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Press Release


Taxpayer Group Reiterates Opposition to Massive Subsidized Railroad Loan

For Immediate Release February 2, 2007
Pete Sepp, (703) 683-5700

(Alexandria, VA) -- Despite clearing one legal challenge, nothing has changed in the fatally-flawed $2.5 billion loan application from the Dakota, Minnesota, & Eastern Railroad (DM&E) to warrant approval from federal officials, the 350,000-member National Taxpayers Union (NTU) stated today. NTU has been actively involved in transportation issues for over two decades, including the sale of Conrail and the ongoing debate over Amtrak's future. The 90-day decision period on the fate of the loan began Wednesday when the U.S. Department of Transportation accepted a 1998 environmental impact statement. This shaky venture would be the largest loan to a private company in the federal government's history and put taxpayers on the hook if the company defaults.

Last October, NTU released an Issue Brief entitled, "Next Stop, Risky Junction: How a Federal Loan to the Dakota, Minnesota, & Eastern Railroad Could Take Taxpayers for a Ride." NTU Associate Policy Analyst Christopher Biggs and Government Affairs Manager Andrew Moylan, who co-authored the study, argued that all Americans have a stake in the $2.5 billion federal loan that will underwrite the dicey scheme.

For their analysis, Biggs and Moylan examined the particulars of DM&E's loan application through the federal government's Railroad Rehabilitation and Improvement Financing (RRIF) Program. They found numerous drawbacks in the plan, all of which still threaten taxpayers today:

  • DM&E is already deep in the federal trough. The firm has received a $233 million loan, currently the RRIF's biggest. If the proposed $2.5 billion request goes through, 91 percent of the RRIF's portfolio will consist of debt owed by DM&E.
  • The new loan may be driven by politics. The government's RRIF lending cap had to be lifted in order to accommodate the huge amount DM&E requested -- a move accomplished by former DM&E lobbyist (and now Senator) John Thune.
  • DM&E's business model may be overambitious. Two "Class I" railroads now provide freight service from the Powder River Basin, and DM&E -- already in debt and geographically disadvantaged -- may not be able to compete. Such an outcome is not uncommon in business, except that taxpayers are covering the firm's loans.

The study concludes by stating, "The federal government should not be the fall-back lender for a business that can't succeed in the real world. DM&E and its appeal for a federal loan is just another case of corporate welfare aided by high-level connections."

As deliberations continue over DM&E's request, NTU will be pressing for elimination of the costly giveaway as a top item on its transportation policy agenda. "Taxpayers, not special interests, should be the first concern among federal officials as DM&E's loan goes through an evaluation over the next three months," Moylan concluded. In fact, bringing this ill-advised idea to a screeching halt now instead of 90 days into the future would give hard-working families a sigh of relief."

NTU is a non-profit, non-partisan citizen group working for lower taxes, smaller government, and economic freedom at all levels. Note: NTU Issue Brief 159, Next Stop, Risky Junction: How a Federal Loan to the Dakota, Minnesota, and Eastern Railroad Could Take Taxpayers for a Ride, is available online at www.ntu.org.

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