Report calls for tightening of finances for monorail

Adrienne Packer

Wednesday, June 28, 2000 | 10:27 a.m.

After months of debate over the funding of a $650 million monorail project, the Nevada Taxpayer Association is chiming in with a report it has developed to tighten state and local financing procedures.

Carole Vilardo, president of the association, said Tuesday that she forwarded research used in creating its financing report to the state Department of Business and Industry.

Meanwhile Sydney Wickliffe, director of the business and industry division, continues to study arguments supporting and opposing the MGM Grand-Bally's Monorail LLC's request for a state-issued $650 million tax-free bond.

Actual recommendations listed in the report will be submitted to the Nevada Board of Finance, which is expected to make the final ruling on the bond issue.

While the taxpayer association has concerns about the issuance of private activity bonds, Vilardo said the monorail project did not prompt her organization to study state and local procedures.

"The issue is not about the monorail or putting in a road or building a bridge," Vilardo said, whose organization has been relatively quiet on the proposal to extend the existing MGM Grand-Bally's monorail to the Sahara hotel-casino.

"It's 'Can you maintain the integrity of financing whether it's backed by full-faith and credit pledges or there is a potential for tort liability that winds up drawing in those political entities?' "

Private activity bonds differ from general obligation bonds because they are not backed by pledges full faith and credit, meaning bond payments are the priority if a project fails.

Because of the guarantees attached, general obligations bonds receive high ratings and therefore lower interest.

No pledges accompany private activity bonds and because of that, Vilardo said, some stockholders assume there is no possibility of liability lawsuits.

That, however, is not necessarily true. Vilardo said that since 1974 several tort liability lawsuits have succeeded.

Tort liability suits are filed by shareholders against not only the company backing the project but the entity that authorized the bond-issue for not studying the financial feasibility of the project with due diligence.

In the case of the monorail, the state would be the entity authorizing the bonds.

"Due to the potential for tort liability suits, we recommend legislation be enacted that requires private activity bonds be investment-grade rated -- BBB or higher -- or have sufficient credit enhancements, i.e. insurance," Vilardo said.

Consultants in the monorail project said an official rating on the bonds will not be determined until all their documents are completed.

However, top rating agencies Moody's and Standard & Poor of New York have studied the project and said the first-tier bonds -- which amount to $434 million -- should receive investment grade rating. Broadbent is also working on insuring the bonds.