Malheur County takes over funding costs of pursuing rail shipping center

In less than a year, a half-million dollars in public money has flowed to businesses working on plans for the Treasure Valley Reload Center.

UPDATE: This story was updated on May 9 after Greg Smith issued a three-page statement on Facebook Wednesday evening, hours after publication of this story.

NYSSA – Malheur County has spent more than $500,000 pursuing a rail shipping center for Nyssa, dipping into the county treasury and borrowing from a bank to pay bills, according to available public documents.

And the money continues flowing month by month, as expenses mount and the county awaits the state’s decision on whether the Treasure Valley Reload Center should be built.

Most of the money financed two crucial tasks – preparing a proposal for the state and tackling the highly technical task of converting the zoning of Nyssa-area farmland to industry.

The reload center could deliver a big pay day for Malheur County, supporters say, boosting agriculture, luring in new industry, and creating new jobs.

The shipping center itself is projected to be a money maker, a profitable operation churning out cash that county officials say would be used to bring even more economic growth to Treasure Valley.

That would happen, though, only if the Oregon Transportation Commission agrees to turn loose $26 million in state money reserved for the Nyssa project.

Contractors and consultants, most based outside Malheur County, have worked for months at public expense to design and justify the shipping center.

Economists worked on the business case – that enough onions would ship out of Nyssa to make the Treasure Valley Reload Center profitable.

Rail experts considered what rail operations and tracks are needed to draw Union Pacific Railroad to extend service, critical to the industrial complex.

Engineers sketched out roads, sewer and water lines, and designed a warehouse that would be the heart of Nyssa’s shipping center.

Masterminding it all has been Greg Smith, a state legislator from Heppner who serves as Malheur County’s part-time economic development director. The county pays his company – Gregory Smith & Co. – $9,000 a month to operate as the county’s economic development agency.

There has been little public visibility to the costs of the Treasure Valley Reload Center work until now. Smith declines interviews with the Malheur Enterprise and doesn’t respond to written questions. In preparation for this report, the Enterprise provided Smith 17 excerpts to review for accuracy.

“You have errors and a handful of assumptions that are inaccurate,” Smith said in an email Monday. “Just wanted to make sure you aware of this prior to printing.”

He provided no other response.

To track the money, the Enterprise obtained invoices and other records at no cost from the state Transportation Department. The newspaper also obtained bank records, invoices and other financial documents through public records requests to the Malheur County Economic Development Department. The agency, run by Smith, charged $35 an hour for turning over the government records.

Those records provide the most recent accounting of the cost of the project – about $534,000 in the past year. The state covered $328,000 and the rest came from the county, either out of the budget or through borrowing.

The state Transportation Department dipped into some of the $26 million reserved for Malheur County for its share. The state agreed to pay the bills for the early work on the reload center.

But the county didn’t seek to recover all its costs, according to interviews and available records.

The county, for instance, didn’t charge the state for the work by Smith, done through his company. Even though Smith is overseeing the Treasure Valley Reload Center, no portion of his company’s $9,000 monthly fee was submitted to the state.

That was true when the county last summer upped that fee by $6,000 a month.

In June 6, 2018, letter to the Malheur County Court seeking the extra money, Smith said the Treasure Valley Reload Center “continues to move forward” and “we are ready to bring on an additional staffer.” He said he needed help with preparing the pitch to the state, pursuing federal money for the Nyssa project, and with writing projects.

Smith assured the court that “this expenditure is reimbursable” by the state but noted that such funding “would restrict the position’s activities to the TVRC Project.”

But the state has covered similar work by Smith’s company in Linn County. State records show that Smith is the project manager for a new rail center for Millersburg, an entirely separate project from Smith’s work in Malheur County. His company has worked for a local consortium, billing $20,000 a month last fall.

The consortium turned in those bills to the state and was reimbursed.

Smith didn’t respond to written questions about why the state hasn’t been asked to reimburse any of Malheur County’s cost, now running $15,000 a month and coming out of the county treasury.

Meantime, the county had to find a way to cover other costs because of the lag time between incurring an expense and getting the state check.

To bridge the time gap, county officials elected to borrow and here’s how that worked.

The county court in 2017 created the Malheur County Development Corp., a public entity charged with handling the rail shipping project. The company is a business with a board and a logo. It has no credit to borrow.

The county agreed to stand behind its new company, guaranteeing a $200,000 credit line with Umpqua Bank.

The July 11 resolution approving that the borrowing cast it as short-term funding until state checks came in.

The county court directed that those handling the rail project “will” meet with the state Transportation Department to review invoices and “ensure they are eligible for reimbursement before being incurred.”

County Judge Dan Joyce said in an interview he didn’t know if that had been done, but state officials said Monday it hadn’t.

“We did not receive a request to review costs before they were incurred,” said Katie Thiel, the Transportation Department’s program manager for Connect Oregon projects such as the Malheur effort.

The arrangement otherwise worked as intended – at first. The county paid contractors and submitted the bills in batches to the Transportation Department. The state sent along a check.

But once the county submitted the rail center plan to the state in September then and provided additional information into November, the state shut off funding for any subsequent expenses.

“We don’t have any way to reimburse them for other expenses,” said Erik Havig, another Transportation Department official dealing with Malheur County’s project.

The county kept on spending and borrowing, according to financial records. By February, the county incurred at least $206,000 not covered by the state.

Joyce, the county judge, had been tabbed by the rest of the county court to be the “authorized representative” of the county regarding the credit line.

Joyce said he didn’t know if the county-backed credit line could be used for expenses not approved by the state.

“That would be a question between Greg and the bank,” Joyce said.

Joyce said that in any event the state is obligated to pay the debt by the legislation that set aside the $26 million for the Nyssa project.

“That pays the credit line,” Joyce said.

State officials said, however, that they have already rejected $85,000 in costs claimed by the county. Of that, $27,000 in costs were incurred after the rail shipping proposal was finished in November and didn’t qualify for state payment, they said.

“For most of the remaining charges, we requested additional documentation to determine whether the charges were appropriate,” Thiel said by email Monday. “The project sponsor chose not to provide the documentation.

Smith, his Malheur County project manager, John Braese, and Grant Kitamura, president of the development company, didn’t respond to written questions about the rejected charges.

In March, the state agency wrote to Smith that there would be no “additional financial resources” to cover costs of answering the state’s continuing questions. Tammy Baney, chair of the Transportation Commission, told Smith that the county should have the requested information “based upon the work you have already completed and been compensated for.”

As of Feb. 13, the county through its development company owed $200,000 to Umpqua Bank.

Smith didn’t respond to questions about the level of that debt now. He also didn’t answer how the county and the development company would repay the money.

NEW: Greg Smith statement

OUR PREVIOUS REPORTING ON THE RAIL CENTER:

Malheur County pursues major logistics company to operate rail center

Proposed Nyssa facility faces important deadline for state money

State sets new deadlines for Nyssa reload center

Malheur County faces new obstacles to get money for rail center

Key member of Malheur County board overseeing rail reload center resigns

Malheur County officials make case for rail reload facility

Malheur County to state: Don’t ‘dictate’ terms for Nyssa rail money

Malheur County’s rail project heads to Oregon Transportation Commission

Reviews list risks, concerns with Nyssa rail project

Nyssa shipping project draws more state concern