Should the Victorville train be derailed? Let the market decide.

choo choo
(Brightline promotional material)

In July, Nevada officials unanimously, and gushingly, approved $200 million in private activity bonds to fund an investment company’s train to Victorville. California had already authorized issuing $600 million in the tax-exempt bonds for the project.

Then in October, project developer Fortress Investment Group announced it had run into a snag: Investors didn’t want to buy bonds for the private equity’s group Brightline train to Victorville.

“Unfortunately there is not a lot of liquidity in the market and a lot of economic uncertainty at this moment,” California state Treasurer Fiona Ma said at the time. “The project is postponed until market liquidity improves.”

Now California housing advocates are hoping the state rethinks the bonding authorization altogether, and reallocates it to affordable housing instead, Bloomberg reports.

Since bondholders don’t pay taxes on interest earned from private activity bonds, they are willing to accept lower rates of return when they buy them, in turn allowing project developers to borrow money at low interest rates.

Congress allocates bonding authority to states based on population and other factors, and a state has only so much bonding capacity. For instance, in Nevada, the $200 million authorized for the train over two years is roughly a third of the state’s entire bonding authority.

Historically in Nevada, the bulk of projects that have been authorized for private activity bonds have been housing, specifically, affordable housing. Inasmuch as Nevada (and the nation for that matter) has an affordable housing policy (it doesn’t), that policy is private activity bonds.

When it was learned that Fortress was delaying the project because the bonds weren’t selling, a Nevada official said he knew where bonding capacity should be allocated instead.

“Nevada has affordable housing needs, and I think the answer for us is easy, to reallocate it to housing,” state Director of Business Terry Reynolds told the Review-Journal.

But officials in both California and Nevada have suggested when Fortress comes back and asks again, both states will happily go along and reauthorize bond financing for the train.

They shouldn’t. To do so presumes the train is a sound public policy use of private activity bonds to begin with, a presumption housing advocates have challenged.

On the eve of California signing off on authorizing bonds for the train, California housing advocate Matt Schwarz noted his state’s housing crisis and asked, “How can they possibly justify this?”

Nevada’s leaders, who along with the resort industry have been aching to see passenger rail service from California for decades, are, well, all aboard.

Generally sensible state Treasurer Zach Conine said in July, after being one of the state officials to approve the bond authorization, that “the pandemic simply shows us additional need for good high-paying jobs in other fields.”

But the vision held by train boosters has never been to diversify Nevada’s economy or create more than a smattering of jobs in “other fields.” The train’s point is to bring Californians to Las Vegas so they can spend money on the Strip, and return the Californians safely home again. The bulk of any train-related job creation would likely be more of the same jobs we already have.

And “what the pandemic simply shows us” is Southern Nevada’s economy is already among the most dangerously reliant on tourism of any regional economy in the nation, and perhaps the world.

The train “creates jobs,” said Gov. Steve Sisolak, another official who approved the bond authorization, “without using taxpayer dollars and without impacting our state’s ability to finance future projects.”

Except for affordable housing.

The economics of a train from Victorville have always been difficult to demonstrate, and aspirational at best, as evidenced by a history of boosters pining for public money while repeated iterations of the project never get off the drawing board.

If Fortress thinks they’ve cracked the code, and are confident the train will pencil out for investors, great. 

But if the private sector declines to finance the project unless states authorize tax-exempt bonds, that may indicate a lack of confidence in ridership projections, which in turn would mean the train’s projected economic impact for Southern Nevada is no different than typical economic impact projections for shiny new objects around here — wishful thinking.

If the holy sacred private sector amen isn’t eager to finance the train, Nevada shouldn’t either. When Fortress comes back to Nevada officials seeking to gobble up the state’s limited bonding capacity, Nevada should channel Nancy Reagan, and just say no.

Nevada officials could still be supportive, though. For instance, they could suggest that Fortress look for investment from a handful of the world’s largest resort corporations, and see if they’d be interested in helping to finance a project that will predominantly benefit them.

Hugh Jackson
Editor | Hugh Jackson was editor of the Las Vegas Business Press, senior editor at the Las Vegas CityLife weekly newspaper, daily political commentator on the Las Vegas NBC affiliate, and author of the Las Vegas Gleaner political blog. Prior to moving to Las Vegas, he was a reporter and editor at the Casper (Wyoming) Star-Tribune.