA Q Fund loan. 

 

It is our understanding that the staff of various government agencies has expressed concern that sale of some of the assets of the NWP acquired with the Q Funds would trigger immediate repayment of that portion of the Q Fund loan.  NCRA has contacted FHWA Right of Way officials who indicate that early partial repayment would not be triggered by sale of assets.  Others have expressed concern that “construction” on the right-of-way would trigger immediate repayment of the Q Fund loan. FHWA Right of Way officials indicate that the regulations were written for new highway construction.  Interpretation has to be broadened to recognize that railroad rehabilitation projects must be treated differently, returning right-of-way to an acceptable level for operations is not the same as construction in the highway sense and would not trigger early partial repayment of the loan.  Thus, sale of a depot or commencing rehabilitation of the right-of-way as is planned with the Rehabilitation Projects will not trigger early repayment of the Q Fund loan.

 

The Q Fund loan is due in the year 2013.  An agreement with the California Transportation Commission calls for funding a trust to return $12 million in funds to the Federal Highway Administration at that time.  To date, the sources of the funding that had been planned to ultimately retire this loan have not been available. 

 

The current Business Plan calls for starting to fund the Trust in fiscal year 1999/2000.  The largest amount of funding will come from the Transit Capital Improvement Program.  Rather than being able to use those funds on Rehabilitation Projects, NCRA will be allocated $811,000 to place in trust to repay the Q Fund Loan.  The remainder of the money required to have a minimum balance of $1,191,000 in the Year 1999/2000 will have to come from Private Funding (Rail-Ways Lease or Property Management Receipts).  

 

During the course of the Current Five-Year Plan, it is forecast that the Q Fund Trust will be funded as follows:

 

FY 1999/2000 - $1.191 million (TCI $0.811 million, Private Funding $0.380 million),

In each Fiscal Year 2000/2001, 2001/2002, and 2002/2003, $0.335 million will be taken from Private Funding Sources. 

 

It is anticipated that the Private Funding Contribution to the Trust will increase after that time such that these funds and additional funds invested at 7% compounded quarterly will reach $12 million by the time the loan is due in 2013. 

 

d.    Community Disaster Loan - FEMA

 

In 1996, NCRA received a $615,000 Community Disaster Loan to assist NCRA with operating losses experienced during a natural disaster.  This loan is due in 2001, principal and interest at that time will be $790,000.

 

C.  Anticipated Expenditures

 

1.     Track and Structure Rehabilitation, Equipment Acquisition, Including FRA

       Emergency Order 21 Rehabilitation Work

 

As a result of the November 25, 1998 Federal Railroad Administration’s Emergency Order No. 21, the Northwestern Pacific Railroad was ordered to cease all railroad operations.  In order to lift the closure and re-open the NWPRR south of Willits to Lombard, the NCRA has started rehabilitation work. 

 

The rehabilitation of the railroad included in the Five Year Plan includes the following tasks:

1.    Perform preliminary engineering including field reconnaissance, comprehensive assessment and prioritization of work and preparation of gant chart.  Perform preliminary environmental studies to identify any significant environmental issues and address the requirements of the California Environmental Quality Agency (CEQA) and the National Environmental Protection Agency (NEPA).  Study the feasibility of performing rehabilitation by geographic segments and develop the work plan.

 

2.    Prepare necessary environmental documents and obtain necessary clearances.  Perform right-of-way assessments and surveys.

Complete final engineering, project design and plan of work.  Obtain any    additional permits necessary.

 

3.    Begin construction that will include tie replacement and surfacing, bridge and tunnel repair based on information developed above. Expenses include the labor and materials for construction, construction engineering, inspection and project management. 

Work has begun on rehabilitation of the segment from Willits to the southern terminus of the line.  This work includes correction of defects identified in the FRA’s Emergency Order 21.

 

4.    Continue track, bridge and tunnel rehabilitation work as determined from the

              engineering studies completed.

             Acquire and rehabilitate one dome car, and rehabilitate three currently owned

             passenger coaches/diners.  The equipment rehabilitation will include electrical

systems, air conditioning, brake repair, wheel repair/replacement, running gear repair, and body work, as needed.  The cars will be used to begin operation of passenger excursion service.

 

The funding for this work will come from sources discussed in Section I B: AB2782, Proposition 116, FHWA 130, the Transit Capital Improvement Program, $250,000 from the NWPRA with the balance from Property Management Revenues (Section I A 3).  The Rehabilitation expenditures included in this Five Year forecast total $12.2 million including that portion of rehabilitation necessary to remedy FRA Order 21 defects and reopen the railroad.

 

The Table Below provides the breakdown of this expenditure by anticipated funding source.  Some of these funding sources have restrictions on their use.

 

                                    Rehabilitation Funding Sources

                               (in thousands)

 

AB2782

$165.0

Proposition 116

  756.8

FHWA 130

        89.0

TCI

       704.0

NWPRA

       250.0

ISTEA

    8,600.0

Property Management

    1,567.0

TOTAL

$ 12,131.8

 

 


The timing of the Rehabilitation Projects is estimated as follows:

 

Rehabilitation Timing

      

 

FY 98-99

FY 99-00

FY 00-01

FY 01-02

FY 02-03

TOTAL

 

 

(in

thousands)

 

 

 

Task 1

$  245.0

$   612.6

$

$

$

$   857.6

Task 2

87.5

87.5

 

 

 

175.0

Task 3

496.5

4,468.3

 

 

 

4,964.8

Task 4

_______           

__516.7

4,650.7

__967.0

_______

6,134.4

TOTAL

$  829.0

$5,685.1

$ 4,650.7

$  967.0

0

$12,131.8

 

 

2.    Environmental Remediation

 

Section IV C 4 of this Five-Year Business Plan discusses the environmental remediation expenditures planned for Fiscal Years 1998/1999 and 1999/2000.

 

Beyond that time frame, as new issues surface they will be researched and where applicable, grants for environmental remediation work will be pursued.  Thus the Business Plan beyond Fiscal Year 1999/2000 includes only $30,000 per year as an estimate of the amount which NCRA might be asked to provide on a cost share basis in order to receive future grants.  The Plan for these years does not include either an estimate of the amount of Grants or that portion of NCRA’s expenditure equivalent to the amount granted.

 

3.   Storm Damage/Disaster Repairs

 

The discussion of use of the funds available to repair storm damage and disasters has been included with the source of the funds discussion in Section I B 7.

 

4.   FRA Emergency Order Work

 

Section IV C 3 discusses the Federal Railroad Administration’s order that effectively shut down the Railroad in December 1999.  Funding of work necessary to re-open the Railroad is included in the dollars expended for Rehabilitation and in the dollars expended for Storm Damage/Disaster Repair.  To include the expenditures here would lead to a double count of expenditures.

 

 


 

III.  Economic Development Opportunities

 

The opportunities for economic development of the North Coast Railroad Authority are truly opportunities for the economic development of the entire North Coast of California.

 

The successful operation of the railroad is the means to this end.  The railroad brings transportation competition to the area.  It provides the Port of Humboldt Bay additional opportunities for growth.  It provides a new market for the tourism industry and the associated service industry.  Through all of this, it provides a source of employment for the citizens of the North Coast of California and this in turn provides an enhanced tax revenue base for the State. The NCRA is a public authority established by the state legislature for the benefit of the State, its citizens and its industry.

 

A.  Opportunities for Growth of Freight Traffic

 

1.    Port of Humboldt Bay

 

The Port of Humboldt Bay has consistently supported the NCRA.  In the past, three loans were made to NCRA.  All have been repaid.  They have shown their support by writing the legislature, adopting resolutions regarding the NCRA, lobbying efforts, and testifying on the railroad’s behalf.  The reasons are simple and economic.  What is good for the Port is good for the economy, and rail is needed to maximize the benefits at the Port.

