The Marin Post

The Voice of the Community

Blog Post

Marin Post-Press Democat

The NCRA Boondoggle Part II: Other Bidders Never Had a Chance

In my first three years on the Board of the North Coast Railroad Authority (NRCA), I heard stories of how dire the financial conditions at the Authority were before the lease with the North Western Pacific. Co (NWP) was signed in 2006 and how NWP was such a lifesaver. When I inquired about the lopsided terms of the Lease, the general response was "that was what we had to do." There seemed to be no inclination to try and renegotiate the Lease even as the Environmental Impact Report was nearing completion and the opening day of rail traffic approached.

In December 2010, I sought help from the Marin County Supervisors in an effort to publicize the situation. Little did I know that the defense of poverty was a mask for unlawful activity. Four months later I would uncover the truth - or at least a part of it.

In Part I of this series, The NCRA Boondoggle: From Bankruptcy to Bankruptcy in 30 years, I presented an overview of the past and current events surrounding the North Coast Railroad Authority (NCRA) and the consequences to California taxpayers of pending state funding decisions. In this part, I’ll be adding more detailed information to the backstory.

After the Marin County Board of Supervisors (BOS) read my December 10, 2010 letter and heard my request at their December 14th meeting, they invited NCRA to appear and respond. NCRA chose not to.[1]

On March 24, 2011, the Marin IJ ran my Op-Ed, Marin Voice: Lopsided freight train lease (also ran in the Novato Patch, 3/20/11).[2] In it, I commented about NCRA’s lack of transparency and fiscal prudence, and covered several of the deficiencies in the NCRA/NWP Lease. In particular, I noted that

“The lease was not fully presented to the public. A press release simply called it "a 5-year contract" to operate trains from Eureka to Novato. The release failed to state that while the initial term was five years, NWP has a unilateral option to extend the lease for up to 99 years, without meaningful NCRA oversight. Other egregious provisions include the paucity of payments by NWP and the need for NCRA to obtain many hundreds of millions of taxpayer dollars to rehabilitate the line.”

In response, NCRA’s then Chair, Hal Wagenet, published his own Op-Ed, Marin Voice: Defending railroad lease, on April 7th.[3] He defended NCRA’s actions, saying,

“The NCRA entered into a lease agreement with North Western Pacific Co. in 2006… but it is wrong to suggest that the process took place behind closed doors. The NCRA used a request-for-proposals process, which was widely publicized”… and “That selection was subject to negotiation of a contract, which came back before the board in an open meeting in September 2006. The "fairness" of the contract has to be viewed at the time of its making, not through the lens of subsequent events.”

I responded to his comments on May 24, 2011 in a highly detailed, 18-page memo to the NCRA Board. Click here to read that memo in its entirety.[4]

My memo fully refuted the Wagenet Op-Ed and detailed the Lease’s unlawful background, including secretive meetings held by a 3-member Operator Committee, one of whom was Director Wagenet. Therefore, Dir. Wagenet surely knew that his Op-Ed omitted information that contradicted his position.

About NCRA and How Directors Must Exercise Independence

Before reviewing my findings, I want to discuss what I see as necessary in order to properly fulfill one’s duties on a public board such as the NCRA’s.

There are not elections to the NCRA Board. Rather, one applies to one’s County Board of Supervisors for the two-year position. Depending on the County’s procedures, the applicant(s) may appear before the full Board, provide qualifications, and answer questions. After the person is chosen, the County Clerk certifies the appointment to the NCRA Board Clerk and the person simply starts attending meetings. Directors may serve as many terms as the BOS sees fit to reappoint.

The NCRA meetings rotate through the four Counties served, so one rides a monthly 250-mile circuit from Marin, to Sonoma, to Mendocino, to Humboldt. Normally, the meetings attract little attention, being sparsely attended mainly by people whose property might be impacted by a particular decision, Fish and Game representatives (if an item deals with their interests), regional government representatives, an occasional media person, rail enthusiasts and Caltrans employees.

