Utah counties are issuing $2 billion in bonds in support of the oil railroad

The railroad would be privately owned and operated, but it’s still eligible for tax-exempt loans if a public entity sponsors the bond issue, the group argues.

A group of Utah counties is poised to issue $2 billion in tax-exempt bonds to fund the construction of an 85-mile railroad to extract oil from the Uinta Basin.

According to a public statement released last month, the Seven County Infrastructure Coalition intends to issue instruments called “Private Activity Conduit Bonds,” which will act as loans to Drexel Hamilton Infrastructure Partners, LP, the coalition partner that would own the Uinta Basin Railway would .

The notice notes that project cost estimates have increased to $2.9 billion, doubling previous estimates of $1.2 billion to $1.5 billion.

The railroad would be privately owned and operated, but would still be eligible for tax-free borrowing if a public entity sponsors the bond issue, according to Coalition General Eric Johnson.

“Even though the coalition will be a sponsor, it will be the private companies that will be 100% on the hook and there is no liability that will be washed back onto the coalition,” Johnson told the coalition executive board at its Feb. 9 meeting .

According to the announcement, Wells Fargo will underwrite the bonds, subject to a maximum annual interest rate of 9% for a period of 40 years. The full payback cost would be $7.4 billion and would be recovered from the railroad’s operating income.

The infrastructure coalition is holding a public hearing on the proposed bonds in Price on Thursday.

The bond offering immediately drew fire from railroad critics, who described it as a taxpayer-backed subsidy worth about $80 million to the oil industry.

“If you look at the other projects that have benefited from these tax-exempt bonds, these have been projects that serve the general traveling public, people who want to travel across safe bridges, people who want to use public transportation, people who want to get from one place to another easily and efficiently,” said Ted Zukowski of the Center for Biological Diversity, one of several environmental groups opposed to the railroad. “Only the oil industry benefits from this.”

While oil is the reason the railroad is being built, it will be a joint transportation company operated by Rio Grande Pacific, available to transport other cargo.

Seven eastern Utah counties formed the coalition nearly a decade ago to promote major projects that support the region’s coal, oil and gas industries. Most of the agency’s attention was focused on transportation infrastructure aimed at bringing Utah’s fossil fuel resources to market.

The railroad is the first major coalition project to be approved, with construction slated to begin next year.

Oil production in the Uinta Basin has long been constrained by a lack of transportation capacity, a problem that the railway would solve by connecting the basin’s oil to the national rail network. By transporting oil to Union Pacific’s Price Canyon railroad tracks, Utah producers can more easily get their waxy product to Gulf Coast refineries by miles of trains carrying cars equipped with steam coils.

Supporters say the railroad would greatly boost economic opportunity in rural Utah and increase tax revenues for local governments and schools.

The project, which is expected to triple the basin’s oil production, has already received approval from the Surface Transportation Board and federal land administrators. It would be capable of transporting up to 300,000 barrels per day.

Environmentalists are upset that the federal government is going along with a project that would exacerbate Utah’s climate crisis and air quality problems. They also say it would expose more Americans to the dangers of handling oil, particularly along the Union Pacific rail corridor between Utah and Texas and on the Gulf Coast, where a concentration of refineries has become known as Cancer Alley.

“We don’t have to subsidize the oil industry. We don’t have to subsidize a project that will put millions of gallons of hazardous materials on railroad lines. Just look at what happened in East Palestine, Ohio. This will only lead to more disasters,” Zukowski said, referring to last month’s catastrophic derailment of a Norfolk Southern train carrying toxic chemicals. “This President [Joe Biden] has said that all agencies, including the Department of Transportation, should do everything in their power to address the threat of climate change, and doing so will add literally billions of gallons of fuel to the climate crisis fire.”

Citing the disaster in eastern Palestine, Senator Michael Bennet, D-Colo., has asked Secretary of Agriculture Tom Vilsack to stay a U.S. Forest Service decision to give the railroad a right-of-way through Utah’s Ashley National Forest. Bennet and other Colorado leaders are protesting the increased shipments of crude oil across their state that the Uinta Basin Railway would make possible.

“A train derailment that spilled oil into the upper reaches of the river [Colorado] The river would be disastrous not only for our state’s water supply, wildlife habitat and recreational facilities, but also for the wider river basin. Exposing these sensitive areas of our state to these additional risks is beyond reckless,” Bennet and Rep. Joe Neguse wrote in a March 6 letter to Vilsack. “While we agree that securing our domestic energy supply is critical, we do not accept that doing so requires endangering the Colorado River or the local communities living along it.”

Before the Forest Service issues a final permit for the right-of-way, the letter insists that the agency should conduct a supplemental review to fully assess the potential impact of the Utah railroad project on Colorado communities and the environment.