New legislation would transfer more rail line to SMART, advance Great Redwood Trail

A bill advancing through the state Legislature envisions SMART taking a greater ownership stake over the North Bay’s existing rail network in part to help expand commuter rail service and speed the development of an ambitious 300-mile footpath from the San Francisco Bay to Humboldt Bay.

Sen. Mike McGuire, D-Healdsburg, is making his second legislative push in as many years to dissolve the financially troubled state agency that oversees the rail line north of Healdsburg and bolster government support for the recreational dream known as the Great Redwood Trail.

Senate Bill 356, which sailed through the Senate on Thursday without opposition, next heads to the Assembly. If passed and signed into law, it would grant control of 22 miles of rail line from north of Windsor to the Mendocino County line to Sonoma-Marin Area Rail Transit agency, and set aside the abandoned track leading north to Eureka for buildout of the trail.

The bill follows related legislation sponsored by McGuire in 2018 that Gov. Jerry Brown signed into law in September providing for study of the trail proposal and transition of freight rail oversight in the region to SMART. The law also launched an audit into the North Coast Rail Authority, the Ukiah-based public agency that currently oversees regional freight rail operations and which has struggled under mounting, multimillion-dollar debt.

“We’ve always known this project was going to be complicated because NCRA has never been managed well,” said McGuire. “We are taking the necessary step to wind down this financially bankrupt public agency. It’s the right thing to do for taxpayers and we know it’s going to take time to be able to secure the funds to complete this project.”

The audit is expected to be completed in June 2020. NCRA’s known debts top $8 million, but could be as high as $12 million.

“There is no way in hell I would ever trust the numbers that they have advanced, which is why we’ve brought on an independent auditor to verify the total debt owed by NCRA,” McGuire added of the 30-year-old state agency. “This is an unfortunate but necessary step to unravel the finances and shut them down.”

One of NCRA’s primary creditors is the Northwestern Pacific Railroad Co., which since 2006 has owned the exclusive contract to operate freight on the line. The company’s managing partner claims more than $6 million of NCRA’s debt is owed to the freight operator, primarily from loans NWP Co. provided to restore the railway to carry trains starting in 2011.

Under its freight agreement with the state agency, NWP Co. holds a renewable contract that does not expire until 2031, according to co-owner Doug Bosco, a Santa Rosa attorney and former North Coast congressman. The freight company has options to extend its lease for a combined 70 years. Terms of the original contract do not require any payments from NWP Co. to NCRA until the freight operator reaches $5 million in annual revenues — a threshold it has never met.

Bosco, an investor in Sonoma Media Investments, which owns The Press Democrat, declined to detail yearly earnings other than to call NWP Co. “profitable.”

The freight hauler spent an estimated $300,000 to twice make repairs to the railway along Highway 37 following heavy rainstorms this winter that caused major flooding and washed away track. An additional $100,000 went toward fixing a problematic at-grade rail crossing on the highway near Sears Point. The freight company also ponied up $100,000 to settle a nearly decade-old lawsuit brought by an environmental coalition over the resumption of freight hauling in the area and related upgrades to the track.

McGuire’s 2018 bill provided SMART with $4 million to buy out NWP Co.’s operating lease. But Bosco has signaled that amount would be insufficient and that he has no plans to sell.

“We’re not the ones that came up with selling the railroad. We’re not behind the bill, we’re fine,” said Bosco. “I’m not saying we’ve shut the door to entertaining an offer … from the state or anyone else, but we’re not actively seeking to do that. If someone wants to make me one of these self-made billionaires, I’d be real happy to do it. So far it hasn’t reached those sorts of numbers.”

SMART has been reluctant to chip in any more funds to sweeten the takeover bid. In August 2017 it launched commuter rail service on 43 miles of track it owns running from San Rafael to near the Sonoma County Airport. NWP Co. freight rail operations — from Windsor to Napa — use much of the same SMART-owned line.

Oversight and operation of freight rail could give SMART another potential source of revenue to help expand commuter service. But SMART officials did not single that scenario out last week in discussing the financial outlook for the agency.

“Right now, we’re working with the author,” SMART general manager Farhad Mansourian told his board earlier this month of McGuire’s bill. “We’re still putting a lot of moving parts together.”

In a meeting last week with The Press Democrat editorial board, Mansourian stated negotiations with Bosco and NWP Co. have stalled. The $4 million provided by McGuire’s 2018 legislation was not enough in the eyes of NWP Co. representatives, he said. It’s up to McGuire to close the gap, Mansourian said, perhaps through the latest legislation or a future state budget.

McGuire said he first wants to get a handle on NCRA’s debts before pursuing more state funding to pay off their creditors. It’s up to SMART and NWP Co., he said, to work out a deal to unify oversight of the complicated planning process required for development of the Great Redwood Trail.

“If SMART is the sole entity that controls both freight and passenger rail service, that provides the public with a transparent agency, which is the exact opposite of what NCRA has been,” McGuire said. “But the state is not going to negotiate. Ultimately it’s going to be up to SMART and NWP Co. In the meantime, there will be the parallel effort by the state to complete this audit.”

You can reach Staff Writer Kevin Fixler at 707-521-5336 or kevin.fixler@pressdemocrat.com.