Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006

TRANSPORTATION, TREASURY, HOUSING AND URBAN DEVELOPMENT, THE JUDICIARY, THE DISTRICT OF COLUMBIA, AND INDEPENDENT AGENCIES APPROPRIATIONS ACT, 2006--CONFERENCE REPORT -- (Senate - November 18, 2005)

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Mr. THUNE. Mr. President, I recently announced a major railroad initiative in three different cities in my home State of South Dakota--Sioux Falls, Huron, and Rapid City. This particular project is the result of legislation I authored as part of the recently enacted Transportation reauthorization bill. My amendment was improved and incorporated in large part through work with Senator LOTT, who chairs the Senate Commerce Committee's Surface Transportation and Merchant Marine Subcommittee. I believe the changes that Senator LOTT and I made, both during Senate consideration as well as conference deliberations, will have a major positive impact on my State's rail infrastructure needs and I think significantly alleviate some of our Nation's rail infrastructure problems.

Much of the language that ended up in the final Railroad Rehabilitation Improvement Financing--or RRIF--program originated from past legislation that Representative DON YOUNG introduced. Building on Representative YOUNG's bill language, Senator LOTT and I made a number of changes to that legislation, but it provided a very solid foundation upon which to build.

The South Dakota project itself actually involves a major national initiative to build a second rail line into the capacity-strapped Powder River Basin, PRB, of Wyoming. The Dakota, Minnesota & Eastern Railroad DM&E, announced this project in 1997 and filed an application with the Surface Transportation Board, STB, in February 1998 to obtain regulatory approval. That process will be concluded in the near future, which I hope will allow the DM&E railroad to apply for a RRIF loan to finance construction of the project.

This project is strongly supported by virtually all of South Dakota's existing rail shippers and by the agriculture and economic development organizations throughout the State. It is also supported by the vast majority of communities served. And at the press events I participated in earlier this month--as noted in the Rapid City Journal article that I will later ask to be made part of the Record--even many of the landowners directly affected by the construction support it. I have supported this project since it was first announced in 1997, when I was serving in the House of Representatives, and have supported the project ever since in both the public and private sectors. It is incredibly important to the future of my State.

But on a national scale, it is also extremely important to our country's entire capacity-constrained rail system and to our national energy policy in particular.

Our national energy policy specifically states that:

[d]emand for clean coal from Wyoming's Powder River Basin is expected to increase because of its environmental benefits. However, rail capacity problems in the Powder River Basin have created a bottleneck in the coal transportation system ..... There is a need to eliminate bottlenecks in the coal transportationsystem.

The new RRIF legislation requires the Secretary to prioritize projects that:

(8) would materially alleviate rail capacity problems which degrade provision of service to shippers and fulfill a need in the national rail system.

The national ``need'' criteria of the legislation was written specifically with this nationally articulated energy policy ``need'' in mind.

The new RRIF legislation also requires the Secretary to prioritize projects that:

(7) enhance service and capacity in the national rail system.

Mr. President, as the National Energy Policy clearly notes, there is an overwhelming rail capacity problem in Wyoming's PRB. The Powder River Basin corridor is one of the most heavily traveled rail corridors in the world. Over 400 million tons of coal per year are shipped out, virtually all of it by rail. That number is expected to exceed 500 million tons soon, and to grow beyond that if capacity allows. It is therefore clear that, if completed, this 1,300-mile project in the West and Midwest would have a material impact on rail capacity in this region and throughout the country.

We also have a critical rail capacity problem throughout the entire United States. What happens in the PRB profoundly affects capacity elsewhere. It also affects the movement of grain and industrial commodities and general merchandise intermodal traffic. When this incredible flow of coal traffic increasingly merges with all this other rail traffic as it continues its flow eastward, it has a big impact. First and foremost, immediate and obvious traffic congestion occurs the further ``downstream'' into the traffic flow you go. The train of merchandise goods making its way from the west coast to Chicago has to pull off to the siding to allow another train to pass. Or less obvious, perhaps because of a crew or locomotive power shortage, the railroad will have to dedicate limited and locally available resources to one train over the other. This has a cascading effect because it makes it hard to recover when too many of your sidings are being used to park trains instead of being used for a quick meeting point so they can pass in the opposite direction.

A less obvious problem is the drain on resources from other regions to accommodate spot problems. Right now, for example, we are seeing a rail capacity shortage across the board. In addition to the long haul traffic that is mixed into these heavy haul coal lines, areas of the country that never come into direct physical contact with these lines are affected by their congestion problems. When those lines ``bottle up'' as they are doing now, it takes more locomotive power and more people to move trains. So resources are shifted. For example, we have dozens of loaded grain trains standing today with no power to move them. Grain orders are a month or more behind in my State and throughout the Midwest today. Locomotive power and other resources are being diverted to the PRB and elsewhere to address problems there, and our farmers are suffering as a result. The same can be said for virtually every traffic commodity out there today--including coal and general merchandise traffic.

With the completion of this new rail line to serve a heavy traffic area, it will relieve pressure on one of the biggest problem spots, which in turn relieves pressure on the system throughout the country. This project will not only add more physical track to our system and greatly improve existing track, it will also result in more locomotives and equipment and people. Across the board, this project will relieve pressure on the rail system from northeast corridor to the southwest reaches of the United States.

