News: CJ Exclusives

State-Owned Ports, Rail Draw Interest

Little serious talk of privatization despite large potential gains to the state

In any look at real property owned by the state, the North Carolina State Ports Authority and the North Carolina Railroad Co. occupy special niches. There has been little serious talk about privatization, even though the enterprises represent millions of dollars worth of assets that could potentially be realized by the state.

Nearly all the seaports in the United States are owned by state or municipal government but only about half turn a profit, the Reason Foundation reports. In this respect, the N.C. Ports is probably doing better than many in that it has been historically self-sufficient for operating expenses. However, major capital improvements — for example, harbor dredging and new container-handling equipment — depend on federal and state money.

The N.C. Ports Authority owns and manages the ocean ports of Wilmington and Morehead City, and also the inland terminals at Charlotte and Greensboro. The two ocean ports have historically had to contend with the fact that they are relatively far from manufacturing activity. Until Interstate 40 reached Wilmington in 1990, neither was served by an interstate highway.

On the other hand, the NCRR is debt-free and is able to reinvest millions each year in its tracks and related economic development projects.

Since it is one state enterprise that actually makes money, NCRR proved an inviting target during the recent budget crunch. In 2001, $19 million of its earnings were diverted to nonrail uses by the General Assembly.

The N.C. Railroad Co. is unusual in that it is organized as a private real estate investment trust but one in which all the stock is owned by the state. The company opted for REIT status for tax purposes in 1995, and the state acquired the remaining private shares in 1998.

NCRR’s history of state ownership began as early as 1854, when the Atlantic and North Carolina Railroad was chartered, with the state initially providing two-thirds of the capital. President Scott Saylor explained that in the 19th century, railroads were really the only blue-chip investments around, so when the state had a budget surplus, investing the money in a railroad seemed like the thing to do.

NCRR’s principal asset is the 317-mile railroad line from Morehead City to Charlotte. The track is leased to the Norfolk Southern Railway for its freight service, which involves about 40 trains day. Also, Amtrak runs six passenger trains each day along portions of the track. The deal with Norfolk Southern represents NCRR’s principal source of income, a little less than $12 million last year.

The railroad lists nearly $46 million in assets and nearly the same amount in shareholder’s equity — meaning the state’s. The company essentially has no debt except for a small amount of current accounts payable. Essentially everything the NCRR makes over expenses goes back into capital improvement projects, Saylor said. After expenses, the company finished last year with earnings of nearly $11 million.

The company also has major industrial properties, in Wayne and Johnston counties, and some smaller sites in other locations. This complements the rail side of the business in that NCRR has land to offer industries that require rail access, Saylor said.

NCRR’s biggest current project is replacing the railroad bridge on Highway 54 near Research Triangle Parking. The work started early this year. Last year, the railroad completed an adaptive restoration of the 130-year-old engine house in downtown Burlington, the only remaining building from the historic Company Shops railroad yards. As rebuilt, the building is being leased to Amtrak and the Burlington Police.

Presently, the N.C. Ports Authority is going through a leadership changeover. Erik Stromberg was forced to resign as chief executive officer at the demand of the board April 1, supposedly over irregularities in his expense accounts. A replacement has not yet been hired, although the experienced Tom Eagar, chief operations officer, has been filling in.

In the meantime, Gov. Mike Easley appointed Carl Stewart Jr., who served as speaker of the N.C. House from 1976-80, as the authority’s new chairman. Stewart took office in late July.

The trend over the last decade has been fewer but larger vessels docking at both ocean ports. Traffic at Wilmington has been remarkably steady — a little more than 2 million tons of cargo a year annually, with wood-pulp exports accounting for about a fourth. Morehead City has experienced a couple of slack years, with about 1.5 million tons in fiscal 2003 and 2002, after a series of years in which the port handled well over 2 million tons. Morehead City is not equipped for container ships, rather it makes its money off bulk cargo, especially phosphate exports, which accounted for better than a third of all tonnage in 2003.

The ports statistics for fiscal 2004, just released, showed an overall tonnage increase of 24 percent, with a good share of this coming from military traffic bound for the war in Iraq.

Like NCRR, the N.C. Ports also dabbles in the land-development business, with its main asset a 205-acre industrial park on Radio Island outside Morehead City.

The ports authority adopted a budget in late June that projected revenues of $32.5 million for fiscal 2004. The budget identified capital projects worth $9 million, including new construction, major maintenance, and equipment purchases. These were to be paid for out of a mix of state and federal appropriations, debt, and income from port operations.

The ports got a gift from the General Assembly in the form of a $4 million appropriation for capital improvements. Eagar, in a statement, said that the additional support will mean more capital projects get done sooner. The appropriation will be split equally between a crane-rail project in Wilmington and industrial site improvements at Radio Island.

Fliss is a writer for Carolina Journal.