The federal government is one step away from granting the largest public loan ever given to a private company. The Federal Railroad Administration will decide within 90 days whether to approve a $2.3 billion loan for Dakota, Minnesota & Eastern Railroad.
DM & E asked for the loan to expand its railroad network in the Powder River Basin in Wyoming and Montana. The Basin is the largest source of coal in the country, and it provides several Midwestern power utilities with coal. DM & E already transports a significant share of coal from the Basin across South Dakota and Minnesota; with the loan, DM & E can improve their infrastructure and haul even more.
U.S. Sen. John Thune of South Dakota, a former lobbyist for DM & E, has spearheaded the effort to secure the loan. In last year’s transportation bill, he inserted in an amendment that opened the door for it. The amendment increased the loan program’s budget from $3.5 billion to $35 billion and altered the rules to make new construction eligible for federal loans. Moreover, the amendment disallowed the government from collecting collateral in case those who received a loan didn’t pay up.
Aside from the fact that the entire loan process has taken place in relative obscurity, and ignoring that the loan has been backed by a senator who used to lobby for the company, the problem with this loan is that it runs the risk of becoming a $2.3 billion subsidy. DM & E’s revenue is only about $200 million per year.
If the loan is approved, the annual loan payment would amount to $245 million – a $45 million shortfall. Could this be why there are no private investors in this project?
The loan is flawed in nearly every respect, yet it’s likely to be approved. Many suspect that the decision to approve the loan will come sooner rather than later. This is a textbook example of our federal government at its most irresponsible. In other words, a giant train wreck.