Prineville railroad tries to stay on track

City hopes system will turn first profit in more than 15 years

By Rachael Scarborough King / The Bulletin
Published: June 01. 2007 5:00AM PST

PRINEVILLE — The city of Prineville is still hoping that its municipal railroad can be counted on as an engine of economic growth, bringing new businesses and more residents to the area in the future.

The fiscal year that starts July 1 could be the first in more than 15 years that the City of Prineville Railway will turn a profit, according to city officials.

And a draft of the city’s budget for the 2007-08 fiscal year states that it will be the first year the general fund — which pays for items including police services and community development — will not rely on support from the railroad fund.

The budget covers the period of July 1, 2007, to June 30, 2008.

Railway Manager Dan Lovelady said the railroad has operated in the red for several years and continues to rely on reserves left over from its profitable years before much of Prineville’s timber industry shut down in the early 1990s.

Although the draft budget for the coming year does not include projections for the railroad to turn a profit, Lovelady said the enterprise is one client away from making money.

“We have an opportunity that is really close and if it happens, we’ll go in and revise our budget,” Lovelady said.

“We believe that this new customer will provide enough rail car loads to put the railroad into the black for the year.”

Added together, the railroad, dinner train and rail freight depot funds account for the second-largest chunk of the city’s budget, about $4.4 million. However, that includes a $2 million grant to build a new freight depot from Connect Oregon, a state program that funds transportation infrastructure improvements.

Prineville is unique in having its own municipal railroad, which was formed in 1918 and is the nation’s oldest continuously operated short-line railway, according to its Web site. The city operates a 15-mile track that runs from Prineville to Redmond, where it hooks up with the Burlington Northern Santa Fe and Union Pacific railroads, allowing customers to ship to and from Prineville and many areas of the United States, Canada and Mexico.

Lovelady said he is not sure when the railway’s last profitable year was, but it was “probably in the late ’80s to early ’90s.”

“At that time all the sawmills started closing down, and the railroad has struggled since then,” he said.

Increasing freight

Numbers for the last few years show an increase in business, although the railroad did not make as much in the 2006-07 fiscal year as budget officials had predicted.

The majority of the railroad’s income is from charges for service. For the 2004-05 fiscal year, the railroad took in about $314,500. That number was down in 2005-06 to about $268,000, but is estimated to be up again by the end of June 2006 to $567,000. Expenditures for each year were more than $1 million. The 2007-08 project revenues of about $718,000.

Lovelady said the number of rail cars the city is handling has also grown. In 2004-05, the railroad saw 87 total car loads, which increased to 431 in 2005-06. Through the end of June, officials estimate they will have handled 831 loads for the 2006-07 fiscal year, and the budget projects a total of 1,235 car loads for next year.

The majority of the business comes from Les Schwab Tire Centers, he said. For next year, the budget document states a goal of increasing freight revenue by an additional 37 percent.

For Les Schwab, the railroad picks up tires in Redmond and delivers them to Prineville, where they are taken to the company’s main production centers.

“We were able to get the Les Schwab tire business back on the rail to Prineville — for many years it unloaded in Redmond and trucked to Prineville,” Lovelady said. “We’re heavily dependent upon building products this year and our traffic has suffered because of the downturn in the housing market, and it’s one of our goals … to diversify.”

The City of Prineville Railway has benefited from the increase in fuel prices in recent years, which has made rail shipping more economical for many businesses, Lovelady said.

The Crooked River Dinner Train, which the city also owns and operates, has struggled in recent years due to higher food costs. A few months ago, Lovelady said, railroad officials decided to eliminate off-season trains and one full-time position, but the dinner train is still not projected to break even for the 2007-08 fiscal year.

Filling a niche

Following a direction from the City Council, the city over the last few years has been gradually decreasing the reliance of the general fund on support from the railroad fund, City Manager Robb Corbett said. Three years ago, the city transferred $400,000 from the railroad fund to the general fund. The amount of the transfer was down to $100,000 last year and should be at zero for 2007-08.

Corbett said the city achieved this goal by “efficiencies within the departments, increased revenues and fees in other places.”

The budget document states that “The City of Prineville Railway enhances the City’s ability to attract new jobs, promotes tourism, and expands the ability of businesses in Prineville and our region to be competitive.” It adds that the railroad “fills a niche in the freight movement industry which promises to provide a competitive edge for Prineville and Central Oregon.”

Corbett said the railroad is

an important enterprise for Prineville and he hopes it will start making money for the city again in the future. He likened it to Redmond Airport as a means for bringing businesses and people to the region.

“With the price of fuel where it’s at and the dynamics of a railroad system that is over capacity, the ability for businesses to get a rail connection is becoming increasingly important and that makes Prineville an attractive place, and Central Oregon, an attractive place to look to relocate,” Corbett said. “I think its future is really important to the region.”