State Reps Decry Rail Proposal

August 4, 2007
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LANSING — A number of Democratic state representatives, as well as some transportation union representatives, are railing on Norfolk Southern Railway’s proposal to  transfer operation of nearly 400 miles of rail line in Michigan and Indiana to Watco Companies, a move that would create a new freight rail service called Michigan Central Railway. 

State Representatives Michael Sak, D-Grand Rapids, Robert Dean, D-Grand Rapids, and Barb Byrum, D-Onondaga, joined representatives of UAW 730 and the United Transportation Union at a press conference in Grand Rapids last Tuesday to express their concerns about the new freight rail line, which is a joint venture between Norfolk Southern Railway Co. of Virginia and Watco Companies of Kansas. Watco is contributing the capital financing for the venture and Norfolk Southern the rail assets.

According to plans, Watco will serve as the parent company of Michigan Central Railway, which will be headquartered in Kalamazoo. Sometime in the first quarter of 2008, Watco expects to begin operating Michigan Central Railway freight rail line segments between Ypsilanti and Kalamazoo, between Jackson and Lansing, and between Grand Rapids and Elkhart, Ind. The lines represent more than 60 percent of the lines Norfolk Southern owns in Michigan, said Rudy Husband, director of public relations for Norfolk Southern. The deal includes the trackage-right agreements Norfolk Southern has over the Amtrak line between Kalamazoo and the Indiana border. Regulatory approval is still pending.

What concerns some state representatives is the fact that Norfolk Southern is a Class One railroad operator, while Watco is a Class Three operator. As determined by the Surface Transportation Board, a Class One railway has annual operating revenues that exceed $250 million, and a Class Three railway has operating revenues of $40 million or less. Their question is: Is Watco able to uphold the current standards of safety and maintenance on those lines? They want that assurance, and customers want assurance that freight rail service will remain as reliable, timely and cost effective as before.

Sak said that in contrast with Norfolk Southern, a Class Three operator typically doesn’t have the resources to keep up rail safety, maintenance and equipment. Rep. Dean also questioned whether Watco has the resources to maintain the track to the standards of the past, stressing that rail service is a vital link to the economic well being of Michigan. Sak said Class Three railroad operators tend to rely heavily on federal grants for support. Grants are made on an annual basis, but there’s no assurance that the money is actually going to be available.

“The state of Michigan has invested significant amounts of money over the years in those lines,” Sak said. “Why would Norfolk Southern sell these lines? If Watco becomes a partner in 67 percent of Norfolk’s lines, Norfolk is no longer in control of those lines. Those lines are worth hundreds of millions of dollars. What is Norfolk Southern’s reason for a joint venture with a Class Three operator? It makes no business sense to me.”

Watco plans to invest more than $20 million in track improvements over the first three years of Michigan Central Railway’s operation, according to David Eyermann, Michigan Central’s interim president.

According to the Michigan Department of Transportation, Class Three operators are typically less likely to have the means to maintain lines, which could then result in slower speeds, lighter loads and an increased chance of accidents.

“That’s just not true, for one thing,” said Husband. “For another thing, that just ignores the current status of these lines. A lot of those secondary lines have already been downgraded, and the next downgrade would be to terminate service on those lines. This joint venture is, hopefully, going to energize businesses along those lines and develop future opportunities which will add freight to those lines, and by adding freight, it stands to reason that people will be added, as well.”

It goes back to the reason for creating the joint venture in the first place, Husband said. Norfolk Southern had been analyzing the situation for several years and weighing its options for those rail segments. A variety of alternatives were considered — including downgrading the lines further or discontinuing service on some of the lines — because the current light volumes of business on the lines involved did not fit within Norfolk’s overall business model, he said, and maintaining the status quo on those lines was not an option. The volume capacity of those lines, coupled with the marketing resources and expertise that Watco brings to the table, offers the best chance of success for the future of those lines, he said. 

MDOT Spokeswoman Janet Foran said MDOT shares representatives’ concerns regarding the Norfolk-Watco agreement and the fact that Watco is a short-line, Class Three operator. She said her department intends to have additional meetings with Norfolk and Watco to discuss the concerns and further evaluate the proposal. She noted that Norfolk Southern has been a “very good” corporate citizen in the past.

The deal involves interstate commerce, so it all hinges on the proposal as filed with the STB, Foran said. There’s a relatively short period of time for comments on the proposal to be filed with the STB, so that will help drive the process, she added. 

Representative Byrum sponsored a House resolution in May opposing Norfolk Southern’s “proposed sale” of its rail line between Lansing and Jackson. She said emerging companies, such as production plants for ethanol and biodiesel, rely on the Detroit-Chicago rail line.    

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