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Vegas rail: A gamble or good thing?

By Michael R. Blood

Associated Press

LAST UPDATED: 02:50 p.m. HST, Mar 26, 2012

VICTORVILLE, Calif. >> On a dusty, rock-strewn expanse at the edge of the Mojave Desert, a company linked to Senate Majority Leader Harry Reid wants to build a bullet train that would rocket tourists from the middle of nowhere to the gambling palaces of Las Vegas.

Privately held DesertXpress is on the verge of landing a $4.9 billion loan from the Obama administration to build the 150 mph train, which could be a lifeline for a region devastated by the housing crash or a crap shoot for taxpayers weary of Washington spending.

The vast park-and-ride project hinges on the untested idea that car-loving Californians will drive about 100 miles from the Los Angeles area, pull off busy Interstate 15 and board a train for the final leg to the famous Strip.  

Planners imagine that millions of travelers a year will one day flock to a station outside down-on-its-luck Victorville, a small city where shuttered storefronts pock the historic downtown.

An alliance of business and political rainmakers from The Strip to Capitol Hill is backing the project that could become the first high-speed system to break ground under President Barack Obama's push to modernize the U.S. rail network — and give the Democratic president's re-election prospects a lift in battleground Nevada.

Transportation Secretary Ray LaHood has publicly blessed the train — it means jobs, he says — and it's cleared several regulatory hurdles in Washington. 

Yet even as the Federal Railroad Administration considers awarding what would be, by far, the largest loan of its type, its own research warns it's difficult to predict how many people will ride the train, a critical measure of financial survival, an Associated Press review found.

There are other skeptics, as well.

"It's insanity," says Thomas Finkbiner of the Intermodal Transportation Institute at the University of Denver. "People won't drive to a train to go someplace. If you are going to drive, why not drive all the way and leave when you want?"

Construction cost projections have soared to as much as $6.5 billion, not including interest on the loan. Some fear taxpayer subsidies are inevitable. 

Reid and other supporters point to research that shows 80,000 new jobs, but FRA documents show virtually all those would be temporary — no more than 722 would be permanent. 

Victorville Mayor Ryan McEachron envisions a bustling transportation oasis with a hotel, restaurants, maybe even homes, on the proposed station site. He believes drivers can be enticed out of their cars, even in a region where the notion of rail travel can seem as distant as a New York subway.

The company is "going to have to market and market hard in order to get the ridership they need to support paying back the loan," the mayor says. "I think you can change the thinking." 

Along with Reid, the president's most influential Democratic ally in Congress, the plan is being advanced by casino developer and contractor Anthony Marnell II, whose credits include building the Bellagio and Wynn Las Vegas and who heads Marnell Companies, the majority shareholder in DesertXpress; project consultant Sig Rogich, a Republican adviser to two presidential campaigns who founded Nevada's most influential lobbying and advertising company; and Canadian transportation giant Bombardier, a DesertXpress strategic adviser that wants to supply its rail cars.

A decision on the loan is not expected until mid-year, but the company has spent some $30 million sharpening its plan and refining ridership projections. Rising gas prices and increasing traffic congestion could help ticket sales, and the company is touting reduced air pollution from fewer cars on the road. 

"It's Victorville that makes the project work," says chief executive Andrew Mack. 

Far from being a train from nowhere, company planners see the struggling city of 115,000, once a stop on storied Route 66, as a collection point for millions of drivers heading north to Las Vegas. Bringing the line deeper into the populous Los Angeles area would raise formidable challenges, Mack said, from crossing numerous freeways to finding space for track.

The lot now stippled with spindly creosote bushes has room for 15,000 parking spaces. Bags would be checked through to hotel rooms. At peak hours, trains would depart every 20 minutes. Mack says an average round-trip fare could be as low as $75, though documents estimate $100.

Mack says the train will deliver convenience — and for a price, luxury — that studies show passengers want.

DesertXpress officials once boasted they would build the line with private dollars, but they now plan to rely on FRA financing to cover the bulk of the cost. Mack didn't directly answer if the company turned to the FRA because private investors were unwilling to take the risk, but said the loan terms are attractive.

"When somebody comes and tells me I will build a system that pays for itself, I'm suspicious," said Hasan Ikhrata, executive director of the Southern California Association of Governments, which questioned ridership potential in a report last year. "There is no high-speed rail system in the world that operates without subsidies."

The company is still arranging as much as $1.6 billion needed to cover its share of the construction bill for the roughly 200-mile line. Investments could hinge on the loan approval, which requires the company to convince the FRA that taxpayers won't get stiffed. In a worst-case scenario, the train would become government property if the company fails.

The low-interest loan would be about three times the combined amount the FRA loaned 32 other projects through the Railroad Rehabilitation & Improvement Financing program since its inception in 2002.

If successful, the train could be a forerunner in a national high-speed rail network, while bringing a rich return for investors and delivering visitors to Vegas. It would also give Nevada residents an option to Southern California, albeit many miles from tourist hotspots like Hollywood or the beaches. 

