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Private Train to Las Vegas Moves Closer to Bond Approval

Romy Varghese

(Bloomberg) -- California may allocate a portion of its limited tax-exempt financing allotment to a proposed private train to Las Vegas even as it grapples with the expanding fallout of the coronavirus pandemic.

Virgin Trains USA’s plan to bankroll the construction of the high-speed railroad may receive approval from a California committee on April 14. State Treasurer Fiona Ma is putting the project up for consideration after the U.S. Department of Transportation sent the company a letter saying it can sell federally-authorized private activity bonds, her spokesman, Mark DeSio, said Wednesday.

Ma, who supports the train, said in February that she wanted to see confirmation that the federal government will let the project proceed before putting it up for a vote to give the firm the ability to issue up to $3.2 billion of unrated municipal bonds through a California agency.

The project, backed by Fortress Investment Group private equity funds, wants about 15% of California’s annual share of private activity bonds, which state officials sell for publicly desirable ventures. Only a certain amount of such debt can be granted in each state under population-based limits.

Even before the coronavirus struck, affordable-housing advocates had unsuccessfully argued that California’s allotment this year should go entirely toward easing the state’s homeless and housing crises.

“Triple Winner”

The decision to move forward comes as California Governor Gavin Newsom warned that the state’s 40 million residents may need to stay sheltered indoors because of the spreading virus for eight to 12 weeks and that departments and agencies shouldn’t expect funding for new programs in next year’s budget. Proponents of the train say it will lift up the economies of the communities by the Mojave Desert, where it will start.

“For starters, it’s a job generator,” Ma said via text message Wednesday. “These are the kinds of jobs (construction and engineering) that can’t be exported out of California or the United States, for example.”

She called the project “a triple winner: Housing + Jobs + environment benefits.”

The project’s financing will depend on the appetite of municipal-bond investors who buy the riskiest of securities. Last week, high-yield municipal funds lost a record $5.3 billion amid market turmoil over the economic fallout from the coronavirus pandemic. California, which has its highest credit ratings in about 20 years, last week said it will hold off on scheduled debt sales because of the volatility.

It’s unclear if Virgin Trains received any affirmation that the federal government wouldn’t require additional environmental review.

Line Suspended

The day the company went before the California committee in January, the Federal Railroad Administration said in a letter that it’s “continuing to analyze whether the current project modifications trigger the need for additional environmental review.” That uncertainty led the committee to postpone its vote.

Ben Porritt, a spokesman for Virgin Trains, didn’t respond to questions about the review status. Representatives of the Federal Railroad Administration didn’t immediately provide a response.

Virgin Trains runs a railroad in Florida, which on Wednesday temporarily suspended service because of the coronavirus. It didn’t set a resumption date.

The train to Las Vegas is slated to start in 2023, running from a station in Apple Valley, 90 miles (145 kilometers) northeast of Los Angeles. The tax-exempt financing plans total $4.2 billion for the $4.8 billion project. Virgin Trains would be on the hook for debt payments, not the government agencies selling the bonds.

Nevada, which would also sell bonds for the venture, hasn’t yet scheduled a meeting for approval as it deals with the pandemic, said Terry Reynolds, director of the state’s department of business and industry. “It’s on the back burner.”

(Updates with Florida train in third to last paragraph)

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