SMART poised to take control of North Bay freight hauling, expanding beyond passenger service
A multimillion-dollar deal is in place to have SMART take over North Bay freight rail by buying out the region’s lone hauler, a move that would hand SMART unified control of the local track system and make it one of a small group of agencies nationwide that controls both passenger and commercial shipping service.
Under the proposed deal, Northwestern Pacific Railroad Co. would sell its track rights and equipment for $4 million, and the state would kick in almost $4 million more to repay debt owed to the company by a financially troubled state agency that oversees North Coast commercial rail operations.
Funding for SMART’s purchase would come from a 2018 bill authored by state Sen. Mike McGuire, D-Healdsburg. The law spurred negotiations for the takeover while also initiating the dissolution of the North Coast Railroad Authority, the Ukiah-based freight rail overseer that has racked up as much as $12 million in debt over its ?31-year existence.
If approved by the Sonoma-?Marin Area Rail Transit board Wednesday and authorized ?by Gov. Gavin Newsom by the June 1 deadline, the deal would make SMART one of the small number of U.S. passenger systems - perhaps fewer than two dozen - that also own or operate freight service. It would also unify ownership of the rail line from Larkspur to north of Cloverdale under SMART, which controls all but the northernmost 21 miles, from downtown Healdsburg to the county line.
“It’s a major policy decision,” said Farhad Mansourian, SMART’s general manager. “It’s a milestone for SMART to make, which will give us additional responsibility, but will also provide an additional opportunity. And it provides for full control of our right of way and our destiny becomes entirely on our own board.”
The proposed expansion into freight rail comes at an especially precarious financial time for SMART, which lost its bid in March for early renewal of its quarter-cent sales tax and is now seeking ways to slash at least $6 million, or about 15%, from its annual budget. Cuts in passenger service appear likely even as SMART braces for other short- and long-term hits to its revenue, with a precipitous drop in fare box receipts amid the pandemic shutdown - ridership is down 90% - and a projected 20% decline through June in sales tax returns that cover most operational costs.
The SMART board endorsed McGuire’s 2018 bill, and since its approval board members at meetings have discussed off-hand the expansion into freight, but the matter has only been brought up for a full, agendized discussion behind closed doors.
The move comes with a host of unanswered questions that raise the prospect for SMART of renewed scrutiny given its struggles to build out the 70-mile line promised to voters in 2008 and sustain passenger service that began in August 2017.
“The agency hasn’t indicated a great deal of competence over a passenger rail system,” said Mike Arnold, a Novato economist and frequent SMART critic who helped organize opposition to the recent sales tax measure. “This whole freight thing could unwind on them and really hurt them, because it will come at the cost of passenger service if it does. If they don’t perform due diligence, then they’re not doing their job.”
SMART officials say expanding into freight rail could diversify the agency’s business and boost revenues with a separate income stream tied to shipping bulk goods. If the deal is approved, NWP Co. would maintain freight operations in the interim while SMART plots a course for commercial hauling. The agency would hire a consultant to help decide whether to operate freight service on its own or outsource it through a lease agreement.
Whether freight revenues would used to subsidize passenger service, be wholly reinvested in the hauling business or some mix of both would be up to the SMART board, according to agency officials.
“I just look at it as who is better positioned to provide public oversight for this,” said Novato Councilman Eric Lucan, chairman of the SMART board. “It is SMART’s line. Yes, there’s more oversight that would be coming SMART’s way, but at the same time it simplifies things because it brings it all under one roof.”
Already, SMART faces capital costs of up to $364 million to extend passenger service to Cloverdale, the planned northern terminus. By late next year, it is set to arrive in Windsor, at a cost of $65 million. SMART says an additional $10 million in deferred railway maintenance is needed to operate freight throughout the system, and McGuire said he is committed to covering that amount through other state funds if the deal moves forward.