South Dakota selling its railroad lines

During its August 21 meeting in Pierre, the South Dakota Railroad Board voted to proceed with Invitation for Proposals to purchase state-owned rail lines.

The board, part of the South Dakota Department of Transportation (SDDOT), heard details of the proposed program from Karla Engle, chief legal counsel and special assistant attorney general for SDDOT.

After a history, clarification of the board’s responsibilities and scope, the proposal itself, and a lengthy question and answer period with Engle, the board voted to proceed.

According to SDDOT, “4,420.5 miles of railroad were constructed in South Dakota, with the last track laid in 1948. Since 1909, rail abandonments have resulted in the loss of service on over 75 percent of the maximum system. The state, in cooperation with private railroads, was successful in restoring service on over 900 previously abandoned rail lines in the state. Currently there are 1,977 miles of operating rail lines in South Dakota.

“As a result of the Milwaukee Road embargo in 1980, South Dakota was confronted with the loss of over 50 percent of its total operating rail mileage. The state analyzed each line individually and identified the essential rail lines vital to the economy of South Dakota. Some of the embargoed essential lines were purchased by other railroads and service was restored. The remaining essential lines for which a private solution could not be found were purchased by the state.”

Engle said South Dakota has performed major rehabilitation on the lines, currently has operators on all the lines, and there is a growing interest on acquisition of these lines. South Dakota’s railroad lines assist the state treasury, rail operators, and agriculture producers who need cost-effective transportation of their goods.

“The board has a lot of freedom to determine the process it is going to use to dispose of a state-owned line,” said Engle. “The authority is really quite broad.”

During questioning, it was confirmed that the department would not provide to potential buyers any estimates of future taxes imposed on the lines. Railroad companies which own property outside of South Dakota might be able to extrapolate potential South Dakota taxes from those comparisons..

Potential buyers of railroad lines must follow the Invitation for Proposals (IFP) requirements.

According to the IFP, “The department invites proposers to submit responses to this IFP for the purchase of all, or part of, any one or more of the following railroad lines. The sale(s) will consist of all track structures, associated rights-of-way, all appurtenances and including but not necessarily limited to rail and fastenings, switches and frogs, ties, ballast, roadbed, embankment, other structures, or other track materials necessary for support of operations.”

Rail lines for sale include:

MRC Line — Mitchell to Rapid City

Total mileage: approximately 285.1

Mitchell to Kadoka segment leased to MRC Regional Railroad Authority (through 2031)

Operator: Dakota Southern Railway (through 2031 via sublease)

Overhead trackage/haulage rights on Burlington Northern Sante Fe, LLC (“BNSF”) Railway’s lines to multiple interchange points for traffic originating/terminating on the MRC Line; trackage rights over BNSF line to access CHS Inc.’s grain elevator shuttle facility at Mitchell; interchange rights with BNSF at Mitchell

Dakota Southern Railway Company holds a right of first refusal

Class I and Class II purchasers require consent of BNSF Railway to maintain trackage/haulage/interchange rights

Segments from Kadoka to Caputa and Caputa to Rapid City are railbanked.

Maple Street Yard in Rapid City leased to American Colloid Company for car storage (through July 26, 2026)

Britton line — Aberdeen to Geneseo Junction Connection, North Dakota and Jarrett Junction to Britton, South Dakota

Total mileage: approximately 76.6

Leased to Marshall Regional Railroad Authority (through 2025)

Operator: Dakota Missouri Valley & Western Railroad, Inc. (“DMVW”) (through 2025 via sublease)

Interchange rights on BNSF-owned track in Aberdeen with Rapid City, Pierre & Eastern Railroad, Inc. (“RCP&E”)

DMVW holds right of first refusal

Napa-Platte Line — Napa Junction to Platte

Total mileage: approximately 83.3

Segment from Napa Junction to Ravinia (approximately 54.5 miles) leased to operator, Dakota Southern Railway Company (through Nov. 30, 2026)

Overhead trackage/haulage rights on BNSF’s lines to multiple interchange points for traffic originating/terminating on the Napa-Platte Line; interchange rights with BNSF at Napa

Class I and Class II purchasers require consent of BNSF Railway to maintain trackage/haulage/interchange rights

Segment from Ravinia to Platte is railbanked (approximately 28.8 miles)

Sioux Valley Line — Elk Point to Canton, and Beresford to Hawarden, Iowa

Total mileage: approximately 68.0

Leased to Sioux Valley Regional Railroad Authority (through March 21, 2034)

Operator: D&I Railroad Co. (through March 21, 2024, via sublease)

Overhead trackage rights over BNSF for aggregates from Hawarden, IA via Canton, SD to Wolsey, SD

Overhead trackage rights over BNSF to Sioux City, IA for interchange with UP and CN

Class I and Class II purchasers require consent of BNSF to maintain trackage rights

Sioux Valley Regional Railroad Authority holds an option to purchase, which may be assigned to D&I Railroad Co. upon approval of the Board

Yale Line — Huron to Yale

Total mileage: approximately 15.3

Leased to East Central Regional Railroad Authority (through September 23, 2020, with automatic one year renewal)

Operator: RCP&E (through September 23, 2020 with automatic one-year renewal)

Wolsey Interchange — Wolsey Interchange

Total mileage: approximately 4.2

Leased to RCP&E (through June 11, 2026)

Operator: RCP&E

Subject to Track Improvement Memorandum between the Department and BNSF

Railroad ownership and operation may be profitable, though difficulties do exist.

On August 2, a Rapid City, Pierre & Eastern freight train derailed near New Underwood. RCP&E stated the train “consisting of three locomotives and 60 loaded cars … encountered a significant washout due to flash flooding … The three locomotives and approximately 15 rail cars derailed, with the lead locomotive on its side.”

The South Dakota Railroad Board next meets September 18, in the Department of Transportation Commission Room in Pierre, starting at 11 a.m. CDT.