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The monorail rolls out of the Flamingo station on Jan. 20, 2010. Las Vegas Monorail filed for Chapter 11 bankruptcy protection in January.
Friday, Jan. 22, 2010 | 2 a.m.
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Beyond the Sun
Since the inception of the Las Vegas Monorail, Nevadans have been repeatedly reassured that they will not wind up on the hook for its bills.
Nevermind the high salaries monorail executives and board members are getting, that won’t ever wind up coming out of the public’s pockets.
The Nevada Business and Industry Department’s issuance of $650 million in tax-exempt bonds to construct the transit system? Not to worry, no liability there.
Granting state sales tax and county property tax exemptions to the monorail? Yes, it helped the monorail system avoid putting millions of dollars in the public coffers, but it was the right thing to do.
Clark County’s approval of the monorail’s exclusive franchise agreement? Just a formality.
Having a five-member board appointed by the governor to oversee the operation? That’s just to protect taxpayers’ interests.
Now that the monorail’s long predicted bankruptcy is in front of a federal judge, however, the cozy relationship between the system and state and local governments has become a crucial issue and is again raising the question of whether taxpayers will wind up on the hook for any or all of the monorail’s $500 million to $1 billion in debt.
Banking giant Wells Fargo and the insurer of $450 million of the monorail’s bond, in fact, are arguing that the monorail is closer to a municipal government than a private corporation. Las Vegas Monorail filed last week for Chapter 11 bankruptcy protection, seeking to hold back the debt collectors while it reorganizes. But Wells Fargo and Ambac Assurance Corp. of Wisconsin are telling the bankruptcy judge that the appropriate bankruptcy for the monorail is Chapter 9, which is reserved for city and county governments, public schools and special improvement districts.
U.S. Bankruptcy Judge Bruce Markell is to decide Feb. 17 whether the Chapter 11 filing will proceed. If he decides to throw out the case, it could force the monorail to pursue Chapter 9.
Wells Fargo noted that the monorail would need the Legislature’s approval to file under Chapter 9. Short of Gov. Jim Gibbons calling a special session, the soonest the Legislature meets is in 2011.
What would happen to the monorail until then is anybody’s guess — as is whether taxpayers might wind up bailing out the system.
Once a case moves into Bankruptcy Court, just about anything is possible.
For instance, under its tax agreements with the state, the monorail said it would not sell any of its facilities — trains and rail, for example — before January 2040. The bankruptcy judge could say it doesn’t have to wait until then.
Reworking of agreements is part of what Bankruptcy Court does, notes Las Vegas attorney James Patrick Shea, an executive committee member of the American Bankruptcy Institute, a nonprofit research organization.
“If you didn’t have latitude to modify your contractual obligations, why file for bankruptcy?” Shea says.
Nevada Taxpayers Association President Carole Vilardo is among those who think state law shields taxpayers from liability for nonpayment of the bond debt. But she worries that might not stop a creditor, such as the company that insured the bonds, from trying to sue the state because it issued the bonds.
Her association issued a position paper in 2000 that addressed the state’s possible exposure to lawsuits in the event the bonds went into default.
“Since the government entity has a responsibility to perform due diligence as to the financial feasibility of the project and thus, the bond issue, it cannot completely escape legal exposure,” the association concluded.
Las Vegas financial adviser Guy Hobbs, managing director of Hobbs, Ong and Associates, had advised the county against serving as an issuer of the monorail bonds precisely because of concerns about the potential for lawsuits in case of a default. The county followed his advice, but the state decided to issue the bonds.
Now, Hobbs warns, “Even though there is no legal obligation by the state to make the bond payments, there is some question as to whether a creditor would look to the state as a conduit.”
Lon DeWeese, chief financial officer of the Business and Industry Department, says the state issued the bonds because the county convinced officials that the monorail would serve a public purpose by relieving traffic congestion on the Strip.
“The state stands by its decision to issue the bonds and it followed the law,” DeWeese says.
