Proposed railroad sale worst idea from City Hall in decades | Opinion

The proposed sale of the Cincinnati Southern Railway is the worst idea from City Hall in decades, and that is no small achievement. Not only is the sale price for the railroad grossly below its market value from a variety of valuation approaches, but the disingenuous and highly secretive manner in which the entire process has played out should be more than enough to alarm Cincinnatians and cause them to pull the emergency brake on the sale of this extraordinary, 143-year-old city asset.

Let me begin by sharing my intimate knowledge of this novel railway infrastructure. In July 2008, a private railcar that I owned with DeWitt Chapple - The Chapel Hill - was part of a "CSR Private Consist" of privately owned railcars used to perform an annual "inspection trip" afforded by the current operating agreement with Norfolk Southern. Then-mayor Mark Mallory went on this trip and he and his parents dined in our car's private dining room during the journey. I share this recollection to provide a firsthand account of my observation of this unique 337-mile infrastructure asset.

After traversing much of North America in both public and private railcars, I can unequivocally declare that I have never enjoyed a smoother ride than we experienced on that memorable weekend excursion to Chattanooga via the Cincinnati Southern Railway. From the manicured railbed ballast to the seamless track, our three-state railway right-of-way is an exceptionally maintained engineering marvel that has no comparable peer in the entire U.S. railway system.

Given Mallory's reported mentorship of our current mayor, Aftab Pureval, and endorsement of the sale price, it strikes me as extraordinarily disingenuous that Pureval, in his Norfolk Southern-funded TV ad promoting the sale, would characterize this gold-standard railway system as "this old freight railway." The endorsement of this sale and characterization of the railroad's condition by Pureval and a cast of former mayors should raise concern with voters. Disparaging descriptions of this modern, well-maintained, world-class infrastructure are false and misleading.

The opaque and shady nature of the pro-sale campaign is a compelling reason alone to vote no on Issue 22. There are many valid economic arguments for why the city should keep the railroad.

First, a significant amount of the projected investment income from the proposed stockbroker-managed trust fund (established with the sale proceeds) will need to be reinvested to keep up with inflationary erosion. There will undoubtedly be years in which the market does not perform well and the anticipated return on investment won't materialize and the principal balance will be eroded.

Second, a lease renewal with a Consumer Price Index-adjustment feature would deliver a reliable, guaranteed revenue stream and allow the underlying asset (the railroad) to remain intact. Its value will undoubtedly keep pace with and exceed inflation without the dilution of the principal investment and the necessity of a portion of the income stream to be reinvested in order to maintain the "buying power" of the proposed stock and equity portfolio.

Third, let's assume this asset is indeed only worth $1.6 billion. If Norfolk Southern is willing to pay that price to own it themselves, then at a very reasonable capitalization rate of 5%, the derived annual rental rate would be $80 million per year. This is an elementary valuation approach of any reliable income stream, and given the creditworthiness of Norfolk Southern and the extraordinary condition in which this asset has been maintained by its lessee, such a judgment would likely be delivered by an arbitrator, if not more.

Lastly, there are a multitude of other potential revenue streams that the current lease and our ownership of the land itself could provide. To begin, our property crosses four significant rivers on its route to Chattanooga: the Cumberland, Tennessee, Kentucky and Ohio rivers. Our ownership also includes water and mineral rights to the land beneath the property and, therefore, our ability to harvest, transport and distribute water via a pipeline through three states. This untapped income stream may prove to be as valuable as the revenue from the transmission of freight in the not-so-distant future.

The city could also employ our right-of-way as a power or fiber-optic transmission corridor by elevating this infrastructure above the railway without any interruption to freight movement or violating our leasehold agreement with Norfolk Southern. The air rights above the train right-of-way and potential data and power transmission lines could soon become equally valuable to employ for moving goods via a dedicated flight path for drone traffic by Amazon, UPS, FedEx and/or the United States Postal Service. By utilizing this 337-mile corridor through three states, these carriers could enjoy a private "drone freeway" to usurp flight elevation restrictions imposed upon operation over privately owned land.

After dealing with the most corrupt City Council since the Box Cox era of the early 1900s, Cincinnatians are hungry for honest leadership and wise, long-term budget planning and city management. This episode sadly demonstrates that, once again, those qualities are nowhere to be found on Plum Street.

This professionally crafted, public relations campaign funded by the proposed buyer takes a "hair-on-fire" approach to try to convince the public to support the sale of one of our most valuable crown jewels at an absurdly low price. The current Cincinnati Southern Railway Board of Trustees has little to no knowledge of the value of such an asset. The public should serve up a resounding no on Issue 22 and demand that a competent board of railroad business experts, such as Alfred Nippert, Jr., for example, be appointed to the railway board.

If the sale goes through, we will have lost forever the opportunity of this enviable passive income stream, and city officials will likely squander the principal on shiny things and pet projects that aren't durable and won't be around for a fraction of the time of this extraordinary railway. We've all been witnesses to the hollow promises of our politicians as they scheme to assemble such slush funds with wild pledges of riches to underserved neighborhoods that are never delivered.

It is high time to hold our elected officials accountable and run the city within the constraints of economic reality and prudent budgeting and planning that corresponds with our city's financial state.

Vote no on Issue 22 and demand the mayor appoint a competent board to negotiate a deal for the benefit of generations of Cincinnatians to come.

Jeffrey J. McClorey is a longtime downtown businessman who owns Bromwell's and the Harth Room and Lounge.

This article originally appeared on Cincinnati Enquirer: Vote no on Issue 22; demand mayor appoint new railroad board