City grants loan to help Skunk Train

By TONY REED Of the Advocate

A special meeting of the Fort Bragg City Council Tuesday evening resulted in a unanimous vote by council members to grant a loan to the California Western Railroad, in the amount of $125,000 to keep its operations going until the summer tourist months. The loan is a public-private partnership between the city and Savings Bank of Mendocino County, which has agreed to match the citys loan, totaling $250,000.

The financially troubled railroad reported that it was filing for Chapter 11 bankruptcy protection in December. At that time it was reported that the railroad only had about $20,000 in available cash and was unable to cover its minimal operating costs, including monthly insurance premiums and staff costs. Meyer reported that he had obtained a $31,500 loan at that time to maintain operations, but that amount had been depleted. Unable to find other funding sources, the city was presented with the loan proposal March 10.

At that time, it was reported to the city that CWR had approximately $1.2 million in outstanding debt, $300,000 in back payroll taxes due, and about $250,000 in necessary track repairs required before opening for the summer tourist season.

According to staff reports, bankruptcy allows the railroad to be protected from existing obligations to creditors, but does not solve the immediate problem because the Skunk Train is a seasonal operation and generates little or no revenue in the off season for track maintenance and repairs.

But the loan is not without risk, as City Manager Connie Jackson outlined in the staff report. Listed risks were that perhaps the loan could not be repaid as scheduled, that the loan amount would exceed the value of the collateral, and that CWR may be forced to close anyway, despite the loan efforts made by the city.

CWR bankruptcy trustee Mike Meyer provided staff with estimates that the value of the rolling stock, consisting of the railroads steam engines and passenger coaches, was approximately $902,000. According to research done by Council member Dave Turner, the estimate was conservative, and there are, in fact people and agencies who make a business of purchasing and utilizing railroad engines and equipment.

However, despite the risks, council members agreed that the risk of losing the Skunk Train, which many feel is an anchor to downtown business, as well as a city trademark, is greater than the risks posed by granting a loan to CWR.

According to the resolution, the loan is to be paid back in full by Sept, 25, 2003, at a 7.5 percent interest rate, with liens secured on the railroads rolling stock.

Community Development Advisory Board Chair Ted Rabinowitsch openly objected to the city loaning money from the Urban Development Assistance Grant, which he said was conceived with the purpose of funding downtown improvements.

Those concerns were somewhat resolved by a suggestion from Council member Lindy Peters that the interest on the loan also be repaid to the UDAG fund, leaving it with a higher fund balance. Currently the UDAG fund has a balance of about $800,000. It was once used to loan startup funds to the Boatyard Center businesses, which were paid back in 1998.

The resolution to make the loan from the UDAG funds passed unanimously, with some of the terms and conditions slightly modified under the recommendation of appointed attorney to the city, Michael Gogna.