Palestine Loans State Railroad $500,000
By MEGAN MIDDLETON
Staff Writer
PALESTINE - The Palestine City Council is stepping in to loan $500,000 to the Texas State Railroad Authority as part of the continuing effort to save the threatened tourist train.
The council approved the loan in a 5-to-1 vote Monday. The Rusk City Council is also expected to consider a similar measure to make $500,000 available to loan at its next meeting.
The action comes after railroad authority officials learned the use of state funding they were awaiting will be restricted, putting their deal with the new operator of the train at risk.
Steve Presley, president of the Texas State Railroad Authority and a Palestine city councilman, said the City Council looked at it as an economic development issue.
"While there is always risk in loaning money, I for one felt like, and most of the council felt like, there was a greater risk to not loan the money," Presley said. "Those funds we thought would be available to us from the state monies are not. Therefore, we either had to do something right away or lose American Heritage."
American Heritage Railways Inc., the private company with tourist railroad operations in Colorado and North Carolina, contracted with the new railroad authority, made up of officials appointed from Rusk and Palestine, to operate the train as of Sept. 1.
But the railroad authority received a letter in early October from the attorney for American Heritage notifying the group it had "materially breached" its contract, in part, by failing to loan the private entity $500,000 to support operations needs.
The letter started the clock ticking for the private company to walk away from the deal that looked to save the railroad from being shut down. Texas Parks and Wildlife had made it clear while it still operated the railroad that, without additional funding or a new operator, the train would have to be turned into a static display.
Presley said that in the most recent contract with American Heritage, the authority had agreed to lend $500,000 to the company immediately to pay for marketing and other operational expenses. The authority had also agreed to loan it another half a million dollars if needed, Presley said.
That money was set to come from $2 million in general revenue the state appropriated in the last legislative session.
But the railroad authority has said the state has not yet released that $2 million, which was also to be used as a match for the authority to receive $10 million in transportation enhancement funds.
Authority officials learned after a meeting with House Speaker Tom Craddick about two weeks ago that his understanding of the funding was it would be spent for capital improvements only, not on operational expenses. However, Presley has said officials presented testimony that some of the requested funding would be used for operating expenses.
A spokesperson for Craddick has said he's concerned about whether lending public money to a private company would be illegal and also said his understanding was the money was to be used for capital improvements.
Presley said that after meeting with Craddick, officials realized that they would not get money to use for marketing and operations efforts.
Authority officials realized that, "if we didn't come up with some marketing funds or operations funds from somewhere to help match what their effort is, that they would close down and leave," Presley said. "They didn't want that to happen, and we didn't either."
Presley also noted that in an original contract, the authority had promised to loan the company $2 million, but American Heritage agreed later to reduce that to $1 million.
"The authority needs to be able to have a million dollars available to loan to American Heritage Railw-ays to really ensure their chances of success," he said.
"They are faced with much higher costs and less ... income than they expected because the train's not been running," he said.
While Texas Parks and Wildlife was still operating the train, floods in July washed out a portion of the tracks. American Heritage, using funds from Parks and Wildlife, has been working to fix the tracks. However, regular, full train runs have not been operating because of the damage.
A total loan of $1 million is necessary because the train has not been running and because of the lack of the ability to use any transportation enhan-cement funds for operational costs, Presley said.
"The availability of loan funds becomes critical for them to be able to hire more staff and do more marketing and really get the railroad on sound footing once again," he said.
Staff Writer
PALESTINE - The Palestine City Council is stepping in to loan $500,000 to the Texas State Railroad Authority as part of the continuing effort to save the threatened tourist train.
The council approved the loan in a 5-to-1 vote Monday. The Rusk City Council is also expected to consider a similar measure to make $500,000 available to loan at its next meeting.
The action comes after railroad authority officials learned the use of state funding they were awaiting will be restricted, putting their deal with the new operator of the train at risk.
Steve Presley, president of the Texas State Railroad Authority and a Palestine city councilman, said the City Council looked at it as an economic development issue.