 

In a resolution adopted January 14, 1999, the Board of Commissioners of the Humboldt Bay Harbor, Recreation, and Conservation asked that The Federal Emergency Management Agency promptly release all funds earmarked for the rehabilitation of the NWP, that CTC expeditiously approve the release of ISTEA funds, and that all involved governmental agencies “…dedicate themselves to a common goal in the public interest, namely, the earliest possible resumption of safe and efficient freight service over the NWP between Eureka/Arcata and the Bay Area.” (Copy of Resolution in Appendix B.)

 

In another resolution adopted December 3, 1998, they asked that Federal and State Legislative priorities for the Humboldt Bay Harbor, Recreation, and Conservation District be established.  They petitioned the Senate and House of Representatives and California Assembly and Senate to adopt legislation during 1999 to promote the health, safety, and welfare of the people served by the ports and harbors of California.  Item 5 of that resolution states:  “Work with the State of California and the California Congressional delegation to seek opportunities for granting, authorizing and/or appropriating additional funds for the Humboldt Bay Harbor District’s “Port Access Improvement Program” which includes road, rail and air transportation infrastructure improvements in the Humboldt County region.” (Copy of Resolution in Appendix B.)

 

 

 

The Humboldt Bay Harbor, Recreation and Conservation District has had various planning and implementation reports prepared regarding the Port’s development.  The forecasts performed estimate tonnage, revenues, and gross economic output as a result of Port modernization.  The key commodities are bulk and breakbulk.  Sufficient land is available for on the ground storage of bulk materials.  The Port currently has a volunteer committee which has developed tariffs, reviewed services, expenses, fees, etc. and a plan for the necessary funding from the Army Corps of Engineers, local and state agencies, as well as private financing. They are currently working on a marketing plan with the assistance of the local Community and private dock owners.  They recognize the importance of rail to their ability to sell their facility’s services and are looking for a timely resolution and the reopening of the railroad in order to maximize volume through the Port. 

 

The potential for growth of rail traffic through the Port is substantial.  According to the Port’s Director, current past volume of approximately one million tons could increase fivefold.  Each additional one million tons through the port could equate to 12,500 rail carloads.  It should be remembered that 12,500 rail carloads would equate to in excess of 37,500 truckloads should rail service not be available.  This increase in volume is not included in Rail-Ways freight forecast.

 

2.    Movement of Waste and Various Bulk Commodities

 

Humboldt County has a contract with a firm, ECDC, to move waste from Eureka that recently commenced.  Previously waste was brought to a local landfill.  Currently, as a consequence of rail service not being available, the waste moves by truck to Medford Oregon via State Hwy. 101 to State Hwy. 199.  The priority destination via rail is Potraro Hills Landfill in the Bay Area. Current forecast volume is 65,000 tons for the start-up year with 80,000 tons in year two and slight growth thereafter. 

 

ECDC stands ready to make a $4 million capital investment in the equipment necessary to transport waste via rail subject to availability of reliable, long-term rail service.  Equipment called Rail-Runner, a drive-on, drive-off the rail vehicle, is currently being manufactured for a demonstration project on the NWP.  Equipment will be available in April 1999.  Ultimately the equipment would handle timber, gravel, and waste.

 

A potential exists for Mendocino County to sign a contract with ECDC and convert the existing truck contract to ECDC via rail. 

 

In addition, ECDC’s affiliate, Landbridge, has had a number of conversations with the wood companies and Rail-Ways regarding the potential for handling timber and gravel in Rail-Runners from the North End of the NWP to the Bay Area.  The construction materials would be destined to various sites in the Bay Area currently receiving delivery by truck.  Studies by ECDC have shown that this service could be competitively priced compared to truck and avoid the increasing difficulty of finding long-haul truckers.

 

 

ECDC anticipates that there would be sufficient volume to initially operate a unit train of 60 units, five days a week, including waste.  A substantial addition investment in rolling stock would be required for this additional business, which would require long-term agreements with shippers and would only be possible if there was long-term assurance that the NWP would be there to provide service.

 

The Rail-Ways business plan includes ECDC’s waste movement in years two and beyond, discounted by its basic premise regarding all shippers forecast growth.  It thus includes only one-third of ECDC’s forecast volume for waste and does not include any forecast of the other business ECDC will pursue if reliable, long-term rail service is provided.

 

Once again there is substantial tonnage which has conservatively been omitted from the Rail-Ways Business Plan.

 

3.    Other Freight Opportunities

 

The Rail-Ways Business Plan does not include the results the efforts of an effective Sales and Marketing staff should have on the property.  Conditioned to a railroad with prolonged periods out of service as a result of lack of funding to repair storm damage and to rehabilitate the property, shippers have been forced to find other means of transportation.  If the railroad’s funding needs for this storm repair/rehabilitation work are met, customers will be drawn to the railroad by its competitive pricing compared to truck. 

 

Again, Rail-Ways’s volume forecast is conservative by not including all the potential that exists.  Many potential customers have not been contacted by anyone from a railroad for years.  There is a broad base of support from shippers who are waiting for the opportunity to use reliable rail service.  This traffic will include not only lumber and other forest products, but a diverse mix of other commodities including grain, feed, heavy equipment, gravel, and iron and steel.

 

B.  Problems Inherent in Truck Service to Humboldt County Which Support the

      Need for Rail Service

 

The California Department of Transportation provided copies of two analyses concerning the movement of freight along the State Highway 101 corridor to Senator Quentin Kopp in November, 1998, as well as a cover letter from California DOT’s then Director Van Loben Sels.  Copies are included in Appendix G.

 

The Humboldt County Truck Versus Rail Analysis of March 1998, looked at whether rail traffic could be retained by setting up a transload facility in Willits.  The results showed that not to be a competitive alternative but that rail is a viable alternative.  The report states:

 

“In summary, the additional transportation costs will prevent the Douglas Fir lumber mills from being competitive with the rest of the West Coast mills.  This could cause many of the small lumber mills in Humboldt County to close and force the larger companies to truck their lumber to a transload site.  It will also force Humboldt County to truck their waste on State Highway 101.  The lack of a rail option will generate an increase of truck traffic on both State Highways 101 and 299 leading to increased maintenance costs on those routes.”

 

“This analysis shows a railroad that has the potential to be self-sustaining if properly managed and if sufficient public funding is provided for the rehabilitation of the railroad and for the ongoing storm damage repair work that will be required each year.”

 

The Humboldt County Trucking Analysis completed in October 1998 was conducted to investigate the impacts to the trucking industry of doing business along Highway 101.  Every route leading in and out of Humboldt County has restrictions on truck lengths.  As a result, lumber companies are prevented from shipping over size dimensional lumber, shippers pay higher transportation costs because of the restrictions and the truckers’ inability to obtain backhauls.  “The survey showed Humboldt County shippers pay higher freight rates but get less service than most other regions of California” (Van Loben Sels letter of November 24, 1998).

 

These reports fortify what common sense tells us.  Rail is the competitive price alternative for freight movement in Humboldt County.  It is necessary for business. Without it California will see increased requirement in terms of its highway maintenance budget and local communities will find their growth opportunities and tax revenues limited.

 

C.  Widespread Support for NCRA

 

In spite of the fact that the North Coast Railroad Authority has been plagued by a variety of obstacles since its beginning, widespread support continues for the operation of this railroad in California’s North Coast. 

 

The exhibits in Appendices A through E provide current written proof of that support.

Listed in appendix letter order, these appendices show:

 

A.    Local government support for NCRA

Humboldt County Association of Governments – Motion to approve STIP Amendment Target including allocation for NCRA.

