SMART approves multimillion-dollar plan to acquire North Bay freight rail service

SMART is set to assume control over the North Bay's freight rail and perhaps take over hauling by the end of the year under a multimillion-dollar, state-sponsored plan approved by the passenger train service's board of directors on Wednesday.

The complex agreement years in the making was hailed by board members as a major milestone and generational opportunity for the 2½-year-old Sonoma-Marin Area Rail Transit system, allowing it also to have sole ownership of the rail line from Larkspur to north of Cloverdale. The board voted 11-0 during its virtual meeting to back the proposal, with one member choosing to abstain.

“This is really a watershed moment here,” said Marin County Supervisor Judy Arnold, a SMART board member and two-time chairwoman. “This has been a long time coming. Whoever runs it, whether it's SMART or if we contract with someone, businesses are now going to have a chance to … send their goods by rail and get some of the (trucks) off of the road.”

The framework for the sale was established in a 2018 bill sponsored by state Sen. Mike McGuire, D-Healdsburg, that provided SMART with $4 million to buy from Northwestern Pacific Railroad Co. its equipment and exclusive freight rights to the track. An obscure and insolvent state agency, the North Coast Railroad Authority, would ultimately be dissolved under the plan, ceding 21 miles of track not owned by SMART from downtown Healdsburg to the Mendocino County line to help one day complete its planned 70-mile passenger line north to Cloverdale.

SMART, meanwhile, faces its own financial challenges after voters in the two counties in March defeated an early extension of the sales tax that funds the majority of the agency's operations. The measure was designed to allow the agency to refinance over another 30 years rising bond debt tied to the buildout of its initial 43-mile line from San Rafael to north of Santa Rosa, and save as much as $12 million per year to reinvest into operations.

Instead, SMART is now trying to settle on how to cut at least $6 million, or roughly 15%, from its annual budget while also fending off further economic hardship caused by the coronavirus pandemic. Ridership has fallen 90% as a result of the stay-at-home orders, taking a large bite out of fare box revenues. The agency has temporarily suspended weekend service and dropped its usual number of trains during the workweek by more than half.

The agency's current quarter-cent sales tax returns are projected to take a 20% hit through June, and much is unknown beyond that. The CARES Act has already granted nearly $10.4 million in emergency federal aid to SMART, and the next round of funding through the region's public transportation agency is expected to offer upward of $6.6 million more.

But the $4 million SMART received from the state to make the acquisition of NWP Co. was dedicated specifically for the purpose of taking over responsibility of freight on the line. SMART also identified $10 million in deferred maintenance throughout the system for freight operations, of which McGuire has committed to finding in other state funds in the coming years, including $2 million once the deal is completed. Without approval, the money would go back to the state.

The endorsement also advances McGuire's effort over the coming decades to construct a 320-mile recreation pathway from the San Francisco Bay to the Humboldt Bay, lends momentum to extending SMART service on an existing east-west railway along Highway 37.

The freight proposal drew mixed reviews from members of the public who spoke during the two hours of board discussion on the item. Several residents who came out against the plan questioned SMART's long-term commitment to freight operations, saying the agency lacks both the expertise to run a commercial hauling enterprise as well as a full understanding of potential liabilities without deeper study of NWP Co.'s historical financial records.

Doug Kerr of Healdsburg voiced concerns that approval would lead SMART to take its eye off its primary objective of delivering passenger service along the 22 miles of line north of Windsor, to his city of residence and then the planned northern terminus in Cloverdale. Construction is underway to extend service to Windsor by the end of next year, but nothing beyond.

“We cannot forget that is the mission of SMART. That mission is not complete.” Kerr told the board. “If you're going to be distracted by other things, that is not a good thing at all.”

San Rafael Mayor Gary Phillips, a board member and its chairman last year, said he agreed, believing the agency did not have enough detailed information to make an informed decision. Phillips, a corporate business consultant, abstained from voting on the item, calling the up-down decision both “startling” and “troubling” on such a tight window as one meeting.

“I can't imagine any of my clients going through an acquisition with this cursory a review,” Phillips said. “We're barely starting passenger service operations and this seems like a whole different ballgame. … Quite frankly, we're going to look like damn fools if we don't make the right decision.”

Sonoma County Supervisor Shirlee Zane, a 10-year SMART director, joined the lopsided board majority in supporting the proposal. She countered that the benefits far outweighed the possible risks, including the potential gains in reducing greenhouse gas emissions as well as using freight as a way to generate additional revenue for SMART.

“All businesses have risks, no doubt about it. This is a calculated risk,” she said. “As freight becomes a bigger business in Sonoma and Marin counties, and north, we can also grow passenger rail as well. This is not either/or, it's both. We've got two hands, and we've got this.”

The deal still requires approval from the North Coast Railroad Authority board next week and then from Gov. Gavin Newsom before it can be finalized.

NWP Co. is co-owned by former North Coast congressman Doug Bosco, an investor in Sonoma Media Investments, which owns The Press Democrat. It will maintain its current freight operations in an interim agreement.

SMART board members Wednesday also renewed support for staff's plan to make about $6 million in cost reductions next fiscal year through one-time savings and cuts to ongoing expenses unrelated to salaries, including ending free train wireless internet service.

The agency for now hopes to hold off on permanently eliminating weekend service while it braces for what revenues might look like after July, while also likely moving to 26 trains per weekday — a reduction of almost a third of its current schedule — once the stay-at-home order is eventually lifted.

That schedule would offer six southbound and six northbound trains roughly every 30 minutes during the morning commute and six more each way during the evening commute, and would also include one afternoon roundtrip. The first southbound train would leave at 5 a.m. and the last one just after 5:30 p.m., while the first northbound route would head out around 6:30 a.m. and the last at 7 p.m.

That plan would introduce a 4½-hour gap in the system as it transitions from morning to afternoon, and restore a previous 1½-hour gap between the afternoon run and the evening commute. A final board decision on the revised schedule is not expected until at least July.

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