December 16, 2017 - 10:16 am
Updated December 17, 2017 - 7:59 am
Less than a decade after low ticket sales forced the Las Vegas Monorail Co. into bankruptcy, the private nonprofit wants to make its next big gamble on ridership.
The company is on the verge of borrowing $110 million to extend its route on the Las Vegas Strip from the MGM Grand to the Shoppes at Mandalay Place, according to a source familiar with the project.
Supporters tout that the mile-long extension will connect Las Vegas’ two largest convention centers, reduce Strip traffic and bring riders within walking distance of the NFL stadium being constructed for the Raiders.
“Having many different modes of transportation is important to moving people from the stadium and between all our major convention centers,” said Tina Quigley, general manager of the Regional Transportation Commission.
“If we can have a monorail that connects to the Mandalay Bay Convention Center, the Sands convention center and the Las Vegas Convention Center, then we can market 9 million square feet of exhibition spaces that’s all connected within 10 minutes of each other. That’s a great marketing point for the city.”
But the project carries a hefty financial risk.
Las Vegas Monorail Co. President and CEO Curtis Myles told Clark County commissioners last month that the monorail will not turn enough profit in ticket sales to repay the company’s debt, plus annual interest expected to be at least 6 percent, until the new station is open. Construction is expected to take 28 months.
The company reports that annual ridership, which was 5 million last year, will increase by approximately 2 million people in the extension’s second year of operation. Ticket revenue is predicted to nearly double by 2025.
Monorail representatives declined to be interviewed but offered to answer questions via email.
Spokeswoman Ingrid Reisman’s statement left many questions unanswered.
Among them: how much money the company wants to borrow, how many people have ridden the monorail since the Route 91 Harvest festival shooting, and how much money the company has in reserves should predicted increases in ridership fall short.
“Ridership estimates for the expansion were derived from over a decade of actual data based on proximity of current stations to hotel rooms, convention facilities and other existing trip generating data points,” Reisman wrote.
The projections drew skepticism from a transportation expert at the University of Southern California.
“It would probably be the most productive transit stop I’ve ever heard of,” said James E. Moore II, director of the USC Transportation Engineering Program. “On its face it looks very optimistic to me, but that’s frequently how forecasts are used to try to justify a decision to build.”
USC assistant professor of public policy Nicolas Duquette, who reviewed the monorail’s latest annual financial statement with the Review-Journal, said if ticket sales don’t live up to predictions the company could soon be back in bankruptcy.
“The money coming in from people paying for rides would have to go up to 25 to 30 percent to pay just for the 6 percent interest payment,” he said.
Conventions are key
The monorail company is betting on conventions to boost ticket sales.
The seven-stop route includes a station at the Las Vegas Convention Center, and the company reports daily ridership can triple on weekends when the venue is hosting events.
And more people are attending conventions in Las Vegas. A record of 6.3 million visitors was set last year, but monorail ridership remained at about half of its peak.
North Las Vegas Mayor John Lee, who is on both the RTC and Las Vegas Visitors and Convention Authority boards, said expanding the monorail could be vital to Strip visitors.
“The monorail system is underutilized right now, but this is probably a system that can solve our transportation issues,” he said. “The federal government is cutting transportation dollars to states and local governments, so I think this is the most viable opportunity for us to solve our own transportation issues between the convention center and the Strip.”
The planned extension would put a station within walking distance of the Mandalay Bay Convention Center, and according to a study by BuroHappold Engineering, would increase annual ridership by at least 1.5 million people.
Moore said he has a hard time trusting the forecast without seeing the study, which Las Vegas Monorail Co. says is private.
But more concerning, Moore said, is that the system already falls short of expectations. Ridership was predicted to increase by more than a quarter-million people from 2015 to 2016 but dropped slightly.
And monorail data collected through September 2017 indicates the system is on track to fail its ridership forecast by an even wider margin this year.
“The forecast is very optimistic. In my casual estimate, unreasonably so,” Moore said. “I would not put a dollar of my own money into a project predicated on this extreme a forecast.”
Recession hits hard
Optimistic projections played a role in the Monorail Co.’s previous bankruptcy.
Consultants forecast an average of 54,000 riders a day when the system opened in 2004. Ridership peaked at about 28,000 a day in 2005. The numbers fluctuated until the Great Recession, when convention traffic to Las Vegas fell by almost 30 percent in three years and monorail ridership dwindled.
Because ticket sales account for virtually all of the monorail’s revenue, it soon became clear the nonprofit would not be able to repay the bonds that financed its creation.
After filing for bankruptcy protection in 2010 the company’s debt was reduced from $650 million to $13 million. All of that is outstanding.
“As a financial operation, I think it’s not in great shape,” Duquette said. “But it’s muddling through OK as long as it can stay the course.”
County counted on to help
Underpinning the extension project’s riskiness is that Las Vegas Monorail Co. cannot get an investment grade bond rating without assistance.
Last month, county commissioners unanimously voted to set aside $4.5 million of hotel room tax revenue each year that the monorail can request in case of emergency. The money is not guranteed to be granted, but Myles said the decision was critical to get a bond rating.
Before voting to set aside the money, Commissioner Marilyn Kirkpatrick said the request concerned her.
“In my personal opinion if something is not going to make it over $4 million, Jesus, they’ve got bigger problems,” she said. “They shouldn’t even have to come to us.”
Indeed, Duquette said it’s unclear if Las Vegas Monorail Co. will be able to pay its existing debts without a new loan. Between now and July 2019, the company owes $10 million in principal plus interest.
“If Las Vegas really booms more than it’s doing now then (the monorail) might do just fine, but if there’s another recession I think they’re in big trouble,” he said.
“A mild downturn could make them insolvent.”
Monorail executives compensated well
Despite its previous financial woes, the Las Vegas Monorail Co.’s tax forms show the private nonprofit pays its leaders healthy salaries and benefits.
Last year President and CEO Curtis Myles was compensated $450,000 in pay and benefits. Myles wrote his salary was $330,000 in a November letter to Clark County.
Another eight executives, directors and managers made a combined compensation of more than $1.3 million.
And the monorail’s seven board members, who meet approximately 10 times a year, each made $42,000.