Mendocino Council of Governments Adoption Formula Distribution Policy for RTIP (SB45) and Memorandum regarding future funding for NCRA.

Board of Supervisors of the County of Sonoma, Resolution.

City Council of Eureka Resolution in Support of NCRA.

Redwood Region Economic Development Commission

 

B.    Humboldt Bay Harbor, Recreation, and Conservation District support for NCRA

Resolution in Support of Continued Rail Service.

Resolution Establishing Federal and State Legislative Priorities and Petitioning Congress to Adopt Legislation to Promote the Health, Safety, and Welfare of the People Served by the Ports and Harbors of the State.

 

C.   Letter in support of NRCA from Shippers sent to The California Transportation Commission.

The letters come from firms handling forest products, grain and feed, gravel, soil recycling, heavy equipment, private dock operation, distribution and import of beverages, and performing freight car repair.

 

D.   Convention and Visitors Bureau and Chamber of Commerce letters of support for NCRA.

 

E.    Members of the California Legislature letter dated March 8, 1999 to the California Transportation Commission Chairman expressing their support for NCRA by specifically requesting the release of the AB2782 funding that the legislature appropriated for NCRA in 1998.  

 

One of the exhibits in Appendix A is a Resolution dated March 1998 from the Board of Supervisors of Sonoma County.  It states that: “The continuation of freight service on the Northwestern Pacific line and preservation of the Northwestern Pacific line corridor as a public corridor is important to economic stability and development of economic opportunity in this County.”  It was a simple statement, but one that concisely says it all.

 

No one interviewed during the preparation of this Business Plan wants the Railroad to go away.  Several have expressed concern over what it would cost the state and its citizenry if it went away.  This issue is discussed in Section III F of the Plan.

 

D.  Sensitivity Analyses of NCRA’s Revenue Stream from Private

       Sources:

 

1.    Freight Service – Rail-Ways, Inc.

 

We asked Rail-Ways, Inc. to perform two “what if” scenarios related to rail freight operations, one based on limited traffic and operation of the railroad solely south of Willits, the other based on a higher level of business, but certainly not as high as it could reach if the opportunities discussed related to the development of the Port of Humboldt and by ECDC are achieved.

 

To estimate downside economics, Rail-Ways looked at 6,000 Carloads per year all from Willits South.  At this level the Participation Fee is only $54,000 per year and the Rail-Ways Lease is deferred until such time as the railroad North of Willits is reopened.  For example, if this occurred in Fiscal Year 2000/2001, rather than Lease Income of $534,400, NCRA would receive $0.  The $534,400 would be deferred until some future date. In this hypothetical example, the NCRA would receive only the $54,000 Participation Fee in Fiscal Year 2000/2001 rather than $114,000.  Since the lease payment is only deferred, the impact on the Five-Year Business Plan numbers is only ($60,000). 

 

To estimate a higher side for its potential economics, Rail-Ways looked at 23,400 Carloads per year from operation of the entire railroad.  At this level, the Participation Fee increases to $215,300 per year.  If this estimate of “higher side” economics becomes a reality in Fiscal Year 2000/2001, NCRA’s Participation Fee plus Lease Payment from Rail-Ways would increase to $750,700 from $649,400.  For simplicity, we have assumed that an additional $100,000 in Participation Fees would be received in each of the subsequent two years of the Plan, for a total increase of $300,000 (rounded).

 

2.    Passenger Service – California Redwood Coast

 

We have performed two “what if” scenarios related to rail passenger operations.  These analyses were performed by NCRA and not by the California Redwood Coast Company.

 

Obviously, in the very worst case scenario, the railroad would not be brought up to Class II standards and therefore would be incapable of handling any passenger service.  This scenario is not realistic unless we also assume that an application for abandonment will be filed and granted and that the expenditures currently being made to resolve the FRA’s requirements and the plans to perform additional rehabilitation work are for naught.

 

So, let’s look at other scenarios:

 

What if the NCRA and CRC are not ready to start operation of passenger service until calendar year 2001 and then forecast ridership is only at 50% of capacity?  What happens to NCRA’s $2,363,000 in net proceeds over the Five-Year Plan?  Obviously, no proceeds would be received until Fiscal Year Three and then it is estimated that proceeds would total $1,150,000 or 50% of the CRC’s total $2,362,000 in the Five Year Plan’s forecast. 

 

However on the upside, if CRC’s forecast of ridership increases to 80% of capacity, then NCRA’s proceeds increase to $3,150,000 over the Five-Year Plan, a 33% increase in the forecast.

 

3.    Property Management

 

Property Management issues offer the greatest opportunity for growth in NCRA’s revenue stream.  As indicated in Section I A 3 above, many opportunities are being explored regarding easements in the right-of-way. 

 

In a downside scenario for Property Management revenues, one might estimate that none of the income from easements is realized.  This removes $3,150,000 from the five-year total property management revenue of $5,597,300, reducing it to $2,447,300.

 

At present, however, an upside scenario for Property Management revenues appears to hold real promise of becoming a reality.  There are several companies actively looking for fiber optics easements along California’s North Coast and the railroad’s right-of-way is well suited to meet this opportunity.  Another project being negotiated is the location of an effluent line in a portion of the right-of-way. 

 

As a conservative upside scenario, a doubling of easement revenues is being anticipated.  This $3,150,000 increase would bring property management revenue to $8,747,300 from $5,597,300 over the five years included in the Plan.

 

4.    Summary

 

Combining the three revenue stream sensitivity analyses hypothesized above, Freight, Passenger, and Property Management, we have estimated the following overall potential economic impact on the Business Plan’s Private Funding Sources:

 

Private Funding Sources Sensitivity Analysis

 

Status Quo as Shown in the Plan

Downside Economics

Upside Economics

 

 

 

$10,822,400

$6,401,800

$15,060,100

 

 

E.  Discussion of Possible Future Funding Sources

 

The NCRA has embarked on a pro-active plan to investigate opportunities that will assist in the development of the railroad corridor. Through questioning, research and discussions with NCRA’s stakeholders, business partners, surrounding counties and communities, business associations, state and federal agencies and officials, NCRA has developed the basis for a viable funding plan that is an integral part of its business plan.  It is not an immediate solution to the current debts of the NCRA, but within five years, the Authority can pay off its debts and move forward.

 

As part of this pro-active search process, NCRA is very encouraged by recent developments.  NCRA recognizes that its successes in receiving funding to date have been due in large measure to the willingness of the Legislators, State agencies, County and City governments, and dedicated “volunteers” to provide assistance.  NCRA is particularly encouraged by the effort CalTrans has put forth on NCRA’s behalf and recognizes just how important the California Department of Transportation is to this process.

 

1.    The Railroad Climate in California

 

If you look at the California Department of Transportation’s Vision for California as published on the Internet at www.dot.ca.gov, you see that it shares NCRA’s desire to see that importance be placed on:  “Swift and economic movement of goods through our ports and throughout the State.”  It truly will give  “…California business a competitive edge by adding value to their products and services.”

 

NCRA is positioned to participate in the process that will see that “California’s increased population is accommodated in terms of its mobility needs, while reducing congestion, improving air quality and conserving energy.” “The State’s transportation system is a balanced, integrated, multimodal network: Streets, roads and highways have adequate capacity and are well maintained and managed … are complemented by a fully developed rail service serving urban, commute and intercity passenger needs, including high speed rail links among major urban centers, as well as a healthy freight rail industry; …Innovative approaches to reducing economic environmental and social impacts of transportation are commonplace. Application of new technology brings opportunities for better transportation and expanded industry.” 

