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AMERICAN-STATESMAN STAFF Saturday, November 29, 2003 Capital Metro is investing tens of millions of taxpayer dollars in a freight line that is losing millions of dollars every year. Is this any way to run a railroad? Opponents accuse Capital Metro officials of a subterfuge: sprucing up a primary path for passenger rail, despite voters' 2000 rejection of such a system, under the guise of refurbishing a bedraggled freight line. Capital Metro defends the investment, citing safety concerns and its federally mandated obligation to continue serving freight customers on the line, which the City of Austin bought in 1985 intending to carry passengers sometime in the future. And Capital Metro officials point to a sharp increase in freight traffic since the upgrade began. They predict a profit on the 162-mile line eventually, perhaps as soon as 2005. They say that every rail car on their line loaded with rock or other freight takes, at minimum, four 18-wheelers off Central Texas highways. And a key shipper says the upgraded condition of the line, and improved operation of it, have convinced his company and others that they should expand their businesses and use the line even more. Whatever the merits of the investment, among local governments only the singularly flush Capital Metro -- it needs only about 80 percent of its 1-cent sales tax to run its primary mission, bus service -- could withstand what has been a several-year tide of red ink generated by the railroad. The agency's Llano-to-Giddings freight line has lost $13.4 million in the past five years, and the transit agency predicts additional losses totaling almost $7 million this year and next. These operating losses come as Capital Metro is in the midst of a six-year, $35.6 million overhaul of the line, including installation in several sections of heavier, continuously welded line; installation of tens of thousands of new railroad ties; and upgrades of signals and gates at many of the track's crossings with city streets and rural roads. Capital Metro officials acknowledge that much of that $35.6 million in equipment and labor will benefit passenger-rail operations on the line if Austin area voters ever authorize the agency (or another branch of government) to create such a system. But they say passenger rail was not the driving policy idea behind the overhaul. And they argue that the makeover was a sound decision for the freight operation and Central Texas as a whole, even if voters never approve passenger rail. Eliminating danger The old track was in such poor shape that derailments had become common on a line that passes right behind back yards in Austin's Crestview and Wooten neighborhoods, Capital Metro officials say. And the condition of the track earned it a federal designation that for much of the line, limited trains to less than 10 mph, hamstringing the capacity of the operation and discouraging potential customers from choosing rail rather than trucks. The improved track is a significant contributor, Capital Metro said, to the line's growth from fewer than 5,600 freight cars hauled a year during the late 1990s to a current rate of more than 14,000 a year. By their lights, that amounts to more than 50,000 18-wheeler trips taken off Central Texas roads each year. Furthermore, they say that certain elements of the upgrade that might be considered above and beyond the minimum necessary for an efficient freight-rail operation were the right choice given the future possibilities. "Once (rail) passes -- and I believe it will pass," Capital Metro board Chairman Lee Walker said, "I would not want to be a board member saying, 'Whoops, I wish we had thought this through. . . . We have to go back and re-do it.' You'd have me for breakfast on that." The little-known freight line's finances have drawn scant attention to date, even from Capital Metro's most persistent critics. But Travis County Commissioner Gerald Daugherty, who led the fight against light rail in 2000, doesn't buy Capital Metro's rationale. "It doesn't matter if you lose an election apparently," Daugherty said. "I would say it's all smoke and mirrors. It's another clear example of Capital Metro having no one to keep them in check." Don Cheatham, who under the business name of Longhorn Railway ran the line for Capital from 1996 until the agency in effect fired him in 2000, has sued Capital Metro and, separately, Austin Area Terminal Railroad, the current operator, claiming lost profits. Under his contract, Cheatham had to pay for many line improvements and bear the risk of operating losses. The current operator, under its five-year contract with Capital Metro, does not pay for maintenance or capital upgrades and is guaranteed an average annual profit of about $300,000. Capital Metro now takes the losses. Cheatham, aside from his legal maneuverings, can only look on longingly at what the railroad is becoming. "They've done all that welded line, which is expensive and expensive to maintain," said Cheatham, now practicing law. "And they've retied the whole railroad. I mean, it's a great damn railroad now." A long slide Cheatham's overall evaluation of Capital Metro's handiwork is, of course, an eye-of-the-beholder question. But he overstates the tie-replacement program. And, according to a Union Pacific spokesman, welded line has become the industry standard for freight lines. "All replacement and all new construction is welded rail, and we also go back and weld bolted rail when we have an opportunity to do that," Union Pacific spokesman John Bromley said. As for the ties, Capital Metro has installed or has purchased for installation more than 150,000 ties in the past several years. But the replacements, including 12,000 steel ties, are confined to the middle 85 miles of the line, from Burnet into Austin and then on to Elgin. That includes