Congress Should Examine DM & E Loan

Rep. Tim Walz deserves credit for seeking a congressional investigation into the proposed $2.3 billion loan to the DM & E railroad.

The newly elected First District representative joined with Rep. Carolyn Maloney, D-N.Y., in seeking the congressional oversight hearings on the controversial proposal. In a letter to the House Committee on Government Reform, they said that the proposed loan is “one of the worst examples we have seen of government waste” and that the DM & E “appears to be a poor credit risk.“

Rochester interests have made a compelling case against the railroad expansion based on safety concerns. They have pointed out the railroad’s poor safety record and have cited the threats posed by trains speeding past the Mayo Clinic and through the heart of the city.

Those are fully justified reasons for opposing the project. However, U.S. citizens, wherever they live, also are justified in taking a critical look at the costly expansion.

There are many reasons for doing so:

--- The loan, by the Federal Railroad Administration, if approved, would be one of the largest loan guarantees every made to a private company.

--- The loan would be 100 times larger than the average amount of 12 existing FRA loans to other railroads. Those loans average $23 million each.

--- The DM & E has an existing FRA loan of $233 million --- 10 times the average loan to other railroads --- on which it has made no payments.

--- The railroad would not have to make any interest or principal payments for six years, would not be required to make a down payment and would provide no collateral.

--- The railroad has not been able to obtain private funding for the project.

--- If it gets the loan, the railroad would have a total debt 23 times its total equity.

--- The loan payments would exceed the company’s annual revenue.

There are also many other legitimate reasons for opposing the loan. One is the suspicious circumstances which preceded the loan application. The first step was passage of legislation authorizing the Federal Railroad Administration to issue loans totaling $35 billion. This was 10 times the previous authorization of $3.5 billion.

That legislation was introduced by newly elected Sen. John Thune, R-South Dakota. Just prior to his election, Thune was a lobbyist for the DM & E and was paid $220,000 for his services in 2003 and 2004. The $35 billion loan authorization was passed without public debate.

There is no way to learn all the circumstances. However, the DM & E’s chances for borrowing an additional $2.3 billion obviously improved after Thune’s success in delivering an additional $32.7 billion to the FRA for loan authorizations.

In addition to the questionable financial aspects of the loan proposal, there are serious safety issues. Lawrence Mann, a national expert in railroad safety, has said that the DM & E has the worst safety record of any of the nation’s 650 railroads.

Add it all up ---

--- A $2.3 billion loan that is 100 times the average loan to any other railroad cannot be justified.

--- A loan that exceeds the railroad’s ability to repay it is indefensible.

--- The key role played in the process by a former DM & E lobbyist raises questions about the legitimacy of the whole process.

--- The railroad’s poor safety record underscores the concerns raised by the Mayo Clinic and other Rochester interests.

It is clear that the House Committee on Government Reform has an opportunity to perform a great public service. It can do so by conducting a diligent and uncompromising investigation into an excessive and suspicious public expenditure.