 

Caltrans’s stated Purpose “… promotes economic vitality and enhances the quality of life for the people of California by providing for mobility of people, goods, services and information.”   NCRA’s goal is similar to Caltrans - to promote economic vitality for the North Coast of California by providing a means for efficient, competitively priced movement of goods and of people to strengthen the business climate of the North Coast for its shippers, service industries and its citizenry. 

 

The California Transportation Commission 1998 Annual Report to California Legislature, Volume I – Key Issues For 1999, Section I – Fiscal Resource and Management Issues, Part 3 – Structural Shortfall of Public Transportation Account and Part 4 – Revisiting “Self-Help” Funding Options, provide some insight into possible funding avenues that may be available to NCRA in the future. 

 

Specifically, page I-139, “Possible Means of Addressing the PTA Shortfall”, has implications for NCRA funding available through the STIP process via allocations from Humboldt and Mendocino Counties. Here options are listed which require either CTC action or Caltrans changing how it does business or uses a revenue source to fund activities.  Additionally, a second set of options that would require Legislative action is provided for future consideration. (Copy in Appendix H.)  Article 19 of the California State Constitution places certain restrictions on use of STIP funds.  Both Humboldt and Mendocino Counties have put forth propositions allocating STIP funds to rail.  STIP funds have, however, been oversubscribed, thus it is critical that efforts be forthcoming to see that the authorized funds can be allocated.

 

At page I–143 CTC provides a discussion of the difficulty of achieving a two-thirds super-majority vote and its impact on the viability of funding transportation investment through sales tax measures.  The failure of both Marin and Sonoma Counties two-measure approach in November 1998 is witness to the problem discussed by CTC.  Other approaches under consideration for resolving the problem of the two-thirds vote requirement are outlined.  With the active participation of CTC in exploring solutions to this transportation funding through sales tax measures, the opportunities that NCRA’s future funding gap will be closed improve. (Copy in Appendix H.)

 

To the extent NCRA can provide input to, support for, and active participation in these funding solution efforts, either alone or through participation with the California Short Line Railroad Assn., local governments, etc., NCRA plans to do so.  One of the prime responsibilities of the NCRA’s soon to be hired Executive Director is to actively work with all parties to ensure NCRA’s long term viability.  Long term viability is contingent on avoiding significant storm damage and adequate funding which will come from operation of the railroad, supplemented by outside funding sources in the near term to rehabilitate the line so that operation, initially of freight, and subsequently of passenger service, can commence.

 

This having been said, specifically what funding opportunities exist?

 

2.    Government Programs to Explore/ Funds to Access

 

a.    TEA-21:

 

The Federal TEA-21 legislation in Section 7203 is intended to make funds available for railroad capital improvements through loans and loan guarantees.  Under this program, not less than $1 billion is to be available solely for smaller (non-Class I) carriers.  This credit program is currently in the Notice of Proposed Rule Making stage and is being reviewed by OMB.  Specifically, the Secretary is authorized to provide direct loans and loan guarantees to State and local governments, government sponsored authorities and corporations, and railroads to be used to acquire, improve, develop or rehabilitate intermodal or rail equipment or facilities, including track, bridges, yards and shops.  Priority is to be given in selecting projects that enhance public safety and the environment, promote economic development, enable United States companies to be more competitive in international markets, are endorsed in state and local transportation plans, or preserve or enhance rail or intermodal service to small communities or rural areas. 

 

The Federal TEA-21 legislation in Section 7202 is designed to fund pilot projects that demonstrate the relationship of light density railroad services to the nation’s intermodal transportation system.  Funding has been authorized at $17.5 million per year for the years 1998-2003, however, it has not yet been appropriated.

 

Another section of the TEA-21 legislation contain programs that NCRA may be able to participate in, including the Transportation Enhancement Activities program with funding available for regional and statewide projects relating to rehabilitation of historic railroad facilities. 

 

The new Executive Director of NCRA will thoroughly investigate all opportunities available for use of TEA-21 funds.  The Director will work with the state and local government agencies and, to the extent practical, with the Federal Railroad Administration to see that NCRA has explored all options and prepares viable applications for funding where the needs of NCRA and the goals of these programs can be met.

 

One important comment has to be made.  In order to obtain funding, the State of California has to have a current State Rail Freight Plan.  To the extent NCRA can provide any assistance in that development process, it will.  NCRA’s future depends upon it.

 

b.    Natural Disaster Assistance Act (NDAA)

 

The NCRA is a local agency eligible for and is seeking NDAA provided disaster assistance.  NDAA provides disaster assistance to local agencies suffering State and/or Federal disaster related damages.  NDAA pays all eligible costs for local agencies to restore damaged facilities to their pre-disaster design, function, and condition providing: a) Federal funds are unavailable, b) the agency is unable to pay the local cost share, and c) public benefit is established.  Based on this criteria, NCRA qualifies for NDAA funding. 

 

Government Code section 8687.8 provides for interim funding should federal funds not be available, while section 8686.8 states that interim funding or a community loan is available for necessary emergency and permanent work needed to reestablish rail service.

 

Restoration of rail service versus the abandonment of rail service is beneficial for the State of California and North Coast Region.  Additionally, Public Law 104-88, 109, stat.803 (1995) of the Interstate Commerce Commission Termination Act 40 U.S.C. 701, et seq. mandates that common carrier service cannot be abandoned without authorization from the Commerce Commission.  If abandoned, the cost to the State of California for restoration of the right-of-way to its “natural condition” is conservatively estimated at in excess of $150 million.  The cost to restore the right-of-way to pre-disaster condition is insignificant in comparison. 

 

A formal letter to the Office of Environmental Safety (OES) requesting funding is being prepared as this Business Plan is being published.  At such time as funding of this same work becomes available through the Federal Emergency Management Agency, the NDAA funds are to be repaid.

 

This funding has not been included in the Sources and Uses of Funds Table.

 

c.     State Transportation Improvement Program (STIP), SB45 (1997, Kopp),

       Regional Transportation Improvement Program (RTIP)

 

The Mendocino Council of Governments (MCOG) is the designated Regional Transportation Planning Agency for Mendocino County and has established a process to identify and select local projects for programming in future Regional Transportation Improvement Programs (RTIPs).  This includes 10% of available funding for Rail.  Currently, $524,000 has been set aside for projects on the California Western some of which directly benefit the NCRA.  In a letter dated December 15, 1998, MCOG’s Transportation Planner indicated that “…it is expected that MCOG will reserve part of the rail funding for future claims by NCRA, pending eligibility.” (Copy in Appendix A)  As of February 1, 1999, $259,000 has been reserved for future use by NCRA.

 

The Humboldt County Association of Governments (HCAOG) is the designated Regional Transportation Planning Agency for Humboldt County.  HCAOG at its January 28, 1999 meeting set aside $300,000 in STIP funding for NCRA. (Copy in Appendix A)

 

This almost $600,000 in near term funding that Mendocino and Humboldt Counties have set aside for use by the railroads is not included in the Sources and Uses of Funds Table.

 

d.    Local Rail Freight Assistance Program

 

Many other states including Illinois, Iowa, Kansas, Ohio, New Hampshire, Oregon, and Pennsylvania have developed programs for funding light density rail freight lines.  From 1976-1995, funding for rehabilitation of these lines was available under the Federal Local Rail Freight Assistance Program (LRFA).  Under that program grants were made to States, not to Railroads. When that Program was no longer federally funded, several states established their own programs and the number of states recognizing this need has continued to grow.  NCRA will work to bring the importance of such a program to the attention of the California Legislature.  The California Shortline Railroad Association is already working on this project.  

 

e.   Other opportunities that the new NCRA Executive Director will research  

      include:

 

·       U.S. Economic Development Administration funding that is periodically available for the development of public works projects, which create jobs and improve infrastructure to support rural economic development.

