State transportation officials have worked out an agreement with the Eastern Washington Gateway Railroad to keep the company running trains on 110 miles of taxpayer-owned track west of Spokane.
The new agreement sets up benchmarks - such as paying creditors and replacing railroad ties - to keep the company operating on the line over the long term, said Scott Witt, rail and marine division director for the state Department of Transportation.
The line runs from Cheney to Coulee City.
In December 2008, the department "became concerned about EWG's financial condition," according to a statement from the agency, and said the state would terminate the company's operating lease this year.
The company was not keeping up with required track maintenance, including replacing thousands of railroad ties.
The threat to end the lease "was real," Witt said. The main concern, he said, was replacement of the old ties.
The railroad company, which began operation on the line in June 2007, says it spent an unexpected $270,000 to rent grain cars and repair track damaged in a derailment.
Also, last year's poor wheat harvest and low prices meant that traffic on the line was far less than expected, EWG officials have said.
Worsening matters, diesel prices reached record highs last year.
After negotiations, state officials this month rescinded their plan to end the lease.
"However, the new agreement sets financial and operational benchmarks that EWG must meet in order to keep operating so that further difficulties can be avoided," the agency said.
The line is part of the former Palouse River and Coulee City rail network, which comprises three main branches across the Palouse and west of Spokane. The state bought the old rail system and has set aside millions of dollars to repair the tracks, some of which are more than a century old. The total allocated so far: $28 million.