Mid-Continent Railway Museum Blog

By: Don Meyer, Manager

It has been a quiet week for us in North Freedom. Other than the threat of the Baraboo River leaving its banks once again with every rain storm that passes over during this very wet July, we have simply fulfilled the routine of carrying passengers to Quartzite Lake and back three times a day. The equipment is working well. Track conditions have held up to the constant soaking of the various storms. And there have been no complaints to cope with from guests or crew; at least none that have reached my desk.

The hot topic, when the president is in my office to talk, is the probable outcome of the voting on the proposed by-law changes. I can always gauge his mood by the prediction he makes about the final tally. It also gives me a hint as to who he has talked with last before stopping by the office to take care of some business or just to confer with me.

One point never seems to vary, the belief that this vote will produce a larger response than we normally see with an election. The reason? Concern over our experiment with expanding our operations to a second site. “Mazo or no Mazo” is the way he expresses what he believes to be the driving force behind the number of ballots being returned to the office.

This may be true. I have no basis to disagree with his assessment or to be able to predict the outcome of the vote. It is simply a matter of waiting until the count is made that will reveal what the voting members think about management’s authority to direct the entire organization towards a new path for growth. There is probably little difference between that and waiting to see how high the river is going to get after each day of rain.

My own appreciation for the benefits of our Mazomanie project has changed dramatically since we held our first Gandy Dancer Festival there in 2008. Our initial exhibition in conjunction with the Phil Lewis Regional Design Center was, quite frankly, a matter of convenience. It gave us a chance to add a program to the festival with little effort on our part.

Professor Lewis’ three-dimensional, topographical model of the Milwaukee Road route that connects Milwaukee to Prairie du Chien provided the one point of common interest. It was certainly something the rail fans could appreciate for its historical significance, even if we were a little shy of understanding the implications of his studies in sustainable development. The model and our artifacts were displayed on separate floors, allowing us to tell our separate stories. But as I have come to know the Professor and his work better, I have become convinced that we have more in common than I previously realized.

For one thing he understands the importance of tourism on the American lifestyle. In his book Tomorrow By Design, published in 1996, Professor Lewis wrote, “The research shows that the tourism industry depends on the same resource patterns for its survival as those on which we depend for a satisfying quality of life and the stability of our life-support system. As the world’s major industry, tourism is an invaluable mechanism for education, recreation, and economic stimulus.”

More pertinent to our mission and personal interests, Professor Lewis’ research has provided him with an insight into the correlation between the location of our natural resources and the subsequent building of our rail corridors. He states that “The majority of the outstanding natural and cultural resources of a region usually fall within water, wetland, and steep topography patterns. Coincidentally it is in the river valley patterns with slight topographic gradients that our early railroad networks were built.”

Consequently we in the rail preservation community have a friend who is willing to partner with us in proclaiming the role of the railroads as a vital component in future development at the local, regional and national levels. “Railroads provide at least two attributes of sustainability. First they are an economical and far less energy-consumptive mode of travel than most, and second, they offer a satisfactory way to control the impact of tourism on regional resources. By allowing trains to stop only at adequately designed facilities, scenic and recreational resources can be protected from becoming eroded and diminished by uncontrolled access at many points.”

Adequately designed facilities includes the existence of multi-modal systems, which takes us back to the days when lines like the Great Northern had their own bus system to give their passengers access to such natural wonders as the national parks they helped to develop. Professor Lewis’ vision of the future therefore looks surprisingly familiar to those who know about this aspect of our railroad legacy.

This message is only just taking shape at the museum in Mazomanie. There is certainly a lot more to be learned as we work towards creating compatible exhibits that will occupy both floors of our Museum for the Milwaukee Road. But such growth also insures Mid-Continent of a new voice as an advocate for the future of the rail industry as an educator of its history, proficiency and necessity in protecting the natural and cultural assets of our region.

“Wise planning and design should utilize the rehabilitation of rail systems to link key natural and cultural features.”

By: Don Meyer, Manager

Take a walk along the gravel road that separates the Coach Shed from the main line and you will reach the turn that takes you across the track between the Engine House and the Car Shop. There on Engine House lead number one, just outside the building, you will find the boiler for the Saginaw Timber Company No. 2 steam locomotive.

Its surprise appearance last week came after years of work by the principal owner, Skip Lichter, contractor Gary Bensman, employees at Milwaukee Boiler for any certified welding and scores of volunteer helpers made up mostly of Mid-Continent members. The boiler successfully passed its hydro test on June 29th, endured a few more tweaks and then was loaded up by Mike McCutchin and his crew, who has gained a lot of experience moving Mid-Continent equipment on and off the property since the days of the flood.

You will see that the boiler is sitting up on cribbing made of railroad ties, thanks to the help of our one-man section crew, Dave Lee. The location was chosen as the best place possible, given current conditions, for Skip and others to have access to shop tools and supplies while they start the long task of re-assembly of the several components held in storage since the boiler was dismantled seemingly eons ago.

Unfortunately the view of this location by our second web cam is obscured by the Engine House itself. And while I am not sure about the technology involved, it seems to me to be a good time to invest in a third camera in order to give our many on-line guests the chance to watch any work taking place from the comfort of their easy chair or office.

I’ll simply use this opportunity to drop a hint to our web master, Pat Weeden, to see if he will literally rise to the occasion and climb the ladder to the eave of the Coach Shed and place a third camera there for the benefit of all concerned. Mid-Continent’s finances are sound enough to foot the bill for the purchase of this added luxury and addition to our increased security efforts.

While the physical presence of the boiler provides all steam enthusiasts with visible evidence of progress in our steam program, work is quietly taking place on the summer issue of The Railway Gazette, which will tell the story of what remains to be done on the locomotive’s running gear and tender. Text and photos of this exclusive report is the work of Scott Lindsay, president of Steam Operations Corporation.

As most of you know Scott’s services were contracted for by Mid-Continent to help us resolve any disputes about how best to do the tasks needed to complete this long sought-after project. The magazine’s layout is nearly complete and I anticipate we can have it back from the printer’s and in the mail to you by early August while the summer issue designation is still applicable. I think you will find the content most insightful and worth our investment.

Scott also informed me late last week that his report on the boiler and running gear of the Western Coal & Coke No. 1 is nearly finished. Our goal is to make it the featured article in the fall issue of the Gazette, due out in September, as a means to keep our members and donors fully informed about the work needed to advance that project forward. Then the challenge before the museum’s leadership will be to convert that report into a viable budget in time to support our year-end fund raising for the steam program.

Another hint to Pat: it’s time to update our web pages devoted to the restoration of our steamer fleet. Scott’s reports should provide us with ample information to do just that for a much broader audience than our Gazette readers. And you don’t have to go to great heights in order to achieve this one.

By: Don Meyer, Manager

Mid-Continent’s Educator, Stan Searing, launched us into a series of messages that started mid-April with his introductory guest blog and concluded last week with some insights into our debt situation. His private challenge to me was to keep it interesting and understandable for the layman, especially when writing about topics like our finances. A person can easily get lost in the accounting jargon (and logic) that so often mystifies the uninitiated.

I did my best to comply with Stan’s requests, both in writing on the topics he outlined for us and in keeping it clear – maybe even entertaining – for all who were willing to stay with us through this educational exercise. But, when possible, I did add my own twist to the presentations in order to ultimately address another issue of my own choosing, which for me touches on the true meaning of our mission as a historical society.

We laud our preservation efforts. But what is it that we are actually preserving? Have we done our job by applying new fabric and paint to a derelict coach? Or by machining new parts that return a steam locomotive to an operating condition that will add a little more excitement to a train ride?

No doubt these things we do are appropriate. And I think we can be justifiably proud of our achievements thus far, especially with our wood car restorations. But these are just objects and provide a means to an end. For my answer to what we are preserving is the culture that produced these objects. That is why embedded in some of the messages I wrote as part of this recent series were quotations taken from books and journals written during the period we call The Golden Age of Railroads

My knowledge of history for what is more commonly referred to as the Progressive Era (1890 – 1920) is limited so I was not able to find an appropriate quotation for each message. Still it was fun for me to draw a parallel between our bridge problems and the opening of the Brooklyn Bridge in 1883, the composition of our board of directors and the testimony of J. P. Morgan before the Pujo Committee in 1912, and the application of Lester Ward’s Dynamic Sociology published in 1883 to our own steam program.

I had hoped that someone else would draw attention to this clever use of history in a comment posted in reply to one of my messages. Apparently my subterfuge was a little too subtle, though, and failed to be discovered, leaving it for me to now confess to a sly effort to introduce historical content to these topics of current concern.

The Progressives were problem solvers. America’s success with industrial development and its appeal as a safe haven for European immigrants had a dark side that brought about the need for reform. Not every proposed solution worked. Prohibition for example proved not to be the remedy to our declining moral standards that its proponents had hoped for. But today we take for granted the changes that came about in public education, improved working conditions, a greater distribution of wealth, and the rise of the middle class.

While our definition of the Golden Age of Railroads (1880 – 1916) is rooted in something other than reform movements, my own humble opinion is that there is no accident in the close parallel of its timing with that of the Progressive Era. It is also curious to note that many of its reforms in education, politics, and labor were authored by people from the Midwest. So we don’t have to look far, geographically speaking, for historic precedents that can inspire our own efforts in fulfilling our mission.

And because I have a propensity for giving women the last word, I will close with a quote from Jane Addams; born in Cedarville, IL in 1860, educated at the Rockford Seminary for young women, founder of the American settlement movement with the opening of Hull House in Chicago, vice president of the National American Women Suffrage Association, founding member of the American Civil Liberties Union, charter member of the National Association for the Advancement of Colored People and winner of the Nobel Peace Prize. Reflecting on her own many achievements in social reform she once wrote that, “Nothing could be worse than the fear that one had given up too soon, and left one unexpended effort that might have saved the world.”

So let us not give up in pursuit of our own goals to preserve a specific era of railroad history for the benefit of the general public we seek to serve.

By: Don Meyer, Manager

For a non-profit organization to go into debt is a mistake!

How is that for the start of a message about Mid-Continent’s debt situation? This is the last topic in the series suggested by Stan Searing in his guest blog several weeks ago. We have now dabbled in such issues as the master site plan, flood plain restrictions, the ideal board member, and steam power. Debt service, being the least attractive topic of this series, was saved for last.

Mid-Continent carries four loans. The first is a mortgage, the second our line of credit, third is the amount due the owner of the Saginaw Timber Company No. 2, and fourth is the loan from the SBA to fund our flood recovery efforts. All reflect a financial need which we were ill prepared to meet using any other funding source. I say funding because a loan is not revenue. It is a liability, which is why I began this message by calling it a mistake.

A for-profit business would see no problem with these loans. They routinely finance their operations, particularly their capital improvements, through the use of debt. The rationale is that the money will be invested in a project that will generate revenue at a higher rate than the expense of repaying the loan. Therefore the net result is a gain for them.

For-profit businesses have the added advantage of tax incentives designed to encourage them to invest by borrowing. The interest on their payment is a deductible expense as is the depreciation on any capital asset created as part of this investment. All of this can be used to reduce their income, which results in a lower tax liability.

A non-profit organization is exempt from paying tax so the incentives intended to benefit a for-profit business do not apply to us. In fact the monthly payments on any loan become what economists might call an opportunity cost, meaning that these payments rob us of the opportunity to use the money for other purposes.

We have our own funding advantage, however. It is in our ability to generate revenue through donations, making debt the funding source of last resort. Non-profits use this strategy all the time when it comes to new construction. And Mid-Continent has used it effectively with its restoration projects.

Despite our recent successes, however, the reason we are in debt is directly related to prior decisions or omissions about how to finance capital projects. We chose to construct new buildings with debt, hence we have a mortgage. Financing a capital project this way was no doubt the fastest way to raise the funds needed for a major project but it was also a concession that 1) operations could not generate enough revenue to cover capital costs, and 2) the museum’s leadership was not willing to engage in fund raising activities in order to avoid the consequences of incurring long-term debt.