·       Community Development Block Grant funding for infrastructure improvements, equipment acquisition and working capital to support projects which will create or retain jobs.  Projects such as rail sidings, spur line, capacity improvements and acquisition/rehabilitation of passenger equipment may qualify for funding.

·       National Highway System program funds availability for rail projects where such projects are in the same corridor as, and in proximity to, a fully access controlled highway.

·       Funding available from regional transportation planning agencies for railroad planning, where these planning efforts would be of benefit to NCRA.

·       USDA-Rural Development program loans and grants for infrastructure improvements.

·       Assistance provided to the Alaska Railroad and to other entities to determine what types of innovative funding, special funding legislation, and funding sources that have proven to be effective elsewhere and may be a practical alternative for NCRA.

·       The Federal Transit Assistance 5311 Program.

·       The Federal Emergency Management Agency hazard mitigation program.

·       The Petroleum Violators Escrow Account for alternative energy initiatives.

 

3.    Conversions of Loans to Grants

 

a.    Federal Highway Administration Right-of-Way Revolving Fund (Q Funds)

 

NCRA will work with the Congressional delegation to pursue legislation which will convert $11 million of the NCRA’s existing $12 million loan under the Federal Highway Administration (FHWA) Right-of-Way Revolving Fund Loan Program (Q Funds) to a grant.  While the program has been discontinued, the loans payable under the program may remain outstanding for 20 years.  NCRA’s loan is due in the year 2013.  Until the Q Fund loan is turned into a grant, the NCRA will fund the loan’s repayment through use of Transit Capital Improvement funds and its Private Funding Sources.

 

b.    Community Disaster Loan

 

NCRA is also seeking conversion of the $615,000 Community Disaster Loan to a grant.  This action would convert a loan secured in 1996 to assist NCRA with operating losses experienced during a natural disaster to a grant and will be pursued with the Congressional delegation.  This loan is due in year 2001 at an anticipated $790,000 including interest.

 

4.    A Private Funding Source – Federal Income Tax Benefit Pass Through

 

To help insure the financial success of NCRA, Rail-Ways is prepared to contribute more than $100 million in federal income tax benefits available to its affiliate, the Venango River Corporation.  These income tax benefits may be shared with any shipper-investor to shelter taxable income attributable to either returns from investment in transportation assets or income from other on-going operations.

 

The possible benefit to NCRA to be derived from these tax benefits could be multi-million.  The opportunity provided herein will be pursued.  Its potential as a funding source has not been quantified for inclusion in the Sources and Uses of Funds Table.

 

5.    Summary – Potential Impact on Business Plan

 

The economic impact on NCRA of several of the programs discussed in Section III D 2 above (TEA 21, the Congestion Mitigation Air Quality Program, Local Rail Freight Assistance Programming, and many topics listed as Other programs to explore) cannot be quantified at this time.  Many of these sources will be pursued as part of future planning projects, construction or rehabilitation projects, industrial development projects, or passenger/transit projects. Since these projects are not under active development at this time, no expenditures are included in this Five-Year Business Plan.

 

There are, however, several funding sources mentioned in Section III E 2 and 3 that could have a very positive impact on the current Five-Year Plan.  They include: Funds from the STIP programs and forgiveness of the Q Fund Loan and/or Community Disaster Loan.  The positive cash flow impact related to these government funding sources could total $3,545,400 during the five years of this Business Plan.  (STIP funding at $300,000 from Humboldt County and $259,000 from Mendocino County. Q Fund during the term of the Business Plan at $2,196,100. CDL Loan at $790,300.) 

 

Add to this total a nominal $5 million estimate of the funding that could become available from the pass through of income tax benefits discussed in Section III E 4 and there is a positive cash flow impact of $8.545 million.  This, in and of itself, would be enough to turn the future of the NCRA immediately around.  Unfortunately, these things are not going to happen immediately.  Until they do or until the NCRA receives an influx of funds from the economic opportunities discussed in Section III D, Sensitivity Analyses – Private Funding Sources, the NCRA will remain in debt for several years to come.

What is important to note is that it would not take a lot of additional money to turn the entire situation around.

 

F.  The Regional Impact of the North Coast Railroad Authority -

       Financial Implications for California, Federal Agencies, Business, Communities,   

       and the Environment if NCRA Ceases to Exist

 

There are numerous potential implications for California, Federal Agencies, Business, North Coast Communities, and the environment if the North Coast Railroad Authority ceases to exist.

 

The following is a listing of the issues that must be considered in making decisions regarding future funding of NCRA. The costs of having the NCRA fail are potentially enormous.

 

Q Funds Repayment becomes the obligation of the State: $12 million due in 2013.

 

Community Disaster Loan will not be repaid: $615,000 plus interest due in 2001.

 

The property will likely have to be restored to its original condition and the State of California will likely have to fund the restoration of the right-of-way.  If the line were to be abandoned, a number of government agencies, including the U.S. Army Corps of Engineers, the National Fish and Wildlife Service, the U.S. Coast Guard, the California Coastal Commission, the California Department of Fish and Game, the California Water Resources Control Board, the California Department of Forestry and Fire Protection, etc.,  could request that the property be returned to its “natural condition.”  In addition, consideration should be given to the railroad based levee system around Humboldt Bay which provides protection for Highway 101.  The estimated cost to return the right-of-way to its natural condition is in excess of $150 million. This is due, in part, to the fact that the railroad has 372 miles of road, 3000 culverts, 59 bridges and trestles and 29 tunnels.

 

Economic consequences of the loss of rail service – higher transportation costs, loss of production, loss of jobs, loss of tax revenues, increased truck traffic on the highways, accelerated road deterioration, increased risk of highway accidents, a slowdown in  community development, adverse effect on tourism.  No attempt has been made to quantify this cost here, however it is certainly possible the long term impact is in the range of tens of millions of dollars.

 

The Golden Alternative - Cost to Mitigate the Risk of Landslides

In 1998, FEMA launched a project to evaluate the stability conditions of the Northwestern Pacific Railroad corridor and to estimate the costs to mitigate the risk imposed by landslides on the railroad. The December 8, 1998 Geological and Geotechnical Report North Coast Railroad, Northern California was prepared by URS Greiner Woodward Clyde, Oakland CA.  FEMA assembled a team of geologists, geotechnical engineers, environmental engineers, rail engineers and cost estimators for reviewing and evaluating the geological and geotechnical conditions over the terrain of the railroad route.

 

The Report, at page 4-1, discusses the variety of approaches  “…developed to mitigate existing landslides (Turner 1996).  These approaches can be categorized as: (A) live with the problem; (B) avoid the problem; (C) reduce driving forces; (D) increase resisting forces; (E) increase internal strength; and (F) mitigate against landslide triggering processes.”  “…live with the problem, means the railroad would continue to periodically incur damage resulting from landslide movement, and periodic maintenance or reconstruction of the line would be required.  This may be the preferred approach if the cost of maintenance/reconstruction is small relative to the cost of landslide mitigation.” 

 

Obviously, the path that NCRA has been trying to utilize, although unsuccessfully due to a lack of timely funding so far, is much less costly than the cost to mitigate against landslide triggering processes.  The estimated costs of alternatives B through E were not developed as part of the FEMA report.  Alternative F, “mitigate against landslide triggering processes” was developed. The total estimated cost for mitigation was sensational, as no doubt was the cost to prepare the report. In total, the report found that it would cost $642 million to mitigate the risk imposed by landslides, with cost ranging from zero to $10 million per mile. 

 

From a purely economic standpoint, this is a “put the railroad out of business alternative”. One could rehabilitate the railroad at least twenty times over compared to the mitigation  estimate prepared for FEMA. 

 

Obviously, a realistic middle ground must be reached.  This Five-Year Plan is the start, the Twenty-Year Plan should bring together a thorough analysis of what is best for all stakeholders.

