The Santa Cruz County Regional Transportation Commission published the following memo written by Executive Director, Guy Preston, regarding the “Unsolicited Rail Proposal TIG/m and Roaring Camp.” In addition to addressing the proposal, the memo contains a good overview of the Santa Cruz Branch Line.
Full agenda: https://sccrtc.org/wp-content/uploads/2021/10/11-04-2021-agenda-packet.pdf
AGENDA: November 4, 2021
TO: Santa Cruz County Regional Transportation Commission
FROM: Guy Preston, Executive Director
RE: Unsolicited Rail Proposal TIG/m and Roaring Camp
RECOMMENDATION
Staff recommends that the Santa Cruz County Regional Transportation Commission (RTC) consider the unsolicited passenger rail proposal by TIG/m and Roaring Camp and provide staff with input. RTC staff does not recommend pursuing this unsolicited Public Private Partnership (P3) proposal or any other potential P3 proposal for passenger rail service. Staff seeks Commissioner and public input regarding this report, but no action is requested.
BACKGROUND
The Santa Cruz Branch Rail Line (SCBRL) is a 32-mile long federally regulated freight railroad between Pajaro and Davenport. RTC is under contract with Saint Paul and Pacific Railroad (SPPR) to operate freight and recreational rail service as part of an Administration Coordination and License (ACL) agreement with RTC. The ACL specifies that when RTC completes initial repairs, SPRR will be responsible for continued maintenance. RTC has completed Phase I of the initial repairs, and SPPR is responsible for maintenance of the freight easement to Mile Post (MP) 7.0. RTC is continuing to work on making the remaining initial repairs (Phase II). Once the Phase II repairs are completed, SPPR will be responsible for maintaining the freight easement for the entire 32 miles of the SCBRL.
Freight traffic has been declining, and there are currently only 5 or 6 customers in the Watsonville area. Quarterly freight carloads served since PGR began running freight service on the line is provided in Attachment 1.
RTC has been studying potential commuter rail transit on the branch line for several years and as part of several studies, including the Rail Transit Feasibility Study (2015), the Unified Corridor Investment Study (2019) and the Transit Corridor Investment Study (TCAA) and associated TCAA Business Plan (2021). The TCAA selected a preferred alternative of electric rail as the best potential transit use for the Santa Cruz Branch Rail Line (SCBRL).
Over the past few years, TIG/m, a small California based trolly manufacturer approached RTC staff with interest in demonstrating their vehicle on the SCBRL. When TIG/m initially approached RTC, they expressed interest in running a hydro-electric battery powered heritage trolly, which they stated could operate at about 35km/hour (21 mph), between Capitola and the Boardwalk. Staff explained that we were working on meeting our obligations of the ACL agreement and a study to determine the best type of transit for the corridor between Watsonville and Santa Cruz. Staff also explained that the section of the Corridor between Capitola and Santa Cruz is our narrowest section of the SCBRL, and trail segments were under development within those limits, with a desire to be in construction within a few years (dependent on securing funding). Nonetheless, TIG/m was still interested in performing a demonstration due to their technology being new and they were having a hard time finding a section of track to operate on and showcase its potential for various applications in the United States. Staff agreed to let them present their request for a demonstration to the Commission.
On September 5, 2019, TIG/m gave a presentation on their light weight trolly and its hydrogen fuel cell technology at an RTC meeting. In December 2019, the Commission authorized a temporary license for a demonstration of the TIG/m trolly on the SCBRL, contingent upon the inclusion of a demonstration in Watsonville into TIG/m’s proposed demonstration plan. It was understood that the demonstration would be to see the advancements of the new rail technology and not an endorsement to enter into an operational agreement. The original demonstration was scheduled to take place in late 2019, at the beginning of the TCAA study. The demonstration was delayed until 2020 at the request of TIG/m and then deferred again, due to the COVID-19 pandemic. The demonstration took place in October of 2021, after the TCAA was completed.
On May 27, 2020, SPPR notified RTC of its intent to terminate the ACL Agreement (Attachment 2). To terminate the ACL agreement, the STB would need to either transfer the federal common carrier freight obligations to another carrier, or the STB would need to approve either abandonment of freight or railbanking of on the SCBRL (note: railbanking does not require removal of tracks, but preserves the right-of way for future potential re- activation of freight rail, stopping short of abandonment). SPPR provided RTC with a short list of freight operators for potential assignment of the ACL. RTC staff interviewed all prospective freight operators and found them either unqualified, unfamiliar with the SCBRL and/or unwilling to assume the maintenance responsibilities as required by the existing ACL agreement.
On June 24, 2020, an industry group consisting of Joe Kneib Consulting in coordination with Urban Innovations, TIG/m, and Mark Johannessen submitted documentation expressing their intent in accepting reassignment of the ACL to provide freight, recreational and commuter rail service on the branch line through a Joint-Development Proposal, otherwise known as a Public Private Partnership (P3). Staff met with the group and determined that a P3 relationship was not something RTC should entertain at this time. With respect to documentation and written approach, RTC felt that the team did not understand the existing condition of the SCBRL, did not understand the need to environmentally clear a new commuter passenger rail project, was not experienced with delivering a major infrastructure development project of this nature, and had no experience maintaining an asset of this nature. The team also did not seem to have the experience necessary to assume the freight common carrier obligations needed to provide freight operations per the ACL, and TIG/m had never operated on a freight line. Furthermore, RTC did not have the public funding commitment necessary for a P3 relationship and was in the middle of the TCAA to determine a locally preferred alternative for a potential transit project on the SCBRL.
On November 11, 2020 (Attachment 3), SPPR submitted to RTC a 90-day notice of intent to abandon freight rail service on the SCBRL. Subsequent to this notice, RTC staff had several discussions regarding the potential abandonment with both SPPR and Roaring Camp, including the possibility that RTC may need to consider railbanking as a method to preserve and protect the right-of-way. RTC discussed the possibility of Roaring Camp assuming the ACL, including the requirement that the operator eventually be responsible for maintaining the line. Roaring Camp indicated that they did not have the resources to assume maintenance responsibilities of the SCBRL required under the existing ACL but would oppose railbanking.
On February 4, 2021, the Commission accepted the Transit Corridor Alternatives Analysis study. The TCAA served as a form of pre-scoping for an environmental document for a potential future transit project on the SCBRL. The TCAA identified a locally preferred alternative as electric passenger rail.
On March 18, 2021 Roaring Camp sent a letter (Attachment 4) to RTC opposing railbanking and indicating that they have started discussions with SPPR to handle freight service between MP 0 – MP 7.0. In that letter, they mentioned that SPRR expressed the opinion that the ACL should be amended, because the current agreement creates too large of a burden on the operator. They also encouraged RTC to continue communications with TIG/m whom they view as a potential partner for the transportation (recreational rail) service requirement of the ACL.
Also, on March 18, 2021 (Attachment 5), SPPR notified RTC that it no longer plans to immediately terminate the ACL agreement by filing for abandonment but reserves the right to do so without additional notice. In that letter, SPPR requests that RTC modify the ACL, if needed, to assign the ACL to another operator, in lieu of abandonment.
On April 30, 2021, Roaring Camp issued a press release (Attachment 6) indicating that they have reached a separate agreement with SPPR to provide freight service in Watsonville and is currently serving those freight customers. RTC does not have a contract with Roaring Camp and has not been provided a copy of the contract between Roaring Camp and SPRR.
On May 6, 2021, RTC elected not to accept the TCAA Business Plan. The Business Plan identified several risks for the project, including securing funding as the biggest risk. Although there are competitive State and Federal funding grant opportunities, a new dedicated local source would be needed to access and leverage these grant funds. Therefore, RTC staff is not currently working to advance an environmental document for a potential passenger rail project and is focusing on rail trail delivery.
On September 1, 2021, TIG/m submitted a new unsolicited proposal (Attachment 7). This new proposal eliminated the commuter passenger rail service between Watsonville and Santa Cruz and focused on using TIG/m heritage cars for recreational service between Capitola and Davenport. Roaring Camp railroads was added to the team to provide freight rail service.
At the September 2nd RTC meeting, staff presented a report on strategies to preserve the rail right-of-way, including a discussion on the concept of preserving the right-of-way with a Public Private Partnership (P3). At the conclusion of the report, the Commissioners discussed the options and the difficult situation of not having the funding available to implement all the potential transportation options considered for the SCBRL.
DISCUSSION AND ANALYSIS
RTC’s Work on Potential Commuter Rail Service
Both RTC’s 2015 Rail Transit Feasibility Study (RTFS) and RTC’s 2021 Transit Corridor Alternatives Analysis (TCAA) worked with the community to establish goals, analyze options and narrow the definition of a potential transit project on the SCBRL. The 2015 RTFS identified a service scenario between Aptos Village and Santa Cruz using diesel multiple unit (DMU) trainsets as the highest scoring option.
The recently completed and accepted TCAA report selected electric passenger rail as the locally preferred alternative (LPA) for potential transit on the SCBRL between Pajaro junction and Santa Cruz. The RTFS and TCAA determined that a minimum of three passing sidings would be needed to allow maximum headways (frequency) of 30-minutes for a commuter train traveling at maximum of 60 mph with 10 or 11 specific stop locations, between Pajaro and Natural Bridges in Santa Cruz. These criteria were used to calculate the end-to-end travel time of 43 minutes for the DMU with 10 stations and 45 minutes for the electric commuter rail alternative with 11 stations. A higher frequency of service would require more passing sidings (or double tracking) and require additional right-of-way, resulting in significantly greater project impacts and capital cost. A slower vehicle or more stations would result in a longer end-to-end travel time.
