Construction was expected to begin in March on the Malheur County rail reload facility but continuing delays in finishing agreements have put the work on hold for now. (Enterprise file)
Malheur County officials got the state in January to turn loose approximately $25 million for a new rail center by presenting key deals as nearly done – when they weren’t.
Officials at the Oregon Department of Transportation, under pressure to keep the project moving, accepted the assertions and relaxed mandates that had been in place for more than 18 months, according to government records and interviews.
The Oregon Transportation Commission instead agreed in part that Malheur County’s “spirit” of obedience was good enough, voting Jan. 21 to release the state money.
That freed Malheur County to start construction on the Treasure Valley Reload Center in Nyssa without at least two critical pieces in place.
The first is a deal with Americold to run the rail center. Americold is a multinational company that runs warehouses across the country. Americold has yet to sign a single binding document related to Nyssa.
That means the company could still walk away, leaving Malheur County with a rail center with no one to run it.
The second is a deal between Americold and a private group of onion shippers, who have been promised preferential rates and service. While early pricing to use the center was shared late last year, the shippers and Americold still hadn’t inked a deal as of this week.
That means the onion shippers could balk if the final pricing doesn’t prove as big an advantage as they thought. And there are no guarantees the pricing would be acceptable for those not given preferential treatment.
Once the Transportation Commission acted, Malheur County intended to put out bids last month and get dirt moving by mid-March.
But the Malheur County Development Corp., the county entity set up to use the state grant and own the project, last week put matters on hold.
Ryan Bailey of the Malheur County Economic Development Department said Friday that “it doesn’t really make sense” to start construction before critical agreements are in place.
Greg Smith, director of the department, said in an interview Monday that he stopped work towards construction “to mitigate risk to the county.”
He said a key agreement still isn’t in hand – and he doesn’t know when it will be. Smith said he wouldn’t put the reload center out for bids and construction until “we have a finalized signed agreement.”
Greg Smith, Malheur County economic development director, said this week the hold is to mitigate risk to the county. (Enterprise file photo)
If the hold is temporary and the pace picks up again, onions could still ship out of Nyssa as planned for the 2022 harvest.
But if Malheur County continues to stumble, it faces an even greater risk.
“We have the ability to stop the project,” said Cooper Brown, assistant director of operations at ODOT.
The Transportation Commission specifically warned of that prospect after its January vote, saying in a statement that if the county “fails to meet all the conditions” for getting the state money, “we direct ODOT to vigorously pursue the recovery of all state funds.”
Transportation commissioners last week decided not to respond individually to questions from the Enterprise, instead issuing a collective statement through the commission chair, Portland attorney Bob Van Brocklin. The other commissioners represented in the statement included Alando Simpson, CEO and owner of City of Roses Disposal & Recycling in Portland; Julie Brown, general manager for the Rogue Valley Transportation District; and Sharon Smith, general counsel for the Bend-La Pine School District.
The commissioners said they approved the Malheur County deal because they were told the necessary operator agreement would be “completed soon.”
Their statement noted the state’s power to end the Malheur County project and take back state money.
“These termination and repayment rights, which include termination for failure to ‘timely complete’ the retention of a TVRC operator, protect the public,” the statement said.
If the county plunges ahead with spending on construction, it could turn a field of dreams into a financial quagmire.
Robert Van Brocklin is chair of the Oregon Transportation Commission, the panel that agreed to move ahead with funding the project in January. (Oregon Department of Transportation photo)
How did it come to this?
An investigation by the Enterprise found that for months Malheur County had been feeding state officials rosy reports that didn’t match reality.
Throughout last year, for instance, the county reported it was getting closer to that “operator agreement” – considered essential by the state to be done ahead of construction.
But there wasn’t even a draft of such an agreement when the Oregon Transportation Commission voted Jan. 21 to hand over the money.
There still is no deal.
There was supposed to be a deal with select onion shippers from the area.
