RTC Director on Abandonment of Santa Cruz Branch Line Freight Easements

Guy Preston, executive director of the Santa Cruz County Regional Transportation Commission, presented a staff report at SCCRTC’s regular meeting on Feb. 3, 2022, where the commission took up a proposal to close off Santa Cruz area rail lines to freight service. The meeting, which took place on Zoom, had more than 500 viewers, and RTC reports that it received around 6,000 emails on the topic.

While some fear such a move would mean the end of the Santa Cruz Branch Rail Line, Preston explained that in his view, the move would result in the line’s preservation.

Preston has held the executive director’s position since December 2018. Prior to coming to Santa Cruz, he worked for the California High-Speed Rail Authority, where he was responsible for the projected delivery of rail service between San Francisco and Merced. 

This transcript has been edited for length and clarity.

Thank you, madam chair, commissioners, and members of the public.

As you say, this is an informational report on the preservation of the Santa Cruz Branch Rail Line.

Staff recommends that the Santa Cruz County Regional Transportation Commission consider this informational item, take public comment, and advise staff of any additional questions or information requests the commission may have regarding the potential for preservation of the Santa Cruz Branch Rail Line by railbanking, including potentially filing adverse abandonment actions for heavy freight rail only on the Santa Cruz Branch Rail Line and the Felton Branch Line, and allowing for the termination of the administrative coordination and license agreement with Saint Paul and Pacific Railways.

As this is an informational item only, there is no commission action anticipated as part of this item.

I would like to start today’s discussion with an acknowledgement about the concerns, questions and divisions that this item has created for our community.

The public process is extremely important.

This discussion is about how best to preserve and use the Santa Cruz Branch Rail Line in order to address transportation needs and move forward with a successful program of projects as part of that process.

Although this commission has stated its interest in ultimately using the Santa Cruz Branch Rail Line for commuter rail and a trail, this report is focused on freight rail, but also discusses the current use of the line for recreational rail and the challenges associated with building a trail within the railroad right of way.

Roaring Camp is separate from, and Roaring Camp’s Felton Line is separate from, the Santa Cruz Branch Rail Line but the two lines connect on Chestnut Street at about the intersection of Maple Street in downtown Santa Cruz.

Roaring Camp uses a portion of the Santa Cruz Branch Rail Line for their iconic beach train, which RTC respects and would absolutely like to see remain long-term.

Roaring Camp’s Felton Branch Line is also part of the federal freight network, and Santa Cruz and Big Trees Railway, owned by Roaring Camp, is a designated common carrier of freight with the obligation to provide freight service on reasonable demand.

Roaring Camp will be affected by whatever RTC does or doesn’t do on the Santa Cruz Branch Rail line.

Ever since our current freight operator, Saint Paul and Pacific Railroad, provided notices of intent to terminate the administrative coordination and license agreement, (and I’ll herein after refer to that as the ACL agreement), and abandon the Santa Cruz Branch Rail Line, the commission has been considering options including potential assignment of the ACL agreement, termination of the ACL agreement, and potentially railbanking the line.

Railbanking has come up at several prior RTC public meetings, but there is a need to discuss key issues in more depth so that commissioners and the public gain a better understanding of the potential benefits and key challenges.

This will be an opportunity to learn about community concerns and to understand what additional information is needed to make future decisions.

So let’s start with some background on the ACL agreement.

RTC is not a freight operator. We contract out freight service to a short lane operator. The ACL agreement is that contract.

The current ACL agreement contracts freight rail to Saint Paul and Pacific Railroad, which holds the freight easement on the Santa Cruz Branch Rail Line. This ACL agreement is our third such freight license agreement since purchasing the line in 2012. The template for the ACL agreement is based on the concept that the rail line could primarily pay for itself with revenue from freight and recreational rail.

