Failure Likely But Success Could Be Worse

Failure Likely But Success Could Be Worse

The five-year financial plan provided by Progressive Rail is inconsistent with historical operations along the Santa Cruz Branch Line. Based on this history, the RTC is unlikely to make money on this contract. In fact, if one includes the millions of dollars of investment to get the tracks ready for Progressive Rail’s use, it’s a huge money loser.

However, at the April 19 RTC meeting, Progressive Rail President/Owner Dave Fellon stated that they will succeed where Iowa Pacific failed by bringing new “customers who have already provided their interest in expanding their operations to include Santa Cruz.” Given that many, if not most, of Progressive Rail’s current locations transload hazardous commodities one wonders who these customers might be.   

Other than Lansing Trade whose interest in constructing a Propane Distribution Terminal in Watsonville was mentioned in PGR’s January 2018 proposal, Progressive rail has not stated who these potential customers are. Whoever they are, if the RTC signs a contract with Progressive Rail and their customers want to bring their business to our county, federal preemption and interstate commerce laws might allow them to do so even if Santa Cruz County community members would rather they didn’t.

Why is the RTC gambling on either another money-losing freight operation or new use of the tracks that could open the corridor to unwanted activity and hinder real transit solutions for the community?

Branch line financial history compared to Progressive’s goals

With regards to freight, the prior operator averaged approximately 365 carloads a year. Progressive Rail has projected 400 carloads in year one growing to 3,000 carloads in year five; an astounding 650% increase. Prior to the RTC purchasing the branch line, 90% of the freight on the corridor was from the Cemex plant, which closed in 2010.

 Actual vs. projected freight

Actual vs. projected freight

Based on the proposed revenue share model,[1] coupled with the historical carload figures, the RTC stands to make $2,792 per year from freight operations.[2] Yes, you read that number correctly!

For excursion trains, Progressive Rail has projected year one ridership at 20,000, which increases to 60,000 in year five, representing a 200% increase. This is a farcical estimate inconsistent with historical operations.

 Actual vs. projected passengers for tourist trains

Actual vs. projected passengers for tourist trains

The prior operator averaged 5,040 passengers from 2014 to 2015 with an average revenue of $114,234. Revenues increased in 2016 with 15,285 passengers and $764,268 in gross revenue. That said, the increase is attributed to licensing the Polar Express brand, and it’s assumed that the operator made little to no money as the RTC and local vendors remain unpaid.

Santa Cruz Big Trees & Pacific Railway (SCBT) is a local rail operator providing excursion train services in Santa Cruz County for over 50 years. Year one excursion train revenue estimates provided by SCBT in their response to the RFP are $395,000. This is a more realistic estimate given SCBT’s history running excursion trains and local market insight. Using SCBT’s revenue estimate, coupled with the proposed revenue share model, the RTC stands to make $11,850 per year from excursion train service.

Lastly, Progressive Rail has suggested reinstating the Suntan Special providing passenger service from San Jose to Santa Cruz by way of the Watsonville Junction. This should be dismissed upfront as a nonstarter. Travel time is estimated at two hours and thirty-six minutes. Moreover, tickets are estimated at $45 per person; meaning a family of four would pay $180. [3]

[1] Revenue sharing for freight service is equal to 3% of handling revenues for the first 750 carloads per quarter and 5% thereafter.
[2] Assumes $255 per carload with 365 carloads a year.
[3] Per Progressive Rail proposal document.