BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 325
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: rubio
VERSION: 4/4/11
Analysis by: Art Bauer FISCAL: yes
Hearing date: April 12, 2011
SUBJECT:
Railroads
DESCRIPTION:
This bill creates the Central California Railroad Authority
(CCRA) to ensure the continuation of short line rail service in
the San Joaquin Valley for shippers and receivers and to provide
passenger rail service.
ANALYSIS:
In June 2008, the Surface Transportation Board (STB), the
federal agency that oversees the United States' railroad
industry, authorized the abandonment of 30.6 miles of service
operated by the San Joaquin Valley Railroad (SJVRR) between
Strathmore and Jovista in Tulare County. In the same decision,
the STB denied a request to abandon the rail line from
Strathmore to near Exeter. The STB documents show that the
SJVRR sought authority to abandon the line because "there is
insufficient traffic available to justify the cost of
maintaining and operating the line, and that investing capital
in the line would not be a prudent use of carrier resources."
During the abandonment process, Tulare County sought to acquire
the section being abandoned and asked the STB to set terms and
conditions for the sale of the right-of-way. The STB set the
purchase price at $3.3 million. Tulare County declined to
purchase the line at that price.
Matters related to railroad operations, corporate structure,
ownership, service provision, and other aspects of the railroad
business are preempted by the federal government. In fact,
states and local governments cannot exercise the right of
eminent domain to obtain railroad property and are unable to
regulate shipping rates and other aspects of railroad
operations.
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This bill :
1. Makes findings and declarations that the counties of
Fresno, Merced, Kern, Kings, and Tulare should continue
receiving short line rail service should one or more short
line operators discontinue service or abandon the rail
facilities. Further, it declares the intent of the
Legislature that a multicounty joint powers agencies formed
by the designated counties' regional transportation
planning agency administer the CCRA. Finally, it finds
that the CCRA should also operate passenger rail service.
2. Defines the CCRA as a local agency for the purpose of
receiving disaster assistance.
3. Defines the area of jurisdiction of the CRRA as the
counties of Fresno, Merced, Kern, Kings, and Tulare and
authorizes the counties of Madera, San Joaquin, and
Stanislaus to join the CCRA.
4. Provides that the CCRA be governed by a board consisting
of one person appointed by each of the regional
transportation planning agencies of the counties of Fresno,
Merced, Kern, Kings, and Tulare. Should the board be
enlarged to include other counties, the regional
transportation planning agencies of the counties shall each
appoint a member. Board members shall serve two-year
terms.
5. Exempts CCRA board members from existing law prohibiting
a local official from simultaneously holding incompatible
offices.
6. Authorizes the CCRA to exercise the following powers:
a. Acquire, own, operate, and lease real estate
and obtain property through the exercise of eminent
domain.
b. Acquire, own, lease, and operate railroad
lines and equipment, track, rights-of-way, and
facilities.
c. Issue revenue bonds under the terms and
conditions of the Revenue Bond Act of 1941 without an
election within the counties comprising the area of
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jurisdiction.
d. Accept grants or loans from state or federal
agencies.
e. Operate railroads, including railroads outside
its area of jurisdiction, to connect its lines with
the lines of another railroad corporation.
f. Select a public or private entity as a
franchisee to acquire or operate a rail transportation
system in CCRA's area of jurisdiction.
g. Prepare a plan for the acquisition and
operation of any railroad line in the area of the
member agencies to further the purposes of the Act at
no expense to the state.
h. Conduct engineering and related studies
related to the acquisition of a railroadline.
i Evaluate alternative plans from firms to
acquire, finance, and operate a railroadsystem
consistent with the purposes of the act.
7. Exempts the state from any liability for contracts,
debts, or other obligations of the CCRA.
COMMENTS:
1. Purpose of the bill . This bill creates a public
authority that may provide freight, and potentially
passenger, rail service should the STB authorize the
abandonment or discontinuance of service on an existing
short line railroad operating in the counties of Fresno,
Merced, Kern, Kings, and Tulare. According to the author,
southern San Joaquin Valley communities that rely on short
line rail service stand to lose access to shipping services
unless an alternative provider is established. Further,
the community representatives believe that without service
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they are less attractive to potential commercial investors.
