Federal officials rejected Monday a $2.3 billion loan application from the Dakota, Minnesota and Eastern Railroad, deciding the ambitious project was too risky for taxpayers to back.

The Sioux Falls-based railroad has no avenue to appeal the decision by the federal Department of Transportation’s Credit Council, but it will have the option of trying to fund the 680-mile upgrade and expansion through private investors.

Congressman Tim Walz announced the decision at 4 p.m., and Sens. Norm Coleman and Amy Klobuchar quickly followed with a joint press conference of their own.

“It’s pretty straight-forward. They didn’t think it could work,” Walz said of the federal analysts. “They asked the same questions I and others asked all along: Can this be paid back?”

Each lawmaker was called Monday afternoon by Secretary of Transportation Mary Peters who summarized the Credit Council’s verdict.

“She was very clear this was a final resolution of the DM&E’s loan application,” Coleman said. “... This project simply didn’t pass economic muster.”

DM&E not surrendering

While the government loan application has been thoroughly rejected, DM&E President Kevin Schieffer isn’t giving up on his long effort to extend his aging rail line into the coal-rich Powder River Basin of eastern Wyoming.

“We’re going to look at different alternatives, make some decisions and go forward,” Schieffer said. “But we certainly are planning to go forward with the (Powder River Basin) project.”

Schieffer wouldn’t comment on whether he is optimistic that private investors will be more willing to back the project than the federal regulators were.

“Some things you can talk about publicly and some things you can’t,” he said.

Walz expects Schieffer will seek private financing but said his gut feeling is that it will be hard to find. The federal analysts decided that the only way the DM&E would be able to repay the loan is if every aspect of its plan — which involves building 280 miles of new track around the Black Hills and into Wyoming and upgrade 600 miles of existing track through South Dakota and Minnesota — was completed without unexpected complications or time delays.

“There isn’t any realism in basing it on rosiest scenarios,” Walz said. “Before people invest $2 billion, they’re going to ask these same questions.”

Up until late in 2005, when Schieffer announced the government loan application, he had always talked optimistically about finding private investors and insisted it was a task that didn’t worry him.

But Klobuchar, like Walz, was also skeptical about the DM&E’s prospects for funding the project privately.