Monorail hearing set for June 8

Cy Ryan and Adrienne Packer

Tuesday, May 30, 2000 | 11:32 a.m.

CARSON CITY -- Proponents and opponents of a proposed $639.7 million monorail system will be given an opportunity June 8 to give state officials their thoughts about a recently released report that says the project is financially feasible.

For nearly a year, the two sides have been feuding over whether the planned 3.9-mile system can succeed along the east side of the Las Vegas Strip.

The June hearing at the Grant Sawyer State Building was scheduled this morning by the state's Department of Business and Industry, which will decide whether to issue tax-exempt bonds to finance the project.

The state's decision will be reviewed by the Clark County Commission and ultimately forwarded to the state's Board of Finance, which will make the final ruling.

Charles Horsey, director of the state Housing Division, which is processing the bond application, called the system a "unique project" and said the bonds would be rated BBB, rather than the typical AAA or AA rating.

The report, which was produced by the Public Resource Advisory Group -- the state's financial adviser -- says there is reason to believe there will be "sufficient financial resources to place the project in operation and to continue its operation" while paying off its bond debt.

"However," the 53-page report says, "the project has speculative elements and vulnerability to adverse business and economic conditions, which could affect the ability to make timely principal and interest payments on the bonds."

Several studies paid for by proponents and opponents of the project have been submitted to the state during the last year, but the state's decision will be based on the long-awaited state resource group (PRAG) report.

Although the state resource group's report offers a recommendation favoring the MGM Grand-Bally's monorail, opponents said today that the battle is not over.

Jon Twichell, a California-based transportation consultant hired by opponents of the system, said PRAG never reviewed failing monorails in Jacksonville, Fla., and Seattle.

"They took at face value all the hypothetical numbers put together by the monorail team," Twichell said. "They kind of said there are all these problems but we don't care, you can do it."

Twichell has insisted that monorail consultants Bob Broadbent and Cam Walker stand to make a significant amount of money from the project and therefore are pushing it through despite reports that suggest it will fail.

"It's disappointing, but greed is a powerful motivator," Twichell said.

Broadbent and Walker dismissed Twichell's comment and reiterated what their stance has been all along -- that the monorail will be a successful system that will benefit the Las Vegas Strip.

"We've had seven independent reviews of the feasibility of this project," Walker said. "We're very excited that the state saw what six other people have seen. We're looking forward to the next step."

Gov. Kenny Guinn responded last week to opponents' concerns that the state will be left with the bill should the project fail. He said the state will have no legal or moral obligation if the system goes belly-up.

Also last week, a Venetian-funded report released by Patton Bonds LLP suggested that the monorail group might not be eligible for tax-exempt bonds because the project benefits a private group. State-issued tax-free bonds are reserved for public projects.

By going through the state, the monorail project would pay less interest on its financing.

According to the report, PRAG contacted the bond credit rating agencies Moody's Investor Services and Standard and Poor's Corp., both of which agreed with Guinn's statement. PRAG said a default on the bond payments would not have a negative impact on their (the credit rating agencies) ratings of the state's general obligation bonds."

The existing free monorail system, stretching 0.7 miles from the MGM Grand to Bally's, would be purchased for $25 million. The new 3.9-mile system would link the MGM Grand with the Sahara with stops at Bally's-Paris, Flamingo Hilton, Harrah's, Imperial Palace, the Las Vegas Convention Center and the Las Vegas Hilton.

The monorail would be owned by a nonprofit corporation whose directors would be appointed by the governor, who would have to approve any fare increases or other changes in the financial structure. Initial one-way fares are estimated at $2.50, which are projected to increase 25 cents every three years.

It would operate from 6 a.m. to 2 a.m. with four-car trains seating 84 passengers with space available for 144 people standing. At operating capacity, the monorail could carry 6,400 passengers per hour.

"The project has many positive features," the report said, "including expected demand from Las Vegas visitors, governmental support from Clark County, a well-conceived plan of finance, experienced contractors, financial commitments from the resort hotels and the expected ability to increase revenues through fare increases."

A ridership study conducted by URS Greiner Woodward Clyde, estimated 52,434 passengers a day would take the monorail. Wilbur Smith Associates, another consulting firm, suggested it would attract only 46,436 riders daily.

The Public Resources Advisory Group said more recent information from the Las Vegas Convention and Visitors Authority on room occupancy suggests there may be a higher number of passengers than either of the two previous reports estimated.

The consultants agreed with projections that the ridership would increase by 2 percent a year.

This project does not come without its weaknesses and risks, the advisory group said. There's an "inherent uncertainty of ridership projections, especially for a start-up enterprise. There is no existing unsubsidized transit system in the country and there is the unknown of how gaming in other parts of the nation may take customers from Las Vegas."

In addition, the report noted, there's no way of knowing if passengers will pay the $2.50 fare; uncertainty about how much advertising revenue can be generated; and the lack of accessibility of the monorail to hotels on the west side of the Strip.

The project estimates it will receive $6.5 million to $8.1 million a year in advertising. A good share of that money will come from "naming rights," which have become common in financing sports stadiums nationwide.

"The projected advertising revenues are higher than other transportation systems, but the Las Vegas market is unique and the monorail should provide an attractive opportunity to advertisers," the advisory group noted. But the consultants add that if the number of riders falls short of projections, there will be less advertising revenue.