WHAT RE-TRAC DOESN’T WANT THE PUBLIC TO KNOW
City Council On Track to Increase Casino Revenues at Taxpayers’ Expense
(Note: "ReTRAC" is Reno city hall's name for the Railroad Trench Scheme.)
By Martin Crowley, candidate for Reno city council

In the face of what appears to be an overwhelming lack of public support for a downtown train trench, the City has been tenacious in its efforts to proceed with the project.
Over time, proponents of the trench have cited several arguments in defense of this quarter billion dollar project. Proponents argued that the trench was needed to eliminate safety issues, emergency vehicle impedance and traffic congestion.
While considering these arguments, it occurred to me... (click for more)

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The Reno RailRoad Trench (ReTRAC) Project
The Downtown Reno Railroad Trenching Project
by Gary A. Horton, Economist
Version Date: September 1, 1999

This 12-part series provides background information on the ReTRAC Project
by disaggregating the various aspects of this project and analyzing them
independently. This has been no easy task as this project represents a
well-orchestrated, integrated and cohesive scheme on the part of
politicians, Reno city officials, consultants, contractors, public
relations firms and an unwitting local major newspaper which has remained
unconscionably silent on factually reporting the most audacious and costly
public works project ever attempted in Reno's history.

Thus far, due primarily to a general lack of publicly-available information
on the project's particulars and possible economic and financial
ramifications, this egregious scheme has largely succeeded. The following
12 parts attempt to unravel that scheme, analyze specifics on the trench
itself, more fully assess the economic and financial costs, appraise
potential environmental repercussions, assess the costs of relocating
downtown Reno's public utilities, identify the winners and losers and ask
the relevant questions that should have been asked and answered long before
this project's planning ever came as far as it did. The following topics
are included in this series:

Part 1 - An Overview: A Primer on the Downtown Reno Railroad Trenching Project
Part 2 - The Project's Trench: The Reno Grand Canyon or The Grand Canal?
Part 3 - The "Other" Trench and the Additive Effects of Digging Up Reno's
Public Utility Infrastructure All Over Again
Part 4 - The Shoofly and "Where Goest the Trains?"
Part 5 - The Infamous Memorandum of Understanding and How Union Pacific
Mesmerized and Duped City of Reno Officials
Part 6 - Project Financing: A Primer in Balancing Sources and Uses of Funds
Part 7 - Construction Cost Overruns and the Final Bill: Whether It's
$192,850,000 or $391,035,000
Part 8 - Financing the ReTRAC Debacle: Construction Costs of $192,850,000
Plus Financing Costs of $349,785,000
Part 9 - The Enabling and Supporting Legislation and the Role of Political Maneuvering
Part 10 - The ReTRAC Project: Assessing the Winners and Losers
Part 11 - Reno Railroad Trenching: Public Expenditures Versus Private Investment
Part 12 - The Questions That Should Have Been Asked Before Now

ReTRAC Part 1 - An Overview: A Primer on the Downtown
Reno Railroad Trenching Project

The downtown Reno railroad trenching project, or ReTRAC, is the most
complex and expensive public works project in the history of the City of
Reno. The project consists of a trench 2.1 miles long, 54 feet wide, 33
feet deep with 1 percent grades at either end. It will carry two tracks
and a service road and extend along the existing Union Pacific (UP)
Railroad right-of-way through downtown Reno from Keystone Avenue in the
west to Sutro Street in the east. The trench's side walls will be 5-7 feet
thick and held upright by angled 'tiebacks', or supporting rods extending
outward and down from the wall, or some form of overhead support extending
across the entire trench to prevent inward collapse. The project also
includes eleven overhead road crossings and one underpass (Sutro Street)
and will permanently close the Wells Avenue underpass.

A major concern affecting both construction and environmental mitigation
costs is that an extensive 3,600-foot portion of the trench will be 10-20
feet below the groundwater level. The groundwater is known to be
contaminated with chlorinated and petroleum hydrocarbons. Kennedy-Jenks
consultants has informed the Nevada Division of Environmental Protection
(NDEP) that they anticipate an infiltration rate of up to 20 million
gallons per day. The NDEP has, in turn, put the city 'on notice' that they
do not feel that groundwater pumping and treatment are viable options. The
city's alternative is to modify the trench design and attempt to completely
seal the entire structure, but the current trench costs of $123,220,000 do
not call for any such sealed configuration, assuming it can be done at all.

