The following is a reprint of an informational report from the Santa Cruz County Regional Transportation Commission’s Executive Director.
AGENDA: February 3, 2022
TO: Santa Cruz County Regional Transportation Commission
FROM: Guy Preston, Executive Director
RE: Informational Report on the Potential Preservation of the Santa Cruz Branch Rail Line by Railbanking including Future Potential Adverse Abandonment Actions for Heavy Freight Rail Only & Termination of the ACL Agreement
RECOMMENDATION
Staff recommends that the Santa Cruz County Regional Transportation Commission (RTC) consider this informational item, take public comment and advise Staff of any additional questions or information requests the Commission may have regarding the potential for preservation of the Santa Cruz Branch Rail Line (SCBRL) by railbanking, including potentially filing adverse abandonment actions for heavy freight rail only on the Santa Cruz Branch Rail Line and the Felton Branch Line, and allowing for the termination of the Administrative, Coordination and License (ACL) Agreement with Saint Paul and Pacific Railway (SPPR). As this is an informational item only, there is no Commission action anticipated as part of this item.
BACKGROUND
On September 2, 2021, staff provided the Commission with an informational report (See Item #20) on preservation of the Santa Cruz Branch Rail Line (SCBRL).
The report discussed four uses of the corridor including:
Freight Rail
Recreational Passenger Rail
Commuter Passenger Rail
Multi-Use Bicycle and Pedestrian Trail (Coastal Rail Trail)
The September report provided background information on our freight operator, Saint Paul and Pacific Railroad (SPPR) notifications to RTC of its intent to terminate the Administration, Coordination and License (ACL) Agreement and abandon freight rail service on the SCBRL. The Commission discussed three approaches to preservation of the SCBRL:
Continued Freight and Recreational Rail Service
A Public Private Partnership (P3)
Railbanking
Negotiations with Roaring Camp Railroads
SPPR reached out to Roaring Camp as a potential operator and successor to the ACL Agreement. On June 28, 2020, Roaring Camp provided a letter (Attachment 1) to RTC expressing an interest in operating freight on the line, but listing terms in the ACL Agreement, which provided them cause for concern, including that “...we not be saddled with a significant maintenance obligation, particularly for catastrophic events, on a line that has modest prospects for generating substantial revenue.”
During 2021, RTC completed repairs on the SCBRL for Phase I (MP 0.0-MP 7.0) of the ACL Agreement at a cost of approximately $4.5 Million and estimated that the cost of completing the remaining “initial” repairs for Phase II (MP 7.0-31.58) of ACL Agreement would be between $48.7 Million - $63.7 Million.
RTC staff had subsequent discussions with Roaring Camp regarding the cost of maintaining the line and potentially assigning the ACL Agreement to them. In each of those meetings, Roaring Camp was unwilling to assume maintenance responsibilities on the SCBRL. They stated that they concur with SPPR in that the ACL Agreement “creates too large of a burden on the operator”. RTC subsequently discussed the option of railbanking the SCBRL in lieu of continuing freight rail on the SCBRL, with both SPPR and Roaring Camp. On March 18, 2021, Roaring Camp provided a letter (Attachment 2) stating they would oppose railbanking heavy freight on the SCBRL.
On November 4, 2021, staff provided the Commission with a report (see Item #19) on an unsolicited proposal by Roaring Camp and TIG/m to negotiate a public private partnership (P3) with the RTC to continue and expand freight and recreational rail service under a public private partnership (P3) arrangement. The proposal required RTC to perform the $48.7-$63.7 Million in “initial” repairs and that Roaring Camp would only be responsible for normal wear and tear, specifying that “structural damage that is not normal wear and tear, such as Acts of God, or pre-existing conditions” shall be funded by RTC, thus proposing that RTC’s financial responsibility for costly repairs needed for heavy freight service on the SCBRL increase to an even greater degree than some may contend exists in the existing ACL Agreement. Staff did not recommend entering such an arrangement with Roaring Camp and TIG/m, and the Commission took no action.
