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Talking Freight

Notable Practices on Private/Public Sector Cooperation on Projects

July 20, 2005 Talking Freight Transcript

Operator:

Welcome to the "Notable Practices on Private/Public Sector Cooperation on Projects" conference call. My name is Cheryl, and I will be your coordinator for today. At this time, all participants are in listen only mode. You may submit questions via the web at any time using the Q&A tab or chat feature in the lower right-hand corner of your screen. Later during the call, we will be conducting an audio question-and-answer portion. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you should you experience difficulty with today's presentation, please contact technical support at: (866) 779-3239. But I would now like to turn the presentation over to Jocelyn Bauer.

Jocelyn Bauer:

Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jocelyn Bauer and I will moderate today's seminar, filling in for Jennifer who is on vacation. Today's topic is Notable Practices on Private/Public Sector Cooperation on Projects. Please be advised that today's seminar is being recorded.

Today we'll have two speakers - Mike Kirkpatrick of the Delaware Department of Transportation and Karen Schmidt of the Washington State Freight Mobility Strategic Investment Board.

Mike Kirkpatrick has been employed by the Delaware Department of Transportation, Division of Planning, for the last seven years. Prior to that, he worked for the Wilmington Area Planning Council, the MPO for the New Castle County, Delaware and Cecil County, Maryland region.

In his duties at DelDOT, Mr. Kirkpatrick has taken on such diverse topics as transit service development, bicycle and pedestrian facility planning, creation of a ridesharing program for the Department, and various public surveys and coordination efforts. He is currently responsible for rail and freight planning and aviation program administration.

Mr. Kirkpatrick represents DelDOT on the AASHTO Standing Committee on Rail Transportation and the I-95 Corridor Coalition Intermodal Track Committee.

He holds a MA in Public Policy from the University of Delaware. A lifelong resident of Delaware, he currently resides in Wilmington with his two children.

Karen Schmidt is the Executive Director of the Washington State Freight Mobility Strategic Investment Board. She became the Executive Director in November 1999. She was selected as the first Director to create and manage the Freight Mobility program as an independent state agency.

Prior to her selection as Director, Karen served 19 years as a State Representative primarily focusing on transportation issues. She was Chairman of the House Transportation Policy & Budget Committee for 5 years, and Chairman of the Legislative Transportation Committee for 4 years.

During this time, the state recognized the importance of freight movement to the economy and began to coordinate efforts to improve congestion and bottlenecks that threaten Washington's ability to compete. Karen has received numerous awards for her leadership on transportation issues as well as for her leadership representing her constituents.

In Karen's private life, she owned and operated a travel agency for 29 years, worked for the airlines and attended Arizona State University. She is married and has two adult sons. Karen and her husband live on Bainbridge Island.

I'd like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. The Operator will give you instructions on how to ask a question over the phone during the Q&A period. However, if during the presentations you think of a question, you can type it into the smaller text box underneath the chat area on the lower right side of your screen. Please make sure you are typing in the thin text box and not the large white area. Presenters will be unable to answer your questions during their presentations, but I will use some of the questions typed into the chat box to start off the question and answer session in the last half hour of the seminar. Those questions that are not answered will be posted to the Freight Planning LISTSERV. The LISTSERV is an email list and is a great forum for the distribution of information and a place where you can post questions to find out what other subscribers have learned in the area of Freight Planning. If you have not already joined the LISTSERV, the web address at which you can register is provided on the slide on your screen.

Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site within the next week. To access the recorded seminar, please visit Talkingfreight.webex.com and click on the "recorded events" link on the left side of the page and then choose the session you'd like to view. Due to the size of the file, recorded files are available for viewing/listening purposes only and cannot be saved to your own computer. We encourage you to direct others in your office who may have not been able to attend this seminar to access the recorded seminar.

The PowerPoint presentations used during the seminar will also be available within the next week. I will notify all attendees of the availability of the PowerPoints, the recording, and a transcript of this seminar.

We are now going to wait a few minutes until 1:00 to give others a chance to join us. At 1:00 we'll start with the first presentation of the seminar. So, Operator, please put everyone back into hold at this time.

Actually, it is rounding 1:00 p.m. right now, so it sounds as though we should start. I see that many of us who have joined in, today's topic is Notable Practices on Private/Public Sector Cooperation on Projects. Our first presentation of the day will be that of Mike Kirkpatrick, of the Delaware Department of Transportation. If you think of questions during this presentation or during any other presentations, please type them into the chat area on the screen. Questions will be answered in the last 30 minutes of the seminar. Mike, you can start when you are ready.

Mike Kirkpatrick:

Good afternoon or morning, depending on where you are. I am going to do a presentation on a project that the Delaware Department of Transportation is participating in and developed about four years ago. I was asked before I take off to give a little taste of what planning for freight is all about in Delaware. We recognized that freight was an issue about two long-range plans ago and started addressing the issue. Before then, we, like a lot of places, were reactive towards freight. Complaints about railroads or trucks were addressed but we didn't think ahead to try to work with the freight community. And, I am glad to say, over the last ten years or so we have started to step in that direction and be more proactive and I am, essentially, as you heard, the rail-freight-aeronautics planner. I also work with the Port of Wilmington, although they are a separate corporation, but we are still affiliated with them and work closely with them. We try to coordinate with adjacent areas including the Delaware Valley Regional Planning Commission, which is in Philadelphia, but we are very intimately connected with them. We are affected by what they do so we try to work with them, as well as our partners in the state of Maryland and in Virginia because we share the [Delmarva] peninsula with them as well so we have a lot to work on together and a lot of shared issues.