Currently, the ReTRAC Project is only 5 percent designed and has now
entered the Environmental Impact Study (EIS) phase, which may take up to 18
months and cost up to $6 million. At the end of that study it is estimated
that the project will be only 30 percent designed.

Financially, the City of Reno has estimated that the project will cost
$192,850,000, but a more recent study by the city's prime consultants,
Nolte & Associates, has placed its cost at $197,009,000 (August 1998),
which comes to $199,043,000 in December 1998 dollars when extrapolated for
cost escalation. The project has only been funded for a cost of
$192,850,000 from a number of tax sources to include a one-eighth percent
sales tax, a one percent downtown Reno room tax, a special assessment
district tax on 450 downtown property owners, regional transportation
funds, Reno street bond proceeds, and some $64 million from UP to settle
outstanding complaints and litigation filed by the City of Reno. In truth,
$42 million of this UP 'contribution' is a noncash transfer of property
which cannot be used to offset project costs. Therefore, an additional $42
million in debt will need to be borrowed.

Major concerns with the project include the likelihood of significant cost
overruns up to $200 million, funding the $42 million UP noncash property
contribution, the potential for environmental mitigation costs associated
with contaminated groundwater and soils, extensive relocation costs for
underground public utilities, and financial costs of nearly $350 million
related to additional debt and the net present value of the interest on
this debt.

ReTRAC Part 2 - The ReTRAC Project Trench: The Reno
Grand Canyon or the Grand Canal?

The trench component of the ReTRAC Project consists of an excavation 2.1
miles long, 54 feet wide and 33 feet deep with 1 percent grades (1 foot
vertical change in elevation for every 100 feet in horizontal distance) at
either end. In preparing the trench's railroad bed, it is also expected
that excavation will have to be made below the 33-foot level, probably by
5-10 feet. The trench will essentially follow the Union Pacific Railroad's
current right-of-way through the heart of downtown Reno, extending from
Keystone Avenue in the west to Sutro Street in the east.

Outside the 54-foot right-of-way there will be 5-7-foot thick retaining
walls held in place by rod "tiebacks" anchored into the soil at a downward
angle. If attaining easements for these tiebacks cannot readily be
effected, the city will have to use some form of overhead supports spanning
the trench's entire width. Such supporting structures are nowhere included
in current cost estimates. Even without the tiebacks, however, the
thickness of the walls will necessarily require some easement or land
acquisition by the city, another project cost not included in the total
estimate.

Groundwater known to be contaminated with chlorinated hydrocarbons (PCE)
and petroleum hydrocarbons (fuels and solvents) exists at depths of 10-20
feet below the ground along the trench's route. Consequently, if the
trench cannot be completely sealed, an expensive and uncertain possibility,
then the alternative is to pump and treat the contaminated groundwater
infiltrating into the trench. It has been estimated that this infiltration
rate could be as high as 20 million gallons per day. This volume is
equivalent to 30 percent of Sierra Pacific Power Company's total water
sendout in 1998 and 50 percent of the total treatment capacity of the
Truckee Meadows Water Reclamation Facility. The Nevada Division of
Environmental Protection has advised the City of Reno that, due to water
volume and contaminants involved, they do not feel pumping and treating is
a viable option.

Excavation of the trench will necessitate the removal of 500,000 cubic
yards of soil, equivalent to approximately 650,000 tons. At an average of
20 tons per truck load, this will require 32,500 truckloads leaving the
project site in downtown Reno and heading for distant dump sites throughout
the trench's excavation phase. Impacts on downtown traffic, business
disruption, noise, pollution and wear on city streets will be extensive and
severe. In addition, as a significant portion of these soils are saturated
with contaminated groundwater, it is reasonable to assume that they too
will need some form of special treatment and disposition. The city's cost
estimates do not anywhere allow for this consideration.

