Study: Federally-Backed Loan Is Gravy Train for One Railroad Company, Great Risk for Millions of Taxpayers

(Alexandria, VA) -- A plan from the Dakota, Minnesota, & Eastern Railroad (DM&E) to modernize and develop a coal carrying route has been met with opposition from some local residents, but according to an Issue Brief released today by the 350,000-member National Taxpayers Union (NTU), all Americans have a stake in the $2.5 billion federal loan that will underwrite the shaky venture. 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.

"DM&E wants to join the elite class of carriers by tapping into the lucrative business opportunity of hauling coal extracted from the Powder River Basin," said NTU Associate Policy Analyst Christopher Biggs and Government Affairs Manager Andrew Moylan, who co-authored the Issue Brief. "But as the company tries to raise capital to expand its rail line service, the firm is hoping American taxpayers, not private financiers, will ante up."

For their analysis, Biggs and Moylan examined the particulars of DM&E's $2.5 billion loan application through the federal government's Railroad Rehabilitation and Improvement Financing (RRIF) Program. They found numerous drawbacks in the plan for taxpayers, among which are:

  • 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.

Taking risks to reap rewards is common in business, but Biggs and Moylan note that in this instance taxpayers are being forced to take the gamble. Moreover, they contend that federal loan guarantees are rarely successful in the long run. In order to end the political gamesmanship and economic inefficiency caused by present and past lending, the authors suggest that policymakers terminate RRIF altogether, an option that also appears in the White House's Fiscal Year 2007 Budget.

"Hopefully, the federal government will reverse course before this runaway gravy train goes any further," the authors concluded. "If DM&E's plan fails, taxpayers could be stranded at the same sad destination they've seen with other projects -- paying the freight for a trip that never should have been taken in the first place."

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, & Eastern Railroad Could Take Taxpayers for a Ride, is available online at