Issues that Emerge When Public Entities Acquire a Real Property Interest in Rail Lines (2016)

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3ISSUES THAT EMERGE WHEN PUBLIC ENTITIES ACQUIRE A REAL PROPERTY INTEREST IN RAIL LINES By Charles A. Spitulnik, Allison I. Fultz, and Christian L. Alexander, Kaplan Kirsch and Rockwell, LLP I. INTRODUCTION State and local governments around the country continue to look at rail corridors that, in their view, would be perfect locations for creation of new fixed- guideway transit systems. Traffic congestion and its impacts on the environment, the community at large, and the people who must suffer its conse- quences are, in too many places, only getting worse. Although often an expensive alternative, the possi- bility of using these corridors for the benefit of the public often seems to present a logical solution. In many ways similar to routine real estate transac- tions, these rail line acquisitions also present a host of issues that are significantly different. In this digest, the researchers discuss the key elements that distinguish these transactions and present approaches to the issues that either have been used successfully in other rail corridor acquisitions or may present fodder for further discussion in the local, state, and federal legislative arenas. The accompanying annotated transaction term sheet sets out the range of issues a public entity is likely to need to consider when pursuing the acquisition of a rail corridor. The term sheet presents options for specific language, as well as references to trans- actions or cases in which particular issues have been addressed. II. PRELIMINARY MATTERS A. The Decision to Acquire Agencies often find themselves making public statements about proposed rail corridor acquisitions for the purpose of starting or expanding transit sys- tems even before they have begun to have a discus- sion with the railroad that owns the corridor to determine whether there is any interest in selling. This can be a risky approach. Before publicly identi- fying target corridors, agencies should not only iden- tify routes that serve the communities and routes where congestion mitigation is desired, but also take time to observe those corridors over a several-month period to observe freight utilization patterns and to determine whether Amtrak also exercises its right to use the property.1 An additional caveat is that observers should not make assumptions about the regulatory status of a rail line based on the appar- ent condition of the tracks or other casual observa- tions of the property. Railroads often preserve lightly used corridors for potential detours or to allow for future capitalization on potential increases in com- mercial activity on adjacent properties (sometimes also owned by the railroad). Approaching the carriers with such an informed perspective could make the discussions more pro- ductive. Railroads already have substantial bar- gaining power in negotiations with local agencies about the sale or use of a corridor. If an agency approaches a rail carrier with the perspective that the two parties are attempting to make a mutually beneficial arrangement, then the railroad may be more willing to engage in productive discussion. When a community makes an announcement before talking to the carrier, however, this advance notice may provide leverage to the railroad if the public has already lined up in support of a particular proj- ect on the identified corridor. B. Limits on the Use of Eminent Domain Public agencies are accustomed to being able to force the sale of properties they need for legitimate public purposes, and transit and roadways are well recognized as such legitimate public purposes.2 Public bodies may be best served, however, by relinquishing this assumption when considering how to approach negotiations with a railroad. With respect to rail cor- ridors and facilities, state and local governments cannot exercise eminent domain powers if taking the property interest will interfere with the railroad’s ability to fulfill its common carrier obligation.3 1 Amtrak’s right to use property owned by rail carriers is comprehensive and extends as well to properties owned by public agencies. 49 U.S.C. § 24308. 2 See 2A Nichols oN EmiNENt DomaiN § 7.05 (Julius L. Sackman ed., 3d. ed. 2012). 3 The railroads’ common carrier obligation with respect to their transportation corridors is established by 49 U.S.C. § 11101. The Surface Transportation Board and courts have demonstrated repeatedly their willingness to prevent a state or local government from exercising their powers of eminent domain if the result will be a limitation on the railroad’s ability to fulfill that obligation. See, e.g., 14500 Ltd v. CSX Transp. Inc., Case No. 1:12 CV 1810, 2013 U.S. Dist. LEXIS 39806 *10 (N.D. Ohio 2013). *The authors wish to express their appreciation to W. Cory Haller, who provided invaluable research assis- tance during the preparation of this digest.