Nov 142012

By Naomi Hatch
The Snowflake Town Council approved a resolution last week to pave the way to purchase the Apache Railway Co. and its assets in an effort to stop Catalyst Paper Co. from dismantling and selling the railroad, and if that fails, to begin the condemnation process. A federal bankruptcy court in Delaware is charged with the disposition of both Catalyst and Apache Railway Company’s assets.
A press release issued by the town notes that, “Studies indicate that the paper mill’s closure is hitting Snowflake hard. Approximately 300 people have lost work, schools have lost around $400,000 in revenues, and more than $800,000 in annual tax revenue has been lost. There is hope for recovery, however, so long as the railroad continues to exist. In addition to the Apache Railroad, Snowflake has an abundant water supply, pleasant climate and a highly skilled workforce, making the community attractive to industry.
“One of the best prospects for economic growth and job opportunities in Navajo County is potash development, an industry that can blossom with railroad freight service. Other businesses have expressed interest in moving to Snowflake and its intermodal Industrial Park, but have told officials that trucking supplies in and out of the community is too expensive. The relatively cheap cost of railroad freight is part of the attraction.”
“When I spoke in front of the county (Board of Supervisors) last Wednesday (Oct. 31), I talked about the importance of the rail,” said Snowflake Town Manager Paul Watson of the Apache Railway at a special meeting of the town council held Nov. 6.
“I talked about the need to do whatever we could to make sure that rail stays in place,” said Watson. “I feel more strongly today the threat of that rail being demolished is greater today than it was a week ago.”
Catalyst Paper officials are making every effort to ensure that there will not be another paper industry located here, said Watson, noting, “I have every indication that they’ll do that.”
Watson told council members that they have to do what they can to provide infrastructure to support the community and bring industry into the area, stating, “That rail is important.”
The council met at 3 p.m. on Nov. 6, and immediately went into executive session to discuss and consult with Town Attorney Robert Hall and attorneys from Brown & Brown Law Offices. The objective was to obtain legal advice for the town so that council members could consider the town’s position and instruct the attorneys regarding contemplated litigation and regarding negotiations for the acquisition of property.
They also discussed Resolution 2012-018, authorizing the town to make an offer to purchase the Apache Railway Company’s railroad and assets, and if the offer is rejected, to file a complaint condemning the railroad and its assets.
The council returned to regular session at 4:30 p.m. with Mayor Kelly Willis asking for comments.
Steve Brophy, president of Aztec Land and Cattle Company, said his firm had been in existence for 128 years, but had not always been a good neighbor to Snowflake. He noted that at one time they were selling land in 40-acre parcels, with their largest sale being to the paper mill. It dawned on company officials that the towns that had the population base would eventually grow, so after a long period of not selling anything, they started to acquire land to fill in the checkerboard.
“We realized we had to be proactive, and we had to think about what went where and why,” he said. “We embarked on a four-year project, a master plan that Navajo County has approved. The master plan brought into mind the railroad,” he said.
Brophy noted that Catalyst had not been a good neighbor, contaminating the water, which the firm has been asked to clean up, and going to total recycle, which resulted in paper strewn all over the area. “They were a crummy neighbor,” he said. “They provided 300 jobs in the area.
“It (Catalyst) was in bankruptcy because of gross mismanagement by the Canadian company,” said Bro-phy, noting that the reason Abitibi sold to a Canadian company was because the United States government felt Abitibi had a monopoly on the market and forced it to sell the Snowflake mill.
What Brophy has found that when anyone has made any attempt to buy that paper mill as a paper industry, Catalyst would ask for more or in some way stop the deal. “All of a sudden everybody realized, these guys aren’t going to make a deal, they don’t want anybody to make paper,” he continued.
Brophy explained that the mill is being sold in three parts, the land and mill field; the mill; and the railroad. “I’m thinking from Aztec’s perspective, they really don’t like that mill,” he said. “Our company spent tens of thousands of dollars on lawyers and consultants to have the paper mill continue to exist.”
