Coast rail closure raises havoc, questions.

Byline: Winston Ross The Register-Guard

COOS BAY - When the Central Oregon and Pacific Railroad company shut down a 120-mile short line this week, it didn't just leave a few small businesses on the coast with one less option for transporting their goods.

At least three major employers on the coast who depend on the line - the only one between Coquille and Eugene - are seriously considering whether they can remain open.

Georgia-Pacific closed its Coos Bay sawmill Monday and laid off 120 employees indefinitely, noting that the company shipped 65 percent of its wholesale building products by rail.

Roseburg Forest Products, which ships five to seven cars full of plywood each day from its Coquille plant, will spend up to $5,000 more each day to load trucks, drive to the Willamette Valley and reload onto a rail car there. Such costs will be absorbed "for a time," said Hank Snow, the company's vice president for human resources. After that, he said, "Every decision is economic." Roseburg Forest Products employs about 280 people.

And Southport Forest Products won't be taking future orders from faraway places, said Jason Smith, the company's manager. Trucking will increase his costs between 15 and 20 percent, he said, and with lumber prices at historic lows, there's no way to eat the added expense. The rail shutdown threatens Southport's very existence, Smith said.

"One of the reasons we built this sawmill where we did was we depend on rail," Smith said. "The Port of Coos Bay invested $5.5 million building a line out to our mill. This is devastating."

Solution remains elusive

There's no solution in sight, either. The railroad company, commonly known as CORP, gave its customers a single day's notice when it announced an "embargo" on the short line last week, saying it couldn't afford the $7 million it would take to upgrade unsafe tunnels along the route - at least not without some help from the government, which has already spent more than $20 million in recent years improving access to Coos Bay's north spit and rehabilitating the Coos Bay Railroad Bridge.

Even if the the government comes through with the money, CORP officials said, it would be unsafe to do repairs during the rainy season. So there's no way the line could be reopened before next spring.

Initially, the question was what impact this closure might have on area leaders' dreams of a $500 million shipping container facility. As of now, the answer is none. A shipping container port would require a complete overhaul of the line, at an estimated cost of nearly $160 million. And Union Pacific, the rail company that now receives cars from Coquille once they reach Eugene, would seek to buy the short line from CORP.

What infuriated business owners and elected officials about last week's announcement was that CORP hasn't shown anyone the inspection reports to justify the embargo, which is only allowed for temporary interruptions of rail service and is supposed to be lifted as soon as the company can fix the problem.

CORP also offered no plan to fix the problem. "The Coos Bay line just doesn't have enough business on it today to justify us making the repairs," said CORP Marketing and Sales Manager Tom Hawksworth.

It's illegal to shut down a line without notice simply because there's not enough business on it. To do that requires jumping a series of bureaucratic hurdles in a process called "abandonment," during which the railroad is required to keep the tracks running.

"This is an attempt to end-run the abandonment process," said U.S. Rep. Peter DeFazio, D-Ore. "If they don't have a certifiable, immediate safety crisis, they're in violation of federal law regarding abandonment, and we could certainly force a reopening."

On Wednesday, DeFazio wrote to Joseph Boardman, administrator of the Federal Railroad Administration, questioning CORP's justification for closing the line. He said that government inspectors checked the line last October, noting that one of the tunnels was in "poor condition" but that the agency didn't issue any order to close the line.

"CORP never communicated to its customers or the Oregon Department of Transportation that the line had deteriorated so badly that an emergency closure might be necessary," DeFazio wrote. He asked the agency to physically inspect the line and determine what repairs are necessary to make it safe.

Regulated, but private

DeFazio, who said he met with the "shocked" president of Union Pacific this week to discuss the matter, isn't the only one asking questions. The Oregon International Port of Coos Bay immediately granted executive director Jeffery Bishop the authority to sue the railroad for breaching contracts with the port that require notice for interruption of service. And State Sen. Joanne Verger, D-Coos Bay, is demanding written justification of the shutdown.

"No one knows why this Draconian action was taken," Verger said. "It sounds like abandonment."

What will happen next is a little murky, however. Railroads are regulated but privately owned, said Steven Kulm, a spokesman for the Federal Railways Administration.