Malheur County indicated month by month last year that such a deal was moving closer. By October, the county said, the parties were “75%” done with such a deal. But records show that Americold even didn’t provide preliminary numbers until weeks after that report.
There still is no deal.
As 2020 wound down, Malheur County was racing the clock. The intent was to start shipping onions out of Nyssa by fall 2022. That meant construction of the Treasure Valley Reload Center had to start this spring – and that couldn’t happen unless the state released the money.
Getting the state to do so meant showing that all the requirements leading up to that decision were done or nearly so.
The work to do so rested with Smith, who by his own account led negotiations with Americold. He helped set up the Malheur County Development Corp. to run the Nyssa project. His own company – Gregory Smith and Company – continues collecting a monthly fee of $14,000 a month to serve Malheur County.
The Transportation Commission in 2019 set conditions for releasing the $26 million set aside by the 2017 Oregon Legislature for Malheur County’s project. The county, through its new corporation, signed a contract with the state to abide by those conditions.
Under the contract, the project was sliced into “milestones” – key steps that would lead to putting onions on rail cars.
“They are significantly important,” said Brown.
The milestones called for property to be in hand, a design for new rail lines, and plans for the new shipping warehouse. The milestones also required evidence that the project was financially sensible – a proposition doubted by two state agency executives back in 2019.
And the state and Malheur County agreed to two other tasks to get done before construction.
One was an agreement on fees between shippers and the operator, ensuring enough business to make the rail center a go.
The other was operator agreement – the contract between Malheur County and an outside company to manage the operation.
The Transportation Department’s outside adviser on the project, The Tioga Group, had urged the state to hold onto the construction money until that contract was in hand.
“Without an operator agreement in place and confidence that these conditions can be met, the viability of the TVRC concept is at risk,” Tioga said in its January 2019 report.
Transportation Department officials and the state commissioners explained that they acted against that advice in January because the project seemed on track – and the state still could cancel it and get back the public’s money if it went off the rails.
There was progress on the milestones and the promise of a new rail center, new jobs and a better economy seemed just over the horizon.
The county bought farmland as the site for the rail center. Union Pacific Railroad approved early plans for the new rail lines. And the engineering plans were finished for the building, streets and utilities.
On paper, at least, matters seemed to be progressing nicely on the required contracts. That showed in the county’s monthly reports to the Transportation Department, each reviewed and approved by Smith.
One milestone related to fees: “Documentation of agreement of fee structure and rates between operator and shipper.”
That was more than half done by January 2020 and the county report last October put “75%” under the column for “percentage complete.”
But in fact, the onion firms and Americold were just then set to “begin negotiations” on the agreement, the county reported.
As of October, Americold still hadn’t provided its prices – key to the shipper negotiations – and a month later it was still was working “tirelessly” to assemble its numbers, the county reported. On Nov. 18, the onion firms and Americold met “to begin conversations on rates and logistics.” The story was similar a month later. The two sides were gathering “to begin to look at a very early agreement” on fees, according to county records.
In a Dec. 11 email, Smith reminded an Americold official that he had offered “to produce an example agreement from Americold’s file to get our conversation started.”
At about the same time, Malheur County told the state that it was even closer than before to closing the shipper deal, listing completion on the agreement at 85%.
In a Feb. 10 email, an Americold official pointed out to Smith “our company’s pricing proposal” had not been agreed to “in any contract or agreement.”
On Monday, Smith wouldn’t answer whether there was even a draft of the pricing agreement.
“These are complex, complex conversations with multiple parts,” he said. “The conversations are ongoing.”
The county also reported rosy progress through 2020 on the operator agreement, telling the state late in the year to expect that to be finished by Dec. 31, 2020.
That state briefing filled in commissioners on the milestone requiring a “fully executed agreement between sponsor and terminal operator.” Malheur County was the sponsor. They were told that the agreement was “very close” but wouldn’t be finished by the time the Transportation Commission met.
Nonetheless, the briefing paper said, Malheur County “meets the spirit of the milestone” and the project should move ahead.
