NEED $3.6 MILLION’ – Records raise questions about Malheur County rail center finances

Directors of the Malheur County Development Corp. participate in the Oct. 1 groundbreaking for the Treasure Valley Reload Center. They are, from left, Kay Riley, Grant Kitamura, Jason Pearson, Greg Smith and Lynn Findley. (Malheur County Economic Development Department photo)

The alarming note about the Treasure Valley Reload Center arrived in Greg Smith’s email in early January. 

The one-page handwritten note attached to the message provided the newest cost estimate from Brad Baird, the lead engineer on the Nyssa project.

“Need $3.6 million” beyond the $26 million budgeted to build the shipping center, his note said.

 “Wise to round up to $5 million,” he added.

Smith, the project manager and a state legislator, didn’t alert key officials to the development.

Instead, hours after getting Baird’s note, Smith presented a different estimate to state officials, showing the Treasure Valley Reload Center budget balanced to the penny at $26 million.

The exchange, detailed in records obtained by the Enterprise, raises questions about the project’s finances.

By Baird’s figures, there isn’t enough money to fully develop the center where Treasure Valley onions are supposed to move out by rail next summer.

Those overseeing Smith haven’t seen cost figures since February.

Since then, costs have gone up.

A handwritten document obtained through a public records request shows the Treasure Valley Reload Center cost estimate in January. (Enterprise graphic/Logan Turbes)

Smith won’t account for any of it, declining an interview with the Enterprise and ignoring detailed written questions sent to him Sept. 29.

Baird, whose firm Anderson Perry & Associates been paid more than $750,000 for work on the project, also failed to respond to detailed written questions sent Sept. 29.

Four directors on the board of the Malheur County Development Corp. didn’t address written questions sent them about what they knew of Baird’s projection of cost overruns and whether they had given Smith authority to make million-dollar decisions without them.

The directors were appointed by the Malheur County Court to run the public company in charge of constructing the rail center. Those not answering included Kay Riley, general manager of Snake River Produce in Nyssa; Jason Pearson, director of onion sales at Eagle Produce in Nyssa; Corey Maag, an owner of Jamieson Produce of Vale; and Lynn Findley, state senator from Vale.

Grant Kitamura, CEO of Baker & Murakami Produce Co. and president of the development company, responded to initial questions in an interview. He repeatedly insisted the project wouldn’t cost more than $26 million. He didn’t respond to follow-up questions about those costs.

The backdrop: Escalating costs

By January, construction was behind schedule.

Onion shippers across the Treasure Valley were enduring escalating costs for trucking and were counting on the Nyssa railyard to reduce their shipping costs as soon as possible.

The state-financed project would be run by Americold, an Atlanta-based multinational company, and pack local onions onto rail cars for Union Pacific Railroad to haul to the Midwest and the East.

To get the state money to cover construction costs, Smith and his team needed the Oregon Transportation Commission to approve moving ahead. The project developers had agreed to that restriction as part of the deal for the $26 million grant.

Getting a “yes” required assuring transportation officials that the shipping center design was far enough along to justify construction funding.

Baird was key to that.

He has worked on Transportation Department projects before and his firm also has handled public works projects for local governments throughout eastern Oregon.

State officials said that based on past experience, they had confidence in Baird. Kitamura, the development company president, said he expected Baird to provide the best estimates possible, using his professional judgment and skill.

Pandemic boosts critical costs for steel, lumber

Baird’s task was tricky. Through 2020, the pandemic’s impact hammered the construction industry across the country.

The price of steel – crucial to a project requiring nearly four miles of track – soared. So did lumber prices. Wages climbed steadily as the work force shrank and employers competed for help.

Baird’s work in January appeared to reflect those realities.

With state officials wanting information, Baird recalculated an estimate produced just 19 days earlier. His numbers climbed, according to a Jan. 5 document called “Total Project Cost Estimate.”

The groundwork needed to prepare farmland for industry would not be the $6.2 million estimated just days earlier but instead would cost $7.3 million. Even that new higher estimate was about $1 million short, as later developments would show.

The cost of rail work went up by $1 million from that earlier estimate, to $10.2 million. The sheet went on to list higher costs for everything from truck scales to the warehouse.

