A deal for $461 million in federal passenger rail improvement grants for North Carolina nearly fell apart last month, public records show, when Norfolk Southern Railway made an 11th-hour attempt to extract new concessions in exchange for its signature.
Norfolk Southern wanted the state Department of Transportation to promise not to enforce future court orders that might penalize the freight railroad for causing delays to passenger trains. The company pressed this demand even after state and federal officials insisted it was illegal.
Also before it would accept the North Carolina deal, Norfolk Southern wanted the U.S. Department of Transportation to give the railroad favorable terms on a $131 million grant for an unrelated project in Illinois. Officials in both states and Washington refused to link the two agreements.
"In spite of extensive work among all parties to develop an agreement over the past nine months, both of these issues only arose within the past 10 days," N.C. Transportation Secretary Gene Conti complained March 18 in a letter to U.S. Transportation Secretary Ray LaHood.
North Carolina responded with some arm-twisting of its own, and the deal finally was signed March 21.
Norfolk Southern relented after a Florida congresswoman - briefed by North Carolinians - rebuked the Virginia-based railroad in a public hearing for blocking the deal, and after state and federal officials threatened steps that would force Norfolk Southern to forfeit a $105 million grant for freight improvements from Alabama to Pennsylvania.
Conti expects in the next couple of weeks to start seeking bids on 24 projects that will create jobs for 4,800 engineering and construction workers in eight counties from Mecklenburg to Wake.
Letters and emails from months of high-stakes haggling show that Norfolk Southern stubbornly resisted terms intended to guarantee that the federal grants would pay off with faster, more reliable passenger train service between Charlotte and Raleigh.
Couldn't see a benefit
Other freight railroads had struggled over similar issues before coming to terms on high-speed rail grants worth $1.7 billion for Washington state and Illinois. As budget-cutters in Congress threatened to cancel any remaining high-speed rail grants that had not been formally committed to the states, North Carolina and federal officials were under pressure to close their deal for $461 million quickly.
But Norfolk Southern was not in a hurry.
Because its dispatchers control the movements of passenger trains on tracks they share, the freight railroad is responsible for keeping the trains on schedule. The railroad sought to avoid an agreement that might cost money or cramp freight operations.
Its executives say Norfolk Southern will not be helped by projects to double-track the line between Charlotte and Greensboro, to straighten curves and to build bridges to separate cars and trains at crossings.
"We don't get any benefit from this," said John V. Edwards, Norfolk Southern's passenger policy director. "For us, it was all a question of management of risk."
That's why Norfolk Southern sought protection in the agreement against court orders it might consider onerous and unfair, Edwards said.
State and federal officials said they thought the issues had been settled after a negotiation session March 8, and they had set about turning their draft agreement into a formal document.
But Wick Moorman, Norfolk Southern's chairman, told a U.S. DOT official later that week that he had signed the agreement and was holding it "in my bottom drawer," according to several email exchanges.
At the same time, Norfolk Southern announced its proposal to delay the North Carolina deal until the U.S. DOT agreed on terms for the $131 million grant in Illinois.
Edwards said the Illinois proposal was simply Norfolk Southern's effort to limit financial risk after its failed attempt to have North Carolina ignore court rulings. Facing an increased chance of financial loss in North Carolina, he said, the railroad sought to improve its chances in Illinois.
"Sometimes the way you deal with risk is, you spread the risk out over a bigger pond," Edwards explained this week.
Unleashing the TIGER
Over the next few days, lawyers and DOT officials debated new tactics that might force Norfolk Southern to comply. They decided against pleading their case to Erskine Bowles, the former UNC system president who recently joined the Norfolk Southern board.
They met with Rep. Corrine Brown, a Florida Democrat who is a senior member of the House Transportation Committee. At a hearing March 17 on an unrelated issue, Brown criticized Norfolk Southern for "holding up" the North Carolina deal.
Federal Railroad Administration Director Joseph Szabo suggested another approach: He asked North Carolina officials to raise the argument that Norfolk Southern was violating the terms of a $105 million grant from the U.S. DOT's TIGER program for rail improvements. TIGER recipients are required to pledge cooperation with the Obama administration's initiative to build a high-speed passenger rail network.
In a letter March 18 to LaHood, Conti said Norfolk Southern should be forced to give up the TIGER grant because the company's "refusal to sign the agreement with North Carolina constitutes a lack of good faith." Conti shared the letter with members of North Carolina's congressional delegation and the state Board of Transportation.
"Great letter, Mr. Secretary," replied Nina Szlosberg-Landis of Raleigh, a Transportation Board member. "We need to play hard ball. Too much is at stake."
Lawyers for Norfolk Southern and the state DOT quickly came to terms over the next three days.
Edwards said railroad officials eventually found the assurances they needed - in language that stopped short of requiring North Carolina to ignore court orders against the railroad.
The agreement signed March 21 said North Carolina will not oppose legal appeals by Norfolk Southern to challenge court orders that are not consistent with other terms of the agreement. Norfolk Southern dropped its demands on the Illinois grant, Edwards said, because it was satisfied that this provision had reduced its financial risk in North Carolina.
Asked whether Norfolk Southern backed down to avoid the risk of losing the $105 million TIGER grant, Edwards said Conti never communicated that threat to railroad officials.
"The negotiation and execution of the agreement were separate and apart from that letter" from Conti to LaHood, Edwards said.