Records show that by early January, Erik Havig, statewide policy and planning manager at the Transportation Department, wanted that “spirit” in writing.
“Do you think we will see the financial and operator agreement (term sheet for lack of a better description) by noon or so today?” he wrote in a Jan. 6 email. “I am getting pretty nervous about having things ready for OTC.”
Smith responded later that day with a one-page letter from Americold that contained no financial information.
Rather, the company wrote that its rate presentation from November “clearly demonstrated the viability of the project.” Because of recent acquisitions elsewhere, the company wrote, Americold could “now produce a more efficient distribution network for agricultural shippers of eastern Oregon.”
Havig wrote back to Smith that “the final piece now is the ‘term sheet’ for the operator agreement. Do you have that memo ready to submit?”
Havig asked the county to also provide its comparison of trucking costs to rail costs when shipping onions.
Providing lower shipping costs through rail service instead of trucks had been central to the Transportation Department’s justification for the Nyssa project. Trucks now haul nearly 90% of the region’s onions to market.
Smith provided no term sheet or cost comparisons.
“The shippers indicated that it would be incredibly difficult” to provide such a comparison, Smith told Havig in an email.
To satisfy the trucking issue, Smith submitted a two-paragraph Jan. 6 letter from Treasure Valley Onion Shippers, a consortium formed in late 2019.
“The Treasure Valley Reload Center will provide a distinct advantage for shipments compared to trucking commodities,” the letter said.
The state’s consultants cited that single sentence to report that shippers using the rail center would save money. The report didn’t disclose that those rates applied only to 14 companies who were anticipating what Smith described as “preferential” rates from Americold. There was no indication what a local shipper outside that group would pay – or how their costs would compare to trucking.
Smith still was on the hook on the operator’s agreement.
“We really do need something in writing to help mostly check the box for an operator agreement,” Havig wrote in an Jan. 8 email.
He said he needed “key items” from Smith, including detailing what Americold would do in Nyssa, what the onion shippers would do, who would deal with Union Pacific and who would schedule service.
Smith responded with a “letter of commitment” on his department’s letterhead to demonstrate that all the players – the county, the shippers and Americold – were bound together to make the rail center work.
The letter committed them all to “work collaboratively,” to “actively support” the rail center, and to provide the shippers’ group “additional upside, benefits, efficiencies and priority for service and equipment.”
The Transportation Commission should take that as a “commitment” of all the entities, the letter said.
But it also noted in the first sentence that this was “not a legally binding document.”
Malheur County and the onion shippers eventually signed. Americold didn’t, and company officials declined to comment on this or any other aspect of the company’s Malheur County interests.
Havig wrote to Smith that the letter was “helpful” but “I admit I would have like to see a few more details.”
But time was running out and on Jan. 12, a second Transportation Department staff report recommended releasing the approximately $25 million. The report again assured the state commissioners that there would be “a formal operator agreement soon.”
In early January, the county reported that such a contract would be done a day before the commission met.
The following month, Smith’s team reported the deal was close – “95%” done.
“I believed that to be accurate at the time,” Smith said Monday.
But in a Feb. 10 email to the Enterprise, Stephanie Williams, Malheur County counsel, said that the development company “has been waiting months” for a draft agreement and that “one does not currently exist.”
Van Brocklin said commissioners would look into the conflict.
“We would be very concerned about occurrence of any material misrepresentation,” he wrote. “If such a material misrepresentation was verified, the commission or ODOT would respond quickly.”
Contact editor Les Zaitz: [email protected]
Alando Simpson, vice chair, is a member of the Transportation Commission that approved releasing funds for the project in January. (Oregon Department of Transportation photo)
Julie Brown is a member of the Transportation Commission that approved releasing funds for the project in January. (Oregon Department of Transportation photo)
Sharon Smith is a member of the Transportation Commission that approved releasing funds for the project in January. (Oregon Department of Transportation photo)
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