Will railroad company and government dispute derail Southwest LRT?

The Twin Cities has a long and rich history as a railroad center. For roughly a century it was home base to railroads as diverse as James J. Hill’s vast Great Northern and Northern Pacific systems and the Midwestern railroad known as the Soo Line. But that was then. The largest railroad based in Minnesota today is the Twin Cities & Western Railroad Company (TC&W), a determined 361-mile short line based in Glencoe. Yet its biggest impact is felt in the Twin Cities, where it owns no track, but has some very big problems.

Forged in an era when railroads were reeling, and born from arguably the greatest hard-luck railroad in American history, TC&W has thrived since its founding nearly 22 years ago. Its successful rebirth with a 19th-century business model is clashing with plans for 21st-century urban development in a controversy that will dictate the outcome of the largest public works project the state has ever embarked on: the $1.2 billion-dollar Southwest Light Rail Corridor from Minneapolis to Eden Prairie.

Small-town railroad, big city problems

TC&W is a thriving short line, regarded as one of the nation’s best-run, carrying primarily agricultural products toward the Mississippi River or the West Coast. Its quiet rural rails parallel U.S. 212 through much of the central and western portions of the state, its ragtag group of diesel engines work local grain elevators and ethanol plants, passing abandoned depots and listing telephone poles.

TC&W’s rails start in the southwest suburbs, so it operates into the Twin Cities on trackage rights granted by other rail owners; it uses the track to interchange with Mississippi River barges, the BNSF, Canadian Pacific, Union Pacific, and Canadian National railways—the carriers for all its commodities arriving or departing from the East and South. TC&W operates 38 trains per week carrying dozens of freight cars each on this route, interchanging them in Minneapolis and St. Paul.

For years the railroad used the route through what is now the Midtown Greenway in Minneapolis—passing north of Lake Calhoun before traveling south of Highway 7 into Minnetonka, where its proprietary rails begin. But in the 1990s, it became clear that Hiawatha Avenue (later LRT) reconstruction was going to sever TC&W’s route between St. Paul and Minneapolis.

Rather than build a costly bridge or tunnel, the Minnesota Department of Transportation asked Hennepin County to help find a solution so TC&W could continue west. It was no problem getting the railroad through downtown Minneapolis. From there, the county considered two options. One used a Canadian Pacific-owned freight spur called the MN&S, which parallels Highway 100 to the west. The other was a little-used stretch of right of way known as the Kenilworth Corridor.

The MN&S route required modifications over land that had environmental contamination. The issue proved too complex to overcome and TC&W was instead given the Kenilworth route: TC&W would travel west of downtown Minneapolis on BNSF rails and then jog south on the Kenilworth line that divides Cedar Lake from Minneapolis’ Kenwood neighborhood. It connects with TC&W’s old route just north of Lake Calhoun.

Kenilworth was, for most of the 20th century, a rail corridor and freight yard belonging to the Minneapolis & St. Louis Railway (it gave St. Louis Park its name), but its successor, the Chicago & North Western, abandoned it, and the right of way was “banked” by Hennepin County for future transit.

When TC&W agreed to move to Kenilworth, according to Hennepin County Commissioner Gail Dorfman, who represents the area in question, it was with the understanding that the route was a temporary home. Dorfman offers a TC&W-authored document from 1993 or ’94 (unsigned and not on company letterhead) that states that the railroad preferred the MN&S route and estimated roughly a million dollars in expense to make it workable.

TC&W’s President Mark Wegner, who has been with the railroad since its inception in 1991, has seen the document, but doesn’t regard it as binding, either in its cost estimates or feasibility. “It was written in the context of TC&W’s original business plan,” says Wegner. “It did not have any engineering analysis, so I suspect the author was looking at a map versus surveying the actual landscape. I take this document as wishful thinking versus an actual plan.”

Ultimately, nothing was done, and TC&W remained in Kenilworth.

Meanwhile, Kenilworth had for decades been the preferred route for the Southwest Light Rail (SWLRT) corridor, which was affirmed recently after a years-long alternatives analysis. Residents of the neighborhoods surrounding Kenilworth objected vociferously to light rail, but as its inevitability became clearer, a consensus developed between citizens and public officials: LRT would come, but the TC&W had to go. Having freight and passenger trains (an idea known to planners as “co-location”) running on separate parallel tracks through bucolic lakeside neighborhoods was unacceptable.

