Passenger Trains > MDOT agreement with NS on MI Line Transfer

Finally some progress - looks like a physical transfer of control to Amtrak next spring.

Andy

http://www.michigan.gov/mdot/0,4616,7-151-9620-291086--,00.html

Great deal from Norfolk Southern's perspective...Michigan pays them $140M for an asset they're not really getting much use from, then pays to fix it up and maintain it in better condition than NS ever has, and NS keeps the exclusive right to use it for their freight business. Sure they'll pay something for trackage rights, but that's likely more than offset by savings on property tax and maintenance. A transfer of the property to state ownership for no money would still have been a good deal for NS.

Coming on the heals of a $100M gift from Virginia in the form capacity upgrades to host one daily round trip between Norfolk and Petersburg, it seems NS is benefiting handsomely from Federal HSR money.

Dave

What a wonderful country we have.

Before we get too far down the corporation-bashing road, let's not forget the cost to the railroads of nearly 100 years of mostly punitive regulation, the expropriation of railroad assets by government control of rates and government requirements to run money-losing passenger services, and finally, the fact that there is a substantial public benefit realized from many of the investments the government has made in the rail network in recent years. That's how the investments were justified.

It's interesting to read T/O and see people advocating for government money to be spent on HSR, but somehow when government $ go to freight projects that lower transportation costs and take trucks off the roads, that's a subsidy to the "evil" corporate world.

I just find it strange that NS required no government assistance for "Crescent Corridor", bereft of passenger trains, but their congested mainline across Indiana is an Amtrak problem, so someone must restore their 4 track ROW for them.

Then they run the Michigan line into the ground (as Conrail did the PFtW&C), then gets overpaid for an asset little-used by them.

shoretower Wrote:
-------------------------------------------------------
> Before we get too far down the corporation-bashing
> road, let's not forget the cost to the railroads
> of nearly 100 years of mostly punitive regulation,
> the expropriation of railroad assets by government
> control of rates and government requirements to
> run money-losing passenger services, and finally,
> the fact that there is a substantial public
> benefit realized from many of the investments the
> government has made in the rail network in recent
> years. That's how the investments were
> justified.

So this is like a "make-up call" in basketball? The age-old argument as to whether the rail industry has on balance been helped or hurt by government policy going back to it's beginning is like trying to solve the Middle East. But even if you're firmly on the side of "hurt", I'm not sure why you would think overpaying for assets with scarce HSR funds is a good idea.

> It's interesting to read T/O and see people
> advocating for government money to be spent on
> HSR, but somehow when government $ go to freight
> projects that lower transportation costs and take
> trucks off the roads, that's a subsidy to the
> "evil" corporate world.

You're reading way too much into what I wrote. I actually favor joint public-private investment for mixed use rail corridors. NS has been an industry leader in advocating for projects like the Crescent and Heartland corridors, which are a good alternative to highway expansion. More power to them. My point here is that Michigan quite possibly could have negotiated a better deal given that NS would seem to benefit from getting an under-performing asset off the books. The Virginia deal is a little different in that it doesn't involve transfer of property, but given that there are no immediate plans in Virginia to fund the three round trips permitted, for now NS seems to be the major beneficiary of public investment intended to improve passenger service.

Dave



Edited 2 time(s). Last edit at 12/12/12 08:41 by DavidP.

