WINTHROP — An infusion of $2.5 million in federal economic stimulus funding puts a small railroad that serves Sibley County within striking distance of a big goal.

The funding from the American Recovery and Reinvestment Act, announced last week, will be combined with other funding on a $10 million track-improvement project. That amount has an outside chance of reaching all the way to the Minnesota Valley Regional Rail Authority’s biggest customer.

“If we’re lucky and bids come in at $400,000 (per mile of track), maybe we could get to the east side of Winthrop,” said Bob Fox, vice chairman of the rail authority which is made up of the five counties the short-line railroad serves.

That would mean reaching the Heartland Corn Products ethanol plant, which produces 100 million gallons of ethanol each year along with related byproducts. And it would provide modern, heavy rail that would be capable of carrying unit-trains of more than 100 cars at 25 mph.

The outdated rail that exists along most of the 94-mile line restricts trains to 10 mph and requires the ethanol plant to ship its product on trains no longer than a couple of dozen cars.

The United Farm Coop in Winthrop is also expanding and becoming a bigger customer for the railroad, Fox said, making it even more important to get the improvements to Winthrop.

The rail authority — consisting of Carver, Sibley, Renville, Redwood and Yellow Medicine counties — has been methodically improving the railroad, moving west from the southwestern edge of the metro area, as money becomes available. Previous projects have improved only three or four miles at a time, and 115,000-pound rail has now replaced 80,000-pound rail to Green Isle.

The stimulus money, combined with bonding funds from the Minnesota Legislature in the past two years and federal appropriations won by the state’s congressional delegation, has created a pool of more than $10 million, Fox said. Steel prices, depressed by the severe economic recession, have also dropped 30 to 50 percent since previous projects were bid.

“Steel price is a huge part of it,” he said of the amount of new rail that can be laid.

The rail authority hopes to put the project out to bid in January.

“If bids come in good, we could maybe do 20 miles,” he said.

The project has proven to be a fairly easy sell to state and federal officials, even as the competition for construction dollars is fierce. Rep. Alice Hausman, a St. Paul Democrat, has sections of the 80,0000-pound and 115,000-pound rail displayed in her Capitol office — a signal that even a metro lawmaker (and the chairwoman of the committee that writes the House bonding bill) is committed to the project.

When $10 million is spent, a total of $23 million will have been invested in upgrading the railroad. Another $67 million will be sought to complete it.

Area lawmakers are sponsoring a $10 million request for the railroad in the 2010 bonding bill, with identical amounts to be sought in 2012 and 2014. Federal funds of $37 million will be requested over the same time frame.

Ultimately, the only railroad serving Sibley County will be modern from one end to the other, if the rail authority succeeds in finishing the upgrade.

And at that time, there won’t be an end of the line. The final part of the project is connecting it to the Burlington Northern Railroad in Hanley Falls, the place where the Minnesota Valley Regional Railroad now dead-ends.

“Then, we can connect to the East Coast and the West Coast,” said Fox, speaking of a railroad that a few years ago had become so decrepit that a train once derailed while sitting idle on the track.