Leases approved on Mitchell-Rapid City rail line

Talk about it

The Mitchell-Rapid City Regional Railroad Authority approved two leases Monday concerning the operation of partly rehabilitated state-owned railway between Mitchell and Kadoka.

The MRC convened via teleconference and agreed to lease from the state Department of Transportation the 187.98 miles of rail between Mitchell and Kadoka. The MRC also agreed to sublease the line to Dakota Southern Railway, which operates the line.

Under the new leases, set to last 20 years, the MRC will charge Dakota Southern 1.5 percent of Dakota Southern’s gross revenues for rent. The MRC will then give two-thirds of that rent to the state and keep the remaining one-third as its own revenue.

The MRC approved its lease with Dakota Southern on the condition it is first paid the $40,000 it is owed by Dakota Southern for two $20,000 flat surcharge fees for 2010 and 2011 for rail traffic at Graphic Packaging in Mitchell.

The terms of the new lease also require Dakota Southern to acquire liability insurance in the amount of $5 million per occurrence and $10 million total, and provide both the state and the MRC with proof of that insurance.

If the state ever desires to sell any or part of the MRC railway between Mitchell and Kadoka, the new lease requires it to offer Dakota Southern an equivalent deal offered to any other party, and gives Dakota Southern 30 days to accept any offer and another 120 days to make a purchase. If those timelines are not met, the state is free to accept another offer.

The MRC’s new agreement with Dakota Southern requires the MRC to prove non-compliance in order to terminate the lease, a change from previous agreements made largely because of the financial commitments now at stake as rehabilitation of the rail line continues to progress, said MRC attorney Kenneth Cotton during Monday’s teleconference.

The $29 million rehabilitation still in progress on the 61 miles of MRC railway between Mitchell and Chamberlain is funded in large part by a $16 million federal grant.

Two new grain-loading facilities near Kimball — one planned by Dakota Mill and Grain and another already being constructed by Liberty Grain LLC — are planning to take advantage of the rehabilitated rail line.

Ron Mitzel, of Dakota Mill and Grain, requested during the teleconference that the MRC sponsor a $3.5 million loan from the state for rail near the company’s site just northwest of Kimball. The MRC agreed to sponsor the loan, which means Dakota Mill and Grain will pay the MRC, and in turn, the MRC will pay back the state.

As the MRC has taxing authority, if Dakota Mill and Grain were unable to pay back its loan, the MRC would still be liable to make payments on the loan. Dakota Mill and Grain officials were not immediately available Monday and have never confirmed to The Daily Republic that their project will actually be constructed near Kimball.

Bruce Lindholm, of the state Department of Transportation, said in a Monday interview that as far as he knows, the project is still moving forward, and the next step in the loan process is consideration by the state Railroad Board.

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