Taxpayers will end up footing the DM&E bill

Regardless of how the Federal Railroad Administration (FRA) rules, the evidence has now become overwhelming that the DM&E Railroad will never be in a position to pay back the proposed $2.3 billion loan it is requesting from the federal government. This was pointed out in a Bearing Point study of the railroad's finances earlier in 2006. Granted, the study was funded by the Mayo Clinic, a loan opponent, but Bearing Point's arguments are compelling. Meanwhile, the DM&E has done little, if anything, to counter the study's conclusions. Instead, it has continually asked states, cities and communities that would be affected by the railroad's plan to "trust us."

Marshall Damgaard is a prime researcher on the DM&E expansion project, and his work, while not widely disseminated, bolsters the Bearing Point conclusions, especially in light of developments that have occurred since the Bearing Point report was released. Below, reprinted by permission, is the text of a letter that he recently sent to ranchers affected by the proposed expansion. It is worthwhile for everyone who has an interest in this issue to read it. (NOTE: For those unfamiliar with the acronyms, a listing follows the article.)

Will the DM&E be able to repay the loan?

by Marshall Damgaard

On December 11, 2006, USDOT and BNSF filed comments in STB’s IMRL docket (F.D. No. 34177). What does that alphabet soup mean, and why is this development a problem for DM&E?

DM&E filed its PRB expansion project with STB on February 20, 1998. STB granted final approval to the project on January 30, 2002. A few weeks later, DM&E announced that it had purchased I&M Rail Link (IMRL, today known as IC&E) in a reported $150 million deal. The timing was not coincidental. In an August 19, 2002, news release, the financial advisor for the transaction called it “a difficult and complicated two-year process to negotiate the deal, finance the acquisition, and obtain regulatory approval….” Thus, while STB was busy examining the environmental consequences of the PRB scheme upon DM&E’s existing empire, DM&E was busy expanding that empire.

In the PRB docket, STB declined to cover “down-line” impacts of the project, meaning that its environmental scrutiny would not extend to either Winona, MN (which would receive the “benefit” of coal trains that DM&E would hand off to the Canadian Pacific at Minnesota City), or the IMRL line, which traversed about 1,700 route miles in Minnesota, Iowa, Wisconsin, Illinois, and Missouri. (IMRL’s/IC&E’s main line network links Chicago, Kansas City, and Minneapolis/St. Paul.)

In a pair of dockets approving DM&E’s acquisition and control of IMRL, STB had an opportunity to extend environmental protections to communities along that line. Yet, the Board did not, in part because it did not have definitive information about “what portion of the [PRB] traffic from the new line would move over which IMRL lines….” The Board did, however, prohibit any PRB coal traffic over IMRL lines until it had conducted the apropos environmental review (July 22, 2002). It also required notice of the start of construction for the PRB project and the submission of traffic and environmental information so the impacts could be properly assessed (February 3, 2003).

On May 12, 2006, 18 days after saying that routing PRB coal trains south through Iowa was a “screwball idea,” DM&E CEO Kevin Schieffer petitioned STB to lift its prohibition against moving PRB coal over the former IMRL lines. DM&E stated that the ban on moving PRB coal over the former IMRL lines was hindering its [fruitless, nine-year] efforts to obtain financing for the PRB expansion project. It also argued that it is unnecessary to wait until construction actually begins before the appropriate information is available. It submitted its version of the information necessary to conduct an appropriate environmental review, and, based upon that flimsy information, contended that there was no need to conduct any additional study of the impact of the PRB traffic or consider any mitigation conditions because there would be no potentially significant cumulative impacts.

On July 14, 2006, USDOT objected to that position, writing: “The STB deferred ‘a new environmental inquiry’ in light of uncertainty over both the construction of the PRB line and ‘what portion of the traffic from/to that new line would move over the [IMRL] (now IC&E) lines.” Thus, the Board’s clear intent was to treat the IC&E and IMRL communities now within the greater DM&E’s system in the same way it did those communities located on the original DM&E system, since the primary reason for not doing so in the PRB Construction proceeding had been removed. By leaving the communities in the same position they were in when DM&E ‘did not own’ the IC&E and IMRL lines, the petitioners would not defer the inquiry, they would avoid it entirely. Now that it does own those lines, however, DM&E must also take ownership of the consequences of its planned new operations on all of the communities within its larger system, just as any other merging carriers must.

STB responded to DM&E’s petition by asking DM&E to submit an Environmental Appendix “containing sufficient detail to assist [STB] in determining whether preparation of an EA or EIS is necessary.” Specifically, STB asked DM&E to develop “sufficiently detailed information about projected routing and levels of coal train traffic per day likely to operate over the IMRL rail lines.” (Victoria Rutson memo; July 26, 2006)

DM&E filed the Environmental Appendix on November 8, 2006, stating that its acquisition of the IMRL will have “insignificant environmental impacts and therefore no further formal environmental review is necessary.” (EA at 10 and 13) STB then solicited public comments on the Environmental Appendix.

On December 11, 2006, USDOT filed comments. It wrote: “The Board has repeatedly expressed uncertainty about the validity of an environmental review of the impacts of PRB coal traffic in the absence of specific contracts between DM&E and shippers. The record is still bereft of evidence of such contracts, and thus we remain uncertain about the ultimate truth of the Petitioners’ factual assertions that the eventual routings of PRB coal will mirror those projected in the PRB Construction case. Far more important, of course, is that fact that the impacts of those routings along the former IMRL lines have never been assessed in any proceeding.” (USDOT Comments at 6, footnote)

Also on December 11, 2006, BNSF filed comments. It wrote: “But even if the Board is inclined to conduct a new traffic study in connection with the present proposed action, as DM&E’s Environmental Appendix suggests, the data provided by DM&E is patently insufficient for involved parties to draw meaningful conclusions about impacts that would result from routing PRB coal traffic via the former IMRL routes. DM&E’s Environmental Appendix includes just three years of data for PRB coal shipments, and little if any indication of how it arrived at that data. Furthermore, since DM&E has provided no detailed operating plan, the public is left to speculate as to how this sparse data relates to any such plans . . . DM&E’s reasons for limiting the amount of PRB coal data in the Environmental Appendix are apparent. Adding two additional years of increasing foreseeable traffic would almost certainly mean exceeding the Board’s thresholds for environmental review on every segment of the former IMRL lines, nearly all of which carried, and continue to carry, light densities of traffic. Even the limited amount of data DM&E chose to provide shows that the thresholds would be exceeded on at least two segments, which under the Board’s regulations necessitates a detailed review of the entire proposed action.” (BNSF Comments at 4-5)

BNSF, of course, realizes the divide and conquer game that DM&E loves to play. In this case, DM&E is telling the financially-concerned FRA that it will send so many coal trains down its tracks that it can easily repay a $2.3 billion loan, and it is simultaneously telling the environmentally-concerned STB that it will send so few coal trains down its tracks that the environment is not even impacted.

BNSF writes: “An alternative way for SEA [STB’s Section for Environmental Analysis] to independently verify the limited PRB traffic projections contained in DM&E’s Environmental Appendix would be for SEA to compare such projections to what DM&E presumably has submitted to the FRA in support of its business case that it has the ability to repay a $2.3 billion federal loan (for a project expected to cost approximately $6 billion). It would be surprising to BNSF if DM&E’s traffic projections submitted to FRA in support of DM&E’s application for a loan with a maximum term of 25 years were limited to a three year window shown in its Environmental Appendix. It would therefore be appropriate for the STB to review the business case at its sister agency and compare the traffic projection and routing information provided to FRA to what DM&E has selectively disclosed to SEA and the public in the Environmental Appendix.” (BNSF Comments at 16-17, footnote)

BNSF then goes on to demolish another DM&E argument: “The projections in DM&E’s Environmental Appendix indicate that the amount of PRB coal transported on the former IMRL limes will not be at all different now that DM&E controls those lines. But as the STB and SEA know from prior proceedings, it is almost always the case that acquisitions promote the diversion of traffic to newly-acquired lines. Indeed, one of the benefits often identified with acquisitions is the value of single line service to shippers, even if the movement involves a longer haul.” (BNSF Comments at 26)

BNSF’s concerns are not philosophical and theoretical, but pragmatic and real. It argued that DM&E’s PRB traffic could cause substantial “ripple-effect” delays to BNSF’s traffic (including time-sensitive intermodal traffic) at Savanna, IL, where the Chicago-bound former IMRL line crosses—at grade—BNSF’s transcontinental main line connecting the Pacific Northwest and Chicago. BNSF also argues that STB must study the individual and cumulative impacts of DM&E sending millions of tons of PRB coal along the former IMRL into the Chicago Gateway, which is known as “Congestion Central” of America’s rail network. Impacts could include air quality, noise, rail congestion, traffic congestion, increased truck traffic, and freight rail safety—all of which could be faced by all communities along the former IMRL lines in Iowa and Illinois. Finally, BNSF said that STB must study potential impacts to commuters traveling into Chicago on regional Metra operations, which could be sharing tracks with DM&E’s mile-long coal trains.

