Memo from Director Bernie Meyers follows:

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Let us, as they say in bridge, review the bidding, to see where we are and how we got here:

1. In September 2006 NCRA entered into a Lease with a newly formed freight railroad, NWP. NWP’s President had been an Executive Director of NCRA in the 1990’s. NCRA’s current Executive Director had been the chief legislative assistant to NWP’s Counsel when Counsel was in the California Assembly and the US Congress. The Lease potentially gave NWP operating rights up to 104 years without any meaningful oversight by NCRA. NWP was to make In Lieu Fee payments of $20,000/month until its trains were running and thereafter the fees were indeterminate - conceivably even nonexistent. See Memo to Marin County Board of Supervisors, Dec. 10, 2010.

2. By April 2010 NCRA had spent over $60 million of tax payer’s funds for repair work on the line. But NWP convinced the Board to enter into a No-Bid contract under which NWP was supposedly to finish repairing the line. Initially the cost was to be for less than $1 million and the work would be finished by September 1, 2010. Then the cost rose to $1.1 million, with the same completion date. In August, the cost rose to $1.9 million and the completion date was pushed back to October 1. The contract price was again reset in November 2011 at somewhere around $3 million and the work was supposedly finished in August 2011, after operations had commenced. See “The Punch List Capper – Or, Why NCRA Needs Help In Its Lease Negotiations.”

3. In June 2011 the parties partially amended the Lease. They recognized that a renegotiation of the entire Lease was necessary and committed to “promptly meet and negotiate in good faith” (4th Whereas, emphasis supplied). As to the compensation NWP was to pay to NCRA,

[It] shall be renegotiated by the parties. The parties agree to promptly meet in good faith to renegotiate the provisions of Article X [the compensation provision] to provide that the lease payments will be a monthly agreed-upon percentage of gross lease revenue, and further to negotiate the conversion of the Advanced [In Lieu] Lease payments made by NWP to the NCRA since October 2006 to a current payable.(Par. 4, emphasis supplied)

NWP was to pay $25,000 monthly to NCRA (which could include credit for prior Advanced Lease payments).

4. We had a double header in October 2011. NCRA and NWP jointly borrowed $3.1 million from the federal government (the RRIF loan) to pay for NWP’s supposed track repair work. No review of NWP’s No-Bid contract billing was presented to the Board. Meanwhile, NWP laid claim to the proceeds of the future sale of NCRA’s Ukiah Depot in order to recoup a vast array of NWP’s expenditures. Millions of dollars are involved. Also the Lease was again amended (by an Memo of Understanding) to override the June amendment and provide that NCRA would borrow $15,000/month from NWP, until the sale of the Ukiah Depot, or until July 1, 2012, whichever came first. There was nothing to be concerned about, for the Executive Director told us:

A new track rental fee will be renegotiated prior to the disbursement of funds from the sale of the Ukiah Depot Property. (E.1, 1/12/11, page 1) (Interestingly, the Ex. Dir. has refused to place the October 2011 Lease amendment on the web site.)

5. July 1, 2012 came and went. However, no Depot sale had occurred and no new fee had been negotiated. NWP now refuses to pay NCRA for NWP’s use of the right-of-way. The Executive Director reports:

The October 12, 2011 Memorandum of Agreement with NWP Co. says that NWP Co. … shall loan NCRA $15,000 per month through July 1, 2012 or until the Ukiah Depot sells, whichever occurs first. As per the Memorandum of Agreement, NWP Co. has stopped making the $15,000 per month payment to the NCRA, effective July 1, 2012.

6. The September Board meeting has been canceled in order to give more time to reach an agreement with NWP.

Now then what should we do?

This is not the first time we have found ourselves in this situation. Prior to the June 2011 Amendment the situation was similar. NWP had decided to cut off the In Lieu Fee payments. But then NWP was on the verge of starting its operations. Now NWP is an operating rail carrier. It therefore behooves us to get the lease terms right, once and for all. Attached is a Board Memo dated June 8, 2011 covering the entire Lease. Its preamble is as valid today as it was then:

“Before the Board can determine what the terms of the NCRA-NWP Co. lease should be, the Board needs:

1. To understand what are the terms in similar leases – that is, a lease between a state that owns a rail

2. The assistance of a knowledgeable, unbiased attorney who can counsel the Board.

3. To understand what the fiscal situation involving the line is, so that whatever agreement we strike results in a fiscally prudent agreement.

4. To understand the reasonable needs of both NWP Co. and NCRA and to see where, if at all, the two overlap and where accommodations can be made. Simply saying that NCRA has a mandate to get passenger and freight train service up and running over the 300-plus miles from Lombard to Humboldt Bay, because that is what our governing statutes (Gov’t Code Sections 93000 et seq.) say, is insufficient and incorrect. The enabling legislation states (emphasis supplied):

It is the intent of the Legislature to provide a means to consider and, if justified, to pursue economic development opportunities and projects related to rail service along these railroad lines.
(93001)

The [NCRA] may prepare a plan for the acquisition and operation of any railroad line specified in Section 93001, at no expense to the state, to achieve the purposes set forth in Section 93003.
(93022)

After preparation of a plan pursuant to Section 93022, the [NCRA] may do any of the following: …. (b) Evaluate alternate plans from the private sector to acquire, finance, and operate a railroad system in a manner which achieves the purposes specified in Section 93003. … (d) Select a franchisee to acquire, finance, and operate the railroad system. (93023)

We should not exclude from the enabling legislation a need to determine whether actions we might take are fiscally prudent. The Legislature surely did not expect or mandate that we not exercise common sense in our governance of the line.

Thank you for your attention to this urgent matter.