The TCAA analyzed the performance and appropriateness of different classifications of electric rail vehicles, including heavier electric Federal Rail Administration (FRA) compliant commuter trains or light rail trains. The report deferred making any decision on rail vehicle classification, due to the rapid pace of technological advancements in the electric rail industry.
The TCAA estimated the capital cost for electric passenger rail at between $465 Million (Light Rail) - $478 Million (Commuter Rail) in 2021 dollars (2021$). Once constructed, the TCAA estimated $25M/year (2021$) would be needed for Operational and Maintenance (O&M). The TCAA calculated that the RTC would need to generate $15 per ride, based on projected ridership of the LPA, to offset just the cost of O&M. To make the system reasonably affordable, the TCAA assumed ticket prices of $4.50, with the remaining $11.50/ride subsidized by additional public funds. The TCAA estimated that it would take approximately 14-years to implement the LPA, assuming all funding could be secured in a fairly seamless manner. Based on that schedule and assumptions, service could begin in about 2035.
Funding for a commuter rail transit project has always been the project’s biggest risk. Both the 2015 and 2021 studies identified potential State and Federal grant opportunities. However, both reports also discussed the need for dedicated local funding to leverage State and Federal grants. Most grant programs have match requirements in the range of 20-50%. Also, funding programs often limit the funds to different components of the project, such as construction. Once constructed, there are less opportunities for State and Federal help to subsidize the operational and maintenance cost. Therefore, local funds are needed to advance the early phases and provide the necessary leveraging requirements to secure the funding to build the project. Often financing off the local fund source is justified and can help advance a project quicker, but interest payments will need to be considered. Then, the remaining funds can help subsidize the cost of O&M to keep ticket prices affordable.
Although there are different mechanisms to generate local revenue, an approximate 30-Year, 1⁄2-cent county-wide sales tax would be needed to leverage the remaining State and Federal funding needed to implement the LPA and then help subsidize its operations and maintenance. A tax of that nature could generate approximately $630 Million (2021$) in local funds, allowing enough capacity to bond and advance the leveraging capacity in the early years, such that the project could be constructed and operational by 2035. (Note: The rail trail is a separate project under development, and its costs and funding requirements a are not included in the TCAA report).
P3 Framework
Public Private Partnerships (P3s) are long-term contractual agreements formed between a public agency and a private entity that allow for greater private sector participation in the delivery and financing of transportation projects. With P3s, the private sector may take on the risks and rewards of financing, constructing, operating, and/or maintaining a transportation facility in exchange for the right to future revenues or payments for a specified period. P3s may expand the capacity of government to finance infrastructure projects, potentially reducing project costs, transferring project risks, and improving the cost-effectiveness of long-term maintenance; however, P3s are complex transactions with notable tradeoffs that require substantial review, due diligence, and technical expertise to manage effectively.
The Unsolicited Rail Proposal – TIG/m and Roaring Camp
TIG/m and Roaring Camp’s unsolicited “Concept Proposal” (Attachment 7) was an offer to design, build, partially finance and deliver recreational rail service from Capitola to Davenport, while maintaining freight service on the line as part of a partnership with Roaring Camp. The unsolicited proposal would require federal Surface Transportation Board (STB) approval of the termination of the existing ACL agreement with SPPR and approval of a new ACL agreement between the RTC and this venture, which would need to be negotiated.
Roaring Camp Component
The September 1, 2021 unsolicited proposal includes freight service by Roaring Camp. Roaring Camp would initially serve existing customers in Watsonville, which they are currently doing under a separate agreement with SPPR. The proposal assumes future economic growth and technological advances will generate new freight customers along the SCBRL.
Roaring Camp would also continue its current 500+ recreational passenger trains per year between Felton and Santa Cruz, and the proposal states they could host events for Wharf to Wharf, a pumpkin train to Watsonville or Davenport, a First Friday art train, Wilder Ranch special event trains, and holiday themed excursions.
The proposal includes a plan to maintain the track to Class 1 standards (15mph passenger, 10mph freight). However, the proposal states that “structural damage that is not normal wear and tear, such as Acts of God, or pre-existing conditions” shall be funded by RTC. RTC estimates that the cost to RTC for those initial repairs would be in the neighborhood of $50M - $65M (2021$). Due to the age and condition of major assets on the line, as well as the unknowns associated with natural disasters (Acts of God), the additional annual maintenance and rehabilitation cost could be substantial.
