[Congressional Record (Bound Edition), Volume 152 (2006), Part 11]
[Extensions of Remarks]
[Pages 15408-15409]
[From the U.S. Government Publishing Office, www.gpo.gov]




  PROPOSED FEDERAL LOAN TO THE DAKOTA, MINNESOTA AND EASTERN RAILROAD

                                 ______
                                 

                          HON. BETTY McCOLLUM

                              of minnesota

                    in the house of representatives

                        Thursday, July 20, 2006

  Ms. McCOLLUM of Minnesota. Mr. Speaker, I rise today to call 
attention to an unprecedented federal loan that is fraught with risk, 
would enrich a private company at public expense and threatens the 
people of my state, Minnesota, as well as one of our state's most 
treasured institutions--the Mayo Clinic.
  The Dakota, Minnesota and Eastern Railroad, DM&E, is seeking a 
massive federal government-sponsored loan of $2.5 billion through the 
Railroad Rehabilitation and Improvement Program to expand rail 
infrastructure in order to transport coal from fields of Wyoming's 
Powder River Basin. To sell this taxpayer-financed scheme to Congress 
and residents along the proposed line, the railroad is making big 
promises. But go beyond the promises and a troubling picture emerges--
one stained with questionable accounting, dubious ethics and the threat 
of real harm for Minnesota communities and institutions.
  As a Member of Congress, I am strongly opposed to asking taxpayers to 
provide an unsecured $2.5 billion loan to the DM&E, a company that an 
established, independent firm, Bearing Point, found to be ``a poor 
credit risk.'' Bearing Point's assessment of the railroad concluded: 
``DM&E currently appears to be a thinly-capitalized, low-volume 
railroad,'' whose ``asset acquisitions were funded largely by 
government loans and subsidies.'' Mr. Speaker, I have attached a 
description and summary of the Bearing Point analysis for the Record.
  A recent report from the federal Office of Management and Budget 
shows the stakes for taxpayers are high since the federal government--
U.S. taxpayers--would be responsible for covering all losses if DM&E 
defaults on the loan. Still, the railroad and their powerful friends in 
Congress who have greased the wheels for this scheme show no hesitation 
in taking taxpayers for a ride and offer no assurances that $2.5 
billion of our tax dollars will be paid back.
  Our nation is spending hundreds of billions of dollars to fight wars 
in Iraq and Afghanistan while federal budget deficits are adding 
trillions of dollars of debt on the backs of our children. Yet some of 
my colleagues in Congress appear eager to gamble unprecedented

[[Page 15409]]

public funds on a risky railroad scheme that will profit politically 
connected business executives and leave hard working taxpayers with all 
the risk. This is bad public policy and it is bad business. The 
proposed $2.5 billion, no-collateral loan is more than all the loans 
ever granted by the Federal Railroad Administration combined. In fact, 
this loan would be one of the largest ever granted by the federal 
government to any private company.
  Why does the DM&E need to seek this massive federal support? Could it 
be that private sector investors who have a fiduciary responsibility to 
invest soundly know a boondoggle when they see one? Unfortunately, it 
appears the DM&E has been far more successful in attracting Members of 
Congress who seem willing to ignore their responsibility to the 
American people to ask the tough questions and demand protections and 
accountability. It is not Congress' role to be the lender of last 
resort for high risk, private sector boondoggles. This is all the more 
true considering the threat the DM&E project poses to Minnesota.
  The proposed DM&E line would send dozens of mile-long coal trains 
through the heart of Rochester, Minnesota every day. Any threat to 
Rochester's continued growth is a serious concern for Minnesota since 
it is one of the fastest growing cities in the state and an anchor of 
Minnesota's high-tech economy. Rochester is best known as the home of 
the renowned Mayo Clinic. The Mayo Clinic is one of the world's premier 
medical centers, an economic engine for Minnesota and a health care 
asset for our entire country. This week's US News & World Report ``Best 
Hospital Issue'' celebrates Mayo's success, ranking the Clinic among 
the country's top medical facilities for treating illnesses ranging 
from cancer to kidney disease.
  The 95,000 residents of Rochester expect the trains to tie up traffic 
and cause daily headaches for local business owners. Mayo Clinic 
doctors and researchers anticipate the trains will create an 
environment hostile and incompatible with the work of a world-class 
medical facility that relies on sensitive medical equipment and 
conducts delicate scientific testing. In addition to impacts on the 
community's long-term economic prosperity and quality of life, the 
railroad expansion also raises imminent safety concerns.
  The DM&E's proposed expansion would annually direct thousands of 
trains through downtown Rochester at a speed of 50 miles an hour. 
Several of Rochester's downtown rail crossings are only hundreds of 
yards away from the Mayo Clinic. A derailment or hazardous materials 
spill at any of these locations would be disastrous for local residents 
and Mayo's vulnerable patient population.
  In fact, the DM&E has one of the worst railroad safety records in 
America. In the past 6 years, 17 people have been killed and 93 people 
have been injured in 227 DM&E accidents at public and private rail 
crossings. In 2004, the DM&E reported train accidents at a rate over 13 
times higher than the national average, and one of these accidents 
created a hazardous material spill that forced the evacuation of 100 
citizens in my home state. The Federal Railroad Administration itself 
announced as recently as October 2005 that DM&E has ``serious safety 
problems.'' I urge the Federal Railroad Administration to take into 
account this dreadful safety record and the risk to Minnesota residents 
this proposed expansion poses.
  Wrapping a profit driven scheme in the thin veneer of public good, 
the DM&E and its supporters in Congress are pushing a bad deal for 
Minnesota and imposing a financial risk upon America's taxpayers that 
is irresponsible and unjustifiable. The Federal government does need to 
make major new investments in transportation infrastructure, but 
investments consistent with our national goals and in a transparent 
process that allows Congress to conduct necessary oversight and 
stewardship of scarce tax dollars. Public dollars should support 
taxpayer priorities, not the whims of one company and their patrons in 
Congress. As is too often the case today, Congress has had no 
opportunity for oversight, no opportunity to ask hard questions of the 
DM&E and protect taxpayers from one corporation's sweetheart deal that 
smells worse by the day. This $2.5 billion loan to the DM&E should not 
be allowed take place and taxpayers in Minnesota and across the United 
States should be outraged at this pork barrel corporate welfare 
giveaway.

