Company May Get $4.9B Federal Loan For High Speed Rail Linking Victorville And Vegas

VICTORVILLE (CBS/AP) — 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.

Another high speed rail project funded by a state bond approved by a narrow margin of California voters is already facing setbacks.

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.

(TM and © Copyright 2012 CBS Local Media, a division of CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2012 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

  • Corruption

    Harry Reid is handing his friend the contract to build the railroad and Harry Reid also has investments in Las Vegas casinos. This is just a scheme to make money for a few people. Jobs, they will only pay a few bucks an hour. The people getting rich are the people in suits. All these people care about is getting rich now. They do not care if the project fails or cost 100 billion. Why would they care they are getting rich tomorrow.

  • PL

    another SOLYNDRA in the making

  • FFL

    Uber liberal progressive socialists could care less about failure or debt to taxpayers. As long as they and their corrupt cronies make money NOW .. forget about payoffs in the future…

    • jack

      make up your mind, I thought you guys said we were tree hugging, job killing, earth loving hippies, who don’t care about businesses and want to kill capitalism, and hate rich people. You can’t have it both ways, try to stick with one narrative, otherwise you sound stupid.

      • Floyd Looney

        All the really rich people are leftist socialist Democrats these days. They have theirs and want to stop anyone else from getting it.

  • papi

    Victorville is where you go buy a cheap home and work to Los Angeles area, so I can see how it can benefit the people of Victorville, but no one else since it is nothing of a tourist spot.

  • jack

    Dude, how ’bout linking LA and Vegas?

    • james

      they really have no way to do that. LA is probably the worst planning for expansion in the history of the U.S. They basically let urban sprawl go in every direction without any sort of planning at all 20,30 or more years into the future.

      To build the rail would require 10s of billions to purchase and relocate people from land that is needed for rail. The existing lines in LA cannot be used – most of those are for freight – they want higher speed rail, not 20mph freight car speed.

      They could never even come close to paying that back with reasonable fares – not to mention the airline lobby who would be very against it. Also do not forget the environmental studies and lawsuits and all the other garbage that would tie it up in courts for decades.

  • bob t

    Should be from Los Angeles to Vegas. What’s the point of driving to Victorville then transfer to the bullet when one can drive the rest of the way to Vegas.

  • Sydney

    Another waste of tax dollars. I thought that the feds were broke.

  • alex

    family of 4 for 400 round trip i doooonnnnnttt think so

  • Floyd Looney

    Makes no economic sense. Anyway you slice it. It’s faster, cheaper and more convenient to drive or even fly. Who owns it anyway? The city of Las Vegas? Unions? Nevada politicians? Casino’s? All of the above?

    The “loan” and future loans will never be repaid. It will never make a profit.

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  • Poes

    If it is such a great deal, why do they need hard earned tax dollars? Remember, 40% is borrowed, and if lost, must be paid back to the Chinese. So, 40% of any lost government money must be paid back. Insult is added to injury, and your grandchildren’s debt load.

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  • Gary Allan

    wjhat is going to power these trains, solar, wind, or seaweed?

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  • Mark

    “If you build it they will come.”…was only a fun movie it was not a “reality show”.

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    why dont we did a trench fill it up with water and take submarine :D it will take 7 days to get there and cost 7000 dollars a ticket :D yes, pass the crack pipe :D

  • Steve

    I wonder if this was the pay back for reid winning the election with the unions getting all the illegals I mean workers to the polls at the last minuet??? After all he was polling to lose then the unions came through for him.

    Just makes me wonder.

  • Marty

    While in Victorville you can also pick up some meth.for the trip.

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  • Chris

    they would be much better off spending the money to change the name of the city and market it as a place to go. victorville sounds like an absolute loser place to be. any city with a name like that has nowhere to go whatsoever. i wouldn’t even want to drive through a place like that. definitely not a place you would want to say you’ve been to. and they expect it to become some sort of transport hub? lol. even the train from portland to seattle has a hard time with enough passsengers.

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