Railroad sale has already cost taxpayers $3.6 million
Trying to sell the Cincinnati Southern Railway to Norfolk Southern has cost Cincinnati taxpayers more than $3.6 million.
An Enquirer review of bills approved by the Cincinnati Southern Railway Board of Trustees over the last two years show where the money is flowing. The railway board has spent the money on three lobbying firms, three law firms, a communications expert and experts in railroad valuation. The latter make up the bulk of the spending: The rail board paid Toronto-based BMO Capital Markets $2.7 million and Boston-based Brattle Group $77,880.
The board said the $3.6 million was needed to make sure the board cut a good deal and to make sure legislation needed for the sale is passed in Columbus.
Critics of the sale say the money is being wasted.
“It’s shocking how much money that belongs to the people of the city of Cincinnati is being thrown at the effort to change state law, especially considering that Norfolk Southern has its own set of lobbyists,” said Curt Hartman, a public interest attorney representing former state representative Tom Brinkman in a lawsuit challenging the railway board’s use of executive sessions to negotiate the sale. “If the deal is right on the merits, then why does the railroad board need to hire multiple lobbying firms in addition to what Norfolk Southern is doing?”
The spending gives a behind-thescenes peek at how a potential $1.6 billion deal came together. At stake: Should city taxpayers sell a 142-year-old city-owned railway that runs from Cincinnati to Chattanooga, Tennessee? Norfolk Southern leases the railway from the city now, providing the city with steady payments.
Railroad sale in the works long before announcement
The railroad sale was approved and announced by the board Nov. 21 of last year, but board minutes show discussions
of the sale in executive sessions began in July 2021. The Enquirer looked at two years of expenditures.
They show legal work by the firm Stinson LLP dates to at least March 2021. The first payment to BMO Capital for valuation work was in September 2021. Two of the three lobbying firms were first paid in October 2022, the month before the sale was approved and announced to the public.
Board sought specific expertise
The firms all offered specific expertise, board members told The Enquirer.
For instance, Stinson LLP specializes in railroad transactions and regulation and Squire Sanders has expertise in Ohio legislative matters, board president Paul Muething said.
And because of the diverse politics in the Ohio Legislature, a diverse group of lobbyists was needed, board member and former Cincinnati Mayor Mark Mallory said.
Where does the board’s money come from?
The five-member Cincinnati Southern Railway Board is an independent
board appointed by the mayor. It makes decisions without interference from elected officials. The board decided to sell the railroad, though the final decision is up to citizens via a vote in November.
The board gets the bulk of its operating money from Norfolk Southern’s lease payment. The rail board ended 2021, the most recent year for which a financial statement available, with $6,272,218 on hand.
The sale of the city-owned railroad would be one of the largest deals Cincinnati
has ever done. The city built a railroad 142 years ago, leasing it to Norfolk Southern or related companies ever since. The lease brings in roughly $25 million a year, which goes toward projects in the city’s capital budget. But the lease is up and instead of renewing, as Norfolk Southern has the right to do, Norfolk Southern offered to buy the 337mile railroad that runs to Chattanooga, Tennessee.
Two law changes needed
After months of secret negotiations, the rail board and Northfolk Southern agreed on a $1.6 billion sale price. The plan is to put the money from the sale in a trust, then use investment returns to fund city projects.
The investment returns are estimated to be twice what the city gets now in lease payments.
Before the sale occurs, a state law governing the railway needs to be changed by legislators to say the money can go toward projects, instead of debt as the law is written now. Then, in November, voters must approve the sale.
The spending calculated by The Enquirer does not include lobbyists and law firms working on behalf of Norfolk Southern, which is a private company and not subject to public scrutiny.
How the money was spent
Lobbying
● Shumaker Advisors, based in Tampa: $30,000
● Byers, Minton & Associates, based in Columbus: $36,000
● Bricker and Eckler, based in Columbus: $18,000
Legal advice
● Squire Patton Boggs, based in Cleveland: $5,960
● Stinson LLP, based in Kansas City, Missouri: $721,593
Valuation
● BMO Capital, based in Toronto: $$2,700,000
● Brattle Group, based in Boston: $77,889
Public relations
● Vehr Communications, based in Cincinnati: $30,332