John D. Moran Jr. has plenty of irons in the fire, but he wants to add one more.
Moran, who owns Watsontown-based logistics company Moran Industries, plus subsidiaries that includes consulting and political marketing firms, wants to get into the railroad business.
He has offered the SEDA-Council of Goverments Joint Rail Authority $12.5 million for its assets.
The authority owns about 200 miles of railroad track, engine houses, rail yards and land in eight counties. The authority contracts with a private company to provide rail service to customers on the authority's five shortline rail lines.
Moran said the rail lines will be a perfect fit for his business.
"I think it takes our logistics company to a whole new level," he said. "It is a perfect marriage with what we do now."
Not in the public interest
The authority is not selling, however.
Doing so would not be in the public interest, according to Jerry S. Walls, chairman of the authority board.
Walls said a private owner might cut services or skimp on track and facilities maintenance in an attempt to maximize profits. That is something the authority is not compelled to do, he said.
"For a private company to operate a railroad, it has to make money on it," Walls said.
Authority Executive Director Jeff Stover agreed.
"If someone makes an investment, you have to have a return on that investment," Stover said. "The mortgage has to be burned, so to speak."
No rate increase
Moran said he can make money on the railroad without raising rates. That is because he would eliminate the administrative costs associated with operating the authority, he said.
At more than $290,000, administrative costs are too expensive, he said. The authority has 2.5 employees, including Executive Director Jeff Stover, Property Manager George Fury and a part-time administrative staff member.
Besides, rates typically are set by the Class I railroad connecting to the short lines, Moran said. In the authority's case, that would be the Norfolk Southern Railroad.
"Customers don't have a thing to worry about," Moran said. "There will be no material impact on rates. There are a lot of private railroads out there - a ton of them."
The authority's current deal with rail service provider Richard Robey heavily favors Robey to the detriment of the authority's bottom line, Moran said. The agreement provides the authority with only 10 percent of Robey's gross operating revenue.
Robey owns and operates the North Shore Railroad and several other short lines, including the Lycoming Valley, Juniata Valley, Nittany and Bald Eagle and Shamokin Valley railroads.
In 2007, the authority entered a 10-year, no-bid contract with Robey that allowed him to pocket most of the profits from the deal while the authority shouldered the risk associated with the railroad, Moran said.
In 2009, Robey paid the authority about $1.4 million while making a profit of about $4.5 million, Moran said.
"Robey is getting a one-sided deal," Moran said. "The authority has all the risk but isn't getting any of the benefit."
"If you go out to a competitive bid, there is no way anybody is going to keep 90 percent of the revenue," he said.
As it now stands, the authority is receiving the revenue from Robey's profits. The counties are getting nothing, according to Moran. If he owned the railroad, he would work out an arrangement where financially strapped counties would get a portion of the revenue, possibly based on track miles per county.
"The counties are the stockholders," he said. "They've been cut completely out of the loop."
Moran said a fairer deal would require an operator to pay several times more than what Robey is paying.
"I think it's a reasonable agreement," Stover said of the contract, adding that it is line with similar rail contracts in the state. The contract also contained other components beyond the percentage payment, he said.
The contract included a track maintenance agreement that required Robey to bring tracks to authority standards, which are higher than federal standards, Stover said.
In 2009, Robey spent $3.5 million on track maintenance, he said.
The agreement expires in 2017. Walls said the authority will be seeking a new round of proposals from potential rail operators.
Private ownership questioned
Walls said he is skeptical a private owner can provide the level of service the authority has provided.
Private ownership of railroad facilities almost spelled the end of rail service in the region in the past, according to Stover. In the 1984, business was slow and Conrail was abandoning tracks when SEDA-Council of Governments, using public and private funds, bought the tracks.
"If we wouldn't have bought (the tracks) they would have been torn up," Stover said.
According to Walls, portions of the tracks were neglected and in disrepair.
Moran said there are many cases of privately owned railroads being operated efficiently. He said the taxpayer moneys should not be used to compete with private industry and the authority is doing just that.
Customers weigh in
Dennis Holt, yard manager of Sooner Pipe LLC of Montoursville, which provides well casing for the natural gas industry, said he is satisfied with the service his company is provided by the authority and believes the public-private arrangement should continue.
Even after the September flooding destroyed the railroad spanning Loyalsock Creek, rail deliveries to the Sooner yard were on time, Holt said.
"We're very satisfied. Even with the bridge out, it hasn't been a problem," Holt said. "Everything has been the same as it was before."
David Pfleegor, president of Keystone Filler of Muncy, said he too, is concerned with a private owner taking over the short lines.
Pfleegor said the service he receives from the rail service provider "has been superb."
"I'm all for free enterprise and taxpayers getting their fair share, but privatization or not, I'd hate to see those people go," he said. "They've provided top-notch customer service."
Price increases from any sector concerns Pfleegor, but his biggest concern is the potential interruption of service should a new owner or operator take over. Even a week of no rail service could be disastrous, he said.
Holt also serves on Montoursville Borough Council. Holt said it is as a councilman that he is concerned with private ownership of the rail authority lines.
"Something like that serves eight counties needs some kind of public domain," Holt said. "Rail service is like a highway. It needs to be a public-private partnership, the way it is now."
Holt said he also is concerned a sole owner of the rail lines could wield too much power over the region.
"If all the lines are under one owner, imagine the power that person would have," Holt said. "He'd have the area and the Marcellus Shale industry under his control.
"These are public assets," he added. "They need to be open to all of us."
"I don't think so," Moran said when asked if rail ownership could give one person too much power. "It will just allow us to be a better provider of services."