A recent column in The News Tribune (Dan Voelpel, 6-12) suggested that the City of Tacoma should sell Tacoma Rail to a private company. There does not appear to be much interest at this time on the part of elected officials or on the part of Tacoma Rail’s customers or stakeholders in exploring a sale. Notwithstanding, I wanted to outline some of the substantive and process issues that would be involved in such a decision.
There are two important economic factors that would need to be considered in any potential sale of Tacoma Rail, which is presently operated on a not-for-profit basis similar to the other utilities operated by Tacoma Public Utilities.
First, any new private owner would need to extract a profit from the operation of the railroad – thus putting upward pressure on costs in the Port of Tacoma and making it less competitive against other West Coast ports. This could, in turn, affect employment and economic vitality in the Tacoma area. While some might suggest that a private operator could at least partially offset its need for profits with efficiency-related cost reductions, there is no reason why a not-for-profit operator could not achieve the same efficiencies.
Second, in most business sale transactions the value of the enterprise is determined in large part by its revenues and net income. Given the present downturn in cargo volumes at the port and at the railroad, it is unlikely that the city could obtain optimum value for Tacoma Rail until trade volumes recover significantly. The port has recently indicated that this could take several years. In terms of process, there’s a high hurdle for approval of a sale. Such a transaction would require approval by a super-majority of the City Council and by a vote of the people.
A decision such as this with long-term consequences for the community should be undertaken through a deliberative process in the context of the city’s strategic plans and objectives, not as a reaction to overtures from private operators wanting to purchase railroad properties to further their own financial objectives.
Tacoma Rail has made operational changes to address the economic downturn. Vacant jobs have gone unfilled, overtime has been restricted and crew sizes have been reduced. Tacoma Rail has offered new services like rail car storage, and has reduced the number of engines operating daily from 15 to 12.
So far, we have not had to lay off any employees. However, as with any business Tacoma Rail needs to operate efficiently. We will continue to monitor our revenues and expenses and will make necessary changes as required to ensure economic efficiency.
Bill Gaines is Tacoma Public Utilities director.