The company is seeking funds at a time when a proposed high-speed train running from San Francisco to Southern California has been questioned because of ballooning costs and fear it will sap taxpayer dollars.

Early company research projected the train would lure away nearly one in four car, bus and airline travelers, initially about 4 million people annually. The company now pegs first-year ridership at about 3 million, but that projection was trimmed to 2.5 million by government analysts who urged more study. 

The risks are summarized in a 2007 study commissioned by ACS Infrastructure North America, a division of a global construction company that DesertXpress says is seeking a role in the project, that found most travelers were "broadly happy" going to Las Vegas by car or airline. While most travelers would be open to riding a train, the report warned the company would need to lure riders with pampering.

On clear roads, the 270-mile drive from downtown Los Angeles to Las Vegas takes about four hours. Planners say the train ride from Victorville to Las Vegas would take about 80 minutes, but it's debatable how much time would be saved after parking, boarding the train and reaching a Las Vegas hotel.

Round-trip flights from Los Angeles to Las Vegas can be booked for under $100.

The dream of uniting Southern California and Las Vegas by high-speed rail has been discussed for decades. In the mid-1980s, Las Vegas officials predicted a line would be running by 2000. DesertXpress, which would roughly parallel Interstate-15 on a pair of new tracks, has predicted for several years that it would soon break ground.

Reid initially backed a rival project that planned to use magnetic power to reach Orange County, but he jumped trains shortly after Rogich became co-chair of Republicans for Reid, a Nevada group with ties to the gambling industry that helped Reid win re-election in 2010.  

The senator's office disputes any connection between his flip and Rogich's involvement in the campaign. Spokeswoman Kristen Orthman says Reid's decision was based on the viability of DesertXpress, while the magnetically powered project languished.

Marnell, another member of Republicans for Reid, is president of one of several companies under the DesertXpress corporate banner. He and his son, M Resort, Spa and Casino President Anthony Marnell III, are also investors. 

Federal records show the elder Marnell has donated at least $15,000 to political committees connected to Reid since 2010, including a $5,000 donation in May to the senator's Searchlight Leadership Fund.

According to federal records, the company has spent at least $270,000 since 2006 lobbying at the House, Senate and federal offices.

Other investors include North Dakota businessman Gary Tharaldson, who donated $10,000 to a Reid committee in March, and transportation expert Tom Stone, who organized DesertXpress with partner Mack in 2005.

Nevada records show DesertXpress HRS Corp., headed by the elder Marnell with his son as a director, was authorized to issue 25,000 shares of stock. DesertXpress declined to say who held those shares, if issued, and in what amounts.

Not everyone in the high desert is on board with the project.

Thirty miles northeast of Victorville on I-15, officials in Barstow fear they'll lose 2,300 jobs. The impact will be "unsustainable," Mayor Joe Gomez wrote to LaHood in October 2010, according to a letter released under a public records request. 

To appease those concerns, McEachron said the station's proposed location was moved about halfway to Barstow. The patch of vacant land is so remote the city would have to annex it. 