In 2018, after Iowa Pacific, our second operator, neglected the line and used the line mainly to store rail cars in the Watsonville area, RTC sought its third operator. However the line was down and in a serious state of disrepair. The 2017 storms completely washed out two locations, and there was storm damage to a total of seven sites. RTC needed a debris removal contract for the entire line.

Therefore, when Saint Paul and Pacific Railroad negotiated the current ACL agreement with RTC, they required that RTC perform initial repairs on the line. Initial repairs include all storm damage, as well as damaged bridges, overpasses, trestles, culverts, and track.

RTC secured FEMA funding for the storm damage repairs. We now also have Measure D to use on rail preservation and studies. However the cost of all repairs far exceeds available revenue.

State and federal funding for freight repairs is also limited, and the Santa Cruz Branch Rail Line does not compete well against other high-priority freight projects in other regions of the state. A high-priority freight transportation project in California would be work at the Port of Oakland, Port of Long Beach, or one of the railways or highways leading to those facilities.

RTC has expended approximately $5 million in repairs on the seven storm-damage projects alone, and we are awaiting reimbursement from the Federal Emergency Management Administration, or FEMA. It is possible that we will not receive full reimbursement.

We have also spent about a million dollars in Measure D rail-preservation funds for an emergency bridge repair near Gallighan Slough. We awarded a $700,000 contract for a retaining wall above Manresa Beach at our last meeting, funding on drainage repairs, track repairs, vegetation control and other work needed for the rail line.

We had an item on today’s consent calendar for an agreement to rehabilitate the Pajaro Bridge. Although the state is providing 50 percent of the construction funding, RTC is covering the balance. The Pajaro Bridge is the only freight rail project that we have received competitive grant funding for and that is because it is located in Watsonville, where we actually have freight service.

Despite that progress, staff estimates another $50 million to $65 million of additional repairs necessary to restore regular freight service. This estimate is for repairs needed for only freight service. It’s not for commuter rail. It’s not for the trail.

As good of a time as it may seem to apply for and receive grant funding to pay for rail repairs, the likelihood of getting funding for freight will be based on project performance measures. Since we don’t currently move freight and have limited prospects for freight service beyond Watsonville, we will not compete well for federal and state grant funding programs designed for freight movement.

So why is RTC discussing railbanking?

Initially, RTC started discussing railbanking as a potential response to Saint Paul and Pacific’s notice of intent to abandon the Santa Cruz Branch Rail Line. If Saint Paul and Pacific were to follow through with that notice and RTC were to take no action, RTC would be at risk of losing the continuity of the rail line.

So why is that? Railroad title issues are complicated.

RTC holds a mix of fee and easement ownership interests in the Santa Cruz Branch Rail Line. Upon complete abandonment, a railroad may lose any rights to possess or transfer parcels of land within the corridor to which it merely held an easement, and whose use is limited to railroad purposes. RTC understandably took the abandonment notice very seriously and staff started exploring railbanking as a possible as a possible method to preserve the right-of-way.

So what is railbanking?

Railbanking was designed to prevent railroad easements from reverting under state law to an underlying fee owner after a railroad discontinues service. Railbanking provides an alternative to completely abandoning a railroad right-of-way by allowing a railroad to negotiate a trail-use agreement with a prospective trail operator, while preserving the rail right-of-way for potential future freight reactivation.

Railbanking is a voluntary process whereby a freight railroad company and a trail agency enter into an agreement to use a rail corridor that has been approved for an abandonment as a trail or for some other use, including commuter rail or rail-with-trail, until some future time when the railroad might need the corridor again for freight rail service.

As RTC explored this option, we also found that railbanking would provide relief from the property-rights issues associated with our planned construction of a trail within the Santa Cruz Branch Rail Line right-of-way.

Even if there is no desire to move to remove the rail as mentioned earlier, some of the route property is held as easements for rail purposes, which creates potential complications in constructing a trail as underlining property owners could claim that a trail is not rail and is therefore not permitted on the easement.

