Debunking misinformation about the Cincinnati Southern Railway sale

CINCINNATI (WXIX) - Few issues have arisen in Cincinnati as consequential—or complicated—as the proposed sale of the Cincinnati Southern Railroad to Norfolk Southern.

And that was true before the train derailment in East Palestine, an imbroglio that gave rise to its own share of rumors, misinformation and politicized innuendo. (To wit.)

Should one impact the other? Can it? Has the derailment dusted up questions of a “moral and environmental” magnitude that Cincinnatians must consider at the voting booth?

[Cincinnati’s $1.6 billion railway sale barreling forward: ‘We’re moving fast’]

Christopher Smitherman has made up his mind. The environmental situation in East Palestine, according to Smitherman, has “changed the entire landscape” of the deal.

The former Cincinnati City Council member and current Hamilton County Commissioner candidate issued a statement on Twitter Thursday morning, hours before the federal investigative report into East Palestine was released. [Original tweet; first reply; second reply]

But nearly every claim in his statement and subsequent replies is either provably false or relies on incorrect impressions about either federal railway law or the CSR lease.

Let’s break it down:

‘City Hall’ can’t stop the sale

Smitherman wrote: “City Hall should not move forward w/ Norfolk because of bad deal.” But no agent of City Administration or City Council has any say on the matter.

The sale must win approval in the Ohio General Assembly by March 31—that’s the first step. Afterward, Cincinnati City Council must send the ballot language to the voters. And it doesn’t have any discretion in the matter.

The referendum language must appear on the ballot as it appears in the state bill, and City Council is compelled by the same bill to certify it to the board of elections.

Cincinnati has no say over what Norfolk Southern transports

Smitherman wrote: “[I]n light of the environmental crisis w/ the train derailment in East Palestine, OH Cincinnati will reject sale at ballot box over safety & control of what’s transported.”

Later, he added: “Cincinnati will have more control over what is being transported as owners then not.”

The referendum may well fail, and those who vote it down could be motivated by the idea of improved railway safety measures and hazardous transport regulations. But they would be misguided in believing it.

Cincinnati has no control over what is transported on the line. Or how it’s transported. Or whether it’s labeled. Or the transport frequency. Or the crew sizes. Or the type of brakes on the trains.

That’s true of the current lease as well as any future leases. It would be true if the railway is sold. Federal preemption means the federal government has an exclusive say on nearly everything to do with railways and railway safety in the United States. And no amount of “aggressive” negotiating by the City would change that, as Smitherman later suggests.

Cincinnati can conduct basic environmental monitoring and apply building and zoning codes to the rail lines. The CSR lease also allows a City representative to inspect the line once a year simply to make sure it still exists. (And, of course, council members can express support for regulations higher up in the federal food chain.) But that’s it.

As for states, federal preemption is exhaustive with respect to nearly everything (rates, classifications, rules, practices, routes, services, switching, etc) except railway safety.

The Federal Railroad Safety Act of 1970 allows states to continue to enforce railway safety regulations until the U.S. DOT offers its own. States can also create new safety regulations more stringent than federal regulations when they are:

• necessary to eliminate or reduce an essentially local safety hazard;
• not incompatible with federal regulation; and
• not unreasonably burdensome on interstate commerce.

But federal railway safety regulations are virtually comprehensive, and states can’t always act even in regulatory vacuums. For example, when the FRA in 2019 pulled a proposed rule that would force two-person crews on all trains, it also asserted preemption, gobbling up the regulatory space even in the absence of federal action.

(The Ohio House Democratic Caucus last week introduced a two-person crew mandate to the Ohio Transportation Budget, and the FRA is now mulling a similar requirement.)

The lease term has already ended

If the referendum fails, according to Smitherman, the City can “aggressively negotiate when the lease agreement is up.”

But the lease agreement is already up.

The CSR Board of Trustees negotiated the most recent lease extension in 1987. A clause in the lease allowed Norfolk Southern to extend it another 25 years, until 2051, if new lease terms weren’t negotiated by the time the last extension ended on Jan. 1, 2022. Norfolk Southern provided timely notice it would trigger that extension.

The CSR Board began negotiating with Norfolk Southern in 2020, not long after which Norfolk Southern presented a purchase offer. At that point, the lease negotiation became a sale negotiation.

If the public referendum fails (or if federal transportation officials don’t approve the sale afterward), the overwhelming likelihood is the CSR Board and Norfolk Southern terminate the sale agreement, effecting the 25-year lease extension.

“We are locked in with Norfolk Southern through 2051 no matter what,” Cincinnati City Council member Liz Keating said Monday.

The lease payment amounts would then go to arbitration. Keating claims it’s likely the payments would revert to the amounts specified in the previous lease plus interest, though the lease itself says “arbitrators shall determine fair market rental terms[...]”

Keating’s scenario would be a bad deal for the City. Norfolk Southern raked in huge profits from 1992-2020, and its company valuation skyrocketed, according to an independent BMO analysis. During the same span, the City’s lease earnings stayed comparatively flat.

“So the amount of money we could potentially get off a lease over the next 25 years is very small compared to what we could get off a sale,” Keating said.

The CSR Board’s independent analyses valued the railway around the $1.6 billion sale price, meaning an arbitrator could feasibly establish lease payments more favorable to the City. Whether that will happen remains unclear.

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