May 24, 2002 11:00 pm

By Gary Fletcher

Observer Staff Writer

ENTERPRISE¬óWallowa County has received another week's extension in its effort to put together a $6.5 million deal to buy the railroad between Joseph and Elgin.

Both parties are interested in closing in escrow by May 31. Idaho Northern and Pacific Railroad said Friday that it would return the county's $500,000 earnest money, Wallowa County Planner Bill Oliver said.

Idaho Northern had previously given the county until May 21 to close the deal. The Oregon Economic Development Department verbally agreed to issue a line of credit up to $7 million (including $2 million in lottery funds) to guarantee the repayment of a $4.5 million note to the railroad. This would also provide the county initial operating revenue.

The sale has been held up because that guarantee has yet to be issued in writing.

Other conditions of the sale include limiting the county's liability to the $7.5 million collateral of the rail line, not other county assets.

The county is also asking the state to grant it three years of nonpayment of principal and interest. In the short term, it would not be feasible to service the debt from initial railroad revenue. However, shipping bulk loads of logs and lumber could revitalize the county's sawmill industry, Oliver said.

During the grace period the county plans to pursue private investment and federal aid, either from an appropriation, or a pending short line railroads bill.

The county would actually have four years in which to make a payment, because Idaho Northern will maintain the line and operate the freight service for the first year.

In the deal, the county will get rolling stock including two locomotives and three passenger cars for an excursion train. If just 10 percent of the county's 1 million annual visitors rode the train, it would result in a lucrative new tourism business, Oliver said.

The state funding requires that Union County be involved. At Union County Commission's 9 a.m. Tuesday, meeting it will consider adoption of an ordinance to create a separate entity to receive and administer the state funds.

Union County will also consider an intergovernmental agreement with Wallowa County, amended to say that the two counties will be able to determine how to share ownership and responsibility of the line.