DM&E: Are Thune and Schieffer a couple of cry babies?

by Leigh Pomeroy

Minnesota, South Dakota, Montana and Wyoming newspapers are rife today with more mentions of the DM&E railroad and its subsidiaries. Commanding the most attention is an AP article going under the general headline "Senator blames competitors for loan rejection" or "Thune says competitors derailed loan" or "Sen. Thune: Competitors helped kill DM&E loan."

How this all started is when Sen. John Thune (R-S.D.) managed to sneak a provision into the 2005 Transportation Act on behalf of his former client, the DM&E railroad. The problem is that it swelled a loan program for certain railroads from $3.5 billion to $35 billion, there was no discussion of it in either chamber of Congress, and almost no one knew about it except perhaps a few members of the House-Senate conference committee.

This little bit of behind-the-scenes chicanery was soon discovered and a chorus of objections were raised, led in part by the Mankato, Minn., Free Press. But by then most of the world felt that what would be a $2.3 billion gift of an uncollateralized loan at generous rates to the DM&E was a done deal. The congressional authorization was written in stone in the transportation bill, and everybody knows that you can't fight both the railroad and Congress — a.k.a. the sometime representatives of the people.

Well, a few folks thought otherwise, and today that loan has been squashed.

Those who have an intimate knowledge of the process know that the reason why the Federal Railroad Administration did not approve the loan was purely based on the numbers. The DM&E simply couldn't guarantee that it could pay the loan back. While opponents of the loan were hampered because they did not have access to the DM&E's corporate finances, they did have enough information for a few studies. It was clear, for example, that the DM&E, while showing a profit on its current operations, would be vastly overstretched were it to take on the extra $6 billion in debt ($2.3 billion from taxpayers) it was seeking.

Despite the nuts-and-bolts decision the FRA made on the DM&E's creditworthiness, there was lots of politicking happening on both sides of the issue. What it came down to, at least in the press, was: My friends are more powerful than your friends. But ultimately this should not have had anything to do with the FRA's decision — and probably didn't.

That's why it's laughingly funny when Sen. Thune, who started this whole process by trying to game the system, complains when others — he points to the BNSF railroad in particular — decide they're going to play by the same rules.

Thune and DM&E CEO Kevin Schieffer have to understand that if they're going to play ball on the big boys' playground, the big boys are not necessarily going to let them win. And if they get knocked down because the big boys teach them a lesson or two, it does little good to go to mama media crying.

Instead, they should pick themselves up and dust themselves off, go back to their own playground, get darned good at the game, and then maybe — just maybe — the big boys will say, "Hey, we like the way you play. Wanna come play with us?"

That's how it works with sports, and often with politics and business. The bottom line is: If you're not ready for the big-time, it doesn't mean you can't try. What it does mean is that if you get slapped down, no one's going to have any sympathy if you go crying to your mama. You just have to get up, figure out what you can do, and try again.

What's in a pork sandwich?

Sen. John Thune excoriated again by yet another conservative commentator

Robert Novak gives his 2¢ worth in the Washington Post today about South Dakota Republican Sen. John Thune's failed attempted to get a whole hog's worth of pork for his buddy Kevin Schieffer's DM&E railroad.

Here's the beginning of what Novak has to say:

A Senator's Railroad No-Brainer

By Robert D. Novak
Monday, March 5, 2007; A15

The Federal Railroad Administration handed a rare victory to the American taxpayer last week by denying a questionable $2.3 billion loan application by the Dakota, Minnesota and Eastern (DM&E) Railroad. What makes this news of special interest is the paramount role Sen. John Thune (R-S.D.) played in boosting the loan. Here is a cautionary tale of political life in Washington and how it corrupts.

Thune guided through Congress legislative changes that made the loan possible. But an assessment that DM&E was a poor credit risk was shared by two other conservative senators -- Tom Coburn of Oklahoma and Jim DeMint of South Carolina -- who took the extraordinary step of advocating rejection of a colleague's pet project. Making matters worse, Thune worked as a paid lobbyist for the South Dakota-based railroad before his election to the Senate and has received political contributions from company executives.

Thune entered the Senate in 2005 as a rising GOP star after defeating Democratic leader Tom Daschle. He declared himself eager to rein in spending in a Republican-controlled government. But instead of aligning with his party's reformers, Thune has been energetic in promoting pork for South Dakota. After the embarrassment of the DM&E loan rejection, a Republican Senate source who did not want to be identified said: "One can hope this episode helps Thune recover his revolutionary zeal."

The rest is here.

Those who have pointed out Thune's double standard on pork — that is, claiming to want to "rein in spending" while steering hog futures to his own state — need look no further than his own Senate website where he gleefully details all the road and highway earmarks he brought to South Dakota in the 2005 Transportation Bill. That press release is here.

On the DM&E: "Buying a U.S. senator just doesn’t get you what it used to"

Sam Hurst is a filmmaker who lives in Rapid City, S.D., and writes regular columns for the Rapid City Journal. The following column appeared Sunday, March 3.

South Dakotans "would rather try to con the hardworking taxpayers of California and Michigan into hauling 18th century energy on a 19th century railroad to 20th century utilities than invest in our own 21st century assets. We don’t lack power. We lack imagination."

South Dakota needs to have a new energy strategy

By Sam Hurst

Kevin Schieffer and his pol pal John Thune got whacked last week. They didn’t see it coming. Sen. Thune’s re-write of federal railroad loan regulations to grease the track for a $2.3 billion public loan to the Dakota, Minnesota & Eastern Railroad was nothing if not audacious, especially considering that DM&E is one of the most unsafe railroads in the nation, is deeply in debt, and offered no visible means to repay the loan.

In the wake of the loan refusal, Thune describes himself as the victim of a vast conspiracy that dared to question DM&E’s entitlement to sup at the public trough.

The senator told reporters on Wednesday that his opponents, especially the black-hearted Mayo Clinic, were out to get him. That’s the political equivalent of slinking home from school with an “F” in math and telling your parents: “The teacher doesn’t like me.” Buying a U.S. senator just doesn’t get you what it used to.

The decision of federal railroad administrator Joseph Boardman was elegantly simple: The DM&E loan represented “an unacceptably high risk for federal taxpayers.” It was language that would make any self-respecting, fiscally conservative Republican stand up and cheer.

The rest is here.

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."