He said Catalyst officials have announced the bid process and characterized their intentions to “re-purpose” the mill, noting they were disassembling priceless paper making machinery and scrapping some of it, other equipment they were transporting to Catalyst in Canada. Brophy explained that they fixed it so that the mill wouldn’t supply paper and with that, 300 jobs were lost. Then they cancelled the firm’s lease with Snowflake Power, taking another 100 jobs. Catalyst was forced to work a temporary deal with Snowflake Power, according to Brophy, but Snowflake Power had to hire lawyers to continue its existence.
“There goes the mill, we lost that fight. That’s terrible,” said Brophy. “What about the railroad?” He explained that everyone he has talked to, both present and past employees, knew the number of pounds of the railroad, how many tie plates are in the railroad and how many ties are in the railroad. “Why did they know that?” he asked.
“Every potential bidder, every single potential bidder that has come to my attention has defaulted to the scrap option because they don’t want to operate a railroad that doesn’t have anything to service it,” Brophy said. “That tells me the railroad is going to get cut up like the mill.” He said it would cost $1 million a mile to replace the railroad and there are 55 miles, and $20 million to replace the bridge over the Colorado River. PFFJ uses the railroad to deliver feed and other industries have expressed interest, but often it is due to the railroad.
Brophy said that a group went to the Navajo County Board of Supervisors and asked them to condemn the railroad, not to take away people’s property rights, but because Catalyst is clearing out the mill. The condemnation was voted down and he asked, “What message does that send to other companies that want to develop here?”
Brophy acknowledged that the Snowflake council’s decision was not an easy one, but suggested the mes-sage sent by public officials is not to the one leaving town, but to those potentially coming to town, and that is, “We don’t want you and we won’t stand up for you.” He then asked the council to approve the resolution.
Councilman Tom Poscharsky noted that Snowflake has designated an industrial park because of the rail-road, and explained in more detail his support of what Brophy stated.
Vice Mayor Jason Whiting said, “Since being on the council, we have talked about economic development to bring jobs to the area and to allow family and friends to come home and live. Today, we are talking about economic development to feed the families that are here. While no one likes the idea of condemnation, we have current employers who use this rail and we have future employers who want to utilize it.”
“Economic development of Snowflake is too vital to ignore,” said the vice mayor, noting that several different potash firms are coming and will require other businesses, and there have been numerous industries talk about utilizing the railroad, but the paper mill had no interest in other industry. “I’m in favor of condemning,” he said.
Councilman Kerry Ballard agreed that the biggest thing Snowflake had to bring economic development was the railroad.
“We cannot afford to not only lose our paper mill, but one of our main components to the vitality and future growth of this community,” said Mayor Willis. “Without the railroad, we may be facing years and years and years of slow growth, and with that railroad we have the possibility of coming back and being a vital community.
“I feel very strongly once again, we are fighting for the very life blood of our community,” the mayor said.
Watson then pointed out information that the council members received, including documentation of the impacts of the Catalyst mill closure on Navajo County and the state; interest of an international company in locating a telephone pole peeler plant in Snowflake, depending on the railroad spur outcome; a report on short line railroads in economic development; a report on small railroads, including investment needs, financial options and public benefits; an Arizona Journal article indicating that the location of the Preferred Forest Products mill in Winslow is due to the availability of the railroad connection; and an Arizona Daily Sun article describing the wood mill locating to Winslow and the number of jobs it will provide. Also provided was information on assistance for the Second Knoll Development multimodal, regional transportation study by the Arizona Department of Transportation.
“All of you can see this is a very emotional subject,” said Mayor Willis, who then called for a motion on the resolution.
Poscharsky moved to adopt Resolution No. 2012-018, authorizing the filing of a motion to determine if the automatic stay of the U.S. Bankruptcy Court applies to the condemnation of the railroad operated by the Apache Railway Company and if it does, to ask that the stay be lifted so that the Town of Snowflake can begin condemnation proceedings against the Apache Railway Company’s railroad assets, including, but not limited to, track, maintenance facility, locomotives, cars, switching yards, switching and access agreements, and any and all freight contracts and agreements, easements, rights of way and leases.
The motion passed unanimously.
“No public body likes to obtain property through condemnation,” Watson explained. “In this case, if we do not have the railroad to bring in new business, we are looking at the economic death of Snowflake. We have not made this decision lightly.”
Brown & Brown Law Offices is joined by Lewis and Roca of Tucson in representing Snowflake in this matter.