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Pody: Decision pending on shortline bailout

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A decision is expected within a week from the House Budget Committee on amendments that would provide a year’s worth of emergency state funding for the Nashville & Eastern Railroad Authority (NERA), which owes the renovation debt for the tracks used by the Music City Star.

According to District 46 State Rep. Mark Pody, R-Lebanon, all of Tennessee’s shortline railways, including the Nashville & Eastern, will face serious financial trouble by summer unless the state legislature approves funding to bail them out – and according to the Regional Transit Authority (RTA) website, the Music City Star operates on a 32-mile section of track belonging to the Nashville & Eastern.

The site also says “tracks, signals and bridges were upgraded and replaced and various grade crossings have been improved with funds borrowed by NERA,” and a 2011 audit of NERA, available online, stated that NERA borrowed those funds from First Tennessee Bank.

Pody said NERA faces a $1 million shortfall this year that could affect the Star. NERA borrowed part of the funds it cannot repay specifically “to fund the commuter rail costs,” according to the published NERA audit.

Additionally, according to Nashville & Eastern Railroad Corp. President William Drunsic, the NERA shortfall could affect the Star since the Nashville & Eastern owns and maintains the 32 miles of track that the Star runs over, with financing by NERA.

This year, NERA owes nearly $207,000 in principal and over $43,000 in interest payments to First Tennessee, or a total of $250,000, according to the loan payment schedule published in the NERA audit report.

The shortfall “could have a ripple effect” on the Star, Drunsic said. “The whole operation depends on all the pieces working smoothly. If your arm gets cut off, your whole body hurts.”

NERA also took out a $7 million loan from the U.S. Department of Agriculture in 2006 to improve its branch line between Algood and Monterey in Putnam County, east of Cookeville, according to the NERA audit report.

This year, NERA owes USDA nearly $109,000 in principal and over $296,000 in interest payments, or a total of more than $405,000 toward retiring that debt, which will not be entirely paid off until the year 2045.

According to NERA Managing Director Val Kelley, Tennessee Department of Transportation Commissioner John Schroer has said he will try to help the railroad authority deal with its debts to First Tennessee Bank and USDA if NERA needs his assistance.

“If Commissioner Schroer can’t help us with First Tennessee and the USDA to rework our loans, and the RTA will not come to the table to rework our agreement with them, in two to three years the track between Nashville and Lebanon will not be safe for passengers,” Kelley said.

What created the problem was a set of federal lawsuits filed by major railroads including CSX, BNSF and the Illinois Central protesting the tax that railroads were paying on diesel fuel in several states – lawsuits that the railroads won and the states, including Tennessee, are appealing.

According to the RTA board minutes from November 2013, RTA General Manager Lora Baulsir told the board members, “Historically, all of the Class 1 railroads pay a tax on diesel fuel. A portion of that tax was deposited into the equity fund that TDOT administers. The shortline railroads use these funds for track rehab projects.”

She further told the board, “Class 1 railroads filed a lawsuit stating that it was discriminatory for them to have to pay this tax and they won the lawsuit. There is about $40 million in that fund and TDOT has frozen that money from the shortline railroads’ use.”

The result is that the shortline railroads can’t use any of the funds they have come to depend on to make payments on loans, or to continue to maintain the tracks they use and lease to others.

According to the RTA board minutes, Baulsir “noted that the RTA does not receive funds from the equity fund; however, we lease our line for the Music City Star from the Nashville and Eastern Railroad Authority and they do receive funds from the equity fund.”

The freeze that TDOT put on the shortline railroad equity fund until all legal appeals are resolved, meanwhile, is having a chilling effect on NERA’s cash flow.

“As of January, we receive no money from that fund,” Kelley said. “It cut our revenue to zero.”

He said that if the shortlines don’t find a new source of funding soon, they will be in the same situation as they were in 1982, when the Class 1 railroads originally abandoned the shortlines.

The amount that CSX expects to save in taxes is reported to be about $14 million a year, but Kelley added that the major railroad could lose a good deal more if the shortlines are forced to shut down.

“The shortlines don’t make the revenues that the Class 1’s do,” he said. “But our 800 miles of rails bring millions, even up to a billion dollars, worth of freight to the Class 1’s every year.”

Currently, First Tennessee Bank has accepted an interest-only payment from the rail authority for its January bill. “That gave us until April 15,” Kelley said.

Bob Gash, vice president for community relations at First Tennessee and a member of the NERA board, said the bank would try to work with the railroad, but added that the bank does have to answer to its stockholders.

In reporting to RTA board members in November 2013, Baulsir appeared to be attempting to reassure the board that the shortline railroads’ financial problems would be resolved without seriously imperiling the Music City Star.

“The immediate problem is that Nashville and Eastern Railroad Authority has a note that is due in January,” Baulsir told the RTA board, according to its minutes, “and another note that is due in June and the railroad property is the collateral on the notes. We have been working with Nashville and Eastern and we are comfortable that they have a solution where the Music City Star should not be affected.”

