SAVING A RAIL LINE

In August, Wallowa Forest Products shipped lumber from Wallowa by rail. Shipments stopped after a rate dispute but negotiations are again under way to resume freight traffic. (The Observer/GARY FLETCHER).

Six years ago, as lumber mills in Wallowa County were closing, Idaho Northern & Pacific Railroad gave up on the Joseph line.

The short-line railroad had purchased the railway from Union Pacific in 1993 as part of a package of short lines. Wallowa County records list the cost at about $35,000, but the price of the total package of short lines was not released.

In 1994, the railroad paid $13,540 in property taxes to Wallowa County for its land along the railroad, which was then assessed at $1,129,190.

At the time Idaho Northern gave up rail operations into Joseph, in late 1996, Richard Bertel, the railroad's chairman, said that only 35 carloads of freight had been shipped between July 1995 and April 1996.

The formal abandonment was granted by the federal Surface Transportation Board to the Elgin-to-Joseph line, despite requests from Joseph Timber and Wallowa Forest Products to keep the line open. All rail operations ceased until earlier this year when Wallowa and Union counties agreed to pay the private railroad $6.5 million — down from an original asking price of from $7 million to $8 million — to buy the line.

The counties have refused to release the contents of a feasibility study of the profitability of the railroad, citing confidentiality agreements with Idaho Northern, but Oregon Department of Transportation records show that Idaho Northern filed a revenue report in May 1994, the year after it purchased the line, showing revenues of $232,985.

Claudia Howells, manager of ODOT's rail division, said the Idaho Northern reports included revenues from the La Grande-to-Elgin portion of the line, as well as the line from Elgin to Joseph. Idaho Northern continues to operate freight trains from La Grande to Elgin over tracks owned by Union Pacific. Boise Cascade is the primary shipper along that line.

State reports show that railroad revenues increased to $1.5 million in 1995 after rail traffic to Joseph stopped. Idaho Northern revenues from La Grande to Elgin rose to $2.16 million in 1998, but by 2001, the most recent year of the reports, revenues had dropped to about $1.8 million.

Howells said the income from the Elgin-to-Joseph line would not have been reported separately from the La Grande-to-Elgin line's income.

A report from the counties to Oregon's congressional delegation states that potential revenue from railroad operations along the Joseph line could exceed $1 million in 2003.

The counties are asking the federal government for a grant of $4 million to help defray purchase costs.

The Department of Transportation does not require railroads to break out expenses, but it does request information about the percent of revenues spent on maintenance.

In 2001, Idaho Northern reported to the state an expenditure of 7.3 percent of its revenues on maintenance, compared to 10.2 percent in 1998.

Union County has declined to release maintenance costs borne by the privately owned railroad, and no estimate of future maintenance costs has been released. The counties' report to the congressional delegation projects expenses in 2003 at $682,098, but the report offers no source for that figures.

The transportation department has only limited access to the financial reports of privately-owned railroads operating in Oregon.

"We cannot go in and open the books of a railroad," Howells said. "It was an extremely short time that they (Idaho Northern) owned the line. Any kind of data would be insignificant."

The salaries paid by Union Pacific when it owned the line would be much higher than those paid by a short line, Howells said, "because those employees are unionized."

In 1996, Idaho Northern Chairman Bertel wrote to the federal Surface Transportation Board that the line had suffered "24 separate mud slides and washouts," and engineers had estimated the cost of repairs would exceed $2 million. State transportation officials disagreed, saying that the costs would probably be about $50,000.

George Altenburg, who was general roadmaster for Union Pacific from 1979 to 1994, said maintenance can be expensive for railroads operating in mountainous terrain, with repairs to bridges and trestles running as high as $2,500 to $3,500 per foot. Replacing one wooden tie can cost up to $60, including labor, he said.

Howells said that the overall average per-line railroad maintenance runs between $4,000 and $8,000 per mile.

"It depends on the terrain — the terrain and weather conditions," she said. "With mountains, grade, wet, extreme cold, you're going to get a higher maintenance cost."

Mike Furtney, Union Pacific spokesman, confirmed that the railroad giant sold many of its short-line railroads in the Northwest to Idaho Northern in the early 1990s, including the Joseph line.

"Most of those branches depended on forest products," he said. "Timber was in decline."

Although Furtney said it was "not appropriate" to discuss Union Pacific revenues, he said, "There needs to be enough business on any branch to take care of maintenance costs and all the other elements that make up railroad operations.

"When it falls below a certain level it doesn't make sense anymore to keep operating."

Short-line railroads can operate over short distances more economically than can a major rail line, such as Union Pacific, Furtney said.

"Ultimately, it comes back to cost," he said. "If your railroad can function adequately with a lower level of service, of speed, that's all well and good."

The Oregon Economic and Community Development Department apparently is optimistic that the Joseph line can be viable. The department has given a loan of $5 million to allow the counties to repay the $4.5 million owed to Idaho Northern. The railroad debt comes due in May, but the state will give the counties three years to begin the annual repayment of $457,495 at 5.52 percent interest.

The 2001 Oregon Legislature granted $2 million to the two counties to buy the line.

"We did not think it in the best interest to give $2 million to the counties unless we felt comfortable that there was value there," said Jim Zelenka of the state's economic development department. "We looked at the valuation of the assets of the entire railroad."

The state estimated that the value exceeded $7 million.

Should the counties not be able to repay the loan, Zelenka said the state would investigate several options.

"We'd look at abandoning the line and selling the assets to repay the state," he said. "That would include everything — the real estate, the rails, all of it."

Foreclosure on the county is not one of the state's options.

Zelenka appears to agree with Union County Commissioner Steve McClure that public ownership of the railroad guarantees that the infrastructure — the rails, the ground under them and the easement — will remain in place.

"We know you can't make a good business case, but it's vital to maintain that infrastructure," McClure said. "Once it's gone, it's gone."

In Zelenka's view, "The whole purpose is to retain the infrastructure and make it useful."

The counties are appealing for federal grants to Oregon's representatives in Congress, where McClure would like to raise $4 million to complete payment for the railroad, but that effort will probably have to wait until the next Congress convenes in January. Should funding be awarded to the line, it is highly unlikely that it would come to the counties before 2004.