Ohio Rail Development Commission

Commissioners’ Retreat

October 27, 2003

Chairman Betts opened the meeting at 8:30 a.m. Those present included commissioners Chairman Jim Betts, Representative Stephen Buehrer, Mike Ciotola, Don Clark, Janet Weir Creighton, Solomon Jackson, Tom McOwen, Daniel Roberts, and Herk Wolfe; and staff members Jim Seney, Matt Dietrich, Don Damron, Lou Jannazo, Susan Jenkins, Susan Kirkland, Beverly Lee, Lynda Nelson and Alan Klodell, Asst. Attorney General.

James E. Seney, Executive Director, discussed the 2003 and 2004 Work Plans. The 2004 work plan is attached as Exhibit A. He indicated that both plans are very similar. Two major issues that affected the implementation of the work plan this year. Budget cuts and the budget recommendation that ORDC become part of ODOT. Together, these issues required much time and effort.

Highlights of the work plans are:

Safety: ORDC has identified the corridors to be funded next year. These corridors were identified three years ago as part of a 3-year completion plan. ORDC is finishing the third year of the cycle and will be establishing a new set of corridors and a new map for the next cycle. Fatalities are going down. The corridor program is beginning to show results. Funding is stable. ODOT continues to move previous fiscal year fund balances forward to the current fiscal year.

Quite Zones: ORDC is working in conjunction with Rep. Tom Patton to establish a pilot Quiet Zone area in northeast Ohio. Communities are jointly funding this project with the ORDC. The railroads are currently participating in this pilot study and will be more comfortable if it is addressed as a safety enhancement program.

Director Seney believes that given the projections of increased freight volumes, quiet zone issues will become increasingly important to local communities. Further, it is important to deal with the quiet zone issue legislatively rather than at the local level. ORDC has offered language that would permit a locally implemented quiet zone assessment district to generate local funds for quiet zone implementation. Potentially, there may be a $600,000 grant from the federal government available for use in the pilot. ORDC can potentially use our safety money for circuitry, and as is standard practice, the first two gates but not the second set could be eligible for funding.

There have been a number of active projects in the past year. The Rickenbacker Intermodal Project is stalled. There is an effort with CSX in the Hamilton, Ohio area to raise two bridges a couple of feet to create clearance that will take about 800 trucks a day off of I-75. It is a $3 million project. However, it is very difficult for freight rail projects to compete with highway projects at the local level. Most rail projects have statewide benefit and consequently local MPOs are not as interested as there are no direct benefits to them.

Aggressively educating the General Assembly to ORDC’s needs has been a priority.

Nothing is available for passenger rail on the federal level. The Cleveland Hub plan is wrapping up. There has been an ongoing dispute regarding track maintenance costs. ORDC and Midwest Regional Rail have been waiting to get a third set of data for external validation to their own models. Zeta Tech, a company approved by the railroads, has run this third model. Tentatively, it appears that the Midwest Rail numbers are too low and the Cleveland Hub numbers are pretty close to the Zeta Tech numbers on maintenance. The Cleveland Hub study and business plan will be relatively accurate as far as the planning document is concerned.

What distinguishes Ohio from other states is that Ohio will increase freight capacity with passenger use of freight lines. We are working with the Central Ohio Transit Authority on its freight capacity analysis in the Columbus area.

Air links are critical for direct rail to airports like Cleveland-Columbus-Toledo.

Commissioners discussed the following issues:

We must have a benefit to freight railroads to sell passenger service.

Major international air hubs are outside the State of Ohio. We can connect to all of them with a rapid train. There are tremendous opportunities to give Ohio better access to international air hubs. For example, the Cincinnati airport is 1-1/2 miles from the Indianapolis to Chicago route, but on the other side of the Ohio River in Kentucky, not in Ohio. The train needs to go to the Cincinnati airport.

· Safety Program: The Crossing Closure Program worked great.

· Economic Development: Program hinges on two things: 1) a “yes we can” attitude, and 2) budget constraints. Priorities include allocating the projects with the potential of opening up corridors and helping locate new business in industrial parks and activating a previously inactive industrial park.

· Newspaper articles are primarily positive. No complaints.

· Prevailing Wage Law: prevailing wage rates in some areas of the state are an issue with Class 1 railroads. Union wages in some areas are higher than the prevailing wage and some areas are lower. ORDC needs to arrange a meeting with prevailing wage officials and the unions to work out a solution as soon as possible.