DavidP Wrote:
-------------------------------------------------------
> shoretower Wrote:
> --------------------------------------------------
> -----
> > Before we get too far down the
> corporation-bashing
> > road, let's not forget the cost to the
> railroads
> > of nearly 100 years of mostly punitive
> regulation,
> > the expropriation of railroad assets by
> government
> > control of rates and government requirements to
> > run money-losing passenger services, and
> finally,
> > the fact that there is a substantial public
> > benefit realized from many of the investments
> the
> > government has made in the rail network in
> recent
> > years. That's how the investments were
> > justified.
>
> So this is like a "make-up call" in basketball?
> The age-old argument as to whether the rail
> industry has on balance been helped or hurt by
> government policy going back to it's beginning is
> like trying to solve the Middle East. But even if
> you're firmly on the side of "hurt", I'm not sure
> why you would think overpaying for assets with
> scarce HSR funds is a good idea.
>
> > It's interesting to read T/O and see people
> > advocating for government money to be spent on
> > HSR, but somehow when government $ go to
> freight
> > projects that lower transportation costs and
> take
> > trucks off the roads, that's a subsidy to the
> > "evil" corporate world.
>
> You're reading way too much into what I wrote. I
> actually favor joint public-private investment for
> mixed use rail corridors. NS has been an industry
> leader in advocating for projects like the
> Crescent and Heartland corridors, which are a good
> alternative to highway expansion. More power to
> them. My point here is that Michigan quite
> possibly could have negotiated a better deal given
> that NS would seem to benefit from getting an
> under-performing asset off the books. The
> Virginia deal is a little different in that it
> doesn't involve transfer of property, but given
> that there are no immediate plans in Virginia to
> fund the three round trips permitted, for now NS
> seems to be the major beneficiary of public
> investment intended to improve passenger service.
>
> Dave


I continue to be impressed with the Capitol Corridor, which essentially has been appropriated for relatively intensive passenger use, even though the railroad still owns it. It's a better deal every day, even though the $70 million or so spent on it was a large sum, and went into upgrading SP's rundown facility.

I posted a comnmentary on NS' justifcation for putting some of their own money into upgrading the Crescent Corridor on the Eastern thread.
Regarding the MI Line, NS has found it more economical to route east/west traffic either over their parallel ex-Wabash route or via Toledo and the Chicago Line. This has rendered the MI Line nearly passenger only. Looking at previous conveyances to Amtrak or states, such as PC to Amtrak for the NEC or CSX to NYSDOT for operation by Amtrak, the new operator generally imposes operating restrictions that would protect passenger train preference and discourage a freight road from putting any discretionary through freights over the publicly owned railroad.
Regarding the Chicago Line, NS not only has enough capacity to run its own trains most of the time (we all know there are incidents that cause a busy railroad to jam up at times) but also has the parallel ex-NKP. From a freight rr standpoint, I can see NS' unwillingness to upgrade track and signals to allow passenger trains to operate with less congestion (and at higher speeds) unless someone else pays and guaratees that the passenger trains won't delay their freights. IN has recognized this and has gotten some ARRA funding for some sidings to be extended between Porter and Hammond so that Amtrak's can get around some of the freights that are working at Burns Harbor or engaged in other activities that cause conflicts.

Andy

DavidP Wrote:
-------------------------------------------------------
> Great deal from Norfolk Southern's
> perspective...Michigan pays them $140M for an
> asset they're not really getting much use from,
> then pays to fix it up and maintain it in better
> condition than NS ever has, and NS keeps the
> exclusive right to use it for their freight
> business. Sure they'll pay something for trackage
> rights, but that's likely more than offset by
> savings on property tax and maintenance. A
> transfer of the property to state ownership for no
> money would still have been a good deal for NS.
>
> Coming on the heals of a $100M gift from Virginia
> in the form capacity upgrades to host one daily
> round trip between Norfolk and Petersburg, it
> seems NS is benefiting handsomely from Federal HSR
> money.
>
> Dave

< NS not only has enough capacity to run its own trains most of the time >

When I see the 2nd main track all-too-often turned into a linear parking lot, that does not fit my definition of enough capacity, but simply in denial that they need to spend some money, regardless of whether 10% of the trains are Amtrak.

I actually thought NS once wanted, then refused public money for Crescent Corridor, as they did not want their RR to be answerable to the government as to how they run it.



Edited 3 time(s). Last edit at 12/12/12 10:48 by joemvcnj.