The Tulare County Association of Governments commissioned a
market analysis for rail service in the county. The
analysis' conclusion was that there are customers desiring
service and that the continuation of service would enhance
the attractiveness of the county for economic development.
A graduate school project by a group of students from the
business school at California State University Fresno
conducted an analysis of an abandoned segment and concluded
there was a potential market for continuing freight
service.
2. Background . With the deregulation of the American
railroad industry in 1980, mergers, acquisitions, and
bankruptcies have reformed the railroad industry. Large
railroads, like the Union Pacific (UP) and the Burlington
Northern Santa Fe (BNSF), both of whom operate in the San
Joaquin Valley, are allowed to discontinue unprofitable
branch line service which link customers to their trunk
lines. The STB, the successor to the Interstate Commerce
Commission, which oversees the surface transportation
industry, may require that service be continued to the
branch line customers. Short line railroads provide the
branch line service and hand-off the freight cars to the
major railroads. A short line either acquires the large
railroad's branch line property outright or, more
frequently, enters into a long-term lease agreement for the
facilities. Short lines can afford to provide service in
the smaller markets because they have a lower cost
structure than the large railroads.
RailAmerica, operating as the SJVRR, is among the short
line operators providing service in the San Joaquin Valley.
RailAmerica, a publicly traded company with a market
capitalization of $934 million, operates forty railroads in
every region of the county. In California, the company
operates five railroads, including the SJVRR. The term
short line is a misnomer, since SJVRR operates over 477
miles from the Bakersfield area through Fresno and west to
Firebaugh and Oxalis.
3. Local agencies' experience with short line rail
operations . Generally, local agencies' experiences with
short line railroads have been good. For example, the
agency that operates the San Diego Trolley acquired a
114-mile subsidiary of the Southern Pacific Railroad in the
late 1970's to use a portion of the right-of-way for
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trolley service. As a condition of the acquisition, the
public agency had to ensure federal authorities that
freight service would continue. To satisfy this condition,
the trolley operator contracted with a short line rail
operator. Another short line operator provides a variety
of services associated with the movement of rail freight
for the Ports of Long Beach and Los Angeles. Typically,
the agencies contracting for the short line services have
not tried to operate the service themselves, but have done
so through a contractor.
In comparison, the North Coast Railroad Authority,
established by state legislation in 1990 to restore
railroad service from the Bay Area to Eureka, does not have
an independent source of public funds and has not
contracted with a short line railroad to plan service. Its
source of operating revenue is supposed to be shippers and
receivers along the line. Since its formation, the
authority has received over $70 million from the state and
from federal capital grants for rail improvements, but it
has been unable to meet its goals. State and federal
auditors have examined the authority since 1993 for
unacceptable business practices, including an unacceptable
internal accounting system, weak procurement and management
practices, an inadequate payroll system, and an inadequate
inventory control systems. The required business
practices, the cost of restoring the railroad, including
repairing a 100-mile washed out section in the Eel River
Canyon, and restoring collapsed tunnels have overwhelmed
the authority. To be sure, the authority may be in an
unusual situation because of geography, but its experiences
underscore the fact that successfully operating a
commercial railroad is challenging.
4. Central California Rail Authority has unusual
organizational structure . CCRA, as created by this bill,
includes several unusual futures. To begin with, the CCRA
is a special district, but it is not activated until an
abandonment or discontinuance of service on a rail line in
the CCRA's area of jurisdiction occurs. According to the
statement of findings and declarations, it is the intent of
the Legislature that the CCRA operate as a joint powers
agency comprised of the regional transportation planning
agencies of its member counties. Statements of intent are
not operative statutory language, and establishing the
management of an agency through the creation of a joint
powers agreement is not the typical practice for
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establishing an agency. Moreover, a joint powers agreement
is an agreement between public agencies to collaboratively
provide a service that they have the authority to provide
individually. Regional transportation planning agencies in
the San Joaquin Valley do not have the authority to operate
railroads. Therefore, the committee may wish to consider
two amendments:
a. Remove the intent language regarding the
management of the CCRA by a joint powers agency from
the statement of findings and declarations and include
it in the operative language of the bill.
b. Authorize the regional transportation agencies
to operate rail service within CCRA area of
jurisdiction only for the purposes of this bill.
