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.

Myth: The first phase of the Las Vegas Monorail cost $150 million a mile to build.

Fact:  The first phase of the Las Vegas Monorail cost $87 million a mile to build.

Fact:  It 'should have cost' about $50 million a mile to build (about the same as Light Rail in Austin).

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, including:

--Over $100 million in interest during project construction and beyond;

--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);
--Property taxes during construction, management costs for independent oversight engineering and construction services; and,
--$75 million in reserves to protect the project from any other unforeseen events (above and beyond the protections provided by the fixed price contract and insurance).

This approach added significant cost to the financing, but was designed to take risk out of the bond issuance by enabling the bulk of the debt to be insured, and thereby achieved a triple "A" rating, making the bonds an attractive investment."

 

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."

"It's the biggest joke I have ever seen," Watson told Packer. "We get a kick out of this. When you have the only deal in town and nobody wants to pursue any other deal—something stinks in the desert," said Watson.

Jakes continues:

 

"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."

"We know how much this costs," says Jakes, noting that the existing monorail [the existing 1-mile Las Vegas Monorail built in 1995 to connect MGM and Balley's] paid "$1,400 per linear foot of dual guideway designed for 65 miles per hour." However, "recently [the consortium's] numbers are $6-8 thousand per linear foot, for the same type of guideway."

The consultant notes with satisfaction that his 1.5-mile project in Indianapolis will cost only $30 million in total. "And that includes the stations," he boasts.

In Las Vegas the price has been quadrupled, he says, and no technical construction reason required it."

 

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:

  1. Fitch Rating Report for First-Tier Series 2000 Revenue Current Interest Bonds and Capital Appreciation Bonds' report

  2.  'A Unique Rapid Transit Project for a Unique City'

  3. Nevada Journal: The Moolah Rail

  4. Nevada Journal: Switching Tracks- Publicaly Funded Light Rail will Fail in Las Vegas-- But There are Alternatives

  5. Transportation Research Board Report: 'Financing Capital Investment: A Primer for the Transit Practitioner' (sponsored by the Federal Transit Administration).

Next: Part 2.


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Last updated: 10/24/03.