California postpones vote on PABs for Virgin Trains line to Las Vegas

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A California board postponed a vote on allocating Virgin Trains USA $600 million of tax-exempt private activity bond authority to build a passenger rail line connecting Victorville, California, to Las Vegas.

The California Debt Limit Allocation Committee, which administers the state’s PAB program, Wednesday tabled a vote on the matter to its Feb. 12 meeting.

California officials had said prior to the meeting that the award of Virgin Trains' full request for $600 million of private activity bond allocation hinged on approval of the economic development plan and receiving environmental approvals from the Federal Railroad Administration. CDLAC granted preliminary approval to first $300 million in September out of last year’s PAB volume cap.

Representatives from Virgin Trains gave a presentation on the project’s expected economic benefits to the Victorville area at the meeting. The plan for a 170-mile rail link to Vegas would have most customers from the Los Angeles basin drive to Victorville, which is about 85 miles from Los Angeles over a mountain pass.

The hitch for CDLAC is that Virgin Trains received a letter from the Federal Railroad Administration regarding environmental requirements that the board did not consider definitive.

In the letter, the FRA said it had not uncovered anything to lead it to believe the environmental study was not sufficient, or that a supplemental environmental study would be needed. XpressWest, the company that originally conceived the project before Virgin Trains bought it in 2018, had received approval of its environmental studies in 2011, and Virgin Train official told board members their project is less impactful than what was originally conceived.

But CDLAC members said they were looking for something more affirmative.

“We need more certainty from the federal government,” State Treasurer Fiona Ma said before making a motion to postpone the vote.

Virgin Trains wants to borrow the money to build 135 miles of rail in California and a passenger and maintenance facility in San Bernardino County. It also plans to acquire 225 acres for housing and retail/commercial development near the Victorville terminal. Another 35 miles of track and a train station are planned in Nevada.

The PABs are important to the project, because of the three or four years it can take ridership to ramp up, said Husein Cumber, chief strategy officer for Florida East Coast Industries, parent company to XpressWest/Virgin Trains. The federal government considers it a public benefit when private entities invest in public transportation projects, which is why PABs are allowed for such projects, he said.

The allocation can be leveraged up to four times that amount to $2.4 billion in tax exempt private activity bonds because of federal rules extending that boost to railroads.

Several public officials from Apple Valley cities made the trip to Sacramento to testify in favor of the project.

“These bonds are designed specifically for projects like these,” said Palmdale Mayor Steven Hofbauer. “Not only will it provide transportation, but it would also spur jobs in Victorville and Palmdale and help meet the state’s housing goals.”

The railroad is expected to generate thousands of good-paying jobs, some permanent, from construction of the rail line and maintenance facility in the impoverished region in the Mojave Desert 90 miles northeast of Los Angeles, according to the company's economic analysis.

The state’s PAB priorities were questioned in December when the California Housing Consortium, an affordable housing coalition, urged the state to dedicate $4 billion of its allocation to affordable housing.

CDLAC received a $4.15 billion PAB allocation this year. Of that, it plans to dedicate $3.5 billion to multifamily housing projects, said Larry Flood, the board’s executive director. It would also dedicate $639 million to waste management projects and $10 million to industrial development.

PAB allocations are granted annually using a population-based formula. California’s requests exceeded its allocation last year for the first time in 20 years after lawmakers approved additional spending for home building. It has received nearly $10 billion of requests for the $4.15 billion it has been allocated this year, $8.4 billion of that from housing developers.

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Private activity bonds Transportation industry Infrastructure Fiona Ma California Infrastructure and Economic Development Bank California Nevada