Is Snohomish rail project on the right track?

SNOHOMISH — Tom Payne has an offer Snohomish doesn’t want to refuse.

The railroad operator wants to bring a train into the heart of downtown.

A shiny steam engine would deliver hundreds of tourists and their dollars every weekend to downtown shops and restaurants — an economic booster shot right when and where the city needs it.

Payne already has secured running rights on a stretch of track from Woodinville to Snohomish. What he doesn’t have is the OK from city leaders to bring that train across the Snohomish River and into the city.

The question is: Should the city let him?

Payne, a 60-year-old former railroad engineer from Canada, has a history of great success and at least one dismal failure in rail operations.

His most recent operation in Tacoma, Golden Pacific Railroad, broke down under crippling debt and lawsuits. Snohomish officials say they know some of the story, but acknowledge they haven’t delved deep.

Payne said he understands why his business record might raise questions. He has answers, he said.

“Any controversy over the business affairs of GPRR is inevitable, in that the corporation failed,” he wrote in a letter to The Herald. “Both successes and failures are part of business life.”

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Most of what people seem to know about Tom Payne is what happened in Canada.

There, Payne, a native Canadian, did something extraordinary. After a years-long legal battle that went all the way to the Canadian Supreme Court, Payne convinced the Canadian federal government to let him run a small regional railroad freight operation in Alberta.

Until then, a few mega rail companies had monopolized the rail system in Canada. Payne turned his regional operation into a money-maker, and sold it for millions in 1999. That earned him a spot in the Canadian Railway Hall of Fame.

He also started an excursion train operation in Alberta that is still running today under different ownership.

What’s less known about Payne is what happened later in Tacoma.

In 2005, he helped form a company called Golden Pacific Railroad Inc. That company planned to set up an excursion train with Tacoma Rail, a city-owned railroad operated by Tacoma Public Utilities. The train would take passengers on a 14-mile ride to Fredrickson, also in Pierce County.

The venture ended badly after a single season of operation.

Investors in the company, including Payne, lost hundreds of thousands of dollars. One Canadian investor lost more than $1 million.

Golden Pacific often paid its bills late and still owes about $12,000 to Tacoma Rail.

The company left a trail of unpaid bills with the people it did business with. At least three companies filed suit seeking payment.

Payne said he stopped running the company before things went bad.

Others closely involved with the company tell a different story.

“We all share some blame,” said Mike Pierce, a former officer of the company. “But our biggest mistake was not reining Tom in fast enough.”

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In 2008, some city leaders got excited when they learned a railroad operator wanted to bring a train to Snohomish.

Some in the city predicted a train could bring as many as 60,000 tourists to Snohomish every year.

Burlington Northern Sante Fe owns a stretch of track that runs from Woodinville to Snohomish. When the rail company wanted to sell the track, the Port of Seattle decided to buy it to keep the corridor in use as a rail line. The worry was that a new buyer might rip out the tracks and a transportation link would be lost.

The port, along with BNSF, chose Payne and his company to operate freight along the line. As part of the agreement, GNP Railway has to start a tourist train, too.

The port’s purchase of the corridor is on hold until the bond market improves. Port officials have said they are committed to buying it.

The City Council set up an advisory committee. In a year of meetings, the committee researched things such as train station options, parking and traffic.

What the committee didn’t do was look into Payne’s business plan or background. That wasn’t the committee’s purpose, said Karen Guzak, a city councilwoman who sat on the committee.

City staff did vet Payne’s background but not deeply, said city manager Larry Bauman.

They do know about Golden Pacific’s failure in Tacoma, and they don’t have any major concerns about what they’ve found, he said.

In its background check, the city became convinced that Payne wasn’t primarily responsible for the company’s failure, and he even went above and beyond to repay debts he wasn’t responsible for paying, Bauman said.

Bauman said he had not heard about some of the lawsuits and unpaid bills involving Golden Pacific.

“We understood the project fell apart,” he said.

The city worker who conducted those checks was on vacation and couldn’t comment for this story.

City leaders entered into a confidentiality agreement with GNP Railway. The city agreed not to discuss any proprietary information GNP might provide. However, the city has received scant information that could be considered proprietary from GNP Railway, Bauman said.

In a public meeting in May, concerned Snohomish residents questioned Payne about his business background and plans for Snohomish. They asked if he had completed a marketing study or a business plan.

Payne told them that the details of his business are private and he couldn’t conduct a marketing study until he had firmer plans on where the tourist train would let off passengers.

It’s important to note that the city didn’t choose Tom Payne or his company, Bauman said. The Port of Seattle and Burlington Northern Sante Fe Railway were in charge of that.

The only trump card Snohomish holds is the ability to give Payne access to a city-owned rail corridor that stretches from the Snohomish River north along the route of the Centennial Trail, bisecting residential neighborhoods and busy city streets.

Snohomish officials want to proceed cautiously, Bauman said. That’s one of the reasons they plan to hire an attorney with experience in federal railway law, an area of law that he characterized as fairly complex and arcane.

City leaders are worried that once they cede the corridor, they might have little control over what happens along it.

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Tom Payne said he’s not responsible for the failure of Golden Pacific Railroad and that there is no connection between the Tacoma venture and his new company, GNP Railway.

In a four-page letter to The Herald, Payne blamed the failure of Golden Pacific on “undercapitalization and the failure of that corporation to complete its long-term finance of the business.”

Payne said his Canadian company, Tom Payne Holdings Inc., lost more than a half-million dollars in the venture. He severed all ties with Golden Pacific in 2007 and has no knowledge or responsibility for any unpaid debts Golden Pacific may not have settled, he said.

He also said his immigration status limited his ability to manage Golden Pacific and he stepped out of the picture before things went wrong.

He resigned as president in February 2006 and instead began serving as secretary and director of Golden Pacific. As an alien worker, his authority to serve as director of Golden Pacific was limited. That burden fell on his U.S. partners, he said.

At least one former business Payne worked with, Coast Engine and Equipment Corp. of Tacoma, concurs that Payne didn’t appear to be responsible for the lion’s share of the decision-making.

The president of that company, David Swanson, said two U.S. officers seemed to call the shots.

“If Tom was in the picture, he was in the background,” he said.

When Swanson dealt with Payne’s other company, which owned the locomotive, bills were paid fully and on time. He said he considered Payne a “responsible businessman.”

Swanson’s company is still owed thousands by Golden Pacific for repairs, and that’s not Payne’s fault, he said.

Golden Pacific appeared to be in trouble before Payne stepped aside, Swanson said. The company had already missed a season because the locomotive wasn’t ready. A company can only sustain delays so long, he said.

The U.S. partners said Payne bears some responsibility.

The venture in Tacoma failed after a series of bad decisions and unanticipated problems cost the business hundreds of thousands of dollars more than expected, said Pierce, the former Golden Pacific vice president.

Pierce pinned most of the blame on Payne.

Pierce, who owns an Oregon tour bus company, met Payne through a railroad brokerage firm. Pierce wanted to start an excursion train and Payne had access to a steam locomotive in Canada. It seemed like a good business partnership.

Problems emerged almost immediately, starting with Payne’s attempt to move the steam locomotive across the border to the United States. A lien against the locomotive delayed the move.

When the locomotive did arrive, it required a quarter-million dollars of work. It didn’t have enough oomph to climb a steep railroad grade.

Another officer in the company had six passenger cars moved to Tacoma that turned out to need substantial work, too.

By 2006, “everyone was coughing in dollars,” Pierce said.

Sometimes Payne made decisions and spent money without clearing it with the board first, he said.

“All these bills were coming due and we didn’t know anything about it,” Pierce said.

Lou Schillinger, who took over as president of Golden Pacific when Payne resigned, said the company was in trouble before he took over and Payne’s immigration status “had nothing to do with anything.”

Schillinger originally got involved with Golden Pacific as an investor. He runs a Midwest insurance company and knows nothing about the day-to-day operations of running a railroad. That was supposed to be Payne’s job, he said.

“He was the de facto decision maker,” Schillinger said. “He was the only qualified railroad operator in the group. The rest of us were white-collar businessmen.”

He said he ended up paying thousands of dollars more than expected and took over running the company to protect his initial investment. He is now trying to pay back some of the company’s debts.

In retrospect, Payne’s business plan didn’t address some things it should have, such as potential interest in a tourist train in Tacoma, Schillinger said. It was assumed that if they brought the train, customers would come.

Almost immediately, Payne had trouble getting along with the management at Tacoma Rail. Miscommunication with Tacoma Rail also led to more expenses.

For instance, Schillinger said Payne told him that Tacoma Rail agreed to a certain price for storing rail equipment. Tacoma Rail wanted to charge 10 times more.

“I think he means what he says, but he overpromises,” Schillinger said.

Debra Smith: 425-339-3197, dsmith@heraldnet.com.