DM&E’s initial response to BNSF’s filing was printed in Platts on December 13, 2006: “’It is OK for BNSF to borrow money through [the FRA] loan program, but it is not OK for us,’ he [Schieffer] told Platts. ‘This is a very hard argument to carry and the board will see through that.’” This is essentially the kind of illogical reasoning that characterizes first graders: “He has a fudge bar, so I get one, too.” In this instance, however, the crybaby argument is based upon one of DM&E’s often-told lies. According to FRA: “Neither the Union Pacific Railroad nor the BNSF Railway has ever applied for loans from the FRA.” (FRA e-mail to MD on May 7, 2006; confirmed in FRA e-mail to MD on June 23, 2006) DM&E’s crocodile tears aside, STB must judge BNSF’s comments based upon their factual and legal merits. If STB orders a full-blown EIS for the former IMRL lines, including Chicago, the process could take a long, long time, and there is absolutely no assurance that the ultimate outcome would be non-toxic to DM&E’s plans.

Owatonna, Winona, and Chicago represent the three legs on DM&E’s coal shipment stool. If you remove Owatonna, as the gateway to the former IMRL lines, then DM&E cannot ship PRB coal all the way to Chicago on its own lines. It must hand off virtually all of its PRB coal (and a large chunk of its hoped-for profits) to the CP at Winona (Minnesota City). If you remove Winona, as the connecting point to CP and Chicago, then the necessary volume of PRB coal traffic through Iowa sends the EIS meter into the red zone—and sends DM&E back to FRA to apply for another loan to upgrade its IC&E tracks to handle super-heavy coal trains. If you remove Chicago, which may not be able to accommodate millions of tons of DM&E’s PRB coal every year, then DM&E simply cannot get the pig to market. (BNSF and UP route a portion of their PRB coal traffic around EPA’s Chicago-Gary-Lake County non-attainment area, and some of that traffic does not go through Chicago at all. Thus, DM&E cannot argue that its coal trains will replace, one-for-one, BNSF’s and UP’s coal trains.) Take away any one leg of the three, and the stool topples. Gravity always wins.

DM&E’s 1998 application to STB said that it would send more than 34 coal trains down its tracks every day. Has Mr. Schieffer told the Iowans about all the trains headed their way? Not exactly. The April 24, 2006, Rochester Post-Bulletin reported: “An idea to route trains carrying coal from Wyoming through Iowa to avoid Rochester is ‘a screwball proposal, and it’s not going to happen.’ That’s what Dakota, Minnesota & Eastern Railroad President Kevin Schieffer told Iowa residents late last week during a ‘rolling meeting’ on the Iowa, Chicago & Eastern Railroad line.” If the coal trains are not headed to Iowa, then are they going through Rochester and on to Winona? Not exactly. The August 31, 2006, Huron Plainsman reported: “Schieffer said the upgrades would add eight to 12 trains a day through Rochester—not 34, an earlier projection used by project opponents.” Yet, in a story published in the September 30, 2006, Rochester Post-Bulletin, Mr. Schieffer claimed that a new “independent” study showed that if DM&E’s proposed PRB expansion plan becomes reality, only three coal trains will move through Rochester each day. So if the coal trains are not going through Rochester, then are they going to the Black Hole of Chicago through Iowa after all—if the STB PRB coal ban ever gets lifted? Not exactly. DM&E’s November 8, 2006, Environmental Appendix claims that its acquisition of IMRL will result in so few—if any—additional coal trains thundering through Iowa that it will produce “insignificant environmental impacts”.

Almost a decade after DM&E filed its application with STB, it is essentially telling us that it will be actually sending very few coal trains anyplace. If that’s true, how can the railroad hope to repay a $2.3 billion loan from the taxpayers of America, in addition to securing private sector financing for the rest of a project that it estimates to cost between $6 billion and $7.1 billion?

Glossary

BNSF: Burlington Northern Santa Fe
CP: Canadian Pacific
DM&E: Dakota, Minnesota & Eastern
EA: Environmental Analysis
EIS: Environmental Impact Statement
FRA: Federal Railroad Administration
IC&E: Iowa, Chicago & Eastern
IMRL: I&M Rail Link
PRB: Powder River Basin
STB: Surface Transportation Board
UP: Union Pacific
USDOT: United States Department of Transportation

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
  

Obstacles push DM&E expansion to the tipping point

by Leigh Pomeroy

Once considered a "sure thing," the proposed Dakota Minnesota & Eastern (DM&E) Railroad expansion into the coal-rich Powder River Basin could be on the verge of collapse. The reasons for this are many and varied, but a last-minute provision slipped into the Transportation Bill earlier this year virtually assuring a $2.3 billion dollar unsecured federal loan for the railroad now appears to be in serious jeopardy.

Further, private financing for the expansion has disappeared from the horizon, engineering problems have multiplied, opposition from Rochester is stronger than ever, and the railroad's competitors, the Union Pacific (UP) and the Burlington Northern and Santa Fe (BNSF), have shown no desire to cooperate.

The bottom line is that Washington and DM&E insiders now agree independently that the project has only a 50-50 chance of going forward. And that may be optimistic.

Here are the reasons why:

Lack of competitor cooperation

Just this week, the BNSF released its comment on the proposed DM&E upgrade and how increased traffic could jeopardize BNSF operations. The BNSF report specifically referred to the former I & M Rail Link (IMRL) trackage that the DM&E acquired in 2003. DM&E CEO Kevin Schieffer has characteristically dismissed the BNSF report as being "a desire to keep competition out of the marketplace."

The DM&E hopes that the IMRL tracks will provide a possible alternate route to going through Rochester, Minnesota, where dogged opposition from the city, Olmsted County and the Mayo Clinic has proven to be a political nightmare both for the DM&E and politicians in Minnesota who have supported the expansion.

The other major carrier of Powder River coal, the Union Pacific, has remained steadfastly mum on the issue, possibly because it's caught between two alternative outcomes, both profitable for the larger railroad.

On the one hand, if the DM&E expansion does not go through, the UP will continue to share the lucrative business of hauling Powder River coal with just one competitor, the BNSF. On the other hand, if the DM&E receives its loan and goes ahead with the project, the UP, with first right of refusal on any sale of the DM&E, will be in the perfect spot to acquire the smaller railroad and assume its taxpayer-subsidized loan, possibly at fire sale prices.

The UP is also a key player in the DM&E's route selection in Mankato and Blue Earth County. The DM&E's first-choice route is through this city of about 35,000, but the DM&E doesn't own the right-of-way; the UP does. In order to accommodate the projected increase in DM&E traffic, the route would have to be upgraded, increasing trackage, expanding sidings, and adding millions of dollars of mitigation to the nearly five miles of neighborhoods it winds through.

While the DM&E would pick up the tab, the UP has shown no interest in coming to the table, either with the DM&E or the City of Mankato. Consequently, the DM&E is considering a so-called "southern bypass" through rural Blue Earth County. Both the city and the county have stated their preference to be the "in-town" route, but engineering obstacles to the south route make that option environmentally and economically nearly impossible.

