The last municipal-owned railway in the United States is up for sale, with voters in Cincinnati, Ohio set to cast ballots on the decision on November 7. Citizens are leading a bipartisan campaign opposing the sale, citing that the railway purchase price has been undervalued and urging leaders to renegotiate the current lease. Cincinnatians need to look no further than to the State of Virginia for proof that their railway is worth at least double the $1.6 billion offered by the buyer, Norfolk Southern.
Wait, Cincinnati Owns A Railroad?
It’s true! The Cincinnati Southern Railway has been owned by the City of Cincinnati for over 150 years, and is leased to Norfolk Southern, a freight railroad company. Established through a $10 million bond issue approved by Cincinnati voters in June 1869, the railway became a dependable cash cow for infrastructure improvements. The city currently receives around $25 million a year from the lease with Norfolk Southern, which makes up 42 percent of the city’s $60 million annual capital budget.
The 336-mile rail line runs parallel to Interstate 75 through Kentucky to its terminus in Chattanooga, Tennessee, near the Tennessee-Georgia state line and includes 27 tunnels and 105 bridges.
Norfolk Southern has offered to purchase the railroad from the city for $1.6 billion. The lease agreement, last renegotiated in 1987, is set to expire December 31, 2026, with a 25-year renewal option. The route has become one of Norfolk Southern’s highest density segments with CEO Alan Shaw calling it “a critical artery linking the Midwest and the Southeast”’ and a “core line in the company’s network” as reported by Railway Age magazine and FOX News.
Lessons from Virginia
In 2021, Norfolk Southern sold 28 miles of its railroad to Virginia Passenger Rail Authority to increase Amtrak service throughout the state. Having dedicated track owned by the state allows Virginia to prioritize passenger rail service and improve the track quality to operate Amtrak trains at faster speeds and more frequent service. Virginia purchased the 28 miles of track from Norfolk Southern for $257 million, or $9.17 million per mile of railroad.
When calculating the price per mile of Cincinnati Southern Railway, a $1.6 billion offer for a 336-mile railroad is $4.76 million per mile of railroad – roughly half of the Virginia rail sale two years prior. Using the valuation from Virginia of $9.17 million per mile of railroad, Cincinnati Southern Railway should be valued at $3.08 billion.
Additionally, the Virginia property included minimal bridges and tunnels in the sale package, whereas the Cincinnati sale includes 27 tunnels,105 bridges, and the entire Gest Rail Yard at Union Terminal, increasing the value beyond per mile of railroad. And let’s not forget inflation: with an increase of 6 percent over the last two years, inflation adds another $184 million on the $3.08 billion valuation.
Cincinnatians deserve better than a lowball offer. Turning down a billion dollars may sound risky, but it’s a risk worth taking knowing you’re worth so much more.
