Road Worrier

Road Worrier: North Carolina tries to get money out of its railroad

bsiceloff@newsobserver.comOctober 23, 2012 

  • A private railroad, publicly owned The N.C. Railroad is North Carolina’s oldest private corporation, chartered in 1849. The state has been its sole shareholder since 1998. Its 13 board members are appointed by the governor and the legislature. The NCRR owns 317 miles of tracks in a 200-foot-wide corridor through 16 counties, from Charlotte to the Morehead City port. Norfolk Southern Railroad pays $14 million a year to lease the tracks for its freight trains. The NCRR does not operate trains. No dividends have been paid to the state since 2006. The NCRR invests earnings in improvements to tracks, bridges and stations. A 48-page report issued Oct. 17 by the legislature’s Program Evaluation Division (online at bit.ly/RPZbUt) recommends against proposals for the state to sell the NCRR. But it calls for increased reporting and stronger public oversight over the NCRR. The staff report says the legislature should require the railroad to pay the state’s General Fund $15.5 million this year, and in subsequent years 25 percent of its Norfolk Southern lease income. Source: N.C. General Assembly Program Evaluation Division

The North Carolina Railroad has a complicated relationship with its namesake and sole shareholder: North Carolina.

Each day, 60 freight trains and 10 passenger trains travel NCRR tracks that curve across the state for 317 miles, from Charlotte to Morehead City. Norfolk Southern Railroad pays $14 million a year to use the NCRR tracks.

The NCRR operates as a private corporation, but it is owned entirely by the public – the taxpayers of North Carolina.

The railroad does not receive tax dollars from the state. And, although it is a solvent and profitable enterprise, it does not pay dividends to the state.

The N.C. Railroad makes money. In a struggling economy, North Carolina needs money. These tensions between the NCRR and its owner were highlighted last week by two developments.

On Wednesday, the legislature’s Program Evaluation Division reported that the NCRR has profited more than the state has since 1998, when North Carolina bought out private investors and became the railroad’s only owner. The railroad’s capital has grown by at least $196.3 million in the past 14 years, and the railroad has enjoyed tax benefits because of state ownership.

“Whereas NCRR has benefited from its unique relationship with the state, the corporation has not paid a dividend since 2006,” the legislative report said. “Thus, the state is not profiting financially from being the sole shareholder of the corporation.”

The report said the legislature should have the NCRR contribute a share of its income to the state’s General Fund each year, a projected $55 million over the next decade. It should sell off 14 properties that lie outside its rail corridor, valued at $6 million, and turn over that money, too, the legislative report said.

On Thursday, the NCRR board rejected an unrelated request for $70 million from the State Ports Authority, which is part of the Department of Transportation.

DOT and Commerce Department officials had asked the railroad to pledge this money over the next decade, to help finance construction of port storage facilities that would hold wood pellets for shipment overseas. They said the improvements would boost freight rail traffic and give North Carolina a new share of the growing global market for biomass fuel.

The railroad board said too much was unknown about the wood-pellet proposal to justify a commitment for $70 million. And it cited the legislative recommendation to tap railroad earnings worth $55 million.

“Our board realizes that our General Assembly has been faced with very difficult budget decisions,” said Scott Saylor, the N.C. Railroad president.

‘Reasonable’ proposal

The legislature next year will consider the recommendations to divert railroad revenue into state government coffers.

“I think the proposal is a reasonable one, going forward – and the committee did, too,” said Sen. Fletcher L. Hartsell Jr., a Concord Republican and co-chair of a House-Senate committee that requested the NCRR study.

But it won’t be a simple decision. As I mentioned above, it’s complicated.

After all, the NCRR doesn’t blow its earnings on big cigars for board members and mink-lined offices for Saylor. Under previous orders from the General Assembly, it invests the money in capital improvements regarded as beneficial to the state and its economy.

DOT wouldn’t have been able to widen a Research Triangle Park stretch of N.C. 54 a few years ago without NCRR money to replace a bridge as part of that project.

The N.C. Railroad plans more rail capital investments worth $150 million over the next decade. They include $100 million to double-track the rails from downtown Raleigh east to the Beltline, and from Cary to Morrisville.

Some of these plans could be set back if the legislature diverted NCRR profits to the state’s General Fund, Saylor said.

Hartsell said he recognizes that the NCRR has paid dividends indirectly with “the improvements to the railroad they have undertaken.” But he likes the proposals to collect some of those dividends more directly, and to strengthen oversight of the state’s railroad.

There’s not much support for an idea floated in the legislature last year for the state to raise money by selling the 163-year-old NCRR outright. Hartsell likes keeping it in state hands, for now.

“For the moment, it is a good idea,” Hartsell said. “Because we can leverage the railroad for other kinds of development. It really was the corridor around which much of the state and the Piedmont developed (historically). And hopefully, it could be the basis for more in the future.”

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