Parents and children alike are familiar with the story, “The Little Engine That Could.”  Through perseverance and sheer determination, a small train engine pulled a train over a steep mountain even with the odds stacked against it and when other train engines didn’t think it possible.  It appears that Sen. John Thune (R-S.D.) is twisting the lessons of that book into a rail subsidy that could be the biggest taxpayer rip-off ever.  He helped to secure a $2.3 billion loan from the Federal Railroad Administration (FRA) to expand and improve the Dakota, Minnesota, and Eastern Railroad (DM&E), which is used primarily to transport coal from Wyoming to Minnesota. 

With an annual budget hovering at around the $3.5 billion mark, FRA is a government agency that, according to its website, is supposed to “promulgate and enforce rail safety regulations; administer railroad assistance programs; conduct research and development in support of improved railroad safety and national rail transportation policy; provide for the rehabilitation of Northeast Corridor rail passenger service; and consolidate government support of rail transportation activities.”  Because the $2.3 billion loan would have eaten up most of the agency’s budget, Sen. Thune increased the agency’s budget to $35 billion by sleight of hand in the Safe, Accountable, Flexible, Efficient Transportation Equity Act last year, creating plenty of wiggle room for the loan.

The loan makes no sense from a fiscal, security, or commonsense standpoint.  The most confusing, and relevant, aspect to taxpayers is the financial aspect of the deal.  Currently, DM&E has revenue of less $200 million.  According to BearingPoint (a strategic consulting firm), this loan would require an annual payment of $246 million on top of the $15 million from another loan.  To put this number in perspective, the Chrysler bailout was valued at $1.5 billion.  The numbers alone signal a red flag to stop this handout in its tracks.  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 loan has other problems.  In January 2006, DM&E’s President and CEO, Kevin Schieffer, lamented that “we have a very poor safety record.”  According to the FRA’s Railroad Safety Statistics Annual Report 2004, DM&E ranked last in safety among the nation’s 43 largest railroads.  Government handouts have apparently failed to solve DM&E’s safety issues as its main track accident rate has escalated to eight times the national rate since its last FRA loan of $233 million.  Over the past 10 years, DM&E has had 107 accidents involving trains carrying hazardous materials.

With all of its shortcomings, there is no logic behind the loan.  But then again, logic is not a requirement for matters concerning the DM&E, considering that two railroads serve the same coalfields.  However, an explanation may be found in John Thune’s former employment with the company.  Perhaps the senator’s fiscal judgment is clouded by a desire to help his former employer.

The lesson of the children’s story is that physical size is no match for sheer determination.  While the little engine could push its way over a hill, Sen. Thune could push through a railroad subsidy despite safety and financial failings.  And while the book need only be bought once for children and grandchildren, the loan will have to be paid back for years to come by those same children and grandchildren.

  -- Dave Williams