Working for the Railroad

“It’s nice work if you can get it and you can get it if you can”

The above line is from a 1930’s Depression era tune by George Gershwin. And since I came across some numbers in a Securities and Exchange report on insider trading filed by former Montana governor Marc Racicot and the Burlington Northern Santa Fe Railroad, I have been thinking of the song. I must say our old governor certainly knows where the “nice work” is.

He also seems to know how to get it. Take the Burlington for example. Since Racicot left the Montana governor’s office, he has been on the Burlington Railroad Board of Directors where he receives $60,000 annually for those duties He has also been paid an unknown amount for lobbying by the corporation.

And, on the other hand, take our Republican U.S. Senator Conrad Burns. The hapless Conrad is the beneficiary of a mere $147,000 from a corrupt lobbyist and he never hears the end of it. And month after month Conrad has been battered and bruised from one end of the country to the other.

But no so for Marc, the once sainted Montana cover boy, who in a short time has picked up $700,000 or more, aside from the lobbying and director’s pay, from a corporation that is very involved in the politics and economics of Montana. Turns out not a word is said.

But it didn’t work that way for Conrad and the cash from “Casino Jack.”

Conrad’s gifts seem to have turned out to be a scandal while it’s just not so for the blessed Marc who cashed in for real money down in Fort Worth, Texas a few months ago. All in all, a non-event for Mr. Racicot. My guess is that’s the way Racicot and the Burlington, the second-largest North American railroad, like it

On August 2, 2005, Marc Racicot brought 10,750 shares of Burlington Northern Santa Fe Corporation stock. The price was $30.00 a share, $322,500 his total cost.

Later that day Raciot sold the same 10,750 shares for $594,797 at $55.33 a share.

Which means his total profit for this little quickie was $272,297. Certainly that is nice work for a day or less if you can get it.

In addition, the SEC filing says Marc has another 6,300 shares of Burlington Northern Santa Fe stock. And company shares closed at $70 last week. Which means the shares he now holds have a value of $440,000.

And you add up those two numbers, the profit from the stock sale and the Burlington stock, the former Montana guy presently owns, we come up with $700,000 dollars or so. And that too, is very nice work, if you can get it.

Of course, this is a two way street. If Burlington, the nation,s leading grain-hauling railroad, has been nice work for Mr. Racicot, Montana has been the same for the Texas railroad monopoly. The railroad’s nice work in the Big Sky even came to the attention of the scandal ridden Conrad Burns last April when he issued a statement .

“Currently in Montana, Burlington Northern Santa-Fe (BNSF) is essentially the only railroad serving rail shippers. Our rail customers pay a premium rate to move their product and with that, subsidize the lower rates in areas where there is competition. BNSF is the only game in town.”

And then there is present Governor Brian Schweitzer who says his job “is not to represent the interests of a corporation in Forth Worth, Texas.” (you hear that Marc?) I’m damned tired of subsidizing the railroad in Montana. Every time they shut down another elevator, more trucks run over our highways. Whenever they ship grain from Iowa, BNSF is the conduit to subsidize other farmers.”

And how about former governor Judy Martz, who followed Racicot for one term as governor? Judy called Burlington’s service in Montana poor while her agriculture director Ralph Peck accused the Texas railroad of ” boosting their bottom line on the backs of captive shippers – specifically grain farmers in the state of Montana.”

Deregulation again.

And sad to say, Montana has been a captive of Burlington since 1980, a situation rooted in the federal railroad deregulation legislation of 1975 which should have warned us about the electricity and natural gas deregulation that Racicot so heavily promoted in 1997. What railroad deregulation means today is 2,000 fewer miles of railroad in Montana now than there was in 1975 while 94 percent of the state’s rail system is controlled by one railroad. Funny how the promise of deregulation is better rates and service due to competition for the user. Not so funny is the fact it never works that way.

As for the other 6 percent that isn’t Burlington, it is called Montana Rail Link. The link part is right as it is only a bridge line and on both ends it feeds into Burlington so it isn’t competition. Now it is true that Montana RailLink is not a legal subsidiary of Burlington. But it is also true that Burlington retains control over Rail LInk since it owns and operates all of its connecting lines. Three cheers for deregulation again.