the stretch likely to be included in any passenger rail plan as well as the interval with the heaviest freight traffic. About 80 percent of what Austin Area Terminal hauls in Capital Metro's name is rock mined from quarries near Marble Falls and Burnet, crushed rock used primarily as base materials for road construction. No one disputes that the line was in serious need of repair. According to a report that consultant R.L. Banks and Associates did for Capital Metro in late 1998, the line had been poorly maintained for at least 20 years. Southern Pacific owned the line until selling it to the city for $9.3 million in 1985 (with a $6 million boost from a federal grant, $2.7 million from Capital Metro and just $600,000 from the city). The consultant said that Southern Pacific, and the operators that came afterward, deferred maintenance to scratch out profits. Eventually, the average speed of freight trains on the line, which in 1975 had been more than 30 mph, declined to about 10 mph. The quarry customers in the Marble Falls and Burnet areas, Capital Metro officials said, were in open revolt by the late 1990s. "I can't tell you how many meetings I had, ugly meetings, with the customers out there on the line," said Elaine Timbes, Capital Metro's executive vice president for business operations, who assumed a more prominent role in the freight rail situation during the Longhorn interval. "They were painful." "Back then, service was awful, and the rail line conditions were poor," said Martin Burhans, a senior manager with Hanson Building Materials America. His company has a dolomite quarry near Burnet that ships rock on the Capital Metro line. "There was a need for a change, and a change has taken place." R.L. Banks had some advice. Capital Metro "should consider shouldering a burden as large as will be necessary only if the investment can be seen to directly benefit prospective transit operations," the report says. "Even under the best of circumstances, there can be no reasonable expectation of freight operations generating more than a tiny return on the capital investment demanded." A new deal Contrary to that advice, Capital Metro since then has done capital improvements inside and outside the section of the line -- from Leander to Austin to Manor -- most likely to be used for passenger rail. Work began in earnest in 2000, about the time that Bill Le Jeune, formerly of Southern Pacific, was hired to run the railroad operation. That's also when Longhorn was terminated and Austin Area Terminal Railroad was hired. The new operator got a much better deal than its predecessor. Under the contract, now in its third year, the operator is guaranteed 12 percent annually of a preset allotment for labor and overhead, a percentage that will net it about $1.49 million over five years. Capital Metro, meanwhile, is responsible for the gap between revenue and the cost of operations and maintenance. It also, in theory, would benefit if revenue ever exceeds expenses. Last year, the costs (including what Capital Metro spends internally on the rail operation) were $6.5 million. Revenue was $2.4 million, meaning Capital Metro's bottom line was $4.1 million to the bad. The projected gaps for 2003 and 2004: $3.6 million and $3.4 million. Despite that gentle ebbing of losses, Timbes and Le Jeune said they're hoping to get out of the red in 2005. Aside from reduced maintenance costs expected from the overhauled line, they foresee a significant surge in what has already been consistently increasing business. Le Jeune said Austin Area Terminal Railroad will be hauling most of the rock for Texas 130, the 49-mile toll highway under construction on the east side of the Austin metro area. And Alcoa is expected to use a lot of rock that Capital Metro's operator would haul, Le Jeune said, for roads associated with its new strip mine straddling the Lee-Bastrop county line. During the contract year ending in March, the line carried 10,351 freight cars, more than any year at least back to 1989 (records before that were unavailable). And from April through August of this year, the line averaged 1,176 cars a month, including one month with more than 1,500 cars. Timbes and Le Jeune think the Texas 130 and Alcoa work could put them over 2,000 cars a month. What is he projecting, specifically? "A smile," Le Jeune said. But it's unclear when the line will make Capital Metro bookkeepers smile. Which gets back to the fundamental question of why Capital Metro would be willing to carry an unprofitable freight rail system and invest heavily in it as well. For one thing, it has to carry it. Under federal law, the owner of a freight line has what is called a "common carrier" obligation to serve the shippers using the line. Capital Metro cannot shut down the line without the permission of the Surface Transportation Board, a dispensation rarely granted. Once the agency and the city bought the line in 1985 (Capital Metro paid the city $1 million in 1998 and took over sole ownership), abandoning the track was not a viable option. Capital Metro could have chosen to limp along with the line, doing the minimum to satisfy federal regulators. Walker and board members, most of whom have been in place since before the railroad overhaul began, chose a facelift instead, building a railroad that will carry freight faster and more safely – an d a railroad that will be much cheaper to prepare for passenger traffic. "I don't think it was a slam dunk decision at first," Walker said. "But we have wrestled with it, we have thought it through, and we have come out in the right place. "When someone says that's a lot of money, I say, it's a lot of railroad." bwear@statesman.com; 445-3698 http://www.statesman.com/news/content/auto/epaper/editions/ (now available only from the Austin American Statesman Archives for a fee) |
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