Let's get on with the agreement. It is a great case for public/private cooperation. I should have put the "great" in there, but we will go from here. Hopefully, we will go from here. The problem as you can see it, an aerial view and water level view, we had 115-year-old swing bridge out of commission and it left a big hole in Delaware's rail system, a very big hole. Norfolk Southern and the state of Delaware both had an interest in putting it back in service, but we weren't sure how to do that, so let me give you background. The bridge was built by the Pennsylvania Railroad in 1888. It is pretty old. It basically, as you can see from the official track chart here, it diverted freight and express service around Wilmington's passenger station. The red circle indicates what we are talking about here. It is used for freight service, serving industry on the east and south sides of Wilmington, which is still Wilmington's industrial area. It has a place. This is what that track chart looks like in real life. As you can see in the top right-hand corner, Edgemoor Yard is a major yard. It serves Norfolk Southern. If you follow the yellow track down, you see the bridge in this aerial photo; it was still locked open. Then we get to a "Y" [track]. If you head to the south, you are heading down state into Delaware, you see the port of Wilmington in the bottom right-hand corner, served by Norfolk Southern. And if you follow the track back up you can see where it reconnects to the northeast corridor at Ragan interlocking and the Northeast Corridor is the green line that dog-legs through the city of Wilmington and the star is where the station is. You get an idea where it did work as a bypass. And how it could again. The big thing is it affords access to southbound trains that want to go into the state of Delaware to the Port of Wilmington. It is a pretty big link. In 1995, Conrail took the bridge out of service and many estimates had been done. We did one in 1999. It was nine million to ten million. Their [Conrail's] business strategy: they served east-to-west markets going across Pennsylvania and bringing things from the Midwest in. They did not go up and down the Corridor. They didn't serve that traffic that much. They focused east-west. Due to trying to work with Amtrak, they said decided they were going to stick with east-westbound. As you can see here, on the map is a bridge or missing bridge; this is the Port of Wilmington; and this is the Ragan interlocking where everything comes back together. You can get an idea how important that link is. Everything drains off of the Northeast Corridor into Delaware. The effects of closing the bridge: the yard that was on the north side of the river was stranded; cut off, it became a spur track. Its usefulness would definitely have been affected. A lot of traffic was rerouted due to the longer route or more complication or less reliability, especially going southbound on the Northeast Corridor. Without that... The bypass also serves as a pull off where local, general merchandise trains could pick up local cars and take them on their way. And it lost the ability to build trains along the Northeast Corridor. It definitely degraded service into the Port of Wilmington, making you either go down to Ragan interlocking and do a u-turn and backtrack or come in from the south through Newark at the Davis interlocking, which is also a congested area. Nobody wants to do that. The other thing it did was it forced traffic through the passenger station, which the state had contributed to rebuilding in 1984. We didn't want that either. Amtrak didn't want it... nobody wanted that problem. There were a lot of good reasons to put the Shellpot back in service. Again, a map of the Delaware rail lines...this is our entire system. The track [the Delmarva Secondary - belonging to Norfolk Southern] that basically bisects the state goes down and branches off in southern Delaware. It also connects to the eastern shore of Maryland and the eastern shore of Virginia. It is very important that Norfolk Southern can get its freight off of the [Northeast] Corridor and across the Corridor to get into Delaware and the Eastern Shore of Maryland and Virginia. Without that, we would pretty much be cut off in terms of rail freight. As you can see it is like a funnel that pours in from the top and goes down. Ninety-five percent of the rail freight that comes into Delaware is going [via NS]. We have a huge interest in making sure they can still get in.

Players in this case: in June of 1999, the Conrail merger or buy out was completed and Norfolk Southern took over all of Conrail's Delaware assets, the CSX didn't get any piece of that, so instead of dealing with Conrail, Delaware essentially started dealing with Norfolk Southern in their place. Norfolk Southern in their purchase of Conrail had a different business strategy. They saw the north-to-south market, along the Corridor and up into the New York/New England area as something they wanted to get into. That looks like a good prospect for them. They had to work with Amtrak to get on to the Corridor, which as we all know is primarily passenger and that causes a lot of trouble for freight. There is a freight window at night. Not the ideal situation. The purchase of Conrail left Norfolk Southern cash-starved and with limited capital, essentially they had come into a great business opportunity but didn't have the money to exploit the situation to their advantage. They developed a list of projects that were their priorities. Unfortunately, the way it worked was Shellpot was not way up at the top. It was on the list but it wasn't at the top. It was going to wait until they got to that portion of the list. A second player on board: the Delaware Department of Transportation. We had created a freight rail plan in 1999, just before the merger was consummated, so we weren't sure exactly what we were getting into but we did basically examine the system and have an idea what would be good for rail freight in Delaware and we realized that the Norfolk Southern system was going to be very important. The goals in the Freight Rail Plan: the goals essentially were increasing rail mode share, we are below the national average in Delaware. We would like to get to the national average and even higher if we could. ...And protecting access to the state network. As I mentioned that funnel that pours freight rail into the state comes off the Northeast Corridor at two interlockings or three. So essentially, we needed to make sure that Norfolk Southern would always have access and good, reliable access, not just a spotty "when we can do it" type of deal. Restoration of the route was important strategy in meeting these goals. DelDOT, unlike Norfolk Southern at that point was pretty flush with cash. We also had the ability to bond and don't have the restrictions that Norfolk Southern had on them. One of the reasons they did not want to expend capitol on this project was the return on investment was not high enough for their investors, their stockholders. They did not want to negatively affect their credit score by putting more debt on their books. That was one of their big reasons for not immediately tackling this. DelDOT got together with Norfolk Southern and we wanted to go into public-private partnerships. It was suggested, [but] we had not ever done it before to this degree. Using a railroad term it was "dark territory." We did not have good direction on how to take this at that point...and these were the issues we were faced with: The states had to justify investments on a for-profit company. They have stockholders, they try to make a profit, so we had to explain to the taxpayers of the state why we were investing their money in this company's assets...and the reason is there was a public benefit, major public benefits to it. Rail service, as you know, supports bulk industries. We deliver a lot of grain to Delaware to feed all of our chickens down on the Peninsula, so there are a lot of good issues. We have the GM and Chrysler Plants. They very much need rail service, good rail service, to keep them viable on the east coast. We could figure out why we wanted to do it and why it was important, but we needed to develop a mechanism to carry this out and, again, we didn't have a model to subscribe to. The interesting anecdote about this is the way this came about was [that] our Secretary of Transportation [Nathan Hayward III] sat down one day with a bunch of vice-presidents from Norfolk Southern to discuss this and other issues and [he] let me know that this truly was a back-of-the-napkin idea. It was sketched on the back of a napkin and he basically came up with the idea of how can we share the risks and rewards of investing in the Shellpot bridge? The rewards are obvious. Their reward will be to make more money, which means they will move more products.