He won’t speculate about whether Ambac or other creditors will sue the state over the bonds, but concedes that the Bankruptcy Court could alter the bond contracts if it so desired.
The state is concerned enough that it hired a private attorney from Southern California, Rebecca Winthrop, to represent its business division. Winthrop did not return calls.
Don Burnette, Clark County’s chief administrative officer, says the county’s position is that it “is not a party” to any monorail debt obligations.
But he acknowledges that the county has $7.9 million in a fund from the initial financing for the monorail. It could spend that money on removing the monorail structures installed in the county’s rights-of-way if the monorail shuts down. But the county also could spend the money to keep operating the system “should the monorail be abandoned or the franchise terminated,” Burnette says.
Legal experts and other interested observers say that as it stands, it’s difficult to see how taxpayers would be held liable should the monorail continue to fail to pay its debts.
The bond documents clearly say the state is not liable for any bond indebtedness, so state law shifts the responsibility to the company to pay off the bonds and the county bears no liability for merely approving a franchise agreement, experts say.
But that doesn’t mean there aren’t any “what if” scenarios lurking. As in, what if a court-supervised bankruptcy reorganization failed and the monorail had to be bailed out? Burnette had hinted at that scenario when he talked about the county’s option to spend millions to keep the monorail operating.
Ambac’s lead bankruptcy attorney, William Smith of Chicago, declined to comment on how a Chapter 9 bankruptcy filing by the monorail would be better for his company than a Chapter 11, and attorneys with no involvement in the case tell the Sun they are not sure how Ambac would benefit from a Chapter 9 filing.
“It would either give the creditors an increased number of tools or reduce the number of tools that would be available to the monorail under Chapter 11,” Shea says.
Boyd Law School professor Nancy Rapoport, who specializes in bankruptcies, says creditors might think they would have more say over any potential sale of monorail assets outside the conduct of ordinary business under Chapter 9 than under Chapter 11.
Part of the reason for the uncertainty it that Chapter 9 is rarely used, with fewer than 600 such cases filed in this country since the Great Depression; 14,745 Chapter 11 bankruptcies were filed from September 2008 to September 2009.
The most notable Chapter 9 case was filed in 1994 by Orange County, Calif., after it lost $1.7 billion through risky investments.
Only time will tell whether it will be eclipsed in notoriety by a new Chapter 9 case in Las Vegas.
Casinos and the Convention Center benefiting from these mess of a monorail should pay for its operations and not the taxpayers.
This hunk of junk needs to be disassembled and made into an artificial reef in the bahamas. Why would anyone walk one mile to the end of the casino, just to hop on an expensive monorail to go a few casinos down the strip. It would have probably been faster to just walk there? The problem has and will always be the stupid design of the track. Way in BFE at the back of the casinos so far away it will give you a heart attack just to walk to it. These dimwits who designed this deserve to be bankrupt. Why in the h#ll didn't they make it go right down the middle of the strip or underground..The way the layout is, nobody will ever ride this dumb creation to make any profit whatsoever, so just destroy it.....
Bulldoze the whole thing into the ground in order to save taxpayers from idiots who think spending more money on it is a good thing.
If these 3 things were done, it would be profitable today, or at least pay for itself:
1. Run down the center of the strip.
2. Terminate at the airport.
3. Extend to downtown.
The writing was on the wall years ago. Fools.
Salaries paid to all but maintenance personnel should be immediately eliminated. All the administrative and executive positions with the high salaries are nothing more than political pocket filling.
Besides a poor route, how could the monorail ever profit with rotten marketing and highly paid executives that do absolutely nothing. They have a job with a high salary but they do nothing that could be considered work by any definition. The monorail doesn't even have drivers, unless you count the executives that drove it in to bankruptcy.
When will the citizens of this state catch on and realize how they get ripped off at every turn by elected, appointed and quasi public, overpaid "executives?" From city hall to the LVCCVA to the monorail to the wastewater committee that made headlines last week.