Prof. Bryce Hoppie of Minnesota State University Mankato did a geological study of the proposed route in 2000 when it was first put forward. He states:

In summary, my preliminary results indicate that expansion along the existing railroad corridor west of downtown Mankato (Ml and M3) or along the western end of the southern bypass (M2) have substantial negative impacts on the local environment. I believe the extent of the negative impacts I have identified herein may be as great as any found along the entire line of the expanded DM&E railway. [Italics mine.]

Specifically, Prof. Hoppie points to two problems: First, the railroad will not be able to achieve a greater than 3% grade in order to haul coal. With the route going from existing DM&E tracks alongside the Minnesota River, across the parallel UP right-of-way, across the Blue Earth River, and finally up to the plateau south of Mankato, there will be need for grading and at least one trestle as much as a mile long and up to 80 feet high. Since the soil in the Blue Earth River Valley is soft, organic material on top of clay, pilings perhaps as long as 100 feet may have to be driven into the substrate in order to support the weight of the coal trains and their specialized locomotives.

Prof. Hoppie says that while there is no project too difficult for any engineer, laying a railroad line capable of supporting mile-long coal trains would be cost prohibitive. Further, extensive environmental mitigation would need to be made, adding to the cost and the construction timeline.

Thus, the DM&E plan for Mankato seems to be stuck between a lack of cooperation from the UP for the in-town route and the near impracticality of the southern bypass.

The changing climate in Washington

The success of the Democratic Party victories in southern Minnesota in the last election did not bode well for the DM&E's plans. Many observers (including this one) attribute Tim Walz's stunning victory over 12-year incumbent Gil Gutknecht for the House seat in District 1 to the DM&E issue. Gutknecht was a firm expansion supporter despite the fierce opposition from his hometown of Rochester. Walz did not oppose the expansion per se, but condemned the proposed $2.3 billion loan and stood firmly on the side of Rochester and the Mayo Clinic in defense of their interests.

Since the election, Minnesota Sen. Norm Coleman and Gov. Tim Pawlenty, both Republicans, have shown more interest in the Rochester-Mayo point of view after standing mostly on the sidelines up till Nov. 7. Further, the incoming Chair of the powerful House Transportation Committee will be Minnesota's Jim Oberstar, and while Oberstar is known as a railroad supporter, it is unlikely he will approve any legislation damaging to Walz or his constituents.

South Dakota Sen. John Thune, the former DM&E lobbyist responsible for slipping the $2.3 billion loan into the 2006 Transportation Bill, is still in Congress but holds less sway due to the upcoming turnover. Also, the process by which he added the loan provision without any hearing in the House has suffered attack from both the right and the left.

The other two members of the South Dakota Capitol Hill contingent, Rep. Stephanie Herseth and Sen. Tim Johnson, both Democrats, have been supportive of the project. But Johnson is temporarily incapacitated due to a brain hemorrhage, and Herseth may be backtracking a bit in deference to Walz's win and the lack of enthusiasm in Minnesota for the DM&E's plans.

While the loan was in the Transportation Bill, the appropriations bill funding it was never voted on and instead passed onto the new Democrat controlled Congress that convenes in 2007. Like the infamous proposed wall along the U.S. border with Mexico, it was approved but never funded.

Stuck in the station?

The lack of cooperation of the BNSF and the UP for advancing the project and the Democratic takeover of Congress are just two of the obstacles the DM&E faces. There are many more: from ranchers in Wyoming to Indian tribes in South Dakota, and from the tiny Village of Skyline, Minnesota, one of the smallest cities along the DM&E's route, to Rochester, the largest and economically most powerful. All have reasons to oppose the railroad's expansion plans.

What keeps the project going is the determination of the DM&E's Schieffer, his connections in Washington — former DM&E lobbyist Thune and the Republican-appointed Surface Transportation Board — the nation's struggle for energy independence, and a near-universal support for improving the country's archaic railroad system. Yet as the length of time for the project's approval expands, as the opposition remains steadfast, and as the economic and environmental concerns (including global warming) mount, the probability that the project will go forward in its current form increasingly diminishes.

The proposed DM&E expansion has been stuck in the station for almost 10 years. The chance that it will ever get up enough steam to finally leave is looking more and more remote.

To be continued...

More 'DM&E for sale' news and analysis

Vox Verax is posting the entire TRAINS article about the pending sale of the DM&E railroad with an insightful commentary by Patrick Dempsey following:

TRAINS exclusive: DM&E/IC&E bidders winnowed to around 10

by Fred W. Frailey
June 12, 2007

SIOUX FALLS, S.D. -- Union Pacific and BNSF Railway -- move over. Another railroad is nearer to laying its tracks into Wyoming's Powder River Basin coalfields. Trains has learned that Cedar American Rail Holdings is auctioning some or all of its Dakota, Minnesota & Eastern and Iowa, Chicago & Eastern Railroads to one of about 10 bidders still in the running. Several of those bidding consortiums include other railroads.

DM&E operates a route bought in 1986 from Chicago & Northwestern, from Winona, Minn., west across Minnesota and South Dakota to Rapid City -- 649 miles. From there it goes northwest to Colony, Wyo., and south to Crawford, Neb. In all, DM&E runs over 1,103 route miles.

For a decade the railroad has sought to compete with BNSF and UP for coal business in the Powder River Basin. It proposes building a new 260-mile line from Wall, S.D., along the Cheyenne River to Edgemont, S.D., and then west into the coalfields. The last regulatory hurdle was cleared in Feb. 2006, when the Surface Transportation Board gave its final approval.

All that stands in the way is financing. The estimated cost of building the new line and rebuilding the existing DM&E back to Winona is $2.3 billion to $2.5 billion. Locomotives and facilities could raise the total spending considerably. A sought-after $2.5 billion loan from the Federal Railroad Administration -- part of the $35 billion Railroad Rehabilitation Improvement and Financing program authorized by Congress -- was denied on Feb. 26, on grounds that the railroad would not be able to repay the loan. (But sources tell Trains that the FRA staff actually recommended approval of the loan, and that the railroad's financial health has improved considerably in the past two years.)

Denied the loan, DM&E's owner, Cedar American Rail Holdings, hired Merrill Lynch and Citigroup to explore other ways to finance the Powder River Basin project. Of some 100 entities approached by the investment bankers, approximately 30 expressed an interest in either buying the railroad or partnering with it in some fashion. All were asked to make proposals.

Trains learned that from those 30 interested bidders, approximately 10 consortiums were invited to hear presentations by Kevin V. Schieffer, president and chief executive officer, during the past two weeks. Three railroad companies are reportedly among the 10 semifinalists: Canadian National, Canadian Pacific, and an unnamed shortline company. Each of the three rail companies is partnering with private equity groups or other deep-pocket entities to avoid the issue of controlling ownership of DM&E. Canadian Pacific's Twin Cities-Chicago main line connects directly with DM&E at Winona. Canadian National connects at Dubuque with the IC&E, a sister railroad to DM&E. The 1,400-mile IC&E, made up of former Milwaukee Road lines, was brought under the DM&E umbrella in 2002.

Sources tell Trains that the 10 consortiums have until the end of this week to either affirm (or possibly sweeten) their proposals. It's believed that one final round of due diligence and bidding may remain before Cedar American makes a decision. That decision could involve selling all or part of both railroads, selling part or all of DM&E only or part or all of IC&E. "The nice thing about the FRA loan was that it would have enabled Cedar American to keep control of the company," said one insider. "Now that may not be possible. They may have to accept being junior partner."

DM&E and IC&E connect with each other via an IC&E line that runs north-south from Owatonna, Minn., to near Mason City, Iowa. In addition to interchanging with CP at Winona or CN at Dubuque, IC&E could run its own coal trains right into Chicago, via Savanna, Ill. One insider estimates the cost of upgrading IC&E tracks for coal service from Owatonna to Chicago at hundreds of millions of dollars.

In a letter to employees last week, Schieffer pleaded that they be patient and not fearful. "In the coming weeks," he wrote, "we will have potential investors and possible partners on the property. There are lots of lookers, and we will allow many different players to look things over. But just because they are looking doesn't mean they will ultimately be in the deal, or that there will be a deal."

Cedar American is privately owned. But rail supplier L. B. Foster Co. (symbol FSTR) owns 13.4 percent of Cedar American - the result of a $9 million investment made when DM&E was bought from North Western. Foster's filings with the Securities and Exchange Commission state that the value of its share of Cedar American far exceeds that original investment.

