DM&E waits to hear on federal loan

The Dakota, Minnesota and Eastern Railroad has been working on this expansion for nearly 10 years. The first big, public hurdle was getting federal approval for the new rail routes that would give Sioux Falls-based DM&E access into Wyoming's Powder River Basin and track upgrades through South Dakota and Minnesota. The Surface Transportation Board agreed to DM&E's expansion project last December.

Now the company needs the cash to pay for the $6 billion project. DM&E is asking for a $2.3 billion federal loan from the Railroad Rehabilitation and Improvement Financing (RIFF) loan program.

Railroad industry watcher and sometimes investor Roy Blanchard says if the DM&E project is viable, the company should be able to find private investment.

"If there's no private interest in it, I don't see why the government can step in and be the lender of last resort," says Blanchard. "It isn't that there is no other way into the Powder River Basin. Someone else has already built it and paid for it with private money."

The Union Pacific and Burlington Northern Santa Fe railroads already serve the coal fields in eastern Wyoming. But DM&E officials believe there's room for one more. CEO Kevin Schieffer says money from the RRIF loan program helped build the lines that are in Wyoming today.

"Both railroads who serve the Powder River basin today built part of their systems with the same kind of funds," says Schieffer. "That doesn't mean you can or can't get financing; it just means it's a smarter way to do it."

There are others who question DM&E's expansion plan. The Rochester Coalition, which includes the Mayo Clinic, questions whether the railroad is in a financial position to ever repay the loan. The group recently made its case to U.S. Department of Transportation Secretary Mary Peters.

U.S. Sen. Norm Coleman, R-Minn. organized the meeting, saying he wants to guarantee the safety of Mayo patients in the event of a derailment or spill in downtown Rochester. Coleman says if language in the loan doesn't assure that, there are other ways.

"You can also have separate legislation attached to appropriation bills that can have direct impact on the issue instead of a loan. I hope we don't get to that point," says Coleman.

The Railroad Rehabilitation and Improvement Financing loan program was created for small railroads to upgrade once-neglected tracks. Keith Hartwell, lobbyist for the American Short Line Railroad Association, says short line rail routes offer cheap transportation options for small businesses. DM&E is a member of the American Short Line Railroad Association.

Hartwell says short line railroads don't earn enough revenue to upgrade their own rail lines, but they do provide an important service.

"It seems to me as a matter of public policy that's what the government ought to be encouraging -- to save railroads, to reduce wear and tear on highways and keep shipping rates competitive for smaller shippers. Those seem like two good things to me that the federal government ought to be for, not against," says Hartwell.

Hartwell is often hired by the Federal Railroad Authority to investigate loan applications. He is not part of the DM&E investigation. He says there is misinformation about the RRIF loan program. Hartwell says the amount of money in the program recently increased from $3 billion to $35 billion.

Opponents of the railroad expansion accuse U.S. Sen. John Thune, R-S.D., of slipping the increase into the transportation bill to benefit DM&E. Thune lobbied for the railroad before being elected to the U.S. Senate.

Keith Hartwell says negotiations to increase the authorized loans have been going on for years. He says while Thune was a part of the conversation, the dollar figure came out of negotiations with a U.S. House transportation subcommittee.

"We said, 'What do you think is possible?' They said '$35 billion is possible.' We said 'Fine, we'll take it,'" says Hartwell. "We tried for years to get it done and finally we got it in this last bill."

Hartwell says the money for short line railroads is not a grant, and every dime has to be repaid with interest. Hartwell says the loan application and authorization process is thorough. He says the process requires detailed financial data from a railroad, including potential customers.

But there is no way for the public to check on the details involved in an application investigation. Minnesota Public Radio filed a Freedom of Information Act request with the Federal Railroad Administration for details on DM&E's loan application. That agency is checking with the railroad before determining which information is proprietary and which information can be made public. Kevin Schieffer, DM&E CEO, says only government loan processors should see some of the information, not the public.

"There are some things we don't have the authority to disclose because they're subject to confidentiality agreements," says Schieffer. "That's very typical in the business world. This is an area where people can get hurt by information. People being utility customers and others. They're subject to serious retribution if they're found out to be working on agreements with us."

But Schieffer is caught between the world of business and public relations. He says "Trust us, and trust the people who look at the figures to make the right decision."

Groups opposed to the railroad expansion want proof -- proof that taxpayer money is being well spent on a loan to DM&E. Kevin Schieffer says it'll only cost the taxpayer if his company can't repay the loan.

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