The correct answer is:
Collapse of a plan to bring the railroad
The most influential factor on Townsend rapid decline was the Northern Pacific Railroad failed plan to connect the city with Tacoma, an eastern Puget Sound city.
While other Puget Sound ports were growing in size, Port Townsend was losing ground to other territorial population centers. In addition to the railroad debacle, the Panic of 1893, triggered by railroad overbuilding and debt, sealed the end of the city´s boom by the late 1890s.