The following paper is reprinted with permission of the authors and Nevada Contractor Magazine. Our thanks to Jeff Kimmel and Tom Stone for their efforts in Las Vegas and for providing us with this informative article.

Ticket to Ride: The Las Vegas Monorail Takes Off

Jeffery B. Kimmel, Esq.
and
Thomas J. Stone, Ph. D., P.E.

In the wake of the Department of Business and Industry Director, Sydney Wickliffe's positive findings in July related to the financing for the Las Vegas Monorail, the Las Vegas Monorail project is going forward and is expected to receive its long awaited notice to proceed in September. This exciting first leg of an urban transit system for Las Vegas is by far the most scrutinized project in the State's history having withstood the State and County dissection in more than three years of public hearings and costly independent examinations. Having now passed the bar, this is the story and the plain truth about the Las Vegas monorail.

In spite of Clark County's overwhelming need for improved mobility, as it stands today, there are no fixed guideway, automated monorail or light rail urban transit systems in the County, nor is there any tax money available to build one. These sophisticated, state-of-the-art driverless urban transit systems are expensive to build, and taxpayers usually do not want to raise their taxes to build them.

In view of this dilemma, Las Vegas resorts, led by Park Place Entertainment and MGM Mirage, are building an elevated, fixed guideway monorail system for public transportation in the heart of the most congested, most expensive segment of the County. And, they are doing it without using any tax money of any kind, now or ever. To accomplish this, the sponsoring resorts are investing a total of $30 million in capital to this project, and the Las Vegas Monorail Team, led by Bombardier and Granite Construction, are investing an additional $18.5 million, for a total private sector cash investment of $48.5 million.

Based upon the resort's franchise agreement with the County, the monorail system will meet or exceed all of the Clark County Regional Transportation Commissionís ("RTC") 1997 Major Investment Study specifications for an urban transit system, and will be compatible with the proposed future RTC system.

The plain truth about the Las Vegas Monorail:

  • The private sector is investing $48.5 million in the monorail system.
  • The monorail system will use state-of-the-art technology, approved by the RTC.
  • No federal, state or local tax money of any kind will be used to build or support the monorail, now or in the future.
  • The franchise agreement and the financing structure proposed by the Resorts for this project make it impossible for the County and its taxpayers to be stuck with any monorail liabilities in the future.
  • In fact, a 50-year monorail guideway "Take-Down" bond is paid for as part of the financing. This insures the public that even in the extremely unlikely event that the bondholders, against their best interest, decide to close the monorail and walk away from their investment, the County can not be forced to take over its operation. The County can, at no cost to the taxpayers, have it taken down instead.
  • The monorail will be owned and operated by a non-profit corporation. All proceeds in excess of operation, maintenance and debt service costs must be used to improve or expand the monorail system or to reduce fares.
  • The cost to build the monorail in the Resort Corridor is 12.5% less than the cost estimated for the project by the RTC, with no risk of cost overruns.
  • The cost to build and operate the monorail system is guaranteed under the fixed price, Design-Build-Operate-Maintain contract, and the contract is backed up by one of the most experienced, financially strong transportation teams in the world. Design-Build contracting is an established method of procurement being successfully used today around the world.
  • International investors (Bondholders) take the risk that the system will produce the estimated revenues and repay the debt. The system-produced revenues are the sole pledge for repayment of the bonds. There are no County, State or taxpayer guarantees of any kind.
  • The project will not start until all the money needed to finance the system is received from the sale of revenue bonds and is in the control of the project trustee. Salomon Smith Barney has agreed in advance to serve as lead underwriter for the entire bond offering.
  • The bonds will provide the capital needed to not only build the system, but also to pay for all finance costs; and no added funds are needed to pay for ongoing operations and maintenance.
  • The cost of financing includes huge protections for the bondholders designed to insure the project's success, including: over $100 million in interest during project construction and beyond; insurance premiums for everything from a County required "guideway tear-down" guarantee to protection from Force Majeure (defined Acts of God); contingencies for construction unknowns (e.g. out of place underground utilities); property taxes during construction; management costs for independent oversight engineering and construction services; and, $75 million in reserves to protect the project from any other unforeseen events (above and beyond the protections provided by the fixed price contract and insurance).
  • This approach adds significant cost to the financing, but is necessary because it is designed to take risk out of the bond issuance, insure the project's success and, therefore, make the bonds an attractive investment.

