State, regional leaders say Mitchell-Rapid City Railroad Authority still has a role, but critics want to see it dissolve

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Jun. 10—Keep it alive or shut it down.

The future of the Mitchell-Rapid City Rail Authority was the subject of a sometimes animated discussion during the Davison County Commission meeting on Tuesday, June 8.

Brothers Alex and Dick Huff, the original owners of Dakota Southern Railroad who are now frequent critics of the current owners of the business, believe the MRC Authority should discontinue and shut down because if the outstanding loans are not paid by Watco, the debt would fall on the counties involved in the MRC.

The purchase by Watco, which will operate the short line railroad as Ringneck and Western Railroad, terminates Dakota Southern Railroad Company's lease to operate the line with the MRC. The outstanding loan responsibilities for railroad upgrades between Dakota Southern and MRC with the South Dakota Department of Transportation will become Ringneck and Western's responsibility to pay back. Watco bought the 108-mile line from the state for $13 million and closed on the sale last month.

Watco, which is based in Pittsburg, Kansas, is among the world's largest short-line railroad operators. But the Huffs painted Watco as a company with financial issues, noting that its bond rating has fallen over the last year, with risk of it going down again, and noted the company received investment from Oaktree Capital Management in 2019, a firm that invests in distressed securities.

From December 2020: Mitchell-Rapid City Rail Authority expected to stick around after impending sale

The MRC's primary income came from a per-car surcharge issued by the state of South Dakota but that will mostly go away now that the state no longer owns the rail line. The Huffs have been appearing in front of county commissions recently, trying to convince county boards in the involved counties to either withdraw or try to dissolve the authority.

"It has no function anymore," Dick Huff said. "If it continues, it creates a risk to the public and the taxpayers of the county. ... We're very concerned about how this has been handled."

The authority includes five counties: Davison, Aurora, Brule, Lyman and Jones, after Jackson and Pennington left in recent months.

"The MRC is an orphan," Alex Huff said. "It has no say, no vote, no position over what happens with the railroad, which is now private property."

Ken Cotton, the MRC's attorney based in Wagner, pointed out the Jackson and Pennington counties pulled out of the MRC arrangement because the railroad doesn't serve those counties anymore, and it would take major investment and construction to expand the railroad west of U.S. Highway 83. Dissolving the authority would require four of the five counties supporting the measure.

The South Dakota Department of Transportation is in favor of the MRC Authority remaining in place, mainly as a vehicle to help spur private investment. Jack Dokken — the DOT's program manager for the Office of Air, Rail and Transit — said now is a time for the authority to be involved with the future of the railroad to help Watco, particularly with sidings.

"This idea that it's a dead horse, that couldn't be further than the truth. If anything, this should be going in the opposite direction," he said.

Dokken explained that for decades, the railroad wasn't doing much for the communities along the tracks, with about 800 railcars per year of traffic before it was redeveloped. The line also provides producers more access to coastal markets for grain. Cotton testified on Tuesday that the MRC had 12,336 railcars in 2020, up from 8,431 cars in 2019.

"There are now three major shippers on the railroad that are very strong economic engines for the communities in those areas and it's been because of the partnership of the MRC," he said. "There should be more enthusiasm here, not less."

Dokken said funding for sidings — which are the small spurs that will run from the main line to a business — typically isn't administered to private business or the railroads themselves, which provides the key role for the MRC.

"They can come to the table and the MRC can help the communities and the businesses that want to build on the line," Dokken said.

MRC Board Chairman Brad Carson, who hails from Brule County, said the MRC should have a better idea of what the costs of maintaining the authority's long-term future when they hold a semi-annual meeting later this summer. He said he wouldn't be opposed to having the MRC on a 10-year plan and see where the authority stands then.

Tom Greenway, of Mount Vernon, is the only person to ever serve as Davison County's liaison to the MRC Board, doing so since his appointment 36 years ago. He said the Huff's "doom and gloom" view wasn't accurate, and he noted that there were a number of stipulations on the state's sale of the rail line to Watco to make sure the debts are paid. He also noted that members of the authority board volunteer their time and don't get paid.

"The MRC never defaulted on one penny of money we borrowed," Greenway said. "We had more cars on the line last year than in the 10 years Dick and Alex owned the line."

The issue was merely a discussion topic for the Davison County board, with no action and little conversation taking place with the five-member commission. Commissioner John Claggett suggested the commission talk more with District III Planning and Development, which is the MRC's provider of secretarial and organizational services, to see what the future for MRC might be financially.

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