Texas State Railroad operator says trains will roll but TSRA seeks to terminate agreement

February 15, 2017 / Updated February 16, 2017

News

UPDATED February 16, 2017
By TIM BLACKWELL, Cowcatcher Magazine
With the start of its spring schedule just weeks away, the Texas State Railroad’s fate remains in limbo. But some light appears at the end of the tunnel.

Holding true to its promise, operator Iowa Pacific Holdings is bringing back employees and says it will restart service in early March. On Wednesday, reports following the Texas State Railroad Authority’s weekly meeting surfaced that as many as 14 employees had been rehired and trains could begin rolling on March 4. Other employees are expected back.

The railroad made headlines in late December when IPH laid off several employees. Initial reports said the railroad had closed, but IPH quickly said that was untrue and that the layoffs and shutdown were seasonal.

While TSRA officials said the events hinted of something more significant, IPH reassured that the railroad would be back in action for the spring season. IPH CEO Ed Ellis said Tuesday that operations would return on a regular schedule.

A member of the TSRA said earlier in the week that officials are seeking to end a four-year association with IPH, and that six potential operators have expressed interest in taking over the beloved tourist railroad.

“We’re working toward a mutually agreed upon divorce, so to speak,” said long-time TSRA board member Steve Presley, who added that TSRA has stepped up monthly board meetings to weekly in an effort to resolve issues with IPH.

Board President Bob Goldberry has said that TSRA is working with IPH in good faith to come to a resolution.

At issue is nonperformance of the lease agreement between IPH, its Rusk, Palestine & Pacific Railroad operating subsidiary and TSRA. IPH is behind on lease payments and debt it inherited when assuming operations in 2012, and Presley said attempts since early last year to resolve the past-due amount have failed.

“We have notified them of nonperformance,” he said. “They have so many days to cure and so many days to exit, and we’re getting to the end of that period.” Presley said the deadline is March 30.

In another twist, on Jan. 19 the Texas comptroller of public accounts filed a lien in Anderson County against Rusk, Palestine & Pacific Railroad, LLC, listed at IPH’s corporate address in Chicago, for $72,383.85 in delinquent sales taxes/fees owed from Oct. 1, 2016, to Oct. 31, 2016.

Ellis said via email that the excursion railroad has never made a profit and that it fell behind on payments, partly because of expenses related to repairing flood damage to track last spring. He said IPH plans to operate a regular schedule and that workers are being rehired, but he left the door open for a possible exit.

“This is definitely a marginal business unit,” he said, “but one where we are working for a good outcome for East Texas whether we stay or leave. We have run a quality operation and will continue to do so.”

TSR’s website promotes a few special runs at the end of March and in April. It is unclear when regular runs through the Piney Woods are to begin.

Presley doubts that IPH can continue with enough money to operate the railroad and expects a peaceful resolution will be reached soon.

“We’re negotiating with them to get a strategy that works for both us, so they’re out and they turn over their licenses and agreements to us at no charge, and we let them off of some debt,” he said.

IPH leases the vintage locomotives and rolling stock but owns some “certain undivided interest” in the equipment and real estate, Presley said. However, in the event of nonperformance, TSRA can invoke a buyback clause for $100.

Ellis said IPH only owns one of two F-units used during regular excursions and a dome car that has run each year during Polar Express, and that the rest of the equipment should stay with TSRA if the sides part.

“While we have an ownership interest in the historic rolling stock, it’s really going to stay there under any circumstance,” he said.

Presley said that initially the board believed IPH could resolve the back debt. He acknowledged that IPH has made notable contributions to the railroad.

At the time of the layoffs, TSR had finished one of its most successful Polar Express holiday seasons and posted record ridership for the year, according to a former company official.

In its four years of operation, IPH has made payments that allowed TSRA to whittle down a significant amount of debt from a $1 million loan issued by the cities of Palestine and Rusk, dating to when TSRA took over the railroad after the state closed it in 2007.

Also, IPH initiated freight service on the line that connects with Union Pacific in Palestine. While there is only one freight customer, the railroad generates monthly car storage revenue, enough that it almost helped TSR turn a profit last year, Ellis said.

TSRA’s board discussed taking over the railroad, but raising the $700,000 to pay off the debt to Palestine and Rusk, which serve as the railroad’s terminuses, plus make general repairs and have available working capital appears unlikely.

Presley, who is a Palestine city councilman and is running for mayor this spring, said that of the six potential operators that have contacted TSRA, three appear to be a good fit. American Heritage Railways, which operated TSR in 2008-12, reportedly is among them.

Presley said the board cannot yet negotiate with potential suitors but that if TSRA and IPH can make a quick disconnect and a new operator is brought on board, the spring and summer season should go on, although fewer trains may be scheduled.

“(IPH) is working with us, and I think they’ll be very cooperative and helpful in getting operations turned back over to us in a reasonable manner. There’s no reason in my mind that there needs to be any fight between us and them. I think we’ll work out something that’s workable for both of us.

“We’re committed to do whatever it takes to keep the Texas State Railroad running.”