No Tax Money Required To Build or Operate the Las Vegas Monorail

The Las Vegas monorail is being bought and paid for without using public funding of any kind. No tax money will be used to build, operate or support the monorail system now or at any time in the future.

The monorail's operating revenues (fare box, advertising, etc.) are the sole source of capital pledged to repay the bonds issued for the project. There are no public guarantees, mortgages or other pledges provided to repay the bonds. Similar revenue bonds are sold for toll road projects and other major public works undertakings throughout the world.

The Las Vegas Monorail is projected to attract ridership of over 19 million passengers in the first year of operation. Based on an initial $2.50 fare, the system will generate revenues more than sufficient to pay operation, maintenance and debt service costs. The State and its financial advisors were persuaded that these projections are on track. Prepared by the internationally respected passenger and revenue-forecasting unit of URS Greiner Inc. this company's studies have been accepted by the investment community for decades, and routinely serve as an ìInvestment Gradeî foundation for project revenue-based financing of toll roads (and of this monorail project). Projections of URS Greiner have been the basis for over $24 Billion worth of transportation infrastructure financing. As an extraordinary measure to provide the State and bondholders additional comfort in the reliability of the revenue projections, the URS Greiner study withstood a separate and independent peer review by the equally respected firm of Wilbur Smith. Wilbur Smith's studies have been the basis of selling more than $20 Billion in project revenue bonds on Wall Street.

As a final check, the three year, multi-million dollar Major Investment Study performed by the RTC projected the Las Vegas Monorail corridor will have considerably more ridership than was projected by the URS Greiner study.

Non-Profit Corporation Monorail Ownership

The same IRS rules that require the State to issue the tax-exempt bonds as a "conduit" also require a non-profit company to own and operate the monorail. Therefore, while the resorts are behind the private sector drive to get the monorail built, the resorts will not own and operate the monorail when it is built.

The monorail system will be owned and operated by a non-profit corporation created under State of Nevada law that requires the Governor to appoint the members of the board of directors. This organization will contract for the operation and maintenance of the monorail system under a fixed price, guaranteed contract with Bombardier, the monorail manufacturer and one of the world's leading private operations and maintenance contractors of public transportation systems.

The revenues generated by the project can only be used for project related purposes such as repayment of the bonds, lowering fares or improving or extending the monorail system. The sponsoring Resorts can not receive any monorail revenues.

The Monorail Will Reduce Traffic In Las Vegas

The Las Vegas Monorail will significantly help reduce traffic in the Resort Corridor. The URS Greiner ridership and revenue study estimate of over 19 million passengers per year equates to approximately 54,000 person trips per day in the first year of operation. In the first year alone, the monorail will take more than 4.4 million automobile trips off the major roadways along the alignment (13,300 automobile trips day). This is equivalent to building a new four-lane roadway through the Resort Corridor (in an area where such a roadway simply could not be built).

The Monorail Will Help To Ease Air Pollution In Clark County

By replacing automobile trips, the electric powered monorail system will significantly reduce carbon monoxide and particulate emissions (PM10) in the Las Vegas basin. Based upon the savings in automobile trips referenced above, assuming an average trip length of roughly 2.5 miles per trip, the avoided automobile trips translate into approximately 11 million vehicle miles of travel avoided in the first year of monorail operation. Assuming the same average automobile emission rates that the RTC used to draft its air quality Plan Conformity Analysis, the monorail will save approximately 135 tons of carbon monoxide emissions and 11 tons of particulate (PM10) emissions in the first year along the alignment.

Las Vegas is Unique

From a transportation perspective, Las Vegas is truly unique. In terms of both its need for and its ability and willingness to support a transportation system, there are no other places to compare it to. It is a world class entertainment destination with an investment of over $15 billion in new resorts opened over the past 10 years and thriving, 24 hours a day, 365 days a year. The density of hotel rooms along a four-mile segment of the Strip (now well over 100,000 rooms) and the concentration of entertainment venues are unparalleled anywhere in the world. In fact, the net effective population density of this part of the Strip is greater than that of Manhattan.

In 1999, Las Vegas hosted 33.8 million visitors, an increase of 10.5% from 1998 in just one year. Most of these visitors stay in one of the more than 100,000 hotel rooms located along a four-mile stretch of Las Vegas Blvd. known as the Resort Corridor (roughly between Tropicana and Sahara Boulevards). Once a visitor arrives in the Resort Corridor and the principal focus of their attention is turned to the Resorts and the entertainment, they become a "captive" audience. Due to the city's 24-hour nature and in keeping with its consistently dense but ever changing population, the demand for transport in and around this corridor is remarkably constant. The Las Vegas customers also have shown an ability and willingness to pay for transportation, be it buses, taxis, rental cars or otherwise. Even the wide extremes of temperatures drive the customer's demand for comfortable, efficient transportation.

The M-VI Monorail Is Right For Las Vegas

There already exists a nearly one mile long, elevated dual lane monorail guideway connecting the MGM Grand and Bally's resorts that is constructed to the specifications of Bombardier's urban transit grade M-VI monorail. M-VI technology has been approved for urban use in Las Vegas through the scrutiny of the RTC Major Investment Study ("MIS") and will achieve the public benefits outlined in the MIS. The M-VI monorail has the lowest cost, least obtrusive, easiest-to-construct aerial guideway structure of all the RTC approved technologies. This fact is critical to Las Vegas, because the entire Resort Corridor system will be elevated to avoid traffic congestion. The M-VI appearance is the most compatible of all the technologies with Las Vegasí progressive image. It is modern, sleek, fast, and quiet, and fits very well with the entertainment focus of the business community.

The system's initial passenger capacity of 3,200 passengers per hour per direction (pphpd) was matched to the passenger ridership projections of the independent ridership study. While the initial system configuration for the monorail is not sized to carry all of the passengers from peak Convention Center demands. (A decision that is consistent with sound urban transportation planning for systems of this size and magnitude per the RTC's fixed guideway plan). Nonetheless, from the first day it opens, the monorail system can provide a special event capacity of 5,000 passengers per hour per direction (pphpd) or 10,000 per hour in both directions. Such special event capacity over a 2.5-hour period could carry as many as 25,000 passengers to and from the Convention Center, thereby making a significant contribution. In addition, monorail capacity can be increased over time as the Resort Corridor continues to grow simply by adding more monorail vehicles.

As was emphasized in the 1997 RTC Major Investment Study, the monorail system for Las Vegas will be one important element of many that will, when in place, help to ease area traffic and air pollution. The monorail will serve as a new, efficient and convenient way to access and leave the Convention Center at peak times without being part of the traffic it rides above, thereby complementing the existing at-grade transport systems now in place: cars, taxis, buses and shuttles.

The Las Vegas Monorail is one of those rare projects where there is a complete convergence of public and private sector interests. Everyone will benefit when the Las Vegas Monorail is built:

  • Residents will benefit from the greatly improved access to jobs and reduced automobile traffic and air pollution in the Resort Corridor, and all without any tax money ever being used.
  • Visitors will benefit because they will have a high quality, reliable, attractive, and fun mobility alternative.
  • The Resorts will benefit from the improved access the monorail will create for their properties.
  • The RTC will benefit because the public receives an initial public transit system without using any tax dollars and this private investment may be able to attract matching federal funds for future lines.

 

About the Authors

Jeffery B. Kimmel, Esq. has been an active member of the California State Bar for 20 years. He served as General Counsel, Vice President and Transit System Director for VSL Corporation, the only company to build multiple people mover systems in Clark County (including the Mirage-Treasure Island shuttle and the Primadonna-Whiskey Pete's shuttle over I-15 at Stateline). In 1993 Mr. Kimmel led the VSL/Bombardier team that was selected to build the one-mile monorail system that connects MGM Mirage and Bally's. In 1994 Mr. Kimmel became President of Liaise Corporation that provides strategic and financial planning, and project implementation services to the transportation industry. In this role, Mr. Kimmel has assembled and directed the Las Vegas Monorail Team consisting of Bombardier Transit, Granite Construction, Carter Burgess Engineers and Gensler Architects for the Las Vegas Monorail project.

Thomas J. Stone, Ph. D., P.E. is widely recognized as one of the nation's leading transportation planners and engineers. Dr. Stone's 33 year career has included the complete range of responsibility, from initial planning studies through construction of major rapid transit systems and highway projects throughout the world. Dr. Stone's experience includes serving on the faculty of the University of Utah in the Civil Engineering department, where he developed a graduate program in urban mass transit. He is an expert in travel demand modeling, project financing, and transit technology. He served as Principal with the firm of Carter-Burgess, Inc., the lead engineers for the monorail project, and is a registered professional engineer in Nevada and several other states.


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