Stakes high for railroad

January 19, 2008 10:54 am

The article in the Jan. 2 Observer on progress towards a new business plan for the Wallowa Union Railroad Authority was encouraging. We wish them well with this new plan. For the public to understand what is at stake, the full picture needs to be clarified, to include the downside potential caused by their critical cash flow and debt burden problems.

The loan contract with the Oregon Economic and Community Development Department (OECDD) that allowed Union and Wallowa counties to buy the railroad is for $11.7 million (interest and principle), to be paid over a 22-year period. Each annual payment is $441,368. The increased debt load for moving the first annual payment back from 2006 to 2007 is not included in these figures.

In 2006, Union and Wallowa counties formed an interagency committee, The Wallowa Union Railroad Authority (WURA). There has been some discussion that neither county will be liable in the event the WURA should default on its obligations. That is not correct. The state statute governing interagency committees requires all assets and liabilities to be returned to the counties in event the WURA becomes insolvent. (ORS 190.80).

Also in 2006, Oregon's congressional leaders obtained a markup of $5 million for the railroad in the federal budget. The funds were actually targeted for the Oregon Department of Transportation for use on the Stanfield I-84 freeway project. ODOT had previously set aside funds for this project, so the markup funds were to be transferred to OECDD for partial payment of the railroad loan.

As mentioned, the initial railroad loan payment was due in 2006, but was set back to December 2007 since the markup funds had not been received. According to the Observer's article, the first federal disbursement still has not arrived. Hopefully the counties and WURA are pursuing and tracking this funding on a weekly or monthly basis. This funding is crucial for the rail line's survival.

The Congressional Appropriations Committee typically funds 80 percent to 85 percent of authorized bills and holds back another 10 percent to ensure project completion. The funds for the railroad are to be disbursed over a five-year period. Each disbursement should be approximately $765,000, totaling $3.83 million.

Typically, contracts written by OECDD allow for early repayment of the loan, but early repayments must first be applied to the interest on the loan and then to the principle. Assuming the railroad authority does eventually receive the federal monies, Union and Wallowa counties will still owe a hefty $7 million to $8 million in interest and principle. The railroad is not generating sufficient revenue to carry this debt.

Removing the railroad track from Joseph to Wallowa for cash is an option being presented to OECDD by the Wallowa Union Railroad Authority. At current market prices for scrap metal, the 24 miles of rail, plates and other scrap minus contracting costs for removing, cutting and shipping may net enough to make two annual payments on the current 22-year contract. This doesn't seem to be a reasonable solution to the debt problem. Nor does it seem reasonable to purchase the remainder of the line from Elgin to La Grande. Increasing an already challenging debt load could be justified if the added revenue from the new acquisition would cover the annual payments to OECDD. There was little evidence in the Observer article that this is going to be the case; instead, the purchase of this additional line appears to be a high-risk venture with little justification as a viable business decision. To continue operating the current rail line at a loss doesn't seem realistic either.

It appears the best long-term solution would be for OCEDD to agree to eliminate the interest on the current loan. Mothballing the line except on occasions when revenues will cover costs, coupled with the elimination of the interest on the loan, would go a long way in resolving the low cash flow and the high debt load problem the Wallowa Union Railroad Authority is experiencing.

Finally, greater transparency of the issues surrounding the rail line would encourage the public to provide constructive criticism and helpful ideas. In many ways, the purchase of the rail line by the counties has made us taxpayers the "stockholders.'' In order to understand the real situation surrounding the rail line, the public must be fully informed. We should make sure that the new commissioner elected in Union County next November is willing to help bring transparency back into our county government.

I do wish the Wallowa Union Railroad Authority success with their negotiations with OECDD, and hope that the funding from the 2006 Congressional markup is received very soon. The stakes are too high for these initiatives to fall short.