· Administration: Staff is doing great work on the projects.

· Outreach: Low ORDC staffing requires prioritizing of outreach efforts. Staff can be spread thin due to the potential number of communities. We are still trying to identify who we should be contacting.

Commissioners and staff discussed the prevailing wage issue. Chairman Betts asked the attending public for opinions. The Crossing Closures Program was also discussed.

Loan & Grant Commitments and Clawbacks

Lou Jannazo presented a briefing on the issue. He talked about how set penalties for specific grant levels may not work. He said that the standard procedure is that staff looks for the number of jobs created and number of carloads . The “rule-of-thumb” is that ORDC will grant $1000 per job created. The number of carloads varies. There is no standard amount for the worth of a carload. Each project is individual. The question is “should ORDC establish a procedure for carloads”?

Commissioners and staff, with input from the general public, discussed the positives and negatives of having a formula. Commissioners decided that a set formula would probably not work because there would be too many unique projects that would still need to be negotiated. It was suggested that staff could focus on carloads, by types if possible, not jobs. Guidelines are good, and staff should use discretion when using them.

Chairman Betts concluded the discussion by summarizing it. He said that all contracts should include some type of clawback clause. We need to establish goals for each project so that we can measure the degree of commitment from the grantee. But the guidelines should not be directives. Further discussion followed.

Matt Dietrich suggested that not only would the staff make what the commission is trying to accomplish more explicit in the project briefing, but include a rationale for funding the project. Then, when Beverly Lee reports on clawbacks, if there are any clawback issues, the goal and objective is reiterated in her report to the commission. If we make it very succinct and consistent then it will address commissioners’ concerns. Chairman Betts added that both the commissioners and the recipients must understand the circumstances that created the clawback and why.

Joint Ownership of Rail Rights of Way in the U.S. as a Means of Improving the Rail Infrastructure

Tom McOwen discussed the briefing paper he authored. He said that it applies to several subjects that will be discussed later during the Federal Role in Funding Rail Projects and the State’s Position on Rail Passenger Service topics. He said that this subject is designed to be mind stretching, for everyone to think outside the box. It is something the commission cannot implement, but would be good for the commissioners to think about because the Commission could be a voice in moving toward a different system that could ultimately benefit not only our state but the nation. He asked that commissioners look at this as a “blue sky” exercise and not “how in the world are we ever going to do this?”. Commissioner McOwen said that ORDC needs to make our railroads look more like highways to fix the capital problem in the rail industry. Commissioner McOwen suggested that joint ownership, not public ownership, of rail rights-of-way in the US might work. Commissioners and staff discussed the subject with input from the general public.

Multi-year Phased Rail Line Rehabilitation Projects

Lou Jannazo began the discussion. He provided background on the RJL St. Marys project. It is a large project and will be phased over several years. Mr. Jannazo said that each year, for the past two years, ORDC asked the railroads to submit projects for funding and provided criteria for receiving the funds. This year they were told that $600,000 - $750,000 was available to spend on rehabilitation for the construction season.

How does ORDC address a situation like the St. Marys line, where they need a little bit of help each year over several years? Should we ask potential recipients if the project for which they are requesting funding is part of a bigger project? And, if it is part of a larger project should we ask for the entire project plan? The RJL St. Marys project is what prompted the issue.

Chairman Betts asked Alan Klodell what the legal limitations are, above our mutual commitment, over a period of time. Mr. Klodell said that it depends on whether the money is encumbered or not because the State has a constitutional limitation prohibiting an agency from crossing the biennium, which is a 2-year budget process.

Mr. Dietrich added that if ORDC wanted to do a phased project we would run into two administrative issues: 1) we couldn’t commit unappropriated funds but the potential recipient describe the whole project, then ORDC could approve it in phases. Every fiscal year at the July meeting, staff could bring that phase of the work to the commission for approval. As long as the money was encumbered during that fiscal year ORDC could fund it; 2) The loan fund usually has “take out” financing rather than construction financing. Potentially, money could be encumbered and just sit there for years. This would be an inefficient use of State dollars. If we had a construction fund we could close on the loan and expend the funds as they were needed.

A question was raised about how ODOT provides funding for long term projects. Commissioner Ciotola responded that ODOT commits its money when it’s needed. Basically, ODOT commits to the general public, but signs no contracts until the time a project moves forward. No dollars are encumbered until that time. The commitments are for future funds rather than current funds. There is no binding commitment for more than one fiscal year.