Railbanking Framework and Applicability to the Regional Transportation Program, including the Coastal Rail Trail
In recognizing the important interest in maintaining the nation’s network of railroad rights-of-way, the federal government incorporated provisions into the National Trails System Act (“Rails to Trails Act”), which are designed to prevent an interest in a railroad right-of-way from reverting under state law to an underlying fee owner when the right-of-way is held for use as a trail after a railroad discontinues service, and the trail sponsor agrees that the right-of-way will be held for future reactivation of freight rail service. The Rails to Trails Act provides an alternative to completely abandoning a railroad right-of-way by allowing a railroad to negotiate a trail use agreement with a prospective trail operator, while preserving the rail right- of-way for potential future freight re-activation.
In order to preserve a railroad right-of-way under the Rails to Trails Act, parties utilize a mechanism called “Railbanking.” Railbanking is a voluntary process whereby a freight railroad company and a trail agency enter into an agreement to use a rail corridor that has been approved for abandonment as a trail (or some other use, including commuter rail with trail) until some future time when the railroad might need the corridor again for freight rail service. Railbanking is specifically designed to address the common situation where, as is the case with the SCBRL, a rail corridor is held under several different ownership types along its length. These ownership differences are largely irrelevant while a corridor is in active railroad use and used only for railroad purposes. However, once a railroad decides to abandon a corridor, these ownership distinctions become important. Upon complete abandonment, under the law of some states (including California), a railroad may lose any rights to possess or transfer parcels of land within the corridor to which it merely held as an easement and whose use is limited to railroad purposes. Upon complete abandonment of railroad operations, even though the corridor may appear unchanged, it may no longer exist as a continuous right-of-way, and the fee owners of the underlying land regain full rights to the affected pieces of the corridor. Railbanking a corridor precludes complete abandonment, and railbanking preserves the railroad’s right to transfer all forms of ownership, including easements, to a trail group, which could be the RTC. Railbanking also permits an expanded use of the corridor, including the development of a trail and other potential uses.
RTC holds a mix of fee and easement ownership interests in the SCBRL. RTC has more limited usage rights in the portions of the SCBRL where it only holds easements for railroad purpose (Attachment 3). RTC is potentially subject to taking claims if RTC attempts to utilize those portions of the SCBRL in a manner that expands the stated purpose for those easements. Railbanking is a method for constructing active use trails within existing freight easements that have these types of ownership constraints. Railbanking does not require (or preclude) that the rail be removed, but it would allow the RTC to construct a trail in any configuration without needing to obtain additional property rights to build a trail within a railway easement.
After railbanking, any property owner claims that allege that the trail is not permitted in the railroad easement would be directed to the Federal Government, which has a process for addressing their financial claims. Railbanking thereby provides protections to the RTC from potential financial liability associated with building an active transportation trail along rail easements, in any configuration. Note that the Sonoma Marin Area Rail Transportation (SMART) did not railbank freight and built a trail adjacent to their commuter rail project. SMART was recently sued by adjacent property owners for inverse condemnation.
If RTC were to railbank a portion of the line, RTC would be responsible for preserving the railbanked right-of-way for future re-activation of freight rail. Preservation efforts allow for a trail, but one is not required. RTC could leave the rails in place, reconfigure the rail for rail and trail, and continue planning for future passenger rail service. RTC could choose to continue some freight service on the line while the line is railbanked, but it would not be required to do so. Railbanking increases local control of the corridor to make these decisions.
Railbanking would eliminate the need to contract with a freight operator and commuter rail and a trail could be prioritized over freight improvements. RTC would no longer need to contract with a freight operator and could terminate the ACL Agreement with SPPR, as requested by SPPR. Termination of the ACL Agreement would terminate the effectiveness of the provisions relevant to potential Phase II repairs north of MP 7.0. Note: RTC has completed the Phase I repairs representing the southernmost 7 miles of the line, including the 2017 storm damage related washouts and emergency repair to the trestle at MP 4.87 near Gallighan Slough.