Enter the reroute

In the decades after World War II, thousands of miles of thinly used branch line railroad was pulled up all over America, including in the Twin Cities. Were it 1958, there would have been several alternative routes for the TC&W to consider to Kenilworth. But in 2008, when SWLRT planning began in earnest, the options were few, and all centered on the problematic MN&S.

The goal is that TC&W head west as it does now out of downtown Minneapolis on BNSF rails, but rather than turning southwest into Kenilworth, it would continue past Highway 100 to join the MN&S, heading south through St. Louis Park to rejoin its current route near Louisiana Avenue and Highway 7.

Problem is, the MN&S, which in 1993 looked to TC&W like a long-term solution for a modest amount of additional spending, is now perceived as unworkable by the railroad. The cost of remaking it to fit TC&W’s operations has ballooned from an optimistic $1 million to $70 million or more, and the railroad and others say it presents engineering challenges that may not be solvable within the budgets of the SWLRT project.

The line also passes alongside St. Louis Park High School and very close to several dozen homes and businesses. Because MN&S was built after St. Louis Park was platted, its right of way is atypically narrow. It hosts two short freight trains (6 to ten cars) each weekday, requiring an extra engine to deal with the undulating grade.

With those issues in mind, the city of St. Louis Park joined forces with a band of residents calling themselves Safety in the Park, formed to oppose the reroute, to file a lawsuit. The result: The Federal Transit Administration (FTA), which is to fund half of SWLRT, ordered the region in 2011 to resolve the TC&W reroute as part of the preliminary engineering process.

TC&W enjoyed a long and amiable relationship with its rail landlord, Hennepin County, and the railroad says it expected its concerns to be addressed not long after it delineated them in response to a 2011 Environmental Assessment Worksheet (EAW) of the reroute, but two years later, no progress has been made and TC&W has become the loudest opponent.

It’s a story packed with political intrigue, “no comments,” and assurances of “no problem.” But nobody in the know can figure out what to do with the railroad that seems poised to become a back-breaker in what Hennepin County rail official Katie Walker calls “the largest public infrastructure project the state has ever completed. The stakes are huge.”

That is probably the only thing Hennepin County and TC&W agree on.

‘No sweat’ or ‘No way’?

In December, the railroad filed its most emphatic objections yet to the SWLRT reroute. Wegner says the MN&S reroute is “a design we intuitively know is bad.” It has “significant risks of derailment” at both endpoints.

In a nutshell, the MN&S, and the proposed connections to it, are engineered for the small CP freight trains that currently use it, not the 100-car trains TC&W runs. The railroad is wary of the undulating MN&S grades, curvature, and proximity to St. Louis Park High School for their potential to insert costly inefficiencies into its operations.

“We have no issue with Southwest Light Rail,” insists Wegner. “But we need to get to St. Paul with the same cost structure as today.”

St. Louis Park officials, concerned about the impacts of the reroute, concur with TC&W. “A lot of the reroute is unfeasible,” says Mayor Jeff Jacobs. He maintains that as currently drawn, the reroute will require expensive noise and vibration mitigation, and the likely removal of 30 to 40 homes. But he says a realistic plan that also functions for 100-car freights will require more expense than the $70 million or so estimated for it, plus removal of additional buildings. “I wouldn’t be surprised to see [the reroute] get to $100 million or above.”

County officials seem rather blasé about these objections, and are quick to point to documents from both St. Louis Park and the railroad accepting the inevitability of the reroute many years ago. They don’t seem particularly vexed by the engineering problems and may regard the posturing as a kind of jockeying for position in the hierarchy of complainants.

A rock and a hard place

In January, authority for SWLRT passed from Hennepin County to the Metropolitan Council, which will execute final design and build the line. Council officials refuse to comment on the TC&W reroute until a working group formed to study it completes its work later in the year. But principals within the project say Met Council officials are well-versed in its problems, if none too pleased to be dealing with them.

