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Citizens Against Government Waste has named John Thune its Porker of the Month. Thune earned this distinction by getting a $2.3 billion loan for Dakota, Minnesota, & Eastern Railroad, a former client of his during his lobbying days, and Congress has barely even debated the outlay:
The loan guarantee from the Federal Railroad Administration (FRA) would allow the Dakota, Minnesota, and Eastern Railroad (DM&E) to expand and improve a rail line that is used primarily to transport coal from Wyoming to Minnesota. In apparent anticipation of the loan, 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. DM&E paid Thune $220,000 in 2003 and 2004 to lobby for the loan before his election to the Senate.
According to BearingPoint (a strategic consulting firm), the loan would require an annual payment 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 DM&E loan is being compared to the $1.5 billion Chrysler bailout in 1980. However, at least that expenditure was the subject of intense public and congressional debate; the DM&E loan is quietly moving through Congress thanks to behind-the-scenes lobbying and legislative maneuvers.
Supporters of this loan argue that DM&E represents a strategic interest for American energy policy, as they service Wyoming coal fields. However, other railroads also service the same fields, and they do it more efficiently and more safely. In fact, DM&E has the worst safety record among the 43 large-scale rail carriers in the US. The other two railroads that service the coal fields will be put at a competitive disadvantage by the government bailout of DM&E, which promises to subsidize failure rather than allow the market to work properly.
Furthermore, unlike the Chrysler bailout, DM&E doesn't appear to have the capacity to repay the loan. DM&E has not released its financials to the public, making it almost impossible to tell whether the loan is necessary and for what purpose it will be used. DM&E currently makes less than $200 million in annual revenue; the loan repayments will start at $246 million in six years, and that's on top of a $15 million annual payment for their current $233 million loan. That sounds like a recipe for financial collapse, especially considering their safety record -- they're unlikely to find many new contracts.
Minnesota's Norm Coleman has come out in opposition to this bailout, although not in principle:
Sen. Norm Coleman said Thursday that he will oppose an expansion plan by the Dakota, Minnesota & Eastern Railroad unless the Department of Transportation comes up with a plan to address the concerns of the Mayo Clinic.
"I need to soon see a mitigation plan," Coleman, R-Minn., said in a conference call with reporters. "If there isn't a plan, then I'll do everything in my prerogatives as senator to stop this project, either through the appropriation process or the legislation process."
Coleman said he wants to see a plan by the end of the year.
The entire project needs to be shelved. The federal government should not put itself in the business of bailing out private corporations, especially when other alternatives exist in the market. DM&E appears to have made itself a failure, and taxpayers should not reward incompetence. Thune needs to withdraw this request, and failing that, Congress needs to stop it as soon as possible.Sphere It View blog reactions
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» Democrats=Pork,Part 1, 068,291 from QT Monster's Place
Unfortunately, Republicans have proven that they too, love pork. Senator Thune-D gets the Porker of the Month Award. vadkinsQT Monster Blog Home [Read More]
Tracked on November 20, 2006 12:57 PM
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