There also exists some concern over whether the trench can be permanently
sealed against groundwater infiltration and at what additional cost. The
solvent nature of the contaminated groundwater is likely to adversely
affect any sealing and grouting process, thereby necessitating and
"aggressive" maintenance program throughout the trench's life. As the City
of Reno has assumed all liability with respect to this trench in its
Memorandum of Understanding with UP, some groundwater pumping and treatment
capability will be needed to accommodate a potential catastrophic failure
of trench components which may affect Union Pacific's railroad traffic.

ReTRAC Part 3 - The "Other" Trench and the Additive Effects
of Digging Up Reno's Public Utility Infrastructure All Over Again

In addition to the 2.1-mile long, 54-foot wide, 33-foot deep railroad
trench through the heart of downtown Reno, there is also another trench to
be dug associated with the ReTRAC Project whose particulars the City of
Reno has been understandably reluctant to discuss publicly. Coming down
from the north along Vine Street (located one block east of Keystone
Avenue) is an 8-foot diameter reinforced concrete pipeline that serves as a
storm drain for much of northwest Reno. (There is also another smaller,
30-inch storm drain pipeline coming down Evans Street further to the east,
but we will concentrate our immediate concerns only on the larger pipe.)

Currently, this storm drain pipeline comes down Vine Street, crosses under
the railroad tracks and intercepts Second Street where it then turns to the
east. Part way down Second Street the pipeline angles to the southeast
towards the Truckee River. Under the northern approach of the Arlington
Avenue Bridge near Wingfield Park in downtown Reno, this drainage pipe
connects with a 12 by 5-foot vault structure which then enters the Truckee
River on the northern bank immediately below the Arlington Avenue Bridge.

The excavation of the railroad trench will necessitate and extensive and
expensive rerouting of this northwest Reno storm drain pipeline. Due to
grade restrictions, it cannot be rerouted to the west to cross under the
trench west of Keystone Avenue. Consequently, it will need to be routed
east, probably along Third Street, as much as possible, a distance of some
two miles to where it can cross under the trench near Sutro Street. This
alignment may be further complicated as the Sutro Street "crossing" is
actually designed to go under the railroad trench. Therefore, Sutro
Street's approaches may necessitate further rerouting of this storm drain
yet to be determined. Estimates by engineers involved with the original
installation of the Vine Street pipeline have placed the approximate cost
of this rerouting this storm drain at between $18 and $24 million.

Due to the size of this pipeline, there will now exist the need to excavate
another sizeable, albeit temporary, trench north of the proposed railroad
trench. The excavation of this new trench will be approximately 12-15 feet
wide and probably equally as deep to allow for bed stabilization and
accommodate underground utility crossing above the pipe. This trench's
excavation will, in certain places, put it also below the groundwater table
with similar contaminated groundwater and soil concerns as are now expected
with the railroad trench.

Of significance to the overall ReTRAC Project costs is that in addition to
the excavation and pipe installation costs of this second trench, its
disruption of the downtown Reno business district could be just as great as
for the railroad trench itself as it will be disrupting both business and
road traffic over an equal distance through much of the downtown area. In
addition, all the north-south public utility infrastructure that had just
been reconfigured to cross the railroad trench located just to the south,
will now have to be configured again to cross this second trench. Nowhere
in the City of Reno's current project cost estimates are these costs fully
incorporated.


ReTRAC Part 4 - The Shoofly and "Where Goest the Trains?"

The excavation of Union Pacific Railroad's current right-of-way through
downtown Reno will necessitate the rerouting of all train traffic during
the excavation phase of the ReTRAC Project. Current project plans call for
the construction of a temporary railroad bypass consisting of two parallel
railroad tracks along the entire trench route narrowing to only a single
track for several blocks through the heart of downtown Reno, probably from
Sierra Street in the west to beyond Center Street in the east. Naturally,
the city would like this single railroad track to be as long as possible,
thereby reducing its potentially adverse effects on nearby structures, and,
conversely, the UP would like it to be as short as possible, and preferably
not have it narrowed to one track at all. The extent of this single track
may figure prominently in limiting damages to downtown structures adjacent
to its path. The shoofly, as this bypass is called, will most probably run
down Commercial Row, immediately to the south of the existing railroad
right-of-way.