Although this situation may not seem significant since RTC holds most of the title and fee, and RTC could negotiate for those rights, the objections of only one property owner could significantly impact the trail project.

Railbanking doesn't eliminate potential property-owner claims. However, after railbanking, any property-owner claims that alleged that the trail is not permitted in the railroad easement would be directed to the federal government, which has a process for addressing their financial claims.

Railbanking thereby provides protections to the RTC from potential financial liability associated with building an active transportation trail along rail easements in any configuration. Railbanking will facilitate trail construction on the whole of the branch rail line.

It is important to note that the Sonoma Marin Area Rail Transportation, or SMART, did not railbank freight and built a trail adjacent to their commuter rail service. SMART was recently sued by adjacent property owners for reverse condemnation. Railbanking would avoid this.

If RTC were to railbank a portion of the line, RTC would be responsible for preserving the railbank right-of-way for future reactivation of freight rail. Preservation efforts allow for a trail, but when is not required, RTC could leave the rails in place.  We could reconfigure the rail for rail-with-trail, and continue planning for future passenger rail service.

RTC could even choose to continue some freight service on the line while the line is railbanked.

Prior to any advanced discussion on railbanking, RTC and Saint Paul and Pacific Railroads reached out to Roaring Camp as a potential freight operator and successor to the ACL agreement. However, Roaring Camp had concerns about taking on any significant responsibilities for maintenance of the rail line, and I can understand why, as I know first-hand that the cost of owning and maintaining a 150-year-old rail line is extremely expensive.

Therefore, at this time staff believes that abandonment of the freight easement in association with termination of the ACL agreement and railbanking will eliminate ownership constraints related to RTC’s use of railroad easements for a trail; eliminate for the duration of railbanking the need to complete expensive repairs necessary for freight rail service only, deferring the need to divert discretionary funds from other projects; or to implement a new dedicated local funding source to pay for the freight rail repairs; preserve the rail corridor in a manner that would provide local control and flexibility on decision making, including possibilities for future commuter rail service with a trail; provide an avenue for the current rail operator to exit the ACL agreement, an agreement that Saint Paul and Pacific Railroad, Roaring Camp and RTC all find to not be financially viable.

However, there are a number of other factors that the commission should consider in determining whether and how to pursue railbanking on the Santa Cruz Branch Rail Line.

These issues include that the process of railbanking would require the filing with the Surface Transportation Board of an application or request for exemption or authority to abandon; that Saint Paul and Pacific Railroad continues to hold the freight easement on the Santa Cruz Branch Rail Line and has chosen not to follow through with the filing of their notice of abandonment, even though Saint Paul and Pacific Railroad still desires to terminate the ACL agreement and extinguish their ownership of right of the freight easement; that the Felton line is also a freight rail line and railbanking the Santa Cruz Branch rail line would effectively leave Roaring Camp’s potential freight operations as a stranded segment; and finally that Roaring Camp has voiced opposition to railbanking the Santa Cruz Branch Rail Line, which is owned by RTC.

But if an agreement with Roaring Camp and Saint Paul and Pacific Railroad cannot be reached, it appears that RTC's only method of railbanking would be to file for what is called “adverse abandonment,” and have the federal Surface Transportation Board decide whether these two lines should remain part of the federal freight network.

Adverse abandonment is a process when a person or entity that does not own the freight easement, and this would be RTC, files a request with the Surface Transportation Board to force the abandonment of freight services on a rail line.

This process is typically initiated when there is no active freight service on a line and when the requesting party desires to have the freight line taken out of service so that the railroad right away can be used for purposes other than freight service, including railbanking.

For the RTC to be able to railbank the Santa Cruz Branch Rail Line, Roaring Camp’s objections must be addressed. RTC staff prefers to address Roaring Camp’s concerns through negotiations and to reach an agreement with them in lieu of any potential future decision for future adverse abandonment.