The rewards for the public are that, again, we will have a more robust rail system that will grow and to continue to serve our states. The risk really was "what if we build and they don't come?" Can Norfolk Southern generate the business? States and governments... their conundrum usually is: we can provide infrastructure, but we can't dictate what it does or what any railroad does on our system [pardon me, NS... I should say, the system that we contributed to improving - DE does not own the Shellpot]. They basically are providing the service, we're just [helping in] providing the road to ride it on. Again, like any other freight activity, it is private. We weren't sure if they could deliver. They were nervous about getting into this kind of agreement with us and how it would all play out. The back of the napkin concept to share risks and rewards with a payback ...I am getting ahead of myself. The solution: part grant, part loan. A sliding scale payback put a lot of weight on the beginning. There is a higher toll in the beginning and as you increase your volume, the rate per car went down. We made back more money on the initial cars and got a better payback...but Norfolk Southern, it behooves them to increase their traffic as much as possible because when they got over a certain threshold, the sliding rate went down $25 per car. If they got a lot higher, their per-capita [railcar] cost was a lot less. It made sense. It helped us all share the risks and rewards and again it was an incentive based program sharing the benefits and risks. The total cost estimate when we began this was $13 million, later adjusted to $13.9 million due to increases in the cost of steel and other raw materials. And the way we broke this down was we granted a five million outright and it was a nine million [dollar] loan which eventually was adjusted up to capture that [additional] point nine million. That was the payback part. The annual minimum pay back would start at $750,000 a year. We had a basic clause in there to get a minimum payback. In the next five years, from years six to ten, it increases to one million a year. From [year] ten to 15, $1.2 million. As you can see, every five years it jacks up, increasing the pressure on the railroad to build their service up over a certain threshold. It appears when you see this...it appears the state takes more risk at the end of the program than at the beginning. Because getting up to these car number thresholds is going to be pretty tricky. A sliding per-car tariff, between $35 and $5 based on certain thresholds, the first 5,000 cars is $35 a car, the next 15,000 cars is $25 per car and it slides down from there. As you can see, I put up a couple payback years and basically, what you are looking at is the top is the year one to five payback and to meet our $750,000 minimum, they would have to pass 30,000 cars across the bridge. As you see we haven't even gotten into the five dollars per car threshold. We're still in the ten dollars per car [rate]. 30,000 cars to break even, or to get the minimum pay back, the first year. Anything above that, we have to double that to make our original investment investments. [In] the [years]16-20 payback, the red area at the top is five dollars per car and when the rate goes down that much we will have to dramatically increase the sheer number of cars going across to make it to our minimum payback of $1.25 million. The break-even scenario is challenging enough, especially in the out years. If we only got our minimum pay back [over the life of the agreement] we would make $4.5 million back, 50 percent of our loan.

Anything above that essentially is, I won't say gravy but we will consider it, quote, profit. If we have a dramatic success from the beginning, we have a chance to make back actually more than the nine million that was originally loaned. Truly, we are all hoping for success in this way and if we did we make any money, we would reinvest it back into other projects. We have little data right now, but we have six months' worth of data. The bridge was put back into service in October of 2004. We have January through June data for 2005, this very year. The six months...the actual accounts are 53,982, projecting that out would be 107,964. Translating that into a dollar figure based on our scale, we would make $1.13 million this year,. which is way above our minimum. If we keep up this high rate over the first few years of the project, loading it up on the front end, we do stand a good chance of making back our money over the term of the deal. I am very enthusiastic that we actually could achieve 180,000 cars a year across it in the future. Doing a couple projections of the growth based on the actual accounts from this year, projecting out at three percent growth, you see we don't grow too much. At a wildly enthusiastic ten percent growth, we do make it...we would at least be making our minimum payment at year 20. We would like to do better than that. With six months of data, hard to tell where we are going to go with this. The first few months of trends will be spectacularly explosive. They have gone up dramatically, but it is the first six months. Let's wait and see.

The results: Less than one year of data... there has been an incredible upward trend in car counts during the first six months. We are not sure exactly how much of that is new traffic compared to traffic that may have gone through the southern route and now, has shifted north because it is more efficient. We are not sure how much is brand new traffic. Norfolk Southern has reported a good deal of new business due to the line opening. A lot of that is stone that is coming from Eastern Pennsylvania south and it just wasn't economical to do it before. We are again and moving ahead, seems we are growing. New business is there. The trend will continue. Another excellent result of this is the Edgemoor Yard is using its available capacity now. We are blessed with success in that they may need more yard space. We have to deal with that project as it comes.

But the lessons we have learned from this...It is very good way to leverage state funds, doing a loan and a payback. We have funding. They did not want to put debt on their books. They didn't have to, essentially. It is a contract. Recognize, and this is the huge caveat with this, this is not a universal solution. It cannot be used everywhere. You cannot toll the whole Northeast Corridor. It would be like driving through New Jersey. My apologies to anybody in New Jersey, but you know it is true, there would be a toll every two miles. This makes sense, to do limited focus projects. The other very important thing is [that] this is what the state wanted and we will build it and the railroad will come. The railroad wanted to do this as well. They just did not have the capital. That is very important piece of information that a lot of people just don't think about. The private sector, your local municipalities, lawmakers, people who don't really understand how this [the railroad business] works say, "why can't you take this trucks and put them on rail?" We know why. Some things just don't work. You have to make sure it is not just something the State has dreamed up and it hasn't been vetted. It has to be a mutual win-win. Everybody has got to have one. There's no point going into it with an unwilling partner. If you're private-sector partner is smart and they wouldn't go into the deal anyway unless they had a good reason to go. It is not exactly throwing money at a problem. It is actually focused and researched and there is some thought put behind it all. Flexibility is important in these [deals]. Make sure you have covered all your bases when you develop a contract. Again, the price went up after we started the project. But there is a mechanism to index the price. When we went from $13 to $13.9 million. That was included in the contract, the payback costs. The formula was slightly adjusted to handle it. It is good to keep people on their toes and you have to be able to roll with the punches with this, but we are charting a lot of new territory. We don't know exactly how it is going to work out.