TIG/m Component
TIG/m proposes to use its’s hydro-electric battery powered, double deck, heritage style trolleys for beach service between Capitola and Davenport. As mentioned in the previous section, the proposal assumes RTC will pay for and complete initial repairs and upgrades of the track to Class I (allowing 15 mph passenger rail speeds). As explained above, based on our current assessment of the corridor, the estimated cost of these repairs is $50M - $65M (2021$). Then, TIG/m proposes investing $26 Million for additional track remediation on an approximate 17.5 mile section (between Capitola and Davenport), including installing at least one passing siding, eight passenger stations and an operation and maintenance (O&M) facility, at unspecified locations. TIG/m assume 50-minute headways (frequency) at average speeds of 30mph for 15 hours per day of operations.
The proposal includes rough cost estimates for TIG/m’s initial capital investment, as well as annual O&M. RTC has not attempted to verify the adequacy of TIG/m’s cost estimate, but on the surface, it appears to have many exclusions and omissions, including the cost and schedule for environmental clearance, right-of-way acquisitions, design, and safety systems.
TIG/m did not perform a study on ridership. Instead, ridership is based on percentages of their assumed system capacity. Ridership on the excursion line is assumed to increase over time from 50% capacity to 72% of capacity with fares increasing from a starting point of $7.00 by $.25 every 3rd year.
The proposal states that there is no subsidy by the public sector in their model and presents it as a profitmaking venture with 5% of profits to RTC. Essentially, the model ignores an initial required investment of $50M to $65M Million by RTC and any other annual maintenance cost, beyond normal wear and tear, which would be borne by RTC. These costs are a significant public investment component to this proposal.
TIG/m provided a timed cash flow model for their investment and revenue which assumes they could start building the system immediately, without consideration of the time needed to make the required initial structural repairs and track upgrades that TIG/m proposes that RTC complete. TIG/m neglects the requirement for environmental compliance and project approval, even though they will introduce a new passenger rail system with impacts that have never been evaluated, and ignores the time needed to negotiate a new ACL with RTC. They assumed they could immediately start upgrading tracks, signals, build stations, acquire right-of-way, build passing siding(s) and O&M facility, complete testing and commissioning and obtain all regulatory approvals in 2-years.
Mr. Brad Read, President of TIG/m, claims that his vision of a trolly service between Capitola and Davenport “is more complete, more exciting, more attractive and therefore more economically feasible” than the vision provided by RTC’s recently completed TCAA report. TIG/m further claims that its approach will save the County many years of effort and hundreds of millions of dollars.
The TCAA report concluded that the major infrastructure and cost associated with the various electric rail classifications would be similar. The TACC further recommended that RTC maintain control over the project definition and not enter into a P3 arrangement at this time.
Although the TIG/m and Roaring Camp demonstration on the rail line was an educational opportunity to learn about recent advancements in rail technology, it did not provide information that would make commuter rail easier or less expensive to implement. RTC did not sponsor the event and is not responsible for the information disseminated at the demonstration, either orally or in writing.
The TCAA vision of transit on the SCBRL is fast, reliable electric rail service from Pajaro junction to Natural Bridges. The procurement of rolling stock is not needed until a few years prior to testing and commissioning the vehicle on the completed track, after at least an initial operating segment is fully funded. Most public agencies prefer and require an open and competitive process for the procurement of rolling stock, after clearly defining and funding a rail transit project.
RTC staff does not recommend pursuing this unsolicited Public Private Partnership (P3) proposal or any other potential P3 proposal for passenger rail service at this time. Staff recommends that the Santa Cruz County Regional Transportation Commission (RTC) consider the unsolicited passenger rail proposal by TIG/m and Roaring Camp and provide staff with input, but no action is requested.
SUMMARY
A viable P3 relationship requires clear legal and political support for a well- defined project, including a strong commitment of public funds. At this time, the RTC does not have the funding commitment for either the TCAA vision of electric commuter rail between Pajaro to Santa Cruz or TIG/m’s vision of excursion trolly service between Capitola and Davenport.
RTC staff does not recommend pursuing this or any other potential P3 proposal for passenger rail service at this time. Staff seeks Commissioner and public input regarding this report, but no action is requested.
ATTACHMENTS
1. Number of Freight Carloads by Quarter
2. May 27, 2020 Termination Notice
3. Nov. 17, 2020 Notice of Intent to Abandon
4. Mar. 18, 2021 Letter from Roaring Camp
5. Mar. 18, 2021 Letter to Request to Modify ACL
6. Apr. 30, 2021 Press Release
7. Santa Cruz Branch Line Railway (SCBLR) Concept Proposal by TIG/m