State buys northern Maine rail line for $20.1 million

Rail ties of varied lengths on a Presque Isle section of the Montreal, Maine and Atlantic Railway in Presque Isle Thursday, March 18, 2010.  Safety concerns and poor track maintenance along sections of the MM&A railway in northern Maine limit the speed of their freight trains where 10 to 15 mph is common.  State officials are seeking a $25 million bond to repair rail in Aroostook, Penobscot and Androscoggin counties. Without such aid railways like MM&A might have to abandon their 241 miles of track which remain crucial to Maine industries.  BANGOR DAILY NEWS PHOTO BY JOHN CLARKE RUSS
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Rail ties of varied lengths on a Presque Isle section of the Montreal, Maine and Atlantic Railway in Presque Isle Thursday, March 18, 2010. Safety concerns and poor track maintenance along sections of the MM&A railway in northern Maine limit the speed of their freight trains where 10 to 15 mph is common. State officials are seeking a $25 million bond to repair rail in Aroostook, Penobscot and Androscoggin counties. Without such aid railways like MM&A might have to abandon their 241 miles of track which remain crucial to Maine industries. BANGOR DAILY NEWS PHOTO BY JOHN CLARKE RUSS
Posted Oct. 19, 2010, at 11:23 a.m.
Last modified Jan. 29, 2011, at 11:49 a.m.

The state has purchased 233 miles of northern Maine freight rail tracks deemed vital to Maine’s economy from owner Montreal, Maine & Atlantic Railway for $20.1 million, officials said Tuesday.

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Department of Transportation Commissioner David Cole signed the purchase agreement on Tuesday morning after MMA officials signed it Monday, officials said.

Gov. John Baldacci said the deal saved the tracks from an abandonment that would have been disastrous for the state’s economy.

“This agreement will ensure that northern Maine continues to have access to rail service,” Baldacci said in a statement. “Improved rail connections are critical to Maine’s economy, and this line particularly will help to protect thousands of jobs and major employers in Aroostook and Penobscot counties.

“The economic impact of the successful rehabilitation of this line will be felt throughout Maine,” he added.

Robert C. Grindrod, the railroad’s president and chief executive officer, did not immediately return messages seeking comment on Tuesday.

MMA sought federal approval in February to abandon the tracks, most of which run from Madawaska to Millinocket, by summer, citing losses of $4 million to $5 million annually. That deadline has been extended several times.

Stakeholders in the railroad service, such as 22 major Maine manufacturers, have said it would be disastrous to the state’s economy if the tracks were lost. The purchase preserves as many as 1,722 jobs, Aroostook County economic development officials said.

Grindrod said the rail service did not want to abandon the lines but had no choice, given its losses.

While still functional, the tracks had fallen into disrepair, with long stretches where safety concerns prohibited train speeds of more than 10 mph.

Track repairs that are part of the deal will improve service and promote much greater manufacturing efficiency, Cole said in a statement.

The deal “not only helps stabilize these rail-dependent industries, but with improved services lays the groundwork for future expansion and new business opportunities,” he said.

The agreement, which concludes more than a year of negotiations, calls for a purchase price of $20.1 million in cash for the rail line from Millinocket to Madawaska and branch lines to Caribou, Presque Isle, Easton, Houlton and Limestone, state officials said.

Maine will receive title to the line, free of any liens, along with overhead traffic rights to move freight over certain lines that MMA is retaining.

These track rights will allow a new operator to connect with the Canadian National line at Van Buren and the Eastern Maine Railway in Brownville Junction, officials said.

MMA will provide any needed interchange infrastructure and track at these interchange locations for the new operator.

Funding for the purchase includes: $7 million from a June 2010 bond, $4 million from a November 2009 bond that is being repurposed, $7 million from state reserve accounts, $1.1 million from rail balances from canceled projects, and $1 million from a major shipper on the line.

Voters approved during a June referendum the $7 million allocation as part of a $47.8 million bond package.

The state also will receive $10.5 million in federal funds for track improvements that will allow trains to move faster and provide more reliable service to Maine shippers.

The funding comes from the second round of grants from the Transportation Investment Generating Economic Recovery, or TIGER, program.