That is about what we have learned here. I would like to say that Norfolk Southern has been a very good rail partner to the State of Delaware. This was our first project with them. It was a step in the right direction. Since then, we have had a lot of good interaction with them. We are hoping to use the Shellpot model, the financing model, to do a couple of good projects in the State of Delaware. Norfolk Southern is interested in those as well. This is about all I have to say now. I am sure I have missed a lot and I am sure people will get their questions and I will try to address all of them. Thank you very much and I will be available for questions later.

Jocelyn Bauer:

Thank you, Mike, thank you to those of you who have posted questions to the chat screen. We will address those questions at the end of the seminar. Let's move on to Karen Schmidt, of the Washington State Freight Mobility Strategic Investment Board.

Karen Schmidt:

Good morning from the west coast. We have a warm, sunny day out here and I hope your weather is equally as nice. I was asked to talk about how we have put together a freight mobility board, an independent state agency, how we operate and how we have pulled it together. I hope that that will generate some specific questions as we go along.

I take you back to 1995, when the freight community, the private sector began to educate local elected officials as well as state elected officials about the importance of taking care of rates and making sure that freight was factored into all of our policy-making as well as our funding proposals. A number of champions became the real advocates for doing something about Freight. In Washington, we are the most freight dependent state in the nation so we do have quite a volume of freight that goes through our state bound for the Midwest and west coast as well as our local markets. It became increasingly important for our job protection as well as a lot of our quality of life that we pay attention to this issue.

In 1996, the Legislature created a free mobility advisory committee. And that was a group of private sector railroad, truckers, steam ship operators and some of our major employers in the states to sit down and discuss how a freight focus could be highlighted in our state planning effort. Through that process, they came up with having an independent agency and they put together some ground rules of how it would work. In 1997, they took the next step and created, I love these names, this is the FMPC or Freight Mobility Project Committee. And they took a lot of lessons from the Alameda Corridor in coming up with how they would score projects and how they would determine a freight benefit project and that became one of the core issues in how the agency would select projects and move forward.

This has been viewed as a partner's agency. If you talk to various public and private sector groups represented on the board, they believe that they have control of the agency and everyone has an equal voice. No one is subservient to anyone else and that was one of the keys in keeping everyone involved. And excited about moving together. Policies and investments are steered principally by the private sector, one of those policies is to keep the bureaucracy of this agency lean and mean so we operate with two people in this agency but I contract for additional services that I need from the DOT or from one of the local freight offices or from the private sector. Projects are suggested by the public partners, the ports, cities, counties and state DOT. Everyone has equal voice and our decisions are by consensus. We never have any issues that we deal with where there is a hard vote because it is believed that if we have that kind of issue we are not probably going to go farther because there will be built up opposition by some group. Leveraging dollars is extremely important in this era of small resources and big projects and problems to solve. The only way to get to some of these larger choke points and larger projects that we want to try to improve is by leveraging federal dollars, state dollars, local dollars and private sector dollars.

In 1998, the legislator got the message loud and clear from the private sector as well as being supported by local governments and they created the Freight Mobility Strategic Investment Board as an independent agency. At the same time they provided funding of nearly $100 million for our share of project costs. The motor vehicle excise tax was the way that our projects were to have been paid for and I will get to what happened a little later. Initially we were given a project list consisting of 33 projects that have been selected using this formula developed in 1997 by the FMPC. It was strongly felt that the agency needed to be independent, not part of the 0T or any other organization because all of the partners wanted to feel equally as invested in this program and having an equal voice and so that is why we became an independent agency. In 1999, the board which was appointed by the Governor, a 12 person board, representing all of the interests I mentioned earlier, the railroads, truckers, steam ship operators, the ports, the cities, the counties, the Governor's office and DOT, those people had all been appointed by the Governor and in 1999 they hired a staff and opened an office. Unfortunately that was also the year, I don't know if you have this in your state, we have an initiative process where the public can put together an initiative to make changes on laws that are passed by the legislature. An initiative eliminated the excise task and instead put in place a flat $30 fee. That wiped out all of the funding for our freight project as well as a number of other transportation projects in the state.

The 2000 Legislature came back in after these funds were lost, recognized the importance of the freight project and put money into the projects that were ready to go to construction.

The PSRC, which is the MPO for Seattle and various other organizations, our TPOs and MPOs on the state's health find funds to fill in the funding gap so the freight projects that had been scheduled to go to construction could continue to move forward. We received some priority treatment at that point over some of the other projects that were delayed periods it also provides us an opportunity to hold these private partnerships together because if our projects have faltered at this point we believe that holding the private sector commitments for a long period of time would not have been possible. From 2001 to 2004, our project funding was done on a project by project basis. We brought projects to the Legislature, explained the importance, what the current problem was and what the solution would be and to emphasize to the leveraging of the state dollars and how much more program they would be able to realize if they put in their share of the fund. During this period of time we also faced a number of proposals as legislators tried to find ways of finding economies with in state government. There were proposed consolidations or eliminations of agencies and ours was one that was reviewed during this period of time. The decision was made not to eliminate or consolidate and we remain independent today. A lot of that emphasis came from a strong support by our private partners who went up on the Hill, lobbied heavily, why this agency was so important to individual businesses in our state and the Legislature this into those concerned.

We also have local government support where they tried to emphasize that because they are in the path of the movement of freight they shouldn't have the full responsibility of trying to pay for the solution. The state had a role because they also had a benefit in making sure that freight flowed smoothly through the state. In 2005, we were blessed by having more legislative champions in March, on the scene. All lot of work had been done in the interim to educate legislators about the importance of freight movement in their community and a number of very positive things happened. First of all, freight was recognized as critical to the economy, the legislative advocates pushed for all freight mobility needs. They took our list, including our ongoing list, and worked to make sure it was incorporated in a revenue package that was proposed this last year and passed. A dedicated account was created again for the Freight Mobility Board Project and while we requested $50 million, we actually received a little over $12 million that would be dedicated to our local projects. Plus, we had additional funds targeted for our first four years to play catch-up on some of our projects that were ready to go but had been stalled because of funding issues from the previous loss of funds.