Matt Dietrich talked about projects that are going on right now with the commission: 1) The Wellsville project was a multi phased project and is still in process. It began at the end of a biennium. The contract language and the resolution essentially said that Wellsville would receive a specified amount of money and, stated that “IF” funds are available in the next biennium ORDC would provide additional project dollars. Legally, Wellsville could not count on anything but the specified amount of money. It worked out very effectively; 2) Also, there are two additional projects that may or may not occur. One is a large loan. The recipient was sent a letter saying that the funds must be drawn down by a specific date or ORDC would use the funds for other projects. Commissioners then discussed using bonding as a vehicle.

A question was asked about whether a recent recipient’s upgrades could be used as its matching share. Mr. Jannazo responded that sometimes a project may need to be phased over several contracts, but dollars spent on previous projects cannot be used as a match. It’s not a legal issue, but a policy issue on a case-by-case basis. Responses for projects for the year are due November 28. If a project is part of a phased project ORDC should be told of the overall project.

Panhandle Rail Line

Lou Jannazo provide an update on the status of the Panhandle line. There will be an appraisal of the line and a review of the appraisal. When the results are received, ORDC will present them to the commission. The appraisal should take 4-5 months. Then, if commissioners decide to go forward with a sale, procedures will be established. There will still be several issues will need to be discussed before determining if we should sell such as: 1.) Corridor preservation; 2.) Right of access/Passenger service and 3.) Dispute resolution.

Federal Role in Funding Rail Projects

Commissioner Wolfe opened the discussion by saying that after he read the American Association of State Highway Transportation Officials (AASHTO) report he believes that we need to educate the legislature about where freight rail is going and what it can do for the communities. How does ORDC get this information to the transportation committees of the legislature that do the funding to appraise them of what is happening and what is going to happen? The commission needs to develop ideas about how to fund projects.

Mr. Seney said that the AASHTO report “Transportation, Invest in America, Freight Rail Bottom Line Report” is a good start. And, it was developed by AASHTO, the highway directors in various states that have come to the conclusion that rail is extremely important. There are 50 different structures for funding highways in the United States. In Ohio there is a constitutional prohibition against using any State gas tax revenue for anything other than highways. That is not going to change anytime soon. Use of the federal gas tax is a different issue and is not as restrictive.

The information from the AASHTO report is being used in Washington and quoted in a number of other places. The report says that the railroads must maintain 15%-17% of the transportation industry. If they don’t it will cost the nation $63 billion in highway expenditures.

Art Arnold stated that one short term solution is that the Short Line Railroad Association has a bill in front of Congress for a $350 million tax credit for shortline railroads. The railroads would like to have support from the ORDC and members of the community. It is a sunsetted proposal that would give shortline, non Class I railroads, up to a $10,000 per mile tax credit against their investment in their own track infrastructure. If they chose not to use the credits they could sell them.

Chairman Betts asked staff to prepare a resolution to endorse the bill for the November 13 meeting.

Stu Nicholson said that the Ohio Association of Railroad Passengers has been working with the Mid Ohio Regional Planning Commission and Greater Ohio, a new organization having to do with land use issues in Ohio, to create the Ohio Mobility Agreement which requests the Ohio General Assembly to form a special task force to take a look at alternative forms of funding for modes of transportation other than highways. Historically, there has been an imbalanced system of funding transportation at the State level and certainly at the Federal level. If we can get something published in Ohio then the federal government may adopt it.

Matt Dietrich called attention to a draft of legislation recently introduced by Senator Mumper, SB 139, which allows ORDC to provide loan guarantees for the federal Railroad Rehabilitation and Investment Financing (RRIF) Program. A copy of the details of the bill is in each commissioner’s packet.

What Should be the State’s Position on Rail Passenger Service

Commissioner McOwen asked what ORDC’s policy should be regarding passenger service. He stated that he has no agenda other than wanting to discuss it. Mr. Seney said that there are several parts to the proposed policy:

1. Cannot use gas tax money on railroads;

2. Share corridors and co-mingle trains in shared rights-of-way;

3. Purchase or lease space within the corridors to run passenger service; and

4. State does not subsidize trains and will not operate trains.

The federal government will have to do certain things so that Ohio will be able to have passenger trains. It will have to encourage sharing corridors and there must be federal rather than state funding. There has to be a partnership among the states, USDOT, and the Class I carriers to plan and implement the system.

Commissioner McOwen agreed but has some concerns: