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September 18, 2014

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public transit:

Monorail knew of insolvency for years, files show

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A Las Vegas Monorail train pulls out of the Sprint Station near the Las Vegas Convention Center November 26, 2007.

Monorail

Tourists look at ticket prices and routes of the Las Vegas Monorail at the Flamingo station on Monday, June 22, 2009. Launch slideshow »

The court battle over the Las Vegas Monorail bankruptcy is giving the public an unprecedented look at the activities of its board.

The only board meetings open to the public involve approval of the monorail’s annual budget. But the bankruptcy files include minutes that cover many closed-door meetings from January 2004 through last July.

The minutes indicate the board knew for years the monorail was facing dire financial straits. They also note board members discussed using room taxes or seeking other public money to shore up the struggling system. Use of such money would negate promises made to taxpayers that the monorail would not rely on a public bailout.

The monorail’s major creditor, Ambac Assurance Corp. of Wisconsin, provided the minutes to U.S. Bankruptcy Court. Ambac insured the majority of state-issued bonds used to construct the 7.8-mile system east of the Strip.

Some of the minutes are vague. For example, rather than noting exactly what was said, the minutes frequently say “a discussion ensued.”

“The reason is that the minutes are a record of the actions taken or authorized by the board,” monorail spokeswoman Ingrid Reisman said this week.

Despite the lack of details, the minutes include several revealing passages.

Failure to pay $649 million in bonds is the reason the monorail filed for bankruptcy protection in January, and the minutes show Chief Financial Officer Ross Johnson told the board in August 2005 that based on ridership and revenue, the monorail would not be able to pay its bond debt.

In December 2006, President and CEO Curtis Myles told the board he had informed the Nevada Business and Industry Department that the monorail was not in default. But Wells Fargo Bank, which has overseen monorail funds, would later argue in court documents that the transit operator stopped meeting its debt obligations in June 2006.

When Johnson had raised the red flag 10 months earlier, the monorail, which opened in July 2004, had just completed a stormy first year that included mechanical failures that led to shutdowns and ridership below projections.

Still, in that same meeting, after Johnson’s warning, the board approved $80,000 in bonuses for Transit Systems Management employees involved in overseeing monorail construction.

Reisman said the board merely approved bonuses written into Transit System’s contracts before it merged with the monorail company.

The timing of the bonuses does not sit well with Ambac attorney William Smith of Chicago.

“The board has a history of being selective about who they pay, but no one seems concerned about paying off the bond holders,” Smith told the Sun.

One topic that doesn’t come up in the minutes is whether executives’ pay should be reduced, although Myles discussed “staff reductions” in August 2008. According to Internal Revenue Service documents for 2008, salaries included $346,477 for Myles, $146,400 for Reisman and $135,926 for security director Joseph Dorsey.

At the September 2008 meeting, board members cut their monthly fees in half, to $2,500 each, when they reduced their meetings to every other month. (The fee went back up last summer when they started meeting more frequently to deal with “restructuring,” Myles said.) Also at that meeting, the board “agreed to pursue possible funding sources from public entities, though the board noted that any such opportunities are not sufficiently developed ...”

Reisman said that pursuing funding from public sources and revenue from hotel room taxes were ideas pitched by consulting firm Conway, Del Genio, Gries & Co. of New York.

The board hired the firm in March 2008 as its restructuring adviser. At the same meeting, the board sought legal advice about how obligated it was to disclose “the deteriorating financial condition” of the monorail.

In May 2008, the board was told the monorail was generating $3.68 in revenue per ride, but needed $7.50 to $8 to break even.

At that meeting a public relations firm advised the board on how to deal with negative media coverage, including “attempts to isolate the negative influences of certain news outlets.”

Reisman said the discussion was not directed at any particular news outlet or reporter.

“We get fair coverage but clearly if you go back in time, there was a significant amount of coverage that wouldn’t be considered highly positive,” she said.

In August 2008, Myles discussed the possibility of the monorail receiving a portion of room taxes designated for transportation projects. He updated the board on that in January 2009 — the idea had hit a dead end. He went on to sum up the transit operator’s plight by discussing “the lack of any political or resort support for the existing monorail system.”

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