Patrick Dempsey comments:

It's hard to say whether Canadian National or Canadian Pacific has a leg up. I know CP did not want to sell to the DM&E its IMRL assets, which became IC&E after the sale. So, there is no doubt they have interest. CN nearly merged with BNSF seven years ago, but was blocked by the STB and UP. CN has plenty of money to buy DM&E and upgrade the line without any financial difficulties and could further enhance their position around the Great Lakes acquiring DM&E/IC&E.

I could venture a guess on the 'unnamed short line' and it would be either RailAmerica or Genesee & Wyoming Rail. RailAmerica and G&W are large corporations that own several regional and short line roads across the globe. They would probably be 'partners' in a DM&E deal rather than a CN or CP, which would probably purchase the properties outright.

Opinion: A DM&E sale would be the worst possible scenario for Mayo/Rochester. CN or CP would not offer Mayo any mitigation and more than that, they wouldn't have to if they haul coal through Rochester at some point. They both have plenty of money to upgrade and expand to the PRB if either acquires the property. Also, a CN or CP purchase would probably mean wholesale abandonments in Minnesota and Iowa along everything except the coal haul arteries. These companies would have no interest in hauling ag products along its coal arteries. They could care less about the co-ops in towns like Jackson and Sherburn, Minn., and Estherville, Iowa. But I suspect a company like Twin Cities & Western Railroad or Progressive Rail would be able to come in and buy the proposed abandonments and operate the branches as short lines.

Note the Trains article indicates that FRA staff actually recommended approval of the loan. It was politics that killed the loan and not the financial health of DM&E, as I had tried to tell people from the start. An independent DM&E would have been the best situation for Mayo and the upper Midwest, but it looks like that will no longer be the case....

Based on some of my sources in the rail business, I think I am right in saying that one of the "unnamed short lines" might either be RailAmerica or Genesee & Wyoming. Since they are "unnamed" and knowing Schieffer to NOT be a quitter, I find it hard to believe he will sell to CP or CN. My bet would be that DM&E will partner with RailAmerica or G&W in a joint venture with each owning probably half of the Cedar American business. That would certainly be good for the rural communities along the DM&E/IC&E routes if RailAmerica or G&W were involved. I doubt abandonment would be in the plan with RailAmerica or G&W in the mix. RailAmerica and G&W have very deep pockets and access to a lot of capital -- more than enough to fund the PRB project.

Vox Verax note: Whether or not FRA staff recommended the $2.3 billion DM&E loan is for insiders to know and the rest of us (perhaps) to find out. Despite arguments by loan proponents, Vox Verax still believes that the loan was denied based on questions about the DM&E's financial future.

Regardless, the FRA loan program was expanded from $3.5 billion to $35 billion because of pure earmark-style politics. If the DM&E loan also failed because of politics, then let's call it "tit for tat."

DM&E expansion poses serious threat to Mayo Clinic

by Leigh Pomeroy

It's no secret that Rochester's Mayo Clinic is the financial force behind The Rochester Coalition, which is trying to derail the DM&E Railroad's plan to send coal trains within 900 feet of the Mayo's front door. Just this week the Coalition released a video on tape, DVD and the internet explaining the dangers that more train traffic through Rochester will bring to the Mayo Clinic and the city.

The Rochester Coalition has taken a multi-pronged approach to stopping the DM&E project, enlisting heavy hitters from the Mayo's Board of Trustees, former legislators, top attorneys in Washington, media specialists and grassroots organizers. It has put up a website called Track the Truth and bought position placement on Google.

In short, the Mayo views the prospect of the DM&E running more traffic through Rochester as a serious threat to its well-being and is spending big bucks to fight the battle. It has purchased full-page ads in newspapers in cities along its route, including the Rochester Post-Bulletin, Mankato Free Press and Sioux Fall Argus Leader. In addition, it bought a full-page ad in the Minneapolis Star-Tribune during a recent visit by President Bush.

In the view of the Mayo Clinic, the DM&E's expansion plans are a dangerous threat. Were this a battle of the titans, it would receive national interest. But the DM&E is only a Class II railroad, in other words a regional carrier. And the Mayo Clinic, while internationally recognized, has little economic impact beyond the upper Midwest.

On the DM&E's side are antiquated railroad laws dating back to the 19th century, plus a congressional earmark in the 2006 transportation bill. On the Mayo's side is its international reputation, well-heeled contacts, sheer determination and what might be called the "white hat" factor. For in this battle, if it were decided based on the concept of good vs. evil, the Mayo would definitely be the good.

The differences between the two business entities are striking: The DM&E is a for-profit, privately-held corporation whose books are closed to public scrutiny, which is ironic since public funds are being requested for its expansion. On the other hand, the Mayo Clinic is a nonprofit charitable organization, whose books are open according to the extent of the law.

For Kevin Schieffer, the DM&E's CEO, this is a personal quest — a challenge he has dedicated at least the last eight years to. When he started his quest, expanding the struggling DM&E into the coal-rich Powder River Basin in Wyoming seemed like a no-brainer. Though the area was served by the Burlington Northern and the Union Pacific, their routes to the area were circuitous and their service questionable. With just a few hundred miles of extra track, the DM&E could come into the area directly and ship coal to the fuel-hungry coal-fired plants of the Midwest.

But as poet Robert Burns said, "The best laid schemes o' mice an' men/Gang aft agley" — meaning "the best laid plans of mice and men often go wrong." In other words, what was once a solid economic argument for the railroad expansion may no longer exist, as argued convincingly by former Mankato, Minnesota, city councilman Bob Freyberg.

The conflict over the DM&E expansion is indeed small as compared to such global issues as the war in Iraq, the AIDS crisis, global warming and worldwide poverty. But it is, in fact, a microcosm, a sample perhaps, of the larger looming vision of what the future of the planet ought to be. The DM&E's arguments are couched in the legal, political and economic advantages of the present. The Mayo's arguments are based on the physician's charge, established in ancient Greece, of "first, do no harm."

The delivery of Powder River Basin coal to the antiquated, coal-fired power plants of the Midwest may be economically advantageous to the DM&E and to electricity consumers in Illinois and Indiana. But if it puts at peril people, cities, communities, businesses and nonprofit organizations along the way — including the Mayo Clinic — then what the DM&E advocates is robbing Peter to pay Paul.

And if that is the role of government, then we are indeed a socialist state.

United Transportation Union Blasts DM&E Loan

by Leigh Pomeroy

The president of the United Transportation Union today blasted the proposed $2.3 billion federal loan to the DM&E Railroad as a bad deal for its members and would likely be a poor investment for American taxpayers. The UTU represents DM&E employees.

"If the DM&E were credit worthy, it would be able to obtain a loan in the private sector," said UTU president Paul Thompson. "In fact, the railroad poses a substantial credit risk and may be no more than a stalking horse for cash-rich Union Pacific. Moreover, the DM&E has severe safety problems that threaten the public and national security."

He termed the proposed loan a taxpayer subsidy.

"With 46 million Americans lacking health care, with a war that is draining the U.S. treasury, with the administration reluctant to fund Amtrak in spite of sharply higher oil prices and increased evidence of global warming, and with Congress being asked to eliminate almost 150 domestic programs to help narrow the budget gap, there is absolutely no legitimate justification to provide a $2.3 billion taxpayer financed federal loan to a railroad unlikely to pay it back," Thompson said.

If the DM&E received the loan, now under consideration by the Federal Railroad Administration, it would go into competition with the Burlington Northern Santa Fe and Union Pacific railroads hauling coal from Wyoming's Powder River Basin to utilities in the Midwest. But any chance of repaying the $2.3 billion dollar loan would be based upon the DM&E gaining major safety, health care and wage concessions from union members, said the UTU's national legislative director, James Brunkenhoefer.

"BNSF and UP employees already make one-third more than DM&E employees," said Brunkenhoefer. DM&E employees also have a worse health care plan and fewer benefits than workers at the larger two railroads.

