Gravy Train

Union Pacific has billions in profits. So why is Oregon subsidizing the rail giant?

When it comes to shipping companies, few are bigger than Union Pacific. The rail giant controls 32,000 miles of track across most of the Western U.S. Last year, the company had profits of $3.3 billion.

Union Pacific is perhaps the last company that needs a handout from the State of Oregon—especially when public budgets are being slashed.

But that has not stopped Oregon officials from giving $24.7 million in subsidies to Union Pacific since 2006—and another $12 million to railroad companies spending to fix track and facilities leased from Union Pacific.

Union Pacific has benefited from ConnectOregon, a lottery-funded program intended to help local governments and businesses that don't have the money to complete vital transportation projects.

Aaron Hunt, a spokesman for Union Pacific's western region, says the company simply has taken advantage of a subsidy Oregon makes available.

"We felt like this was an excellent opportunity to partner with the public," Hunt says, adding Union Pacific has invested $500 million in Oregon since 2005.

"This is definitely a situation where the investments are meant to improve our ability to move freight," he says. "Any time we're operating efficiently, effectively and safely, that's an opportunity to make a profit."

In other words, smaller companies and ports go begging while Union Pacific rolls off with millions in subsidies.

"If their tracks need repairs, it's their job as a business, not ours as taxpayers, to fix them," says Jody Wiser of Tax Fairness Oregon, a watchdog group. "We're cutting programs because we don't have enough money, but we're giving grants away to private businesses."

Union Pacific is lining up again. The Oregon Department of Transportation is preparing another round of ConnectOregon grants to be awarded later this year. The company is asking for another $8.2 million, records show.

The 2005 Legislature approved ConnectOregon to finance transportation projects that don't include building roads and highways.

After three rounds of ConnectOregon awards, ports, transit agencies and cities have been given $295 million from ODOT. Requests for a lot more have gone unfilled.

Here's how it works: The state borrows money by selling bonds, and gives away the cash to winning transportation projects. The state then uses lottery profits to pay down the debt on the bonds.

In 2010, in the last round of ConnectOregon grants, 80 projects bid for the money; about half got funded. Many grants went to airport projects, docks and transit agencies. 

ODOT records reveal a  potential for conflict of interest in the way the state hands out these millions.

Committees that rank the projects have included representatives of Union Pacific as well as other agencies and companies that have later walked home with some of the money. The representatives can't vote on their own projects, but they do score others competing against them.

ODOT Director Matt Garrett, who appoints the selection committees, says he seeks a wide range of expertise among the members. "I look for all interests to inform the transportation debate," Garrett says. "It's a very transparent and accountable process."

The state's Transportation Commission gives final approval, Garrett says, but has always gone along with the selection committees' funding recommendations. "We have advanced projects that have benefited the state of Oregon," Garrett says.

Chris Smith of the Portland Transport blog says he has qualms about public subsidies for private companies. But he says government programs at times should help private firms with their transportation projects.

"If you're at the end of the rail spur and the track isn't reliable, that influences your ability to do business," Smith says. "The model is kind of screwed up, though."

Recipients of lottery handouts have included other private rail companies as well. BNSF Railway, another major carrier, got a $7.2 million grant in 2008. Portland & Western Railroad has received $26.9 million in grants. (Portland & Western is owned by Connecticut-based Genesee & Wyoming Inc., a company far smaller than Union Pacific.)

The law that created ConnectOregon says the state should finance projects where agencies or businesses "lack capital and the technical capacity to undertake multimodal transportation projects."

"It doesn't sound like Union Pacific fits that description," says Greg LeRoy, executive director of Good Jobs First, a Washington, D.C-based advocacy group that runs Corporate Subsidy Watch. "Many small businesses, including short-line railroads, lack access to capital that larger businesses might have. I hope the program's not getting twisted."

In 2010, the state gave Union Pacific $5 million to construct a bypass track at its Barnes Yard in Portland, and $5.2 million more for a new traffic-control system in Albany. That year, according to Securities and Exchange Commission filings, Union Pacific posted a net income of $2.8 billion, 

Union Pacific's Hunt says the rail company—despite its large profits—won its subsidies fairly and that the investments create jobs in Oregon.

"These investments have a number of different ways they trickle down throughout the economy,” he says, “and we feel good about it.”