Baulsir’s report continued, “They have had ongoing conversations with the bank and the bank has agreed to work with Nashville and Eastern on a fairly long-term basis to receive interest-only payments on the note in January and in June.”

A more long-term answer would be sought in the legislature this spring, Baulsir also told the RTA board, according to the minutes, which state:

“Meanwhile, the shortline railroad is going to try and get some new legislation passed that will include wording for the tax assessment similar to what the trucking industry has for the fuel tax they have to pay. In doing this, it will not be considered discriminatory.

“This will be the long-term solution and Ms. Baulsir will keep the board advised as this progresses.”

The problem first hit the news on Nov. 2, 2103, when a story in The Tennessean reported, “A lawsuit filed by two of the nation’s largest railroads challenging Tennessee’s tax on diesel fuel for locomotives could lead to a shutdown of the Music City Star commuter train and a network of smaller railroads that feed tons of cargo from Tennessee companies onto the big carriers’ systems daily, say operators of the smaller lines.”

That news story described the Star as being operated by “Lebanon-based Transit Solutions Group LLC,” but Patricia Harris-Morehead, communications and marketing director for RTA, said Transit Solutions only provides personnel to operate the Star and does not own it.

RTA news releases routinely state that “RTA services include the Music City Star regional train and nine regional bus routes.” According to the April 2013 RTA board minutes, the board also renewed its line of credit with SunTrust Bank that month to provide the cash flow for federal grants related to the Star.

Offices for Transit Solutions Group are located at 620 Knoxville Ave. in Lebanon. That also is the address of the Nashville & Eastern’s Wilson County headquarters, right beside the railroad tracks originally laid by the Tennessee Central Railway, which went out of business in 1968.

The RTA board also exerts direct control of some of the financing of track maintenance for the Star. Last June, according to RTA board minutes, the RTA awarded “the contract for track rehabilitation to Nashville and Eastern Railroad” for a cost not to exceed about $1,279,000 using federal grant money with local matching funds being provided by the railroad and NERA.

The RTA also publishes a newsletter titled Star Tracks that the RTA’s then-CEO Paul Ballard distributed to board members at their meeting last May, according to RTA board minutes.

Renovation of the lines used by the Star, according to the NERA audit report, was approved by Congress more than nine years ago, and the Federal Transit Administration awarded a grant to RTA to “cover 80 percent of the cost of construction of a commuter rail system which would link the cities of Nashville, Mt. Juliet, Lebanon, Gallatin, Hendersonville, Lavergne, Smyrna, Murfreesboro, Franklin, and Kingston Springs.”

Only the Nashville and Wilson County sections of the grant have resulted in commuter rail service so far, however. Construction of the line on which the Star now runs began in 2005, the NERA audit report stated, and the renovations to make the line safe for commuter service were completed two years later.

Financing of the remaining 20 percent of the costs was split between NERA, which agreed to bear 10 percent of the burden using a $2.5 million line of credit from First Tennessee Bank, while “Nashville and other local governments will share in the remaining 10 percent of the cost of the project,” according to the audit report.

The establishment of the Star was not entirely a financial burden to NERA, however, the audit report indicated, stating, “Commuter rail service could significantly increase the amount of funds received by NERA from their share of operating revenues of the railroad.”

That share is “10 percent of the gross commuter rail track usage or other passenger mileage fees,” the audit report stated.

The most recent ridership information available is for January of this year, when riders took 20,418 trips on the Star, according to Brooke Hall, a communication and marketing specialist for RTA. The Star ran 22 days in January since it doesn’t run on weekends and holidays, giving it an average ridership of 928 passengers per day that month.

The Star’s ridership has been steadily growing over the years, but it also has had its peaks and slower periods. An RTA news release in September 2011 reported that the Star had experienced a “record year of ridership,” marking a 24 percent increase over the previous fiscal year with a total of 250,626 trips on the train during the fiscal year ending June 30, 2011.

An accompanying chart showed that the 2011 ridership had more than doubled from 104,785 trips during fiscal 2007, the Star’s inaugural year.  

“Average daily ridership also is on the rise,” the RTA stated. “In July 2011, an average of 1,225 passenger trips were taken daily on the Star compared to 843 average passenger trips in July 2010, an increase of 45 percent.”

In July 2012, board members also were told that Music City Star ridership was up 14 percent for the fiscal year ending June 30, 2012, compared to the previous fiscal year.

Correspondent Connie Esh may be contacted at cewrites@yahoo.com. 

Correction

 The Wilson Post incorrectly implied in the Wednesday, March 26, print edition and online, also, that the Music City Star is responsible for loans which in fact the Nashville & Eastern Railroad Authority (NERA) owes.

NERA borrowed the money to renovate the tracks used by the Music City Star. However, it is NERA, which is a separate entity from the Star or the Regional Transit Authority (RTA), that faces a $1 million shortfall this year, not the Star or RTA.

In addition, Bob Gash is a member of the NERA board, but not the “Music City Star board” as The Post identified him last Wednesday.

The Post regrets the errors and is happy to set the record straight.

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Music City Star, Nashville & Eastern Railroad Authority, shortline
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