 

G.  Long Term Opportunities

 

Transit

 

The North Coast Railroad Authority was created in 1989 by the California Legislature to purchase rail right-of-way ensuring the preservation of rail service in northwest California.  According to the North Coast Railroad Authority Act, in addition to preserving passenger and freight service, the authority was to explore opportunities to improve service, enhance tourist access, reduce reliance on motor vehicles and  reduce traffic wear on Route 101.

 

Southern Pacific Transportation Company operated south of Willits until it sold the south end in 1996 to the Joint Powers Authority. That purchase which included the segments to Lombard and to Novato was made to preserve the right-of-way for future transit.  Although no steps have been taken in that direction, commuter rail remains a possibility.

 

In a number of cities a successful operation of transit and freight coexists. In Chicago transit right-of-way has been successfully shared with freight operations for many years on separate side-by-side tracks extending from downtown Chicago to a suburb 30 miles south. New Jersey is applying a design-build-operate-maintain concept to opening a 34-mile system for time-separated joint operation of light rail transit and freight traffic on shared track between Camden and Trenton.  The line will operate over an existing Conrail freight line and about one mile of new construction.  The existing line will be double tracked, have two new bridge structures, continuous welded rail installed and the track upgraded to FRA class 3.  FRA is currently reviewing the safety standards necessary.

 

These operations provide NWPRA with a model for considering future operations that include passenger rail transit and freight movement on the same right-of-way -- addressing one aspect of their mandate and opening another revenue avenue.

      

 

 

 IV.  Management Discussion

 

A.  The NCRA’s Mandate

 

The North Coast Railroad Authority was created in 1989 by the California Legislature to purchase rail right-of-way that would ensure the preservation of rail service in northwestern California.  The North Coast Railroad Authority Act, Government Code Section 93003 Legislative Findings and Decisions states: “The Legislature finds and declares that maintaining railroad service to the north coast area of California will provide economic benefits and, in addition, do all the following:

 

·       Ensure continuing passenger and freight railroad service to the north coast area.

·       Explore opportunities for the improvement of rail service extending from Humboldt County through Mendocino County, and the potential extension of rail service to Del Norte County.

·       Enhance tourist access to the north coast and encourage the establishment of tourist-related facilities.

·       Reduce reliance on motor vehicles and encourage the use of rail service as an alternative transportation means.

·       Reduce traffic congestion on and deterioration of State Highway Route 101.

·       Provide convenient and attractive transportation service for residents of and visitors to the north coast area.”

 

The Legislation clearly articulates the mandate and intent of the state, however the source of funds to carry out the mandate was not as clearly articulated.

 

B.  Historic Overview – Funding

 

The companion bill, which would have provided funds to execute the mandate of the North Coast Railroad Authority Act, was vetoed by the then governor after having been passed by a bi-partisan vote of the legislature.  

 

The NCRA made its first acquisition when it acquired the property of the former Eureka Southern from the bankruptcy court in1992.  NCRA requested and received $6.05 million Proposition 116 money from the state of California for the purchase.  The components were $5.250 million for acquisition of the Eureka Southern Railroad right-of-way and all assets, and another $.8 millions for administration, environmental audits, right-of-way appraisals and title searches, and preliminary engineering.  The purchase encompassed the line from Arcata to Willits. 

 

In 1995, the Golden Gate Bridge, Highway and Transportation District (GGBHTD), Marin County, and the NCRA established a joint power authority to acquire and own the right-of-way of the Northwestern Pacific Railroad.  In 1996, $27 million was paid to acquire this former Southern Pacific Line from Ignacio to Lombard, Novato to Healdsburg, and Healdsburg to Willits. The NCRA took ownership of that portion of the line from Willits to Healdsburg for $6.0 million.  NCRA’s purchase was funded through the use of $5.4 million in Federal dollars and $0.6 million from TCI.

 

To date, an additional $4.2 million in TCI funding and $4 million in Proposition 116 funding has been allocated to the North Coast Railroad Authority.  Federal and state funding to NCRA has totaled $20.3 million since 1992.  Of this total, $0.76 million of Proposition 116 funds and $0.7 million in TCI funds have not yet been expended.  In addition, there are $0.81 million in TCI funds not yet allocated which are expected to be dedicated to Q Fund repayment.  This would bring the funding total to $21.1 million.  During the preparation of this Business Plan, it became apparent that there is a lot of confusion about how much money has been given to the North Coast Railroad Authority and what it has done with this money.  Let’s try to end the confusion.  Of the $20.3 million received to date, $12 million was used to acquire the assets (property, track and structures, equipment, etc.).  The remainder was chiefly used for rehabilitation of this property that had suffered through years of deferred maintenance.  

 

C.  North Coast Railroad Authority Board Issues and Initiatives

 

The NCRA Board is currently composed of seven members, two are appointed by each of the Boards of Supervisors of Humboldt, Mendocino, and Sonoma Counties and one by the city governments served by the NCRA.  The members are all volunteers and several hold full time jobs in addition to their NCRA responsibilities. 

 

The NCRA has a property manager who is paid a commission rather than a salary for providing services related to property leases, easements, and sales.  The Board’s legal counsel, due to lack of funding, is performing for the most part without compensation and is currently volunteering hundreds of hours of free service devoted to FEMA, environmental, and funding issues.  The Board would like to pay for these services.  The amount of legal assistance required by NCRA at the present time is considerable and for certain special project work the Board is seeking funding out of AB2782.

 

Individual board members serve on a number of Committees including the Audit Committee, Legislative Action Committee, and Executive Search Committee.  An additional committee, the Technical Advisory Committee, is composed of both Board Members and representatives from the Humboldt County Association of Governments, the Mendocino Council of Governments, Mendocino County Administrator’s Office, Sonoma County Transportation Office, City of Ukiah, City of Willits, State of California Department of Transportation District One Office, as well as the NCRA’s Property Manager.

 

In addition, the Board relies on the assistance and cooperation of members of the California Legislature, California’s Senators and Representatives, numerous California and Federal agencies, County and City governments, Convention and Visitors Bureaus, the Port of Humboldt Bay, Shippers, Interested Citizens, Employees of the Railroad, Lessees and Contractors 

 

In addition to its administrative responsibilities, NCRA in the past became a reluctant railroad operator with no working capital on a poorly maintained system as there had been little interest from the private sector in running a railroad with substantial deferred maintenance and no clearly identified public funding source to bring the facility up to dependable operating condition.  And, until recently, the NCRA never had the resources in cash or skilled personnel to properly manage its oversight of the public funds which had been acquired for limited track improvement and storm damage repair.

 

Past mistakes and recent efforts to install an acceptable accounting system have resulted in cautious release of State and Federal funds.  As discussed in previous sections, these funds are essential to the railroad’s survival and to the appropriate execution of the legislative Act.

 

The Board is attempting to significantly change its role in the future. With the presence of a private sector railroad operator, a new management accounting system, the recruitment of an executive director, recommitments from the shipping community and the continued support of county investment, the NCRA for the first time since its inception in 1992 can fulfill the goals of the Title 12 enabling legislation.

 

The number of people who work to keep NCRA moving forward in spite of the lack, to date, of adequate funding to complete the repair of storm damage and to perform the rehabilitation work is especially noteworthy.  It must be remembered that everyone has known, since the time of the California Legislative mandate to form NCRA, that the property which was to be, and subsequently has been purchased, was known to have suffered from significant deferred maintenance.  Thus the needs of NCRA should come as a surprise to no one.  

   

The complexity of the issues facing the NCRA Board is daunting. This is a volunteer Board for an authority mandated by the State whose operations are not funded by the State.  The Board is operating without an executive director whose responsibility it should be to shoulder the responsibilities currently being handled by individual Board Members.