"They have complete control over their own operations. They own the track, they own the tunnel," Kulm said. "Individual railroads bear the primary responsibility for inspecting their own track and maintaining it to federal standards."

Federal employees do conduct spot checks on railroad lines, but there are no federal regulations regarding tunnels, Kulm said. And a General Accounting Office report released last month confirms that "little information is publicly available on the condition of railroad bridges and tunnels ... because the railroads consider this information proprietary and share it with the federal government selectively."

Further, the report notes, railroad companies are reluctant to spend money on upgrades to bridges and tunnels, preferring to "make other investments to improve mobility first." As a result, many bridges and tunnels around the country are still in service "long after their originally predicted useful life." Sen. Gordon Smith, R-Ore., added an amendment to the Railroad Safety Enhancement Act on Thursday, which requires the Railroad Administration to improve its tunnel inspection and review methods.

The nine tunnels on the Coquille to Eugene line are all more than 115 years old, according to CORP's press release. Late in 2006, repair work to one of the tunnels triggered a collapse that cost nearly $2 million to repair.

The company hired engineers to assess the status of the line's other tunnels, and found three of the nine require "extensive, immediate repairs to be made safe for rail operations and minimize the risk of collapse," according to a press release. The company said it will seek a "public-private partnership" to make repairs, meaning it will ask for government funding.

`Bad business deals'

Finding anyone willing to bail out the railroad won't be easy, however. CORP is owned by RailAmerica, Inc., a Boca Raton company with 42 railroads operating 7,800 route miles in the United States and Canada. In February, a group of private equity investors that comprise the Fortress Investment Group, a company with more than $43 billion in assets under management, bought the railroad. The company earned $143 million in the second quarter of 2007 alone, an increase of 86 percent over the same quarter in 2006.

"This is one of these bad business deals by a private capital company who leveraged a purchase with huge amounts of debt, and CORP has been saddled with tons of debt so speculators can get rich," DeFazio said. "They're being forced to engage in a frenzy of cost-cutting across the country."

A few million dollars to repair a rail line is "not a lot of money" for a company such as Fortress, said State Sen. Joanne Verger, D-Coos Bay, who attended a "frustrating, terrible" meeting on Monday with RailAmerica's regional vice president, Bob Jones.

"I appreciated the fact that he was willing to come up here with a lot of animosity and explain their position," Verger said. "But nobody bought it."

Verger said the company's story sounds like abandonment, not an emergency embargo, and the proof is in CORP's statements about there not being enough traffic on the line to justify the repair job.

"If you want someone else to solve your problem, you create a crisis," Verger said. "Does anybody want to step up to the plate and save the owners and financiers of this rail line, with no trust there?"

What's more likely is a battle, of the kind DeFazio mentioned. If the company can't justify its embargo, then the state and federal politicians plan to lean on the government to force the company to fight it.

But that's a tricky prospect, too, because the rail line is a privately owned resource. In 2005, the federal government found shoddy track maintenance in CORP territory resulted in at least seven derailments that year and in 2004, thanks to defective crossties, poor rail joint conditions and "wide gages," where rails were spread too far apart. In all, the government found more than 4,000 noncompliant conditions on 1,000 miles of track. CORP had inadequately trained inspectors and insufficient oversight to make sure it was complying with federal track safety rules, according to the Railroad Administration.

"Performing sound track inspections and maintenance is not optional," said Boardman, the FRA administrator.

Complying with the government's requests, on the other hand, was optional. The agency drafted a two-year "safety compliance agreement" with the company that required a detailed maintenance and inspection plan. That agreement is voluntary.

In the end, it is not clear what the government can do to fix this problem, or whether it has any power to get the vital short line reopened. But there are plenty of people hoping that happens soon.

"CORP has known for a long time they had issues with their road beds, with their tunnels, with everything, and Southern Pacific, before they sold it to the short line, knew the issues," said Roseburg's Snow. `Seems like there should have been some planning ahead of time so they could maintain some rail service. I don't now if this is a leverage ploy to get money from the feds or what, but it's a major issue.'

Winston Ross may be reached at [phone] or rgcoast@ oregonfast.net.