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Fee Benefit Makes Rail Deal 'Sweeter' - For CSX

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By LINDSAY PETERSON

The Tampa Tribune

Published: April 11, 2008

Updated: 04/11/2008 12:11 am

Florida's rail deal with CSX Transportation includes a benefit for CSX that goes far beyond the hundreds of millions the company will get from the state.

After selling 61 miles of tracks in Central Florida for commuter rail, CSX will retain the right to use the line for 12 hours a day. It will pay only a fraction of the state's operation and maintenance costs, however.

The year the rail service begins, the state expects to pay at least $10 million to keep the system running. CSX's contribution will be about $3 million in access fees, according to the agreement it negotiated with the state. By the 10th year, the state's costs will rise to more than $25 million, while CSX will pay less than $3.8 million.

Over 20 years, the CSX payments to the state will make up less than a fifth of what the state will pay to run and maintain the 61-mile system - even though the railroad company will have access to the tracks half the time.

A lawyer who helped negotiate the deal for the state warned more than a year ago that the terms amounted to a subsidy for CSX - a possible violation of the state Constitution. State officials, however, say they struck a fair deal for the taxpayers and the railroad.

The state plans to spend $649 million to buy the 61 miles of CSX tracks in Central Florida. The state would give the company $150 million when the sale is completed. The rest would be used to help CSX expand its freight operations statewide.

It's a sweetheart deal that "gets sweeter" with the break on the access fees, said state Sen. Paula Dockery, R-Lakeland, who opposes the package because of its costs and CSX's plans to raise freight train traffic through downtown Lakeland.

CSX will pay twice as much to use an 81-mile commuter line in South Florida.

In Central Florida, CSX will have exclusive use of the line from midnight to 5 a.m. and will share it with commuter trains from 10 a.m. to 3 p.m. and from 10 p.m. to midnight. State Department of Transportation records show it plans to run an average of nearly four 60-car trains a day on the 61 miles.

The state's operation and maintenance costs don't include tens of millions the state plans to spend to build new tracks next to the existing Central Florida tracks. This will benefit CSX as well as the commuter service, but the state has no plans to try to recoup these costs from the rail company.

In the Senate on Wednesday, Dockery proposed an amendment to the state spending plan to transfer about $20 million from the CSX deal to the state courts system, which she and other senators say faces severe budget cuts this year.

A majority of senators voted the amendment down, including senators from Hillsborough County, Victor Crist and Ronda Storms, both Republicans. The majority also voted down another amendment to use money from the deal to ease cuts to children's health and court services.

'A Lot Of Confusion'

Lawmakers have been discussing the CSX deal since before the legislative session began last month. In committee meetings, state DOT officials have said the state will be receiving $10 million a year from CSX in access fees. That includes the fees CSX will be paying to use the 81-mile commuter line in South Florida as well as the Orlando-area line.

"There's a lot of confusion about this deal, a lot of unanswered questions," Dockery said.

The state DOT negotiated the CSX deal in secret, with all the DOT staff members and consultants involved signing confidentiality agreements, at CSX's behest. The company said the information it would be providing should be barred from public view under the Sunshine Law exemption for trade secrets.

DOT negotiators used CSX's cost data to determine what the company should pay the state for access to the 61 miles, said Kevin Thibault, DOT's assistant secretary for engineering and operations. "We looked at what CSX did to maintain the rail right of way and the costs." Those costs came to about $5.5 million a year.

"We feel like the money we're getting from them is adequate," Thibault said.

E-mail messagess obtained by The Tampa Tribune, however, show that one of the DOT consultants, lawyer John Bottcher, disagreed.

If the state didn't "recoup its costs of the investment and the ongoing costs of ownership, then CSXT would be receiving a subsidy," he wrote in December 2006, about a year after negotiations began.

"The Florida Constitution prohibits public financial aid to a private party without a commensurate public benefit," he wrote. "We know that carriage of freight in and of itself provides a substantial public benefit. But there is a point where CSXT's profits private sector benefit would exceed the public benefit. I think FDOT's proposed fee structure is close to that point."

Bottcher would not comment for this story. Thibault said the fee structure being discussed in December 2006, when Bottcher wrote the e-mail, didn't change much after that.

"If it did change it was very small," he said.

Asked about Bottcher's concern that the CSX fees should compensate the state for its costs, Thibault said, "I don't know where John is getting that."

2 Key Questions

That is the proper way, however, to figure out what one railroad should pay another for the use of a line, said an official with the Alameda Corridor Transportation Authority, a 20-mile express freight rail line in Southern California.

There are two key questions, said Jim Preusch, Alameda's chief financial officer: how much money did the state pay to acquire the rail line and how many freight trains will be using it. The purchase costs and maintenance costs should be figured separately, but both should be used to determine what the freight railroad should pay, he said.

Also, if passenger and freight trains share the corridor, the bulk of the maintenance fees should be paid by the "longer, heavier, more damaging trains, which are freight trains," Preusch said.

"There's a lot of politics in these things," he said. "But the business model is what I described."

In New Mexico, Burlington Northern Santa Fe sold tracks to the state three years ago for a passenger rail system and worked out an agreement to continue to use the line. The freight trains will run infrequently, but Burlington Northern's fees will cover about 95 percent of the cost of maintaining the tracks, said Chris Blewett, director of Transportation and Planning Services for New Mexico's Mid-Region Council of Governments.

"Those freight trains are pretty heavy. They do a lot more damage than our little passenger trains," Blewett said.

For the Orlando-area rail system, the $3 million the state expects to get in the first year will come from the combination of two fees. One is fixed at $1.2 million a year. The other varies with inflation and the number of cars CSX runs.

Last year, the state also renegotiated its agreements for South Florida's commuter system, known as Tri-Rail, which has been operating for nearly two decades. CSX will pay $7.3 million next year to use the corridor, more than twice the access cost of the Orlando corridor.

The state based the new South Florida fees on its past operation and maintenance costs, charging CSX what amounts to 51 percent, Thibault said.

The difference in Central Florida, he said, is that those fees were based on what CSX said it was paying for maintenance. "The numbers we worked out with them were taken from their numbers."

Reporter Lindsay Peterson can be reached at lpeterson@tampa

trib.com or (813) 259-7834.

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