The bell tolls for the Las Vegas Monorail
Guest post by Doug French, president of the Mises Institute and longtime NPRI contributor. Original available at Mises Economics Blog.
Despite the project opening in July of 2004 when the town was en fuego, the nearly 4-mile monorail never attracted enough riders to make bond payments. Mass transit up and down the Las Vegas Strip sounds like it would be a stone cold lock, but the do-gooders that implemented the project didn't listen to casino owners like Sheldon Adelson and Tom Elardi who suggested the monorail run right down the median of the Strip between the north and south lanes.
It not only would have taken pressure off surface street traffic, which can take hours to transverse on busy weekend nights, but it would have been a tourist attraction. What a great way to see the Strip. The monorail would have been packed every evening.
Anyone who has taken the monorail knows that it, instead, runs behind the Strip properties and doesn't extend to the McCarran Airport, which would be an enormous benefit for tourists, who would gladly pay to ride it, rather than wait to take an over-priced cab ride to their hotels. But Sin City politicians know Las Vegas cabbies would quickly mobilize and protest.
The Las Vegas Convention and Visitors Authority (LVCVA) and the Culinary Union made sure that not only did the monorail not run down the middle of the strip, equally benefiting all Strip properties, but riders will notice that going north the elevated track swings east, avoiding Adelson's non-union Venetian Hotel, Elardi's Casino Royale, and the Sands Expo Center, a direct competitor to the LVCVA's Las Vegas Convention Center. The monorail stops conveniently at the convention center on it's way to the Sahara Hotel, a property that will go dark May 16th. The Sahara hasn't been any sort of destination since the Rat Pack roamed the Strip. But at the time the monorail project was hatched, the Sahara was owned by the late Bill Bennett.
Bennett is best known for turning Circus Circus into a money machine in the '80s and 90â€²s before selling it. However, the Culinary Union will always remember him for feeding striking Frontier employees who picketed the Elardi family property for more than six years. Bennett is said to have spent $1 million a year feeding picketers.
"He was a giant in the gaming industry in town and for us he was unbelievable, especially during the Frontier strike," said D. Taylor, a Culinary Union official. "One of the vital things that kept the strikers going was Mr. Bennett feeding them three times a day. You never forget that kind of generosity." The Elardi family and their in-house labor counsel haven't forgotten him either.
The monorail never cash flowed, being 10,000 riders a day short of the number needed to break even. And something always seemed to go wrong, such as wheels falling off and riders being injured when the brakes locked up.
"The Las Vegas Monorail Co., a nonprofit organization, filed for Chapter 11 bankruptcy in January 2010 after coming nowhere near close to being able to repay tax-exempt revenue bonds issued through the Nevada Department of Business and Industry in 2000," Rich Saskal wrote for The Bond Buyer in February.
Now a reorganization plan has been filed by the company "that would wipe out more than 90 percent of its $658.8 million debt but leaves hurdles to continued operation until the end of the decade," writes Tim O'Reiley for the Las Vegas Review-Journal.
Even with the debt slashed by 90 percent, the monorail will not generate enough cash to service the remaining debt and cover needed refurbishing of fare collection equipment and platform doors estimated to cost between $23.1 million and $77.5 million.
"From 2007 through 2010, revenues dropped 25 percent to $23.6 million in operating income slumped 65 percent to $4.3 million," writes O'Reiley. "Passenger counts went down by a third to 5.2 million."
If the project seemed dicey more than a decade ago, at least the bonds were insured against default by Ambac Assurance Corp. However, Ambac itself filed Chapter 11 Bankruptcy on November 8th of last year. Las Vegas Monorail bondholders are prepared to accept $111 million and release Ambac Assurance Corp. from its exposure to the defaulted bonds.
Bill Bennett passed on in late 2002. The Sahara will go in a couple weeks, and the monorail looks not to be far behind. Plenty of D. Taylor's Culinary Union members remain idle and the LVCVA has had to cut back. Its furloughed union workers want to be paid for the days they were laid off and refuse to negotiate for pay cuts.
Casino Royale still packs in gamblers, offering the best gaming value on the Strip, and Sheldon Adelson was paid $11.4 million last year. His family's stake in Las Vegas Sands is currently worth $20.5 billion. The Elardi and Adelson properties remain non-union.