Some of our DOT sponsored projects received funding to the tune of $625 million. Those funds will be used on some of our high profile projects, one of which is the main route between Eastern and Western Washington, along Interstate 90 where we had some concerns, particularly in the wintertime with avalanches, closures due to the avalanches, we also had some turning radius problems there, some substandard bridges as well as pavement work that needed to be done including widening.

Three additional projects were funded in this package that we advocated and we felt that the Legislature really did listen to the needs of freight and the importance of moving freight to our economy.

What is next? We are now looking at TEA-21 and the portion of TEA-211 that will come to the state that is federal discretionary funding. In our state, the MPOs, state DOT, local governments, the ports, a number of other groups all come together to try to decide how best to spend the discretionary funding and those recommendations are made to the governor and a decision is made on how that funding will be distributed. We are going to be advocating for a portion of those funds to come to the freight mobility program so that we can go ahead and move some of these projects more quickly than what we can with the current funding that we receive.

In the future, we know there will be another revenue package and we will continue to work on keeping the Legislature and the staff educated on not only the importance of freight movement but also what we have been able to accomplish with the dollars we have been given. There is a strong effort in our state to view the accountability of how are we delivering on our commitment to you. We feel we have a good record of delivering on those commitments but we need to feel that the Legislature and policy-makers are aware of what has happened.

Keeping our projects on schedule and keeping our promises is very important. There is a lot of interest in making sure that when legislators vote for a project and vote for funding, that they will be able to go back to their constituents and say we told you we would do it and we did it. Here it is.

Communication with our congressional delegation is equally as important because part of the funding that has to come to these projects must come from the federal level. Benefits benefit not only the local governments and state government but also our national economy. We believe that commitment needs to be there on many of these projects from the federal government.

Groundbreakings and ribbon cuttings, we are able to make sure that not only do we recognize all the people that participate in advocating funding for us and the elected level, but also keeping the public informed that this is important to their economy, it is important to their jobs and we are making progress on trying to keep the economy strong. We are engaged at an outreach effort to the public to explain why Freight matters. This is one of the most difficult things to try to make people understand. Why is freight relevant to them? I go to a number of meetings particularly morning meetings where I usually have someone that says you say everyone is involved in the movement of freight and international trade but I am not, I am just someone from a town. When you remind them that they are eating an Ecuadorian banana, drinking Indonesian coffee beans and probably wearing Italian shoes, perhaps coming in a vehicle from another state or country, and invite them to look into their closet at all the labels on their clothes and recognize they are fully involved in international trade because it is their desire to buy products that is driving so much of it.

We also are keeping our effort on developing champions. Legislators change, congressional staff and congressional members change. If we do not continue to keep these people educated on what is going on and the benefits they are providing, we will lose our champions and it will move onto another issue.

How are we holding it together? First of all, private partner participation in decisions is absolutely critical. Instead of outside groups or local governments or even state governments saying this is something that will benefit freight, we now, have the ability to endorse that by having the actual private sector participants agreeing or disagreeing on whether a particular project will benefit freight and if so, how. They are helping us identify the next phase of projects because in the beginning when we started this effort we were challenged by not only hour own choke points but the fact that we are within a couple hundred miles of the Canadian Border and we have a very strong competitor at the point of Vancouver who was using the congestion in Washington State to try to attract the steamships to come into the airport versus our ports so that they would not be subjected to our congestion. Now, things have changed. Because of the volume of freight coming in there is more than any of us can conveniently handle on the west coast. It is going to be an issue of how much of that freight can we actually handle without causing problems to our communities and without delay in that movement.

We keep our partners working together by working through a consensus approach and one of the problems we have seen on the national level is this competition between trucks and rail and the rhetoric involved. We don't engage in that in Washington State. Our rail and truck advocates work side by side to make sure that everyone understands that we have to fix the entire system, not just a piece of it if we're going to make it work. We have seen great cooperation between our trucking community and our rail members. We have unified message and goals so that not only does the same message come out on what we are doing and what our goals are but also from the private sector when they go and talk to local electives or state electives or at the congressional level. We're all speaking off the same sheet of paper and we're all working for the same short-term and long-term goals. Our dedicated funding encourages everyone to keep participating and makes it easier for me to sit down with private sector members and to get them to make their commitments to individual projects. We will continue to work for more dedicated funding, but that is the first step in making sure that there is that commitment for the future. Keeping an elected leader, freight champion, is absolutely critical. Our public partners, like the leveraging of money because they can take on some of the more challenging projects that otherwise they would not be able to fund individually. We advocate for the projects at all levels. We advocate also with the private sector to participate and where appropriate, helped negotiate the amounts to be spent by private sector members on individual projects. With each success, that brings renewed enthusiasm and new ideas for how to move forward.

I just want to very briefly touch on our project selection, because it is so important to the overall success of the agency. There is a lot of specific information on our web site that you can go to to actually understand how we will score the 188-points for our various priorities that we establish in there. And also on the web site is an actual blank application so you can see the type of questions that we use. First of all, the Legislature has defined the strategic as operating four million tons annually on the roadway, five million tons on the railway and 2.5 million tons on the waterway. Must be start of a state original plan to qualify and we prefer that it be on both.

Here are the main issues that we looked at and while we score heavily on the freight component we do recognize that general mobility, safety and to the environment are benefited and we use that information not only as part of our scoring but also in how we define the benefits that will be derived from the project. We have two teams that score the project. The technical team is made up of representatives from the City and County Association, the state DOT, the Port Association, the two railroads in our states and the trucking community. The board project selection committee, this is very hands on board, they also read every single application that we have four projects and that also scored the entire 11 page application that is submitted to them. The scores are compiled in a matrix and we look for whatever differences there are between the two to try to figure out why one group saw something that perhaps the other group didn't see.

