Transportation

Betting Tax Dollars on a Bullet Train to Vegas


There’s only highway that leads straight from Southern California to Las Vegas, and on any given weekend thousands of gamblers determined to wager can wind up crawling along I-15 for over three hours on their way to The Strip. Tony Marnell,the developer who built the Bellagio, Mirage (MGM), and Wynn Las Vegas (WYNN) casinos, has a plan to get gamblers to the blackjack tables in 80 minutes. He wants to build the DesertXpress, a high-speed train that would run 190 miles from Victorville, Calif., a desert community 85 miles northeast of Los Angeles, to Vegas, and cost $75 round-trip. “People don’t want to spend their time traveling to Las Vegas,” says Marnell. “They want to spend time being in Las Vegas.”

Marnell’s business, Marnell Cos., and two partners have already put more than $40 million into the $6.5 billion project, which has been in the works for a decade. Earlier this month, the DesertXpress developers cleared the last of the many federal regulatory hurdles required to break ground on the bullet train, including an extensive environmental review. Now they’re hoping the federal government will do one more thing: front them the rest of the money.

Last December the developers applied for a $4.9 billion loan from the Railroad Rehabilitation & Improvement Financing Program run by the Federal Railroad Administration, which provides loans and loan guarantees for building and maintaining railroads. In its 13-year history, the program has extended $1.59 billion in financing, mostly to freight operators. If approved, the DesertXpress loan would be the largest the agency has ever made—and the first to a high-speed line. “The merits on it are relatively strong,” says FRA Administrator Joseph Szabo.

With Washington battling over the size and reach of the federal government, you might expect that the prospect of using nearly $5 billion in taxpayer funds to back a train to Vegas would result in angry speeches and calls for committee hearings. Instead, the response to the proposed loan has been … silence. John Mica (R-Fla.), who chairs the House Transportation and Infrastructure Committee and has praised the loan program as a way to finance high-speed trains, declined to comment about DesertXpress’s request. Same for Bill Shuster (R-Pa.), chairman of the panel’s railroad subcommittee. Senate Majority Leader Harry Reid, who has been a booster of DesertXpress because of the 32,000 jobs he says it will bring to his state, also won’t say whether he thinks the loan is a good or bad idea.

The RRIF program is so obscure that it rarely draws attention. That could change if the money comes through. The requested loan is almost 10 times larger than the government’s $535 million loan guarantee to Solyndra, the failed solar panel maker that’s now the subject of an intense partisan dispute. To get approval, DesertXpress’s application must pass review not only by the FRA but the Transportation Dept.’s Credit Council, the Office of Management and Budget, and an outside auditor. The developers hope to break ground by the end of 2012. They estimate the train will initially carry an average 6.49 million riders a year and turn a profit in year one. The FRA notes that none of the program’s funding recipients have defaulted. Says Szabo: “We don’t make loans that aren’t creditworthy.”

The bottom line: As Washington battles over budgets, a federal agency mulls lending a startup venture nearly $5 billion for a train to Sin City.

Caruso is a reporter for Bloomberg News in Washington.

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Companies Mentioned

  • MGM
    (MGM Resorts International)
    • $22.84 USD
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  • WYNN
    (Wynn Resorts Ltd)
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