Of all the billions of dollars spent in this town it is truly amazing what a small percentage of it actually trickles down to the working class. Now I know why the education system stinks, because an educated populous would have hung or beheaded these scum bags on freemont street in public view without charging admission.
Who would want that ugly thing running down the middle of the Strip replacing the beautiful palm trees and plantings? The Strip is a walking place and if need to take a ride, the bus is perfect and a hoot. We took the free ride before it opened, mainly to see the Wynn golf course and never would have taken it again. It was a teerible idea from the get go. All that mess from the construction and now stuck with the track and ugly stations. Tear it down. At least some folks would be put to work. Its an eye sore.
Yes, yes we will...
Three reasons it failed.
1) It doesn't go to the airport.
2) It doesn't go down to fremont.
3) Why do you need high paid execs for a monorail?
Fix this, and it'll be profitable. It is needed, and it should be part of the Regional Transportation Authority.
And people want a government run rail system?
Going down the center of the strip would NOT have helped the monorail if it would have made the cost more expensive.
f these 3 things were done, it would be profitable today, or at least pay for itself:
1. Run down the center of the strip.
2. Terminate at the airport.
3. Extend to downtown.
Westvegas is right on with these points! This is no time for finger pointing or blame, but time to take action. Lets get this system completed with a new connection station closer to the strip, and all connections to Airport , downtown, as well as a light rail connection which could run out to stateline where eventually the bullet train from California could meet it! Las Vegas needs this more than anything right now! The monorail isn't viable down the center of the strip, however a smaller street surface light rail trolley system could be built.
The one good thing out of all this is that the case was randomly assigned to Judge Markell, who is a nationally recognized expert on insolvency matters. (He's been an editor for Colliers' treatise on bankruptcy for years). Other than folks who work for the monorail, it probably matters little whether or not the company is allowed to proceed with its Ch. 11 filing or is forced to convert to a Ch. 9. If the Ch. 11 case is thrown out, presumably the creditors will ask a state judge to appoint a receiver (since Wells Fargo wants its money, not the "glory" of running a failed rail system) and the receiver will attempt to either restructure or shut down the business outside of the BK ct.
If the taxpayers have to dish tons of cash for this boondoggle then we should tie the big promoters of this boondoggle to the side to train for like two days with the words: "I am a fool and you listened to me."
The planning was all wrong,no airport and no downtown it seems it is half ass planed.
They should not remove it but fix it.This is the future for Las Vegas. It should start at the airport and stop at each casino on west side then go downtown and then go on the east side of the strip,make a loop back to the airport.
problem solved.
absolutely wolf85023 ! this system can not be allowed to go down in flames! Rail transportation be it elevated or surface is the future of all cities!
There were plans for the system to go to the airport but the taxi and limo operators fought it down. There would have been a massive loss to taxi/limo companies if the rail would have a stop at the airport. Unfortunately for the monorail, the taxi/limo owners have been in this city far longer and have made many more contributions to campaign funds.
If Ambac didn't want to assume risk, they shouldn't have entered the insurance industry.
If Ambac didn't want to assume this particular risk, they shouldn't have underwritten this project. They made the decision to write the policy and accept policy payments.
If Ambac couldn't understand the amount of risk in this project, then who could understand the risk? It's their business to understand risk.
The bond contract holds the governments involved here completely non-liable. The fact is that Ambac holds the bag now. I think they should get the train as the security for this loan since the lenders are going to be repaid, but that is all. Let them operate it or scrap it for salvage.
A big 10-4, there, Big_John, you are correct. Just follow the money on just about anything and you'll have your answer.
Now, I think we should all put our petty differences aside long enough to let these lovely new Ambassadors do their thing! I applaud the efforts of the individual responsible for letting these lovely lasses loose on Las Vegas. Long live the Mono!
What a surprise!! (Sarcasm)
I think the monorail is failing because it is not big enough!(again sarcasm)
They should take a tip from the wildly successful CAT Bus system. Oh yeah, that loses money too.