The funding will be used to replace railroad ties and rail sections and to clear drainage ditches to restore the rail routes serving northern Maine.

MMA provides the only rail freight service in Aroostook County, serving primarily the pulp and paper, agriculture and potato processing industries.

State transportation officials will seek proposals for a private rail operator to provide service. Several established railroads already have expressed interest in using the lines, including MMA.

In Aroostook County, business and economic development leaders have been following the negotiations closely, as have members of several County communities.

Nearly two dozen of Maine’s largest manufacturers and growers use the lines for shipping, including Twin Rivers — formerly Fraser Papers — Irving Woodlands LLC, Louisiana-Pacific Corp., Old Town Fuel & Fiber, R.H. Foster Energy LLC and Seven Islands Land Co.

Robert Clark, executive director of Northern Maine Development Commission in Caribou, said the agency has been working tirelessly to keep rail in The County.

“This is really great news,” Clark said Tuesday. “We were very pleased to hear the news, because we have spent a lot of time working to get state and federal officials together with MMA and the shippers in The County who rely on rail as part of their day-to-day business.”

Clark said the rail will be an even larger asset to the region, now that the state has secured a $10.5 million grant to replace railroad ties and rail sections and to clear drainage ditches to restore the rail routes serving northern Maine.

“This will hopefully make the railroad faster and decrease shipping times,” he said. “I think that will bring more rail traffic our way.”

Jon McLaughlin, executive director of the Southern Aroostook Development Corp., also was happy to hear the news. The organization functions to increase the area’s economic vitality and has been working closely with County shippers who use rail to emphasize its importance to state and federal officials.

“This has been a long time coming,” McLaughlin said. “The big thing for southern Aroostook is that we have two big businesses in this area that would be devastated if they lost access to rail.”

McLaughlin pointed to Louisiana Pacific in New Limerick, which sends approximately 50 percent of its outgoing shipments by rail.

“They have been very fearful about what would happen if they could not ship by rail anymore,” he said. “Losing rail means having to spend more money on transportation, which would have a very detrimental impact on their bottom line.”

The same is true for Tate & Lyle, a manufacturing plant in Houlton. McLaughlin said the factory is hoping to reduce its overall costs by shipping more products by rail.

“They really need to reduce transportation costs, and just as soon as they started seriously looking at that, we got word that MMA wanted to abandon the lines,” he said. “I think this is great news for them and for other companies in this area.”

The deal’s announcement on Tuesday was no great surprise and drew accolades from the state’s federal delegation.

“It is good news that MMA and state officials have agreed to terms of transferring ownership of the rail line to the State of Maine. I urge the Surface Transportation Board to quickly review and approve the agreement so that the state can move forward with plans for track repair and rehabilitation,” Sen. Susan Collins said in a statement.

“I’ve worked for nearly a year to bring stakeholders together to find a solution, and I am pleased to see that an agreement has been reached,” Rep. Mike Michaud said. “This is excellent news for the individuals and businesses in Maine that depend on this rail line.”

“Had this crucial line been abandoned, far too many jobs would have been threatened when our state and nation should be focused like a laser on creating new jobs during these challenging economic times,” Sen. Olympia Snowe said.

The northern Maine federal delegates said they worked hard to get federal aid to correct the rail problems. They attended several hearings, pressed federal transportation officials to commit resources to the bailout and met several times with stakeholders to ensure that their concerns were being addressed.

Public-private partnerships as created by the purchase are quite common nationally. The most famous example is probably Consolidated Rail Corp., or Conrail, a federally created structure for six bankrupt interstate rail lines that was the primary freight rail service for the northeastern United States from 1976 to 1999.

Conrail’s guiding principles included federal oversight and repair of decrepit rail lines until enough rail traffic was created to make the carrier profitable and ripe for private sale. It ran at heavy losses for the first seven years, largely due to federal regulation and high track repair costs, but eventually became profitable.

By 1987, Conrail’s stock sale produced about $1.9 billion for taxpayers at its initial public offering — the largest IPO in U.S. history at the time — and returned much of the Northeast-Midwest rail freight system to the private sector as a for-profit corporation.

Other, smaller models include partnerships in Iowa, New Hampshire and South Dakota, Cole has said. Maine already owns a few hundred miles of tracks.

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