“There was an agreement that Hennepin County would settle this by last year,” says a source within the Met Council. Instead, says the source, the county passed the hot potato.

A spokesperson for Mark Fuhrmann, Met Council program director for rail projects, says only that the council will evaluate the two route alternatives for TC&W and offer a solution in late summer. If you’re wondering what the two alternatives are, so is the city of Minneapolis.

The co-location option is “decisively cheaper,” says Dave McKenzie, an engineer with SEH, an engineering and planning firm that conducted an analysis of the freight reroute for St. Louis Park. But that has long been the forbidden logistical fruit for the city of Minneapolis. It would place freight and LRT trains adjacent to one another in a park-like setting and likely require the removal of Cedar Lake Shores, a 57-unit townhome development along the Kenilworth right of way.

So even though Hennepin County officials and the Met Council continue to talk of “two” routes, the city of Minneapolis does not, and the city must give its municipal consent before the FTA will fund SWLRT. This appears unlikely: “Hell will freeze over before the City will agree to co-location,” says City Councilmember Lisa Goodman, who represents the Kenilworth area. “I’ve been assured there are not the votes on the City Council to approve it.” (A municipal election is scheduled for November, and the makeup of the Council could change in January.)

Which brings us back to the MN&S. There are few disinterested voices in the debate. SEH does business with all sides, but McKenzie, who authored St. Louis Park’s study, is unequivocal about the realities. “The reroute is not consistent with current mainline track engineering standards,” he says.

(As a point of validation, the FTA specifically noted in its 2011 authorization for preliminary engineering that a flyover bridge sketched out for Canadian Pacific freights had “sharp curvature, steep grades, and insufficient clearances.” Several observers have questioned whether planning consultants and engineers had sufficient background in freight operations to analyze their feasibility.)

Route opponents complain that key documents are missing information about grades and contain other omissions or errors of engineering. They wonder if the county was trying to finesse the issue until it could turn it over to the Met Council.

“There is an engineering solution,” insists County Commissioner Dorfman. “Numerous agencies have been studying this for nearly 20 years.”

But McKenzie isn’t sure. “It’s very hard to solve because you’re so confined. An Xcel Energy substation is in the way. Other buildings may need to be removed. There are wetland and contamination issues . . . . The alignment proposed in the EAW [2011 plan] is not practical for mainline use.”

McKenzie suggests public officials are facing self-inflicted injury: “I wish the freight railroad issues had been addressed during the alternatives analysis.” The implication is that had they, the MN&S might never have been deemed viable.

Hennepin County says reroute objectors are jumping to unwarranted conclusions. “We took it to a 1 to 2 percent stage of engineering,” says Katie Walker, who led SWLRT planning for the county. “Because you’re at such an early stage of engineering, it’s tough to draw super-definitive conclusions like that.”

She does acknowledge that the county failed to advance the engineering work after the FTA order, but insists FTA instructed the Met Council, not Hennepin County, to do the analysis.

LRT won’t be scuttled

At this point, it’s worth digressing into the bureaucratically murky way the Twin Cities builds transit projects. They start at the county level, in this case Hennepin; once the FTA grants authority to begin preliminary engineering and certain bureaucratic benchmarks have been reached, such as a Draft Environmental Impact Study, the project is handed off to the Metropolitan Council.

Though Hennepin County was the “responsible unit of government” in 2011, the FTA was sending its instructions to the Met Council. Which gives rise to a certain amount of cynicism about who was responsible for what and when, since it appears both agencies have been deep into the project for years now.

Perhaps more useful is Walker’s suggestion that the long public controversy over removing engineering consultant URS from the project (due to its work on the defective I-35W and Sabo bridges), delayed additional freight engineering for as long as a year.

“The Met Council has hired engineers now to take it to 30 percent engineering,” Walker says. “TC&W will be part of that process. But I don’t think this is in jeopardy of not proceeding.”

Walker is right, if the public bodies can fund the burgeoning cost of the freight reroute and can overcome environmental and land-use issues. But that cost remains unclear.

Other questions remain. St. Louis Park also must give its municipal consent. Mayor Jacobs notes that “the city’s official position is we oppose the reroute as structured, but are open to mitigation.”