DavidP Wrote:
-------------------------------------------------------
> Great deal from Norfolk Southern's
> perspective...Michigan pays them $140M for an
> asset they're not really getting much use from,
> then pays to fix it up and maintain it in better
> condition than NS ever has, and NS keeps the
> exclusive right to use it for their freight
> business. Sure they'll pay something for trackage
> rights, but that's likely more than offset by
> savings on property tax and maintenance. A
> transfer of the property to state ownership for no
> money would still have been a good deal for NS.
>
> Coming on the heals of a $100M gift from Virginia
> in the form capacity upgrades to host one daily
> round trip between Norfolk and Petersburg, it
> seems NS is benefiting handsomely from Federal HSR
> money.
>
> Dave


Instead of bashing Norfolk Southern for taking a lopsided deal, why not bash the state of michigan for MAKING a lopsided deal. Since when has government EVER been known for making financially sound business deals?

Wrinkling my forehead and furrowing my brow in frustration - I remember a time when it was possible to look at a situation from all sides without accusing someone of "bashing" someone else. Not all that far back either, think pre-2003.

Is it too hard to say there are multiple ways of looking at this deal - and that while not all may be valid everyone should be respected in advancing their viewpoint? It would certainly help in advancing an exchange of information rather than the useless defensive posturing.

junctiontower Wrote:
-------------------------------------------------------

> Instead of bashing Norfolk Southern for taking a
> lopsided deal, why not bash the state of michigan
> for MAKING a lopsided deal. Since when has
> government EVER been known for making financially
> sound business deals?

I'm not sure what "bashing" means to you, but pointing out that NS is getting considerable benefit from HSR funds doesn't strike me as bashing anyone. In fact, had you read my posts a little more closely before jumping to your conclusion, you would have noticed that I wrote "My point here is that Michigan quite possibly could have negotiated a better deal given that NS would seem to benefit from getting an under-performing asset off the books."

Dave



Edited 1 time(s). Last edit at 12/12/12 11:27 by DavidP.

Okay, let's return to some fact-based discussion:

1) USDOT gave NS $105 million for the Crescent Corridor as part of the TIGER program. Their project proposal was supported by eight states (who were also putting in their own money, along with $200 million from the railroad), and had an excellent benefit-cost ratio. I reviewed it for USDOT.

2) I have no idea how the $140 million Michigan paid to NS was determined, but I have done a number of such valuations, mostly for railroads, and that price is supposed to be the price that would be paid in an "arms length" transaction between willing seller and willing buyer. If you think it's an unreasonable valuation, the transcript of the STB review of the proposed spin-off of the line to a short line a couple of years ago is public and can be reviewed. I suspect Michigan paid about what the short line would have. If I were NS I certainly wouldn't settle for less.

3) NS has been actively prospecting for public money since the 1990s. A good friend, now retired, was in charge of this activity in the Strategic Planning Department. He once confessed that there "wasn't much money out there". The first big public-private project NS did was the Shellpot Bridge in 2003-2004. My firm represented Delaware on that project. If the current NS usage of the bridge continues for the 20-year term of the contract, Delaware will realize a 12% return on the $14 million it invested. Not a bad deal at all for the taxpayers.

4) If anyone at T/O wants to dump on unjustified grants of money to firms that later go bankrupt, take a look at the Energy Department's "green energy" program. On the other hand, freight projects in USDOT's TIGER program consistently had better BC ratios that most of the other proposed projects, and did very well in the funding process. There are times when public benefits can be a large part of the potential returns, and make public funding desireable.