Another way the DM&E proposes to cut labor costs is to run trains with one-man crews, said Brunkenhoefer, bringing up questions of safety for a railroad that already has a controversial safety record. "DM&E consistently has had among the worst safety records of any railroad in the country," the UTU's Thompson said. "In virtually every major category of railroad safety statistics, the railroad has usually ranked last. Compared with national averages, DM&E is off the charts on the south end."

Brunkenhoefer noted that the UTU has been trying to bargain with the DM&E to bring its employees' wages and benefits up the the level of its competitors, but that the railroad's CEO, Kevin Schieffer, has consistently stonewalled the effort.

A spokesperson for the DM&E said he was not yet aware of the UTU's statement.

DM&E Update: Here's a Scorecard to Keep Track of Who's Lined Up for Powder River Bowl

Are we going to update the update? You bet! Since the post below was written, the United Transportation Union has declared its opposition to the proposed DM&E loan. See article above: "United Transportation Union Blasts DM&E Loan".

The football season ends but politics remains with us forever. For both it's usually a simple matter of the good guys vs. the bad guys, my team vs. your team, Colts vs. Bears, Republicans vs. Democrats. Not so with the all the hoopla surrounding a proposed $2.3 billion federal loan for a struggling Midwestern railroad called the Dakota, Minnesota & Eastern, also known as the DM&E.

This issue has been well covered on Minnesota Monitor, in the mainstream media and on various blogs.

This complex issue has caused intra-party rifts, pitting Republicans and Democrats in South Dakota vs. Democrats and Republicans in Minnesota. The divide has not broken down politically but by state and economic interests. On one side is the railroad, big agriculture, the South Dakota congressional delegation and many rural communities. On the other is the Mayo Clinic, ranchers in Wyoming and South Dakota, the Minnesota congressional delegation, taxpayer watchdog and environmental groups, and the largest city along the route.

But the best way to tell the players in any game is to have a scorecard. So Minnesota Monitor and Vox Verax are now offering the exclusive DM&E Powder River Bowl game scorecard below. Get out your scissors, folks -- this one's a keeper.

	DM&E "Coal-busters"	On the sidelines	Mayo Clinic "Healers"
Coach	Kevin Schieffer, CEO, DM&E	George W. Bush, President, United States	Glenn Forbes, CEO, Mayo Clinic
Offensive backfield	Sen. Tim Johnson (D-S.D.) Sen. John Thune (R-S.D.) Rep. Stephanie Herseth (D-S.D.) Gov. Mike Rounds (R-S.D.)	U.S. Secretary of Transportation Mary Peters Rep. Jim Oberstar (D-Minn.), chairman, House Transportation Committee Rep. Collin Peterson (D-Minn.), chairman, House Agriculture Committee	Sen. Norm Coleman (R-Minn.) Sen. Amy Klobuchar (D-Minn.) Rep. Tim Walz (D-Minn.) Gov. Tim Pawlenty (R-Minn.)
Offensive line	DM&E Railroad GOTRAC Minnesota Farm Bureau Minnesota Farmer's Union Minnesota Grain and Feed Association Minnesota Soybean Processors South Dakota Association of Cooperatives South Dakota Chamber of Commerce and Industry South Dakota Corn Growers Association South Dakota Farm Bureau South Dakota Farmers Union South Dakota Grain & Feed Association South Dakota Rural Electric Association South Dakota Soybean Processors South Dakota Wheat Growers	City of Brookings, S.D.* City of Mankato, Minn.* City of Pierre, S.D.* Blue Earth County, Minn.* Burlington Northern Railroad** Union Pacific Railroad United Transportation Union (represents DM&E employees) *Currently negotiating or renegotiating agreements with the DM&E. **Has expressed reservations about DM&E's intention to ship coal via Iowa, Chicago & Eastern (IC&E) lines in northern Iowa. IC&E is a wholly-owned DM&E subsidiary.	Mayo Clinic Rochester Coalition City of Rochester, Minn. Olmsted County, Minn. Rochester Area Chamber of Commerce National Taxpayers Union Citizens Against Government Waste FreedomWorks Taxpayers League of Minnesota Winona State University Student Senate Mid-States Coalition for Progress Minnesota Center for Environmental Advocacy Sierra Club United Transportation Union (represents DM&E employees) — NEW!

On the DM&E, government subsidies, sell-out politicians, and "KA-CHING"

"If the DM&E gets the funding, it has the potential to make boxcars of cash." — from "What It Takes to Build a (21st Century) Railroad"

Every once in a while we receive a comment that is worthy for frontpage consideration. Below is one such comment by Karen Hardy Cárdenas of Brookings, South Dakota, on the DM&E issue:

"Loading the Pork Train" is a great article that brings to light aspects of the DM&E situation of which many people are unaware. People are also unaware of the fact that anger and dissatisfaction with the DM&E, with local city councils and with South Dakota's representatives in Washington is growing.

Two weeks ago a group known as "Citizens for a Safer Brookings" successfully collected enough signatures to refer the Community Partnership Agreement between the Brookings City Council and the DM&E to a vote of the people. Larry Melvin in Pierre is heading a similar effort. And of course we know how active the Rochester Coalition has been in keeping the coal train away from the world renowned Mayo Clinic.

In your article you quote [DM&E CEO] Kevin Schieffer as saying that "The project has overwhelming support throughout our entire region." That is not true. Most people in Brookings didn't even know that their City Council was considering an agreement with the DM&E until they saw it in the paper after the agreement had been approved. I think that, when the referral comes to a vote in November, we will see exactly how much the people in Brookings support Schieffer's project.

Recently, our paper carried an article listing all the agricultural groups that supported the DM&E. I'm sure that they think that expansion of the DM&E will help them get their products to market. Maybe they didn't read the Fortune article that quotes Schieffer, flying over the Powder River Basic coal fields, as saying, "I count eight trains with God knows how many hoppers in each one. I can't help thinking, Ka-ching." Does anyone really think that Kevin Schieffer, who has acted with such arrogance and insensitivity in his dealing with track-side communities in the nine years that this battle has been going on, will care more about South Dakota agriculture and industry than he cares about Ka-ching?

I have supported Stephanie Herseth and Tim Johnson in their bids for election to the House and the Senate respectively. In fact, I knew Tim Johnson before he ever ran for state office. I do not know where they are coming from in the support they have given this project. Maybe they don't think, as I do, that having a coal train run through South Dakota is as bad as putting an open sewer through the state. Maybe they don't realize how strongly the people who live in the track-side communities feel about this issue. Or, maybe they think that, once the DM&E loan is approved, they can somehow make up for the damage that will be done.

I don't think so. I am disgusted with the Democrats in our Washington delegation and, until they realize what a rotten deal the DM&E expansion is and how unethical Senator Thune has been in finagling this obscene loan for the DM&E, they'll never get my vote again.

Thanks for helping expose this small piece of Washington corruption.

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....

Why Hasn't DM&E Expansion Been Derailed Yet?

The proposed $2.3 billion loan is an absurd taxpayer subsidy, but keeping the railroad on track as a regional shipper should be a priority.

by Leigh Pomeroy

The fact that the $2.3 billion proposed loan to the Dakota, Minnesota & Eastern Railroad is still seriously under consideration defies logic. Not that government has ever been accused of being logical — witness the Iraq war, for example.

This project has been under consideration for nearly a decade, and opposition to it has only grown. In an effort to save it, the DM&E managed to wheedle special legislation that by any system of accounting is no more than taxpayer-subsidized support for this railroad over two other railroads in a competitive market. One would think that Congress or perhaps the executive branch might have the guts to say, "Enough!"

The DM&E's original plan was relatively simple: It saw an opportunity to expand into Wyoming's coal-rich Powder River Basin. It figured that it could run a more direct route than the two routes already in existence, and because it could operate more cheaply than the existing haulers, the Union Pacific and Burlington Northern Santa Fe, it could compete profitably. And it was planning to do this with privately raised capital.

Yet even though the DM&E's basic plan hasn't changed in 10 years, the economic realities surrounding it have, making it essentially obsolete. Only through the blessings of government — an unsecured $2.3 billion low-interest loan — would it continue to be economically viable. And even then with the debt-to-equity and debt-to-revenue ratios that are being predicted, that viability would be tenuous at best with the real possibility of American taxpayers losing their entire investment while DM&E management and its owners profit handsomely.

