A loan program that the Dakota, Minnesota & Eastern Railroad had hoped would provide $2.5 billion dollars for an expansion would be slashed under the budget proposed by President Bush.

The 2007 budget plan does not specifically mention the DM&E. But it questions whether the federal government should be making low-interest loans to private railroads and seeks to kill the Railroad Rehabilitation and Improvement Financing program.

Budget writers at the administration's Office of Management and Budget also criticize recent changes to the RRIF program that Sen. John Thune, R-S.D., sought last year to help DM&E qualify for a loan.

The changes remove the Department of Transportation's discretion over whether to issue a loan to a questionable applicant, budget writers said.

"In the event of a loan default, the federal government would be responsible for covering any unsecured losses, which could be significant because the program has been expanded from $3.5 billion to $35 billion," they said.

Thune said the criticism amounted to nothing more than a grudge against a popular program.

"OMB has consistently resisted the RRIF program, but in spite of that there's still strong congressional support for it," he told the Rapid City Journal.

The RRIF loans are backed by sufficient collateral to cover defaults, said Thune. He also thinks the DM&E will prove to be a good loan risk.

"I don't have any heartburn with this or with the administration's comments about it. That's been a long-standing White House policy about this program ... and I think probably they don't view the changes in this program favorably because they don't like the program in the first place, and this makes the program more workable."

The DM&E first proposed in 1997 to rebuild its Midwest rail line and lay new track to coal fields in Wyoming's Powder River Basin.

The line would haul up to 100 million tons of coal a year to Midwestern power plants and send as many as 37 trains a day across South Dakota.

Meanwhile, some question whether killing RRIFF in fiscal 2007 would stop DM&E's loan. Thune aides said neither President Bush's budget nor the administration's call to eliminate RRIF will derail the DM&E loan application.

Steve Kulm, a spokesman for the Federal Railroad Administration, said DM&E filed its application in fiscal 2006. If RRIF were killed, Congress would have to decide how to handle applications that are already pending, he said.