RTC has also been working on the Phase II repairs. The repairs necessary to complete Phase II of the track include 25 of the 37 railroad bridges, 3 drainage cross culverts, at least 2 grade crossings, repairs to coastal erosion near Manresa State Beach, track repairs, and a significant capital maintenance effort along the 9 mile stretch of the north coast from MP 22 to MP 31. Staff prepared planning-level cost estimates of these necessary repairs amount to $33.7 Million (2021$), excluding the Capitola Trestle. The replacement of the 150-foot-single span wrought iron bridge (MP 15.89c) over Soquel Creek is not recommended for freight loading, and the timber trestles of the Capitola Trestle warrant a complete rehabilitation at a minimum. The Capitola Trestle work alone represents another $15 Million - $30 Million of expenses. The ACL Agreement does not impose an absolute requirement on RTC to make the “initial” repairs noted above. Instead, the relevant language in Section 5.1 of the ACL Agreement states that if RTC does not make improvements to the section of the track north of MP 7 and through MP 31.39, SPPR’s obligation to provide transportation service (i.e. excursion train service as distinguished from mass transit or commuter service) is extended accordingly. It is possible that RTC might not be able to fund and complete the repairs prior to the expiration of the ACL Agreement in 2028.
The Measure D expenditure plan provides 8% of revenue (approximately $2 Million annually) for Rail Corridor infrastructure preservation and analysis of options, representing RTC’s only dedicated funding source for the preservation of the rail corridor. RTC staff has pursued grant funding for short line freight operations and continues to seek ways to leverage additional State and Federal government funds for repairs. RTC was successful on one grant application to leverage local funds to pay for repairs of the Pajaro railroad bridge in Watsonville (See Item #8 on today’s agenda), where there is freight traffic, but there are limited opportunities for future freight rail grants on a line with no freight service beyond Watsonville.
At this time staff believes that abandonment of the freight easement in association with termination of the ACL Agreement (at least as it applies north of Watsonville or MP 3.0) and railbanking will facilitate RTC’s ability to deliver a trail in conjunction with other regional priority projects specified in the RTC’s Regional Transportation Plan (RTP). These actions would:
1) eliminate ownership constraints related SCCRTC’s use of railroad easements for a trail;
2) eliminate, for the duration of railbanking, the need to complete expensive repairs on the SCBL that would be necessary for freight rail service, deferring the need to divert discretionary funds from other projects or implement a new dedicated local funding source to pay for the repairs;
3) preserve the rail corridor in a manner that would provide local control and flexibility on decision making, until such time that RTC or another freight operator desired to and could finance the resumption of freight rail service; and,
4) provide an avenue for the current rail operator to exit the ACL Agreement and would avoid the need for SCCRTC to find another entity to assume the ACL Agreement over the portion of the line that is railbanked.
However, there are a number of other factors that the Commission should consider in determining whether and how to pursue railbanking on the SCBRL. These issues include:
i. that the process for railbanking would require the filing with the Surface Transportation Board of an application or request for exemption for authority to abandon (referred to herein for simplicity as a “Notice of Abandonment”);
ii. that SPPR continues to hold the freight easement on the SCBRL and has chosen not to follow through with filing their Notice of Abandonment even though SPPR still desires to terminate the ACL Agreement and extinguish their ownership of the freight easement;
iii.the Felton Line is also a freight rail line, and railbanking the SCBRL would effectively leave Roaring Camp’s potential freight operations as a stranded segment (i.e. not connected to the interstate freight system); and,
iv. Roaring Camp has voiced opposition to railbanking the RTC owned SCBRL.
Railbanking Process
An applicant submitting a request for abandonment authority to the STB must file an Environmental Report on the proposed action. This report is distinct to the abandonment process and notwithstanding the name of the report it is substantively different from either a standard NEPA or CEQA environmental analysis report. The report would include consultation with other agencies regarding the proposed action’s environmental effects. Railway counsel does not believe that there would necessarily be any environmental objections that could/would be raised by any of the applicable agencies from the abandonment/cessation of the (non-existent) freight service. In addition to the Environmental Report, an applicant for abandonment authority must also file an Historic Report on the proposed actions. The Historic Report is to be combined with the Environmental Report where, as here, one is required. Following the submission of the Environmental and Historic Report, the STB’s Office of Economic Analysis (“OEA”) will generally prepare an Environmental Assessment.
Along with the reports, a Notice of Abandonment would need to be filed with the STB. SPPR, as the holder of the freight easement, is the entity that would typically file the Notice of Abandonment. Subsequent to its initial indications, SPPR has indicated that it would not file the Notice of Abandonment considering Roaring Camp’s objections. Alternatively, RTC can file for Adverse Abandonment (see section below). In either case, RTC would want to request a railbanking order (a “notice of interim trail use (NITU)”), which is required to be submitted to the STB no more than 30- days after an application for an abandonment is filed with the STB, if there was action to move forward with abandonment proceedings.
Once a Notice of Abandonment has been filed, other potential railway operators, including Roaring Camp, could then make an Offer of Financial Assistance (“OFA”) to try to prevent abandonment or railbanking. An OFA would include the obligations to purchase the rail line at net liquidation value, and to assume the Freight Easement, the associated common carrier responsibilities, and the maintenance of the line. Due to the significant cost of work needed to restore freight on the line and no freight activity north of Watsonville, a viable OFA seems unlikely. The ability to generate revenue from recreational rail would not be considered in an OFA. In addition, any railroad making an OFA would also likely need to secure an ACL Agreement with RTC if it wants RTC’s assistance with the management of the right of way. Based on previous discussions with Roaring Camp, it does not appear likely that Roaring Camp and RTC would be able to mutually agree on terms for a new ACL Agreement as Roaring Camp has not been willing to assume the necessary repair and maintenance costs that are necessary to allow heavy freight service along the entire SCBRL.
If an OFA was not viable, Roaring Camp could still object to the abandonment of the SCBRL, as the Felton Line is technically a freight rail line, and an abandonment action would leave the Felton Line “stranded” (disconnected from the interstate freight network). This objection would likely necessitate a determination on whether freight service should also be abandoned on the Felton Line, before the STB might rule on the abandonment of the SCBRL.
Assuming the STB determines that both lines can be abandoned for heavy freight and considers the NITU for the SCBRL, then the RTC and the owner of the freight easement will have a period (initially a year) to negotiate a railbanking agreement, but the timeline could be shorter if an agreement is reached. Under the NITU and the railbanking agreement, RTC could become the interim trail manager for the railbanked section of the SCBRL. RTC would need to assume financial liability to maintain the right-of-way and would have certain responsibilities to manage the property in a manner that does not preclude future potential reactivation of freight rail service. Once railbanked, RTC could construct a trail with or without the tracks being left on the property or some sort of transit service.
Adverse Abandonment
If an agreement with Roaring Camp and SPPR cannot be reached, it appears that RTC’s only method of railbanking the SCBRL would be to file for adverse abandonment. Adverse abandonment is a process when a person or entity that does not own the freight easement files a request with the STB to order to force the abandonment of freight services on a rail line. This process is typically initiated when there is no active freight service on a line (as is the case with the SCBRL past MP 3.0) and when the requesting party desires to have the freight line taken out of service so that the railroad right of way can be used for purposes other than freight service including railbanking.
The STB leans towards preserving rail service when there is a railroad that is making legitimate attempts to continue or restart freight operations and there is at least some reasonable chance for future freight rail service. However, it is generally not enough for the railroad operator or the potential shipper to simply say they have an intent to ship freight by rail over the line. Thus, the absence of freight service on the line even before the SCBRL went out of service will be relevant to the STB’s determination. Also, often when adverse abandonment is sought, the tracks are inoperable and costly to repair which makes it easier to make the necessary findings that service is unlikely to be restored.
Addressing Roaring Camp Objections
For RTC to be able to railbank the SCBRL, Roaring Camp’s objections must be addressed. It remains preferable to reach an agreement with Roaring Camp, before taking any action(s) with the STB. RTC has offered Roaring Camp a long-term lease of the portion of the SCBRL that Roaring Camp uses to ensure that they can continue to run their recreational service to the Boardwalk. RTC staff has also discussed the possibility with Roaring Camp of expanding recreational service to Davenport. Finally, RTC has discussed potential financial considerations to move Roaring Camp’s railroad equipment by truck. These considerations should allow Roaring Camp to continue and possibly expand their core recreational rail business, including service to the Boardwalk on the SCBRL. Beyond Roaring Camp’s opposition to railbanking the RTC owned SCBRL, RTC has no interest in the Felton line and is not proposing that Roaring Camp stop serving the Boardwalk with their successful Beach Train, subject to RTC and Roaring Camp reaching agreement on a new agreement on mutually agreeable terms.
