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5-1-1983 Restructing a Rail System: South Dakota's Experience from 1976-81 C. E. Lamberton
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Recommended Citation Lamberton, C. E., "Restructing a Rail System: South Dakota's Experience from 1976-81" (1983). Bulletins. Paper 693. http://openprairie.sdstate.edu/agexperimentsta_bulletins/693
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Restructuring :i; a rail system J South Dakota's experience from 1976-81
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Agricultural Experiment Station • South Dakota State University • Brookings, South Dakota 57007 B 688 Restructuring a rail system
South Dakota's experience from 1976-81
By C.E. Lamberton with the cooperation of Rail Management As sociate professor of economics Services, Incorporated , a shortline South Dakota State University operator and consulting firm in Syra
cuse, NY. The sixth line , Napa to Platte, was studied with the assistance Introduction of Rowell and Associates , a railway engineering consulting firm in Syra cuse. This report is a s ummary of the restructuring of South Dakota's rail The six studies were publ ished in road system between 1976 and 1981 and November and December of 1980, and of a series of six studies on the distributed to all who had shown feasibility of branchline rail service interest in the branchlines. Those in South Dakota. Each of the six included shippers, local business and studies examined the economic feasibil community leaders and officials, state ity of a specific branchline . The transportation officials, and various lines studied were: potential public and private lending agencies. 1. Andover to Brampton, ND; A seminar was held on the results 2. Roscoe to Linton, ND; 3. Trent to Elk Point ; of the study , as well. All interested parties were invited to attend the 4. Napa to Platte ; 5. Mitchell to Rapid City; and , meeting held December 16, 1980 in 6. Blunt to Gettysburg. Brookings, SD. In addition to the presentation of study results, a general The fir st five lines were aban discuss ion of railroad op erations and doned in 1980 by the Chicago, Milwaukee , costing was given by representatives of St. Paul, and Pacific Railroad Company Rail Management Services Incorporated . (Milwaukee) during bankrup tcy and An d , the potential for rail line reorganization proceedings. The sixth financing was ou tlined by representa is a light density branchline of the tives of the Omaha Bank for Coopera Chicago and Nor th Western Transporta tives, Farmers Home Administration, tion Company (C&NW) . Consumers Cooperative Bank , Economic Development Administration, and the Small Business Administrat ion. Sub sequent presentations have also been Milwaukee's bankruptcy threatened made upon request. service on approximately one half the rail mileage in South Dakota. This The primary purpose of this report threat provided the principal impetus is to describe the developments in for these studies. The studies were South Dakota 's branchline system and funded by the Farmers Home Admin� its relationship to the national istration and administered by the railroad system. The first chapter Economics and Statistics Service of the ou tlines the changed railroad environ USDA. Five of the lines were analyzed ment and physical restructuring . In
2 Chap ter III, the imp lications of rate such as the covered hopper car . There and service policies in a deregulated were improvements in rail management environment are discussed. Brief systems , as well , reflected in the use descriptions of the reconnnendations of of multicar and unit train operations. the six branchline feasibility studies are presented in Chapter III, along with explanations of developments on All of these changes have individ those lines in the year following the ually and collectively altered the studies. The final chapter presents economics of grain handling and trans some conclusions-with respect to such portation . The economic changes rural rail systems and the role of inspired changes in technology and , state and local entities in their perhaps belatedly , changes in social ,reshaping. and polit ical institutions and at titudes about transportation. At the same time that larger , more powerful CHAPTER I trucks were being built to move over South Dakota's branchline system wider , stronger , faster highways, Americans continued to demand service on the ubiquitous railroad branchline The developing crisis: 1965-1975 system. The laws and regulations which allowed this , while consistent with Significant technological develop social desires , often failed to face ments have occurred in the production, the economic realities of declining handling , and transportation of grain rail traffic and revenues and increas since World War II. Producers now rely ing rail costs. on hybrid seed , chemicals, sophisti cated management and market ing skills, Penn Central Ra ilroad's bankruptcy and connnunications and computer systems , in 1970 was a shock which marked a as well as more specialized and pro beginning of the recognition of rail ductive capital equ ipment . The re problems. The Regional Rail Reorgani sulting increase in grain production , zation (3 R's ) Act of 1973 replaced combined with greater export demand , Penn Central with the subsidized has required larger , faster grain Consolidated Rail Co rporation (Conrail) . handling systems , resulting in larger The act did not, however , recognize the elevators and subterminals . extent of the rail problem. Conrail was required to provide service over To assemble the increased quan most of the same unprof itable Penn tities at these larger facilities , Central branchlines. Rail industry producers' delivery equipment has leaders and the US Department of changed from fa rm wagons and small Transportation were quick to notice trucks to large farm trucks , and even that the redundant rail system in the tractor-trailer combinations which can Midwest could well face problems carry 850 bushels or more. These similar to tho se of Penn Central. vehicles helped induce the development of improved rural roads. In response to their warnings, Congress passed the Railroad Revitali The effic iency and convenience of zation and Regulatory Reform (4 R's) the modern truck and the public pro Act of 1976 . It was an attempt to vision and maintenance of high quality improve railroad profitability by highways caused much of the grain allowing more flexible rates and traffic which had moved by rail to be expediting the decision processes for diverted . This occurred despite railroad abandomnents and mergers. The technological developments in rail act also required states to become roading which included signaling involved in rail system planning and equipment, diesel-electric locomotives, provided funds for rehabilitation of 100-ton cars, and specialized equipment part of the branchline system.
3 Map 1 shows South Dakota's rail subsidies in the Northeast . And , the system in 1925 . Only minor changes Ch icago , Rock Island , and Pacific (Rock occurred during the following 40 years. Island) and the Milwaukee were bankrupt The restructuring of South Dako ta's in the Midwest . The 1976 act, which rail system , wh ich began in 1965 , is required that individual states become shown in the following tab le. A first involved in rail planning and made wave of abandonments occurred between ma tching funds available for rehabili 1965 and 1972 . Of the 22 abandonments tation, helped to achieve recognition in these years , 13 reflected a policy of the problem at the state level. undertaken by the Chicago and North Western (C & NW) Transportation Company to rid itself of the financial drain Saving the tracks caused by light density branchlines. South Dakota is at the western end of During this time the attitude of the C&NW system. Since this period of both the general public and state abandonments in the state, the C&NW has officials in South Dakota changed from continued this policy in Iowa , Min that of fighting each mile of abandon nesota , and Wisconsin . Map 2 shows the ment to one of realizing the need to South Dako ta system after tLis first retain an essential core system. At1 abandonment wave . early step in the evolution of this new attitude came in 1973 when the governor After the 4 R's Act was passed in appointed an Advisory Task Force on 1976 , South Dakota experienced a second Ra ilroad Abandonment Policy. Although ·wave of abandonments . This was pri the task force continued to focus on marily due to the financial plight of the prevention of abandonments, it also the Milwaukee. During this second reconnnended changes in the state wave , the nation 's rail prob lems �axation and regulation of railroads gained wider recognition . Conrail wh ich recognized the railroads ' finan continued to require massive federal cial plight . Out of the work of the
South Dakota railroad branchline abandonments
Year Nt.llllber Miles Year Nt.llllber Miles
1965 1 5.3 1973 0 0
19 66 2 35.4 1974 1 26.0
19 67 1 47. 7 19 75 0 0
19 68 2 53.2 19 76 1 4.1
1969 3 65 .5 1977 4 14 3.0
19 70 4 12 8 .5 1978 3 210.2
19 71 5 73 .83 19 79 7 256 .5
19 72 4 122 .9 19 80 21 1, 089 .0
19 81 4 70 .3
4 5 O>
