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LR's port floats rise in rail fee next year

Increase seen as budget necessity by Noel Oman | November 18, 2021 at 1:48 a.m.

A proposed increase in the railroad tariff at the Port of Little Rock for the first time in more than 10 years would raise up to $400,000, a move seen as needed to help balance the port's 2022 budget.

Though designed to handle barges, the port generates most of its income from railroad switching. Under the 2021 budget, the port projected it would bring in $2.4 million in revenue from switching rail cars. That represents nearly 70% of the 3.5 million in total revenue the port was expected to bring in this year.

With two months to go before the end of the year, revenue is off by $1 million, a figure that cannot be made up before year's end. Port officials also trimmed $270,000 in various expense categories to balance the budget. Its 10 employees also will forgo raises this year.

Switching revenue is expected to continue to be soft in 2022. The budget anticipates $1,461,120 in railroad switching revenue, which is $388,880 less than what it is projected to generate this year, according to Bryan Day, the port's top executive.

The port charges an average of $325 per rail car switch, Day said.

Last month's announcement that Trex Co. Inc., a leading maker of decking, railing and other outdoor items from recycled materials, intends to invest $400 million in a manufacturing plant at the port that would employ more than 500 people, is expected to generate rail car activity.

The plant, once fully operational, is expected to generate 1,500 to 2,000 rail cars a year for the port, or up to an additional $650,000 in annual revenue, according to Day, who said Trex guaranteed a minimum annual number of rail cars over 20 years.

But that guarantee won't help the port's bottom line next year. The company doesn't expect to break ground on the plant until the middle of 2022. Which is why Day is counting on the switching rate increase.

"The budget is balanced ... on the assumption we will adopt a new railroad tariff," he told the Little Rock Port Authority board at its monthly meeting Wednesday.

The formal increase won't be introduced until early next year. A series of public hearings would have to take place before the board could adopt it, a process that could take up to 90 days, Day said.

The increase would still leave the port's switching rates among the lowest in the region, he said.

Day warned that some of the budget cuts amounted to "gambling."

The 2022 budget trims money set aside for repairs and maintenance by $130,700, to $469,300. The money is used for rail repair, building and ditch maintenance, and landscaping services.

"We're just going to really tighten our belts and make good choices," Day said. "Obviously, if something breaks we're going to fix it, but we're going to really try to be a little more deliberative in what we do next year."

A total of $110,000 was sliced from engineering, legal and communication fees.

"We're just going to try to make good choices and not spend if we don't have to," Day said.

The port also will institute its own railroad car repair business, a move that could generate $75,000 annually, according to Day.

As a short-line railroad operator, the port has the authority to ensure that all railroad cars on its tracks are in compliance with federal railroad standards. Rail car owners also want to ensure that their rail cars are safe to operate, Day said.

Existing practice requires a Union Pacific crew to come out, which can take three days, according to Day. The company the port has hired, Motive Care and Supply of Hot Springs, will come out daily to inspect cars and make repairs on-site. The port will get a percentage of the cost of every repair, Day said.

Overall, the budget projects total revenue of almost $3.1 million and expenditures totaling $2.8 million, leaving a surplus of $281,000, he said.

But that will happen only if the port imposes higher rates for railroad switching.

"Without the tariff, we're going to have to come back and cut several hundred thousand dollars out of the budget," Day told the board.

That said, he noted that the port is flush with cash, which includes a restricted reserve of "well over a million dollars."

"We've got money to operate," Day added. "I also believe that by 2023, our industry partners are going to be back fully functional. We've got a couple of expansions. And the Trex company.

"We're going to have a tough 12 months. We've been there before. This is a good, conservative budget. We think it's the best approach."

The seven-member board adopted the proposed 2022 budget unanimously.

"I know a lot of work went into this and I know it is a very important move for the port and also that we can adjust as the year goes on ... depending on revenues and costs," said board chairman Joe Bailey, a senior project manager for Teamwork Arkansas, an arm of Entergy Arkansas.

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