Local government

State will not enforce deadlines on rail reload project, waiting for new plan

VALE – The state Transportation Department recently used tough language in suspending funding for the Treasure Valley Reload Center but a deeper look shows the state isn’t about to enforce deadlines or other provisions meant to safeguard the public’s $30 million sunk into the Nyssa project.

The project is far over budget, has nowhere near the funding needed to finish the partially-built shipping depot, watched its shipping partner walk off and has no prospect of opening anytime.

An Aug. 8 letter appeared to invoke stern language in notifying Malheur County Development Corp. that the next round of state funding was on hold.

The state agency “has significant concerns about the viability of this project being completed and successfully operated,” according to the letter from Erik Havig, the statewide policy and planning manager for the Transportation Department.

The Aug. 8 letter appeared to be a significant development regarding the future of the project but an investigation by the Enterprise shows not much has changed regarding the final completion date and left unanswered key questions regarding funding and an ability to recover state money expended on the project.

“ODOT does believe it is time to negotiate these expectations and get a firm go/no go decision on the project.”

Erik Havig, ODOT planning manager

“The state of Oregon has a sizeable investment into this project that likely can’t be fully recouped,” Havig said in response to questions from the Enterprise. “Just canceling the project right now is not a great answer.”

He said, however, that the state agency has not asked for updates to information presented nearly five years ago about the public benefits of the project – “nor do we intend to.”

Some provisions in the original 2021 grant agreement between the state and the development company set up by Malheur County are essentially meaningless. The state has repeatedly amended the agreement to extend completion deadlines.

The August letter indicated the state wanted developers to act soon to resolve money issues and to find a new operator to run the Nyssa terminal.

But state officials said subsequently that they have no deadlines in mind. They also don’t intend to act on provisions that would force developers to repay state money because Treasure Valley Reload Center doesn’t meet state conditions.

The state froze additional funding after Americold, signed on to operate the facility, bailed out of the project that it said in July was not “financially viable.”

“We will need to see a clear ability to finish constructing the project and a proven facility operator locked in through an operator agreement to consider this a viable project,” Havig wrote in the August.

Project leaders were told the state needed those tasks done in a “reasonable timeframe.”

But how much time the state will give the developers to get the project moving again isn’t clear.

Responding to written questions from the Enterprise, Havig said “there could be a number of factors” regarding why the state did not set a hard deadline.

“We are wanting to assess MCDC’s timeline and needs in addition to ensuring contract requirements are met on behalf of the state,” he wrote.

Havig said there would “likely will be interdependencies between the operator agreement and financing plan, making the setting of a hard date now challenging.”

“There are many factors that need to be considered. However, as stated in our letter, ODOT does believe it is time to negotiate these expectations and get a firm go/no go decision on the project,” wrote Havig.

In an interview, Havig said the state plans to continue to “work with MCDC,” because “of a huge investment already.”

Havig said, however, he didn’t believe the state was in an open-ended position regarding a financing plan for the facility or a construction completion date.

“This can’t go on and on. But, at the same time, we don’t feel like we have enough info to set a hard date. We don’t want to set an arbitrary date without working to find out what is reasonable,” he said.

Havig said a number of factors can delay steps to finalize a financial plan or an operator agreement.

“An operator, there is probably five different ways to do that. Each approach could take a different amount of time,” he said.

He said the state does want “some assurances” regarding financing.

“We want more than just a potential list of (funding) sources. We want to know what they are. For example, maybe they will be awarded a grant but it could take six months to get the money,” he said.

Havig said the Transportation Department is “waiting for more defined dates, working through MCDC, to find out when these decisions could be made.”
“We are working with them to find out how much time they need,” he said.

Havig said the state and the development company will hold monthly “check ins” regarding progress. The first meeting, he said, was set for late September.

Under the original agreement for state funding, the Transportation Department was given  “extensive rights” to terminate the state’s role if “MCDC fails to timely complete any milestone.”

Milestones were project benchmarks agreed to by the state and the development company. One key milestone was a firm date to complete construction. Pushed back repeatedly, the contract now forecasts completion by Oct. 30. That won’t happen.

“ODOT acknowledges that the project can’t be completed per the existing terms and conditions of the Connect Oregon grant agreement,” Havig wrote. “ODOT wants to work with MCDC to see if the project is still viable or not before either party decides to invoke the termination clauses of the agreement.”

Under the contract, the state can demand repayment if the project doesn’t fulfill the milestones.

Havig acknowledged that the state’s ability to recover the $30 million in grant funds is.

“ODOT understands that MCDC as an entity likely does not have much cash fund available for repaying ODOT,” Havig wrote.

Havig also wrote the state does not have a plan to take ownership of the property and partially-completed rail system in a worst-case scenario.

“ODOT has been in contact with the Department of Justice to explore the potential and DOJ have not determined what any reimbursement settlement and agreement could entail,” Havig wrote.

The investigation by the Enterpirse also showed the Transportation Department allowed construction on the project to go ahead for years without adequate reserves – a common element in any construction project – or sufficient accounting for inflation.
“It is not ODOT’s responsibility to advise applicants on how they should develop cost estimates,” Havig wrote. “ODOT did not ask for details on contingency and risk assumptions from MCDC….ODOT did ask the project manager and their engineer several times throughout the project if they believed they had adequately accounted for risk and contingency.”

That will change.

“We do intend to ask MCDC to share more details of their assumptions for their cost estimate and how MCDC is protecting against the risk of more cost overruns,” Havig said. “Until we have more assurances this project is still viable, ODOT will not reimburse MCDC for any additional expense,” Havig wrote.

Meantime, during a Wednesday, Aug. 16 session of Malheur County Court, Lorinda DuBois, county administrator, told the county commissioners that the county would need to pay an additional $171,000 to pay off MCDC’s short-term bank loan. That is on top of the $1.3 million county commissioners already committed to paying.

The county court had backed the bank borrowing as the project started so the development company could pay bills. The borrowing was expected to be short term as the state reimbursed those costs. However, the development company incurred more bills than could be covered quickly by the state, leaving the company in debt to the bank.

Peterson said the county would get back the $1.3 million when the state releases money it is holding in reserve to ensure the project is done. The county took money out of its own contingency budget to pay off the bank.

Peterson couldn’t readily provide information on which vendors had been paid with borrowed money, saying the development company would need a week to provide such details.

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