$3.5 Billion In Cheap Federal Loans—If You Qualify

Railway Age, June, 1999 by Frank N. Wilner

Uncle Sam wants you to borrow money to strengthen track and bridges, eliminate highway-rail grade crossings, renew locomotive fleets, make intermodal terminals more efficient, and even refinance existing debt. Congress made $3.5 billion in credit available and DOT is crafting final rules by which below-market direct federal loans and loan guarantees will be made.

The only hitch is you have to be a freight or passenger railroad, state or local government, or rail-related public authority such as a port commission. At least $1 billion of the total is reserved for non-Class I railroads.

It's all part of last year's $217 billion Transportation Equity Act for the 21st Century and known as the Railroad Rehabilitation and Improvement Financing Program.

Federal Railroad Administrator Jolene Molitoris has employed former Interstate Commerce Commission Chairman Gail McDonald as a consultant to assist in identifying commendable projects. Molitoris says priority consideration would be given projects that enhance the environment, promote economic development, are included in state transportation plans, promote U.S. competitiveness, and enhance rail or intermodal service to small communities and rural areas.

Federal officials encourage short lines to apply for either direct loans or loan guarantees to strengthen track and bridges to accommodate modern 286,000-pound gross-weight covered hoppers that rapidly are replacing smaller grain-carrying cars. Otherwise, light-density lines serving rural farm communities could become disconnected from the national rail network and have to be abandoned. "At least 100 short lines need $950 million in external financing to upgrade their track to safely handle the 286,000 pound cars," says FRA. The short line locomotive fleet, which is almost entirely older than 20 years, also is a candidate for renewal through this loan program.

The direct loans and loan guarantees also are intended for state and local governments, such as Washington State's program of purchasing grain cars to ensure additional carrying capacity for state grain elevators when peak demand strains nationwide grain car availability. The University of Arkansas expressed interest in obtaining funds to eliminate a highway-rail grade crossing on its campus.

Regional and short line lobbyist Ray Chambers helped to write the TEA-21 loan provision, explaining that small railroads often cannot qualify for commercial credit, Commercial banks are reluctant to make infrastructure loans because the asset cannot be repossessed and sold elsewhere. When commercial banks do make loans to short lines, terms fewer than 10 years are sought rather than the 20-year terms preferred by short lines. Also, many banks are reluctant to make commercial loans for the relatively small amounts as generally are sought by short lines.

The final rule--essentially a roadmap of how to apply--will be published in the Federal Register late in June.