U.S. turns down loan for DM&E coal train project

02/27/2007

BY MARY CLARE JALONICK
Associated Press


WASHINGTON — The Federal Railroad Administration on Monday denied a $2.3 billion federal loan for the Dakota, Minnesota and Eastern Railroad's coal train project.

The DM&E wanted to add track in Wyoming's Powder River Basin coalfields and upgrade its existing line in South Dakota and Minnesota. The $6 billion project would involve building about 280 miles of new track and upgrading 600 miles of existing track so trains could haul coal bound for power plants.

The Mayo Clinic and the city of Rochester, Minn., strongly opposed the project, arguing increased high-speed train traffic through the city could threaten the safety of patients at the clinic, which is only a few hundred yards from the tracks.

Federal Railroad Administrator Joseph Boardman said "there remained too high a risk" that the railroad could not repay the massive loan.

Department of Transportation spokesman Brian Trumail said there is to be no appeal process.

DM&E President Kevin Schieffer said the company is reviewing the decision and that it is too soon to say whether it dooms the project.

"It's obviously a disappointment, but not the first we've had in the last nine years, and I'm sure it's not the last," he said. "We will continue to develop the project, and we obviously wouldn't be doing that if we didn't think it would be able to happen."

He declined to say what the company would do next. In the past, he has said DM&E could look for private investors or even go public.

The Sioux Falls, S.D.-based railroad says it could haul 100 million tons of coal a year bound for Eastern power plants.

A Federal Railroad Administration statement said several factors concerned Boardman, "including the DM&E's current highly leveraged financial position, the size of the loan relative to the limited scale of existing DM&E operations, and the possibility that the railroad may not be able to ship the projected amounts of coal needed to generate enough revenue to pay back the loan."

Minnesota Gov. Tim Pawlenty, a Republican, called the decision "really good news."

"We wanted to find a compromise between some real concerns of the Mayo Clinic and the Rochester community and the DM&E, and that wasn't achieved, so I'm glad the loan was denied," he said.

South Dakota Gov. Mike Rounds, also a Republican, was not immediately available for comment.

An American Association of Railroads spokesman has said the project represented the largest new rail construction in the United States since well before World War II.

The DM&E also wants to carry coal across Iowa, Missouri and Illinois on its sister line, the Iowa, Chicago and Eastern railroad. The federal loan would have covered little more than one-third of the total cost.

The loan would come from a little-used program Sen. John Thune, R-S.D., had amended to meet the DM&E's needs. Thune was a lobbyist for the railroad before his election to the Senate.

In a statement Monday, Thune said the South Dakota congressional delegation saw the project "as an opportunity that only comes around once in a lifetime" and would benefit small agricultural communities.

"This is a major setback for our agriculture, ethanol and energy industries, and small towns struggling to survive," he said.

Thune criticized intense Mayo Clinic lobbying efforts.

"Simply put, there was a huge amount of money spent to sabotage this project by powerful special interests and their hired guns," he said. "This is a case of special interests beating the little guy."

The Mayo Clinic spent more than $200,000 lobbying Congress and the federal government on the issue.

Minnesota Sens. Norm Coleman, a Republican, and Amy Klobuchar, a Democrat, praised the decision.

Coleman said he applauded the Department of Transportation "for the effort that they made to really look at this and do the right thing, protect the interests of American taxpayers."

"I'm very pleased with the result today," Klobuchar said.

Tim Walz, a Minnesota Democrat who represents Rochester, called it "a victory for good government and accountability."

A taxpayer group also lauded the loan denial.

"Today's announcement marks a huge victory in the battle against wasteful spending," said Tom Schatz, president of the Council for Citizens Against Government Waste.