This second point is the most disappointing admission to make since capital campaigns are generally one of the easiest causes for which you can solicit donations. People are more easily motivated to fund something with a tangible result, especially if their names can be attached to it in some way as a legacy of their involvement with the organization and its mission. By comparison, seeking donations to pay off a loan is next to impossible.

Our predicament with the Saginaw Timber Company No. 2 is comparable with our need for having a mortgage on our buildings. A locomotive is essentially a building on wheels when it comes to the high cost of making capital improvements; the overhaul or rebuild that keeps it in active service. The desired strategy for financing the repair of an existing asset is to follow the discipline of setting aside a portion of the revenue the asset (in this case our locomotive) generates each year while it is running. The money is then held in reserve in order to make those future repairs that will significantly extend its useful life.

We can estimate the amount we should deposit into this reserve account through an accounting technique called depreciation. But the enticement to spend on something of a more immediate purpose often defeats the best of intentions. At Mid-Continent we find ourselves in a situation where our steam program lacks such a cash reserve. So in the case of the STCO No. 2 we must now abide by a court-ordered stipulation that we payback the owner for his expenditures in returning the locomotive to operating condition. And this in turn means recognizing a debt equal to the cost of the repairs.

The line of credit is simply a financing tool to get us through the lean times, such as the winter and early spring months, when we are not generating any revenue. In our business cycle these months do see significant costs being incurred as we make repairs to our track and equipment in preparation for the new season. To cover these costs we draw on the line in anticipation that ticket and gift shop sales during the summer will be sufficient to repay the loan before the end of the fiscal year. Again this requires some discipline to ensure that the loan gets repaid on a timely basis. But at least it is a short-term process with less chance of money being diverted for a more immediate need.

The loan from the Small Business Administration is a case apart from our other loans. It would not exist had it not been for the 2008 flood. The extent of the damage was beyond our means to finance the magnitude of the repairs in any other way. For although our goal was to gain the support of FEMA to fund the repairs, they required us to apply for a SBA loan first, then they would consider funding any shortfall that existed after all of our other sources of revenue (the loan, donations and insurance proceeds) were expended on making those repairs.

I do not believe that we could have avoided incurring this debt. The extent of the damage was simply too great. But I do believe we could have taken prior steps that would have allowed us to cover more of these costs ourselves and minimized our dependence on an outside agency for support. Using depreciation to create a cash reserve to fund repairs to our buildings and equipment would have helped. Increasing the amount of our insurance coverage would have been another act of wisdom, but such a step would also have increased our short-term expenses, which is why we avoided this option. And finally having developed a larger donor base would have prompted more support in the way of charitable donations made in response to the catastrophe. As it was we did benefit from peoples’ care of our museum with gifts to our flood recovery efforts that exceeded our expectations during the challenges of a troubled economy. A broader base could have produced an even better result.

The impact of all of this on our cash flow is substantial. The mortgage and the SBA loan are paid back in monthly installments with a combined draw on our general fund of about $3,500 per month. When there is an outstanding balance on the line of credit, we pay back the principal based on our ability to pay. Otherwise interest is due on a monthly basis. And the amount due the owner of the STCO No. 2 has no payment schedule, but simple interest is accruing annually, increasing the size of the debt the longer it remains unpaid.

Our debt load right now is about $821,000. This is not a cause for alarm among the folks who issued our loans. They know from our financial records and history of performance that we have the ability to pay even if we are only able to generate revenue at our usual pace. The obvious challenge to Mid-Continent’s current leadership is to do better than usual, which takes us back to the urgent need to create a board of directors capable of generating revenue sufficient to retire our debt load while addressing the competing demands on our funds for such things as the steam program, tapping into municipal water and sewer, restoring our collection, constructing new buildings to house the collection and upgrading the existing infrastructure.

Financial management is not for the faint of heart. It does require a disciplined approach by a leadership team that can work in unison in achieving a costly, long-term solution. Patience becomes a necessary virtue if we are to fully eliminate our debts. And the good fortune of avoiding any further disasters would be an added blessing. Donations will have to carry the load of funding our capital projects while the general fund continues to bear the burden of making those loan payments.

A debt free existence is a possibility and one that should remain a guiding principal for anyone who is tasked with leading this organization forward.