What's Next for the DM&E?

by Leigh Pomeroy

The DM&E railroad's hoped-for $2.3 billion government loan is now officially dead. According to Minnesota Rep. Tim Walz, there is no appeal, there are no conditions. Over a year of angst and worry, thousands of hours invested, hundreds of thousands of dollars spent and just as many words written, most implying that the loan was a "done deal," and BOOM! Suddenly it's all over.

Well, not quite.

DM&E CEO Kevin Schieffer says he's not giving up. '"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." Yet it's back to the drawing board for a man whom both admirers and enemies have described as being "driven" and "arrogant."

Those who know him personally say that there is still outside funding available, though undoubtedly the terms would be less favorable than the massive $2.3 billion low-interest, taxpayer guaranteed loan would have been.

The Federal Railway Administration offered several reasons for rejecting the loan, 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,
• 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, and
• concerns that the application did not sufficiently address how the railroad would handle potential cost overruns and schedule delays with the Powder River Basin construction project ("FRA Administrator Denies DM&E Powder River Basin Loan Application Citing Unacceptable Risk to Federal Taxpayers").
  

The DM&E has steadfastly refused to make its financial records public, prompting the Mayo Clinic and the Rochester Coalition to file a Freedom of Information Act request with the FRA in April of 2006. That request has yet to be honored, which prompted attorneys acting on behalf of the Clinic and the Coalition to recently file suit with the FRA forcing the FOIA request compliance. At the moment the Clinic and the Coalition have not indicated as to whether they will continue the lawsuit.

Despite the DM&E's penchant for secrecy, there was still ample enough public information to cause the loan to be questioned by members of Congress and organizations championing government fiscal restraint. Much of this was contained in a Bearing Point study commissioned by the Mayo Clinic and Rochester Coalition.

Yet the FRA's decision caught at least some members of the Mayo Clinic/Rochester Coalition team by surprise. "This was not expected," said Patrick Connolly, a coordinator for the team's effort. "We're still in utter shock."

Many in the press too must have been surprised, as the underlying theme in many media reports was that "you can't stop the railroad." At least some local government officials, particularly in Mankato, voiced the same opinion. They were opposed to coal trains coming through their city, yet decided they needed to negotiate with the DM&E because they felt the railroad's expansion project was inevitable.

Rep. Walz indicated on Monday, however, that he expected this outcome from the FRA. "The citizens of this district demanded close scrutiny of this loan and they got it," he said. "This loan proposal brought people from all walks of life together to insist that members of Congress better monitor taxpayer funds. I believe that today’s decision is a direct result of congressional and citizen inquiry and oversight."

Sen. John Thune, R-S.D., the former DM&E lobbyist who at the last minute had inserted the DM&E friendly loan provision into the 2005 Transportation Bill, offered a different take. "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."