Although RTC could file for adverse abandonment and railbanking of the RTC owned SCBRL, allowing Roaring Camp’s objections to be settled as part of those proceedings, adverse abandonment and railbanking the SCBRL could be a long process due to Roaring Camp’s objections. Another potential approach would be for RTC to file for adverse abandonment of heavy freight only on the Felton Branch Line, as an initial step to railbanking the SCBRL. A determination of abandonment of freight on the Felton line would be based on whether there are realistic expectations for profitable freight service on that line. Note that the STB does not regulate recreational rail and the RTC would only be seeking to gain clarification as to whether the Felton line’s current freight status can be used to stop railbanking of the SCBRL. This action could potentially provide the resolution of the stranded line argument, in advance and separate of potential subsequent actions to abandon and railbank the SCBRL and terminate the ACL Agreement.
In either case, an Environmental and Historic Report would ultimately need to be prepared, so it may be more straight forward and timely to address the Felton Line separately. Based on there not being any freight on the rail line and an assumption that Roaring Camp would not remove their rail facilities or change the recreational use of the line, the Environmental and Historic Report would likely not show any adverse environmental effects by removing federal protections of non-existing freight and the proceeding could potentially occur in advance of any future potential attempt to abandon and railbank the SCBRL.
Whether and if RTC chooses to file for adverse abandonment of the SCBRL or the Felton line, the disposition of freight on the Felton line needs to be addressed. Even if adverse abandonment of heavy freight is approved, Roaring Camp could continue their recreational service to the Boardwalk, under their existing trackage agreement or a new agreement with RTC. That said, it would still be preferable to negotiate an agreement with Roaring Camp avoiding any adverse abandonment action. If the STB denies the abandonment of freight of the Felton Branch Line, railbanking of the SCBRL become much less likely or possible.
Cost of Abandonment and Railbanking
As estimated by legal counsel, the costs associated with the filing of an adverse abandonment action include the filing fee for an adverse abandonment application ($27,000), the filing fee for the petition for waivers ($2,200), the attorney’s fees to prepare the combined environmental and historic report ($5,000-$7,500), and preliminary attorney’s fees for preparation of the adverse abandonment application ($25,000-$30,000). The total estimated cost of filing an adverse abandonment application totals $59,200-$66,700 per action. As RTC is a governmental agency, some or all the filing fees may be waived by the STB. As with other litigation, if the railroad were to vigorously oppose the application, there would likely be additional attorneys’ fees incurred by railway counsel that are difficult to estimate but would add additional costs.
As mentioned earlier, the Measure D-expenditure, approved by 2/3 of Santa Cruz County voters, provides 8% of for Rail Corridor infrastructure preservation and analysis of its future potential use to better serve Santa Cruz County residents and visitors. The Measure Revenues do not include funding for any new train/rail service. Since railbanking is a method of preserving the rail corridor, it would be possible to consider using Measure D funds (or potentially other RTC Discretionary funding) for the expenses associated with railbanking the corridor.
There have been questions as to whether RTC would need to pay back any of the funds used to purchase the rail line and make improvements in order to railbank the SCBRL. California voter approved Proposition 116 funds and STIP funds were used to purchase the line. RTC accepted State funds with conditions that: (1) RTC be responsible or initiating recreational passenger rail service, (2) RTC be responsible for hazardous waste clean-up, (3) RTC be responsible for continuing freight rail service for as long as would be required by the STB, and (4) in the case where RTC ceases to utilize the Branch Line for the original purpose as approved by the Commission, RTC commits to reimburse the State the greater of either the amount allocated or the then present fair market value as determined by the State.
RTC has met Condition 1 with continued Roaring Camp service and the Christmas train service initiated by Iowa Pacific, SPPR’s predecessor. RTC continues to monitor hazardous waste on the Corridor and provide any necessary clean up, as required by the County Department of Environmental Health Services (EHS). RTC has continued freight service on the SCBRL and if the STB were to approve either abandonment or railbanking of the SCBRL, STB will have determined that providing freight service will at least temporarily no longer be required. Finally, since railbanking provides for preserving the corridor for future freight rail service, RTC would not be considering an action to stop using the rail line for its intended purpose.
