(The Associated Press circulated the following article by Mary Clare Jalonick on May 9.)
WASHINGTON — A group of business and government leaders from Rochester, Minn., is questioning the Dakota, Minnesota and Eastern Railroad’s ability to repay a $2.5 billion federal loan it is seeking, citing a study commissioned by one of the project’s opponents.
A statement released by DM&E president Kevin Schieffer Monday called the study “another in a long line of flops,” referring to previous studies released by opponents.
The railroad is seeking the low-interest government loan to cover the costs of a major expansion and renovation plan that includes rebuilding the its 600 miles of track through South Dakota and Minnesota and building 280 miles of new line into Wyoming’s Powder River Basin coal fields.
The Rochester Coalition, which includes the city of Rochester and the town’s renowned Mayo Clinic, has objected to the expansion because it would mean more trains running through the city and close to the clinic.
On Monday, they took their objections further.
“This loan finances a project with many financial uncertainties, ultimately calling into question whether or not DM&E can repay the loan,” said Steve Huffines, a senior manager with Bearing Point, which conducted the study for the Mayo Clinic.
According to the group’s analysis of the Bearing Point study, the loan would leave the railroad with long-term debt 23 times greater than its current equity value of $111 million.
“DM&E’s (Federal Railroad Administration) loan application, like DM&E’s financials, is not publicly disclosed,” said Huffines.” Nevertheless, we did an analysis of DM&E’s volume projections and found that at current market rates and profit margins, it appears highly unlikely that cash flow will cover their annual debt service.”
John Wade, president of the Rochester Area Chamber of Commerce, said taxpayers should not give $2.5 billion to a company worth “only a fraction” of that amount.
“If the coal trains are such a solid business proposition, why couldn’t DM&E get private financing? If DM&E isn’t good enough for private banks, it shouldn’t be good enough for U.S. taxpayers.”
Schieffer fired back Monday.
“Mayo and Rochester have firmly established themselves as non-credible sources of information and as easy targets for consultants,” he said. “The DM&E project is supported by 55 of the 56 communities served by DM&E, and the overwhelming majority of agriculture and economic development organizations in Minnesota and South Dakota.”