"Everything's fine."

That's what Mike Williams, president of the Dakota Southern Railway Company, said about the condition of the track between Mitchell and Kennebec that his company operates.

Williams said that there are currently no defects on that track aside from small ones that result from normal railroad wear and tear. On Thursday, a South Dakota legislative committee discussed a Federal Railroad Administration inspection of the DSRC-operated railroad.

The inspection, which was done in August to see if Dakota Southern had made progress toward fixing the 233 defects identified in a May inspection, found that 37 defects remained, three of which were serious enough to recommend for civil penalty. Department of Transportation Secretary Darin Bergquist told the GOAC Thursday that he wasn't sure if those were the unfixed remainder of the 233 or if all 233 defects had been corrected and the 37 current defects are new.

Bergquist said that when he initially read the report, he was still concerned by the number of defects.

"Personally, I struggle a little bit with this, and I somewhat equate it to highway fatalities. We don't want any highway fatalities, but unfortunately, they occur," Bergquist said. "And we would prefer not to have any defects on any of our lines that would be identified by FRA, but I think that might be a hope and not a reality."

However, Bergquist also said that when he spoke with an FRA chief inspector earlier this week, he was told the results from the most recent inspection put DSRC's track in line with short-line railroads all over the northwestern United States.

The GOAC's Thursday discussion was intended to be informational, not to take action against the railroad. Though the committee may eventually move forward in some way, some say that should have been done already in connection with events that didn't end with such glowing reviews.

Williams said that he and DSRC are being unfairly targeted, and that all of the issues that have come up are those that are to be expected in the railroad business.

"It doesn't matter what we say or do in South Dakota. We always end up with the blunt end of the stick, and it's really sickening to be a business like us and to do what we've done, to spend millions on the railroad, and we just get blasted for everything that's just normal course of business," Williams said.

Larger concerns

DSRC does not own the track in question. The railroad is owned by the state and leased to MRC Regional Railroad Authority. Beginning on Jan. 1, 2012, MRC subleased the railroad to DSRC, making DSRC responsible for operating and maintaining the rail.

The sublease agreement is intended to stay in effect for a total of 20 years. It includes a variety of stipulations that DSRC and MRC must meet.

While Bergquist and members of the GOAC are generally happy with DSRC's progress and do not have any immediate plans to take action against the railroad, the original owners of the railroad are not so pleased.

Dick and Alex Huff, the former owners from Oacoma, argue that Williams and DSRC have violated the sublease agreement many times without repercussion, that the improvements made on the track that led to the FRA giving the railroad a glowing review for its progress are too little, too late and that the track defects identified - both in the past and presently - are only part of the issue.

After the Huffs first sold the railroad to Williams, they said they started receiving complaints about the railroad's financial practice.

"Williams not paying the bills reflected badly on us, because he never told people that he had bought the company or anything. His failures have created credibility problems for Alex and me," Dick Huff said.

However, while part of the Huffs' grievances started out as a personal affront, they say the blame for the lack of lease enforcement has since shifted from Williams and onto the state.

"If the railroad isn't maintained and the BNSF elects to cancel shuttle trains out here, that's going to put a real crimp on a whole lot of people. It also means less money in the farmers' pockets, too," Alex Huff said. "We don't have anything to do with that, of course, but from a macro perspective, that's really critical. And that's where the state has just fallen down."

A history of controversy

The agreement between MRC and DSRC lays out a list of expectations for both sides. If either side doesn't meet one of those expectations and doesn't fix the issue within 60 days, the agreement states that the side not at fault can terminate the agreement.

According to Rep. Jean Hunhoff, who serves as the chair of the GOAC, the Rail Board is responsible for overseeing the sublease.

Some of the agreement's terms have been met by DSRC. For example, the railroad company has to fix deficiencies noted in an inspection within a designated time frame. Statements from Bergquist on Thursday indicated that, following the FRA's May inspection, DSRC came up with an action plan and has carried it out to an acceptable degree to date.

However, DSRC also has a history of violating terms of its sublease.

The sublease requires that DSRC comply with all laws, rules and regulations. In 2017, DSRC was found to have violated federal regulations by storing 11 cars loaded with liquified petroleum gas on track in Kennebec for too long. An FRA investigation found that a crew had been instructed to place the cars on a track where they were not authorized to be.

The issue was discussed at an MRC meeting on Dec. 14, 2017. The railroad authority elected to refer it to the Rail Board.

The sublease also states that DSRC cannot "assign its rights or delegate its duties" unless the state and MRC authorize it in writing.

At the time, the cars filled with butane were found to be in violation of federal regulation, DSRC had a private use track agreement with Brule Terminaling LLC - a company that, like DSRC, is owned by Williams.

Neither the state DOT nor the Rail Board were aware of these agreements prior to December 2017, representatives indicated at a Dec. 20, 2017, Rail Board meeting, and neither had signed anything authorizing them.

The Hazardous Materials Violation Report Form completed by the FRA that DSRC also had an agreement with Plains Marketing LP, a Houston-based storage company that was not approved by anyone outside of the two companies and which was not addressed at the late-2017 Rail Board meeting.

"Mike Williams' company on the left hand is paying Mike Williams' company on the right hand," Dick Huff said. "Somewhere, there's an energy company that's actually paying Williams to store that LPG, and they're not in this agreement at all. So it raises some questions. And I want to stress, I'm not alleging illegal activity. I am alleging that there could be fraud ... it's so obvious that you just do an audit."

The Rail Board talked about those violations at its Dec. 20, 2017, meeting and said that future private agreements would need to be approved by the Rail Board, MRC and the state department. It did not consider terminating the sublease.

At various intervals between June 2009 and November 2017, the South Dakota Department of Revenue issued liens against Mike Williams and Tammy Williams (who co-owns DSRC), as well as Railroad Materials Salvage Inc. and SDR Holding Company, both of which are companies associated with DSRC. All of those liens were for either sales tax or use tax delinquency in Brule County. The most recent lien, filed in January, was for $78,791.01. Williams said that that came from audits incorrectly assessing the amounts due.

"Numerous times, we are billed for taxes, and when we see those things and go back and look into them, we were charged, I don't know how many times, on hundreds of thousands of dollars in taxes that we never even owed," Williams said.

Hunhoff said Thursday that she personally had checked into the matter and that all taxes have since been paid in full. However, according to the Brule County Register of Deeds, Michael and Tammy Williams owe $40,604.32 in sales tax, as of Friday.

Pending oversight

Following Bergquist's presentation about the FRA inspection on Thursday, Hunhoff said that the committee will wait to hear from the state Rail Board to review the report before it decides on potential next steps.

"The process is that the RR Board oversees the lease and concludes on the report," Hunhoff wrote in an email to The Daily Republic. "As a GOAC committee, we need to wait for their response ... GOAC will monitor the actions of the RR Board on this report."

Bergquist said during the GOAC meeting that the Rail Board will review the report during its Nov. 14 meeting, and at that time, it will discuss what, if anything, should be done.

"The FRA understands who we are and what we do," Williams said. "We care about everything, but who we have to please is the Federal Railroad Administration, and that's what we do."