And needless to say the Burlington stranglehold in Montana and other states hasn’t been missed by the New York money guys and gals.

“The Freight Train Boogie”

A Kiplinger’s Business Forecast last November said “railroads such as Burlington Northern Santa Fe are in an enviable position they’ve not enjoyed for a century: They have all the business they can handle — and an ability to raise rates.” Kiplinger titled this article “The Freight Train Boogie” and went on to tout Burlington as a surefire investment for the Wall Street crowd – “a potent mix” in the words of the financial analysts: “this railroad combines increased freight volume with higher rates for a potent mix.”

And potent it is. According to Kiplinger, the Fort Worth high flyers posted all-time record earnings in the second quarter of 2005, reporting $3.04 billion in revenues for the three-month period.

And the second quarter of 2005 was not just a fluke. It turns out it was the 13th consecutive quarter showing an increase over the same quarter a year before.

And better yet, at least for Burlington if not for Montana shippers and farmers, this was the sixth consecutive quarter showing ‘double-digit freight revenue growth.” Now in case you missed it I will play that one again – it was the sixth consecutive quarter showing “double-digit freight revenue growth.” And brother, this is nice work if you can get it and if you can get it you better get it if you can.

So gee whiz, it’s deregulation again which means the end result is one single railroad can charge freight rates in excess of costs based upon what they can squeeze out of the so-called “free market.” And in Montana, Burlington has never been hesitant about squeezing the natives.

Shelby, Montana. Paying through the nose.

And don’t think these pricey prices for railroad service are something new. In 1995, when present Burlington director and investor Marc Racicot was governor of Montana, a Canadian study of freight rates for wheat in the western United States and Canada was released. The Canadians has this to say about the Montana situation.

“Both Montana and western North Dakota are served by one railroad: Burlington Northern. Producers in Shelby, Mont. pay about double the shipping rate (per mile per ton) to Portland as Western Canadian producers for a similar distance, and about double the rate producers pay from Denver or Kansas City to Galveston. Denver and Kansas City are served by competing railroads. It is 728 miles from Shelby to Portland, 961 miles from Denver to Galveston and 861 miles from Kansas City to Galveston.”

Now you might think this sounds like some dealing from the bottom of the deck is going on somewhere. In this case the Canadians turn up some evidence that points to the sharpies at Burlington.

“Between January 1990 and September 1995, rates where there was competition between railroads hovered near or below $21.74 per thousand tons per mile. The rate from Shelby consistently has been higher. In September 1995, the rates from Shelby were about $41.31 per thousand tons per mile.”

And in case you are wondering, there seems to be no known record of either governor Racicot or former governor Racicot criticizing the Burlington.

For example, last April, there was a story in the Spokane paper (Spokesman Review) that pointed out that on Montana’s cleanup priority list, 17 sites are from Burlington.. No other business has more than two sites on the list. David Scrimm, the former technical services bureau chief for Montana DEQ was quoted as saying that DEQ pushed for a cleanup but their efforts were blocked by Racicot and the previous governor, Republican Stan Stephens.

In fact, one situation involving Burllington in Livingston, Montana got so bad that in 2000, even a slaughterhouse filed a lawsuit against the railroad, charging its pollution left the slaughterhouse too damaged to use. The railroad bought the property, and the slaughterhouse closed.

And should this surprise us?

Not really. Remember when Montana once enjoyed the toughest clean water laws in the country. The former governor, the same one who is now on the Burlington payroll, took care of that problem in 1995 when he signed a Racicot backed bill which raised limits on the discharge of toxins and carcinogens into Montana’s streams and land that also allowed corporations the right to police their own conduct.

So to sum up let us say Montana has been “nice work if you can get it” for both Marc Racicot and the Burlington Northern Santa Fe Corporation.

At present we can also find Marc Raciot on the board of directors of Siebel Systems, the Massachusetts Mutual Life Insurance Company, Allied Capital as well as the Burlington Northern Santa Fe Railroad. He also draws a salary of $1 million or more as president of the American Insurance Association in Washington, D.C.

JACKIE CORR lives in Butte, Montana