Although RTC could file for adverse abandonment and the railbanking of the RTC-owned Santa Cruz Branch Rail Line, allowing Roaring Camp’s objections to be settled as part of those potential proceedings, adverse abandonment and railbanking of the Santa Cruz Branch Rail Line could be a long process due to their objections.

Another potential legal approach would be for RTC to file for adverse abandonment of freight only on the Felton Branch Line as an initial step to railbanking the Santa Cruz Branch Rail Line. A determination of abandonment of freight on the Felton line would be based on whether there are realistic expectations for profitable freight service on that line.

As mentioned earlier, the STB does not regulate recreational rail. The RTC would only be seeking to gain clarification as to whether the Felton line’s current freight status can be used to stop railbanking on the Santa Cruz Branch rail line.

This action could potentially provide resolution of the stranded-line argument in advance, and separate of potential subsequent actions to abandon and railbank the Santa Cruz Branch Rail Line and terminate the ACL agreement.

If the STB finds cause for abandonment, Roaring Camp could leave their rails in place and continue their recreational rail service including the beach train. Roaring Camp could also choose to use their line for a fire break, which was a notable concern by the fire chiefs of the San Lorenzo Valley.

Roaring Camp could railbank their line if they wish to secure federal protections from property rights claims associated with any easements that they own similar to what RTC is contemplating for the Santa Cruz Branch Rail Line.

RTC has no interest in having Roaring Camp remove their rails, nor does RTC desire to build a trail on the Felton Branch Rail Line.

To reiterate, any adverse abandonment action is not the preference of RTC staff. Staff believes that a negotiated agreement with Roaring Camp to address their concerns in due consideration of RTC’s financial situation is preferred. However, staff understands that this is a complicated and difficult issue which will require collaboration, and we seek solutions to complicated problems.

To start, RTC has offered Roaring Camp a long-term lease of the portion of the Santa Cruz Branch Rail Line that Roaring Camp uses to ensure that they can continue to run their recreational service to the Boardwalk. RTC staff has also discussed the possibility with Roaring Camp of expanding recreational service to Davenport.

Nonetheless, Roaring Camp still opposes railbanking.

In all due respect to Roaring Camp, what railroad would want to be disconnected from the national network? Being disconnected can have implications and limitations for a railroad’s ability to receive new equipment. RTC has discussed financial considerations to help move equipment by truck if possible.

However those negotiations did not go very far and Roaring Camp has indicated they prefer the status quo over any attempt to railbank the Santa Cruz Branch Rail Line.

Roaring Camp has been functionally disconnected from the main line since 2017. This situation has left two of their locomotives stuck in Watsonville and unable to travel to Felton. RTC was hoping to have all repairs completed by now so Roaring Camp could move their engines.

Unfortunately, the Capitola and Seascape trestles have been deemed out of service and RTC has identified other costly repairs necessary to restore freight service which RTC simply cannot currently afford and sees no realistic possibility of funding in the foreseeable future.

RTC could just choose to leave the ACL agreement in place until its termination date of 2028. However, doing so would not make it more likely that RTC will find funding and be able to complete necessary repairs and reconnect the lines.

In the meantime we are being challenged in developing other projects on the line. Project designs are restricted by the need to fully accommodate freight rail in the short term even though the line is non-functional and RTC cannot afford the repairs.

Property right issues for these projects are on the critical path to prepare for construction, so it will be necessary to understand whether we will need to acquire additional property rights fairly soon.

We understand that more information is likely needed to understand the problem and assess our options.

Staff is interested in hearing feedback and expects to be able to provide more information over the next several months.

In the meantime we remain interested in working with Roaring Camp and Saint Paul and Pacific Railroad to find a mutually agreeable solution that ensures the long-term success of Roaring Camp while protecting the fiscal sustainability of the RTC and the taxpayer money that we are expected to manage in a responsible manner

Madam chair, that concludes my report.

The video of the SCCRTC meeting may be found here.