Another issue: How many of TC&W’s objections must be satisfied before it will leave Kenilworth? (The railroad must petition the federal Surface Transportation Board [STB] to allow it to “abandon” the route.) Wegner says TC&W will not accept added costs and operating inefficiencies to leave Kenilworth, noting “the reason the federal government [through the STB] has this authority is to protect our shippers.”

Hennepin County can evict TC&W from its rails, but the STB would need to approve it, based on findings that SWLRT’s needs trump those of TC&W via its “adverse discontinuance authority.” Under such a scenario, a public agency, says an STB spokesperson, would need to show that “the present or future public convenience and necessity require the proposed discontinuance,” essentially a balancing test of greater need.

The Minnesota Legislature will be asked this spring to allocate monies for SWLRT. Transportation Committee Finance Chair, DFLer Rep. Frank Hornstein, who also represents southwest Minneapolis, is optimistic about prospects, but doubts additional funds can be allocated specifically to solve the TC&W quandary.

Hornstein also pours cold water on suggestions that the project could go back to square one and require a new LRT route out of downtown Minneapolis. “It would be difficult at this late date to change something so basic.”

A different story out West

Twin Cities access is crucial for TC&W—the metro area is where the vast majority of the goods the railroad carries are interchanged to other railroads or modes of transport. Without the Twin Cities, TC&W is trains and tracks without a business. But the metro area is not home. The core of the railroad is its rails heading west along U.S. 212 from west of Hopkins toward Glencoe, Olivia, and Montevideo. After Appleton, TC&W operates on trackage rights over BNSF to Milbank, South Dakota, where it connects with a 37-mile line it owns to Sisseton. TC&W also operates the Minnesota Prairie Line on behalf of a consortium of southern Minnesota counties. The 94-mile line diverges from TC&W at Norwood Young America, roughly 25 miles southwest of Eden Prairie, and parallels the parent railroad on the south to Hanley Falls in Yellow Medicine County, roughly 40 miles from the South Dakota border.

TC&W, Wegner explains, moves merchandise to the Twin Cities for transfer, or carries it west to the BNSF connection for transport to the West Coast and overseas. The primary direction of traffic and goods carried are a function of crop yields, plus ocean freight costs, which govern the route many of TC&W’s commodities take (port of New Orleans or Pacific Coast).

TC&W moves its goods through unmanicured country, and the railroad has a rustic feel to it. Ride a freight west out of its Glencoe base and you return to railroading in its 19th-century essence. The road, once double-track to Aberdeen, South Dakota, returned in the 1980s to single-track with passing sidings. TC&W operates on old-fashioned jointed rail, some of it installed by the Milwaukee Road.

The windswept line offers few traces of modernity besides the radios that crews use to communicate. Abandoned telephone and telegraph poles parallel the track, some leaning toward the right of way, others toppled or missing. Its territory is “dark,” meaning there are no signals. Trains move from one sector of the railroad to another via a system of track “warrants” granting exclusive right to operate a stretch of railroad. Its diesel engines are castoffs of other railroads; the one I rode dated to 1973. And TC&W’s trains don’t move more than 30 mph on home rails. But it nonetheless has a profound impact in its service territory.

Wegner points to Seneca Foods in Arlington, Unidoor in Gaylord, and the Heartland Corn Products ethanol plant in Winthrop (all on the Minnesota Prairie Line) as businesses that expanded or located in the region due to the railroad. “We believe in the vitality of south-central Minnesota,” he says, “and it’s our mission to grow the region’s economy.”

TC&W’s primary partner in westward transport is BNSF Railway, based in Fort Worth, Texas. Its rails begin where TC&W’s end in Appleton. BNSF is also TC&W’s biggest competitor, boasting most of the rail miles in the state, and operating the parallel ex-Northern Pacific main line a few dozen miles to the north. It makes for a complicated relationship. “One day you’re a partner, one day you’re a competitor,” notes Wegner. “They can price in ways that make westbound traffic unfeasible for us.”

In the 1990s BNSF developed “shuttle trains,” large, fixed-length trains that operate at lower prices and vastly quicker turnaround times for shippers because of their streamlined operations. They require large grain elevators with long sidings. As co-ops built such elevators along BNSF’s lines, TC&W found itself at a price disadvantage.