Railbanking Agreement
As mentioned earlier, in order to railbank the SCBRL, RTC would need to ultimately negotiate a railbanking agreement with the freight operator. The ACL Agreement requires that upon termination of the ACL Agreement, SPPR shall cooperate with the transfer or abandonment of Freight Service as requested by the Commission. The ACL Agreement includes provisions to provide for railbanking, in lieu of complete abandonment. The step of transferring the freight easement to RTC would allow RTC to negotiate the railbanking agreement on RTC’s own terms and have prioritization for any future potential request to re-activate freight on the SCBRL.
There are few requirements in the Rails to Trails Act or the STB regulation for the railbanking agreement. When the holder of the residual freight reactivation rights (the “residual operator”) and the trail sponsor enter into the railbanking agreement they must jointly notify the STB that an agreements has been reached, and certify to the STB that the agreement requires the trail sponsor to assume full responsibility for (1) managing the right-of-way, (2) any legal liability arising out of the transfer or use of the right-of-way (unless the user is immune from liability in which case it need only indemnify the railroad against any potential liability), and (3) the payment of any and all taxes that may be levied or assessed against the right-of-way. (The railbanking agreement does not get filed with the STB).
There are no other formal requirements for a railbanking agreement. However, the residual operator and the trail sponsor are free to negotiate and include other contractual obligations in the railbanking agreement, including the notice to be given to reactivate rail service, the amount that would need to be paid to the trail sponsor for improvements and repairs made to the property, whether trail improvements need to be left in place (so long as they would not interfere with the reactivation of freight rail service), and what obligations, if any, the trail sponsor would have to maintain the property including leaving or removing the tracks on the property (and for what period of time).
Since a railbanking order requires that the right-of-way be preserved for future re-activation of heavy freight rail, it is implicit that any potentially removed tracks will need to be replaced by the freight railroad upon a federal re-activation order. However, the agreement could also be negotiated with provisions to allow for re-construction of the right-of-way for commuter rail service, prior to any subsequent potential re-activation of heaving freight, including timing and whether trail improvements could be left in place.
Taking No Action
RTC can choose to leave the ACL Agreement in place until its termination date of July 15, 2028, whether it is able to fund and complete the anticipated initial freight and recreational rail repairs specified in the ACL Agreement, or not. However, RTC and its partners are actively developing three project level EIRs for the Coastal Rail Trail: Segments 8-9, Segments 10-11, and Segment 12 (Segment 12 is included in the Highway 1 EIR between State Park Drive and Freedom Boulevard). The timely disposition of freight rail on the SCBRL is important in understanding key aspects of the Coastal Rail Trail design and whether additional property rights will need to be acquired. RTC and its partners plan to aggressively seek funding for these three trail projects in 2022 and understanding whether railbanking is feasible is needed to estimate the cost and feasibility of building a trail along the rail right-of-way in any configuration.
As discussed earlier, initial investigations have determined that there are multiple locations where RTC only owns an easement for railroad purposes and additional property rights will be needed to build a trail in any configuration, if the SCBRL is not railbanked. In order to build a trail, legal counsel has advised that additional property rights should be secured to avoid potential inverse condemnation actions, by property owners, such as those experienced by SMART. Inverse condemnation is the illegal taking of right-of-way and can result in substantial damage payments, including the property owner’s legal fees.
If RTC is unable to negotiate additional property rights with the underlying property owners of railroad easements, RTC could use the powers of eminent domain to acquire those rights; however, such actions will require a two-thirds vote of both the Commission and the local jurisdiction where the property is located (City Councils or County Boards of Supervisors). If RTC is unsuccessful in obtaining those rights, then a trail, in any configuration, across those railroad easements will become infeasible.
There are other project features that are also affected on the coastal rail trail, including sections of track that will need to be moved to fit a trail, whether fencing should be placed between the rail and the trail, and whether some major infrastructure improvements might be able to be deferred to control cost and position projects to be more competitive for grant funding.
If the RTC continues with the status quo until the ACL Agreement expires in 2028, the same circumstances that exist today will likely continue to exist. Upon termination of the ACL Agreement, SPPR will need to cooperate with the transfer or abandonment of Freight Service as requested by the Commission. However, RTC’s ability to railbank could still be stopped by the opposition of a potential stranded line and the dispute regarding funding repairs for heavy freight service will remain unresolved.
Attachments: