Federal government rejects loan for DM&E railroad

After nine years, several lawsuits and an incredible amount of political and media lobbying, the proposed federal loan to DM&E is dead. Congressman Tim Walz says he called leaders across southern Minnesota to tell them about the decision. He says they were stunned.

"Well I would say the reaction is, 'Really? That's it?'" Walz told reporters.

Walz says the Transportation Department indicated it denied the loan partly due to a Credit Council ruling. The council indicated the railroad would be unlikely to repay the loan, and that its business plan to deal with cost overruns and poor business was inadequate.

Walz was one of Minnesota's congressional delegation pushing to make DM&E's finances public. The company, and the federal government, have repeatedly denied requests to open the railroad's books. Walz says he is happy with the decision.

"We got good government, we got good oversight," Walz says. "We got transperancy and we got what the public asked for, which is oversight. I think it's unfortunate that a lot of energy went into not allowing us to do this eight or nine years ago."

Walz stresses that rural Minnesota needs better rail transportation, but it should be built on sound finances.

Federal Railroad Administration officials acknowledged the department shepherds loan applicants through the lengthy procedure. By the time a loan reaches the final stages in the approval process, usually everything moves forward as expected.

So the denial came as a surprise, even to members of the Rochester Coalition, a vocal opponent of the loan. Olmsted County Commissioner Ken Brown says this is a victory for the people.

"I firmly believe that there was no business case to sustain that kind of loan," Brown says. "Was I surprised? Yes. I really thought, in the words of Senator Thune, that politics and lobbying had won this game, and the best we were going to get was an inadequate amount of mitigation."

Sen. John Thune, R-S.D., says the ruling came out of a lot of political meddling and misinformation. Thune was once a lobbyist for the railroad. He also increased -- some say earmarked -- the amount of money the Federal Railroad Administration could lend to improvement projects like DM&E's. Thune says this is bad news for rural communities and jobs.

"Sadly, with today's decision, the significant rail needs of South Dakota and the region will not be addressed, and our small town economies will pay the price," Thune says. "Simply put, there was a huge amount of money spent to sabotage this project by powerful special interests and their hired guns. This is a case of special interests beating the little guy."

Thune says those special interests include railroads like Union Pacific and organizations like the Mayo Clinic. He says the FRA advanced this loan proposal with full knowledge of the railroad's finances, then all of a sudden, denied it. He says that's suspicious.

DM&E President Kevin Schieffer also finds it surprising.

"Of course we're disappointed," he says. "But we are committed to moving forward, and we're going to spend some time looking at different options and alternatives and try not to waste time."

Schieffer has spent years in this battle. Before seeking federal financing, he went after private dollars. Schieffer maintains that was botched by lawsuits and a dragged-out federal approval process.

He says the project isn't dead, and there is a Plan B. Schieffer says he still has approval from the Surface Transportation Board to do the project. Based on that long history, it's likely the company will be heard from again.

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