JI , \}.,71, :-. . ,.J\.,�·v 1 I \ ,.-.'-' '- � 4p«-1•. · 11'� ''·.r i.:::{ •\ )�..,.. ���-���:' '2'.::�.: · l I/ .. Map 2 South Dakota's rail system in 1975 �------Chicago , Milwaukee, St. Paul , and Pacific (Milwaukee) •••••••••• Ch icago and North Western -----• Burlington Northern ,,,,...... •.•·······� Soo Line ,,,,,,,#U##H Illinois Cen tral Gulf task force the South Dako ta Railroad have imposed a severe economic hardship Advisory Connnission was established to on the region. provide ongoing cit izen input and oversee the rail related work of the To keep the line operating , a $2.3 South Dako ta Department of Transpor million rehabilitation project was tation. undertaken in 19 79 . South Dakota, North Dakota , and Minnesota funded the In 1976 the South Dako ta Legis project with federal money available lature repealed several sections of under the 4 R's Act. Users of the line state law which imp osed unnecessary contributed the required 20% matching regulatory and expense burdens on funds. Additional work was undertaken railroad s. In 1978 it passed laws to in 1980, also using federal 4 R's funds. acconnnodate handling federal 4 R's Act funds, rehabilitating the state's rail These efforts retained service on system through an "Iowa Plan," and the line as far west as Miles City , MT. setting up the Regional Railroad The projects were stopgaps which Authorities. The "Iowa Plan" allows allowed the line to remain in Mil the railroad company , shippers, and waukee's reorganization plan. By 19 80 state to share rehabilitation expenses the Milwaukee had applied for a $49 and to provide financial incentives for million loan from the Federal Railroad use of the rail service. Regional Administration to rehabilitate the Railroad Au thorities are a device under line. which local units of government can jo in together to maintain rail service in their reg ion. To enhance the line's profit potential so it could remain as part of The 1979 legislature repealed much the reorganized railroad , the Milwaukee of the law which called for regulation negotiated a partial gateway agreement of railroad practices and rates. to interchange traffic with the Burling Necessary regulatory law was rewritten ton Northern (BN) at Miles City, MT. by the 1980 legislature after study by Grain from North and South Dakota could an interim committee. In this re move west through the gateway. One writing, many of the remaining regula third of the coal traffic originating tory responsibilities were transferred on the BN in Montana and terminating at from the Public Utilities Commiss ion to two Wisconsin power plants on the the Department of Transportation. The Milwaukee moved east through the intent was to allow for a more com gateway. prehensive and coordinated planning effort within a single agency , the Map 4 shows the South Dakota rail Division of Railroads. In 1979 this system before Milwaukee's reorganiza agency had identified the lines which tion in 198 0. While the reorganization provide essential service. See Map 3. plan was accep table to the bankruptcy After this core system was identified , court , it was rejected by the Inter resour ces were directed toward re state Commerce Commission (ICC) in taining these lines. March 198 0. In recent years, the commiss ion has calculated a target rate Meanwhile , the Milwaukee R�il of return on invested capital which it road's court appointed trustee was believes railroads should earn to be designing a reorganization plan. One able to attract investment funds in the o f the options was to embargo and aban financial markets. This is part of the don service on the line from the commission's effort to restore the Twin Cities to the Pacific Northwest. nation's railroads to financial health. This line is the only route by which The commission did not believe that the coal can be delivered from a mine at Milwaukee could achieve the target rate Gascoyne , ND, to a power plant at Big of return under the reorganization Stone City. Losing this service would plan. 7 OJ .._ , �t - I •• i ,I I • / I I I I i i r---·-i -· 1 , \ .•'· i '., •. (',Y·-;,l.,, ! l<;·• -- I . - -- : ·- �...... "':'i!': - - ! :; 0 "'-'� - l� \ \ -· I ?! 0�1-- I �"°�"" ) � 't � -'/ ,.,. , I( - ..,,. _;- ; ' -a._....,._,,;;& · ( - I {I!,' J -��;,J � \".:" I ·• l'."I!. � -""-\: � I I M.i � . I ..r r.r�..,; I i I J. t.,,# 0 ''>' "'. ,-�o· rf�� ';'( '� , i ' I I ,,,.c ' I 11 I J . i Ii ,,, - - ,,,,,.,, · i ) I 0 _ I ·� L I it i .. ' ,.,, . .. �... -""h"r. ... I ; '-"""• ,_,, ... i \ ,.,.v",,� ,•"1, �/Lr., f""""l------"r J•��_, ,..,,,..,...,.,..J' "- '"" �---"5"v I I ·:__..� _,•'"'� "-( i i i i L ------I - - � - I I l l Pt":RldQt i K ·1 Map 3 South Dakota's core system (identif ied in 19 79 ) Railroad lines in clud ed in the core system ll l"'Q.(� "'"' r·.r·-�/,..; it Map 4 South Dako ta's rail system in January 19 80 Milwaukee I Ch icago and North Western �········· Rurlington Northern ...... ·•·•·•·•·•·•·•·•·· Soo Line 10 \"'Q(�,.,... r·'-·v·,..; 0 K Map 5 Lines abandoned by the Milwaukee Road in June 1980 ...... • Lines abandoned I\) 3r 1( � ;� �( ( -· .L.... I --.•--. l '!:·�t.�, �,j a I . k�Ji..,...r ,n .'t,u. 1� \"'JI.(� "'"' 4�-·�)/ 'J r·/-v gd .- .._ ,. ..r/ �\.: .,-1. 0 ll Map 6 Milwau kee lines purchased by the South Dakota Railroad Au thority in March 1981 Lines purchased to be operated Lines purchased yet not to be operated llllllllllllll·------Lines to be operated only under local opt ion special session , the legislature re When rehabilitation work is com sponded by leaving the entire motor pleted in 1983, all of the state owned fuel tax increase in the highway fund lines be ing operated by the BN, with and making other monies available for the exception of the Mitchell to rail subsidies . Chamberlain line , will be capable of carrying unit trains of fu lly loaded The 1981 legislature also autho jumbo covered hopper cars. rized the Rail Au thority to purchase the track from Canton to Sheldon , IA and in Sioux City, IA. This wa s to allow Saving a mainline traffic to inter change with other carriers. The one cent sales tax used In March 1981 the Milwaukee to raise the funds needed to purchase requested permission to abandon the two lines wa s terminated at the end of the remaining br anchlines operated off the March 31, 1981 tax quarter . The tax Miles City , MT extension . These were raised approximately $3.8 million more the lines from Milbank to Sisseton and than was needed . This additional from McLaughlin to New England , ND. On revenue was made available for loans to May 15 , 1981 Milwaukee's court ap Regional Railroad Authorities for pointed trustee also filed an applica establishing service on local option or tion to abandon the Miles City ex privately owned lines . Local option tension west of Ort onville, MN. As lines are those owned by the state but noted before, losing service on this wh ich can be operated only with suf line would eliminate the daily coal fic ient local support. The Canton to unit train service between Gascoyne, ND Elk Point line was acquired as a local and the Big Stone power plant . It option line . would also sever South Dako ta's direct connection to the growing West Coast After several months of reviewing grain markets, and the access to the shortline operating proposals, the Twin Cities and Twin Ports for wheat Division of Railroad s negotiated an shippers in the northern part of the operating agreement with a major rail state. road , the Burlington Northern . The BN phased in service on the state owned A September 1981 special session system as rehabilitation work wa s com of the legislature approved the Rail pleted during the summer of 1981 . road Authority's issuing up to $35 million in industrial revenue bonds to BN service offers advantages purcha se the Ortonville, MN to Miles shortline operations can't provide. BN City, MT line. In Fe bruary 1982 an provides single carrier movements of agreement wa s reached be tween the grain to the principal export terminals Railroad Authority and Milwaukee for without interchange delays . BN also the purchase of the line as far west as provides unit train grain rates. It Terry, MT . The Railroad Authority operates the South Dako ta lines without would issue $30.4 million of bonds to direct subsidy although South Dakota purchase the line and receive credit funded the $6.9 million rehabilitation for the $4.5 million in rehabilitation work needed to br ing the lines up to funds already invested . operating standard s. That was done with the state's share of 4 R's money Also in February 1982 , the Rail and the funds available for operating road Authority announced that the BN subsidies. In short , the South Dakota would lease and operate the line and owned core system has been placed in pay off the Railroad Authority 's bonds . the national rail system without When the bonds are retired , ownership requir ing direct operating or main of the line will be transferred to BN. tenance subsidies. Map 7 shows how it Rehabilitation of the line will be fits into the transcontinental BN financed with a $30 million loan from system. the Federal Railroad Administration 13 � Map 7 system Burlington Northern's BN ta lines operated by ••••••••• ••••• South Dako under the 4 R' s Act . This loan will Mansfield and Ab erdeen and may abandon also be repaid by the BN . the remainder of the Redfield to Oakes , ND line as well as the line from Pierre The net effect of the plan is to to Rapid City . transfer the ownership and operation of the line from the Milwaukee to the BN Losing the Redfield line would be at a price which realizes both the less serious because the line is paral lower interest rate available to the lel to the state owned and BN op erated Railroad Authority as a public agency