“I asked BNSF in 2005 what [it would] take to get our elevators in their shuttle train system,” Wegner recalls. “They weren’t real receptive.” But TC&W persevered, and last year two shuttle train elevators opened along its line. BNSF sends trains in for loading and TC&W offers those shippers reduced prices.

“It’s been a game changer for them,” says Jeff Nielsen, CEO of United Farmers Cooperative in Winthrop, which operates one of those elevators at Brownton, a $32 million investment completed just months ago. “A majority of shuttle train shippers are on mainline rail, so it’s very rare for a short line to have them. We’ll move 10 million additional bushels of grain by rail due to the shuttle trains.”

And every additional freight car is “four trucks not on 494,” notes Wegner.

Outside of shuttle trains, TC&W’s primary advantage is its ability to get a shipper’s product to any number of railroads or river barges in the Twin Cities. “That provides a phenomenal price advantage,” says Nielsen.

A more subtle benefit is the personal touch. Have a problem with BNSF? Expect to call Fort Worth and leave a voicemail. “The biggest advantage of a short line is communication,” says Craig Glaeser, director of transportation for TC&W’s largest customer, Southern Minnesota Beet Sugar Cooperative, located on a siding called Reubel, just east of Renville. “They know their customers personally and can respond instantly.” Glaeser should know—he was a 20-year TC&W employee before changing jobs in 2012.

Getting a handle on TC&W business metrics has its challenges. The railroad is privately held and releases little to no information about its finances or ownership, besides that it is Minnesota-owned and controlled via a holding company, which Wegner will not name. (An industry trade magazine said the railroad handled 19,100 carloads in 2007.) The controlling investor in the company is the estate of Douglas Head, who died in 2011, following a long career in politics, law, and real estate development. His widow, Martha Head, is not active in the business.

Wegner says the vast majority of the railroad’s loadings are agriculture-related, hauling fertilizer and raw materials in and hauling out corn, sugar, soy, and ethanol. Wegner, 49, joined the railroad at in 1991 as an accountant.

Because TC&W is small and private, it is not followed by analysts. But Roy Blanchard, a rail industry consultant based in Philadelphia who specializes in short lines, has a feel for the railroad.

“I’d put them among the head of the class in this niche,” he says. “Mark [Wegner] takes a more sophisticated view. He is singularly focused on revenue and profit, while many short lines focus on market share or filling freight cars. TC&W’s growth indicates to me that they are creating customers.”

Blanchard is not bullish on TC&W’s ethanol business, due to declining fuel consumption, but is high on the rest of its revenue mix. “There’s stability in heating and eating,” he says. “As long as you are part of that cycle, you’re stable.”

A common railroad industry metric is operating ratio—expenses as a percentage of revenue. Blanchard estimates TC&W’s is in the mid-80s, which he describes as “healthy.” Wegner prefers the metric of revenue per gross-ton mile. “They have to be strong there as well, to be where they are,” notes Blanchard.

Caution: Signal ahead

Looking ahead, TC&W continues to try to add shuttle train capacity along its main line while it works with the Minnesota Valley Regional Rail Authority to finish restoring the Minnesota Prairie Line to 25 mph from 10 mph, with federal and state dollars footing most of the half-million-per-mile tab. TC&W hopes the added speed will attract additional freight tonnage and line-side business to the traffic-thin line.

As Wegner waits for a smoke signal from the Met Council, he scans the rails for other impediments. The closing of a city-owned barge terminal in north Minneapolis later this year will nick the railroad’s competitiveness, putting it at the mercy of more expensive terminals in Savage.

Wegner is also wary of the growing impact of the North Dakota oil rush, which is eating up vast amounts of Great Plains rail capacity and could constrain his customers’ access to (or raise rates on) connecting carriers out of the Twin Cities.

But if ethanol takes a dive, TC&W will ride it out, because the railroad has an ace in the hole. As Wegner notes, “corn will always need to go somewhere.”

Adam Platt is TCB’s executive editor. He is a longtime chronicler of transit and the rail industry.

This article is reprinted in partnership with Twin Cities Business.