The selection committee reviews the projects and scores, sets up a project meeting to help answer the remaining questions and to see what other information we need. We can have a full day, a review with the project, re-evaluations with the mobile representatives, based on the information received. Then we determine the ratio of great benefit for an individual project first is the general mobility benefits. From that we determine how much dollar amount and how much percentage of the overall cost of a project we are willing to commit to. Once we commit to dollar amounts and to a percentage amount, that number is locked in. If the project cost goes up we're locked into the dollar amounts. If the project cost goes down, we are locked into our percentage. The state never has any exposure beyond that initial determination.

Recommendations I then made to the full board for adoption, final recommendations are given to the Legislature and funding is requested. They have the ultimate say in what projects will move forward.

We emphasize when we go to the Legislature the global freight projects and while they may have either sponsored set by the state DOT or from local jurisdictions, they are still part of a global freight network that we are trying to build out. Projects are also required in construction within 12 months of funding. This goes back to accountability to the Legislature and to Congress that when we say a project will move forward it has to move forward or they risk losing that funding. With the exception of the projects that were just funded in May of this year, 100 percent of all of our funded projects prior to that were either under construction or completed. The current projects we have roughly one-third of them that have already gone to construction with a list that was approved by the Legislature, in May of this year.

That concludes my presentation. I look forward to any questions you have about our agency.

J. Bauer:

Thank you, Karen. I hope everyone found these presentations interesting. I would like to now start off the question-and-answer session with the questions posted online. Once we get through those questions as time allows, we will open up phone lines for questions. Otherwise, all unanswered questions will be posted on the list. All right?

Okay. It looks like we have a question for you Karen. Let's start out with you. Since it sounds like much of what you do, much of your formula is based on a freight tonnage or miles across the state, how and how often do you collect this data?

K. Schmidt:

We collect the data and provide a new list of strategic corridors every two years. The measurement is done on the state's system by the DOT and on our local system is a group called CRAB, a County Road Administration Board, and they rate all of their segments of roadway everywhere from T1385 and 81s and T2s qualify for us in our strategic categorization. It becomes a little more difficult in the cities. Some of the cities have an ability to measure this traffic and some of the smaller cities do not. We are working with the Legislature to try to provide the city's with counting devices so that we can also measure the freight's of volumes and the freight waits in their areas. Those become a little more subjective and we can't accept the alternate that if they can verify their data. We will take a look at it.

J. Bauer:

Thank you, Karen. Another question for you. Can you elaborate on those public/private benefits evaluations?

K. Schmidt:

I think when we were talking about public/private benefits, part of what we have to determine is on a case-by-case basis. We try to look at whether, for instance, a roadway is going to be improved so that trucking can save time from the port to and intermodal terminal or crossing from one side of the state to another, how much delay and how much is that costing the trucking community for instance? We try to do a measurement where we have collected some data as far as the business losses, the volume of traffic, a whole variety of issues that come into play. We talk to individual companies as well as freight movers in the area to talk about what they would benefit from if this project moved forward. Based on that, we do an estimate, there is no science involved but we try to have all of our rationale of why we made that decision and we go to the project and say this is how we have determined, how much we have determined is going to benefit freight and how much we are willing to put into a project. They can disagree or add additional information or what normally happens is that accept the data that we have provided to and that becomes the amount for the project.

J. Bauer:

We have another question for you. To public agency participants have the votes or just private? Do they have both? Karen said equal voice. Everyone has an equal voice and an equal vote. The participant went on to say I like the consistency idea, a freight advisory committee which recently accepted by laws in which only private sector members have a vote.

K. Schmidt:

I have visited with the Oregon Afraid Advisory Committee. They are set up differently, they're just an advisory committee rather than a full agency and I think that might be part of the difference. Be certainly having that consensus, if you're going to have a partnership, everyone has to feel invested in that decision and we have found that by having an equal voice it does foster a much better relationship between the two groups.

J. Bauer:

Can you describe some of the specific projects completed or under way?

K. Schmidt:

Going into the Port of Tacoma. Off of Interstate five. It was crossing a rail line and was unable to handle the volume of traffic going to and from what has become an extremely busy porch. By doing a great separation project, we had participation from the port in investing in it from the railroad, from the local community, from the trucking community, a variety of local businesses were involved and as I said, the PSRC Regional Council stepped in when we lost our founding in 1999 and they provided our share of that project cost to move forward. The Interstate 90 project I spoke about will deal with some substandard bridges, the avalanche control, it will deal with adding lanes and improving pavement. We have a number of grade separation in what we call the fast corridor in Washington state. This is a program where we are trying to develop a corridor from Everest through Seattle and into the, where we have the vast majority of our container traffic that comes through our ports there. We are trying to open up the choke points of the entire corridor so not only are we trying to improve the rail service through that metropolitan region, but also improved truck traffic because it also bisects one of the nation's largest industrial manufacturing areas in the Kent Valley. Access to and from this area, to and from the ports and through major metropolitan areas is the goal of this group. A number of projects working with various partners and if you know the geography of Washington State at all, it is an interesting dynamic where the Port of Tacoma which is in the southern part of the Puget Sound area actually invested in a project at the port of Everest, which is north of Seattle by 40 miles, and the importance to the port of Seattle, the Port of Tacoma, was shown when they put money into the project nearly 70 or 80 miles away because all of the traffic has to move through the corridors together to make it work.

J. Bauer:

Great. You may have just provided some examples, but there was another question about whether or not you could give examples of private partnerships, or private participation and project funding on the Washington State Project.