line between Redfield and Ab erdeen . and also the federal funds already Lo sing the Rapid City line would , invested in the line . Milwaukee however , eliminate east-west service received a higher price for the lines across the state . Wh ile vir tually no and BN paid a lower price than would be traffic originates between Rapid City possible without the participation of and Pierre , Rapid City traffic does the state . support the line east of Pierre . Losing the Rapid City to Pierre segment Although the Milwaukee 's New could threaten the line all the way England , ND branchline has been aban back to Mankato , MN . doned in 1982 , the Sisseton branch was purchased by a limited partnership Should the C & NW abandon the formed by rail users . The new owners Rapid City line , South Dakota may need have also formed Dakota Rail (DR) to to either purchase the line and have it operate as a shortline railroad on the operated , or re-establish service on 38 mile branchline . They interchange the Chamberlain to Rapid City line traffic with the BN and Mi lwaukee at purchased from the Milwaukee. In the Mi lbank . latter case it may eventually be necessary to purchase and arrange for Incorporating the Milwaukee operation of the C & NW line east of mainline into the BN system provides Pierre as part of the state owned core South Dakota shippers with direct, system. single carrier access to the Pacific Northwest. By shortening BN hauls between the West Coast and western coal fields, and the marke ts in Minnesota, Saving a short branchline Wisconsin , Mis souri, and the Gulf Coast, the development of bridge In 1980 the BN abandoned its Sioux traffic is made more likely . Bridge Falls to Hayti branchline north of traffic on any given line segment is Wentworth and the Milwaukee abandoned traffic wh ich neither originates nor its branchlines between Egan and terminates on it . The development of Ma dison and from Madison to Bryant . such bridge traffic could provide vital These two lines crossed at Wentworth , support to the rest of the state owned seven miles east of Madison as shown on system. It could also be instrumental Map 8. The BN purchased the seven to future industr- ial development in miles of track providing access to South Dakota. Madison and agreed to serve the Sioux Falls to Madison line if rehabilitat ion was possible . Shippers on the line Saving a trans-state branchline organized and in 1981 Minnehaha and Lake counties formed a Regional Rail South Dakota has negotiated with road Authority . The Authority agreed the C&NW for using $3.4 million of 4 to issue bonds and make a $2.06 million R' s money to rehabilitate track between interest free loan to the BN . This Huron and Pierre . C&NW may abandon loan , along with $1. 7 million of the both the Pierre to Rapid City and the state 's 4 R' s funds and $1. 5 million Redfield to Oakes , ND lines . C&NW has contr ibuted by the BN , was used to re abandoned the line segment between habilitate the 44 mile line . 15 L_ Tulare i I i i Spottswood N i CLA_R_! -· ____ _!!_� K BEi ADLE ' : Bonillo j 1telline �- --· . -·---·--- J i i i I i i KINGSBURY ··---·-· · MINER:::--, j i i i i -·-·-·-·- i i i LAKE --· �·- � ·--'-j ·-·-· ·-· i MCCOOK:;-r MINNEH j i I i P1omlinton Mlt..W Beardsley 'i I Hl�SON I N __ !;!..!!JC _�(? ER_ _ Viborg _ Scot nd l � YANKTON ! I Map 8 The Madison branchline x Falls to Madison branch ��.� Siou ...... • Line abandoned by BN by the Milwaukee - 1 - 1 - 1 1 Line abandoned 16 BN will repay the authority 's loan CHAP TER II as it receives revenues from traffic· Railroad deregulation: rate and serv ice originating and terminating on the po licy developmen ts line . As shown in the following schedule , when BN revenues on a carload are as shown in the left-hand column, Use of volume rates BN repays a part of the loan as shown in the right-hand column . Unlike Conrail in its early years , railroads have been unwi lling to make BN revenue Amount to be generous revenue divisions agreements /carload Repaid with shortline railroads . In the agricultural regions , the western At least $2 ,000 $100 railroads have chosen a policy of $1,500 to $2 ,000 75 abandoning service on branchlines in $1, 000 to $1, 500 50 the expectation that br anchline traffic $500 to $1, 000 25 would then be trucked to remaining Less than $500 0 mainline service in the region. This policy , combined with unit train rates Interest on the authority 's bo nds will and service on mainlines , allows be paid with funds from the shipper's railroads to earn virtually the same organization . This organization agreed amount of revenue while eliminating the to pay the Regional Rail Au thority four expense of br anchline maintenance and cents per hundredweight on all com operation. This is part of the process modities shipped by -rail or truck . of eliminating internal cross-sub sidizati on of rural br anchlines and shifting a greater share of trans In addition to the shipper s al portation costs onto agricultural ready located on this branchline, four producers and sellers . cooperative elevators in the region which had lost rail service joined to As part of this policy , the purchase an elevator at Wentworth. To railroads are unwilling to take less be able to load unit trains they revenue when traffic is brought to expanded the facility, rebuilt part of them by a shortline railroad than when the former Milwaukee tracks , and it is br ought by truck . Thus , a short constructed new siding . This new line operating on an abandoned br anch f a�ility handles grain delivered from line mus t charge rates for its own haul its member cooperatives and their wh ich cover the entire cost of its members. The cooperative elevator at operation. Although the shortline can Madison, the largest on the line , was make joint rates with the connect ing destroyed by fire in 1981. A new, railroad , the rate level will be essen larger facility has be en constructed tially the same as if only combination and provid es a second unit train rates were available. (A joint rate is load ing facility on the line . a single rate applied to the entire haul over two or more railroads. A combina The restructuring of the physical tion rate is the sum of the rates charged railroad system has been influenced by by each railroad participating in the policies concerning rates and servic e. haul .) In particular , deregulat ion through the passage of the Stagger s Rail Act in In troduction of unit train rates October 1980 br ought about maj or by both the C & NW and the BN has drawn changes in railroads ' rights and grain into elevators and subterminals responsibilities in setting rates and capable of loading 25 - 100 cars in a rate agreements. Some of these changes single day . Since these rates usually and those affecting the physical apply only when 100-ton jumbo covered restructuring are descr ibed in the hopper cars are used , facilities which following chapter . load unit trains must be located on mainlines or branchlines with heavy This facility can load a 54 car rail . There has been substantial unit train in 24 hours . The loaded investment in unit train loading train is then delivered to Continen facilities on such lines in western tal' s port terminal where the grain is Minnesota and eastern South Dakota in graded , and blended or conditioned as response to these rates . necessary . This system's succes s depends in par t on a single entity First this investment was pri controlling bo th the delivery and marily on C & NW lines . Since the BN dump ing schedule and the port receiving introduced unit train rates in 1980, and grading terminal . most of the investment has been on its lines since it offers single line Should Continental 's system become service to bo th Pacific Northwest and generally adopted , it could have an Gulf of Mexico export terminals . impact on the structure of the grain merchandising industry . Under this These policies have resulted in system, existing local elevators are reduced traffic on stub end branch used for collecting , cleaning , blend lines . Railroads have continued their ing , and storing grain until hopper policy of abandoning service on such cars are available. Small local lines , aided by the provisions of· the elevators could remain in business bu t Staggers Act of 1980. In all, the would be dealing with a more concen evolving structure of rates and service trated buy ing industry . has made it virtually impossible for stub end branchline service to be By delaying the assembly of retained by shortline operations . volumes large enough to fill trains , more of the cost of storage and market In South Dakota, these national risk are left with the local elevator. policies and the state 's involvement, Should the Continental system become combined with the development of BN widely adopted , these costs will service on the rehabilitated state probably be shifted ba ck to producers . owned lines , has led to investment in unit train facilities . Wh ile the stub end br anchlines were being abandoned , Reduced regulation of service unit train facilities were being built on the Sioux Falls-Canton-Mitchell line The Staggers Rail Act of 1980 and at Yankton , as well as on the BN 's represents a further step in the own lines to Sioux Falls , Madison , and direction taken with the 4 R's Act of Huron. 