READ IT: Original project cost estimate

Baird sent the revised numbers to Smith in an email at 11:10 a.m. on Jan. 5, indicating that “there may be some items I have missed in the attached budget” adding, “talk to you shortly.”

Those new professional estimates didn’t survive contact with Smith.

By 3:30 p.m. that day, Baird had backed down his estimate, taking out $3.6 million in a matter of hours. His new estimate was back to the long-standing estimate: $26 million.

He drafted a memo with that figure to go to state officials and sent it to Smith for review.

“This memorandum provides a summary of the current estimated total project cost for the Treasure Valley Reload Center,” the draft to the state said.

Smith wasn’t satisfied yet.

“We still need to cut $700,000 as we have already spent that much in preparation,” he wrote in an email 13 minutes after getting Baird’s latest estimate.

Smith apparently needed to be sure the new $26 million estimate included money already spent on engineering and other costs.

Baird took another run at his numbers, but he couldn’t come up with the $700,000 that Smith wanted.

“I will trim $400,000 from somewhere to make it all balance at $26,000,000,” he wrote.

In the next half hour, according to records, he cut costs even more for rail and earthwork. He thinned the project reserves, necessary in construction to cover unanticipated expenses.

The Oregon Department of Transportation that evening got the revised cost estimate totaling $26 million.

“We expect it to be truthful and we expect it to be accurate,” Cooper Brown, assistant director of the Oregon Transportation Department, said in a recent interview.

READ IT: Cost estimate for state

The Transportation Commission received from the agency staff an assessment of the Malheur County project that reported Smith’s team had “submitted several materials that help demonstrate the project is nearly ready to begin construction.”

Brown said the agency wasn’t advised beforehand of a possible cost overrun or that elements of the project had been dropped.

On Aug. 31, the Enterprise requested from the county “any project budget and all related material” concerning the Treasure Valley Reload Center dating back to Jan. 5 – the day of Baird’s “need $3.6 million” note.

Smith responded nearly three weeks later with 14 email chains and 15 other documents – the apparent record over eight months concerning the costs of the shipping center.

Missing was any document showing what had been dropped from the shipping center to erase the extra $3.6 million that Baird thought was needed. Smith and Baird didn’t respond to questions seeking those details.

Kitamura, president of the public company, said late last month that he was unaware of the cuts but characterized $3.6 million as a “wish list” of shipping center features wanted but eliminated. He couldn’t provide such a wish list and didn’t respond to follow-up questions about it.

He said he doesn’t know why Baird’s advice to “round up to $5 million” wasn’t followed.

“I wasn’t involved in that conversation,” he said. “We will work within the budget.”

‘We will have budget challenges’

Even without a “wish list,” Treasure Valley Reload Center faces more financial issues since Baird’s estimates in January.

In April, the Malheur County Development Corp. agreed to spend up to $400,000 to build a new road for a Nyssa farming operation impaired by the shipping center. That sum wasn’t in Baird’s estimates.

No document released to the Enterprise showed how that cost would be paid out of a budget already fully allocated.

And in September, the directors of the development company awarded an $8.5 million contract for the earthwork and culverts.

This was an exciting development for the board and county officials – it was a time to move dirt.

Smith told the board the price was “under budget.”

Asked by the Enterprise for records supporting that statement, Smith provided none.

In fact, the contract was $2.4 million higher than what Smith and Baird reported to the state in January and about $2.3 million higher than the last project numbers that board members from the development company reported receiving in February.

Questioned during an August board meeting, Baird acknowledged “we will have budget challenges” but provided no details.

How fluid budget numbers can be is captured in the history of cost estimates for the warehouse.

Kitamura said recently the cost of the building could be cut, but provided no new figure.

Fisher Construction Group, the contractor on the project team, provided in 2018 what was described as a “detailed” estimate for the building. The firm had built the now-shuttered rail shipping center in Wallula, Wash.

Fisher estimated the Nyssa building would cost $7.8 million, noting that price didn’t include furnishings or climate control features.

Smith’s team reported to the state in September 2018 that it had reduced the size of the building to bring the project under budget. The estimate then: $6.7 million.

“The building size and configuration was modeled around other successful reload facilities that were observed,” the team told the state three years ago.

