Sep 042013

By Nick Worth
A $2 million loan from the Arizona Commerce Authority’s (ACA) Arizona Competes Fund to the Snowflake Community Foundation has drawn criticism from some state legislators. The loan authorization was included in HB2002 and is intended to help the non-profit foundation secure another $4.5 million from the Federal Railroad Administration (FRA) for the purpose of purchasing the Apache Railway.
The ACA was created in 2011 by Governor Jan Brewer and the state legislature to replace the state’s Department of Commerce. Along with the creation of the ACA came the $25 million Arizona Competes Fund, called a “deal-closing fund,” that is to be used for grants to pay for infrastructure needed to help the ACA attract businesses seeking to locate in Arizona, or expand their presence in the state.
Giving loans was not part of the fund’s purview and that has caused some lawmakers to question the loan. However, the legislature is able to authorize other uses for the money, which is what they did in this case.
“I recommended it in the first place,” said Andy Tobin, Speaker of the Arizona State House of Representatives. “The supervisors and civic leaders from up there told me they wanted to keep the railroad, so I recommended they go to the commerce authority for a grant or a loan.
“It could have been a grant, or a loan,” Tobin said. “They just needed some help.” He added the ACA does a lot of work in attracting and retaining businesses in the state.
The Snowflake Community Foundation was organized by business and civic leaders in the Snowflake and Taylor communities for the purpose of saving the Apache Railway from scrappers who were ready to tear out the rails for scrap metal and sell off the company’s assets in the wake of the sale of the decommissioned Catalyst Paper Mill, which also owned the railroad.
Community leaders, citing the cost of replacing the railroad at $1 million per mile, fought to save the short line and were successful in doing so when they formed the foundation. The group said the railroad was essential to the economic prospects of Navajo County, especially with potash mining projects on the drawing boards for the Holbrook area.
In a May 30 story in The Tribune-News, Ken Bond, head of corporate development for Passport Potash, said, “We feel that having the Apache Railway there is a huge advantage for us. The track is already in place to store multiple unit trains off the main lines and that’s something we have to have.”
According to Bond, the railway runs to the west of Passport’s proposed processing site and provides an interchange with the BNSF, making it an option for alternative access to the main line. It can also serve as a short-term storage location for 100-car trains waiting for access to the BNSF main line.
Currently the railroad also hauls feed to the pig farm located between Snowflake and Holbrook, and there are some who have not yet counted out the former paper mill site as a base for industrial use in the future.
“I still firmly believe that rail spur is vital to our economic development,” said Snowflake Town Manager Paul Watson. “We have some businesses looking at coming in to the old mill site and that railroad is essential to them.”
Watson said the ACA loan was essential to the success of the foundation’s plan to save the railway.
“It’s critical because the FRA program takes a very strong look at what the local match is for the $4.5 million loan,” Watson said. “If we wouldn’t have had the ACA loan, the FRA loan would not have happened.”
Watson said the commerce authority has been in direct contact with the FRA to work out details of the transactions.
“When we talked to the legislature and the governor’s office we made it clear that we wanted to keep the railroad in operation,” Watson said. “The railway has a larger scrap value than operational value right now. Because of that, there was a high price tag on the railroad because it has a high scrap value.”
Watson said the foundation intentionally sought the money from the ACA as a loan, rather than a grant.
“We told them we don’t need a grant,” said Watson. “If it doesn’t work out and it has to be scrapped, everybody will get their money back. We’re trying to be up front and honest about this.”
Arizona State Senate President Andy Biggs was not available for comment on the loan.