The Truth About Monorail Capital Construction Costs (Part 1):
"NOT $150 Million a Mile"
This is the first part of a multi-part article about revealing the truth about Monorail capital construction costs.
Transit and City officials sometimes have said that the first phase of the Las Vegas Monorail cost $150 million/mile to construct. It is true that the total cost was $650 million for about 3.9 miles of fixed-beam guideway, plus vehicles and control and automation systems. This does work out to about $150 million / mile.
However, only $342.3 million of that amount is for actual capital construction costs. $342.3M / 3.9 miles = $87.8 M/mile. The 'Fitch Rating Report for First-Tier Series 2000 Revenue Current Interest Bonds and Capital Appreciation Bonds' report says the following:
"Design-Build-Equip Contract: This contract is between LVMC, Bombardier, and Granite. Under the approximately $342.3 million fixed-price contract, the contractor has to construct and install the monorail system. Approximately $141.6 million will be used to construct the fixed facilities (to be completed by Granite), $189.7 million for the operating system (to be completed by Bombardier), and approximately $11.0 million as a utility allowance. Under the contract, there is a guaranteed completion date and performance guarantees from the parent companies of Bombardier and Granite. Price increases under certain circumstances will be paid for solely from a pre-established contingency amount of $7.4 million plus any amount from LVMC resulting from cost savings"
The article, 'A Unique Rapid Transit Project for a Unique City' describes how the Las Vegas Monorail was financed by tax-free project revenue bonds. The following sheds insight into where the extra $650M - $342.3M = $307.7M was spent. Items such as bond interest, insurance premiums, extra contingencies and reserves 'added significantly' to the cost of financing, but allowed the bonds to achieve a triple "A" rating:
"..the project was fully
funded, without using tax money of any kind, through the issuance (by Salomon
Smith Barney) and subsequent sale of over $600 million in non-recourse, project
revenue bonds. The bonds provided 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 large
protections for the bondholders designed to insure the project's success,
--Insurance premiums for
everything from a County-required "guideway tear-down" guarantee to protection
from Force Majeure Acts; Contingencies for construction unknowns (e.g.,
unidentified underground utilities and differing site conditions);
It is worth noting that Cap Metro's proposed light rail system for November 2000 came in at approximately $51 M/mile with 'relatively low contingencies'.
However, as we have said, monorail costs vary greatly from city to city. But even the $87 M/mile figure for the actual capital construction cost of the Las Vegas Monorail can be considered high compared to the cost of Monorail on a competitive bid basis. Did it have to cost that much?
The answer seems to be: 'No'. According to this article, Nevada Journal: The Moolah Rail, Andrew S. Jakes, 'the nationally recognized transit consultant brought in by MGM [hotel] to advise on the developing [monorai] project' says:
"We estimate that exactly the same system could be built for about $190 million," he says, "and I still stand behind that number. Everything above $200 million is buried in various fees and interest and insurance and the financial deal, which, percentage-wise, is quite substantial."
Note that $190 million / 3.9 miles = $48.7 million/mile, about the same as Capital Metro proposed in November 2000 for their light rail system ($50.7 million/mile).
The article also goes on:
"Ron Watson, of Transco Holdings, a Hawaii company that reports
several monorail contracts in mainland China and private financial backing from
Merrill Lynch, had offered to build the system at a cost of between $25 and $30
million a mile."
"The question, he says,
is why the system is being built "for $200 million per mile when it was
demonstrated in '96 that it only cost $25 million per mile."
You Decide: Are your city and transit officials deliberately misleading you about the capital construction costs of Monorail by citing $150 million / mile? Have they researched this issue in as much depth as we have? If so, why haven't they given you all the facts?
For Further Study:
Next: Part 2.
Copyright © 2003 Austin Monorail Project