Washington, D.C. – Citizens Against Government Waste (CAGW) today urged the Federal Railroad Administration (FRA) to deny a record $2.3 billion federal loan to the Dakota, Minnesota, and Eastern Railroad (DM&E).  The FRA announced it is ready to consider the loan and will issue a decision within 90 days.

“The DM&E loan has the potential to be one of the biggest taxpayer rip-offs in history,” said CAGW President Tom Schatz.  “The FRA must stop this handout in its tracks.”

The loan, which would be used to expand and improve a rail line used primarily to transport coal from Wyoming to Minnesota, continues to roll full steam ahead despite significant financial and safety risks.

According to BearingPoint (a strategic consulting firm), the loan would require an annual payment from DM&E of $246 million on top of the $15 million from another loan.  Even if the rail upgrade increases DM&E’s current annual revenue of $200 million, the deal presents a poor credit risk to taxpayers, who will be forced to foot the bill if the company defaults.  A senior manager at BearingPoint stated, “This loan finances a project with many financial uncertainties, ultimately calling into question whether or not DM&E can repay the loan.”  

The FRA’s Railroad Safety Statistics Annual Report 2004 ranked DM&E last in safety among the nation’s 43 largest railroads.  Government handouts have failed to solve DM&E’s safety problems in the past – its main track accident rate has escalated to eight times the national rate since its last FRA loan of $233 million in 2003 – and are unlikely to help in the future.

“This deal makes no sense from a fiscal, security, or commonsense standpoint,” continued Schatz.  “Taxpayers are being railroaded and most of them don’t even realize it.”

The loan has been compared to the $1.5 billion Chrysler bailout in 1980, but unlike the Chrysler deal, DM&E is not the subject of intense public and congressional debate.  The DM&E loan has quietly moved through Congress thanks to behind-the-scenes lobbying and legislative maneuvers from Sen. John Thune (R-S.D.), a former lobbyist for DM&E.  Sen. Thune was instrumental in increasing the FRA’s loan guarantee authority from $3.5 billion to $35 billion in the 2005 Safe, Accountable, Flexible, and Efficient Transportation Equity Act, in apparent anticipation of the loan.   Sen. Thune was CAGW’s Porker of the Month in November 2006 for his support of the loan.

“DM&E is taking taxpayers for a ride and the FRA must put the brakes on this loan,” concluded Schatz.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.