K. Schmidt:

We just opened a project called Wine Country Road project. It is in eastern Washington and an agricultural area and noted for the growing of grapes and wine production. Obviously the name of the road. Says that. The project the project involved the pending a roadway underneath the Burlington Northern mainline track, increasing the turning radius and roadway going into the industrial area where a number of businesses are located. And also providing a second bridge across the Yakima River. The project not only received funding from the federal government, from the state, from the local community, but also ten businesses in the area also in helping the project. The dollar amount was not a dollar amount was not that great, comparison to a $15 million project. It was significant that so many businesses found this so important that they were willing to open up their checkbooks. In other areas such as the industrial area that I discussed in the Kent Valley, a number of the businesses there got together, worked with their local government and said we will pay for what amounts to about one-third of a project that is currently under construction and the mechanism they chose to use was ID. They approved an idea of limited to improvement district just for this project and so money is being collected from those businesses to help pay for this actual project. Each of the projects is individual, each of the private sector participants are there for a variety of reasons. I have been contacted by groups as diverse as one Indian tribe that has said if there is an improvement in this piece of rope with for freight, it would benefit us also and we are willing to put some funds into it. Businesses like the Schwab have contributed to some of our projects where they feel access to and from their businesses will benefit because not only their freight shipments but also keeping trucks out from in front of them blocking their driveways.

J. Bauer:

Thank you. We have one other question for you and then we will turn over to Mike. The participant says are you saying that the private sector was giving direction, guidance, on how public funds are spend?

K. Schmidt:

They were giving direct guidance, in so far as when we looked at various projects and if we thought that these projects were going to benefit for a and the private sector was saying that sounds good on paper but we won't actually be able to use it or the improvement will not improve our main line activities, we will not be able to increase speed, those types of decisions are brought back to the board on whether it to invest in a project or not. As far as the policies and some of the other decisions, they are very strongly led by the private sector but they are not just the only ones that make the decisions. The public sector is there as well. The only time I have ever heard of a conflict between the various groups is sometimes in the area of whether funds should be invested in a private railroad.

J. Bauer:

Let's move on to some questions from Mike. Mike, who at Norfolk Southern did Delaware deal with it? Were they based in Delaware or at corporate headquarters?

M. Kirkpatrick:

The two gentlemen who our secretary worked with directly to craft this project were Craig Lewis and Jim McClellan and I believe Jim has left Norfolk Southern, I think he retired last year. And they are from the corporate office in Norfolk. We also dealt with a couple of local guys who are our local contacts and we work with them a lot and basically Lewis and McClellan are their bosses. They have local development representatives and the two guys locally we deal with in Philly are Rick Crawford and Bill Schafer and they sit down with the planners and do the homework on ideas and we will pass it up to our senior officers and they have to make those decisions. That is the way this came about. Like I said, we had the idea but the big leagues got together and knock it out, essentially.

J. Bauer:

Another question. You referred repeatedly to not knowing how this will turn out. How this will all turn out. It looks like it will meet everyone's goals, so what future risks are you alluding to?

M. Kirkpatrick:

Back when we put this deal together, Norfolk Southern had not pulled out of its malaise from eating up Conrail. They were on the ropes a little bit. We weren't sure which they way they were going to go. When they took over Conrail we were worried that they might abandon most of the rail on the Delmarva Peninsula. We have since come to realize that they have more business here than we knew about. It is working out. But there was that and that was a few years ago, when they thought this up. There are still a few risks. You never know what might happen. They still could be merged with another company that had a different operating plan. They may shift freight for some other reason. There may be an issue, an operation issue outside of Delaware that might shift freight away from us. There may be a shift in commodities and they may lose some of their clients on the peninsula or in Delaware. Some customers may have business failures and not be customers any more. One big one that is hanging over everybody's ahead is what would happen if Amtrak shut down. That is a huge concern to any state that is dependent on the Northeast Corridor, not just for passengers but we depend on the Northeast Corridor for our freight. Like I said, 95 percent of our freight crosses the Northeast Corridor. A lot of unknowns in the real world could still affect the future of this. Like I said, the projections look good, but then again, if our projections level out, where they are now, will we make that? Will we be making money on this deal in the future? Again, you just don't know. We only have six months of data so far. But we did craft the agreement to address everyone's concerns about risks and benefits. Like I said, we share the risk.

J. Bauer:

Another participant wanted to know what is the source of the state's budget?

M. Kirkpatrick:

The state of Delaware has a Highway Trust Fund that is funded out of the DMV, tolls and gas tax. That is theoretically supposed to be used only for capital projects although we have been dipping in it for operational stuff but we also get an annual general fund appropriation as well which again is supposed to be for operating, but we spent some of that. It all mixes together a little bit. That is why we have a Highway Trust Fund and that is where it comes from. We usually have available capital. Plus we can issue bonds as well. We have that authority and we use that as well.

J. Bauer:

Okay, another participant said it sounds like the public sector on the track, at least it back to Norfolk Southern or did they do the tariff by contract only?

M. Kirkpatrick:

We do not own the track. The track is owned by Norfolk Southern and that was part of our dilemma in "should we invest in this?" Unlike a roadway, we are not the owner of the infrastructure that we are investing in and we don't provide this service across it. There are many risks and unknowns to the state. Again, it wasn't our infrastructure, it was theirs. Tied to that, we did this all by contract and we are using the automatic car counters that they have, essentially in an EZ Pass for railroads that they use to ID their cars and that is how we get the accounts. Another piece of this, though, is in the contract, Norfolk Southern gave the State of Delaware essentially free access to their rails within the state of Delaware. If we ever wanted to develop passenger service to our downstate areas. They also use this kind of to protect their interests, launch a pre-emptive strike in terms of passenger service, which they knew we would probably eventually get around to asking for, which they have issues in other areas. Norfolk Southern is trying to broaden their horizons and wanted to get the first shot at providing the trains for our passenger service if we ever do decide that. They wrote that into the contract and offered something of their private system, but then again, they are also protecting themselves and hopefully they may make a benefit for that, or a profit for themselves.

J. Bauer:

Now, we have a question for both Mike and Karen. Can anyone refer to any reports that detail the public benefits for urban areas having rail infrastructure and intermodal freight facilities in their city?

K. Schmidt:

I don't know of any specific documentation that would be broad-based. When we look at benefits, we look on a case-by-case basis, and in our state, obviously the benefits in one community may be different than the benefits to another community. Looking at those kinds of issues is the way we try to examine the benefit to the public. I haven't seen anything that definitively speaks to that. I have seen some information put out talking about the benefits to the public that it is more generalized benefits.

