June 03, 2002 11:00 pm

By Gary Fletcher

Observer Staff Writer

ENTERPRISE — Union and Wallowa counties have become the proud owners of the 61-mile Joseph to Elgin rail line.

The sale prevented the abandoned rails from being torn up for salvage, or the corridor being converted to a trail.

"It was a done deal," Wallowa County Commission Chairman Mike Hayward said about Friday's transaction.

With railroad owner Idaho Northern and Pacific Railroad's patience and the state's cooperation, 14 purchase and sales agreement drafts were negotiated until the deal closed.

Freight is expected to roll on the line this month and long-term expectations include developing a tourist excursion train.

"Now the work starts," Hayward said at the Wallowa County commissioners' meeting Monday. "No one should think we're out of the woods yet."

For a couple years "we've been trying to catch a tiger. We caught the tiger. Now we have to figure out how to pay for it," Wallowa County Planner Bill Oliver said.

The counties have 4 1/2 years in which to make the first payment.

Idaho Northern and Pacific has agreed to reopen the line, within 30 days, to Wallowa Forest Products near Wallowa, where freight is waiting. Idaho Northern will continue to haul freight. Future operations could be determined by a two-county railroad authority established to receive the $2 million granted for the purchase by the 2001 Legislature.

The $2 million down payment is being held in escrow at Wallowa Title Company. It will likely be transferred this week to Idaho Northern and Pacific once the rail line property has been cleared of all liens.

The $500,000 earnest money borrowed from the Wallowa County Road Fund has been returned to that department, and interest will be paid on it, Hayward said.

The Oregon Economic and Community Development Department will guarantee payment to the Idaho Northern and loan up to $5 million to the counties for 25 years at 5 1/2 percent interest.

The state will allow the counties a three-year grace period in which no principal or interest payments must be made.

That will shorten the loan repayment period from 25 to 22 years and increase the annual payments by $70,000

to total about $457,000 per year.

"It's pretty exciting," Oliver said. It pencils out a lot better, though, he said, if the debt could at least be cut in half.

Federal aid will be sought. Now that the deal is done, hard numbers can be shown to Oregon's Congressional delegation which will be approached by the counties and Idaho Northern, Hayward said.

Hayward thinks some of the delegation will assist. The counties will also be seeking some additional help from the state.

Private donations and investment will also be pursued. Several calls have been received from interested individuals, Oliver said. The counties will also likely be seeking out private foundations interested in rural development, Oliver said.

Rehabilitation funds of $1 billion are available and are easier to get than purchase funds, Oliver said.

If the line is upgraded to Class II specifications, trains could travel from 25 to 30 mph.

One possibility for an excursion train is for an existing operator to run a train in Union and Wallowa counties also. Calls have been received from three such operations that are up and running, Oliver said.

Other revenue possibilities would include storage of empty freight cars from other railroads. Oliver estimates that could bring in up to $90,000 per year.

One reason a public entity might succeed where a private railroad has not, is it would have less debt to service, Oliver said, such as $2 million in lottery bonds.

Also, a public entity will not have to pay property and income taxes, he said.

Hayward observed that the majority of people who gave input in Wallowa County were basically in two camps, one that wanted a railroad, and those that did not want a trail. Hayward hopes that these people will get together at a point to make the railroad work.

If if doesn't, the counties or the state can liquidate the rails and land assets appraised at $7.5 million. Then the possibility of a conversion to a trail may resurface.