Agendas and packets are often posted only shortly before the meeting, sometimes within the time required by the Brown Act, and sometimes not. Too often the public might be able to view the agenda over the Internet, but all the packet or portions are only available at the meeting site.

The NCRA normally does not ask for local funds. Instead it seeks funds from the State and from federal grants. Lobbying state and federal representatives to support one bill or another is often done, with varying degrees of success.

In such a setting, it is too easy for a Director to simply go along to get along. Members have voted themselves a $100/meeting stipend and travel expenses. Except for the Board Chair and sometimes a Committee Chair, all one need do is to cast votes at the meetings. The Executive Director, Mr. Stogner, sets agendas, with input from counsel.

In my review of meeting minutes reported prior to my appointment, there were hardly any dissents. Directors often served for many years. But this changed substantially when Marin representatives initially joined the Board in mid-2007.[5]

A lawyer is taught the importance of both reviewing the majority opinion and the minority and dissenting opinions. A right answer today may not be a right answer in the future and vice-versa.

As a City Council member, I was well aware of the give-and-take of the political arena, and of the need to question assumptions, ideas, and tendered solutions. And I was blessed to have as my fellow Marin appointee Thomas MacDonald.

Tom is an expert on valuing insurance businesses and has spent a good deal of time in litigation as an expert witness. He has probably had more courtroom experience than many attorneys. He is able to read and understand financial documents that would give CPAs indigestion. And he was willing to question information presented to him by NCRA staff even when it was clear that staff – and other Directors - did not want him to raise questions.

Some of my favorite memories from my NCRA service are of the lengthy drives we took together to the monthly meeting in the northern counties. His insight and input were invaluable. The public owes him a debt of gratitude.

My Investigation and the Astonishing Result

When Dir. Wagenet published what was NCRA’s excuse for entering into such a lopsided lease, I determined to see whether his position was meritorious. This required me to gather as much material as I could that dealt with the facts surrounding the Lease signing.[6] What those facts showed was that not only was Dir. Wagenet wrong about the underlying facts, but that he knew or should have known of his errors, as he was at one point a part of the secretive Operator Committee whose efforts violated the Brown Act and led to what was the most one-sided, unfair railroad lease I have seen.[7]

The details are set out in my May 24 Memo to the NCRA Board, which is attached below. I would encourage those wanting to learn more to read it carefully.

In sum, (1) the Lease was the product of 4 years of back room dealings between NWP officials, NCRA Directors and staff, and others, in undisclosed locations (except apparently on June 20, 2005 when it met at Mr. Bosco’s office) with no published minutes and only secret reports to the whole Board (in violation of the Brown Act and NCRA’s by-laws), (2) other bidders were summarily disregarded, even though their bids had merit and appeared to offer better terms to NCRA than did the NWP Lease, and (3) after the Lease was signed, NWP refused, for years, to release it to the public until forced to by the pesky Marin Directors.

The Lease extended to 104 years at NWP’s unilateral discretion, even though NCRA’s bid request was for a 5-year term and two consecutive five-year extensions. The Lease contained no requirements regarding shipper satisfaction, safety, car loadings, energy efficiency, conflict of interest provisions and environmental practices, and virtually guaranteed that NWP would never pay a penny to NCRA.[8]

No wonder NWP demanded non-disclosure.[9]

The research and writing of the May 24 Memo opened my eyes to how NCRA operated. For the remainder of my tenure, I would try to have NCRA change its ways and when I could not, I would dissent as best I could.[10]


CLICK HERE TO READ PART I


[1] NCRA letter of January 5, 2011. While promising to appear at a future BOS meeting, NCRA never did.

[2] Attached as Marin Voice: Lopsided freight train lease. At the April 13, 2011 NCRA Board meeting a purported member of the public requested that the Board censor me for my Op-Ed. Only later did I discover that he on occasion worked for NWP.

[3] Attached as Marin Voice: Defending railroad lease.

[4] Attached as Lease Origins May 24 Memo Corrected.

[5] Marin was authorized by legislation to appoint Directors, but it did not do so until mid-2007.