Who are those lovely ladies and are they part of the bankruptcy proceedings?
If so, I might be interested in purchasing some of the bankruptcy assets...
The brilliant move to raise the price of riding the monorail was also genius. Why not lower the price and get the train filled with riders. Oh I know that might encourage people to use it. I guess that is a dumb idea.
As a tourist, put it down the middle of the Strip and to the Airport.....it could spark the Las Vegas Economy, and as far as the new high speed rail, be smart and forget the Victorville idea and connect to Anaheim and Los Angeles...think of how many tourist would use it, stay a few days at Disneyland and Hollywood, jump on a train to Vegas...directly to the STRIP or Airport....never needed a Car....Be smart...Tourist made Vegas and can make it rebound.....two words....."COMMON SENSE"
jemster, I like your comment, just remember that these same egg heads that believe raising the price will help them raise revenues are the same egg heads that believe taxes help the economy. They simply don't understand supply and demand.
Has anyone bothered to calculate the cost of putting it down the middle of the strip?
There is probably a good reason why they didn't do that. If it wasn't the government then it was probably cost.
Mr. Gibbons, it was politics as usual...the reason is the powerful cab & limousine companies...
When I was in the casinos a few years back, none of the casino employees would tell me where the entrance to the Monorail was. I finally browbeat one employee into spilling the beans, and was reluctantly shown some barely marked little door in a dark out of the way place. That was how you got to the great Monorail! Possibly had the smallest sign in Vegas. Then it all came together...the casino certainly doesn't want me to LEAVE, so WHY in the world would they make leaving on the Monorail easy and convenient? I'll bet the casino employees are strictly instructed NOT to divulge the location of their Monorail entrance. Just a theory. We all love Monorails, they are SO cool...admit it...but they belong at Disneyland, not in Vegas as a real-life transportation solution. The double-decker busses are the best way to go. For a grim chuckle, rent The Simpsons episiode where their town gets a monorail. Mike Warden
This has to run to places people want to go.....like the airport and downtown. Unfortunately the taxi and limo lobby is so powerful in this town, it would be very hard to get support, let alone the terrible economy. Hey Harry! How about some stimulus money for an extension?
Well written story from a technical point of view!
Go green and run it from the airport down the strip all the way to Fremont Street. It may cost up front but will pay off over time. Reroute the traffic so only the monorail and pedestrians are on the strip. It will save money and lives.
In response to Goingbust's comment, if you go to Reuters dot com, and type in Monorail, you'll see an interesting story about how AMBAC, the municipal bond insurance company, might go bankrupt if they have to pay all of the unpaid bondholders of the Monorail. That wouldn't matter to 99.9% of Las Vegas, but take note that there will be a huge frenzy on Wall Street, a huge frenzy among holders of municipal bonds from other cities, counties and states insured by AMBAC, and ultimately the remaining municipal bond insurers will raise their fees charged to cities, counties and states all over the country...and Las Vegas will be blamed.
For a an impartial history of the Las Vegas Monarail goto http://en.wikipedia.org/wiki/Las_Vegas_M....
Phase 2 orignally was to be an extension down Main Street to North Las Vegas with a later extension to the Stratosphere. The Federal government was supposed to provide funding. In 2004, the Feds backed out, (Bush administration), partly on the excuse that the monorail had been delayed a year past its originally schedule opening date, and then another four months delay over repair issues.
The new Phase 2 is the proposed extension to the airport. Some Strip casinos support this proposal, but opposed the old Phase 2 plan to extend to downtown--wonder why?
The LV Monorail is savable...Keep the current line but run that line to the airport with a option to tie it into the rail from California in the future(aka plan the airport station as a possible transportation hub)and run the outbound line from the airport down the center of the strip with a few well planned stops so the tourist get the tour..then loop it back to the original line..Oh yeah have the casinos foot a big portion of the bill, but give them a discounted rate for their guest so they will comp the ride.It is their customers that will be using it.not the locals so much..Thats my opion I could be wrong.
