Gutknecht: "Mitigate" the DM&E problem

Are you sure, Gil, it's not "Watergate" the DM&E problem?

Gutknecht speaks out on DM&E

Greg Sellnow, Editorial Page Coordinator
Rochester (Minnesota) Post-Bulletin
May 12, 2006

We've been somewhat critical of Congressman Gil Gutknecht for not taking a firmer stand on the DM&E project. But in a story in today's P-B he makes a little more clear how he views the project.

After meeting with members of the Rochester Coalition, which is attempting to keep coal trains out of the city, Gutknecht told P-B Washington reporter Ed Felker that he wants to mitigate, not kill, the DM&E project. He says the train project has long-term value and a strategy to kill the project is not a "winning strategy."

The congressman, who makes his home in Rochester when he's not in Washington, D.C., said he's working with long-time Democratic Minnesota Congressman Jim Oberstar to obtain federal funds for railroad mitigation in Rochester.

Gutknecht, who calls himself a "fiscal conservative," said he'd "like to believe" the $2.5 billion federal loan the DM&E has applied for could be paid back.

Not sure what the thinking is here. Instead of calling into question the hefty federal loan application, the fiscally conservative congressman is asking for even MORE federal money, for mitigation?

Here's why the Post-Bulletin, Mayo Clinic, citizens of Rochester and informed taxpayers are all concerned:

DM&E, show us the money

Rochester Post-Bulletin
May 10, 2006

The local coalition's efforts against the DM&E Railroad expansion project are now being refocused on the shaky business case for granting a $2.5 billion federal government loan.

The Mayo-city-county coalition is submitting a report prepared by BearingPoint, a national management and consulting company. It questions the ability of DM&E to repay its loan based on the revenues it would get by hauling coal from the Powder River Basin in Wyoming to customers in the eastern United States.

It should also be pointed out that the DM&E's Kevin Schieffer has said for more than eight years that this project would be market driven, yet he has failed to secure private financing. Now he's turning to the federal government, hoping to get the Federal Railroad Administration's approval of the largest federal government loan ever granted.

"Two and half billion dollars is an enormous amount of money to provide to a single private business," said Dr. Glenn Forbes, chief executive officer of Mayo-Rochester. "We have difficulty seeing how they can repay the loan."

BearingPoint based its report on DM&E's own projections for coal volume. Steve Huffines of BearingPoint said, "Assuming current pricing, the volume would have to be 40 percent greater than DM&E's own projections to break even."

Unfortunately, some of the numbers being used by BearingPoint are based on speculation because DM&E won't share its financial picture.

It's difficult to see DM&E's business case for the project, given that two other major U.S. railroads are already locked into long-term contracts to deliver Powder River Basin coal to customers. The only way DM&E can get some of this business is by being the low-cost carrier, putting further pressure on its balance sheet.

That job got tougher this week when Union Pacific and BNSF Railway Co. announced plans to expand their track capacity into the Powder River Basin, investing about $100 million to cement their places atop the coal delivery marketplace in the Powder River Basin. Where does DM&E find a niche against these two large national players, which both have the cash to fund their expansions without help from the federal government?

The FRA is allowed to keep DM&E's loan application private but is not required to do so. Surely the American people should have a right to review DM&E's finances before the FRA grants a multi-billion-dollar loan to a company that has yet to demonstrate an ability to repay it.

BearingPoint has serious concerns about the viability of the project. This is a company with a national reputation that wouldn't risk it to please one customer in Rochester, Minn. Clearly, the FRA should look closely at BearingPoint's research before granting a loan to DM&E.

The FRA has 90 days to review the DM&E proposal after it has been accepted. During that time, it's important that others with concerns about this loan register their objections with the FRA.

Now is the time for Sen. Norm Coleman and 1st District Rep. Gil Gutknecht to join Sen. Mark Dayton in aggressively fighting this funding mechanism. Coleman and Gutknecht are fiscal conservatives who should see the financial risks that would be borne by the federal government if DM&E can't repay this huge loan.

DM&E has always wanted this project to stand on its own financial feet. Given BearingPoint's concerns, it's time for the railroad to make public its financial case to justify why the federal government should take on such a big risk to fund this project when two other rail lines are already bringing Powder River Basin coal to market.

The ball is back in Schieffer's court.

For further info:

• Dakota, Minnesota & Eastern Railroad Corporation FRA Loan Creditworthiness Study
• Mayo-funded DM&E study another in long line of flops (DM&E press release)
• "Politics and posturing determines last man standing on DM&E expansion project" from Minnesota Public Radio