Say Goodbye to the Last City-Owned Interstate Railroad

In a close vote, the people of Cincinnati have elected to sell Cincinnati Southern Railway, a one-of-a-kind interstate railroad running 337 miles from Southwest Ohio to Chattanooga, to Norfolk Southern, the freight giant that’s been operating the railroad for over 100 years.

The vote, a legal hurdle the outcome of which no one was confidently predicting even two weeks ago, sets up a $1.6 billion purchase expected to close early next year. The city intends to create a trust fund with the proceeds, estimating annual dividends of $50 million to $70 million to spend on infrastructure maintenance.

Backers of the sale argued it was the best way to take advantage of a property that the city hasn’t had an active hand in operating since its inception. But opponents of the deal, who earned 48.5 percent of the vote while battling a well-funded campaign backed partly by Norfolk Southern, said the city was giving away long-term control of a unique asset for a fraction of its value. With the referendum passed, the Cincinnati Southern Railway Board of Trustees is now working to find a financial adviser who can deliver on the promises the city made to voters during the campaign.

“I think it was the right result, and I just hope that the investment strategy can pan out the way we have planned it,” says Paul Muething, the board’s president.

Until now, Cincinnati has been receiving annual lease payments of around $25 million from Norfolk Southern, which has operated the Cincinnati Southern Railway through a subsidiary, the Cincinnati, New Orleans and Texas Pacific Railway (CNO&TP), since 1881. The CSR board began negotiating a new lease in 2020, initially seeking $65 million a year, board members previously told Governing. As their terms remained far apart — Norfolk Southern initially offered $35 million a year — the company offered to buy the railroad outright, emphasizing that it was worth more as an owned asset than as a leased one, Muething says.

The city wasn’t confident it would get much more than $35 million a year if the lease went to arbitration. The company’s offer of $1.6 billion is equal to about $64 million a year over the next 25 years — the length of the lease option that NS had an exclusive option to extend. But the city hopes its trust fund can extend the value of the sale for the city indefinitely.

In the era when Cincinnati Southern Railway was built, lots of cities and states were investing in railroads, says Dan Cupper, a retired Norfolk Southern engineer and editor of the journal Railroad History. Like Cincinnati, most did it for economic advantage, a way to “boost their own commercial importance” by increasing real estate values and establishing connections with emerging markets. Over time railroads became commercial powerhouses on their own, able to attract lots of private financing, and cities and states slowly got out of the game.

The Cincinnati Southern Railway route itself was once known as the Rathole Division, marked by a series of tunnels dug through the landscapes of western Appalachia. Norfolk Southern “daylighted” most of those tunnels in the 1960s and ‘70s, Cupper says. The railway’s ownership structure is a unique vestige of an earlier era, but in practice, it’s one more link in the national freight network that’s run by a handful of Class I railroads, Cupper says.

“It’s the only line-haul railroad left that’s owned by a municipality. In one way, it’s a big deal because it’s an outlier. It stands on its own,” Cupper says. “On the other hand, NS has been running it for years and it’s integrated into its operations … [The sale] is significant from an historical standpoint, but I’m not sure it is from an operations standpoint.”

Lopsided Campaigns

The sale never felt like a sure thing, according to Muething. It wasn’t clear at first that the state would go along with the necessary legal changes to make the sale possible. And it wasn’t clear until the vote was complete that enough people would support it.

“We had some polling beforehand and it was kind of all over the board,” Muething says.

The campaign in favor of the sale, which included at least $4.2 million in financing from Norfolk Southern, according to a report, was focused on the financial benefits to the city. It was supported by much of the political establishment, including Cincinnati Mayor Aftab Pureval. But opposition to the sale was robust and varied. Some opposed it as part of a larger trend of privatization of public assets.

Others argued the city would get more money in lease payments in the future if it kept the railroad. The Cincinnati NAACP said far too little community engagement was done before the election, and there was no equity plan in place for how the trust fund would be administered. Residents of East Palestine, the site of a disastrous Norfolk Southern derailment, argued it was unwise to sell to a company so focused on profit over safety.

The Cincinnati Southern Railway’s public ownership was a bit of obscure railway trivia up until the proposed sale, with many Cincinnatians acknowledging they hadn’t known about the railroad prior. So there was a big learning curve to overcome for both opponents and proponents of the sale.

Ron Kaminkow, an organizer with Railroad Workers United, says despite the eye-catching purchase price, the sale will be a long-term economic loss to the city.

“Secondly and more importantly, they’ve lost control over the future of that railroad. They were in the enviable spot of being the only city in the country that owned an interstate railroad, and they could have put into the lease anything they wanted,” Kaminkow says, including things like maintenance standards, limits on train lengths and the option to promote potential passenger rail service. “It lost all that and more.”

How to Spend the Money? 

The CSR board now needs to make good on the promise of the infrastructure trust fund. It began a search for financial advisers shortly before the vote, and has gotten 18 applicants, Muething says. That firm will hire money managers to maximize yearly interest payments, with the intention of leaving the principal payment intact. It needs a financial adviser in place by mid-March of next year, when the sale is expected to close, Muething says.

Mayor Pureval, who did not respond to requests for an interview, had argued the sale would be a rare opportunity to begin chipping away at a $400 million backlog of infrastructure maintenance. The proposed fund is a unique tool for maintaining infrastructure, unlike anything most other cities have, says Kevin DeGood, the director of infrastructure policy at the Center for American Progress.

In many cases of public asset sales, local politicians pin their support for the sale to a promise of funding for a specific project in their district, and before long, the money is entirely gone. It was smart of CSR’s board to design a trust fund to avoid the “feeding frenzy” that might otherwise occur. But laws can always be changed, and in tough economic straits, a $1.6 billion city fund will look like “a glowing cash piñata,” DeGood says.

“There is reason to be concerned that the trust fund will get cracked open at some point,” he says.

In the meantime, the city needs a clear plan, backed by regular community engagement, for how the yearly dividends will be spent. An early plan calls for the proceeds to be spent on parks, recreation, streets and sidewalks, public services like police and fire departments, and health facilities, with the biggest share going to streets and sidewalks. The city says it intends to distribute the funds equitably, with underserved communities getting funding priority.

Josh Junker, a local student and transit advocate who was on the fence about the sale, says he hopes the city can use the funds to transform itself and not just reinforce the status quo. While it’s required to spend the money on “existing infrastructure,” that can mean a lot of things, Junker says. (For instance, the city’s subway tunnels are abandoned, but they do exist.) He feels it would be a shame not to use some of the money to improve multimodal transportation infrastructure.

“Even if you pave over everything and Cincinnati has perfect roads, that’s still not good,” Junker says.

Most importantly, the city needs to set clear expectations for how the money will be spent, based on meaningful and regular conversations with different communities, Junker says. It should start with data analysis, but residents have insight on what parts of their neighborhoods need investment too.

“They don’t have to follow everything [people say], but having that sense that the public has buy-in every year would increase transparency and increase trust of the government,” Junker says. “The vote being so close shows they have a lot to work on in that area.”

Note: This article was updated to reflect that Dan Cupper is the current editor of Railroad History.