M. Kirkpatrick:

Delaware has had the same problem. There is not much good research out there to do cost-benefit, public versus private or public and private. A lot of this... I spent months and months trying to figure out how to evaluate the cost benefit and, in the end, it was decided that, again, the edges were fuzzy. That is why we did the risk sharing arrangement too. Norfolk Southern couldn't say exactly how much business they would generate, but they thought they had a good shot at it. So again, the edges of the agreement are slightly fuzzy and we knew we would gain some benefit but we couldn't quantify it and put a dollar amount on it. We kind of did a percentage-wise, "how much do you think you will get out of this and how much do we think we will get out of it?" There is no real good local data on how to quantify this stuff. You have to do it on a case-by-case basis.

J. Bauer:

We have three other questions for you that just recently came in. In order to monitor carloads, does DelDOT monitor this or does it simply accept Norfolk Southern carload numbers?

M. Kirkpatrick:

We accept Norfolk Southern's carload numbers monthly. We get monthly reports but we do have the right to audit them. We put that in the contract so if we think something doesn't look right, we can physically verify them if we need to do that or we can just audit them procedurally. There is some back up to that. Again, you want to write your contract so that if you feel nervous about something, cover it in the contract and you can rest a little easier.

J. Bauer:

Another question, Mike, are you able to use funds marked for capitol or operations for planning.

M. Kirkpatrick:

Yes. We are allowed to use, we can use capitol if we have a project that is in development. We can start charging to it. If we have a capital appropriation. Generally speaking, most of my funding comes out of operating money. When we are developing projects, we are not on anybody's book. We don't have a specific project to assign costs to. Until we get an appropriation of money for a project, we are all operations money.

J. Bauer:

Did the contract require Norfolk Southern to provide service? We're there any other protections to the public sector?

M. Kirkpatrick:

The contract does not specify any service. In terms of the payback you can see that [what] we want is service level, but they could not ever use that bridge and we would have a minimum payback and that is part of the reason we did it. We didn't know what might happen in the future service-wise. Again, that is one of the risks that you take by providing infrastructure and hoping they will come and use it. You don't have many chances to hit a home run. You really need to know what you are doing before you step into it.

J. Bauer:

Great. I think I have gone through all of the chat questions. At this point, let's have the operator open up the lines for audio question-and-answer.

Operator:

Ladies and gentlemen, if you wish to ask an audio question, please press star one on your touch-tone telephone. If your question has been answered and you wish to withdraw your question, please press star followed by two and questions are taken in the order received. We can wait a few moments while we compile your questions.

Let's just take a minute or two and see if some questions come in over the lines here. We have a question from Hilda Velasco. Please proceed.

Hilda Velasco:

I work with the administration in the higher division offices. My question is mainly for Mike, but Karen can also contribute. Regarding benefits to the public, has there been any matching decrease in the movement in this case in Delaware because in his presentation he noted that the increase in freight movement of rail, so I am guessing that may be all that freight was being transported on trucks or a lot of it may have been transported on trucks. Has there been a decrease in truck movements?

M. Kirkpatrick:

Honestly, we did not set up a study to find out if there was a shift in traffic. We do general traffic counts and we do truck counts on certain roadways. But we haven't set up a plan to micro-monitor this. We are trying to get a report out of Norfolk Southern telling us how much of this traffic is new, how much is shifted from other routes coming in by Newark. We try to get an idea of shifted and there are two kinds of traffic that could have been generated. One is a trip that was not taken, business that was not done because there wasn't the economy in transportation, things like stone. That still wasn't going anywhere. It was just sitting in PA waiting until it had good, cheap access to Southern Delaware. The other would be if they generated some new traffic or generated traffic that we couldn't look at the business and say this definitely could have come by truck before and we could always track that down a little better and get a sense of the shift in practice or what shift really occurred rather than just adding up the number of train cars and doing the calculus to say five times that is the number of trucks which we took off the road. Again, we haven't really chased down the benefits. We know there are some and we know that the railroad is working better. But most of our analysis now, is just anecdotal evidence. We will know a little more but we're never going to know an exact number of how many trucks are shifted. And again we try to avoid truck versus rail controversy as well. No one is stealing from the others. Trucks and rails work together quite well. We can't really say that one is shifting because both are growing. Both volumes are growing anyway. It is more a matter of rail may take some of the growth that trucks would have seen is probably the better way to put it.

K. Schmidt:

I agree with Mike. We are seeing a phenomenal growth of the freight moving from the west coast. What we hope is that each of the modes pickup their share. What our concern is, is if one side doesn't pick up its share, it is going to break down the whole system. If you talk to the railroads, they will tell you their biggest customer happens to be the trucking community and vice versa. They'd to work together in a lot of votes. Cargo will determine for the most part whether it is best to go by rail or by truck or in our case, in our state, by barge. The cargo itself and the customers are going to make that determination. It depends on whether they need it in a timely fashion. Obviously, if you are shipping flowers you will not put them on a rail car, you'll stick them in an airplane. A lot of those decisions are going to be made outside of any infrastructure decisions that we try to produce. What we do is try to make sure that each of the mode so has the ability to continue to grow and continue to maintain at least their share of the phenomenal growth that is taking place.

J. Bauer:

Let's see if there are any other calls on the line?

Operator:

At this time there are no further questions.

J. Bauer:

Okay. Than it sounds like it is time to a close out. Thank you all for attending today's seminar. The recorded version of this event will be available within the next week on the Talking Freight web site.

FHWA is currently planning for the 2006 seminar series and would like your input for topics. These seminars are meant to help you do your job better and so FHWA values your input. If you have an idea for a topic, please Jennifer Seplow an email describing the idea as well as any potential speakers that you know of.

The next seminar will be held on August 17, and is titled "Performance Measurement - National and Local." If you haven't done so already, I encourage you to visit the Talking Freight Web Site and sign up for this seminar. I also encourage you to join the Freight Planning LISTSERV if you have not already done so.

Enjoy the rest of your day!

Updated: 03/29/2011
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