Luzerne County debates recipient of potential $6.7 million in rail sale proceeds

Now that an unsolicited $10 million offer for Luzerne County’s rail line has been made, a key question is, which entity will receive the funds if it is sold?

The independent county Redevelopment Authority owns the rail line.

However, county government has involvement because county council appoints the five-citizen authority board, and the authority owes the county $3.28 million from a 2001 loan provided to prevent the authority from defaulting on its mortgage and losing freight service to businesses.

A $10 million sale could leave $6.7 million in proceeds after that loan is satisfied.

County Manager Romilda Crocamo emailed county council on Tuesday about the $10 million purchase offer from Reading & Northern Railroad, stating that all rail line sale proceeds must come to the county.

“As you are aware, the redevelopment authority owes the county approximately $3.2 million. Furthermore, I would like to point out that, according to the language of the contract, the county is entitled to any excess funds generated from the sale of the railroad,” Crocamo wrote.

She continued: “If the redevelopment authority were to reject this position, the redevelopment authority board members would be breaching their fiduciary obligation, which could result in their removal.”

Authority board Chairman Scott Linde said Wednesday that a determination about the recipient of net proceeds “is a legal conclusion that would have to be litigated.”

Authority Solicitor Peter P. O’Donnell said Wednesday he cannot comment on the matter until he discusses it with the authority board.

The parties already have an active suit in the county Court of Common Pleas because the county filed an action over the outstanding loan, which seeks appointment of a receiver to preside over the rail property or a declaration that the $3.28 million is immediately due, terminating the agreement.

Both defendants — the authority and nonprofit Rail Corp., which manages the rail operator agreement — have filed responses asserting there is no loan default at this time because the county’s repayment extension document sets an October 2026 deadline for the authority to repay the county at zero interest.

Regarding the question of a sale windfall recipient, the borrowing note between the county and both defendants said the parties “agree that all net proceeds from any sale of the real estate and the proceeds of any lease shall be the sole property of the County of Luzerne even if that sum should exceed the principal amount of this loan.”

In theory, the authority could rid itself of the note and its provisions by selling the rail property and paying off the county loan. However, the note also says the authority must notify the county of any sale or lease within at least 15 days and cannot sell or lease property without the county’s “prior written consent to the terms and conditions of the sale or lease.”

Other interpretations could surface based on legal analysis of all documents involved in the loan transaction.

The authority board’s next regularly scheduled meeting is on Oct. 21.

Reading & Northern Railroad Chairman and CEO Andy M. Muller Jr. sent Linde a communication this week offering to pay $10 million to purchase the line, saying he is committed to increasing freight service and adding passenger train excursions from Wilkes-Barre to Pittston. These are not commuter routes and would connect Wilkes-Barre to popular tourism train rides, such as existing excursions from Pittston to historic Jim Thorpe.

Linde said last week the “general agreement” among board members involved in overseeing the line is that a fair and open solicitation is necessary to explore all options for a potential lease or purchase. As many as eight other rail operators have expressed interest in buying or leasing some or all of the line, he has said.

County council authorized the litigation in July. While the delinquent loan was stated as a reason, it appears to be part of a broader county push to put the track into private ownership, with the hope that it would add passenger excursions while retaining and building commercial use. Some authority representatives have advocated keeping the line in public ownership.

The approximately 55-mile county rail line passes through the Pittston, Wilkes-Barre and Hanover Township areas.