"While there is always risk in loaning money, I for one felt like, and most of the council felt like, there was a greater risk to not loan the money," Presley said. "Those funds we thought would be available to us from the state monies are not. Therefore, we either had to do something right away or lose American Heritage."
American Heritage Railways Inc., the private company with tourist railroad operations in Colorado and North Carolina, contracted with the new railroad authority, made up of officials appointed from Rusk and Palestine, to operate the train as of Sept. 1.
But the railroad authority received a letter in early October from the attorney for American Heritage notifying the group it had "materially breached" its contract, in part, by failing to loan the private entity $500,000 to support operations needs.
The letter started the clock ticking for the private company to walk away from the deal that looked to save the railroad from being shut down. Texas Parks and Wildlife had made it clear while it still operated the railroad that, without additional funding or a new operator, the train would have to be turned into a static display.
Presley said that in the most recent contract with American Heritage, the authority had agreed to lend $500,000 to the company immediately to pay for marketing and other operational expenses. The authority had also agreed to loan it another half a million dollars if needed, Presley said.
That money was set to come from $2 million in general revenue the state appropriated in the last legislative session.
But the railroad authority has said the state has not yet released that $2 million, which was also to be used as a match for the authority to receive $10 million in transportation enhancement funds.
Authority officials learned after a meeting with House Speaker Tom Craddick about two weeks ago that his understanding of the funding was it would be spent for capital improvements only, not on operational expenses. However, Presley has said officials presented testimony that some of the requested funding would be used for operating expenses.
A spokesperson for Craddick has said he's concerned about whether lending public money to a private company would be illegal and also said his understanding was the money was to be used for capital improvements.
Presley said that after meeting with Craddick, officials realized that they would not get money to use for marketing and operations efforts.
Authority officials realized that, "if we didn't come up with some marketing funds or operations funds from somewhere to help match what their effort is, that they would close down and leave," Presley said. "They didn't want that to happen, and we didn't either."
Presley also noted that in an original contract, the authority had promised to loan the company $2 million, but American Heritage agreed later to reduce that to $1 million.
"The authority needs to be able to have a million dollars available to loan to American Heritage Railw-ays to really ensure their chances of success," he said.
"They are faced with much higher costs and less ... income than they expected because the train's not been running," he said.
While Texas Parks and Wildlife was still operating the train, floods in July washed out a portion of the tracks. American Heritage, using funds from Parks and Wildlife, has been working to fix the tracks. However, regular, full train runs have not been operating because of the damage.
A total loan of $1 million is necessary because the train has not been running and because of the lack of the ability to use any transportation enhan-cement funds for operational costs, Presley said.
"The availability of loan funds becomes critical for them to be able to hire more staff and do more marketing and really get the railroad on sound footing once again," he said.
'NOT A GIFT'
The $500,000 will come from Palestine's general fund reserve.
Presley said the city, in the last fiscal year, had more sales tax revenue than expected and the city was able to save money. About $560,000 in extra revenue was available, he said.
"The council made a decision that it was a wise use of dollars to loan it to American Heritage," he said. "Not only will that indirectly bring jobs through the extra tourists coming into town, but it will increase our sales tax revenues significantly."
Palestine Mayor Dr. Carolyn Salter said the $500,000 is a loan.
"We expect to get it back. It's not a gift. We're charging interest," Dr. Salter said, adding it is expected to be at the same rate of interest the city would receive had it left it in its reserves.
"We expect the economic development and tourism that will come out of that will benefit our local economy more than half a million dollars worth over the life of the loan."
She also noted the loan will not affect the city's tax rate, its ability to pay back its debt, city services or its credit rating.
The railroad is an important part of Palestine's tourism economy, she said.
"We were in breach of the contract ... We had to do something to mitigate that or we were going to lose American Heritage," she said. "It was an important vote of confidence for the city council to give to the rail authority, the city of Rusk and American Heritage."
After four years, American Heritage will have four years to pay back the loan, Presley said. Then the authority will pay the city of Palestine back.