1976 . The principal goal of bo th acts was to improve the railroads ' financial condition by making it easier to Continental Grain Company has restructure bo th the physical rail initiated a new grain handling method system and the rail rate system. at Pipestone , MN and at Yankton and Emery on South Dakota's core system. Restructuring the rail system has It requires a relatively small in been a stated policy goal at leas t vestment in a trackside truck dumping since the passage of the Transportation pit , a belt loader , and a small mobile Act of 1920. Many believe the railroad home office. Wh en the emp ty hopper industry 's problems lie in its frag cars are placed at the site, grain mented nature. They believe that purchased from local elevators is efficiency requires a national rail delivered to the dumping pit in mul system composed of a small m.nnber of tiples of four truckloads . Each four very large reg ional or transcontinental truck unit constitutes one hopper railroads . Both the 1976 and 1980 acts carload . Thus , each carload can be reflect this philosophy by allowing identified by the local elevator from railroads to abandon light density wh ich the grain was delivered . branchlines more quickly and easily. 18 Thus smaller reg ional railroads such as Reduced regulation of rate making the Milwaukee or C & NW become more attractive for takeover by or merger The new freedoms railroads have to with larger national railroads . make rates reflect the belief that they are faced with competition from trucks The Staggers Act also accelerates and barges for most of their traffic . 'the decision making process in rail The large inroad s trucks and ba rges merger cas es . In 1980, the St . Louis have made into rail traf fic since World San Francisco (Frisco) was merged into War II tend to support this . Depending the Burlington Northern (BN) to form a upon the connnodity and the origin and single system reaching from the Pacific destination of any given shipment , Northwest to the Midwest and south to however , trucking may not be tech the Gulf of Mexico . In the east the nologically or economically competi Chessie and Seaboard Coast Line systems tive . In some situations , railroads were allowed to merge in 1981. The may have to compete with other modes of merger of the Norfolk and We stern with transportation before a shipper loca the Southern was approved early in 1982 tion decision is made . After a de and the Un ion Pacific-Missouri Pacific cis ion is made , such competit ion may be Western Pacific merger proposal was economically impossible. approved in October 1982 . All of these are mergers of rail systems which are themselves the result of For example , before the power earlier mergers and takeovers. plant at Big Stone City was constructed the utility companies had several For South Dakota, the significance alternatives . They could locate the of the rail merger po licy lies in the plant at the mouth of a coal mine , fact that the state's rail system has truck coal to it , and then transport consisted primarily of service provided power by transmission lines . Or , they by regional railroads . The only could carry coal by railroad , truck, or national railroad in the state is the barge from the mine to a plant located BN which has approximately 475 South elsewhere . Dakota route miles . As the Milwaukee and C & NW -- the reg ional railroad s Once the plant was constructed at which provided mo st of the state's Big Stone City , it became captive to service -- have been reduced , many the Milwaukee's line from the mine at South Dako ta shipper s have lost rail Gascoyne , ND . Ev ery alternative - service. Ra il competit ion may also other rail routes , trucking , barging , have been reduced , anj market access and plant relocation -- became so restricted . expensive by comparison that the Milwaukee exercised monopoly power over Loss of rail service on some the utility companies . Re cognizing br anchlines may result, however , in this , the utilities ne gotiated a coal improved traffic and service on other transportation contract with the lines . Therefore , having rail service Milwaukee before becoming locked into available at fewer locations may well the Big Stone location . result in more of South Dakota's products moving by rail with be tter The rate-making freedoms granted service and lower rates . This is railroads by the Staggers Act include especially likely if the remaining the following : lines are merged into the national rail system with improved market access . 1. A railroad can charge rates The net effect of BN 's entry on the up to a maximtnn based upon state owned system may be to serve the variable costs of pro fewer shippers with improved service to viding the service on traf fic more markets and to provide more where it does not ex ercise competition for the C & NW. "market dominance" (where 19 other carriers offer po �f the grain produced in Minnesota and tential competition). Iowa could be moved to water less expensively by truck . 2. Railroads can raise rates consistent with increases in The above changes will allow a quarterly index of railroad railroad rates to reflect the higher costs . variable costs of shipping South Dakota products . They will allow rates to be 3. A railroad can reduce rates as low as variable costs where the to meet truck and barge com truck and barge alternatives are petition as long as rates tough competitors , and as high as cover the variable costs of 160-180% of variable costs where they the service. are less competitive . Therefore , for each carload shipped , South Dakota rail 4. A railroad can levy a sur shippers might be paying a larger share charge on its share of a rate of railroad fixed costs than they have if its rate does not exceed in the past. its variable costs by more than 10%. A railroad can levy When a railroad earns less than sur charges to cover the total 110% of its variable costs from its cost of service on light division of a joint rate with another density branchlines. railroad , it can either cancel the joint rate or impose a sur charge . If 5. A railroad can cancel a joint the joint rate is cancelled traffic rate if the rate does not would have to move under a combination exceed variable costs by more rate which would cover each of the than 10%. To retain joint participating carriers ' costs sepa service, shippers would have rately . Such rates have historically to pay a rate or surcharge been higher than joint rates . Imposi sufficient to meet this tion of surcharges is limited to standard. achieve revenues up to 110% of variable costs except on light density branch 6. Railroads can contract for lines . On such lines carrying less service and rates with in than one million gross ton-miles (or dividual shippers. less than three million gross ton-miles if the entire railroad company has in adequate revenue) the surcharge can be large enough to cover all anticipated costs of service . These changes may have consequences for South Dakota shippers. Rates for shipping grain have historically been Rate-making freedoms and traffic flows based upon mileage . Thus , South Dakota shippers paid a higher rate to move Canceling joint rates or imp osing grain to the Mississippi or Great Lakes surcharges can cause branchline traffic than did Minnesota shippers. Rates to be diverted . Service on those lines were also based upon the value of the may eventually be abandoned if revenues commodity being shipped. Since South from them are less than 110% of vari Dakota shipped primarily low valued able costs . This may happen to C & bulk commodities , the rate differential NW's lines in South Dakota. Exp ort was not enough to price South Dakota grain traffic on these lines must products out of the markets . As export necessarily involve other carriers and markets were developed and more grain joint rates . moved on the Mississippi River and Great Lakes , trucks took the short-haul The rate increases , sur charges , business away from the railroads . Much and cancellations can be emp loyed 20 selectively to reduce the demand for areas (such as Iowa and Il linois) are rail service on lines a railroad wishes also where larger shippers such as the to abandon . They can also be used to maj or international grain trading firms captur e monopoly profits on traffic are located . These large firms will which is "cap tive" to the railroad . have advantages over small shippers Other provisions of the Staggers Act when negotiating contract terms with allow railroads to induce traffic to railroads . They will also have the lines it intends to retain . nearby barging alternative to use as a negotiating lever . South Dakota's After near ly a century of regu shippers , with less to ship and without lation during which railroads were nearby competitive service , may receive prevented from charging rates which less favorable contracts which would be discriminate be tween shippers , the reflected in relatively lower prices to Staggers Act now encourages such producers . discrimination through the use of contracts . Railroads can now contract The growth of Asian grain markets with individual shippers to provide and grain traffic through the Pacific service . Contract terms can specify Northwest ports would appear to off er minimum volumes , service frequency , car South Dako ta producer s an opportunity supply , mileage allowance , and any for greater earnings. ·corn and sorghum other relevant conditions , in. addition produced in the southeast and east to rates charged . Reduced rates can central regions of the state have been be offered to shipper s who are trucked to Minnesota and Nebraska where willing to