 

1.  North Coast Railroad Authority Executive Director

 

The NCRA Board is currently conducting a search for an Executive Director.  The successful candidate will be responsible for:

 

·       Implementation of the five-year Business Plan, which will be the first step in the twenty-year plan.

·       Securing additional funding necessary to stabilize the financial condition of NCRA.

·       Building public confidence in NCRA.

·       The public/private partnerships with Rail-Ways, the operating lessee, and California Redwood Coast, the passenger service operator.  

·       Ensuring operation of the entire railroad and continuation and expansion of service.

·       Maintaining and enhancing effective working relationships with government agencies and state and federal legislators.

 

The Executive Director will manage a small NCRA staff as well as provide oversight of contractors and professional service providers.  He/she will have the skills necessary to understand the requirements of the government agencies providing funding to NCRA, understand the transportation industry, have the financial, planning, and leadership skills necessary to head the NCRA team, and the ability to work effectively for the NCRA Board and all its stakeholders.

 

It is anticipated that the Executive Director will be on staff in the Spring of 1999, pending the release of AB2782 funding. 

 

2.  North Coast Railroad Authority Accounting Plan

 

In early 1998, Caltrans conducted a prequalification evaluation of the accounting system of the NCRA, and concluded the system was “…not capable of accumulating and segregating reasonable, allocable and allowable projects costs…”  The report cited various weaknesses and recommended various actions be taken which constitute the backbone of NRCA Accounting System Project:

 

·       Develop an Accounting System with Acceptable Policies and Procedures

·       Develop a Clear Picture of NCRA Assets and Liabilities at July 1, 1998

·       Put the Accounting System in place with July 1, 1998 as the starting point

·       Complete all past Single Year Audits and submit to Caltrans

·       Develop a comprehensive NCRA Business Plan

·       Address audit deficiencies cited by FEMA

 

In response to these issues, Cowden & Lippman CPAs were engaged to produce an Accounting Policies and Procedures Manual.  It was approved by Caltrans and adopted by the Board in September 1998.   Mustola Management was then retained to implement the Manual, install a new accounting and managerial information system, and to prepare historic books and records for Single Year Audits for 1997 and 1998.  Mustola Management’s assignment includes a review of inventory usage over the past two years, an in-depth analysis of fixed assets including estimated market value review of existing equipment, and production of a property ledger.  Historic payroll and accounts payable transactions will be re-coded for input to the new accounting system.

 

Mustola Management has recently completed the task of preparing records for the CalTrans pre-qualification audit of the first six months of fiscal year 1998/1999. This new system was deemed acceptable in the initial Caltrans review conducted in February 1999. 

There is a significant amount of analytical work yet required to complete the books and records of 1997 and 1998, but Single Year Audits should commence during the summer of 1999.

 

Once completed, the new system will provide NCRA with accurate accounting information and provide government agencies with the audit information necessary to track expenditures made for track rehabilitation and for storm damage/disaster repair by project.  Passing an audit is a prerequisite for obtaining virtually any type of government funding.  NCRA is currently considered a High Risk Subgrantee pending its ability to pass this audit

 

3.  Railroad – Not Operating

 

On December 9, 1998 the Federal Railroad Administration issued Emergency Order No. 21 to “Prevent Operation of Trains on Northwestern Pacific Railroad’s Trackage From Arcata (Milepost 298.5) to Milepost 63.4 Between Schellville and Napa Junction.”  The FRA is authorized to issue emergency orders where an unsafe condition or practice compromises safety.  Operations, according to the FRA, are discontinued until the NWP inspects and properly repairs its track and grade crossing signals and trains employees to properly maintain the safety of its track and grade crossing signals.

 

Emergency Order No. 21 also amends FRA Emergency Order 14 issued in June 1990 to prohibit the transportation of passengers and hazardous materials between MP 145.5 near Willits to MP 216l6 near Ft. Seward until the track complies with Class I track standards.  Operations are discontinued on the northern portion from Nashmead to Arcata due to flood damage.

 

Emergency Order No. 21 was the result of a 1997 FRA and CPUC review which revealed hundreds of defective track conditions and a lack of required tests on locomotive air brake equipment and defective conditions on all NWP locomotives.  The FRA and CPUC concluded that NWP needed a system-wide employee training program to recognize safety violations and to perform necessary repairs promptly and correctly.  The FRA issued a ten point Compliance Order.

 

Inspection of grade crossing signals revealed that 32 of 126 grade crossings were not operational and that NWP employees lacked the knowledge and test equipment to adequately maintain the signals.  Track inspections in September and October 1998 revealed 298 defective conditions between MP 63.4 and MP 139.5 of which 254 were defective crosstie conditions.  The ties were broken or split in many places, allowing the ballast (rock) to work through.  Also, inspectors found 12 areas with inadequate drainage facilities and vegetation that obstructed signals or created a fire hazard.  November 1998 FRA and FEMA inspections identified 262 storm damaged locations in the Willits to Arcata portion of the line.

 

 

 

As a result, train operation was ordered discontinued.  Future operation was made contingent on ten factors:

 

1.    Proper repair and inspection of all grade crossing signals, certify to the FRA Administrator that all necessary repairs and inspections have been performed and that all required tests are up-to-date.

2.    Adoption of a set of grade crossing standards and development of written instructions acceptable to the FRA.

3.    Update circuit plans for each grade crossing in compliance with FRA specifications.

4.    Provide proper and adequate test equipment for signal maintainers.

5.    Repair all track no subject to FRA Emergency Order 14 to Class I standards.

6.    Clear all vegetation from drainage facilities, signals and track bed.

7.    Furnish FRA with a 12-month track maintenance plan including crosstie installation, rail surfacing, drainage maintenance and a schedule of work.

8.    Establish a program of employee training on FRA track standards.

9.    Certify that the individuals conducting track inspections have the ability to perform inspections properly.

10.Obtain approval from the FRA Administrator that all requirements have been met.

 

The order consists of two parts – system requirements and segment- specific requirements.  NWP can obtain partial relief from the emergency order by meeting systemwide requirements 2, 4, 7, 8, and 9 then segment by segment completion of the requirements after FRA inspection.

 

The operating agent for the NWP, Rail-Ways, Inc. is moving rapidly to get NWP into compliance with the requirements of Emergency Order No. 21.  To meet the requirements Rail-Ways has:

 

·       Filed a set of grade crossing signal standards and instructions with the FRA for its approval.

·       Contracted a well-respected signal maintenance firm, Mass Electric Construction, to provide proper and adequate test equipment for signal testing and maintenance.

·       Submitted a 12-month track maintenance plan to the FRA originally July 1998 and recently updated.

·       Established a program of employee training on federal track standards and is conducting training through a contractor.

·       Updated its current roster of roadmasters certified to conduct track inspections.

 

To meet segment-specific requirements Rail-Ways has:

 

·       Contracted MEC to inspect and repair all grade crossing signals and to certify to the FRA that all necessary repairs have been performed.  This work is being done in several phases.  Currently, all public highway crossings up to Steele Lane in Santa Rosa are operational.  This work will continue on up to Willits.  The funds for this work will come from AB2782 when available.

·       Engaged an experienced signal supervisor to update circuit plans for each grade crossing signal system to meet FRA compliance.

·       Contracted for replacement of about 8,000 crossties, 1,900 tons of ballast and surfacing 15,000 feet of track.

 

In addition, Rail-Ways reports that substantially all vegetation defects reported by FRA and CPUC have been corrected on the South End and that no vegetation control will be made north of Nashmead MP 175.5 until there is prospect of operation on that segment of the line.  Also, inadequate drainage facilities have been systematically removed as each section of the line receives attention.

