Panel Paper: Las Vegas Monorail Bankruptcy: Opportunism in Public-Private Partnerships

Friday, July 20, 2018
Building 3, Room 208 (ITAM)

*Names in bold indicate Presenter

Lisardo Bolaños and Jonathan Gifford, George Mason University

Public-Private Partnerships (PPPs) are becoming a popular delivery mechanism for transit projects. They allow U.S. state and local governments to access resources from, and share risks with, the private sector. However, if the public sector wishes to continue to attract private resources, they need to address one bankruptcy determinant: rational inattention. This paper explores the Las Vegas Monorail bankruptcy case, an event that lost bondholders 98% of their capital and accrued interests. After reviewing the PPP project’s documents, risk analyses, and news reports, the analysis suggests that the bankruptcy was a consequence of inattention to the financial sustainability of the project because: i) the non-profit corporation isolated project developers from any benefit or damage coming from their actions, and ii) during the burst of the Dotcom bubble, investors were purchasing liquid and safe assets, like the project´s bonds. A competing hypothesis, opportunistic behavior, is also discussed but not sufficient evidence was found. The study findings suggest that policymakers 1) conduct a competitive procurement, 2) diminish the use of non-profit corporations for future PPP projects, 3) perform ex-ante stress tests to evaluate debt sustainability, and 4) conduct analysis to evaluate the cost and benefits of renegotiating a PPP contract.

Full Paper: