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Mountain Division Tie Replacement

Project

Rail Project Evaluation Request – February 2009

1. Contact Information

Dale King Alan Hardy

Superintendent Assistant Superintendent

Tacoma Rail Tacoma Rail

2601 SR 509 North Frontage Road 2601 SR 509 North Frontage Road

Tacoma, WA 98421 Tacoma, WA 98421

Phone: (253) 502-8894 Phone: (253) 502-8896

Fax: (253) 922-9088 Fax: (253) 922-9088

dale.king@cityoftacoma.org alan.hardy@cityoftacoma.org

2. Project Description

This project seeks funds to replace approximately one third of existing cross ties between McKenna

(MP 29.0C) and Chehalis (MP 61.0C). This project is needed to improve safety and reliability of the

line. This is done by raising the track classification from its current Excepted status to Class II,

thereby allowing for increased train speeds and safe rail operations.

As rail volumes increase, the use of this southern route will be essential in keeping costs down.

Longer, heavier trains would be able to interchange with the mainline railroads at Blakeslee Junction

rather than having to interchange in Tacoma and be broken up in order to traverse the large grade to

Frederickson.

Due to Tacoma Rail being a cost of service railroad, costs associated with the tie replacement

program would be directly allocated to benefitting customers.

Project Schedule

Project Milestone Month/Year

Complete project definition March 2009

Begin preliminary engineering NA

Complete environmental documentation NA

Complete right-of-way certification (may include acquisition) NA

Start construction January 2010

Construction complete and project functionally operational June 2010

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3. Project Cost

Design

Engineering

Right of

Way

Construction

Engineering

Construction

Other

Construction

Contract Total

Estimated

Project Cost $4,220,460

Committed Local

Funds

Additional Local

Funds Requested

Other Committed

Funds

WSDOT Funds

Requested $4,220,460

4. Proposed Funding

Funding Source Public or Private Cash or In-Kind Amount Percentage

Local – Port/Rail District

Local – Other

Railroad Public

WSDOT Public $4,220,460 100%

Other

Total $4,220,460 100%

5. Yearly Maintenance

Annual maintenance following the rehabilitation is estimated at $80,000 for track inspection, weed

control and other general maintenance expenses associated with the project scope.

6. Reduced Road Impacts

Rehabilitation of these tracks within the classification yard of Tacoma Rail’s Tidelands Division

would help keep rail rates competitive with truck rates.

7. Shipper Benefits and Reduced Costs

As rail volumes increase, the use of this southern route will be essential in keeping costs down.

Longer, heavier trains would be able to interchange with the mainline railroads at Blakeslee Junction

rather than having to interchange in Tacoma and be broken up in order to traverse the large grade to

Frederickson.

Due to Tacoma Rail being a cost of service railroad, costs associated with the tie replacement

program would be directly allocated to benefitting customers.

8. Safety Improvements

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This project is needed to improve safety and reliability of the line. This is done by raising the track

classification from its current Excepted status to Class II, thereby allowing for increased train speeds

and safe rail operations.

9. Urgent Need

Not applicable when taking into account the provisions of the application.

10. Tax from Industrial Development

Being part of the City of Tacoma, Tacoma Rail doesn’t pay property taxes. However, Tacoma Rail

does pay the City of Tacoma’s Gross Earnings Tax at 8 percent and Washington State’s Utility and

Business Tax at 1.5 percent.

11. Reducing System Wide Rail Delays

The 32 mile route from McKenna to Chehalis allows for an additional route from the BNSF mainline

to the Port of Tacoma area. As volumes grow, this route would allow for northbound traffic to

circumvent the need to go through Tacoma. This route is key in supporting the ultimate growth

potential of the Mountain Division. As trains become larger and heavier, it will become increasingly

difficult and time consuming to traverse the large grade between Tacoma and Frederickson.

12. Preservation of Rail Line

Not applicable when taking into account the provisions of the application.

13. Environmental Impacts

None anticipated since no in-water work is identified.

o Are there wetlands or streams on or near your project site? If yes, how close is your project site to

those wetlands or streams?

o No.

o Has your project site been evaluated for archaeological or historic resources? If yes, please

submit the cultural resources report.

o No.

o What animals, birds, and plants are present on your project site (those species that would be

considered endangered, threatened, or monitored by state or federal agencies)?

o None.

o Have you completed the State Environmental Policy Act (SEPA) process? If yes, please submit a

copy of the documentation.

o No.

o What federal, state, and local permits will be needed for your project?

o None.

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14. Geographical Balance and Support for Regional Economies

According to the information provided at the website located at:

http://www.workforceexplorer.com/article.asp?articleId=8098&PAGEID=&SUBID=

Lewis County is listed as economically distressed. Pierce and Thurston Counties are not listed as

economically distressed by the Washington State Department of Community, Trade and Economic

Development (CTED).

15. Economic Development Benefits

Shipper savings:

Tacoma Rail is a cost of service provider of rail service. Costs directly incurred are ultimately paid

by its customers. A list of customers is provided in Attachment A.

16. Project Business Plan

Management profile:

Dale King is the railroad’s Superintendent having joined the organization in December 2008. He

began his career with the Central Railroad Company of New Jersey in 1974 and continued with

its successor Conrail. Dale joined Burlington Northern Railroad in 1983 and held several

positions in its operations and marketing departments. He moved to Willamette Industries in 1995

and following its acquisition by Weyerhaeuser in 2002 was named Director of Rail Services. In

that role Dale was responsible for Weyerhaeuser’s rail operations in North America which

included the management of five short line railroads. He holds a Bachelor of Science degree in

Transportation from Arizona State University, an MBA from Indiana University and is a certified

member of the American Society of Transportation & Logistics.

Alan Hardy is the railroad's Assistant Superintendant and has worked for Tacoma Rail since

August of 2004. Before coming to Tacoma Rail, Mr. Hardy worked 9 years for the nation's

largest and the world's 2nd largest railroad track equipment manufacturer and contract services

company as supervisor and manager assigned to the Union Pacific and Burlington Northern Santa

Fe railroads in large scale construction and maintenance contracts. Before that he worked for a

very successful short line railroad owned by and serving a Fortune 500 paper company in

Northwest Florida. He held the positions of Signal Maintainer, Assistant Roadmaster and

Roadmaster during his 21 year career there. Mr. Hardy graduated from Wallace Community

College in Dothan, Alabama with a two year technical degree in electronics. Mr. Hardy has

completed a variety of railroad related courses and seminars and has been a member of the

American Railway Engineering and Maintenance-of-Way Association since 1982.

Marketing plan:

This project is to support to economic viability of the existing rail infrastructure and the

customers that are supported by it. All customers, listed on Attachment A, will benefit from the

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proposed project. The Puyallup River Bridge is located in Tacoma, just North of Freighthouse

Square. It provides the primary route to and from all of the Mountain Division customers.

Operations plan:

Current service levels consist of two days per week. Daily service will be provided in the future

when railcar volumes justify it.

Tacoma Rail’s Safety Manual (Attachment E), details the emergency contacts, training and safety

plan. Track maintenance is done to FRA standards according to the required track classification.

Financial plan:

Tacoma Rail, TMBL, is a 100 percent self supported railroad. Tacoma Rail is municipally owned

and has a cost of service approach to rates. Therefore, final rates will be based on agreed upon

services and volumes. Annual Financial reports for 2005, 2006 and 2007 are included as

Attachment D.

Further information about Tacoma

Rail’s finances through the second

quarter of 2008:

Tacoma Rail is reporting an

operating income of $1,894,000 at

the end of the third quarter of 2008

compared to an operating income of

$2,214,000 for the same period a

year earlier. Operating revenues

increased 2.3%, or $324,000, along

with an increase of 5.4%, or

$645,000 in operating expenses for

the first nine months of 2008 compared to the same period of 2007.

Year-to-date operating revenues were $14,515,000, compared to $14,192,000 a year ago.

Revenues from all switching activities combined decreased $185,000, primarily due to the

reduced traffic through the Port that partially offset by the climbing commercial line hauls.

0

3

6

9

12

15

3rd Qtr 08 2nd Qtr 08 1st Qtr 08 YTD 2008 YTD 2007

$ in

mil

lio

ns

OPERATING REVENUES & EXPENSES

Revenues Expenses

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In contrast to the decrease in switching revenues, demurrage and other operating revenues were

higher by $509,000 when compared to the first three quarters of 2007. This increase was mainly

attributable to a higher demurrage revenues

that partially counteracted by a drop in

locomotive servicing revenues.

During the third quarter of 2008, switching

activity from intermodal line hauls decreased

2,130 cars compared to the same period in

2007. In contrast, switching activities in

commercial line hauls, Capital Division line

hauls and miscellaneous line hauls were up

126 cars, 104 cars and 232 cars, respectively.

Year-to-date total operating expense

increased to $12,622,000 in the first three

quarters of 2008, from $11,977,000 a year

earlier. The increase of $645,000 reflects a

combined result of an increase of $251,000 in salaries and wages, an increase of $502,000 in

supplies and expenses and a decrease of $120,000 in depreciation.

The 5.2% increase in salaries and wages was attributable to the general cost of living adjustment,

the renewed union labor contracts, the retroactive payouts, and the increased labor requirements

to switch commercial traffic relative to intermodal traffic.

In the first nine months of 2008, Tacoma Rail purchased 274,000 gallons, or 38.9% less diesel

fuel than 2007. Although there was savings in fuel cost due to the reduction in locomotive

servicing, this saving was surpassed by the increases in repair and maintenance cost, car hire

expense and advertising expense which result in a 7.9% increase in supplies and expenses.

Tacoma Rail's current ratios at the end of the third quarter of 2008 and 2007 were 5.8:1.0 and

4.4:1.0, respectively. At June 30, 2008, Tacoma Rail’s current ratio stood at 6.1:1.0. A measure

of 2.0:1.0 is often set as a goal for this ratio.

17. Additional Comments

0

5

10

15

20

25

30

3rd Qtr 2nd Qtr 1st Qtr

# o

f C

ars

SWITCHING ACTIVITY(000's omitted)

2008 2007

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ATTACHMENT A

CUSTOMER AND SHIPPER LIST

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Shipper Name Plant Address City State Zip Phone

BOEING COMMERCIAL AIRPLANE GRP 6002 184th St. E. Puyallup WA 98373 FARWEST FABRICATION 5521 184TH ST. E. Puyallup WA 98375 253-847-2800

HARDIE BUILDING PRODUCTS 18200 50th Ave. E. Tacoma WA 98446 253.847.8700

HARRIS REBAR 401 Alexander Ave. Bldg. #326 Tacoma WA 98421 253-272-4227

MACMILLAN-PIPER FREDERICKSON 18727 38th Ave. E. Tacoma WA 98466 253.875.3555

MEDALLION FOODS 18420 50th St, E Tacoma WA 98446 253.846.2600

PN BEST 5501 184th St. E. Puyallup WA 98375 425.882.1000

TACOMA STEEL 701 East 64th St. Tacoma WA 98404 253-272-2266

US OIL REFINING 3001 Marshall Ave. Tacoma WA 98421 253-383-1651

Railroad Name Address City State Zip

UNION PACIFIC RAILROAD 1400 Douglas Street Omaha NE 68179 BNSF RAILROAD 2650 Lou Menk Drive Fort Worth TX 76131

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ATTACHMENT B

PROJECT MAP

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ATTACHMENT C

PROJECT COST ESTIMATE

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ATTACHMENT D

ANNUAL FINANCIAL REPORTS

CITY OF TACOMA

DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

ANNUAL 2007

FINANCIAL REPORT

CITY OF TACOMA, WASHINGTON DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

(TACOMA EASTERN RAILROAD)

TABLE OF CONTENTS Note: These financial statements are interim, unaudited reports prepared primarily for the use of management. Not all transactions reported in these statements have been recorded on the full accrual basis of accounting or in accordance with generally accepted accounting principles. COMPARATIVE BALANCE SHEET ................................................ 2 – 3 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS ................................................ 4 – 5 STATEMENTS OF CASH FLOWS.................................................... 6 – 7 SUPPLEMENTAL DATA ................................................................. 9 - 12

CITY OF TACOMA. WASHINGTON DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

COMPARATIVE BALANCE S H E E T S . DECEMBER 31. 2 0 0 7 AND DECEMBER 31. 2 0 0 6

ASSETS 2007 2006

FIXED

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Improvements . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in Progress . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provision for Depreciation . . . . . . . . . . . . . . . . . Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . .

CURRENT AND ACCRUED ASSETS

Current Fund Cash & Pooled Investments . . . . . 1.496. 039 1.205. 633

Debt Service Fund Cash . . . . . . . . . . . . . . . . . . . . . 203. 114 212. 990 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . 548. 674 345. 193

Other Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 26. 163 -

Interdivision Receivable . . . . . . . . . . . . . . . . . . - 9. 264

Total Current and Accrued Assets . . . . . . . . . 2.273. 990 1.773. 080

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.232. 944 $14.318. 699

NET ASSETS AND LIABILITIES

NET ASSETS

Invested in Capital Assets. Net of Related Debt

Unrestricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Net Assets . . . . . . . . . . . . . . . . . . . . . . . . .

LONG-TERM LIABILITIES

Interfund Loan Payable . . . . . . . . . . . . . . . . . . . . . 2004 Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . 2007 Junior Lien Revenue Bond . . . . . . . . . . . . . . Total Long-Term Liabilities . . . . . . . . . . . . . .

CURRENT AND ACCRUED LIABILITIES

Accounts & Notes Payable . . . . . . . . . . . . . . . . . . . Wages Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Portion of Long Term Debt . . . . . . . . . . . Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . Interdivision Payable . Various . . . . . . . . . . . . Total Current and Accrued Liabilities . . . .

TOTAL NET ASSETS AND LIABILITIES . . . . . . . . .

CITY OF TACOMA. WASHINGTON DEPARTMENT OF PUBLiC WORKS

TACOMA M I L MOTmTAIN DIVISION

STATEYZSTS OF REVENUE. EXPENSES AND CHANGES IN NET ASSETS

DECEMBER 31. 2007 AND DECEMBER 31. 2006

DECEMBER DECEMBER

2007 2006

OPERATING REVENUES

Switching Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106. 909 $88. 871

Demurrage and Other Operating Revenues . . . . . . . . . . 17. 909 16. 581

. . . . . . . . . . . . . . . . . . . . Total Operating Revenues 124. 818 105. 452

OPERATING EXPENSES

MAINTENANCE OF WAY AND STRUCTURES

. . . . . . . . . . . . . . . . . . . . . . . . . . Salaries and Wages

Supplies and Expense . . . . . . . . . . . . . . . . . . . . . . . . MECHALVI CAL

Supplies and Expense . . . . . . . . . . . . . . . . . . . . . . . . TRANSPORTATION

Salaries and Wages . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies and Expense . . . . . . . . . . . . . . . . . . . . . . . .

ADMINISTRATION LVD GSNERAL EXPENSE

. . . . . . . . . . . . . . . . . . . . . . . . . . Salaries and Wages

Supplies and Expense . . . . . . . . . . . . . . . . . . . . . . . . TAXES . STATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEPRECIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Operating Expenses . . . . . . . . . . . . . . . . . . . .

OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (210. 215) (136. 5473

NON-OPERATING REVENUES (EXPENSES)

Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. 174 4. 029

Other Kon-Operating Revenues . . . . . . . . . . . . . . . . . . 300. 318 128. 308

Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13. 495) (11. 079)

Net Non-Operating Revenues . . . . . . . . . . . . . . . . . . 287. 997 121. 258

Net Income (Loss) Before Capltal Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and Transfers 77. '782 (15. 289)

Capltal Contributions and Transfers

Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. 163

Transfers In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103. 945 ($15. 289)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NET ASSZTS . JANUARY 1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NET ASSETS . DECEMBZR 31

YEAR TO DATE

DECEMBER 31; DECEMBER 31, 2007/2006 PERCENT

2007 2006 VrARI ANCE CHANGE

CITY OF TACOMA. WASHINGTON DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31. 2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash from Customers $1.238. 761 $1.178. 895

. . . . . . . . . . . . . . . . . . . . . . . . . . Cash Paid to Suppliers (1. 525. 560) (1.538. 717)

. . . . . . . . . . . . . . . . . . . . . . . . . . Cash Paid to Employees (782. 572) (863. 983)

Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30. 872) (38. 238) Net Cash Used in Operating Activities . . . . . . . . . (1.100. 243) (1.262. 043)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Capital Expenditures. Net . . . . . . . . . . . . . . . . . . . . . . . Principal Payments on Long-Term Debt . . . . . . . . . . . . Interest Paid. Net of AFUDC . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . Proceeds from Sale of Long-Term Debt Transfers from Other Funds . . . . . . . . . . . . . . . . . . . . . . Proceeds from Capital Contributions . . . . . . . . . . . . . Proceeds from Leased Property . . . . . . . . . . . . . . . . . . . Net Cash Provided by Capital and Related Financing Activities . . . . . . . . . . . . .

CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments . . . . . . . . . . . . . . . . . . . . . . . . . 20. 983 8. 891 Net Cash Provided by Investing Activities . . . . . 20. 983 8. 891

Net Increase in Cash and Equity in Pooled Investments . . . . . . . . . . . . . . . . . . . . . 280. 530 1.265. 587

Cash & Equity in Pooled Investments at January 1 . . 1.418. 623 153. 036

Cash & Equity in Pooled Investments at December 31 $1.699. I53 $1.418. 623

YEAR ENDED DECEMBER 31.

Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Loss

Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation and Amortization . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable Receivable from Affiliates . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . Taxes and Other Payables

Salaries. Wages and Frinqe Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payables to Affiliates

. . . . . . . . . . . . . . . . . . . . . . . . . . . Total Adjustments

Net Cash Used in Operating Activities . . . . . . . . . . . . .

Supplemental Data

- 9 -

OPERATING REVENUESYear to Date - December 2007 ($1,402,978)

Demurrage & Other35%

Switching65%

OPERATING REVENUESYear to Date - December 2006 ($1,020,367)

Switching84%

Demurrage & Other16%

- 10 -

OPERATING EXPENSESYear to Date - December 2007 ($2,730,239)

Administration9%

Others13%

Way & Structures28%

Transportation48%

Mechanical2%

OPERATING EXPENSESYear to Date - December 2006 ($2,835,075)

Mechanical3%

Transportation50%

Way & Structures22%

Others12%

Administration13%

- 11 -

SWITCHING ACTIVITYYear to Date December 2007 (4,037 cars)

Lumber3%

Alumina3%

Steel1%

Food Products85%

Aerospace5%

Other1%

Pipelines2%

SWITCHING ACTIVITYYear to Date December 2006 (2,823 cars)

Lumber16%

Alumina4%

Steel2%

Food Products43%

Aerospace6%

Gravel 9%

Other1%

Pipelines18%

Heavy Equipment1%

CITY OF TACOMA

DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

ANNUAL 2006

FINANCIAL REPORT

CITY OF TACOMA, WASHINGTON DEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

(TACOMA EASTERN RAILROAD)

TABLE OF CONTENTS Note: These financial statements are interim, unaudited reports prepared primarily for the use of management. Not all transactions reported in these statements have been recorded on the full accrual basis of accounting or in accordance with generally accepted accounting principles. COMPARATIVE BALANCE SHEET ................................................ 2 – 3 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS ................................................ 3 – 4 STATEMENTS OF CASH FLOWS.................................................... 5 – 6 SUPPLEMENTAL DATA ................................................................. 8 - 11

ASSETS 2006 2005

FIXED Land ....................................... $1,361,104 $1,361,104 Building ................................... 366,750 366,750 Other Improvements ......................... 10,658,000 10,657,804 Equipment .................................. 754,869 754,869 Construction in Progress ................... 1,710,303 959,679 Total .................................... 14,851,026 14,100,206 Provision for Depreciation ................. (2,305,407) (1,987,467) Net Fixed Assets ......................... 12,545,619 12,112,739

CURRENT AND ACCRUED ASSETS Current Fund Cash & Pooled Investments ..... 1,205,633 153,036 Debt Service Fund Cash ..................... 212,990 - Accounts Receivable ........................ 345,193 509,731 Other Receivables .......................... - 17,952 Interdivision Receivable .................. 9,264 1,254 Total Current and Accrued Assets ......... 1,773,080 681,973

TOTAL ASSETS ............................. $14,318,699 $12,794,712

COMPARATIVE BALANCE SHEETS - DECEMBER 31, 2006 AND DECEMBER 31, 2005

CITY OF TACOMA, WASHINGTONDEPARTMENT OF PUBLIC WORKS

TACOMA RAIL MOUNTAIN DIVISION

- 1 -

NET ASSETS AND LIABILITIES 2006 2005

NET ASSETS Invested in Capital Assets, Net of Related Debt $7,995,619 $9,662,739 Unrestricted ............................... (803,621) (2,002,451) Total Net Assets ......................... 7,191,998 7,660,288 LONG-TERM LIABILITIES Interfund Loan Payable ..................... 4,550,000 2,450,000 2004 Line of Credit ........................ 1,283,333 2,200,000 Total Long-Term Liabilities .............. 5,833,333 4,650,000 CURRENT AND ACCRUED LIABILITIES Accounts & Notes Payable ................... 343,431 421,918 Wages Payable .............................. 307 304 Deposits Payable ........................... 22,000 20,000 Taxes Payable .............................. 4,421 8,610 Current Portion of Long Term Debt........... 733,333 - Interest Payable ........................... 31,007 33,592 Interdivision Payable - Various ............ 158,869 - Total Current and Accrued Liabilities .... 1,293,368 484,424

TOTAL NET ASSETS AND LIABILITIES ......... $14,318,699 $12,794,712

- 2 -

DECEMBER DECEMBER2006 2005

OPERATING REVENUES Switching Revenues .............................. $88,871 $170,607 Demurrage and Other Operating Revenues .......... 16,581 2,624 Total Operating Revenues .................... 105,452 173,231

OPERATING EXPENSES MAINTENANCE OF WAY AND STRUCTURES Salaries and Wages .......................... 14,937 35,588 Supplies and Expense ........................ 34,461 41,173 MECHANICAL Supplies and Expense ........................ 2,482 30,363 TRANSPORTATION Salaries and Wages .......................... 42,702 68,116 Supplies and Expense ........................ 85,321 39,562 ADMINISTRATION AND GENERAL EXPENSE Salaries and Wages .......................... 2,002 16,151 Supplies and Expense ........................ 31,195 (41,728) TAXES - STATE ................................. 2,404 6,466 DEPRECIATION .................................. 26,495 19,512 Total Operating Expenses .................... 241,999 215,203

OPERATING LOSS ................................... (136,547) (41,972)

NON-OPERATING REVENUES (EXPENSES) Interest Income ............................... 4,029 475 Other Non-Operating Revenues .................. 128,308 171,167 Interest Expense .............................. (11,079) (17,400) Total Non-Operating Revenues ................ 121,258 154,242

Net Income (Loss) Before Capital Contributions and Transfers ................................... (15,289) 112,270

Capital Contributions and Transfers Grants ........................................ - 78,475 Other Contributions in Aid Construction ....... - - Transfers In .................................. - -

NET INCOME (LOSS) ................................ ($15,289) $190,745

TOTAL NET ASSETS - JANUARY 1 ........................................................

TOTAL NET ASSETS - DECEMBER 31 .......................................................

CITY OF TACOMA, WASHINGTON

DECEMBER 31, 2006 AND DECEMBER 31, 2005STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET ASSETS

TACOMA RAIL MOUNTAIN DIVISIONDEPARTMENT OF PUBLIC WORKS

- 3 -

DECEMBER 31, DECEMBER 31, 2006/2005 PERCENT2006 2005 VARIANCE CHANGE

$859,992 $1,143,190 ($283,198) -24.8%160,375 150,019 10,356 6.9%

1,020,367 1,293,209 (272,842) -21.1%

265,397 337,720 (72,323) -21.4%346,015 378,090 (32,075) -8.5%

74,770 166,357 (91,587) -55.1%

566,354 804,246 (237,892) -29.6%867,127 879,062 (11,935) -1.4%

32,235 42,029 (9,794) -23.3%331,187 367,977 (36,790) -10.0%34,049 34,253 (204) -0.6%

317,941 262,260 55,681 21.2%2,835,075 3,271,994 (436,919) -13.4%

(1,814,708) (1,978,785) 164,077 8.3%

8,891 2,634 6,257 - 673,801 580,552 93,249 16.1%

(155,815) (79,834) (75,981) 95.2%526,877 503,352 23,525 4.7%

(1,287,831) (1,475,433) 187,602 12.7%

689,848 1,960,872 (1,271,024) -64.8%- 196,105 (196,105) -

129,693 247,178 (117,485) -47.5%

(468,290) 928,722 (1,397,012) -

7,660,288 6,731,566

$7,191,998 $7,660,288

YEAR TO DATE

- 4 -

CITY OF TACOMA, WASHINGTON

STATEMENT OF CASH FLOWS

DECEMBER 31, 2006CASH FLOWS FROM OPERATING ACTIVITIES Cash from Customers ............................. $1,178,895 Cash Paid to Suppliers .......................... (1,538,717) Cash Paid to Employees .......................... (863,983) Taxes Paid ...................................... (38,238) Net Cash Used in Operating Activities ......... (1,262,043)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Expenditures, Net ....................... (750,821) Principal Payments on Long-Term Debt ............ (183,334) Interest Paid, Net of AFUDC ..................... (158,400) Proceeds from Sale of Long-Term Debt ............ 2,100,000 Transfers from Other Funds ...................... 129,693 Proceeds from Capital Contributions ............. 707,800 Proceeds from Leased Property ................... 673,801 Net Cash Provided by Capital and Related Financing Activities ............. 2,518,739

CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments ......................... 8,891 Net Cash Provided by Investing Activities ..... 8,891 Net Increase in Cash and Equity in Pooled Investments ..................... 1,265,587

Cash & Equity in Pooled Investments at January 1 .. 153,036

Cash & Equity in Pooled Investments at December 31 $1,418,623

DEPARTMENT OF PUBLIC WORKSTACOMA RAIL MOUNTAIN DIVISION

YEAR ENDED

- 5 -

DECEMBER 31, 2006Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

Operating Loss..................................... ($1,814,708)

Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation and Amortization .................. 317,941 Accounts Receivable ............................ 164,538 Receivable from Affiliates ..................... (8,010) Materials and Supplies ......................... (78,487) Taxes and Other Payables ....................... (2,189) Salaries, Wages and Fringe Benefits ............ 3 Payables to Affiliates ......................... 158,869 Total Adjustments ........................... 552,665 Net Cash Used in Operating Activities ............. ($1,262,043)

YEAR ENDED

- 6 -

Supplemental Data

- 8 -

- 9 -

OPERATING REVENUESYear to Date - December 2006 ($1,020,367)

Demurrage & Other16%

Switching84%

OPERATING REVENUESYear to Date - December 2005 ($1,293,209)

Switching88%

Demurrage & Other12%

- 10 -

OPERATING EXPENSESYear to Date - December 2006 ($2,835,075)

Administration13%

Others12%

Way & Structures22%

Transportation50%

Mechanical3%

OPERATING EXPENSESYear to Date - December 2005 ($3,271,994)

Mechanical5%

Transportation51%

Way & Structures22%

Others9%

Administration13%

- 11 -

SWITCHING ACTIVITYYear to Date December 2006 (2,823 cars)

Heavy Equipment1%

Lumber16%

Alumina4%

Steel2%

Food Products43%

Aerospace6%

Gravel 9%

Other1%

Pipelines18%

SWITCHING ACTIVITYYear to Date December 2005 (3,092 cars)

Lumber23%

Alumina4%

Steel6%

Food Products5%

Aerospace3%

Gravel 57%

Other1%

Pipelines1%

Page 13

ATTACHMENT E

SAFETY MANUAL

SAFETY MANUAL

Rev 11 – Sept, 07

CONTENTS

Element 1. Daily Crew Input .............................................................................................................2

Element 2. Pre-shift Safety Briefings ................................................................................................3

Element 3. Quarterly Employee Safety Meetings ..............................................................................4

Element 4. Safety Training Program .................................................................................................5

Element 5. Business Unit Roles .........................................................................................................6

Element 6. New RULES Book ..........................................................................................................8

Element 7. Bulletins and General Orders ..........................................................................................9

Element 8. Operational Testing (49 CFR 217.9) ...............................................................................10

Element 9. Operating Rules Program of Instruction (49 CFR 217.11) .............................................11

Element 10 Locomotive Engineer Certification Program (49 CFR 240) ..........................................12

Element 11. Vehicle Safety Pre-trip ..................................................................................................13

Element 12. Railroad Security Plan ...................................................................................................14

Element 13. Accident/Incident Analysis ............................................................................................15

2

Element: #1

Description: Daily Crew Input

Purpose: Make available methods for Switch Crews to report unsafe conditions, maintenance issues,

questions regarding communication notices, mechanical defects, etc.

Implementation:

Time Report –Switch crew Supervisors report on the daily Time Report any of the above issues.

This information is passed on to the on duty Operations Supervisor for assessment and

assignment to the proper person for correction, insertion in the Safety Issues Database, and added

to the daily status report which is posted as information for all employees.

Pre-shift Safety Briefing Form – is filled out by the Duty Yardmaster to include all reports of the

above conditions. This information is handled for correction in the same manner as the Daily

Time Report above.

Daily Locomotive Inspection Report – All locomotive engineers, upon completion of each shift,

must report and document the condition of the locomotive used. This must include all known

defects or malfunctions. The condition of the brakes, sanders, and air pressure must be noted.

This information is used by the Mechanical Department to correct the deficiencies noted and the

report complies with the F.R.A. requirement of daily locomotive inspections.

Motor Vehicle Trouble Report - Crews will do a daily Safety Inspection of the vehicle being

used and fill out the “Vehicle Inspection” report A comments area is also provided to report any

vehicle defects.

Verbal & Radio Communication –All safety conditions that require immediate correction must

be reported by the crews as soon as possible to the On Duty Yardmaster, using the radio or in

person, as well as through the appropriate written communication.

Measurement:

Database entry and assignment of all Safety issues submitted w/printout posted on Bulletin

boards

filing of all Pre-shift Safety Briefing Sign-in sheets

3

Element: #2

Description: Pre-shift Safety Briefings

Purpose: Pre-shift Safety Briefings are a means of making sure that all members of each crew

understand the work that is to be performed during this shift or time period and any conditions that need

to have special attention or caution during the shift.

Implementation: Pre-shift Safety Briefings are conducted by the Duty Yardmaster and/or the Duty

Operations Supervisor at the beginning of each Crew's shift. The Roadmaster conducts Pre-shift Safety

Briefings with the Section Crew and Mechanical Department. Pre-shift Safety Briefings are to be

documented.

Measurement:

Database entry and assignment of all Safety issues submitted w/printout posted on Bulletin

boards

filing of all Pre-shift Safety Briefing Sign-in sheets

4

Element: #3

Description: Quarterly Employee Safety Meetings

Purpose: Ensure that all employees are aware of safety record, current safety concerns, and education

training programs planned for next quarter.

Implementation: At least once each quarter (3 months) meetings will be held with all employees

(may require 3 separate meetings to allow shift workers to attend) with a primary focus on safe

operations.

The agenda for each meeting may be:

1. YTD Safety statistics for Tacoma Rail as compared to national averages.

2. Specific review of any accidents/incidents in last 3 months with focus on preventative

measures.

3. Addressing any present Safety concerns of any employees

4. Review of all Safety items that had been turned in and current status of remediation.

5. Questions or concerns from attending employees.

6. Reminder of most recent Safety Bulletins issued for Tidelands and Mountain Division for

clarification and understanding.

Measurement:

1. Copies of agendas and statistics

2. Employee sign-ins on attendance sheet

5

Element: #4

Description: Safety Training Program

Purpose: To provide ongoing Safety training in order to impart specific new skills, to continuously

improve safety awareness by reinforcing good safety practices, and to comply with the Federal

requirements for employee training.

Implementation: Schedule mandatory cross training for all employees in the switch operator craft to

learn the Yardmaster and Locomotive Engineer crafts. Training is scheduled and made available for

every employee on First Aid/CPR, basic fire fighting, HAZMAT, hearing protection, proper body

mechanics, skills enhancement and refresher training is scheduled and made available on: locomotive

and train control.

Measurement: Training programs are scheduled for the required time and all employees are properly

scheduled for attendance.

6

Element: #5

Description: Business Unit Roles

Purpose: Tacoma Rail will provide safe, reliable and efficient rail transportation solutions to support

the continued economic development of Tacoma and the Puget Sound.

1) SAFETY Support Mission: The Safety Business Unit exists to meet the needs of our customers by providing our employees with

clear expectations for SAFE work practices, the training needed to maximize their qualifications, and to

outline the desired performance leading to outstanding customer service.

Managers: TJ Shilley (Supervisor of Operations) – SAFETY Manager

Paula Henry (Superintendent) – SAFETY Program Director

Alan Hardy (Assistant Superintendent) - SAFETY Program Assistant Director

Support Staff: Alan Matheson (Roadmaster) – SAFETY Support, Mechanical & Construction Dept.

Ed Cornish (Supervisor of Operations) - SAFETY Support, Operations & Testing

Tim Flood (Supervisor of Operations) - SAFETY Support, Operations & Testing

Leslie Whiteman (Supervisor of Operations) - SAFETY Support, Operations & Testing

Dan McCabe (Supervisor of Operations) - SAFETY Support, Finance & Technology

Lori Daniels (Supervisor of Operations) - SAFETY Support, HR & Administrative Services

Phil Hogman (Supervisor of Operations) – SAFETY Support, Mechanical Dept.

Amy Brand - SAFETY Support, Records Management

2) NETWORK OPERATIONS Support Mission: Tacoma Rail’s Network Operations exists to meet the needs of our customers and provide safe, reliable

and economic rail service. To achieve these goals we must train and test our employee’s to meet and/or

exceed the requirements of the Consolidated Operating and SAFETY Book and Federal Railroad

Administration standards set forth by CFR 49. Furthermore, we must meet with our customers to ensure

our support is meeting with there changing needs.

Managers: Ed Cornish, Supervisor of Operations – Operations, Crew testing & Customer Support, SAFETY

Support

Tim Flood, Supervisor of Operation - Operations, Crew testing & Customer Support, SAFETY Support

Leslie Whiteman, Supervisor of Operation - Operations, Crew testing & Customer Support, SAFETY

Support

7

Support Staff: Yardmaster

Yard Clerk

Locomotive Engineer

Switch Supervisor

Switch Operator

3) HUMAN RESOURCES & SUPPORT SERVICES Support Mission: Tacoma Rail’s Human Resources & Support Services Business Unit exists to assist our employees in

developing and maintaining a qualified, effective and diverse workforce.

Manager: Lori Daniels, Supervisor of Operations

Support Staff: Lena Bentley, Administrative Assistant

Amy Brand, Administrative Assistant

Lyn White, Administrative Secretary

4) FINANCE &TECHNOLOGY Support Mission: To provide timely and accurate information and accounting regarding customers railcars, and to

maintain and update technology processes to increase efficiency and communications throughout

Tacoma Rail and our customers.

Manager: Dan McCabe, Supervisor of Operations – Finance & Technology support, improvement and integration.

Support Staff: Harlem Baclay, Administrative Assistant

Jim Clark, Administrative Services Manager

Janene Franklin, Administrative Services Manager

8

Element: #6

Description: RULES Book

Purpose: Provide written instruction for all employees as the basis for a Safe work environment and

the adherence to national railroad operating standards (General Code of Operating Rules). The Rules

Book provides a single point reference for training, retraining and enforcement of procedures and

policies to insure a safe and efficient operation.

Implementation: As needed a bound handbook will be produced and distributed to each employee.

Employees will have training and written tests on a bi-annual basis to demonstrate their knowledge and

understanding of the rules for safe and efficient operating practices.

Measurements:

Publication of the Rules Handbook

Receipts from each employee acknowledging receipt of current Rules Handbook.

All employees successfully tested in the prescribed time frame

Copies and scores of biennial tests entered in the testing database.

9

Element: #7

Description: Bulletins & General Orders

Purpose: Bulletins and General Orders supplement the RULES book, and are the published additions,

corrections, and/or clarifications of the RULES or pertain to a temporary situation.

Implementation: Posted in Crew Room, lunchroom, tower, and administration office, all employees

are required to review and understand postings prior to beginning work at the start of shift. The

appropriate supervisor must inform all employees of any Safety Bulletin that is relevant, posted after any

employee has started work.

Measurements:

verify monthly that all postings are properly organized at each location.

latest Safety Bulletins (Tidelands, Mountain, and Capital Divisions) are reviewed daily by

Yardmaster w/crews at Pre-shift Safety briefings

10

Element: #8

Description: Operational Testing (49 CFR 217.9)

Purpose: To verify that employees are performing their duties in a safe and efficient manner and in

compliance with Tacoma Rail RULES and procedures.

Implementation: All supervisors will perform the required amount of Operational Tests as outlined

in the Field Testing Manual. Tests will be conducted at random times and days each month with the

results recorded in the Testing Database.

Measurements:

Required quantity of quality tests are performed each month.

Data from tests is recorded as prescribed.

All failures are handled for training and correction by specified time.

11

Element: #9

Description: Operating Rules Program of Instruction (49 CFR 217.11)

Purpose: To ensure that all employees whose activities are governed by the Operating RULES,

understand the RULES

Implementation: Each employee is given a complete copy of the RULES and signs for their copy.

Prior to administering the biannual written examinations, review sessions are held with employees and

focuses on questions most often missed in previous examination or rules that were ignored in recent

accidents/incidents.

Measurements:

New employees must pass the examination prior to operating in other than a student

capacity. The original of the examination answer sheet is keep as a company record in

each employees file.

12

Element: #10

Description: Locomotive Engineer Certification Program (49 CFR 240)

Purpose: To ensure that only qualified persons operate a locomotive or train for Tacoma Rail

Implementation: Tacoma Rail’s Locomotive Engineer Certification Program is based on a

submittal to the FRA (Federal Railway Administration) and approval by that agency. The program

consists of training requirements for employees first certified to operate locomotives, vision and hearing

tests, written examinations, annual performance reviews of certified Locomotive Engineers and

re-certification of all Locomotive Engineers every three years.

Measurements: Every certified Locomotive Engineer will have a file with check lists and

documentation showing satisfactory completion of all program elements.

13

Element: #11

Description: Vehicle Safety Pre-trip Program

Purpose: To ensure employees have Safe and properly operating motor vehicles to aid in performing

their duties

Implementation: Crews will do a daily Safety Inspection of the vehicle being used and fill out the

“Vehicle Inspection” report form at the completion of each shift. Forms will note the vehicle number

and a check list of operating parts. A comments area is also provided to report any vehicle defects. Any

Vehicle Inspections reporting defects are turned in to the Shop Attendant for disposition. (Memorandum

dated 2/06/03) “Motor Vehicle Trouble Reports” are also provided so that any vehicle defects can be

reported.

Measurements: Vehicle defects reported, are recorded in the “Safety Issues Database” and include

the vehicle number, the date of the defect, the disposition of the defect, and date repaired if applicable.

14

Element: #12

Description: Tacoma Rail Emergency Preparedness/Security Plan

Purpose: Emergency Preparedness Document- To serve as a guide for Tacoma Rail for responding to

major emergencies.

Railroad Security Plan – to follow the guidelines as set forth in the Code of Federal Regs, 49

Part 172.802

Implementation: It is Tacoma Rail's policy to respond in a safe and expeditious manner to prevent

loss of life and property and to continue service to our customers. We will also support and assist other

agencies during emergency situations to hasten recovery and reduce hazards to the public. Tacoma Rail

Staff, material, and equipment will be available for the common effort of all agencies. Jurisdiction and

responsive control will be under the direction of responsible elected official.

Measurements: Have a Tacoma Rail Emergency Preparedness & Security Plan and any updates

approved by the FRA and in place.

15

Element: #13

Description: Accident/Incident Analysis

Purpose: To ascertain the root cause of each Accident/Incident in order to eliminate the conditions or

actions that were the cause and prevent a repetition of a similar Accident/Incident.

Implementation: All Accidents/Incidents are to be reported as soon as possible by the appropriate

person to the on duty Operations Supervisor. Each incident must be investigated in person by the

Operations Supervisor with on the spot interviews, measurements, and photographs as soon as possible

after occurrence. Each incident is to be documented and analyzed to determine root cause and all

contributing causes. Recommendations are to be developed and implemented in order to prevent

reoccurrence.

Measurements: All accident/incident analysis and recommendations are to be added to the

appropriate database to determine overall trends and the rate of reduction of Accidents/Incidents.