 

Train and engine crew training was completed in July 1998 and an examination administered.  Certification of individuals conducting locomotive power and equipment inspections have been completed. Inspection reports of locomotives and equipment were reviewed and amended in July 1998.  Proper repairs of locomotives have been completed.  Testing of passenger cars by NWP employees has been prohibited with the car owners required to contract for certified inspection.

 

Except for track standards training and track repairs on-going at highway and bridge approaches, NWP is now in compliance with track safety requirements.  Rail-Ways engaged Herzog Construction company in January 1999 to bring the NWP up to Class I standards and reopen the line from Lombard to Willits.

 

The Railroad north of Willits has not been operated since February 1998.  The Railroad south of Willits has not been operated since the receipt of the FRA Order No. 21. The only revenues received have been from NCRA’s property management efforts.  Thus there are virtually no funds to pay current expenses let alone to pay off prior debts.  To cite the obvious, in order to generate operating income, the Railroad must be operating.

 

4.  Environmental Issues

 

Currently the California Attorney General’s Office is considering a ninety-day stay of the pending environmental issue lawsuit to permit the crafting of a Consent Degree to resolve this matter.  Another meeting will take place before the end of March to determine their position on the stay of proceedings.

 

Outstanding Environmental Issues

 

The following list provides information on environmental issues and what is being or has been done recently to address each issue:

 

·       Removal of barriers to migration of threatened coho salmon and steelhead trout:

NCRA has just been awarded a $120,000 grant for removal of a barrier to fish migration at Bridges Creek in the Eel River Canyon.  One of the conditions of the proposed Consent Decree will be an ongoing obligation of NCRA to seek grant funding for this type of work.  Another type of barrier is railcars in the river.  One flat car is the responsibility of NCRA and will be removed, the Southern Pacific (Union Pacific) is responsible for the other cars that are in the river and said to be “barriers to migration.”

·       Removal of waste at Willits: It will be removed.  The cost is estimated not to exceed $40,000.

·       Security for Willits facility: Above ground tanks will either be removed or fenced off.  The cost is forecast to be minimal.

·       Develop a Waste Management Plan and hire of an Environmental Manager: The lessee has a Director of Environmental Compliance in its employ.  His salary and cost of the plan is being borne by the lessee and is included in his operating budget.  There is expected to be no expense for the NCRA.

·       Disposal of oil from locomotives: The cost is being borne by the lessee and is included in his operating budget.  There should be no cost to the NCRA.

·       Make waste determinations: This is expected to cost $5,000.

·       Weekly inspections of waste containers and tanks: Once existing waste is removed as discussed above, ongoing responsibility belongs to the lessee and is included in his operating budget. 

·       Employee training: Lessee’s training program is in place. Those employees requiring training have been trained and are presently certified under U.S. D.O.T. rules.  The cost is being borne by the lessee.

·       Emergency response plan: The Plan has been completed and no new costs are anticipated.

·       Cleanup of past pollution: Clean up at Willits Yard is the responsibility of the Union Pacific pursuant to a written Environmental Indemnity Agreement that is partially secured by $1.1 million in escrow.  NCRA believes that the groundwater extraction wells have already been drilled at Island Mountain and it has already been environmentally cleared.

·       Removal of Underground Storage Tanks: All tanks north of Willits have been removed.  Any tank removal in Willits is the responsibility of the Union Pacific.

·       Removal of ties along the right-of-way: NCRA plans to remove the used ties lying along the right-of-way.  Cost not to exceed $20,000

 

It is estimated that the NCRA will expend $88,000 for environmental remediation during Fiscal Year 1998/1999 to be funded by AB2782 and that $135,000 will be expended in 1999/2000 to complete the work listed (this includes the work called for in the Fish and Game Grant).

 

Future Environmental Issues:

 

As new issues surface they will be researched and, where applicable, grants for environmental remediation will be pursued.  Thus the Business Plan beyond Fiscal Year 1999/2000 includes only $30,000 per year as an estimate of the amount which NCRA might have to provide on a cost share basis in order to receive future grants.  The Plan for these years does not include either an estimate of the amount of the Grants or that portion of NCRA’s expenditure equivalent to the amount granted.

 

 

5.    The Importance of the State of California’s Legislators, Local 

     Governments, and Agencies

 

Let’s go back to where we started the discussion of possible funding sources.  

 

NCRA recognizes that it cannot succeed alone.  It needs the cooperation of all its stakeholders.  The State of California, its legislators, its local governments, and its agencies in effect hold the ultimate purse strings that will let NCRA rehabilitate the railroad and once and for all move forward instead of treading water at best. 

 

The North Coast Railroad Authority was established by the State and was provided $12.1 million in state and federal funds to acquire former Southern Pacific right-of-way in the North Coast of California. The railroad that was acquired had suffered from years of neglect and lack of maintenance of way funding by its previous owners. To date, an additional $8.2 million in state and federal funds have been allocated to rehabilitation of this railroad.  Of the $8.2 million, $0.76 million of Proposition 116 funds and $0.7 million in TCI funds have not yet been expended.  In addition, there are $0.81 million in TCI funds not yet allocated which are expected to be dedicated to Q Fund repayment.  This would bring federal and state funding for NCRA to $21.1 million.

 

Future certain funding available to NCRA includes $8.6 millions in federal ISTEA funds for rehabilitation and the $120,000 grant from Fish and Game.  Additional funding opportunities available, including STIP funding allocations from Humboldt and Mendocino Counties, have been discussed above.

 

If we can believe that the State will take the actions necessary to carry out the 1998 California Transportation Plan Statewide Goods Movement Strategy as it pertains to railroads, NCRA will be able to achieve the targets set out in this Business Plan. 

 

Several excerpts from the California Goods Movement Strategy are attached in

Appendix F.

 

D.  Planning for the Future

 

Throughout this Business Plan we have presented numerous discussions of the future of the North Coast Railroad Authority.  We have presented forecasts of revenues and receipts from both public and private sources, as well as opportunities to explore.  We have presented forecasts of expenditures for track rehabilitation, equipment acquisition, and storm damage/disaster repairs.  We have presented what needs to be done and the risks inherent at each stage.

 

As you have read, the NCRA Board, its Lessees, and its Consultants are currently working to position the Authority for the twenty-first century.  To this end it has taken a proactive position to overcome the challenges presently confronting the Board including the recent initiatives in addressing its past problems: 

 

·       It is implementing a new “railroad compatible” accounting system that will meet not only NCRA’s needs and that of its Operating Lessee, but will also satisfy the accounting needs of government funding agencies.

·       The Board is conducting an aggressive search for an Executive Director with the qualifications necessary to understand and fill the needs of all stakeholders. 

·       It has contracts with a new experienced rail operator, Rail-Ways, as well as with a passenger service provider, California Redwood Coast. 

·       The Board is presently working to meet the requirements of FEMA and OES, of Caltrans and CTC in order to secure Storm Damage/Disaster funding for projects as yet incomplete, as well as to meet the requirements necessary to obtain the release of funds from many other government agencies. 

·       It is working with the NWPRA regarding as yet untapped property management sources of funds. 

·       The Board is assessing all its opportunities and risks and their implications for shippers, communities, and all stakeholders.

 

As a result of the NCRA’s new public-private partnership and the positive developments above, the Board intends to focus on the future and address three major areas envisioned by the original legislation:

 

Public policy execution to protect the railroad as a public transportation asset and to promote its use.

 

Oversight of all financial accounting and record keeping through auditing and other forms of monitoring of various operating and real estate relationships, including action as required to insure regulatory compliance. 

 

Pursuit of new funding sources and of new legislation, as well as management of grant funding from existing local, state and federal sources for continued investment to improve the railroad infrastructure and expand its use.