limit the railroad 's poten unit train rates were available from tial liability for loss or damage to the Burlington Northern and Un ion freight. Pacific (UP ) railroads . Wheat and bar ley from northern South Dakota have Only minimal information about a been trucked to Minnesota and North contract need be made public . There Dakota to take advantage of unit train fore, it is difficult for a shipper rates offered by BN . In troduction of to learn of any disadvantage he may BN unit train service in South Dakota face as a result of a contract a should reduce these truck movements and competitor has with a railroad . He allow South Dakota producers to earn also ha s limited time and ba sis for more. complaint. For northern wheat producer s the The provisions of the Staggers Act BN will be the only rail route to the also tend to give large shippers Pacific ports . Und er the Staggers Ac t , greater bargaining power in negotiating the railroad might be expected to raise rail contracts . For examp le , two rates to either the maximum allowed grain elevators in a town may ship the over variable cost or to the cost of same amount of grain . However , if one trucking, whichever is lower . These is part of an international grain firm higher rail rates would be carried which ships from many other stations through to reduce the net return to and has the service of sophist icated pr oducers . The most effective way to legal negotiators , it may receive a limit such rates will probably be to more favorable contract than the other . maintain alternative market outlets and alternative access to the West Coast The ability of railroads to where possible . Even if rates are contract with individual shippers might raised in the long run , South Dakota work to the disadvantage of South shippers will probably be be tter off Dakota agriculture in other ways , as than with no rail or shortline rail well. Contracts are more likely to be service . made where the largest quantities are available for shipping--where pro In suIIllilary, the S taggers Ac t duction density is greatest. These allows railroads to try either to 21 increase net revenues on unprofitable by construction of an interchange with branchlines or to divert traffic and BN and abandoning the railroad south of abandon them . It accelerates the Britton ... " abandonment procedure and simplifies the proces s for merging . Thus , the After examining future crop pro act's basic purpose is to enhance the duction estimates and costs of poten railroads ' financial status . It en tial shipping alternatives , the repor t courages restructuring the system-- recommended: away from being a ubiquitous cmmnon carrier system--toward being a long-haul 1. either obtaining Burlington carrier of captive traffic where, Northern rail service into except at maj or traffic locations , Britton , abandoning the rest inter-railroad competition is largely of the line , and trucking to eliminated through abandonment and and from rail service at merger . Andover , Britton , and Cogs well, ND ; or , Deregulation has made it more difficult to retain rural rail service. 2. ab andoning the whole line and It has also reduced the bargaining trucking to rail facilities power state and local govern ments as at Andover and Cogswell, ND . well as private shippers have in negotiating with railroad companies . Facing loss of rail service , the At the same time, it improves the cooperative elevators at Pierpont and financial status of railroads , improves Langford merged and purchased an service on remaining lines , and in existing elevator on the Milwaukee creases the overall efficiency of the mainline at Andover . They expanded transportation system. that facility and now truck grain from Pierpont and Langford . Since the BN has agreed to incorporate the Milwaukee mainline into its system, elevators on CHAPTER III the south end of the former branchline Study recommendations , later developments have access to imp roved , single carrier service to domestic and export markets and unit train rates . Sh ippers have Andover to Brampton , ND (Map 9) been ab le to make better use of their trucks on the short trips to Andover The Andover to Brampton , ND line 'r ather than the long haul to the Twin was a stub end branch off the Mil Cities . Their situation is therefore waukee 's line between the Twin Cities improved with access to more and bet ter and Miles City , MT . Sh ipping points markets , better and lower cost rail were Pierpont , Langford, Britton, service, and lower trucking costs . Newark , and Brampton , with Britton being the maj or community served . The On the northern end of the branch line lay parallel to South Dakota line , the state purchased the four Highway 27 and crossed the BN line to miles of track between Britton and the Ab erdeen , four miles north of Britton . BN crossing . BN has constructed an It consis ted of light-weight (56-lb ) interchange and provides service into rail and had been subj ect to substan Britton. A Regional Railroad Au thority tial deferred maintenance. wa s formed and provided ma tching 4 R' s Ac t federal fund s to rehabilitate the The shortline feasibility study four-mile segment. Thus , Br itton also estimated that operating this branch has improved rail service as a result would cost between $400 - $550 per of the restructuring process . carload at optimistic to normal traffic levels . It concluded , "The best The small private elevator at prospects for viab ility can be realized Newark purchased the six miles of line 22 >-- � ::i w 0 0 ...J >--- � � � � i1 -<;�/ g�i �v . g�w� ··-- �-H - I ava� - - - · -· ·-··--;:cf' .. - · · t· - · · ROBER TS BROWN �",,«-� Veblen . soo ...,,,,,....,_, e 1 � I .,,_ I oire c.;11y .. RM�ll . �t$' l �C) 7 /J rowns . · Volley MA RSHAL L. �,j/ ,:.7 --· D.AY I I l� I Wi �� �Ci:. ,tt- I �(j �# Waubay iOrtley I rtonville . ! I GRANT -· ---1 i I Northville Mellette - - 1 - �s outh Shore -- - : coo/NGroN � _J ;# Gollup e ifi Map 9 Andover to Bramp ton , ND branchline �J Study line andoned line 11111111111111 1 Ab ----• BN line � •••••••••• C & NW from the BN interchange to Newark and which requires a substantial commitment operates it privately . The cooperative of capital ... , coup led with hefty elevator at Bramp ton , ND was a small , surcharges or other forms of subsidy." older structure wh ose memb ers chose to liquidate . Grain produced in the area Considering the potential traffic is being trucked to nearby elevators . and trucking alternatives , the report recommended either : Roscoe to Linton , ND (Map 10) 1. retaining current Burlington Northern service as far south The Roscoe to Linton , ND branch as Eureka ; line served shippers at Eureka and at Zeeland , Hague , Strasburg, and Linton, 2. retaining Burlington Northern ND . At Linton the line interchanged service at Linton , ND and with a BN branchline which reached obtaining Soo Line service south from MacKenzie , ND . The princi between Madra and Eureka ; pal shipper was at Eureka , 26 miles from the mainline at Roscoe. The line 3. obtaining shortline service crosses a Soo Line branch at Madra, 12 on either the Eureka to miles north of Eureka . Madra , Roscoe to Eureka , or Eureka to Linton , ND seg The BN acquired the 50 miles of ments if traffic can be this line from the BN branch at Linton , built up ; or ND to Eureka as part of a purchase of several of the Milwaukee 's western 4. trucking , if traffic canno t lines . Although BN continues to be built up . provide service , the line has been designated as under study for possible Up to this time , BN has retained ab andonment . service as far south as Eureka . The possibility of losing this service has The shortline feasibility study caused the line 's maj or shipper , the cons idered five possible operating cooperative elevator at Eureka , to arrangements . All would have required purchase elevators at Lehr and Ashley , surcharges or additional revenues from ND where Soo Line service is availab le . other nonoperating sources . The The potential for reconstructing the alternatives , ranked in order of former Madra interchange and obtaining efficiency , were : Soo Line service to Eureka has also · been explored . operating from Eureka to Madra and then inter changing traffic with Soo Line ; Blun t to Gettysburg (Map 11) 2. operating from Roscoe to The C & NW operates the Blunt to Linton , ND or from Eureka to Gettysburg line off of its cross-state Linton ; line east of Pierre . Principal ship ping points are Onida , which has a 3. operating from Roscoe to large grain elevator , and Gettysburg . Eureka ; and Th e line north of Onida was ab andoned in 1982 . The southern segment from 4. operating from Roscoe to Blunt to Onida is under study for Madra . ab andonment. The shortline feasibility analysis concluded that operating only The study concluded "that none of the Blun t to Onida segment would the options available are desirable require the smallest surcharge . Even for self-sufficient short line opera this alternative would require a sub tion , and tha t ev en the best case is one stantial initial capital investment to 24 D A K .._o f T A }' ______. ______' · .. .L odro ._J - --- L_ MC PHERSON I BROWN I I ! I ·------CA MPBEL L ·--· !r-- I ·-·EoMuNosl I i i I '� oscoe Beebe loswich Croven ·- \ \7wl )... I '.5/ ) i " '· ;�� ·--- _ _ - \.,-�;,_ __ __ I MOf'!Sfiel . a..) ---�-�AL. W_O�·:J .. � Map 10 Ro scoe to Linton , ND branchline Study line Abandoned line 111111111111 111 ----- :rm line ••••••••••. c & nw line 1 1 1 Soo Line - 1 - - I\.) O'> __ __ "!'A L �'OR�H i _ . - . ---- __ ,�E_f!