OMNITRAX, INC. MAKES PITCH FOR PORT RAIL FRANCHISE; COMMISSOINERS READY TO GIVE COLORADO RAIDERS RUN OF STORE

By Juan Montoya

He might as well have been preaching to the choir, but Rich Montgomery, senior vice president for industrial development for OmniTrax – the company vying for a franchise of the Brownsville Rio Grande International Railroad and 1,200 acres of real estate – told board members his company wants dibs on the business for the next 30 years.

And, in exchange for exclusive rights to the railroad, its right-of-way and access to the land, he said the company is willing to build an industrial park which will include and 227 acres for an small-business incubator which will be operational within a year after the agreement is inked.                   "Our company specializes in growth, creation of jobs, investment and increased income for the district," Montgomery quoted from a PowerPoint presentation. Montgomery, along with three other OmniTrax vice presidents met with the trustees of the BRG railroad at the main IBC bank building on 1600 Ruben Torres Blvd.

Port of Brownsville commissioners got the treatment this evening during their meeting. The port has already planned three special meetings to comply with the readings of the proposed franchise agreement which will include public comment. They hope to sign the franchise with OmniTrax by May 8, two days before the port elections.

A copy of the franchise agreement was provided to this blog and after the first page where the  mantra of "promoting growth of rail and maritime traffic, supported direct and indirect creation of thousands of new jobs, attracted investment in capital, and generated new income for municipalities and partners..." was repeatedly mentioned, they got down to the brass tacks.

OmniTrax promises in the proposed agreement to "contribute and attract franchise consideration of not less than $8.5 million (Franchise Consideration) of direct capital investment in the common elements in the Development area. (OmniTrax) will provide Franchise Consideration during the period of five years following acceptance of the Master plan."                                 
In return, the district shall grant the company "credit against the franchise consideration for: direct investment in the common elements as shown in the Master Plan; tenant/user investment in the common elements as shown on the Master Plan; amounts paid for engineering and related professional consulting services for the common elements as shown on the Master Plan; costs for development of infrastructure for the Incubator Site not specifically dedicated to an individual tenant or user (e.g., trackage, scale, and other common elements); grant funding for common elements, and up to $1 million in out-of-pocket marketing expenses for the Development area."
Other specifics in the franchise agreement state that fees coming to the district will be:
– $3,693 a month for the (1,200 acres) of real estate
– $10,714 per month rent on the railroad's buildings and locomotive pit for seven years. Upon payment of 7 years rent ($900,000), OmniTrax will own free and clear, all rights and title to real estate listed, not including the land itself
– $2.5 million eight large locomotives, five smaller yard engines, railroad machinery, track hand tools, all the tools and machinery in the railroad's mechanical department, and all the rolling stock that includes 29 vehicles ranging from 21 pickup trucks, an electric hydraulic tire crane vehicle, and at least four heavy duty trailers. However, only $500,000 will be paid within 30 days of the commencement date and $2 million will be paid in seven equal installments of $285,714 each starting one year from the agreement.  
And while Montgomery said that OminTrax would place a cap on existing rail rates, the franchise agreement leaves that door open.
It states:
"OmniTrax is solely responsible for promulgating and ensuring that all public rates and tariffs, and franchisee issued rules, and timetables, be fair, reasonable, uniform and in compliance with all applicable AAR circulars and manuals...OminTrax shall not increase the rates in public tariffs issued by the franchisee which are charged to existing BRG customers, or their successors or assigns to an existing facility at the port...without the consent of the Board of Commissioners. Nothing in this section shall restrict the ability of OmniTrax to charge a special rate for additional services provided to a BRG customer, or to enter into future Transportation Service Agreements with existing or new customers."
OmniTrax also promised to pay the district:
1. "A fee for each loaded railcar (including an empty car delivered to a district lessee for the purpose of dismantling) originated or terminated on the BRG  yard.
2. – $20 for each loaded railcar for the first $35,000 cars per year
3. – $25 for each loaded railcar above$35 cars per year, and
4. Beginning on the sixth anniversary of the Commencement Date, OmniTrax shall pay 5 percent of the gross revenues from railroad operations above $10,500,000 per year.
In no event shall the annual loaded railcar revenue paid by OmniTrax to district under #1 be less than $550,000.
OmniTrax also is beholden to assume the Junior Lien Bonds Series 2003 issued by BRG for rail improvements. It assumes all payments on those bonds as they become due as of the effective date of the agreement not to exceed $2.228 million excluding late fees.
And if the port decides that want to sell the rialroad, or part of it, OmniTrax wants the rights of first refusal to buy it from the port.
The agreement also calls for all BRG employees to be transferred to it and become its employees "subject to the results of drug testing, criminal background checks, and post-employment physical abilities testing."
Upon becoming OmniTrax employees, they will maintain their same level of seniority, level of service, and similar compensation and benefits."
Included in the agreement is a promise by the district that it agrees to cooperate with OmniTrax to minimize or eliminate property. ad valorem value added taxes, and similar taxes potentially or actually assessable to OmniTrax. Any taxes that bare assessed, however, shall be the company's responsibility.
OmniTrax also included language in the agreement that will give the allow the BRG railroad the authority to issue bond for rail-related or developmental purposes as long as they don;t interfere with their right to operate under the agreement.
As far as the Master Plan, OmniTrax requires sole discretion in planning and implementing it but agrees to submit the proposals to the board of commissioners for approval. It will charge a Common Area Maintenance charge to all its tenants. However, if there are insufficient funds for the cost of maintenance, the excess costs shall be divided between OmniTrax and the district.
The district is also required to pay OmniTrax for reimbursement of costs associated with the Industrial Park and the agreement states that "upon the sale or lease of any real estate parcel within the Development Area, OmniTrax shall be entitled to reimbursement from the proceeds of the transaction for reasonable transaction- related out-of-pocket expenditures for tenant or user-specific marketing, engineering or other services, and capital improvements..."
The so-called incubator parcel consisting of 227 acres will be exclusively developed, used and operated by OmniTrax and it will develop, construct, market, and operate it at bits sole expense. Upon receiving rental income from the first user, it will pay the district $500 per acre per year based on the actual acreage. OmniTrax will begin construction of the Incubator Site within 365 days of the commencement date of the agreement. Any portion of the incubator site not developed within five years after the agreement is signed shall be added to the Industrial Park.
If it's of any interest to our three readers, before the port and railroad commissioners stopped transferring some of the profits from the railroad to the port, BRG was making in excess of $750,000 in profits after operations year from 2008 to 2010. Now the port is settling for a share of future profits and funding the Industrial Park and the purchase of the railroad for OmniTrax.
We're after the audit of the railroad for 2013 to see what the commissioners want us to give up.