The DM&E has been successful in linking its continued service to agricultural producers to the Powder River Basin expansion. DM&E CEO Kevin Schieffer has told agricultural interests repeatedly that the railroad's existence is contingent upon it gaining access to the Powder River Basin. In other words, no coal shipping, no railroad. And agriculture has swallowed this message hook, line and sinker.

But what if it weren't true? What if the railroad were viable as is? After all, it has survived and made a modest profit since its inception in 1986. It has even expanded, acquiring the Colony Line from Union Pacific in 1996 and the Iowa, Chicago & Eastern (the old I&M Rail Link) in 2002. If the Federal Railroad Administration turns down the DM&E's request for the loan, will the railroad cease operations?

What is most intriguing about opposition to the proposed $2.3 billion loan is that it has come from such a broad range of players. When you see ranchers, neighborhood groups, environmentalists, taxpayer advocates, cities, counties, chambers of commerce and the largest employer along the route all coming together in opposition, that's a formidable array. And that should give politicians a strong clue.

South Dakota and Minnesota need the DM&E. There is no argument against that. For many communities its lines provide the sole railroad access. What we need to do is divorce the Powder River Basin coal issue from the DM&E's most important function, which is to serve these rural markets.

If the DM&E were asking for a modest, collateralized loan for upgrading its infrastructure, improving its safety record and bringing its employees' wages and benefits up to the level of its competitors, few parties would object. In fact, the railroad might discover hidden support from many current opponents.

If in fact the DM&E withdrew its $2.3 billion loan request and its Wyoming expansion plans, and resubmitted a more reasonable plan that would concentrate on improving its current operations, an amicable settlement would be possible. Let's hope the powers-that-be move toward a compromise in this direction. By doing so, all players in this controversy would come out winners.

DM&E responds to financial feasibility study

The DM&E spared little time in responding to a study commissioned by the Mayo Clinic questioning the railroad's ability to repay a proposed government subsidized loan for the railroad's expansion. Unfortunately, the press release from the DM&E did not directly address the points raised in the study. Rather, it attacked the Mayo Clinic, the City of Rochester, Olmsted County and the coalition that are all fighting the route through Rochester.

There is something fishy going on when a rebuttal dodges the questions raised by legitimate research. It appears that the DM&E doesn't want to debate the financial merits of its proposed expansion. Does this mean that taxpayers will be left with holding the bag on a worthless loan while DM&E CEO Kevin Schieffer and the railroad's investors make out like bandits?

You be the judge:

NEWS from DM&E
8 May 2006

DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
140 North Philips Avenue, * Sioux Falls, SD 57104 * 605-782-1200/Fax 605-782-1299

FOR IMMEDIATE RELEASE

MAYO-FUNDED DM&E STUDY ANOTHER IN LONG LINE OF FLOPS
History of non-credibility creates little cause for concern

SIOUX FALLS ­ — In response to press inquiries concerning a study funded by Mayo Clinic and the city of Rochester, DM&E president and CEO Kevin V. Schieffer today said he is not concerned about the most recent Mayo claims. "I obviously haven't had a chance to review the latest claims made by Mayo and Rochester, but based on past history it gives us very little reason for concern." Schieffer noted that Rochester and Mayo have presented countless and expensive studies in the past, all of which have been unanimously rejected by objective experts. Schieffer recounted some examples of past Mayo/Rochester-funded "studies":

• Mayo/Rochester-funded marketing study claiming DM&E couldn't attract sufficient traffic to support the project was rejected.
• Mayo/Rochester-funded study suggesting the viability of a `by-pass' was rejected.
• Mayo/Rochester-funded claim suggesting the project would result in clouds of coal dust was rejected.
• Mayo/Rochester-funded study suggesting the DM&E project would create unacceptable levels of vibration was rejected.
• Mayo/Rochester-funded studies suggesting the project exceeded permissible noise levels were rejected.

Mayo and Rochester have firmly established themselves as non-credible sources of information, and as easy targets for consultants. "We will review this latest in a long series of claims by a Mayo/Rochester-funded "study", but based purely on their track record of rejected claims, we are not concerned by this latest claim," said Schieffer. "It does, however, amaze me that Rochester can continue to spend taxpayer dollars on this kind of thing, and that the supposedly non-profit Mayo clinic is allowed to use its unlimited, tax-free resources to attack a project that has the overwhelming support of the states affected. Given that their latest claims pretend to be made on behalf of taxpayers, perhaps it's time to look more closely at who is paying for what here." The DM&E project is supported by 55 of the 56 communities served by DM&E, and the overwhelming majority of agriculture and economic development organizations in Minnesota and South Dakota. Mayo and Rochester are trying to kill the project with taxpayer money and tax exempt donations.

Is the USDA relying on faulty data to support DM&E?

Karla Johnson from Rochester writes:

This is a letter that Rochester PB [Post-Bulletin] refused to publish this week — "we get too many anti-dme letters." I spent a lot of time on this issue in '99, plus a little recent research, and this is what I found:

September 6, 2006

The DM&E Railroad’s lobbying front GOTRAC and the Farm Bureau, in their speeches and interviews, used the USDA “letter of support” for DM&E as their central point to link the DM&E coal project to an increase in agriculture prices. Indeed, on page four of the 1998 letter it does state “...some estimates suggest increases as high as 20 cents per bushel for both corn and wheat.”

In April 1999, I called the author of the USDA “letter of support”, William Brennan, in Washington, DC. I asked him about the estimate. He said he didn’t know much because DM&E gave him the estimate with no documentation. Two weeks later I called again. This time Mr. Brennan claimed ranchers in South Dakota gave him the estimate, again with no documentation.

[...]

There were other problems with the USDA “letter of support”. It claimed the 20 cents increase was due to “the ability to ship to three major markets (river, processors, and Pacific Northwest).” DM&E is denying increased barge shipments. The DM&E proposed expansion only goes to eastern Wyoming, not the Pacific Northwest. As far as the processors go, in a Star Tribune article, March 2003, J. Powell wrote, “on average about 125 trucks go in and out of most (ethanol) plants daily.” Ethanol refineries are located in farm country so the corn can be easily trucked in. As farms become larger, more have semi-trucks.

The market for the processors is more interesting. Today Minnesota uses one half to two thirds of the ethanol it produces. Trucks are typically the choice for hauls less than 200-300 miles. The USDA’s 2002 Ethanol Cost of Production Survey said the average truck with ethanol went 93 miles, while the train with ethanol went 1163 miles. The preferred long distance market for ethanol is California and for the ethanol byproduct, the Southwest. While DM&E plans an expansion into Wyoming, the Minnesota lines of the BNSF and UP Railroads go to the Pacific Northwest and Southwest.

Increasing agriculture prices is desirable, but it needs to be weighed against the costs involved. The STB typically mandates railroads to pay only 20 cents on the dollar for the cost of upgrades; this covers closing the crossings, the safest option. When Wichita had an increase of five trains per day due to a rail merger, the state of Kansas paid 50 million, or 50% of the cost, and the federal government paid 24 million, for the required grade separations. The city of Reno paid for a majority of its $282 million railroad trench through various local tax increases: sales, hotel, property, and business. In February '99, DM&E engineers told MN DNR that they were planning for 75 million tons of coal, or 27 trains, to come through southeast MN to Winona. If the number has changed, DM&E should contractually agree to the lower number so cities can plan ahead.

Is it in the best financial interest of the state of Minnesota to spend what may end up being hundreds of millions of dollars on mitigation when the benefits to the state are questionable? Will DM&E even ship agriculture products? DM&E showed no increase in non-coal traffic in its’ initial federal application when they charted type and number of trains per day as coal shipments increases. Neither do railroads need to haul coal to upgrade; besides the RRIF loans, dozens of railroads have recently upgraded their line with the federal Section 45G tax credit program. The state also has many options when it comes to spending money to expand agriculture marketing. Mower County, MN, lost the Absolute Energy Ethanol plant that is under construction in Mitchell County, Iowa, because Minnesota didn’t have “Enterprise Zone Tax Credits” according to a Mower County Supervisor in the Mitchell County Press-News. With all the ethanol plants soon coming on line, expanded grants for gas stations to install E85 pumps and for Minnesota tax rebates for purchasers of E85 FFV vehicles would also be worth looking into. Minnesotans should take a hard look at whether coal trains are the most efficient way, the biggest bang for the dollar, to improve agriculture prices.

