Political Freight

A DM&E derailment in November in southern Minnesota

A DM&E derailment in November in southern Minnesota

On November 22, about halfway between Mankato and New Ulm in the burg of Cambria, a train rolled onto a bridge spanning the Little Cottonwood River. One or more of the 66 cars must have detached, because the brakes on the train activated themselves, according to press accounts. Seven cars derailed and four began leaking, spilling some 30,000 gallons of ethanol.

Four homes were briefly evacuated, but as far as derailments go, the accident was fairly minor. As the Mankato Free Press noted in reporting the spill, ethanol is volatile but biodegradable, and most of it soaked into the dry soil at the site before it could get into a tributary of the Minnesota River. Indeed, the most worrisome factor was the small amount of gasoline the law says must be added to ethanol to make it undrinkable by potential thieves.

Symbolically, however, the train plunged off the trestle and into a seemingly bottomless political abyss. Its owner, Dakota, Minnesota and Eastern Railroad, says the accident illustrates its desperate need for $2.3 billion in federal financing. DM&E would use the loan to replace decades-old track, install safety features, and build hundreds of miles of new rail.

But the project's critics say the November accident illustrates the opposite: Before it derailed, the train in question had been traveling just 24 miles an hour. The new track would allow DM&E trains to travel more than twice that fast, which they say would make tank cars more likely to rupture. And like all railroads, South Dakota-based DM&E does transport much more dangerous chemicals, such as anhydrous ammonia.

The proposal has garnered an unusually formidable set of opponents, including the Mayo Clinic, the city of Rochester, Sen. Mark Dayton, former Vice President Walter Mondale, and U.S. Rep.-elect Tim Walz, a Democrat whose vocal opposition to the project helped him oust Republican Gil Gutknecht. The project is a bad deal for taxpayers, they say, and a potential disaster for Rochester and the Mayo Clinic.

In addition to upgrading old tracks, DM&E wants to run new rails into a part of northeastern Wyoming called the Powder River Basin, the site of the mines that supply coal to rural power cooperatives throughout the Midwest. Because just two railroad companies currently haul coal east from the mines, shipping costs more than the coal itself. DM&E wants to build a rail line that cuts hundreds of miles off the trip by running the coal through southern Minnesota by 2010 at a projected cost of $6 billion. The economic growth sparked by the competition would create thousands of jobs, the company argues.


The railroad couldn't secure commercial funding, however, and eventually turned to the Federal Rail Authority, which had a $3.5 billion fund for making loan guarantees for railroad modernization. (DM&E is confident the rest of the financing will materialize if the FRA comes through.) To press its case, DM&E hired John Thune, a former South Dakota Republican congressman who became a lobbyist after losing a Senate bid in 2002. Over the course of 19 months, the railroad paid Thune $220,000.

In 2004, when Thune again ran for Senate, DM&E contributed $12,250 to his race against Democratic Senate Majority Leader Tom Daschle. Thune emerged victorious. Last year, at the 11th hour and over the objections of the White House, Thune slipped a provision into the mammoth transportation bill to raise the size of the Federal Rail Authority's fund tenfold, to $35 billion. (A few months later, Daschle joined the Mayo Clinic's board of trustees.)

Thune's move infuriated Minnesota's Dayton, who introduced a bill to ban any member of Congress from proposing legislation to benefit a corporation with which they had done business in the previous two years. That the measure failed to garner support doesn't surprise Dayton, who hastens to point out that DM&E's president and CEO Kevin Schieffer was himself chief of staff to former Republican Sen. Larry Pressler.

"We've been playing defense from the start," Dayton complains, referring to himself and Rochester and Mayo officials. "Political manipulation is really [Schieffer's] expertise."

Dayton wanted DM&E to route its trains around Rochester, but after five years of wangling in and out of federal courts, last week the U.S. Surface Transportation Board gave the railroad permission to proceed. The FRA is expected to decide whether to make the loan by mid-January.

If the FRA approves the railroad's request, the loan would constitute the largest government subsidy ever to a private business—larger even than the notorious Chrysler bailout in 1979, the critics contend. They say it would give DM&E a debt-to-equity ratio of 23 to 1, sparking concern the company ultimately couldn't repay the loan.

In the meantime, both sides are waging massive PR battles. Two coalitions—Gotrac working for the project and Track the Truth trying to stop it—have generated reams of intricately detailed, conflicting evidence. The two sides can't even agree on how close the DM&E tracks in question come to the Mayo Clinic, for example: Gotrac says they come no closer than 1,200 feet; clinic spokesman Chris Gade says it's 490. DM&E says the upgraded tracks will carry just 10 trains each day; Track the Truth contends the daily total will be more like 34 mile-long trains.

Each side says the other refuses to negotiate. And each has marshaled a host of federal statistics to buttress its case about the safety ramifications as well. In a December 4 letter to the FRA, an attorney working for the opposition coalition said DM&E has "one of the worst safety records of any railroad in the country" and that its record on upgraded track is actually worse than on old rails.

"Since 2004, the DM&E has had at least four and possibly as many as seven accidents on new track and at least 20 accidents on improved track," the letter asserts. "In fact, during that time period, a growing portion of DM&E derailments has occurred on new and improved track. DM&E's main-track derailments on new and upgraded track increased from 3 of 37 in 2004, to 12 of 28 in 2005, and to 8 of 17 in the first seven months of 2006."

As further evidence against DM&E's argument that the federal money will buy public safety, the letter also claims that the railroad spent none of a 2004 federal loan on new track. Instead, the company used the $233 million—the largest FRA loan to date—to refinance past expansion activities.

DM&E countered that its safety record is in fact getting better, but did not address the question of how its past loan was spent. "But the accidents...cited demonstrate in compelling terms the need for this project," Schieffer fired back in a letter of his own to the FRA, also dated December 4. "We are delighted that it was submitted by Mayo, and encourage you to look into each and every accident cited as a demonstration of why this project is so important to improving safety."

With a high number of frail patients clustered around the tracks, the consequences of any accident could be catastrophic, however. More trains mean more chances for something to go wrong, and higher speeds mean accidents are more likely to be serious, says Mayo spokesman Chris Gade. Because the tracks travel through downtown Rochester, any accident involving the release of hazardous chemicals has the potential to harm thousands of people, he says. Not only can't the clinic just evacuate critically ill patients, some spills could create "hot zones" not even emergency personnel could enter. And even if safety does improve, in other accidents in recent years the rupture of even a single tank car has caused multiple deaths.

DM&E's claim that 54 of the 56 communities along the line are in favor of the proposal creates a false impression, opponents also argue. Some of the towns cited by the railroad are tiny—one has six residents—and Rochester is home to more than 40 percent of the affected population. Plus, there are a number of affected communities, including Winona, that don't get a say because DM&E trains run through them on tracks owned by other railroads—in Winona's case Canadian Pacific.

Further clouding matters is the incredibly complex system used to track rail safety, says Larry Kaufman, a columnist and former transportation editor for Business Week who has followed the controversy. "Do you know what a derailment is? It's any time a wheel makes one whole revolution off the rail," he says, explaining that safety records can be used to prop up conflicting arguments. He doesn't buy either side's case on the safety issue, which he views as a red herring.

There are plenty of reasons to not want trains hurtling through the neighborhood, Kaufman continues, citing noise and vibrations. But in his opinion, the real problem is the financial structure of the deal. "If there is economic merit to the DM&E proposal, then there are people in our society whose business it is to finance these things," he says. "And why, if there is no merit, is the federal government interested in financing it?"