April,
the government funds many programs that are suppose to pay off in the end and we always end up with the same result, it doesn't.
Not one person has mentioned a major reason why the monorail has failed--it has to compete against the lowly bus! Those double decker buses are great and they provide good service on the Strip and to Fremont street. No doubt plans are progressing for the next big con--a high speed train to L.A. Are its promoters forgetting the Greyhound bus on which a round-trip ticket costs $60? Or all those people who get themselves killed when they cross train tracks in L.A. and don't see a train coming?
Manfromuncle..Have you ever rode a greyhound in the last decade?It's like a page out of Hunter S Thomson's stories but without the joy of a mesculine and blotter acid bender...but it's a hell that I wish upon no one..and yes I have done my time on the grey dog and it's not pleasant my friend.
FYI.. In case nobody has mentioned it. The original plan was to run the thing down the center of the strip! A few things then happened:
1. The shady casino fat cats got involved..pretty easy to see who (where are the stops?)
2. The only mafia run organization left in vegas got involved! (cabs and limos)
You do the math from there. One other tid-bit...it never even enters the city of Las Vegas. It stops at Sahara.
1 - The monorail does not have stops at every casino on the Strip? Check the archives, but some casinos took a short sighted approach and decided not to participate. Strike One.
2 - The cab / limo companies put a stop to all talk and plans regarding the monorail starting at the airport. Everyone forgets how much power the cab / limo companies and drivers have in this town. Strike Two
3 - The monorail was supposed to be a state of the art project that ran down the center of the Strip. It wasn't feasible because casinos chose to opt out. Strike Three
We were in Veagas in December and we make at least two trips a year. It is my favorite vacation destination for many reasons. I like that we can stay on the strip and not get into a car at all, because everything is within a couple miles walking distance on the strip: shopping, dining, clubs, slots, fun fun fun. We take the monorail at least once on every trip but we did notice in December how desolate the station was when we were waiting to board. It feels safer when there are more people. We were disappointed that the Wynn discontued service to the monorial as my feet were killing me and we were staying at MGM. We had to walk to Harrahs to board but it was still a nice little zoom to the MGM.
Well bigdan, I always take the Greyhound from El Monte, Ca. when I go to LV. It was pretty bad during the 80's with dirty buses and low-lifes on board. But the service has improved quite a bit with new buses and better clientele. They even remodeled the downtown station so it looks better. I can leave El Monte at 8:30 am and arrive in Vegas at 2:00 pm--and I don't have to spend money on taxis to and from the airport. I don't make $100K a year like LV firemen so whenever I travel I will go as cheaply as possible.
News Flash Las Vegas breaks out in horrid case of "mono" rail. Train to nowhere is more like it. This whole boondoggle was a make work project and the rails so greased for the "fat cats" its a wonder the cars stayed on the tracks. Why wasnt the airport connected right from the git go and didnt the tracks go all the way to freemont and Nellis. Well cuz like all nevada business's its who gets greased and who gets lubed.
I'm trying to think of a single elected official in all of Clark County who had a vision of improving life for the citizens of Clark County. I can't.
Our leaders view us the same way that the casinos do, and that is not very flattering. We are votes and we are walking wallets. That is about it.
The monorail is not for Clark County residents. If you want any additional proof of that, try to purchase a locals ticket these days. Ha! You can't because all the ticket windows are closed.
This is just one more way that the Clark County fat cats are sticking it to the locals in an effort to also better stick it to the tourists. The longer I live in Las Vegas the more I understand just exactly what George Carlin was getting at.
Is this the start of the end for Las Vegas. Picture Las Vegas 5 to 10 years from now. Give it back to the Desert.
McCain/Palin 2012
That's the ticket!!!
They'll fix everything!!!
Can always have the Rieds save this project,, especially Rory,, he can use the same techniques he used to save UMC from going down the toilet...Makes you feel proud to live in southern Nevada.....