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Twin Cities Business - Short Lines, Big Problems Target. http://tcbmag. com/news/articles/2017/j une/short-lines,-big-problems After World War II, "the rise of the interstate highway system and heavy federal regulation caused railroads to lose money," explains Wegner. "Their response was to prioritize investment. Maintenance was focused on main lines." But the main lines are only part of the story. Since deregulation in 1980, America's railroads have been on a rigorous, some would say ruthless, pruning to shed the remnants of earlier economic eras, when they delivered boxcar -loads of seed or road salt or lumber to small towns and businesses. It was a slow-moving, low -margin, labor- intensive business. As lines were pruned, their railroads were obligated to offer them to anyone willing to operate them, by lease or sale. These small, newly emancipated "short line" railroads were freed by regulators to operate with two-man train crews (rather than five); they leased used engines and turned off expensive signaling systems in favor of two-way radios. Most are very small businesses, albeit using very heavy equipment. Short Line Railroads Minnesota has 13 short line railroads. They operate 1,016 miles of track. $117 MILLION is needed to upgrade rails to adequate repair (railroad estimate). $551.7 MILLION is needed to upgrade rails to federal Class II standard (MnDOT estimate). Source: 2010 state rail plan As a consequence of their frugality, many short lines found themselves able to create positive cash flow on lines that Burlington Northern and the Rock Island could not. But the terms that formed the lines were less than ideal. "They were `as is' transactions," explains Gohmann, "with no provision for upkeep" Most lines had received little maintenance for decades, as the railroads that built them struggled against their unfavorable economics. "The Milwaukee Road and Rock Island went bankrupt trying to keep up with the maintenance on these lines," explains Richard Kedzior, the freight railroad program manager for Wisconsin DOT. Tracks and ties and bridges, mostly built before 1920, showed their age. Traditional debt financing was out of the question. "Banks will not lend because the growth curve is too long," explains Dave Fellon, owner and president of Progressive Rail Inc., a short line with operations in six states. So the short lines muddled along. Some thrived, some failed, but what they had in common was an inability to generate the capital to return their lines to a state of good repair. "The revenue we generate pays our operating costs," says the Prairie Line's Beard, "but it can't pay our capital costs." The Minnesota Commercial's endangered line from St. Paul to Hugo is typical (see "Tied Up in Hugo." page 21). According to Gohmann, last year the line generated barely $10,500 in income for the Minnesota Commercial on revenue of $779,000, a paltry 1.3 percent return. Were it to take advantage of a 10 -year no -interest loan from the state of Minnesota, borrowing $1.3 million to bring the line to a state of good repair would require annual payments of $130,000. The economics don't pencil out. So at the Capitol this spring, thtlsohsoer# lines are engineer's cap in hand, saying their physical plant is worn out and they are nearing the end of the line. JJ One track 3 of 9 6/16/17, 11:35 AM