�� -·--lfAuLK i Mellette I i Gollup i Ashton i I Of��----· i -·--THAND·--� ------� rankfort �j -Hroi- I I ; i i. .i I I SPINK I I I i I I /) ./� - _ �.�°')\ - I·-·- --·------.,------_l__. ______ Map 11 Blunt to Gettysburg branchline Study line J'...... _.•._ Ab andoned line 111111111111111 ------BN line •••••••••• C & NW line acquire and to rehabilitate the Napa to Platte (Map 12) rail line . The Platte branchline serves shippers at 10 stations along its 82 Considering trucking and miles of track reaching northwes t from highway costs and potential traffic, Napa. It is a deteriorated line of the report concluded that "the lowest light rail which serves a productive cost rail alternative appears to be the region of the state . Potential irriga operation of the entire line to Gettys tion in the area is significant and burg ... The ability of any of the rail could provide increased grain traffic. alternatives to compete with the trucking alternative depends critically The shortline feasibility analysis up on achieving at least the estimated concluded that the line could reason potential traffic levels on a long-term ab ly be operated from Yankton or Napa. basis . A loss of traffic due to Th is was based up on optimistic poten drought or adverse prices or a diver tial traffic and revenue divisions sion of traffic to trucks due to a estimates . It was also assumed that surcharge , could doom a rail opera line acquisition and rehab ilitation tion." costs would be funded separately from the shortline operation . Significant development of irriga tion in the counties served by this Considering capital costs and branchline has enhanced the long-term trucking alternatives the study con prospects for its operation. However, cluded : there are several conditions which make it unlikely that the C & NW or a "Adding annual carload capi- shortline will continue to operate it . tal costs to operating costs As noted before the C & NW has adopted enhances the relative advantage of a policy of abandoning rural branch the trucking alternative . Unless lines in the expectation that traffic rehabilitation costs are covered will be trucked to and from remaining under the state rehab ilitation lines in the region . On the Gettysburg program or some other source of branch , two of the maj or shippers have nonrepayab le funding , it does not elevators on the C & NW line which appear that the branchline can serves Blunt . These shippers have compete with either of the truck- expressed a preference for trucking to ing alternatives . Considering their elevators on the east /west line both these direct comparative rather than investing in the Gettysburg costs and the indirect factors branchline . such as dis counting of truck delivered grain and access to Pacific Northwest export markets , As a group , shippers on the branch the best alternative for mo st line have been unable to provide the stations on the branchline may be matching funds required to receive 4 to truck to the core system R' s Act federal monies to rehabilitate . loading points . If the core In addition , BN 's service on the state system levies surcharges or sets owned system and the consequent availa rates significantly above former bility of un it train rates and direct Milwaukee rates , branchline access to We st Coast marke ts may be shippers might find it advan- attracting grain traffic from the tageous to continue trucking to region . BN service on the Milwaukee 's Sioux City and Nebraska terminals . Miles City , MT extension also competes Only if traffic can be increased for traffic from the region served by significantly ab ove both the the Gettysburg branchline and will historic and estimated potential further reduce the branchline 's pros levels does it appear that the pects for success ful operation . branchline could be self-sufficient ." 27 I\.) co TGREGORY- i Purkston i l i Beordlley i i i. HUTCHINSON l!!!_RNER_ Vibor _ i _ < - Scoi!Ond____ YA NKTONl I ii 0 Map 12 Napa to Platte branchline v.-•••••••••• _.•. ,,•• Study line Ab andoned line 11111111111 11 ll ---- BN line The initiation of BN service on line has been upgraded and is being che Yankton to Mitchell state owned operated by BN as part of the core line and the development of unit train system. The quarry shipper also oper loading facilities at Yankton have ates on it as a cmmnon carrier of reduced the competitive potential of aggregates from Sioux Falls to Sioux any shortline operator on the Plat te City . The Dell Rapids quarry firm branch . In . addition , such a shortline operates ano ther quarry at Hawarden , would need to charge rates sufficient IA. to cover all costs with no BN revenue divisions or joint rates . This means The lower segment--Canton to Elk shippers on the lower segments of · the Point--was pur chased by the state as a Platte branch would find it less costly local opt ion line . The state also to truck to Yankton where they could acquired the 17 mile line between pay unit train rates than to use Beresford and Hawarden , IA which branchline service . interchanges with the Trent to Elk Point branch . This line between Although the state included the Beresford and Hawarden is included in Platte branch in its acquisition from the Sioux Valley Regional Railroad Milwaukee and would be willing to Authority . The authority is attemp ting contribute toward its rehabilitation , to put together sufficient funds to the Regional Railroad Authority has not match state 4 R' s Act rehabilitation found sufficient support to fund funds . BN is providing service on the operations . Perhaps the best prospect line . would be to ob tain BN service from the state core system. Such service would The shortline feasibility analysis still no t allow use of 100-ton cars or of these line segments was based upon unit trains unless the line were the assumption that they would be rehab ilitated with heavier rail. The operated in conj unction with the core funds wh ich the regional authority system. It was estimated that the would have to contribute might exceed Trent to Dell Rapids segment would the cost of the trucking alternative . require sur charges ranging from $40 - This may be particularly the case for $250 per carload , depending upon actual those shippers on the lower end of the expense and traffic levels . The Dell line , close to the core sys tem. Rapids to Sioux Falls segment would require a surcharge of up to $80 per carload . Operations on the Sioux Falls Trent to Elk Point (Map 13) to Canton segment , with bridge traffic from both the core system and the Dell The Trent to Elk Point line is Rapids to Sioux City line , would be composed of three segments . The profitable . The Canton to Hawarden northern end , a light rail segment segment would require cross-subsidization between Trent and Sioux Falls , serves a from other segments to allow traffic to maj or rock quarry at Dell Rapids in move between Dell Rapids or Sioux Falls addition to local grain elevators. The and Sioux City . The Hawarden to Elk segment was purchased by the state as a Point segment would approximately break local opt ion line and is part of the even if bridge traffic were available trackage included in the Sioux Valley from operating the entire line south of Regional Railroad Au thority . The Dell Rapids . quarry shipper operates this northern end as private rail service between These conclusions depended criti Dell Rap ids and Sioux Falls under a cally upon revenue divisions , rate trackage rights agreement as an in structures of connecting and core dustrial spur . system carriers , and traffic volume . Considering potential future grain The line segment between Sioux traffic and trucking costs , the study Falls and Canton is heavy rail . The concluded if "nonrepayab le federal or 29 I i Nunda I iI i Rutlandi i I MIL W ""(\'f> I �f\' . Colman i i I LAKE - �j - - - - ··:-r · -· MCCOOK MINNEH .1 Colton i i ·--· - - - -· · --- · - · � · - -·�.._ . .,.._ . I TURNER Vibor -· ..L__ __YA NK __TON :l . I , Bere!>ford ------,· LAY I I i 0 i - I Map 13 Trent to Elk Point branchline Study line Ab andoned track 111111111111111 -----• BN line • •••••••••· C & NW line . 