[6] Staff regularly refused my requests for non-public NCRA materials and even public non-NCRA materials. Thus I had to conduct my own investigation by going to outside sources. Every state and federal agency I contacted was most helpful.

[7] I gathered similar leases from across the US after NCRA staff and NWP refused my requests for sample leases. I provided them to staff – to no avail.

[8] The parties apparently understood this, for on October 11, 2006 NWP and NCRA signed a Memorandum of Understanding regarding payments by NWP to NCRA of $20,000/month, in lieu of Lease payments. Payments were made until NWP discontinued them in early 2011. Those payments became the subject of further shenanigans in late 2011 and are being sought by NWP to this day (improperly, in my opinion).

[9] NWP alleged that the Lease contained trade secrets and would impair its competitiveness.

[10] No corrections to my Memo were ever received. The Board did not take up my Memo for discussion. This may be the first the public has seen it. Instead, at the June 2011 Board meeting, for a brief shining moment, the Lease was amended. But within four months the amendment, like Camelot, was gone.


Questions from readers of Part I

I apologize to readers for not being able to answer your questions, all of which are good and deserve a response. Apparently my computer or the operating system has some problem that I cannot repair. I hope to work around this limitation.

In the meantime, here are my responses.

Eleanor Sluis asked,

“Is there any way that the LAFCO agencies could work together from the different counties and explore solutions? The idea of 105 year lease and the receiving of over 60 million taxpayers' funding is unreasonable. Will Marin's Supervisor's look into this as well as the media in order to effect a change for better transparency and stoppage of waste of taxpayers' funding?”

Response:

Your idea of employing LAFCO agencies is novel! I know of no precedent. As NCRA is going out of existence shortly (see John Parulis’s question below), I don’t think it will be tested here.

The extraordinary Lease term length and the utilization of taxpayer funds without proper supervision certainly is unreasonable. Marin’s BOS did try and cast some light on NCRA’s operations, as can be seen in the material above, and along with reporting by the IJ and Patch, that helped to uncover the unlawful NCRA dealings. Ultimately, it is up to the State Legislature to structure the Agencies it creates so as to avoid the possibility of any future repetition and the media to ride herd on government. The need for a truly independent Board and a staff with no potential conflicts are crucial. Perhaps at least annual reports to the appointing BOS would help. As Justice Brandeis observed, "sunlight is the best disinfectant'.

Judy Schriebman asked,

“How much does Jared Huffman know? How much of this contract was driving SMART's recent Measure I?”

Response:

I do not know what Representative Huffman knows about this. I’ve found his efforts in Congress to be outstanding but do not recall hearing his name as one involved in these matters – although I did hear the names of other politicians. I have no knowledge as to this Lease being involved – or not - in Measure I.

Ricardo asked,

“Is there no direct state or federal oversight to this rail system? Who's on first? Where is the media coverage of this slight of hand rail line? Odds are pretty good that this outrageous ripoff of public funds will not be carried in any articles found in the Santa Rosa Press Democrat (Bosco Owned)!

Response:

There is federal oversight of all US railroads by the Federal Railroad Authority (FRA) and the Surface Transportation Board, among others. But their oversight is as to safety matters and other issues – not state lease issues of the sort involved here. In a later Blog I’ll refer to the FRA, as it makes loans and did so to NCRA/NWP, and the loan (initially for $3.14 million) is still outstanding.

In defense of the IJ, the Patch, and especially Humboldt County media, there has been good coverage. Interestingly, I offered my Op-Eds to the Press Democrat and they never accepted my pieces. I eventually gave up on it. As Mr. Bosco and NWP stand to obtain millions in the next few months from the State, perhaps the PD will cover it.

John Parulis asked,

“How does Mike McGuire's Great Redwood Trail Act tie into this?”

Response:

Great question. The answer is complicated. Here is the McGuire Bill:

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB1029

Currently negotiations are taking place to buy out NWP's rights. I contend those rights are not as valuable as NWP/Bosco may contend and later parts of my Blog will cover that. The northern half of the line will be, if possible/feasible, rail banked and a bike-pedestrian trail is to be built - if and when funds are available.