Ag interests cry "foul" over DM&E loan rejection

by Leigh Pomeroy

The wailing and gnashing-of-teeth reaction to the Federal Railroad Administration's rejection of a proposed $2.3 billion loan for the DM&E railroad has strangely not come from Powder River Basin coal interests or coal-fired utilities in the nation's midsection, both of whom would have the most to gain had the loan been approved. No, the loudest hue and cry has come from agricultural interests along the route that were sucked into supporting the proposed loan on the premise that the PRB expansion was the only way the DM&E could upgrade its service for them.

The DM&E's request for a zero collateral, low interest, taxpayer guaranteed loan is sort of like a baseball team owner asking taxpayers to build him a stadium on the premise that it will generate economic benefits and increase tax revenues. As we have come to learn, the jury is very much out on that argument.

Supporters of the loan have pointed out that massive amounts of state and federal dollars have built this nation's interstate highway system. True. Fortunately, the American people as represented by the state and federal governments have retained ownership in that system. In other words, they have something tangible for their tax dollar investment.

If a bank wants to loan money to a business or a homeowner, it understandably expects collateral in return. That's called good business. The same rules should apply to the government, which represents its investors, the people whom it serves. A government loan, like a bank loan, must make good business sense.

Agricultural interests are notorious for being collectors at the public trough. According to the Environmental Working Group, farm subsides reached $164.7 billion for the period 1995-2005. Of that amount, $5.6 billion went to farmers in South Dakota and $9.5 billion went to farmers in Minnesota — the states that would most benefit from the DM&E loan — over that same period of time. For many farmers and groups that represent farmers, these subsidies have become an entitlement.

It is ironic that all too often those who champion "free market economics" are the first in line with their hands out looking for government money. One of the arguments that the DM&E put forward for the loan was that it would allow the railroad to "compete" for hauling Powder River Basin coal. Who would they compete against? Two other railroads. Does this mean that in order to set up a level playing field (per stadiums — no pun intended) the government would have to give the other two railroads low interest, taxpayer guaranteed loans of $2.3 billion each?

The DM&E has already received one $233 million loan. While it used some of that money to improve its infrastructure and upgrade service to existing rural and agricultural markets, it spent a certain amount on legal fees, public relations and other development costs for the PRB expansion, and towards paying off the purchase of the IC&E railroad, which it had acquired less than a year earlier.

Maybe if the DM&E had put more of the loan it already has toward improving service to Minnesota and South Dakota markets, its second loan application, ten times the size of its first, would have looked better to the FRA.

The DM&E's CEO Kevin Schieffer, like a good baseball manager, has very cleverly used ag interests to carry his water on the proposed $2.3 billion loan issue. One of these days these ag interests are going to wake up and realize they've been manipulated. While they've been thinking all along they're in the lineup, in fact they're not even on the roster. Instead, they've just been a bunch of rabid fans fueled by six-packs, overpriced hot dogs and the thought of winning a pennant.

Thanks to Patrick Dempsey for his input on this article.