Railroad Seeks $2.3 Billion Federal Loan

Published January 1, 2007

Sen. John Thune (R-SD) has added language to a federal railroad bill to enable the Dakota, Minnesota & Eastern Railroad Corporation to secure a $2.3 billion loan from the federal government, more than twice the size of the Chrysler Corporation bailout in 1979.

The loan would fund part of a $6 billion project by the railroad to rebuild 600 miles of track and add 260 new miles of track to low-sulfur coal mines in the Powder River Basin of Wyoming.

A coalition of energy companies, farm organizations, and other business groups is backing the earmark, which has created strange political bedfellows.

Former U.S. Rep. Bill Janklow of South Dakota, a Republican, has helped project opponents, including former U.S. Senate Democratic Leader Tom Daschle of South Dakota, who serves on the board of the plan’s major detractor, the Mayo Clinic.

The public comment period on the loan program ended in October. The Federal Railroad Administration has 90 days to approve or oppose the loan. The process is off to a bumpy start.

Pros, Cons Abound

Thune says he’s helping his state.

“Any railroad can apply for these loans,” Thune said. “This has national implications in terms of public benefit. It’s about cheaper, cleaner coal.”

But Steve Ellis of the budget watchdog group Taxpayers for Common Sense called it the “granddaddy of all earmarks.”

“Thanks to changes made to the Railroad Rehabilitation and Improvement Financing [Act], the administration is considering awarding one of the largest loans to a private company in the history of the United States,” said U.S. Rep. Jeff Flake (R-AZ) in a recent statement on the floor of the U.S. House of Representatives. “It is inappropriate for the taxpayers to finance it.”

Even though the current controversy appears to be coming to a head, debate has been going on for some time.

Mayo Clinic Steps In

The loan would allow the railroad to build new track near the Mayo Clinic in Rochester, Minnesota. Mayo officials object, saying the proposal would jeopardize sensitive equipment and increase the risk of hazardous spills.

“The concerns stated by Rochester citizens and Mayo Clinic must be addressed or the DM&E project should not go forward,” said Minnesota Gov. Tim Pawlenty (R) in an October 10 press statement.

“There are economic benefits to the project,” Pawlenty continued. “A suitable mitigation plan that preserves and protects Mayo Clinic, however, one of the great treasures of our state and this nation, must be developed.”

U.S. Sen. Mark Dayton (D-MN) also sides with the Mayo Clinic and questions the rail company’s ability to repay the loan. He described it as “one of the largest federal loans ever given to a private company. It’s a real perversion of the process and the public interest.”

Railroad Defends Loan

Kevin Schieffer, president and chief executive officer of the DM&E, says arguments against the project have no merit.

Schieffer referred this writer to the Growth Opportunity Through Rail Access Coalition Web site, http://www.gotrac.org, where he is quoted as saying, “We are very solid financially. The project has overwhelming support throughout our entire region. We continue efforts to advance our $2 billion PRB Project.”

Minnesota Rep. Has Doubts

U.S. Rep. Betty McCollum (D-MN) issued a statement on October 10 saying she is “strongly opposed to asking taxpayers to provide an unsecured loan of more than two billion dollars” to the DM&E Railroad. “I urge the Federal Railroad Administration and my colleagues in Congress to signal a return to fiscal responsibility in Washington by protecting taxpayers and rejecting this proposal.”

Many taxpayer organizations, including the National Taxpayers Union (NTU), agree with McCollum.

“Americans should not be forced to subsidize the operations of an unstable company,” said NTU’s government affairs manager, Andrew Moylan. “The Federal Railroad Administration should reverse course before taxpayers’ wallets are flattened.”

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois at Chicago and associate editor of Budget & Tax News.