Capital Goods - December 2007

Is this any way to run a railroad?
By Scott Mooneyham

You can't live through an election season without hearing a candidate or two prattling on about how they intend to take on the "special interests" and return the government to the people. What about when the politicians and the government are the special interest? That's the predicament that this state, and those elected to decide its policy, find themselves in because of the odd duck that is th North Carolina Railroad Co. The state's oldest corporation, NCRR was created by the state in 1848 but partially owned by private stockholders. In 199, the state decided to buy them out, becoming sole owner of the 317-mile rail corridor from Morehead City to Charlotte.

Of course, there's nothing really strange about government ownership of transportation infrastructure. But unlike roads or ferries, the railroad operates as a private business. It's organized as a corporate real-estate investment trust. Its earnings, from leasing use of the tracks to Norfolk Southern Corp., are poured back into railway improvements and operations, not the state's General Fund or primary transportation funds. State law also gives NCRR the same powers as private railroads. One of those: Railroads can't lose property or easement rights to squatters. There is some government control of the company, but it's exercised from afar. The governor and legislative leadership appoint the 13-member board of directors.

In an age of interstate highways and air travel, railroad companies today hardly flex the political muscle of their 19th century predecessors or provoke the same ill will from the public. For most railraods, it's easy enough to keep their heads down, go about their business and assume that all that bile spewing forth about special interests is aimed at some oil or drug company. But lately, the NCRR is arousing the kind of animosity that was once reserved for robber barons.

The railroad, using the latest satellite-mapping technology, has been trying to enforce its right of way, claiming hundreds of businesses have encroached on the 200-foot-wide ribbon it controls. So far, the NCRR is not asking that businesses move. It is demanding that they pay rent - in some cases $1200 a year - and carry liability insurance. More than 200 businesses have signed leases. But the move has plenty of owners, many with deeds and property-tax bills showing ownership going back decades, hopping mad. Some have refused. Others are demanding lawmakers rein in this state-owned entity.

State Rep. Jeff Barnhart, a Cabbarus County Republican, sees the railroad's acion as a money grab aimed at small businesses that can least afford it. Barnhart wants a legislative study committee to look at the dispute. "I've supported the railroad, but there's right and wrong. This is just wrong," he says. But to find the culprit, he may need to look at himself and fellow legislators. In 2000, they gave the railroad power to lease right of way "for the purpose of preserving and protecting its railroad corridor and franchise," which is what NCRR President Scott Saylor says it's doing. Most legislators probably had no idea what they had unleashed. Helping a state-owned railroad is one thing. Infuriating business-owning constituents - who vote, go to church with people who vote and otherwise socialize with people who vote - is something else.

Railraod officials feel confident that the law is on their side. But it's not clear how well the law, and the circumstances under which it was passed, will hold up to intense scrutiny. The charter that established the right of way 159 years ago essentially voided any other land grants that might apply. Most - but not all - of the track ran through wilderness. Who knows under what circumstances some of the property was gained?

Even today, most of its right of way isn't owned outright by the railroad. In 1995, in a Securities and Exchange Commission filing, then-NCRR President John McNair III wrote that the railraod controlled at least 80% of it by easement. Despite its charter, he claimed the right of way varied from 50 to 200 feet. "If Railroad operations terminate, the owners of the land may seek to have the easements terminated," he wrote. For this, people are being asked to pay?

But the dispute raises a more fundamental question: How does the North Carolina Railroad, as a state-owned entity, benefit the taxpayers, the people who own it? Would the benefits be any different if it were privately owned? For a few hundred of those owners, the question has been turned on its head. To them, the railroad - state-owned or not - has become just another special interest aligned against their interests.

Scott Mooneyham is the editor of The Insider, http://www.ncinsider.com.

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