Presley said American Heritage "has a track record of taking a railroad and making it profitable."
The recent Thomas the Tank Engine event at the Rusk depot is an indication of that, he said.
The event, with little advertising, had about 12,000 paid riders and 20,000 who attended, he said. The Texas State Railroad in the last year (when operated by the state) had about 50,000 total paid riders, he said.
"They got a fourth of those riders in two weekends," he said.
More is expected from American Heritage with the upcoming Polar Express event at the Palestine depot, he said.
Presley said the city, in the last fiscal year, had more sales tax revenue than expected and the city was able to save money. About $560,000 in extra revenue was available, he said.
"The council made a decision that it was a wise use of dollars to loan it to American Heritage," he said. "Not only will that indirectly bring jobs through the extra tourists coming into town, but it will increase our sales tax revenues significantly."
Palestine Mayor Dr. Carolyn Salter said the $500,000 is a loan.
"We expect to get it back. It's not a gift. We're charging interest," Dr. Salter said, adding it is expected to be at the same rate of interest the city would receive had it left it in its reserves.
"We expect the economic development and tourism that will come out of that will benefit our local economy more than half a million dollars worth over the life of the loan."
She also noted the loan will not affect the city's tax rate, its ability to pay back its debt, city services or its credit rating.
The railroad is an important part of Palestine's tourism economy, she said.
"We were in breach of the contract ... We had to do something to mitigate that or we were going to lose American Heritage," she said. "It was an important vote of confidence for the city council to give to the rail authority, the city of Rusk and American Heritage."
After four years, American Heritage will have four years to pay back the loan, Presley said. Then the authority will pay the city of Palestine back.
Presley said American Heritage "has a track record of taking a railroad and making it profitable."
The recent Thomas the Tank Engine event at the Rusk depot is an indication of that, he said.
The event, with little advertising, had about 12,000 paid riders and 20,000 who attended, he said. The Texas State Railroad in the last year (when operated by the state) had about 50,000 total paid riders, he said.
"They got a fourth of those riders in two weekends," he said.
More is expected from American Heritage with the upcoming Polar Express event at the Palestine depot, he said.
MORE WORK AHEAD
The railroad authority is still negotiating the contract with American Heritage to ensure Craddick will approve it and release the funds, although restricted in their use.
"That's still under discussion," Presley said. "Obviously, we will work those issues out before we will actually loan them the money."
The Palestine approval of the loan is significant, Presley said -"It means the difference in the railroad staying open or closing."
But it's really just a temporary Band-Aid.
"It gives a big boost to American Heritage to keep moving forward and to not walk away, but it will take the full million dollar line of credit to fix the problem," Presley said.
Even if both cities find a way to make $1 million available, the authority will still be in breach of the contract, Presley said, noting the operational expenses that had were expected to be allowed.
"At this point, they seem very interested in keeping the train running and open," he said of American Heritage officials "Mr. (Al) Harper (president of American Heritage) has gone out of his way to use funds of his own to keep the railroad running until we could find money available. Our feeling is they really want it ... and we stand a good chance of successfully negotiating with them to keep the railroad open and running."
"That's still under discussion," Presley said. "Obviously, we will work those issues out before we will actually loan them the money."
The Palestine approval of the loan is significant, Presley said -"It means the difference in the railroad staying open or closing."
But it's really just a temporary Band-Aid.
"It gives a big boost to American Heritage to keep moving forward and to not walk away, but it will take the full million dollar line of credit to fix the problem," Presley said.
Even if both cities find a way to make $1 million available, the authority will still be in breach of the contract, Presley said, noting the operational expenses that had were expected to be allowed.
"At this point, they seem very interested in keeping the train running and open," he said of American Heritage officials "Mr. (Al) Harper (president of American Heritage) has gone out of his way to use funds of his own to keep the railroad running until we could find money available. Our feeling is they really want it ... and we stand a good chance of successfully negotiating with them to keep the railroad open and running."
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