Even as the most preferred route, there are still a number of problems
associated with the shoofly's proposed location. First, the shoofly will
place trains, along with their inherent noise, exhaust fumes and vibration,
dangerously close to a number of important downtown businesses. This is
likely to have adverse impacts on these businesses economic fortunes as
well as possibly cause damage to the structural integrity of the proximate
buildings along its path. In addition, in one particular case (Fitzgeralds
Hotel and Casino), part of the area near and under the proposed shoofly
route is presently used for office space and will not now support the
weight of train traffic overhead. Therefore, in addition to compensating
this particular property for office relocation costs, the entire area
beneath the shoofly at this location will need to be reinforced before
trains can pass safely overhead. The preliminary business mitigation claim
submitted by just the Fitzgeralds property alone to the City of Reno for
the relocation of office space, parking and lost business presently could
exceed the project's total fund specifically set aside for such
contingencies.

There also may be a safety issue in locating the shoofly immediately
adjacent to the trench itself. It is unlikely that sufficient horizontal
distance presently exists to allow the presence of the shoofly and the
excavation of the railroad trench at the same time without seriously
jeopardizing the stability of the trench's southern sidewall excavation and
retaining wall construction.

There is, of course, the Feather River alternative route to be used during
the trench's construction which UP has strongly rejected and the city has
proposed as an alternative to having to construct any shoofly at all.
Certainly, trench construction would be simplified and downtown disruption
minimized. This route would take train traffic during construction well
north of Reno eventually rejoining the UP mainline at Winnemucca, Nevada.
Of course, if UP agreed to use this Feather River bypass, even
temporarily, one might legitimately ask why we need the railroad through
downtown Reno at all. What works in the short-term may, in fact, prove to
be a satisfactory long-term solution as well. Therefore, to preclude ever
testing this possibility, UP will continue to strenuously fight this
Feather River routing option as an alternative.


ReTRAC Part 5 - The Infamous Memorandum of Understanding and
How Union Pacific Mesmerized and Dupe City of Reno Officials

In order to dismiss complaints filed against Union Pacific Railroad with
the Surface Transportation Board and settle all outstanding litigation, the
UP entered into a Memorandum of Understanding (MOU) with the City of Reno
establishing each party's obligations and responsibilities associated with
the ReTRAC Project. Upon reading this document, it becomes clearly evident
who wrote it and why. Only an in-depth understanding of Reno's funding
crisis associated for this project and the need to come away with some
semblance of a winner in negotiations with UP explains why the city signed
it. Interestingly, in early negotiations with the UP, the city was offered
$35 million in cash as a mitigation payment. That offer was,
unfortunately, rejected. Upon closer reflection and analysis of the
current MOU, it is now obvious that the city should have accepted that
initial cash offer. What the city obtained from the MOU provides far less
cash and a lot more liability.

The UP's contribution to the project set forth in the December 1998 MOU
totals some $64 million and consists of three components: (1) $17 million
in maximum railroad-related construction outlays; (2) $42 million in
property transfers consisting of the current railroad right-of-way (the
operating property) and contiguous lands owned by UP (the non-operating
property); and (3) several million dollars in lease income associated with
the transferred property. Both the UP and the City of Reno agreed to this
$42 million value for the transferred property; however, property tax
assessments by the Nevada Department of Taxation, Centrally Assessed
Properties (operating property) and the Washoe County Assessor's Office
(non-operating property), clearly show that the market value of this
property is actually $12.4 million. This nearly $30 million unexplained
valuation 'enhancement' was evidently necessary to balance the project's
construction costs with available project funding, and represents one of
the more blatantly deceptive acts associated with this affair. It was, in
fact, this deception as to this property's value that allowed the City of
Reno to deceive the Washoe County Commission into believing that the
project was fully funded.

In addition to the inflated value of the property being transferred, the
MOU is also important in its definition of "project costs," which are those
costs specifically to be borne solely by the City of Reno. Perhaps the
most far-reaching aspects of the MOU's many covenants defines any and all
environmental mitigation associated with the excavation of the trench as a
"project cost" and therefore the city's responsibility. The environmental
mitigation implications of this transfer of responsibility are not yet
fully known; however, for city officials to have accepted all liability
associated with what is contained within this trench may prove to be their
most costly and egregious mistake of all.

