The Mitchell Rapid City Regional Railroad Authority will continue to exist even if the upcoming sale of its namesake rail line goes through in 2021, officials said Wednesday.

The members of the authority, holding a regular meeting via teleconference, were questioning what might be the role of the organization if a proposed $13 million purchase from national railroad company Watco gets state of South Dakota approval and goes through. State officials said that the authority should remain, if only to help serve as an economic development arm for any upgrades Watco wants to do that might require funding through the state.

“The need is quite prevalent,” said South Dakota Department of Transportation Rail Program Manager Jack Dokken. “Really, the authority would serve as the vehicle for an operator or a shipper or any railroad industry group in order to access low-interest loans that are available through a state rail board. It really would serve as economic development.”

The South Dakota Rail Board, he said, doesn’t give direct loans to the railroad industry, so the MRC Authority would serve as the intermediary.

“Although you might not be the leaser of the railroad, there would still be a large need for your guys' existence,” Dokken said.

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The authority includes one representative from five counties — Aurora, Brule, Davison, Lyman and Jones — and currently subleases operation of the rail line to Dakota Southern Railway Company on the state-owned line.

If the Watco sale goes through, that lease agreement is no longer in effect, and the authority’s current outstanding loans would no longer be in place.

Watco’s plan calls for a $5 million down payment and paying the remaining $8 million over the next five years with annual payments. The Pittsburg, Kansas-based company has also vowed to make more than $2 million in investments into the line once its purchase is complete.

“We’re working to finalize a purchase agreement and we will work through that relatively soon,” said Joel Jundt, the SDDOT’s interim transportation secretary, adding he said it likely will be before the South Dakota Rail Board in January.

Jundt said Watco hasn’t had any discussion about expanding the line any further west than Presho. There are 190 miles of rail line between Mitchell and Kadoka, while the section from Kadoka to Rapid City is railbanked, or abandoned but kept with the right to re-establish rail service.

“I don’t see any expansion, at least in the near future, but Watco would need to answer for that,” Jundt said.

In order for the Watco sale to be finalized, the MRC Authority would have to hold a special meeting to sign off, but the primary power rests with the State Rail Board and Gov. Kristi Noem, who also would be required to approve of the sale.

The State Rail Board mostly rejected a first round of proposals in late 2019, including two for the MRC — the Rapid City, Pierre and Eastern, and Watco. The both were rejected based on the net cost to the state and the lack of return on investment, but Watco improved its offer in October and the State Rail Board agreed in principle to making a deal with Watco.

Until Wednesday, Jackson County was the westernmost county in the MRC Authority but the group approved a request from the county to leave the MRC because the rail line does not operate in Jackson County.

The authority will not have much of an income source after the sale goes through. It currently collects a $50 per car surcharge on the state’s behalf and shares lease payments with the state. The MRC expects to have about $232,000 on hand at the end of 2020, which the authority estimates would be enough to sustain the organization for at least 15 years without a new revenue source.

Dakota Southern reports record rail activity

The sale of the rail line comes as the current operator Dakota Southern reported record activity this fall.

Heath Haden, Dakota Southern’s vice president of operators, told the MRC Authority that Dakota Southern has been “extremely busy,” including a record October with 1,800 car loads.

“Right now, we’re on track for between 12,000 and 13,000 loads this year,” Haden said.

Haden said Dakota Southern was on pace for 1,300 to 1,400 car loads in November and 1,000 to 1,200 car loads in December.

“It’s been really good,” he said. “And there’s a lot of grain yet to move.”