In a very basic sense, the national railroad system is well beyond its capacity today. There is not a railroad in this country that is not backed up on its orders. We have more traffic to move than the system can handle. And, adding to that, the U.S. Department of Transportation projects that railroad freight traffic demand generally will rise 55 percent by the year 2020. We need to add capacity. That requires major investments of the kind envisioned in our new RRIF legislation.

The changes made to that program did more than authorize the amount that can be loaned. The improvements were specifically tailored to encourage large-scale investment of the type envisioned by the DM&E project. After all, a large-scale investment is needed if we want to have a material impact on the national capacity problem. For that reason, I think this project is critically important to the country. I hope others will follow suit and develop projects that are national in scope. Nothing is more important to our national rail system in my view than this basic need for capacity.

On a related issue, the rail industry has gone through a massive consolidation on a national scale. Thousands of miles have been torn up in recent decades and are never to be recovered. This has certainly increased efficiency on single line segments up to this point. But in the process, at least from a national rail system perspective, we have lost important redundancy in the system. If we have a problem in one area, it quickly ripples through the rest of the country because of traffic backups that have nowhere else to go. We need more pressure relief valves, and more alternatives that allow the national system a little more flexibility to recover from spot problems. We have seen melt down after melt down in the national rail system. That problem is never going to get better unless we have some alternative emergency routings developed. The DM&E project will also be of great help in providing a fairly dramatic pressure relief valve for this critical part of the national rail system. So on many levels, from a national rail system perspective, this project reaches well beyond its immediate track geography.

Going on to other aspects of the new RRIF program, perhaps the most significant change we made was in regard to the valuation and treatment of collateral. This legislation requires the Secretary to use the more realistic ``going concern'' valuation instead of ``net liquidation'' value the Secretary has used in the past in relation to collateral. This is important because collateral value is a critical component of the credit risk premium calculation. This language is intended to ensure that the Secretary applies a ``going concern,'' or market value, to the collateral when determining whether and to what extent a credit risk premium is required. In short, the question becomes, what could the government reasonably expect to get for the value of the collateral if it were sold as a `going concern' business? In the past, the Secretary has used a ``net liquidation'' or ``scrap'' valuation approach. But in the real world if we are facing a default situation under the RRIF Program, the Secretary is not going to ``scrap'' the collateral. He is going to sell it for its highest and best use value. So that is the way it should be valued when considering collateral during the application process. This is consistent with private sector lending practices. It provides protection for the Government, and also encourages greater rail infrastructure investment by avoiding artificial credit risk premium payments when they are not necessary. It also requires the Secretary to take into consideration what the value will be after giving effect to the improvements that will be made with the loan. That of course will be discounted based on the overall cost of capital for the project.

Along those same lines, another feature that was added to the original Young RRIF language was to provide for the loan repayment schedule ``to commence not later than the sixth anniversary date of the original loan disbursement.'' The intent was that this discretion should be used for those large-scale projects that require several years of construction before revenues are generated and where the revenue ``ramp up'' may be gradual. This is a pretty standard feature in large private sector loans, but under the former law the Secretary did not have any flexibility to do that. Under the new law, interest would accrue and compound during this period. It was primarily my intent to provide a reasonable breathing period so that a solid revenue flow would be established before payments would be required.

Senator LOTT and I also added a provision to the RRIF improvements to allow the Secretary to charge, and for the FRA to collect and retain, a fee to evaluate loans. This provision was included because we want the process to be efficient, and not be a drain on the government. The best solution was to allow the Secretary to hire help and charge the cost to the applicant. It is hoped that this will make it easier to expedite these loans, and the expectation is that FRA will undertake best efforts to keep these fees to a minimum. The point here is to help expedite the process and give FRA a little more flexibility to get the job done quicker. The former RRIF Program was notorious for the amount of time it took to process. There was a particularly bad history there, which I think the FRA has already improved substantially. This, hopefully, will give them the tools they need to take the next step.

The $35 billion authorization level was in Representative YOUNG's original legislation, as was the provision that prohibited the Secretary from limiting the size of a single loan, and the 90-day review period. Those were important provisions that we wanted to retain because they all go to this concept of encouraging major new rail infrastructure investment in this country, and I appreciate the efforts by the Senator from Mississippi and his staff to retain them and add my language to them.

In closing, the original RRIF Program got off to a very slow start, owing in large part I think to a certain degree of resistance from OMB. I am very hopeful that everyone recognizes this effort as a good faith attempt by Congress to send a clear message that we are trying to encourage major rail infrastructure investment in the United States rather than think up reasons to not do it. This is a program that is very much in the national interest. As former director of the South Dakota Rail Division, I believe strongly in the importance of and urgent need for major rail infrastructure investment in this country. I think most Members of Congress feel the same way, and I hope our colleagues in the administration receive this message and will support our recent action to strengthen the RRIF Program. I hope they will now join in the effort to make RRIF a strong engine for rail infrastructure investment as was originally intended and as we directed in the recently enacted legislation.

Mr. President, I ask unanimous consent that articles describing the proposed rail project--which appeared in the November 6, 2005 editions of the Sioux Falls Argus Leader, and the Huron Daily Plainsman, and the Rapid City Journal--be printed in the RECORD.

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