A group of Utah counties is poised to issue $2 billion in tax-exempt bonds to finance the construction of an 85-mile oil-hauling rail spur out of the Uinta Basin.
According to a public notice posted last month, the Seven County Infrastructure Coalition intends to issue instruments called “private activity conduit bonds,” which would serve as a loan to Drexel Hamilton Infrastructure Partners, L.P., the coalition’s partner that would own the Uinta Basin Railway.
The notice indicates the project’s cost estimates have soared to $2.9 billion, a doubling over previous estimates of $1.2 billion to $1.5 billion.
The railroad would be privately owned and operated, but it is still eligible for tax-free borrowing if a public entity sponsors the bond issue, according to the coalition’s general counsel Eric Johnson.
“Even though the coalition will be a sponsor, it will be the private entities that are 100% on the hook and there is no liability washing back on the coalition,” Johnson told the coalition board at its Feb. 9 meeting.
According to the notice, Wells Fargo is to underwrite the bonds, subject to a maximum 9% annual interest rate for a 40-year term. The full repayment cost would be $7.4 billion, recouped from the railroad’s operating revenues.
The infrastructure coalition is holding a public hearing on the proposed bonds Thursday in Price.
The bond offering drew immediate fire from the railroad’s critics who called it a taxpayer-supported subsidy worth about $80 million to the oil industry.
“If you look at the other projects that have benefited from these tax-exempt bonds, they’ve been projects that serve the general traveling public, people who want to drive over safe bridges, people want to use mass transit, people who want to get from one place to the other easily and efficiently,” said Ted Zukoski of the Center for Biological Diversity, one of several environmental groups opposing the railroad. “This just benefits the oil industry.”
While oil is the reason the railway is being built, it will be a common carrier operated by Rio Grande Pacific available to haul other freight.
Seven eastern Utah counties formed the coalition almost a decade ago to promote major projects that support the region’s coal and oil and gas industries. Most of the agency’s attention has focused on transportation infrastructure geared toward getting Utah’s fossil energy resources to market.
The railroad is the coalition’s first big project to win approval, with construction to begin next year.
Oil production in the Uinta Basin has long been constrained by the lack of transportation capacity, a problem that the railroad would solve by connecting the basin’s oil with the national rail network. By railing oil to the Union Pacific tracks in Price Canyon, Utah producers can more easily get their waxy product to Gulf Coast refineries with the help of mile-long trains hauling cars equipped with steam coils.
Backers say the railroad would greatly spur economic opportunities in rural Utah and increase tax revenues to local governments and schools.
The project, expected to help triple the basin’s oil production, has already won the approval of the Surface Transportation Board and federal land managers. It would be capable of hauling up to 300,000 barrels a day.
Environmentalists are upset that the federal government is going along with a project that would exacerbate the climate crisis and Utah’s air quality problems. They also say it would expose more Americans to the hazards of oil handling, 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 need to be subsidizing the oil industry. We don’t need to be subsidizing a project that’s going to put millions of gallons of hazardous material on rail lines. Just look at what happened in East Palestine, Ohio. This is just courting more disasters,” Zukowski said, referring to last month’s catastrophic derailment of a Norfolk Southern train hauling toxic chemicals. “This president [Joe Biden] has said that all agencies, including the Department of Transportation, should be doing everything they can to address the threat of climate change, and this will literally pour billions of gallons of oil onto the fire of the climate crisis.”
Invoking the East Palestine disaster, Sen. Michael Bennet, D-Colo., has asked Agriculture Secretary Tom Vilsack to suspend a decision by the U.S. Forest Service to grant a right of way for the railroad through Utah’s Ashley National Forest. Bennet and other Colorado political leaders object to the increased shipments of crude through their state that the Uinta Basin Railway would enable.
“A train derailment that spills oil in the headwaters of the [Colorado] River would be catastrophic not only to our state’s water supplies, wildlife habitat, and outdoor recreation assets, but also to the broader River Basin. It is beyond reckless to expose these sensitive areas of our state to these additional risks,” wrote Bennet and Rep. Joe Neguse in March 6 letter to Vilsack. “Although we agree it is vital to secure our domestic energy supply, we do not accept that it requires imperiling the Colorado River or the local communities that live along it.”
Before the Forest Service issues a final authorization for the right of way, the letter insists, the agency should conduct a supplemental review to fully evaluate the Utah rail project’s potential impacts to Colorado’s communities and environment.