(The following article by Mark Fischenich was posted on the Mankato Free Press website on December 19.)
MANKATO, Minn. — The massive DM&E Railroad expansion — a project that alarmed many Mankato residents eight years ago with its prospects for dozens of mile-long coal trains rumbling through the city each day — appeared to be losing steam.
The project was clearing regulatory hurdles and court challenges, but there was no indication anyone wanted to invest the $2.5 billion in construction funds needed by the Dakota, Minnesota and Eastern Railroad.
As the years passed, opponents began to hope the controversial expansion might never be built.
“This has been on the back burner for a couple of years now because the DM&E has been unable to get the private financing to go forward,” said Jim Gelbmann, state director for U.S. Sen. Mark Dayton.
Then earlier this year, U.S. Sen. John Thune — fresh off a $220,000 lobbying job with the railroad — quietly slipped through Congress a piece of legislation that could provide the DM&E with the entire $2.5 billion through a low-interest federal loan.
And it could happen in the next few months, thanks to provisions Thune, a freshman Republican from South Dakota, added virtually unnoticed into a $286 billion transportation bill last summer.
“Private markets no longer seem to be the obstacle they once were …,”
Gelbmann said.
On the fast track
Officials with the Federal Railroad Administration, which will decide without public input whether to issue the loan to the DM&E, are already studying the railroad’s plans to expand into the coal-rich Powder River Basin of Wyoming.
“We have to make sure traffic will be there to make sure the loan is repayable and the engineering can carry it,” said Joe Pomponio, director of the Office of Freight Programs for the Railroad Administration. “…
We have to satisfy ourselves that it’s going to be a viable project.”
The examination will be exhaustive, Pomponio said, and will include analysis by FRA experts and outside consultants.
At the same time, Thune did what he could to give the DM&E an advantage in the loan application process. Provisions were added to the loan program requiring the FRA to give priority to projects like the DM&E’s that “alleviate rail capacity problems.”
Coal mines in the Powder River Basin and the electrical utilities that buy the coal have been complaining that the two railroads currently providing service to the mines — the Union Pacific and the Burlington Northern and Santa Fe — have been unable to keep up with the growing demand for Wyoming coal.
Thune also added for the first time a deadline for the FRA to study loan applications. Once the DM&E gets final federal approval to build and an environmental study is completed, the FRA must decide within 90 days whether to issue the loan.
A massive project
The DM&E proposal, if it goes forward, would be the largest American railroad construction project in more than a century. It would transform the DM&E from a Class II railroad that runs a handful of trains through Mankato each day into a major hauler serving as a rolling coal pipeline to power plants in Midwestern and Great Lakes states.
And, in the eyes of local opponents, it would change Mankato from a relatively quiet town to a less pleasant place burdened with as many as 13,000 coal trains annually loaded with nearly 100 million tons of coal.
The National Environmental Policy Act requires the FRA do an environmental review of the DM&E project, but the FRA can choose to adopt much of the elaborate environmental report being completed by the Surface Transportation Board, another federal regulatory agency that has authority over the railroad expansion.
The STB has spent more than seven years dealing with the DM&E project and is nearing final appro-val, expected in January or February.
After that occurs and after the FRA does its environmental review, which FRA officials said could take two to three months, the loan application can then move forward.
“Once the STB takes their final action — assuming final action is to allow the DM&E to go forward — then it falls to us,” said Steve Kulm, a spokesman for the FRA. “That 90-day clock starts ticking.”
Money to spare
DM&E President Kevin Schieffer announced plans last month to apply for the federal money. Schieffer said he hoped to have the loan quickly approved and construction started next spring.
The date of the ground-breaking might be optimistic, but FRA approval is all-but-required if the income potential of the project is strong enough and if federal officials believe the engineering designs are adequate.
That’s because Thune, a registered lobbyist for the DM&E as recently as
13 months ago, quietly tweaked a federal transportation bill this summer to make sure more than enough money would be available for the loan.
The FRA’s loan program is now awash in funding thanks to Thune, who worked to expand the FRA’s loan authority from $3.5 billion to $35 billion — just in time for the DM&E’s $2.5 billion loan application. FRA officials estimate the loan’s interest rate would be 4.7 or 4.8 percent.
Thune’s efforts were key in making the DM&E’s needs fit into what was previously a relatively small loan program. Loans currently issued through the Railroad Rehabilitation and Improvement Financing program average $42.3 million. The DM&E needed about 60 times that amount.
Even if the FRA officials had wanted to put all of their remaining loan authority into the DM&E loan, they couldn’t have done it before Thune changed the law. That’s because $1 billion of the $3.5 billion in loan authority was reserved for the nation’s large Class I railroads.
“That left $2.5 billion for all others,” said Kulm, the FRA spokesman.
“And obviously some of that money was (loaned) out.”
A new partner
Thune, who participated in the DM&E’s November announcement of the loan application, received an estimated $220,000 in lobbying fees from the DM&E in fewer than 19 months of work as the railroad’s chief lobbyist in Washington, D.C., according to records filed with the Secretary of the Senate. Of the total, $160,000 came in the first 11 months of 2004 when Thune was busy with his campaign to topple Democratic Sen. Tom Daschle.
Along with the direct payments to Thune, DM&E officials gave Thune’s campaign for Senate $12,250 in donations, according to campaign finance reports compiled by the Center for Responsive Politics. Schieffer alone gave $4,000 — the maximum amount allowed by law.
The lobbying relationship ended about three weeks after Thune upset Daschle, the former Senate majority leader, in last year’s general election. But Thune’s support for the DM&E continued after he took the oath of office.
Both Gutknecht and a spokesman for Dayton were hesitant to comment on whether it was a conflict of interest for Thune to move so quickly from the DM&E payroll to working on legislation that is potentially enormously helpful to the company.
“We should let the public decide for themselves how they view that,”
said Gelbmann, Dayton’s aide.
Thune was unavailable for comment but his communications director, Kyle Downey, said the senator’s efforts were motivated completely by the benefits the DM&E expansion will bring to the people of South Dakota and America.
“Senator Thune is proud of his work while working in both the public and private sectors to improve South Dakota’s rail system,” Downey said.
The project will create more than 3,000 construction jobs lasting up to three years along with more than 2,000 on-going jobs over the length of the route, Downey said. It will also provide better rail service to existing DM&E customers and supply low-sulfur coal to help keep electricity affordable in America.
Although concerns have been voiced in some South Dakota cities about the disruption that could result from greatly increased train traffic, the project generally has very strong support in Thune’s state.
“It’s a phenomenal project for the state,” Downey said.
Schieffer doesn’t see it as particularly striking that the DM&E turned to Congress for help with financing. Other railroads have received government help, and the DM&E project serves the national interest in a variety of ways, he said.
In previous years, Schieffer repeatedly expressed confidence that finding investors was not going to be a problem.
“That’s part of it I’m not worried about,” Schieffer said in a 2001 Free Press story.
He said at the time that big-money interests in the energy, transportation and construction sectors would be lining up to get involved, and the railroad would just need to decide which of the investors made the best partners.
“At the end of the day, the market’s going to dictate what’s going to happen,” he said then. “This is still a free-market economy.”
Estimated construction costs, however, have more than doubled since the project was first proposed, rising from $1.2 billion in 1997 to $2 billion in 2003 to $2.5 billion today.
Schieffer didn’t include Congress in the list of potential partners back in 2001, but he doesn’t see the new approach as being fundamentally different from seeking the money in the private marketplace.
“I don’t know where the public/private distinction starts and ends,” Schieffer said.