Napa-Platte rail deal falls through

PIERRE – The State Railroad Board met on June 19 to approve the sale of the state-owned Napa-Platte line in south-central South Dakota.

Instead the would-be buyer, Iron Horse Development, rescinded its offer.

The company’s financial representative, Toby Morris of Pierre, said his group tired of criticism from local people who maneuvered to undercut the deal.

He referred to members of the Napa-Platte regional railroad authority, which holds the lease on the line, and to people involved in a proposed ethanol plant at Wagner, who failed repeatedly to come up with the money to buy the line under a previous arrangement.

Some of them were in the meeting room on June 19. “You guys are too destructive behind the scenes,” Morris said.

The line, which doesn’t have any regular traffic, will remain under lease to the regional railroad authority instead.

The state board authorized a one-year extension on June 19, but added a clause allowing the state board to end the lease on 30 days’ notice.

Sale of the line to a private developer was cast as opening the way to tens of millions of dollars in agriculture, manufacturing and commercial development.

“Opportunity just quit knocking,” said Carl Anderson of Aberdeen, one of the state board members.

Dakota Plains Ag Center will now put its siding switches for a $30 million-plus loading facility on the Burlington Northern Santa Fe line, rather than on the Napa-Platte line west of the Napa junction, according to manager Matt Winsand of Parkston.

He said Menard’s was considering a warehouse there, too, but the uncertainty led to locating it in Nebraska. “You have to have a team, or it’s not going to get done,” Winsand said.

The partners in Iron Horse Development are Christine and Eddie Hamilton of Kimball, Chuck Jepson of Fort Pierre and Morris.

Morris and Jepson left the meeting before the state board heard comments from people opposing the sale.

A state board member, Sheldon Cotton of Volga, suggested looking for a replacement for the regional authority.

“I don’t know why we’re stuck with this bunch of renegades who don’t want to do business with us,” he said. “It’s time to clean this up and we are the people to do it, I think.”

Ken Cotton, the lawyer for the regional authority, said it was unfair to be labeled as obstructionists and renegades.

He said the proposed sale contract was “a good start,” but wanted the authority, the ethanol project’s investors and other people from the local area to be consulted.

A key point, he said, was the state should keep ownership of the first two miles of the line west from its junction with the Burlington Northern Santa Fe line.

The proposed contract became publicly available June 10, with the state board’s meeting set for nine days later.

“It seemed to me it was being crammed down the authority’s throat,” he said. “It just seemed like all the local boards and groups that should have been involved weren’t involved.”

The state board has struggled about the line’s future for several years. Wagner Native Ethanol kept asking and receiving more time to raise money for the purchase.

State board members told Morris they understood why Iron Horse was walking away.

“It’s unfortunate for that area. It’s unfortunate for this state. It’s unfortunate for the rail board,” member Todd Yeaton of Highmore said.

Both Ken Cotton and the regional authority’s chairman, Tub Harrington, denied they contacted federal railroad authorities seeking financial audits of the Mitchell-Chamberlain rail rehabilitation projects.

Morris and Jepson put together a grain elevator near Kimball that is served by the Mitchell-Chamberlain line. Dakota Southern has a lease to operate on the line and serves that elevator.

Dakota Southern also has the sublease from the regional authority on the Napa-Platte line and would have been the operator if Iron Horse had completed that purchase.

Three audits have been conducted in recent months, according to statements made by several people at the meeting.

Harrington said he didn’t write any letters or make any phone calls.

“Give me proof,” he said. “I want to clear my name.”

The line was among those purchased by state government when the Milwaukee Road went bankrupt in the late 1970s.

There was to be a clause in the contract that gives Wagner Native Ethanol a window of time to exercise an option to buy part of the line from Iron Horse Development.

In 2006, the state board officially adopted a resolution to sell 54 miles of the line from near Napa Junction to the Wagner ethanol project for $1,488,000.

The board waited for years on developers to purchase the line. When that didn’t happen, the board in December 2011 called for new proposals and finally selected Iron Horse Development in October 2012.

Gov. Dennis Daugaard wants the line sold. In an Oct. 31, 2012, letter, he asked the board to keep in mind five points:

·The ability of Dakota Plains Ag Center to proceed with its plans for a major grain-loading facility at Napa.

·The prospect of Wagner Native Ethanol.

·Ensuring that rehabilitation and operation “will progress on the line at a reasonable pace.”

·The line’s ownership revert to state government if the restoration of service doesn’t succeed.

·Multi-carrier access be protected so that trains using the route can continue coming and going from the Burlington Northern Santa Fe railroad at Napa junction.

At the time Iron Horse was selected, the company had immediate plans to begin rehabilitating five to 10 miles of the eastern-most segment of the line keep the current operator, Dakota Southern Railroad, which is storing other railroads’ cars on part of the line.

The Napa-Platte regional railroad authority holds the lease on the eastern 54.5 miles. Dakota Southern holds the sub-lease.

The western 26.6 miles between Ravinia and Platte aren’t leased and likely would have been scrapped, with proceeds from the salvage to be used for rehabilitating an eastern-most segment.

Regional rail authorities were established in state law 30 years ago to assist in restoring service on the bankrupted routes.

The authorities are government bodies with taxing powers that can be used if necessary. Primarily they serve as pass-through groups for loans from the state board that are repaid through rail-traffic fees.