July | August 2017

Hitting the Lotto Jackpot

States Look for New Ways to Finance Freight Transport

By Sean Slone, CSG Senior Transporation Policy Analyst
In 2004, the City of Prineville Railway had fallen on hard times. The sawmills of central Oregon that had once been the railway’s biggest customers had long since closed.
Prineville needed a new facility for customers who didn’t have access to the railway or weren’t getting the type of service they needed, said Dale Keller, the railway’s business development manager.
“The Class I railroads prefer carloads from multiple smaller customers to be consolidated on a short line railroad or at a distribution hub so they only have to make one stop to set out and pickup,” he said. “This increases the efficiency of their operations.”
A short line railroad is a small or midsize railroad company that operates over a relatively short distance.
The city acquired additional property to create a transload and warehouse operation in an effort to add carloads to the railroad. By 2006, several customers, including two large manufacturers, were using the facility and the site was unable to support additional business.
Railway and city staff applied to the Connect Oregon program and received more than $9.4 million during the program’s first three funding cycles. The funding was used to develop a freight depot and a 12-acre bulk transload site.
Keller said several companies have signed 20-year leases to become tenants at the freight depot. That success is helping ensure the future of rail service in central Oregon and the region, he said.

Funding More than Roads

Connect Oregon, a state competitive grant program, is one example of new strategies states are employing to fund often neglected modes of transportation that are vital to freight transportation and to keeping the nation’s supply chain moving.
“The Oregon state constitution protects (dollars in the state highway trust fund) specifically for highway use only,” said Michael Bufalino, freight planning unit manager at the Oregon Department of Transportation. “As we worked through and identified non-highway needs, we really did not have a funding source to support the air, marine, rail and transit infrastructure.”
Enter the Oregon State Legislature, which in 2005 authorized the Connect Oregon program and committed $100 million in lottery bond revenues to put toward 38 infrastructure projects around the state. Lawmakers approved another $100 million in 2007 to tackle 30 more projects and, in 2009, $100 million more to fund 40 additional projects.
Last year, lawmakers approved $40 million in lottery-backed bonds for Connect Oregon IV and received 70 applications requesting more than $84.5 million. State agencies and modal and regional committees are reviewing applications to determine the most worthy projects.

Port Sees Benefits

A much larger freight facility, the Port of Portland, also has benefitted from Connect Oregon. The port received both a loan and a grant for rail yard infrastructure to help meet growth projections. It used the funds to incentivize Class I railroads to make an investment in rail infrastructure at the port. The investments allowed expansion of the businesses and terminals that were served by those railroads, increasing throughput and overall investment in the Portland region.
Another Connect Oregon award allowed the Portland International Airport to invest in a de-icing system that ensures plane operations can be maintained and increased, which benefits the port as well.
“This program allows for investments in parts of the system that are overlooked in other funding programs or ineligible for the traditional transportation funding sources,” said Martha Richmond, media relations manager for the Port of Portland. “Our state’s economy is dependent on access to markets to sell our products. Oregon is the ninth most trade-dependent state in the U.S. ... This program gives the state a way to maintain market access for our businesses.”

Oregon’s Successes

Bufalino explained why his state chose the lottery-backed bonds as the mechanism to fund projects.
“The reason why lottery dollars make a lot of sense is that there is a strong economic development component of this program as far as identifying the economic benefit of these given projects,” he said.
Bufalino said the state is looking at how to document Connect Oregon’s numerous successes, which may be crucial to ensuring support for future program funding cycles.
“In Connect Oregon IV, which we’re running right now, we are working with our applicants in order to identify a quantifiable measure of success,” he said. “Up to now, we have not been able to do that because each project has been kind of a standalone item. And so what we’re looking forward to now is getting a little bit more quantifiable evidence of the individual successes.”