5. The membership of CCRA's governing board is unclear .
The bill requires the five regional transportation planning
agencies to each appoint a member to the board of
directors. It is unclear if the appointee is a sitting
member of the regional agency, a member of the public, or
an elected official who is not on the regional agency's
board. In addition, the appointees are not subject to
incompatible office statute. This allows the board members
to serve without the possibility of having conflicts of
interest between the interest of the agency on which they
sit and the CCRA board. The committee may wish to amend
the bill to require that the appointees be sitting members
of the regional agencies' governing boards.
6. Powers of the CCRA . Among the powers of the CCRA is the
authority to acquire property and to operate railroads
outside of its area of jurisdiction. It is difficult to
understand why CRRA needs to acquire railroad property
outside its area of jurisdiction. Similarly, it is
difficult to understand the reason for the CCRA to operate
trains outside of its jurisdiction. Because a short line
network is not required to be contiguous, a short line may
have trackage rights on either the UP or BNSF in order to
connect with a noncontiguous segment of it network. The
committee may wish to consider the following amendments:
a. Page 4 line 31, after "domain" add "within its
area of jurisdiction". This limits property
acquisition to CCRA's area of jurisdiction.
b. Page 4 line 34, after "corporation" add
"provided the service begins within CCRA's area of
jurisdiction". This prevents the CCRA from operating
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an orphan service outside its service area.
1. Funding for the CRRA . Although this bill permits the
CRRA to issue revenue bonds, it provides no funding for
debt service. In addition, no funding is made available
for the day-to-day operations of the CRRA. It is unclear
how this agency will carry out its responsibilities.
Funding for transportation is scarce in California. There
are two state authorized funding sources for local mass
transportation and intercity passenger rail service. The
Transportation Development of 1971 provides that a
percent of each county's local sales tax be set aside for
public transportation purpose. These funds support
existing transit services throughout California. A second
source of funding is the state Public Transit Account,
which is funded with sales tax revenue from the sale of
diesel fuel. A portion of this revenue is distributed to
local agencies by formula for public transit purposes and
to the Department of Transportation (Caltrans) for the
support of intercity passenger rail services provided by
Amtrak under contract to Caltrans. The last source of
funding is voter-approved local transportation sales taxes.
Agencies that have access to this source of revenue may
allocate funds to the CRRA, provided the ordinance approved
by the voters governing the use of revenue does not
preclude such an allocation.
In light of the fiscal uncertainty of the CRRA and the
scarce resources for public transportation, the committee
may wish to consider the following amendments:
a. The signatories to the joint powers agreement
activating the CRRA shall be liable for contracts,
debts, or obligations of the CRRA.
b. The Transportation Development Act revenues
shall not be used to fund the administration,
planning, and services provide by the CRRA.
c. The CRRA shall not be entitled for funding
from the Public Transit Account.
1. Should the CRRA operate passenger rail service ? White
the bill authorizes the CRRA to provide passenger rail
services, no local plan exists for passenger rail service
in CRRA's area of jurisdiction. There have been
discussions about developing rail transit to serve future
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high-speed rail stations in the San Joaquin Valley,
although it is unclear when the high-speed rail service
will be operational. The segment the High Speed Rail
Authority proposes to construct first in the Central Valley
will not offer service, until a longer segment is
completed. Based on information received from the author,
it is clear that the purpose of the bill is to establish an
organizational framework to assume the operation of
discontinued or abandon short line freight railroad
service. Including passenger service among the CCRA's
responsibilities at this time may diminish the agency's
focus on its principle mission of ensuring the continuation
of freight service. In addition, there are several
financial and related issues that would have to be defined,
analyzed, and resolved before proceeding with passenger
service. The committee may wish to remove the
authorization of authority to operate passenger rail
service.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 6, 2011)
SUPPORT: Kern Council of Governments
Fresno Council of Governments
Merced County Association of Governments
Madera County Transportation Commission
Tulare County Association of Governments
City of Blythe
City of Lemoore
City of Lindsay
City of Parlier
City of San Joaquin
City of Taft
City of Wasco
County of Kern
County of Tulare
Tricor Refining, LLC
Central California Rail Shippers& shippers
Association
Richard Best Transfer, Inc.
Superior Soil Supplements
Golden Empire Transit District
Tulare Frozen Foods, LLC
San Joaquin Refining Co., Inc.
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OPPOSED: None received