The governing board of SMART has signaled its early support to operate North Bay freight hauling in-house rather than contracting with a private entity.
The Sonoma-Marin Area Rail Transit district took control of freight hauling operations from Napa Valley to the Sonoma-Mendocino County border this summer.
The passenger rail agency is now tasked with choosing whether to run the freight operations itself or contract with a private provider, an approach similar to the previous freight owner’s arrangement with the Northwestern Pacific Railroad Co.
SMART staff provided early cost estimates to the board at its meeting on Nov. 17. The staff said it would cost the district about $1.7 million to run the freight operation on its own, and that could be covered by the freight revenue. Conversely, it would cost about $3.4 million to hire a private contractor to run the business full time.
All board members voiced support for at least starting with in-house control, but having the option to contract out if needed.
“It will allow us to stay responsible for all of this until we learn what, if we have to go out and consider outsourcing it, what a responsible outside contract would look like,” board member Dan Hillmer, the vice mayor of Larkspur, said during the meeting.
“I just want to be assured that we can do it at a cost that is cheaper notwithstanding the profit margin that a private entity would make,” said board chair David Rabbitt, a Sonoma County supervisor.
Reasons for support included the cost difference as well as having more control on what to do with controversial liquid petroleum gas tankers stored on train tracks in the Sonoma Valley near Schellville.
“In terms of cost-benefit, that also seems to make sense because I do see one benefit of having more control over that storage issue,” said board member and Marin County supervisor Damon Connolly, who voiced favor for removing the gas tankers entirely.
“We would be in control of what would be stored and how many trains would be passing through a day,” said Deborah Fudge, a board member and Windsor councilwoman.
Heather McKillop, SMART’s chief financial officer, said cost and profit estimates were based on the current freight provider, Northwestern Pacific Railroad Co., and its customers.
SMART bought the freight operations from Northwestern Pacific Railroad Co. using $4 million provided by the state last year. The agency also received about $2 million to begin addressing $10 million in deferred maintenance for the freight operations. The funds were included as part of Senate Bill 1029, authored by Sen. Mike McGuire, D-Healdsburg.
Northwestern Pacific Railroad Co. has run the freight operations since 2011 on behalf of the now-dissolved North Coast Rail Authority that was created by the state in 1989. The company has continued to run freight in the interim while SMART decides how it will approach running the business.
Four customers in Sonoma County use the freight service — Willowbrook Feed, Lagunitas Brewery, Dairyman Feed and Hunt and Behrens Inc. — bringing in about $1.2 million, according to McKillop.
Some board members questioned what costs SMART might incur if it runs freight operations in-house. But staff said a full analysis won’t be possible until a decision is made on whether to control freight in-house and whether it plans to continue storing petroleum tankers.
The petroleum tankers have been stored near Schellville since 2016. As many as 1,000 loaded and unloaded tankers have been stored at the site in recent years. The tankers have raised concerns about the potential for fire risk and environmental impacts as well as being a visual nuisance.
The board signaled this month that it would work to end petroleum tanker storage, which staff said could occur as soon as six months.
“This very visible, graffiti-laden reminder is not a good representation of the possibilities of SMART,” said board member Susan Gorin, a Sonoma County Supervisor.
The petroleum tanker storage provides about 27%, or close to $450,000, of the annual estimated freight revenue, McKillop said. If the board chooses to end that practice, it would need to find an additional source of revenue to make up for that.
“Now that we have the right of way, there might be a lot of opportunities to store other things that are not dangerous or is acceptable to the community and it is in places where there are no communities,” Farhad Mansourian, the SMART general manager, told the board.
Some members of the public were critical of the board’s support to cut off 27% of its estimated freight revenue.
“You now have to increase the freight hauling by 40% to make up that difference just to reach a point of breaking even,” Doug Kerr of Healdsburg, a member of the Rail Passengers Association, told the board. “This to me sounds like a lousy business case.”
“Having discussions about mitigating revenue loss is not a promising way to start a business,” said David Schonbrunn, president of the Train Riders Association of California.
Bill Norton, a member of the Sonoma Valley Fire District board, supported the removal of the petroleum tankers. Norton cited the tankers’ fire risk and the potential for extreme explosions. A fire could cause a chain reaction with several nearby tankers, which could “cook the valley,” he said.
“We want them out of the valley for sure,” Norton told the board. “Now, some of the callers have said it’s lousy business to get rid of it, you lose money. But consider a half a million in income compared to the lawsuits if those trains should ever get involved in a fire.”
Operating freight in-house would also require SMART to bring on additional staff. The agency estimated that at least six new employees would be needed, including engineers, maintenance workers, a freight manager and a part-time administrative support position.
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