Hypocrisy is alive and well in Congress, revisited

Why is it that Republican congressmen love to tout the advantages of the free market, but when the free market isn't hospitable to their pet projects, what do they do? Go looking for taxpayer subsidies, of course!

Study Exposes Questionable Financing Surrounding DM&E Coal Train Project

$2.5 Billion Taxpayer-Funded Loan Questioned; Annual Loan Payments Average More Than DM&E's Annual Revenue

ROCHESTER, Minn., May 8 /PRNewswire/ -- The Rochester Coalition today submitted a comprehensive study to the Federal Railroad Administration (FRA) questioning the ability of Dakota, Minnesota & Eastern Railroad (DM&E) to repay a $2.5 billion federal loan it is seeking to finance an expansion to haul coal in trains from the Powder River Basin mines in Wyoming to Winona, Minn.

"This loan finances a project with many financial uncertainties, ultimately calling into question whether or not DM&E can repay the loan. We believe that the FRA should require resolution of these issues in its evaluation of the $2.5 billion loan application," stated Steve Huffines, CFA, senior manager, Bearing Point.

According to the study, the loan would leave the already highly leveraged DM&E seriously undercapitalized, with long-term debt 23 times greater than its current equity value of $111 million. Moreover, the study found that the project appears speculative, with strong existing competition, uncertain construction costs and timing, limited access to customers, and no customers in place. Moreover, the pricing necessary to attract market share appears likely to be inherently unprofitable for DM&E.

"DM&E's FRA loan application, like DM&E's financials, is not publicly disclosed. Nevertheless, we did an analysis of DM&E's volume projections and found that at current market rates and profit margins it appears highly unlikely that cash flow will cover their annual debt service," said Huffines. "According to our model, assuming current pricing the volume would have to be 40 percent greater than DM&E's own projections to break even. Conversely, assuming DM&E's projected volumes pricing would have to be 45 percent more than current market levels for this project to break even. We believe that DM&E should explain to the taxpaying public under what circumstances this project could become financially viable."

Mayo Clinic CEO Dr. Glenn Forbes commented, "The DM&E project poses an economic, environmental and safety hazard for Rochester and the state of Minnesota. Now this report demonstrates that the coal trains put billions of taxpayer dollars at risk."

So much for the myth of Republican fiscal conservatism....