South Dakota's $2.5 billion railroad jackpot
A provision inserted into last year's transportation bill by a lawmaker turned lobbyist turned lawmaker is attracting renewed scrutiny.
By Barney Gimbel, FORTUNE

NEW YORK (FORTUNE) - In Washington, the revolving door usually leads lawmakers to become lobbyists so they can cash in on their connections. But in some cases, it spins all the way around; creating a rare circumstance in which a lawmaker turns lobbyist turns lawmaker.

It goes a long way to explaining why a small provision inserted in last summer's mammoth transportation bill is attracting renewed scrutiny. Sen. Mark Dayton, D-Minn., says he plans to introduce legislation on Tuesday that would ban elected representatives from advocating for any former client during his or her first two years in office. Under current ethics rules, former legislators can't lobby Capitol Hill during their first year out of office. There are no regulations the other way around.

Dayton says he's responding to an amendment championed by Sen. John Thune, R-S.D., which quietly laid the tracks for funding the largest railroad project in almost 100 years. It'll cost $2.5 billion, run 880 miles and link the coalfields of Wyoming's Powder River Basin to the power plants of the Midwest.

Dayton's problem? Before becoming senator, Thune had been through that revolving door. After serving three terms as South Dakota's lone congressman, he spent 18 months as a lobbyist for the Dakota, Minnesota & Eastern Railroad, the company that's building the new railroad. It was then that he and DM&E President Kevin Schieffer realized one way to get the stalled eight-year-old project going was through a Federal Railroad Administration loan.

There were problems with the idea, of course. For one thing, the project didn't precisely fit the loan program, whose mandate was to help railroads fix existing track. Worse, the program was small: Its entire annual budget was only $3.5 billion.

While lobbying for the DM&E in 2004, Thune was campaigning for South Dakota's Senate seat. And when he won, he continued to push for the project. As it happened, expanding the railroad loan program fit neatly into last summer's $286-billion transportation bill, which gained instant notoriety for such pork-barrel excesses as its $223 million grant to build Alaska's "bridge to nowhere." Senator Thune, just eight months after collecting his last check as DM&E's lobbyist, got a provision added with the Powder River Basin project specifically in mind.

It increased the Federal Railroad Authority's loan budget for 2006 by a decimal point -- from $3.5 billion to $35 billion. And it required the FRA to give priority to projects like DM&E's that "alleviate rail capacity problems." While the railroad's loan hasn't yet been approved, many analysts think it's likely.

Asked about the railroad's role in the legislation, the Senator says the increase in funding was in the public interest: "The DM&E was involved in the legislative process because of their expertise.... It was a national priority to bring this project over the finish line."

Coalmines in Wyoming's Powder River Basin and the electrical utilities that buy the coal have been complaining that the two railroads providing service to the mines -- the Union Pacific (Research) and the Burlington Northern and Santa Fe (Research) -- have been unable to keep up with the growing demand for low-sulfur Wyoming coal. "We needed another railroad years ago," says Chuck Linderman of the Edison Electrical Institute, who represents the utilities.

While Dayton calls Thune's actions "reprehensible," he too has an interest in the railroad project beyond simply lobbying reform. He wants this project killed because the coal trains would roll right past his biggest constituent, the Mayo Clinic. "The railroad will enter Rochester over my dead body," he says. "The Mayo Clinic is worth a hell of a lot more than the whole state of South Dakota."

The White House also wants to kill the loan program. "We would simply prefer the program not exist," says Alex Conant of the Office of Management and Budget. President Bush tried and failed to eliminate it in his 2006 budget and is trying again in his 2007 plan. Thune says there's little chance the White House will win this one. "The administration has always frowned on this, but it has very strong congressional support, and that's what's important," he says.

Thune, for his part, doesn't see a problem with his role in the project: "I backed this project when I was a Congressman, I backed it when I was in the private sector, and I'm backing it now. The project's a no-brainer." Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.