In May 2020, an estimate still pegged the cost at $6.7 million but noted then that “additional funds” for the building “likely” would be needed.

Then, last January, Baird’s handwritten estimate to Smith set the price at $6.5 million.

Baird subsequently notified the state that $6 million was being reserved for the building among items “needed” to establish “a fully operational” shipping center. State officials say that’s the last estimate shared with them.

Kitamura said last week that figure has been too high, that planners had been “too wild” in designing the building and that it would not be a Taj Mahal.

“It will just be like an onion shed,” Kitamura said.

The board made no decision about the building last week. Most of its meetings last no more than 30 minutes, and generally consist of brief updates from Smith and Baird. Board members reported that they haven’t seen a project cost estimate since February.

Boards hold authority, responsibility

A state audit in 2012 found that comparable state boards often aren’t trained in financial matters and too often leave major decisions to staff.

“Board members, as public officials, should be accountable for the resources and authority used to facilitate government programs and the results of those programs,” according to a state Audits Division report examining state boards.

“A board is at increased risk of errors, fraud, and poor performance when significant authority is delegated to executive directors without adequate oversight of their activities. Board members may not raise necessary questions, or may lack the collective expertise to fully identify all the potential errors, fraud or poor performance,” the audit said.

Kit Memmott, director of the state Audits Division in the Secretary of State’s Office, discussed such audit findings generally and not particular to Malheur County’s circumstance.

“Anyone in public service in a position of oversight or authority — whether it’s a board of directors, city council, state commission, what have you — has a responsibility to account for public funds and ensure those funds are spent responsibly,” Memmott said in a statement. “It’s just an inherent responsibility.

“I’ve been working in government for a while now, both at the state and local level, and I’ve found that how well a board conducts its oversight can be all over the place,” he said.

Kitamura agreed that his board couldn’t perform its duty without getting current cost information.

“I am sure we will go through all of that,” he said, adding that Smith didn’t have the authority to make major modifications to the project without the board’s approval.

The Malheur County Court hasn’t provided oversight either, despite the money it puts into the project every month.

The county directly pays $72,000 a year to Smith’s company to manage the rail project and has budgeted another $50,000 a year to cover shipping center costs not paid by the state.

And three years ago, the commissioners took the county into debt for the rail center, borrowing $2 million to buy Nyssa farmland for the Treasure Valley Reload Center.

In a recent interview, Malheur County Judge Dan Joyce said, “We were told we would not have to put any money up. That was a good reason to move forward with the project.”

The county doesn’t have the money for cost overruns on construction, he said.

“The project is going to have to fund itself,” Joyce said.

The development company doesn’t have money either, Kitamura said.

Malheur County Judge Dan Joyce opens the Oct. 1 groundbreaking ceremony for the Treasure Valley Reload Center north of Nyssa. (Malheur County Economic Development Department photo)

Tapping the state for more ‘unlikely’

The state once again could be the source if a shortfall develops.

Smith has already gone back for a second helping of state money, getting an extra $3 million from the Legislature earlier this year to pay for a water line.

The Transportation Department itself could put more money in the kitty under authority held by its director, Kris Strickler.

While legally possible, agency officials said no director has ever tapped that authority and it would be “very unlikely” the Nyssa project would become the first.

“We are fully expecting the project team, MCDC, to complete the project as described in the agreement and within the available funding,” an agency official said in a recent email to the Enterprise.

Joyce noted that the Nyssa project was funded and supported by key legislators and Gov. Kate Brown. He said he would turn to her to discuss the finances.

“I am going to have a real conversation with her about this whole project,” he said.


Americold signs on to run rail shipping center but construction delayed again

Reload center construction costs climb past project budget

Delays and missed deadlines: the history leading up to TVRC and Americold’s lease agreement

WATCHDOG: Nyssa rail center, public money, and a most unusual deal

Delays and missed deadlines: the history leading up to TVRC and Americold’s lease agreement

Rail reload documents outline the private benefit from public dollars for economic development project

State gives green light to rail reload center

WATCHDOG: County rail team told state key permits were in hand for reload center – they weren’t

WATCHDOG: Farmland picked for rail center needs $6 million in soil, gravel and rock work to make buildable

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