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beebler wrote:
It needs to be brought in closer to the main parts of Greater LA. If it is, then yes, this would be extremely useful.
on March 25,2012 | 05:13PM
steveoctober wrote:
Anyone who's driven the route will tell you the pain is going through Cajon pass and beyond into LA. If I already survived through that, it's free flying past Victorville and into the desert. No one's going to pull over, find parking, unload their trunk, pay $100, probably go through some security screening, and then once arrived, I'd have to take a taxi or rent a car to get to my final destination. Then repeat that whole process again going home? No thanks. The distance from Victorville to LV is simply too short. Bottleneck is Cajon pass. Get the train into the core of LA and it'll work.
on March 25,2012 | 05:47PM
primowarrior wrote:
I have to agree with you on this one. Americans are too much in love with their cars, and once on their way, won't want to deal with the extra hassles involved. Better to spend this money on something else, or not spend it at all.
on March 26,2012 | 12:35PM
FrankGenadio wrote:
Politics changed the plan from one that would have connected Las Vegas with Anaheim, using a high-speed mag-lev that would have been the anticipated recipient of a federal grant of $40 million during the Bush administration. Sen. Reid originally backed that plan---until one of his chief backers (the Republican Rogich) came up with DesertXpress. One of the reasons for the Victorville terminus is the loss of speed the Xpress would experience heading up to the Cajon Summit. The mag-lev, which would have probably exceeded Xpress speeds by at least 100 miles per hour, could handle the summit grade with little degradation of performance. Guess it made too much sense---just as an urban mag-lev would have in Honolulu instead of the less efficient and more costly steel wheels system we will (possibly) implement.
on March 25,2012 | 06:37PM
313invegas wrote:
I'm no finance expert but why is it that Honolulu's Rail (only 20 miles long from Kapolei to Ala Moana) is expected to cost over 5 billion dollars while this DesertXpress (which is expected to be about 160 miles long from Victorville to Vegas & high-speed) cost 4.9 billion (6.5 billion at most). Just wondering?
on March 25,2012 | 07:52PM
NanakuliBoss wrote:
Because you'll have 19 more stations and platforms. Throw in elevators etc.etc....plus if you compare the cost of land in Hawaii to desert bush country, big difference. Ok?
on March 25,2012 | 09:58PM
Oye_Como_Va wrote:
Not to forget all the kickbacks.
on March 26,2012 | 04:08AM
Publicbraddah wrote:
Ah, the kickbacks. Nestor got a paltry $60K for his part time assistant secretary position with a pro rail group. I wonder whose lap he's sitting on?
on March 26,2012 | 06:22AM
Maneki_Neko wrote:
313invegas: Excellent point. Fact is we are being ripped off with a heavy rail train that starts in an empty firld, goes to a shopping mall, takes 10-15 years to build and costs over $50,000 per foot. Why? Look for who benefits from spending so much and there is your answer. It s not the resident taxpayer who benefits. Think about the millions already spent on PR and crayons and coloring books, think about the multi-million change orders when nothing has even started, think about the honchos recommend building stuff even if it gets torn down, think about the FHB connections. Yeah, you get the point. There is no way to justify $5.3 billion for a mall train to nowhere.
on March 26,2012 | 08:42AM
KeithHaugen wrote:
A good question. I'm still convinced (based on past experience) that if it were to be built, the Kapolei-Ala Moana train will cost in excess of $10 billion, more than $500,000,000 per mile. Rail supporters will tell you that is a bargain, compared to 160 miles of CA-NV railroad. Do they think we are stupid or what? Ben Cayetano has stepped up on behalf of the people and will end all of that follishness.
on March 26,2012 | 10:02AM
KeithHaugen wrote:
I seem to recall a recent story about a 1200-mile high speed luxury train built in China over a 15,000 foot mountain range to Tibet and that one 700-mile segment took only five years to complete at a cost of $3.6 billion, less than the 20 mile track proposed for Kapolei-Ala Moana and the 120 mile track from CA to LV.
on March 26,2012 | 10:25AM
Publicbraddah wrote:
Keith, I think your estimate is closer to the end cost of this project. I've always said this rail would go into double digits. We started at 3.5 billion and now up to 5.7 billion and we haven't even started.
on March 26,2012 | 01:32PM
mcc wrote:
It's the new standard from the DOE. Toru math. It is cheaper to build it then tear it down, rather than not building it at all.
on March 26,2012 | 10:53AM
niimi wrote:
When I lived in Cali I loved to drive to Vegas because it is free parking nearly everywhere. You could come and go as you please. No cab fares. No carrying bags through the airport. By the time I got to an airport, checked in, went through security, waited for the flight, flown, deplaned, got luggage, and took a cab to the hotel it was SHORTER to drive. I could drive into the canyons in Utah, visit Carson City, drive to Hoover Dan or the Grand Canyon. Even at $7 a gallon with a fuel efficient car it would be dumb to take a train. Besides, why would I want to get out of my car in Victorville in August at 108 degrees F? Talk about crazy.
on March 25,2012 | 10:16PM
Tanabe wrote:
I live in LA and I would be willing to use it on busy holiday weekends where leaving Vegas is a chore so a train that will take you beyond the worst of the traffic would be nice. However it all depends on the price, scheduling of trains, and who would pay for it. I was just talking to my co-workers and if we can get the Vegas hotels to help pay for it, and give them trains and allow gambling and sell drinks on it (with proceeds being taxed of course), then that could help cut down on costs to the rest of us.
on March 26,2012 | 06:57AM
tsboy wrote:
another project that is run on corruption. when you have politicians backing a project that they own part of, you know there are payoffs and kickbacks. and Obama is willing to lend these guys taxpayer money that will never be paid back. not a whole lot different than the Honolulu rail. this madness needs to stop.
on March 26,2012 | 08:24AM
cojef wrote:
Week-end use only will hardly pay for the upkeep. The traffic has to be at least 75/80% occupancy, 7/24 to break even. Therein is the problem any tranportation system faces, be it the airlines, bus, and train systems. Ocupancy is the name of the game. This project is like the bridge to no where in Alaska, Federally subsidized and so taxpayers lose, while politician rules the roost.
on March 26,2012 | 11:20AM
AhiPoke wrote:
There is absolutely no chance that a train like this will pay for itself, even if you factor in the possible impact to Victorville's economy. Why would anyone drive 100 miles so that you can catch a train at a price not much different than the cost of flying? If you're going to drive 100 miles what's another 180 miles and having the benefit of your car while in Las Vegas. It's truly amazing what happens when people are not accountable. If a corporate CEO made such a decision and it didn't pan out, they'd be fired. Not so with politicians spending taxpayer dollars.
on March 26,2012 | 02:25PM
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