30 state funds are used for rehab ilitating relatively unproductive lands including as well as acquiring the branchline ; the Badlands National Monument. When only operating costs , includ ing nor the line to Rapid City was operating , malized maintenance costs , are charged it competed for traffic with the C & to reinstated service ; and , particu NW. The Railroad Au thority has placed larly that rates are charged which this line in railb ank status . Re maximize revenue without diverting hab ilitation and operation will only be traffic, then operation of the line considered if the C & NW abandons from Trent , Dell Rap ids , or Sioux Falls service on its parallel route between to Elk Point can be self-sufficient. Pierre and Rapid City . These 'through route ' alternatives appear more likely to succeed than The shortline feasibility analysis operation of just the end-line seg of this line was based upon historical ments . This is due , of course, to the data and estimates of reasonab le volume of stone traffic from Dell interchange and rate arrangements . It Rap ids to Elk Point at rates equal to was assumed that the line would inter the cost of the corresponding truck change with the core system and would move .'' be acquired separately with no charges made to the operations for investment in track and right-of-way . Under these Mitchell to Rap id City (Map 14) conditions the general conclus ion was that "none of the line segments studied The Mitchell to Rapid City line is show strong prospects for producing any 286 miles long and lies parallel to net income in the near future ." Interstate 90 . It has light rail and has had maj or deferred maintenance. The line serves seven stations in the In terms of possible alternative mixed agricultural region between operating arrangements , the analysis Mitchell and the Missouri River at found that service on the Mitchell to Chamberlain . This 67-mile eastern Chamberlain segment would incur an segment was purchased by the South estimated revenue shortfall of nearly Dakota Railroad Authority and included $800 per car load . Operating a Chamber in the core system. It is being lain to Kadoka shortline would require operated by the BN with 10 mph and a surcharge of more than $750 per 220, 000-lb limits after rehabilitation carload , operating the Mitchell in 1981. Upgrading the line segment to to Kadoka line would require a sur carry 100-ton cars in unit movements charge of $650 per carload . If a will require that the line 's 65-lb rail shortline was operated between Chamber be replaced . lain and Rapid City , a shortfall of $120 per car load was estimated . The Railroad Au thority also pur chased the 219-mile segment from the The study also took into considera Missouri River to Rapid City . The 121- tion several additional factors includ mile segment from the river to Kadoka ing potential traffic gains , highway has been designated as a local opt ion costs , trucking costs , maximum traffic line which can be operated if local retaining rates , capital costs , and shippers and governments form a Region reduced costs of moving traffic from al Railroad Au thority and provide Mitchell to Ab erdeen . The study concluded : funding for rehabilitation and operat ing support. Th is segment serves eight " ...it appears that no con shipping stations in a productive wheat figuration of the line can break growing region . even at 1979 traffic levels even with the state covering the The line west from Kadoka to Rapid capital costs for the Mitchell to City is 98 miles long . It served only Chamberlain segment . With such a the Rapid City station since it lies in capital infus ion and an increas e 31 w r J. I.., � � I\.) '� -r ·,,1 �� Map 14 Mitchell to Rapid City branc hline ------Study line Ab andoned line 111111111111111 ----• EN line •••••••••• C & NW line in traffic to the estima ted poten the state provides some guidelines for tial level, the line operation to other states facing similar prob lems . Chamb erlain could be self-suf f i The state's actions can generally be cient ." described as well planned responses to economic and institutional realities . The specific conditions necessary The ability to take such actions for any operation of the line west of wa s derived in par t from the unique Chamber lain to break even are : situation in which the state found itself . 1. an average 56% increase in traffic from the 1979 level With the excep t ion of the Mil for stations between Mount waukee 's mainline to the West Coast, Vernon and Kadoka virtually all rail service in South Dakota was provided by light density 2. payments to the South Dakota branchlines . These required cross core system for movements subsidies from other profitable opera beyond Mitchell which are tions . When the plight of the nation's $1.12 or less per loaded car rail system was recognized , such cross mile subsidization was eliminated and it became easier and faster for railroads 3. rates for service on the to abandon light density lines . Being branchline which are as high at the end of branchline systems , South as possible without diverting Dakota experienced loss of lines early . traffic (equal to the cost of Most lines had to originate and ter trucking) minate sufficient traffic to be self supporting . 4. the availab ility of state and federal funds to purchase the South Dakota never had a rail entire line and rehabilitate structure as dense as other states in it at least as far west as the Midwest. Much of the rail service Chamberlain . it did have was abandoned in the 1960 's and early 1970's. Thus, by 1976, many If any of these conditions cannot be towns and areas were already without met, it is unlikely that operation of rail service or had only poor service. the line can be self-sus taining . This reduced much of the potential local opposition to a restructuring of These brief outlines of study the system. In other states with results show that subsequent develop closely parallel branchlines , it may be ments on these branchlines have been politically difficult for a state largely cons istent with recommenda agency to choose to devote resources to tions . The studies are , however , _ retain just one of the lines in a relatively complex . The conclusions region. depend upon a variety of assumptions and possible developments . Therefore, By the latter half of the 1970 's before any simplified judgment is made , the people of South Dako ta had begun to the reader should examine the studies view the possibility of retaining in detail and recognize the comp lexi service on the entir e system realisti ties of each case. cally. The 4 R' s Ac t of 1976 provid ed the mechanism for state government to become actively involved in rail system CHAPTER IV planning . The bankrup tcy of the Some conclusions from SD 's experience Milwaukee Road in 1977--with the potential loss of one half the re maining track in the state--provided South Dakota's experience in the crisis to wh ich the state was restructuring the rail system serving willing to respond . 33 The congruence of these elements planning process to the general public created a situation in which state in a straightforward manner . The government was required , willing , and planning effor t required that lines be ab le to play a leading role in re identified which would : (1) help keep solving the state 's rail problems . South Dako ta integrated with the And , the public was willing to commit national rail system by interchange resources to save an essential but not points and potential through routing ; redundant set of lines . Even though (2) generate sufficient traffic to be other states may not be ab le to play as self-supporting if def erred maintenance active a role because of their unique and rehabilitation capital requirements circums tances , their rail planning could be met ; or , (3) serve essential agencies may be ab le to benefit from socio-economic purposes such as pro South Dakota's experience . viding access for coal shipments to the Big Stone power plant . Lines which did not economically warrant the use of Private and local actions scarce state resources (primar ily stub end branchlines and parallel routes) Early in the ab andonment period , were not included in the plan . the threat of losing service ofte n led to the creation of shippers ' organi Communicating the state 's rail plan zations whose purposes were to fight to the public included informing the abandonment of single branchlines . public of estimates of costs and of the Because of federal laws and regulations, limited availability of federal funds. though , these organizations inevitably Group s which wanted to retain service lost their battles . The shippers ' on lines not in the state plan were groups were unab le to raise the capital made aware that they would have to make necessary to rehabilitate lines for significant local investments . Al continued service or to purchase lines though those groups often felt anger and subsidize shortline service. and frustration at first hearing this news , tho se feeling s generally subsided Local units of government , while as the economic facts became under often sympathe tic to shippers ' desires , stood . The communication of realities , were unable to commit funds to such rather than false hopes of financial or proj ects which were often perceived as legal salvation by the federal govern benefiting only a small number of ment , contributed to public accep tance taxpayers. They and private parties of the plan. were also deterred from investing because of the generally poor record of The only examples of successful shortline railroad s operating without local or private action have occurred subsidies and the substantial risk where such action has been coordinated associated with rail operations largely and partially funded by the state . It dependent upon agricultural shipping . appears that a state role is virtually Local governments also faced juris necessary to save a stub end branch dictional problems as branchlines line . This is due , in part, to the required joint effort by several towns inability of local entities to commit and counties . enough capital . It is also due to the greater chance of success a branchline proj ect has when it is coordinated with · State government 's role the development of a state rail system and is included in state level negoti Perhaps the most important role ations for service by a maj or carrier . South Dakota's state government has played in restructuring the state 's rail Even within the framework of the system has been in the rational eco state planning effort , retaining ser nomic planning of an essential rail vice on a line not in the core system system and in communicating the requires significant local