SMART board approves in-house freight rail operation, ditches gas tanker storage, at a loss
The North Bay’s passenger rail system is moving into freight operations, and one of the governing board’s first decisions about the scope of those operations is likely to make them a money loser, at least at the outset.
Board members for the taxpayer-financed Sonoma-Marin Area Rail Transit voted unanimously Jan. 5 to launch an in-house freight rail division, while at the same time reaffirming their commitment to abandon the storage of gas tanker cars near Schellville, a decision that will cost $500,000 a year in revenue.
Halting the moneymaking storage bowed to political pressure from Marin and Sonoma county residents concerned about environmental and public safety risks, particularly in the Sonoma Valley. But the search for freight rail business of equal value may prove daunting, according to those familiar with the industry.
The takeover means that SMART, a public agency, is adding an ancillary business with extra costs and unproven revenue potential at a time when expansion of its core service ‒ the north-south passenger rail line promised to voters in 2008 ‒ remains stalled by lawsuits that have tied up critical construction funds.
Still, SMART officials cautiously celebrated the possibilities, hailing the expansion into commercial freight as another step forward for the 20-year-old rail agency. It now controls all rail traffic in the North Bay.
“This board is very cognizant of the responsibility and the financial obligations of taking on freight,” said board chair and Sonoma County Supervisor David Rabbitt.
“The opportunities are there and I think the benefit to the community is there,” he said. “We just need to continue to keep doing our due diligence.”
The board’s Jan. 5 decision begins to define how SMART will, in the year to come, embark into regional freight rail business, which has been limited to just a handful of customers. Proponents like Rabbitt see an opportunity to move freight off roadways like Highway 101.
But the move comes even as staff and board members acknowledge that fundamental questions about SMART’s fiscal sustainability remain unresolved.
Even SMART’s understanding of its new business venture remains murky, as the private company that today runs freight trains has yet to fully open its books, SMART officials said.
SMART also sits at a pivotal moment in its leadership and development, with a new executive director and a Bay Area transit ecosystem undermined in potentially permanent ways by the COVID-19 pandemic.
Lawsuits have halted rail expansion north into Windsor and construction on some segments of the bike and pedestrian path meant to one day accompany the 70-mile passenger line planned to stretch from Larkspur to Cloverdale.
Origin of freight takeover
State lawmakers, chiefly Sen. Mike McGuire, D-Healdsburg, guided the passenger agency into the freight business as they seek to clear the way for a signature “rail to trail” project that would convert abandoned tracks north of Cloverdale into a 320-mile bike and pedestrian trail and tourist attraction tying San Francisco Bay to Humboldt Bay.
McGuire also sought to shut down the North Coast Railroad Authority, a debt-riddled state agency known by some as NCRA that oversaw freight rail operations and owned lines not controlled by SMART.
“NCRA was a hot mess,” McGuire said in an emailed statement Thursday.
“They were in massive debt, teetering on bankruptcy and had completely failed their mission over the last 20 years to provide freight rail to the North Coast. They should have been shut down years ago.”
McGuire said SMART’s takeover of freight operations would allow the agency “to control their own destiny.”
Operating the freight trains allows SMART to avoid scheduling conflicts on the line, and gives them rights of way to expand east into Solano County — tying into the Capitol Corridor system running between Sacramento and Oakland.
A state-funded SMART study in 2019 put the cost of that extension at $1 billion. SMART officials have endorsed the idea while stressing their first priority is build-out of the North Bay passenger line promised to voters who approved the system’s quarter-cent sales tax in 2008.
The Legislature, in a bill authored by McGuire, gave SMART $4 million to buy out private operator Northwestern Pacific Railroad Co., which runs trains through an agreement with NCRA.
Northwestern Pacific Railroad (NPR) is co-owned by former North Coast Rep. Doug Bosco and holds a significant portion of NCRA’s debt.
Bosco is an investor in Sonoma Media Investments, owner of The Press Democrat.
His freight company operated on clearly favorable terms with NCRA: The contract did not require any payments from NWP Co. to NCRA until the freight operator reached $5 million in annual revenues — a threshold it never met.