(The following article by Terry Woster was posted on the Sioux Falls Argus Leader website on March 17.)
PIERRE, S.D. — Desperate 26 years ago to save access to at least some basic markets for farmers and other shippers, South Dakota bought a railroad.
Last December, when the state sold a big chunk of the track it had bought in 1980 to the company that has been operating the line, part of the deal made sure that other railroads operating in South Dakota would have access to routes that lead to both coasts, Canada and the Gulf of Mexico.
The sale, in which BNSF Railway got 368 miles of track for $42 million, included a series of negotiated agreements that give other rail operators in the state rights to use parts of the BNSF track for their own shipping.
The long-term result, supporters of the transaction say, will be access from South Dakota to every one of the major railroad lines in North America. That could mean more competition, faster delivery and better deals for shippers.
“We’re never going to get a big population out here,” says Ron Mitzel, a state Railroad Board member and official with Dakota Mill and Grain in Rapid City. “To attract industry or anything for economic development and jobs, whatever you’re making needs to move to the population, and the most efficient way to do that, especially long distance, is rail.”
Todd Yeaton of Highmore is equally enthusiastic.
“This (agreement) has opened doors to shippers we’ve never had and never seen,” Yeaton, chairman of the rail board, told legislators when they were arguing over what to do with proceeds from the BNSF sale. “We have in South Dakota for the first time the opportunity to hook up with every single Class One railroad in North America.”
Class One railroads are the largest in the country. There are seven, including BNSF, according to NationalAtlas.gov. The site says that in 2002, those seven railroads were just 1 percent of all U.S. freight rail lines but had 92 percent of freight revenue, 70 percent of the miles operated and 89 percent of employees.
Growing in importance
That access could be increasingly important in South Dakota. While the proposed multibillion-dollar expansion of Dakota, Minnesota & Eastern into Wyoming coal fields has been talked about for years, other economic development in the state often includes a rail component. Ethanol plants and soybean processing, for example, frequently require new railroad siding – or a short track used for loading – to be built. One siding can be a $1 million project, and recent developments such as 110-car unit trains mean longer and longer sidings in the future.
Some rail advocates say that as motor fuel prices increase, trains become a more attractive alternative for shippers.
Karla Engle, a lawyer for the state Department of Transportation, drew the assignment of briefing legislators in the recently ended session on details of the sale and the opportunities it offered.
“It’s a huge, huge advantage for our shippers,” Engle said as she outlined how the deal gives railroads the right to cross and use BNSF track and, in some cases, to have that company move the cars of other companies.
Spoils of the sale
The 2006 Legislature and Gov. Mike Rounds fought over political control of the $42 million sale proceeds.
Legislators eventually transferred about $38 million to an account they control directly. Railroad board members, caught in the middle of the fight, wanted to preserve the fund. The increased access to markets offered in the rail sale means more trackside development and more demands for loans, they argued.
Mitzel said board members worried that the political fight over the fund would overshadow the coming need for new track, heavier bridges and more sidings for ethanol and biodiesel plants, all of which might be funded with loans from the trust fund.
“If you stick money into rail, it’s there for 50 or 100 years,” he said. “It isn’t something you have to go back and do every five or 10 years.”
Don Larson, a Brookings County commissioner and head of the local regional rail authority, says his group first got a trust-fund loan for siding work associated with the soybean processing plant at Volga. At the time, the DM&E was running about 500 carloads of business in the county, he said. The 2006 estimate is for 20,000 carloads of freight in the county.
Opportunities
Jack Parliament, president of D&I Railroad, which generally runs between Dell Rapids and Sioux City, sees opportunities for huge expansion along that line with the rail-sale agreement. The deal opens the way for the line to access three different Class One carriers at Sioux City, he said.
“In the past, shippers along the line only had access to BNSF in Sioux City,” Parliament said. “Since the sale, it’s created numerous opportunities for the shippers.”
He said the Canadian National and Union Pacific are “clearly interested in getting into the Sioux Falls market to provide some competition.”
That could mean development along the north edge of Sioux Falls, where D&I is located.
Parliament also said two “major shippers” he wasn’t at liberty to identify yet are in the process of deciding whether to locate along the line between Canton and Elk Point.
“If those two businesses do locate … that could nearly double our existing business,” he said.
Parliament is on the railroad board. He told legislators during a discussion of the trust fund that recent meetings of the rail board have included as many as a dozen shippers showing an interest in using the idle line from Platte to Napa Junction near Yankton.
Dakota Southern’s line from Mitchell to Kadoka has been idle, too. The part of the line from Kadoka to Rapid City is banked, meaning the state still owns the right-of-way but has removed and sold the steel rails. Rail board members expect new activity on at least the part of the Dakota Southern from Mitchell to perhaps Murdo.
“Fifteen years ago we were loading cars on that track, but it took too long just to get from Murdo to Mitchell,” Mitzel said. “It just needs to be upgraded so (trains) can stay on the track and go 5 mph to 10 mph and get to Mitchell in half a day or a day. Then you can start to sell a service.”
$20 million trust fund
The trust fund was left with $18 million to $20 million.
Republican Rep. Ted Klaudt of Walker was one of those who argued for taking more money out and placing it in legislative control. He said nobody cared about the trust fund until the rail sale.
“We cashed in the golden cow, and so we have all these plans, spur lines and whatever else, to spend it,” Klaudt said.
Republican Rep. Gordon Pederson of Wall is the only legislator still serving who was also in office when the state bought the core line. He tried to thwart the raid on the trust fund.
“I was here when the railroads were dying,” Pederson said during floor debate in the House. “We put on a sales tax to get it going. We got it done. It’s a good railroad, and it’s done quite a bit. Now, it looks like we may be able to get our cars out of South Dakota. And if we can get our cars out of South Dakota with our grain in them, it’s going to help our people. You’re not going to have any industrial development, any economic development, any rural development unless you have good transportation. We are in a transportation desert, and for cripe’s sake, let’s get out of it.”