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Sale of Texas State Railroad finalized; Iowa Pacific Holdings plans to run freight along tourist line

August 15, 2012 / Updated July 25, 2023

Engineer's Seat

By Tim Blackwell/Cowcatcher Magazine

Freight trains will soon run on the Texas State Railroad.

Iowa Pacific Holdings, operator of several freight and tourist railroads, inked a deal in early August with American Heritage Railways to assume ownership of the Texas State Railroad. Terms were not disclosed.

According to Iowa Pacific President Ed Ellis, the Chicago-based short line will supplement tourist runs with freight service between Palestine and Rusk, TX.

The Texas State Railroad sold for the second time in three years. – Cowcatcher Magazine

“We are very excited about this opportunity to build on the substantial achievements that American Heritage has made, in cooperation with the Texas State Railroad Authority, in improving the Texas State Railroad’s infrastructure and in developing the tourist ridership,” he said in a prepared statement. “We are already taking steps to continue this progress by further developing passenger services, reconnecting the railroad with the national rail network at Palestine, and implementing freight service.”

TSRA President Steve Presley said Iowa Pacific’s freight ability brings an added dimension to TSR, which struggled financially in recent years but was on the road to profitability with AHR. Iowa Pacific operates six short line railroads in the United States and, through an affiliated company, operates three railways and related businesses in the United Kingdom.

As part of the deal, Iowa Pacific acquired a dormant three-mile connection from the Palestine Depot to an interchange with the Union Pacific. Work already is under way on readying the track for service.

“They’re working on getting that stretch up and running and should get that open soon,” Presley said. “They’re also going to bring in more cars for Polar Express. I think the advantage here is that they have the background and knowledge to bring this freight business to the table that will help support the tourist business.”

AHR took over TSR in 2009 after the state had declared it would shutter the financially strapped line. The railroad was losing more than $1 million per year before AHR took over, but got within $150,000 of breaking even last year and was positioned to make a profit in 2012.

However, a nearly 1,000-gallon diesel spill in February was costly and forced AHR President Al Harper to seek additional funding and debt forgiveness. After being denied, Harper put TSR up for sale and Iowa Pacific expressed interest.

Negotiations moved swiftly but remediation of the spill became a sticking point. In July, TSRA adopted a resolution assuming responsibility of the $350,000 cleanup. AHR paid for some of the expense prior to transferring ownership to Iowa Pacific.

The Texas Commission on Environmental Quality (TCEQ) gave its approval of the remediation but groundwater must be tested for chemicals.

“There’s no more spill but it’s going to require monitoring over the long haul,” Presley said. “Now, we’re trying to work out how we’ll reimburse American Heritage Railways for the money that was spent on it.”

While excited about TSR’s future under new ownership, Presley said TSRA can’t forget the contribution that AHR and Harper made.

“We would never be where we are today if not for Al Harper and American Heritage Railways,” Presley said. “Nobody else was in the picture to do it as well as they did it. It just worked out better for them that they not have this right now and for Iowa Pacific to have it. Without Al and American Heritage, it would have been closed. I’m extremely thankful to them for all they did for us.”

As part of the transaction, American Heritage Railways of Texas LLC will be renamed Rusk, Palestine and Pacific Railroad LLC, although it will continue doing business as the Texas State Railroad.

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