The Rochester Coalition strikes back

Glen Forbes
Dr Glen Forbes is CEO of Mayo Clinic. He says the DM&E proposal is a case of an proposed business putting an established business at risk.
MPR Photo/Sea Stachura

The relationship between Dakota Minnesota & Eastern Railroad and the Rochester Coalition goes back and forth like a tennis match. Only now they're using flaming tennis balls.

The Rochester Coalition's latest study takes aim at the money behind the expansion project. It challenges the economic logic behind the Federal Rail Administration loaning DM&E $2.5 billion.

DM&E route map
DM&E route map.
Courtesy of DM&E

The company wants to expand and improve its rail line from the Powder River Basin in Wyoming all the way to the Mississippi River. The rail would cut through Rochester's downtown, just 300 feet from the Mayo Clinic.

Olmsted County Chair Ken Brown says the study indicates DM&E has no customers. Hence, he says, the railroad has no way to pay the government back.

"The analogy, simple analogy, is myself going into a banker, my favorite banker, saying 'I want to build a building,'" he says. "Banker says 'OK, how are you going to pay it back? You got tenants? You got letters of intent?' And I say 'No, I'm gonna let market forces decide that.' Do you think I'd get a loan?"

DM&E is a private company, so it hasn't disclosed much about its plans for the line or its finances. And the FRA hasn't released the company's loan application.

The Rochester Coalition based its study on public information DM&E provided to the Surface Transportation Board. The STB approved the expansion proposal.

The financial projections as we see them make it very unlikely that DM&E will be able to repay the FRA loan.

In 2003 DM&E reported $111 million in holdings. If the line were built, the the railroad says it would initially carry 40 million tons of coal per year and max out at 100 million tons.

Steve Huffines is a senior manager at Bearing Point, the company that completed the study. He says he looked at current coal prices and railroad profit margins. He then looked at the loan payments.

"To sum it up, quite simply the financial projections as we see them make it very unlikely that DM&E will be able to repay the FRA loan," he says.

Huffines says most of the current coal-carrying contracts are already locked up with companies like Union Pacific Railroad and Burlington Northern Santa Fe. And he says building a railroad is expensive.

DM&E would have to lure customers away from the other rail companies by dropping its prices, which would cut profits, according Huffines. Taxpayers would have to absorb the loss, not DM&E.

But DM&E President Kevin Schieffer says the coalition, particularly Mayo Clinic, pays a lot of consultants to say whatever it wants to hear.

Kevin Schieffer President and CEO of DM&E railroad
Kevin Schieffer is the President and CEO of the DM&E Railroad.
MPR Photo/Cara Hetland

"They've put out study after study after study that's been rejected," Schieffer says. "And I don't think this one's going to be any different. I think Mayo and Rochester have established themselves as non-credible sources of information."

Schieffer says he hasn't looked at the study, but whatever it claims is inaccurate because the study is based not on fact, but projections.

"The DM&E project is supported by 55 of 56 communities that we serve in Minnesota and South Dakota. And the overwhelming majority of agriculture and economic development organizations in Minnesota support the project," he says.

Schieffer says he wants to negotiate with the Rochester Coalition in public. But Mayo Clinic CEO Dr. Glenn Forbes says the coalition has no plans to do so.

Forbes says Schieffer isn't acknowledging Rochester and the Mayo Clinic's unique situation. A train derailment and a hazardous material spill in the city would put thousands of patients at risk. In short, Forbes says, a potential business in one market threatens an established business in another.

Instead of negotiating, the coalition is taking another approach.

"We're trying to better understand how such an enormous amount of federal tax payer's money can be directed toward a single private business."

So far that single private business has won all of its matches with the Environmental Protection Agency, the Surface Transportation Board and others.

But the coalition recently filed an appeal with the eighth circuit court over the STB's environmental ruling. And the Federal Rail Administration will soon decide whether the rail company merits the $2.5 billion loan. Until then, both sides will likely continue lobbing their flaming tennis balls.