We Don’t Need to Hire a New Operator

We Don’t Need to Hire a New Operator

The Santa Cruz County Regional Transportation Commission (RTC) is proposing a 10-year agreement with Progressive Rail to operate freight and excursion trains on the 32-mile Santa Cruz rail line. The rationale for signing the agreement is based on a manufactured sense of urgency that does not match the facts.

  1. The RTC is not required to continue freight service.
  2. The threat of a lawsuit from existing freight customers has little merit.
  3. Adjacent owners are unlikely to seek compensation for railbanking.

The following three sections address each of the above points.

Does the RTC need a freight operator?

A handful of customers in Watsonville currently use Iowa Pacific, the existing operator, for freight service. The freight travels on about 2.5 miles of the Santa Cruz Branch Line. In December 2017, Iowa Pacific informed RTC that it could no longer carry out its obligations under the operating agreement. 

 Santa Cruz Branch Line connects to Union Pacific Main Line

Santa Cruz Branch Line connects to Union Pacific Main Line

The RTC says they must sign an agreement with a new operator as they are compelled to provide service to these existing businesses. This is not true.

Pursuant to RTC’s existing operator agreement, Iowa Pacific is instructed to pursue formal abandonment of the line after default or expiration of the agreement. Nothing in the agreement with Iowa Pacific or the original purchase agreement with Union Pacific compels the RTC to find a new operator. 

Moreover, the RTC’s position implies that a rail operator has an obligation to continue freight service into perpetuity even if there was only one customer shipping or receiving one railcar a year. But federal law does not require a railroad to continue operating for the benefit of a single or small handful of customers. For this very reason, the Surface Transportation Board (STB) considers certain economic standards as part of its decision making prior to abandonment of freight service. These standards establish a threshold weighing a railroad’s losses against the public’s need for continuing operations and that of the rail customers located along the line.

RTC’s current position also contradicts information provided by its own experts. Prior to the purchase of the corridor, the RTC hired a railroad expert to opine on the potential abandonment of the Santa Cruz Branch Line.[1] Mr. John Williams of the Woodside Consulting Group informed RTC that:

“...there is no chance the STB would deny an application by SCCRTC and its short line operator for abandonment of the Santa Cruz Subdivision.”

Existing customers along the corridor or others may contest abandonment but must show that they would suffer more harm by losing the rail service than the RTC would suffer by continuing to provide the service. In light of the small number of existing customers and the high cost of service, STB approval for any application for abandonment is almost certain.

Would the RTC be sued if freight service was abandoned?

The RTC has raised the concern that it might be sued by existing customers if freight service were abandoned. This concern is unfounded as the only entity legally obligated to provide freight service is the designated common carrier.  In this case, the common carrier is the Santa Cruz and Monterey Bay Railway (SCMB); a subsidiary of Iowa Pacific Holdings. 

Prior to purchasing the corridor, the RTC went out of their way to make certain they did not acquire the legal obligation to provide freight service. This is specifically referenced in a petition filed September 7, 2012 with the STB.[2]

From the STB decision:

“Although Santa Cruz [RTC] is acquiring the physical assets of the line, it will not acquire the right and legal obligation to provide freight service, which will be retained by the seller and then transferred to [Iowa Pacific].” 

Nothing is certain in the world of railroading, but a lawsuit against the RTC if the current operator (Iowa Pacific) broke its contract and stopped delivering freight to Watsonville is very unlikely. Even if the RTC was sued, they would almost certainly win such a suit.

Would abandonment/railbanking result in lawsuits?

Abandonment is not a question of “all or nothing” and can be applied to portions of the corridor. Moreover, abandonment does not mandate removal of railroad track or equipment. The track north of Watsonville has been inaccessible due to a washout for over a year. Given the circumstances, the RTC and existing operator should file for an expedited abandonment procedure for all trackage north of Watsonville (milepost 2.50).

Once the abandonment process has been initiated by a rail operator, a public agency can request railbanking to preserve the right-of-way rather than completing the abandonment process. Nearly 6,000 miles of rail corridor in the United States have already been successfully railbanked. That said, a significant amount of misinformation is being reported as it relates to railbanking here in Santa Cruz County. Specifically, opponents claim railbanking will result in a “takings” lawsuit from adjacent land owners.

This is a complex issue, but the underlying premise of a “takings” suit (also known as inverse condemnation) is the land was never owned by the railroad. Rather, the railroad use was based on an agreement called an easement. Once the railroad use ends and is replaced with a different use, the easement for railroad purposes terminates. Adjacent landowners could then file “takings” suits claiming they are owed compensation for the new use (i.e., the trail or other use facilitated by railbanking).

Here’s the problem. The likelihood of such suits along the Santa Cruz Branch Line is extremely remote. Why? Because the majority of land in the corridor is not an easement, but is owned outright by the RTC. Meaning the RTC holds fee simple title. As such, the adjacent land owners have no legal right to any land in the corridor and no basis for a takings case. 

How are we certain about this? As part of the purchase transaction, the RTC hired an attorney to review title for the corridor. According to the findings of Mr. Kirk Trost, an attorney hired by the RTC, the majority of the corridor is owned in fee by RTC. There are few easements to worry about.[4]

The liability associated with potential takings claims may equally apply to railbanking or the rail-with-trail plan being pursued by the RTC. Both plans constitute a change in use that could exceed the scope of the original easement. But, in the unlikely event that a takings case was filed and won, any settlement would be paid by the Federal government not the county.

Conclusion

The RTC completed a tremendous amount of due diligence prior to its purchase of the rail corridor. In fact, the situation we find ourselves in today has already been addressed in multiple documents. Yet, the RTC chooses to ignore this information from within their own documents.

At best, the selection and draft agreement with Progressive Rail has been founded on a manufactured sense of urgency. A more cynical viewpoint would be certain pro-train individuals in the RTC are attempting to circumvent the Unified Corridor Investment Study. In either case, the RTC must provide documentation as to the rationale for contradicting the statements and expert advice on which it previously relied.

References

  1. Appraisal Review Report and Appraisal Review Certificate of Appraisals and Related Valuation Analyses for the Santa Cruz Branch Line of the Santa Cruz Subdivision of the Union Pacific Railroad Company, Tim Landes, SR/WA, 2010-03-16
  2. Surface Transportation Board (STB) Decision, Santa Cruz County Regional Transportation Commission—Petition For Declaratory Order, “Digest: Santa Cruz County Regional Transportation Commission does not need Board authorization to acquire the physical assets of the Santa Cruz Branch line in Santa Cruz County, Cal. Although Santa Cruz is acquiring the physical assets of the line, it will not acquire the right and legal obligation to provide freight rail service, which will be retained by the seller and then transferred to a third-party easement owner/operator. Nor will Santa Cruz be in a position to interfere unduly with freight rail operations.”, 2012-09-07
  3. Santa Cruz Branch Line Business Plan, Systra Consulting, 2008-08-04
  4. Santa Cruz Branch: Preliminary Title Report, Kirk Trost, 2005-05-11