leadership 34 and commitment . Realistic economic service over rehab ilitated track is analysis is a prerequisite , as is a faster and more reliable . willingness to make an investment . Local units of government must be convinced of the need for rail service These features make shippers more and the feasibility of the proj ect . optimistic about long term service and Leaders must be willing and able to encourage them to use rail service and work long and hard on legal and f inan invest in rail using facilities . Thus , cial details to make them acceptable to the probability of success is in their own constituency , state rail creased -- esp ecially for a shortline authorities , railroad companies , local operation. Owner ship of the lines also governmental officials , and lenders. means that , should the current operator wish to discontinue service, another operator can be emp loyed without going Another essential element in the through the long cycle of def erred role of state government was the maintenance, poor service, and ab andon willingness to connnit state tax re ment . This imp lied threat to employ a venues to the railroad problem .in a competitor railroad may also encourage maj or way . Not only did this make the current operator to continue serv money available, but it signaled the ing the system. support of the people of the state as well . This allowed state officials to gain increased cooperation from the Other public contributions Federal Railroad. Administration and the railroads . States which are only South Dakota's state government willing to devote federally allocated has done much to preserve rail lines , dolla!s may find themselves short of reinstate service on those deemed both the funds and cooperation neces essential , and influence the routing of sary to succeed . traffic to support them . To increase the likelihood of having long- term Public funds have been spent to service and a permanently successful preserve essential lines rather than rail program, however , reductions in subsidize service operations . This has operating costs and growth in rail provided an indirect operating subsidy traffic should be encouraged . There to the BN which charges rates including are several ways in which state govern a return to capital invested by the ment can assist. public . Using this indirect form of subsidy has several advantages . The Costs might be reduced by assign operating company , whether maj or ing the responsibility for crossings , railroad or shortline , is relieved of signals , and weed control to the state the need to invest substantial cap ital highway department . Purchases of up front . This makes the business_ more material and equipment might be incor attractive to potential operators. porated with highway purchases . Real estate and other tax burdens might be Shortline operators usually are reduced . forced to perform only the minimum necessary rehabilitation because of their relatively small cap ital base. The state might provide legal and Consequently , an unexpected calamity or administrative assis tance to shippers a shortfall of traffic can lead to a and local governments which want to quick cessation of their service . With organize and support continued rail the track pur chase and rehab ilitation service . State government might also work funded by the state , the fixed assist in attracting new rail using costs of the operating company are industry to locate on essential lines reduced substantially . Operations can and in helping existing shippers to be continued during adversity and expand their rail use. State industrial 35 and agricultural development agencies While South Dakota's effort in could assist with (1) site location restructuring its rail system must be and leas ing or acquisition ; (2) identi- judged a success so far , long-term fication and coordination of potential success is not guaranteed . The task of sources of financing ; (3) state and encouraging traffic growth without local tax incentives ; (4) market benefit of a crisis atmosphere may analyses and feasibility studies ; (5) prove more difficult than the work and negotiation of rail rate and accomplished so far . It may also be service provisions . more decis ive . 36 Bibliography Alley , J. M. , and C.E. Lamber ton. 1980. Branchl ine aband onment : a study of the impact on selected communities in rural South Dakota. SDAES TB 55. Hof fman , Linwo od A. 1980 . The impact of demand sensitive railroad rates upon the storage and transportation system for U.S. feed grains . USDA Na t ional Economics Division staff report. Interstate Connnerce Connnission . 1980. Study of the plans to reorganize the Milwaukee Road . Finance Docket No . 28640 ( Sub-No . 5 ) . Lamberton , C. E. 1981. Wentworth Cooperative Terminal, Inc . feas ibility analysis . SDSU Department of Economics. 1978. A historical perspective of South Dakota grain transportation and the outlook for the future. SDAES Bul 655. 1978. Railroad abandonment in South Dakota. SDAES . 1978.- The South Dakota grain marketing system. SDAES Bul 654 . SD Ag Unity Group . 1980 . What does South Dakota do now about railroads ? Pierre . SD Department of Transportation. 1981. Railp lan South Dakota 1981. Pierre. 1981. Addendl.ll1l . Pierre. 1980 . Railplan South Dakota 1980 . Pierre. 1981. Amendment. Pierre . 1978. Railplan South Dakota 1978. Pierre. 1979-80 . Addenda . Pierre. 1979. An analysis of the added costs of maintenance and construct ion if the coal to supply the Big St�me power plant were hauled from Gas coyne , North Dakota over US 12 . Pierre . SD Farm and Home Research . 1980. The new owners. SDAES 31 (3 ) . SD Legislature . 1981. Authorization to contract for operation and maintenance of state owned rail lines. Senate Bill 236 . 1980 . South Dako ta Railroad Au thority Act of 1980. SDCL 49-16B. 1979. Certain railroad regulatory functions of Public Utilities Commission transferred to department of transportation . Ch 311 : 380 . 1979 . Tax incentive credit for railroad track repair amended . Ch 76 : 98. 1978. Regional Railroad Au thorities Act of 1978. SDCL 41-17A. 37 1978. Board of Transportation 's power relating to railroads enumerated . Ch 343: 537 . 1978. Program enacted for improvement of rail service. Ch 342 : 536 . 1976. Revising Ra ilroad Laws . Ch 294 : 463 . SDSU's Department of Economics and Rail Management Services , Inc . 1980. Branchline economic feasibility analyses . I-VI. US Congress. 1980 . Staggers Rail Act of 1980. P.L. 96. 1980 . Mo tor Carrier Act of 1980. P.L. 92. 1978. Local Rail Service Assistance Act of 1978. P.L. 95. 1979. Milwauke� Road Restructuring Act . P.L. 96. 1976. Railroad Revitalization and Regulatory Reform Ac t of 1976. P.L. 94. US Department of Transportation. 1979 . Traffic effects study : The viab ility of the western lines of the Milwaukee Road , Report No . DOT-FR-8072 . 1978. A prospectus for change in the freight railroad industry . 1977. Developing local strategies as alternatives to abandonment of light density railroad lines . Report No . DOT-TST-77-71. 1977 . Handbook for preservation of local railroad service. Report No . DOT-TST-77-34. Upper Midwest Council. 1981. BN's trains , South Dakota's track. Upper Midwest Report 3(5) . 38 Maps Map 1 South Dakota 's rail system in 1925 . . . . 5 . 1, Map 2 South Dakota's rail system in 197 5 . . . . . 6 Map 3 South Dakota's core system (identif ied in 1979) . . . . 8 Map 4 South Dakota 's rail system in January 1980 . . . . 9 Map 5 Lines abandoned by the Milwaukee Road in June 1980 11 Map 6 Milwaukee lines purchased by the South Dako ta Railroad Au thority in March 1981...... 12 Map 7 Burlington Northern 's system 14 Map 8 The Madison branchline . . . . 16 Map 9 Andover to Bramp ton, ND branchline 23 Map 10 Roscoe to Linton , ND branchline. . . . 25 Map 11 Blunt to Gettysburg branchline ...... 26 Map 12 Napa to Platte branchline...... 28 Map 13 Trent to Elk Point branchline. . . . 30 Map 14 MitchelL to Rapid City branchline . 32 39 Contents Page Introduction...... • • . . . . • • . . . . . 2 Chapter I -- South Dakota 's branchline system ...... • . . 3 The developing crisis 1965-1975 ..... 3 South Dako ta railroad branchline abandonments. 4 Saving the tracks ...... • • • • 4 Revitalizing the system. • ...... • 10 Saving a ma inline ...... 13 Saving a trans-state branchline .. • . . . 15 Saving a short branchline ...• . 15 Chapter II -- Ra ilroad deregulation : rate and serv ice policy developments .... 17 Use of volume rates ...... 17 Reduced regulation of service .. . 18 Reduced regulation of ra te making ... 19 Ra te-making freedoms and traffic flows . . 20 Chapter III -- Study recommendations , later developments .. 22 Andover to Brampton, ND ...... 22 Roscoe to Linton, ND . . • ...... 24 Blunt to Gettysburg ...... • 24 Napa to Platte • . • ...... 27 Trent to Elk Point • . . . . . 29 Mitchell to Rapid City ...... • . . . 31 Chapter IV -- Some conclu sions from SD 's exper ience .. . 33 Private and local actions .. . 34 State government 's role ...... 34 Other public contr ibutions . ..35 Bibliography ...... 37 List of maps ...... •. . 39 11 I ., Published in accordance wi th an Act passed in 1881 by the 14th Legislative Assembly , Dakota Territory , establishing the Dakota Ag riculture College and wi th the Act of re-organization passed in 1887 by the 17th Legislative Assembly , which established the Agr icultural Experiment Station at South Dakota State Univer sity . 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