Karla Johnson

Election or no election, DM&E issue still on the front burner

NOTE: This article is posted in full as the Rochester Post-Bulletin, unlike the major media, insists on hiding most of its material behind a firewall.

Next ruling on DM&E might wait until 2007

By Jeffrey Pieters
The Post-Bulletin

ST. LOUIS -- A judge hearing arguments in Rochester's and Mayo Clinic's court case to overturn federal approval of the Dakota, Minnesota & Eastern Railroad project promised a decision "with all due speed."

"It's interesting, and the issues are immense," said Kermit Bye, one of three U.S. Appeals Court judges listening to opposing sides argue during an hour-long court session on Monday. "We'll do the best we can."

In all likelihood, a decision won't come until next year, said Rochester City Attorney Terry Adkins, who observed but did not participate in the hearing.

"Personally, I think it's going to be early '07," he said.

The legal challenge, filed by parties including Rochester, Mayo Clinic, Olmsted County and the Sierra Club, is the second appeal of a federal agency's decision to approve the DM&E project.

The project, which calls for extending the DM&E's line 260 miles west to Wyoming coal mines and upgrading the balance of the 600-mile line through South Dakota and Minnesota, first won approval from the federal Surface Transportation Board in January 2002.

Opponents challenged that decision, and in October 2003 won an appeals court decision -- involving two of the same judges considering the current appeal -- remanding parts of the analysis to the STB for further review.

The STB returned with a second approval of the project in February, and opponents appealed again. Oral arguments on Monday, in the grand 27th-floor courtroom in the Thomas F. Eagleton Courthouse in St. Louis, followed months of written arguments submitted to the court.

What about IC&E?

Railroad opponents argued that the STB, on its second review, should have included in that study an analysis of whether harm to Rochester and Mayo Clinic from increased rail traffic could be prevented by ordering coal traffic to be routed on the DM&E's sister line, the Iowa, Chicago & Eastern Railroad.

The DM&E bought the IC&E line, formerly IMRL Rail Link, in 2002, after the STB first approved the project. The line intersects the DM&E main line at Owatonna and runs south into Iowa before turning east toward Chicago.

But that sort of regulation -- provided it can be done legally -- cancels out the very benefit that the DM&E project is supposed to deliver: a shorter, more efficient and cheaper route for Wyoming coal to reach Midwestern markets.

"The public benefits if DM&E can operate on the most efficient routings," said Evelyn Kitay, an attorney representing the STB.

Coal and pollution

The appeals court's 2003 ruling also required STB to take a second look at environmental effects from the DM&E upgrade -- not only from the rail project itself, but from increased coal use in power plants nationwide.

The federal agency didn't sufficiently examine that question in a computer model it submitted in response, said Jim Dougherty, an attorney representing the Sierra Club.

"It looks like they shopped for the best model they could find," Dougherty said. "They haven't addressed the environmental impacts of coal-burning. ... What does this mean for asthmatic children in Chicago or New York?"

Kitay responded that the STB used accepted methods for its study. It supplied data to the Energy Information Agency, part of the Department of Energy, to gauge the resulting effect on air quality.

Anyway, Kitay said, the nation's power plants demand the coal. "Virtually all of the increase will result whether or not DM&E is in the market."

DM&E President and CEO Kevin Schieffer attended the hearing, but did not speak. Like Adkins, he did not hazard a guess what the outcome would be.

"I never try to figure out where the judge is leaning based on questions," Schieffer said. "The judges' jobs are to ask hard questions."

Besides Bye, who is from Fargo, N.D., the other judges on the panel were William Jay Riley, of Omaha, and Morris Arnold of Little Rock, Ark. Riley and Arnold heard the previous appeal. All of the judges frequently cut in on attorneys' presentations to ask pointed questions.

Adkins, who has a past professional relationship with Bye, expressed cautious optimism, and credited the judges with doing the background work necessary to inform themselves on the eight-year-long struggle.

"I don't know whether they'll agree with our position or not, but they obviously understand the points we were trying to make," Adkins said. "Generally, I was pleased with the way it went."

The story 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."

DM&E update: National Taxpayers Union opposes loan

DM&E claim that "55 of 56" communities are onboard is untrue. National Taxpayer's Union says, "Federally-Backed Loan Is Gravy Train for One Railroad Company, Great Risk for Millions of Taxpayers."

Politics makes strange bedfellows, as do proposed billion-dollar government subsidized loans.

Republicans like Sens. John Thune (SD) and Norm Coleman (MN) and Rep. Gil Gutknecht (MN-1) support it. So do Democrats like Sen. Tim Johnson and Rep. Stephanie Herseth, both of South Dakota.

But Democrats like Sen. Mark Dayton (MN), former Vice President Walter Mondale, former Sen. Tom Daschle and Gutknecht's challenger, Tim Walz, oppose it.

The DM&E lists dozens of chambers of commerce as its "Partners in Progress", yet the Rochester (MN) Area Chamber of Commerce is vehemently against it.

As proponents and opponents of the proposed DM&E expansion line up, traditional political dividing lines are being thrown away. Liberals like Dayton and Mondale are not used to finding themselves on the same side of an issue with the Minnesota Taxpayers League and the National Taxpayers Union, yet all are opposed to the $2.3 billion loan the railroad is trying to wrangle from the federal government.

The National Taxpayers Union has only recently joined the growing list of opponents, which includes the Mayo Clinic, the City of Rochester, Olmsted County (MN), political luminaries, environmental groups, local politicians and ordinary citizens. It is rumored that even media mogul Ted Turner may get involved, as the planned route apparently crosses property he owns in Wyoming.

Still, DM&E CEO Kevin Schieffer seems confident, arguing that "55 of 56" communities along the way support the project. Yet two of the claimed 55 do not have legally binding agreements. The agreement between Brookings (SD) and the railroad is currently suspended pending the outcome of a referendum in November, and the agreement with Mankato, while signed by the city, has not been countersigned by the railroad, apparently due to a disagreement over a city veto clause in the contract.

A further complication is that the railroad is considering an alternate route that bypasses Mankato but cuts a swath through rural Blue Earth County. That's because in order to get right-of-way through the city for the number of coal trains it proposes, the DM&E would have to come to terms with the Union Pacific to add another set of tracks.

The UP is already hauling coal out of the Powder River Basin, which makes it a direct competitor. Vox Verax and Minnesota Monitor have received inside information that suggests the UP wants $90 million from the DM&E, plus a per-train charge, in order to expand the Mankato in-town route for the DM&E's coal trains. This could make the alternate Blue Earth County route more cost effective for the DM&E.

At the moment all parties are waiting to hear from the Federal Railroad Administration about whether it will give the go-ahead to the proposed $2.3 billion loan. That decision should come within 90 days. After that, whether the FRA gives its blessing or not, is anybody's guess. The process has already gone on for eight years. It may not be totally resolved for another eight years to come.

Resources:

• "Federally-Backed Loan Is Gravy Train for One Railroad Company, Great Risk for Millions of Taxpayers"
• "The Largest Federal Loan in History — and you have never heard of it!"
  
• "By Own Admission, DM&E Coal Project Losing Support"
• "DM&E issue may determine next congressman"

DM&E issue may determine next congressman

Could a DM&E hazardous waste spill be Rochester's Katrina?

by Leigh Pomeroy

The DM&E proposed expansion may well determine whether Minnesota's 1st Congressional District stays in Republican hands or goes back after 12 years to the Democrats. And the election itself may determine whether the project advances or withers on the vine of grand schemes.

GOP incumbent Gil Gutknecht has been sitting pretty since he was first elected during the 1994 Gingrich revolution. But this year not only does he have a strong challenger in Mankato high school teacher and former National Guardsman Tim Walz, but he also has a railroad issue to contend with.

