Study: Port of Vancouver, Wash., rail plan needs $75 million

A new study of the Port of Vancouver's signature project - a planned 27-mile expansion of rail tracks to speed cargo and handle more of it - says the port will have to borrow as much as $75 million to cover a shortfall and should adopt plans to avoid cost overruns, The Columbian reports.

The West Vancouver
Freight Access project will cost $148 million from 2011 to 2017, when it’s
expected to be completed, according to the 174-page study by consulting firm
Moffatt & Nichol. Facing a funding shortage of $63 million, the port must
borrow a total of $75.5 million over the next seven years to cover both the
construction cost and the roughly $12.8 million in interest expense associated
with borrowing.

The study is the first
comprehensive picture of a project that port officials believe could help them
produce as many as 4,000 jobs in the region. Its findings will help drive the
port’s decision about how to pay for the project and how to effectively manage
it. No small effort, the West Vancouver Freight Access project is intended to
increase the port’s rail track from 16.9 miles to more than 44 miles, adding
capacity to handle freight and increasing the speed at which cargo moves along
the BNSF and Union Pacific main lines. Those main lines link the Pacific
Northwest to major rail hubs in Chicago and Houston, and from Canada to Mexico.

In an interview, port
administrators said they expect to go to the port’s elected board of
commissioners in either late September or early October with recommendations on
the best way to pay for the project. At least one option – using the port’s
power to levy property taxes – already is off the table, said port Executive
Director Larry Paulson. The chances voters will be asked for a property-tax
increase to pay for the project, Paulson said, are "non-existent."

Instead, the port plans
to pursue what the study says is its best option: a loan through the Federal
Rail Administration’s Railroad Rehabilitation and Investment Financing Program,
which offers the port the greatest amount of flexibility as long as the port
obtains an investment grade rating from a nationally recognized rating agency.
The port’s most recent debt offering was rated A1 by Moody’s Investor Services
and an AA- by Standard and Poor’s, according to the study.

Todd Coleman, deputy
executive director for the port, said the agency hopes to obtain a Federal Rail
Administration loan to cover all or most of the project’s estimated costs. "That’s
our goal," he said.

Port officials emphasized
that the budget shortfall is no surprise, since they have anticipated the need
to borrow money to cover the costs of such a capital-intensive project.
Moreover, the port has been laying the groundwork to move the project forward,
including acquiring key property, making rail improvements at its Terminal 5
and seeking other federal and state grants.

Coleman said the $75.5
million the study says the port will have to borrow is a "worst-case scenario."
If the economy improves, for example, the port could generate more revenue from
rent or shipping fees, and therefore wouldn’t need to borrow as much.

What is clear, Paulson
said, is that "we’re not going to build anything we can’t pay for."

The port paid Moffatt
& Nichol roughly $297,000 to conduct the study of the West Vancouver
Freight Access project.

The project faces
challenges, as the study points out:

• While the port has done
a good job of diversifying its revenues, its borrowing costs could increase
depending on fluctuations in cargo volumes, including components for producing
wind energy – a sector that is "highly volatile" because its feasibility is "highly
dependent on state and federal policy."

• Under an agreement with
BNSF, the port is on the hook to complete parts of the West Vancouver Freight
Access project by specific deadlines. Failure to meet these deadlines could
potentially result in a lawsuit by BNSF or termination of the agreement by
BNSF, among other things.

The study also recommends
the port adopt cost controls, including detailed monthly cash flow projections
and monthly cost-to-date and cost-to-complete analyses.

Coleman said the port
already has cost-control measures in place but will make them "more formal" as
the project moves forward. Paulson said one of the study’s recommendations –
that the port secure a revenue-generating tenant for Terminal 5 to help pay for
the project – is being taken care of: The port has reached a preliminary agreement
to lease the property to Australian miner BHP Billiton for an export operation.
That deal would also further diversify the port’s revenue base, helping guard
it against dips in wind energy and other cargo volumes, port officials said.

Coleman said the port might
seek to make "minor changes" to its agreement with BNSF on project schedules
but that he doesn’t expect any problems with the rail company otherwise.