                  Letter of Presentation--May 8, 2006

       This purpose of this report is to inform Members of 
     Congress, the Department of Transportation, the Federal 
     Railroad Administration (``FRA''), and others of issues 
     surrounding the $2,500,000,000 loan application of the Dakota 
     Minnesota & Eastern Railroad Corporation (``DM&E'') under the 
     Railroad Rehabilitation and Improvement Financing (``RRIF'') 
     program.
       The broader purpose of the RRIF program is the improvement 
     and expansion of the nation's railroad system. Nevertheless, 
     the program is organized as government loans, not government 
     grants. Therefore, borrowers must exhibit the ability to 
     repay the loan.
       In its RRIF loan review capacity, the FRA is charged with 
     responsibility for assessing applications. Each loan 
     application must be approved on its own merits, taking into 
     consideration (among other things) the creditworthiness of 
     the borrower.
       DM&E has filed an application for a $2,500,000,000 FRA 
     loan. Based upon our review, we have serious concerns about 
     the ability of DM&E to repay such a loan. We believe that the 
     applicant may not meet the minimum requirements for the 
     approval of such a loan.
       Based on the limited available data, DM&E appears to be an 
     undercapitalized and financially precarious company. However, 
     because DM&E is a private company with little financial 
     disclosure, we are limited in our ability to fully assess the 
     company's financial strength or weakness. As a result, no 
     concerned citizen has adequate information to fully assess 
     DM&E's FRA loan application.
       The nondisclosure of the DM&E financial data has been 
     rationalized by the competitive nature of the information 
     contained therein, on the belief that disclosure of even 
     rudimentary financial information would compromise the 
     company's ability to compete in the railroad industry. 
     However, many railroad companies are publicly held, fully 
     disclosing detailed financial information without 
     compromising their competitiveness.
       We believe that the primary risk to DM&E of disclosure of 
     its financial status may not be the loss of any competitive 
     advantages, rather the disclosure of its financial weaknesses 
     and unsuitability for the RRTF loan.
       Given the available public information concerning DM&E's 
     plans, supplemented with the expertise of consultants in the 
     railroad industry, we have endeavored to construct a 
     reasonable facsimile of what we believe to be DM&E's current 
     economic realities and to forecast the results of the 
     proposed Powder River Basin project assuming extension of the 
     FRA loan.
       Our financial projections and assessments utilize dated 
     materials from DM&E's Surface Transportation Board (``STB'') 
     application of 1998, as well as more recent information, 
     taking into account the fact that costs, markets, and 
     industry financial conditions have changed materially since 
     that date. We have updated these projections based on the 
     comprehensive knowledge provided by railroad industry 
     consultants, G. W. Fauth & Associates, Inc., and Gerald E. 
     Vaninetti.
       If the FRA believes that it should disregard the economics 
     associated with DM&E's proposed project and that non-
     financial, public policy reasons require approval of its loan 
     application, then FRA must require collateral in the form of 
     a Credit Risk Premium (CRP). Under current law, this CRP must 
     now be based on DM&E's potential ``going concern value.'' 
     Based on this approach, we have determined that FRA should 
     set a CRP of approximately $1.4 billion which represents 57% 
     on the loan amount.
       To the extent that our information or assumptions are dated 
     or at variance with DM&E's financial statements, internal 
     projections or the contents of its loan application, we 
     welcome the opportunity to review those financial statements.
       We note that the DM&E's submissions to the STB were public 
     documents. While the FRA is allowed to keep application data 
     private, it is not required to do so. Like the STB, the FRA 
     could disclose this information to lawyers and independent 
     consultants under a protective order. This is by far the 
     largest FRA loan of its kind, suggesting that the FRA may 
     want to reexamine its nondisclosure policy.
       We believe that citizens whose taxpayer dollars may be at 
     risk have the right to inform the FRA of concerns regarding 
     DM&E's $2,500,000,000 loan application. Only with 
     transparency of the loan application and approval process can 
     the integrity of a fair and honest system be assured.

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