For eight years the fledgling DM&E railroad has been attempting to get an ambitious plan together to upgrade its existing infrastructure and gain access to the low-sulfur coal in Wyoming's Powder River Basin to carry it to power plants in the Midwest. The Powder River Basin is already served by the Burlington Northern and the Union Pacific.

The DM&E proposal has received support primarily in rural areas where the railroad's contention that a much-needed upgrade allowing the DM&E to better serve local grain and commodity shippers plays well to agricultural interests. But it has faced opposition in communities like Pierre and Brookings, South Dakota, and Mankato, Winona and particularly Rochester, Minnesota.

Nearly all cities along the route have signed community partnership agreements with the railroad, some begrudgingly, but the City of Rochester, bolstered by Olmsted County, the Mayo Clinic and the Rochester Chamber of Commerce, don't want the coal trains coming through town.

The chief objection is that the rail line passes within blocks of the Mayo Clinic campus. The Mayo contends that a hazardous waste spill from a derailment or other accident would cripple the downtown area and the Clinic. During any weekday approximately 30-40,000 people are in the city center adjacent to the tracks, making an evacuation particularly difficult. Further, at any given time as many as 600 Mayo patients are in intensive care or surgery, or are otherwise incapacitated, and cannot be moved. Mayo spokespeople call this "Rochester's potential Katrina."

During this struggle Rep. Gutknecht has been straddling the fence between catering to the large agricultural interests supporting the railroad and trying to appease the Mayo and the Rochester Chamber of Commerce, both long-time supporters. Now with Walz running a strong grassroots campaign and nearly certain to win key cities in the district like Mankato, Austin, Albert Lea and Winona, Gutknecht has to maintain his traditional hometown base in order to hold onto his seat.

Just recently, Gutknecht has aligned himself with Sen. Coleman to (finally) try to pressure the Department of Transportation to come up with a mitigation plan for Rochester, but DM&E opponents say this is doing too little too late.

Meanwhile, DM&E CEO Kevin Schieffer claims that 55 of 56 communities along the rail line have signed community partnership agreements with the railroad in support of the expansion, the one remaining holdout being Rochester. That's not technically true, however, as Brookings' agreement has been suspended until a referendum is voted on this fall, and Mankato's, while signed by the city has not been countersigned by the railroad, apparently due to a disagreement over a city veto clause in the contract. (Blue Earth County, in which Mankato is located, has yet to draft an agreement with the railroad.)

Another wrinkle to the issue is that the city of Winona, from which the DM&E plans to offload its trains onto barges to cross the Mississippi River, also does not have an agreement with the railroad. That's because the DM&E's tracks stop five miles north in Minnesota City, while the Canadian Pacific (CP) owns the line from Minnesota City through Winona. Further, according to a Track the Truth spokesman, the CP doesn't have the port facilities to offload the amount of coal that the DM&E is planning to ship.

All this has resulted in a strange brew of century-old railroad laws, community rights, competing economic interests and old-fashioned porkbarrel politics. The saga has gone on for eight years already and won't end soon. But there's no doubt in many minds that it's impacting the 2006 congressional election in Minnesota's southern-most district, and that the result of that election — and the new makeup of Congress in January — will determine the proposed project's final outcome.

Analysis: Appeals Court ruling only a minor set-back for DM&E opponents

by Leigh Pomeroy

The PR machine representing those supporting the DM&E Railroad's proposed expansion into Wyoming's Powder River Basin is running full-bore today after the U.S. Court of Appeals for the Eighth Circuit ruled in favor of the project yesterday.

The effort is admirable, but the ruling sort of like a dictatorial military regime winning a minor battle against a popular uprising. It will only be key to bringing the uprising under control if the regime can get help from a more powerful outside force — i.e., collateral-free subsidized federal loan dollars — necessary to put down the insurgency. And even that won't assure a victory.

The DM&E is facing many fronts of opposition along its proposed route for hauling coal from Wyoming to Illinois. The big goon behind its thrust — the "enforcer", if you will — is an antiquated code of federal laws giving railroads government-like rights to push development and expansion. And until the election this past November, that goon seemed unstoppable.

But things in Washington change, and the DM&E regime's chief ambassador, Sen. John Thune of South Dakota, suddenly found himself in a less powerful position among the gods of Capitol Hill. Now other powerbroker-gods like Rep. Jim Oberstar and Sen. Norm Coleman of Minnesota, and novice gods like Sen. Amy Klobuchar and Rep. Tim Walz of Minnesota, may have something to say about whether that outside force comes to the aid of the regime or not.

The truth is that no one, not even the Mayo Clinic, which brought the suit, expected the Appeals Court to rule against the DM&E. The suit, however, did accomplish its lesser goal of delaying the project while other insurgents along the route regrouped and strengthened their battle plans.

The conflict over the DM&E expansion will not be decided based on its merits. Instead, its outcome depends solely on old-fashioned, long-proven strategies for winning wars: which side has the most forces aligned behind it, which has the most endurance, which has the most resources, and which has the popular support.

One thing about the battle is absolutely certain, though. The DM&E would never have come this far without a strong generalissimo by the name of Kevin Schieffer. Had the DM&E been run by a more milquetoast leader, the expansion project would have been abandoned long ago based on the opposition and its own dubious merits.

But Schieffer is a bulldog, a man who came from a poor background whose strength of personality drove him to get to the top, first as a congressional aide and powerbroker, then as an ambitious Washington insider recruited to run a struggling railroad spinoff, and finally as a would-be railroad magnate himself. Indeed, it's an age-old scenario that has been repeated in politics and business around the world for centuries.

One thing that is common among all those who deal with Schieffer — be they supporters or proponents of the project, lovers or haters of the man — is their respect for his tenacity. Many would acknowledge that he is a larger than life character, the kind that Shakespeare might write about, a man whose chief strengths are intelligence, cunning and self-assurance, but one who also has a possible tragic flaw of overwhelming ego.

Yet no man, despite personal power and personal connections, can overcome a broad-based enemy allied against him. There are many forces opposing the DM&E expansion all along the route, from ranchers and Indian tribes in Wyoming and South Dakota; to residents of Pierre and Brookings, South Dakota; to opponents in Mankato and Blue Earth County, Minnesota; to the Mayo Clinic, the City of Rochester, Olmsted County and the Rochester Area Chamber of Commerce; and finally to residents and particularly students in Winona, Minnesota.

Individually, only the coalition of the Mayo Clinic, the City of Rochester, Olmsted County and the Rochester Chamber of Commerce appears to have the strength, unity and financial wherewithal to oppose Schieffer, Thune and their goon — the ancient pro-railroad federal laws. But taken together the opposition forms a potent though incohesive insurgency against the railroad's plans.

Schieffer knows this, which is why he's been trying to knock them off one by one, acquiescing to Pierre on a bypass around the city, and looking for a way to route the coal trains south of Rochester and Winona along the old IC&E tracks through Iowa, which the DM&E purchased in 2003 with the help of an earlier federal loan.

Yet with each new DM&E tactic comes more opposition. For example, this month the BNSF Railroad filed a comprehensive report detailing potential problems posed by the proposed the IC&E route for the coal traffic.

How long Schieffer will remain upbeat and undaunted is anyone's guess. No doubt he and his supporters feel buoyed by the Appeals Court decision. But he is no dummy and realizes this is not the real victory. Were there still a Republican Congress the real victory would be an FRA decision to grant the railroad the $2.3 billion loan it is requesting. But Congress is now in other hands, many of whom are questioning the porkbarrel legislation authorizing the loan, while others, particularly Coleman, Klobuchar and Walz, are very serious about protecting the rights of the Mayo Clinic and its allies.

If the FRA authorizes the loan in the next month, which it may very well do, Generalissimo Schieffer and his supporters will hail it as the end of the rebellion. But as long as the Mayo Clinic and its allies in Rochester and the various opposition groups elsewhere in Minnesota, South Dakota and Wyoming keep up their guerrilla attacks, he war is far from over.

Ultimately, it will be forces greater than either the DM&E or its opponents who will decide. Like with so many skirmishes around the world, those forces reside in Washington, DC. Capitol Hill will be the final arbiter of this war, and unless like a magician the Generalissimo can pull a rabbit out of his hat, he may have to settle for less than what he originally set out to accomplish.

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.