shoretower Wrote:
-------------------------------------------------------
> Okay, let's return to some fact-based discussion:
>
> 1) USDOT gave NS $105 million for the Crescent
> Corridor as part of the TIGER program. Their
> project proposal was supported by eight states
> (who were also putting in their own money, along
> with $200 million from the railroad), and had an
> excellent benefit-cost ratio. I reviewed it for
> USDOT.
>
> 2) I have no idea how the $140 million Michigan
> paid to NS was determined, but I have done a
> number of such valuations, mostly for railroads,
> and that price is supposed to be the price that
> would be paid in an "arms length" transaction
> between willing seller and willing buyer. If you
> think it's an unreasonable valuation, the
> transcript of the STB review of the proposed
> spin-off of the line to a short line a couple of
> years ago is public and can be reviewed. I
> suspect Michigan paid about what the short line
> would have. If I were NS I certainly wouldn't
> settle for less.
>
> 3) NS has been actively prospecting for public
> money since the 1990s. A good friend, now
> retired, was in charge of this activity in the
> Strategic Planning Department. He once confessed
> that there "wasn't much money out there". The
> first big public-private project NS did was the
> Shellpot Bridge in 2003-2004. My firm represented
> Delaware on that project. If the current NS usage
> of the bridge continues for the 20-year term of
> the contract, Delaware will realize a 12% return
> on the $14 million it invested. Not a bad deal at
> all for the taxpayers.
>
> 4) If anyone at T/O wants to dump on unjustified
> grants of money to firms that later go bankrupt,
> take a look at the Energy Department's "green
> energy" program. On the other hand, freight
> projects in USDOT's TIGER program consistently had
> better BC ratios that most of the other proposed
> projects, and did very well in the funding
> process. There are times when public benefits can
> be a large part of the potential returns, and make
> public funding desireable.

Randy, I don't dispute any of the facts - thanks for presenting them. Again, my observation isn't that NS is doing something wrong, but simply that the Michigan deal seems very favorable to them. They get rid of a line they don't want - after all they recently tried to sell it off - but still get to use the asset moving forward without the ongoing cost of owning it. Hypothetically there is value that could be extracted by abandoning the line, salvaging the physical plant and selling the real estate, but that was would likely be politically impossible for the same reason the shortline sale proved to be. Therefore, if NS can eliminate their fixed cost, and shift the remaining cost to purely incremental as they have with the trackage rights agreement, they are better off than they are with the status quo. The purchase payment only sweetens the deal.

Dave

I'm curious. If you experts think the Michigan Norfolk Southern agreement is a good deal or a bad deal then what do you think about the Florida CSX deal. The details are here: http://archive.flsenate.gov/data/session/2009/Senate/bills/analysis/pdf/2009s1212.ju.pdf

junctiontower Wrote:
-------------------------------------------------------
> DavidP Wrote:
> --------------------------------------------------
> -----
> > Great deal from Norfolk Southern's
> > perspective...Michigan pays them $140M for an
> > asset they're not really getting much use from,
> > then pays to fix it up and maintain it in
> better
> > condition than NS ever has, and NS keeps the
> > exclusive right to use it for their freight
> > business. Sure they'll pay something for
> trackage
> > rights, but that's likely more than offset by
> > savings on property tax and maintenance. A
> > transfer of the property to state ownership for
> no
> > money would still have been a good deal for NS.
> >
> > Coming on the heals of a $100M gift from
> Virginia
> > in the form capacity upgrades to host one daily
> > round trip between Norfolk and Petersburg, it
> > seems NS is benefiting handsomely from Federal
> HSR
> > money.
> >
> > Dave
>
>
> Instead of bashing Norfolk Southern for taking a
> lopsided deal, why not bash the state of Michigan
> for MAKING a lopsided deal. Since when has
> government EVER been known for making financially
> sound business deals?


I'm sorry if I misunderstood you. It just seemed to me that a couple of your sentences were implying that NS was bending over the state of Michigan and taking advantage of them. Sorry if that was not the case. My point was just that perhaps the state COULD have gotten a little better deal, and knowing how government usually works, it's no surprise they didn't. Just for an example, my friend recently worked on the total remodel of an office building for use by our local city and county government. Between poor decisions made by those in charge and ridiculous demands for "personal amenities" for government employees, every taxpayer in Allen County Indiana should have been issued a chastity belt for protection.

This is a bargain compared to California High Speed Rail. I've been waiting forty years to see something like this happen. I can't believe the people that don't have problems with throwing around tens of billions are getting upset over this pittance. Pitiful!