As for the Union Pacific Railroad, the MOU was necessary to force the city
to take land not specifically needed to complete the project, and its
underground contaminants, and thereby shift all mitigation liability once
trenching actually begins. And the city, on its part, so desperately
needed the inflated value of this transferred property as a project fund
source that it was willing to risk environmental mayhem and potentially
costly mitigation in the process.


ReTRAC Part 6 - Project Financing: A Primer in Balancing
Sources and Uses of Funds

The City of Reno has presented the ReTRAC Project to the public and media
as a neatly bundled, fully funded, virtual turnkey public works project.
The project's sources of funds exactly equal estimated project costs
($192,850,000). These specific sources of funds (rounded) are as follows:
(1) Union Pacific Contribution $64,600,000 ($42,000,000 in land)
(2) Federal Highway Grant 2,293,000
(3) Regional Transportation Funding 14,257,000
(4) Special Assessment District (SAD) Tax 14,466,000
(5) One Percent Room Tax 9,208,000
(6) One-Eighth Percent Sales Tax 87,026,000
(7) Reno Street Bond Proceeds 1,000,000
Total $192,850,000

Several sources of funds, however, have a 'timing' component to them,
meaning that they are not up-front, lump sum payments and will be accrued,
or received over an extended period of time, typically either 20 or 30
years. These accrued sources include the regional transportation funds,
the SAD tax, the room tax and the sales tax. These four sources of funds
total approximately $124,957,000 and comprise nearly 65 percent of the
project's funds sources. Consequently, the assumptions that the city used
in calculating them are critical to insuring that adequate funds exist to
fund the project.

The values presented above for these accrued taxes actually represent the
debt that can be funded today for a given future stream of tax payments
over a given time period and at a given interest rate. As the city did not
release any of its assumptions for these calculations, some assumptions
(maturity and interest rate) had to be made to assess the 'reasonableness'
of the city's estimates. For purposes of these calculations, an interest
rate of 5.5 percent was used and either 20 or 30 year maturities. In order
to service the debt amounts in the table above, the following annual tax
revenues and maturities would be needed:

(1) Regional Transportation Funding $1,193,021 (20 years)
(2) Special Assessment District Tax 1,210,510 (20 years)
(3) Room Tax 770,485 (20 years)
(4) Sales Tax 7,987,897 (30 years)

If, for some reason, economic conditions deteriorate in northern Nevada
(e.g., despite legal setbacks on the California Supreme Court ruling,
competition from that state's Indian casinos continues to intensify over
the next 20-30 years), then two of the above taxes will be immediately and
adversely affected (room and sales taxes). The SAD tax will be affected
with a lag based on weakened business conditions and resultant reduced
property values. Reduced tourism and automobile traffic could also
adversely affect regional transportation funding.

Of the remaining 'up front' sources of funds, the UP land 'contribution' is
certainly the most questionable. Of this $64 million contribution, $42
million is in the form of a noncash property transfer which cannot be used
to offset project costs. The market value of this property is actually
$12.4 million. Therefore, even if the property could be sold at its
current market value, the project's funding would still come up short by
nearly $30 million.

Consequently, as a valid source of funds, the UP land contribution is
virtually worthless and never should have even been considered. At a
minimum, its inclusion, and particularly its $30 million 'inflation',
represents a gross deception on the part of city officials. And when that
deception was used to secure a county-wide sales tax, it could be construed
as having satisfied the legal definition of fraud.


ReTRAC Part 7 - Construction Cost Overruns and the Final Bill:
$192,850,000 Versus $391,035,000

In order to more comprehensively assess potential and/or likely cost
overruns associated with the ReTRAC Project, a number of information and
professional sources were used ranging from persons involved in previous
railroad track realignment projects, professional engineers, hydrologists,
environmentalists, economists and financial consultants. This alternative
cost estimation process involved a detailed assessment of specific aspects
of the entire project and the identification of key areas where cost
overruns appeared most likely. The city's estimated costs for these areas,
if any, were then compared to an alternative estimated range of costs and
from this a range the estimated cost overruns (alternative cost minus city
estimates) was determined. The major cost overruns were found to occur in
the following areas along with the high-end cost overrun and the city's own
cost estimate:

Cost Overrun City Estimate
(1) Trenching Costs $61,610,000 $123,220,000
(2) Drain Pipe Realignment 15,000,0000 5,000,000
(3) Contaminated Soil Treatment 8,044,0000 0
(4) Public Utility Relocation 32,000,000 8,000,000
(5) Retaining Wall Supports 10,000,000 0
(6) Shoofly Mitigation 32,000,000 28,000,000
(7) Cost Escalation for Construction Start 26,031,000 0
(8) Project EIS and Related Consulting Costs 11,000,000 0
(9) Annual Operations and Maintenance Costs 2,500,000 0
(10) Miscellaneous/Other n.a. 28,630,000
Total $198,185,000 $192,850,000

Total with Cost Overruns $391,035,000

Admittedly, the $2.5 million annual operations and maintenance (O&M) costs
could have been expressed as an amount necessary to be set aside today in
order to pay this costs over the next 20 years ($29,875,000) or 30 years
($36,334,000), but that might be carrying the point, i.e., likely cost
overruns, a bit too far.

The point most evident in this analysis is that based on the particulars
related to this project, such as construction requirements for sealing the
trench against contaminated groundwater infiltration, public utility
relocations, contaminated soil treatment, side wall supports or public
easements for wall thickness and tiebacks, business and economic
mitigation, EIS, consultant expenses, public relations costs, start date
inflation factor, etc., the city's current cost estimates appear obviously
to have been grossly underestimated. In fact, it appears that project cost
estimates have been purposely 'low-balled' in order to balance them to the
highest reasonable estimate the city could produce for its sources of funds
based on available tax sources.

If this is indeed the case, then the city would most certainly be planning
to use some form of design, contracting or construction method which would
legally allow for extensive cost overruns to be accommodated during the
construction phase of the project. This is indeed the case, as during the
1999 Nevada Legislative session the City of Reno was a strong supporter of
Senate Bill 475, Design/Build, which was specifically written to be used
for public works projects such as the ReTRAC Project in which cost overruns
are imminent. The City of Reno has not only deceived the Washoe County
Commission as to the project's funding being satisfied, but it has clearly
duped the media and the public in presenting project cost estimates which
it knows will need to be significantly inflated during actual construction.


ReTRAC Part 8 - Financing the ReTRAC Debacle: Construction Costs of
$192,850,000 Plus Financing Costs of $349,785,000

The true costs of the ReTRAC Project may never be known with certainty.
Even if the project were ever to be completed, it is doubtful that a full
and accurate accounting could be made. If city officials have worked so
hard to hide the true costs associated with this project now, imagine their
intensified efforts to deceive the public and the media when cost overruns
begin to mount during construction. Whether the project will cost the
$192,850,000 that the City of Reno has claimed, or $391,035,000 asserted
here in the estimated cost overruns, or something between these two figures
does not yet begin to account for the full costs ultimately associated with
this project. The reason for this is that these figures are only the
construction costs.

There is another cost concept yet to be discussed and
that is the financial costs. For every dollar in construction cost there
is an off-setting dollar in financial costs to fund it. But if there are
not tax sources currently committed to meet that construction cost, then
for every dollar borrowed for say, a construction cost overrun, there will
also be a borrowed dollar plus a sum equal to the interest on that borrowed
money. Consequently, for unfunded construction costs, financial costs are
not on a one-for-one basis.

To better assess the true or current value of those borrowing costs, we
need to reduce future interest payments by a discount factor (percent) to
arrive at an equivalent amount that would have to be paid, funded or set
aside today to cover all the future interest costs on the additional
borrowed funds. This 'present value' concept allows us to bring to the
present the future interest payments based on unequal rates (discounts) and
maturities, thereby putting all future financial obligations on an equal
footing for comparison and analysis purposes.

The financial analysis of this project presents a disturbing and far more
costly picture. In addition to the city's construction costs related to
the project of $192,850,000, the City of Reno will also incur financial
costs that are related to unforeseen borrowings, for example, the Union
Pacific Railroad's noncash 'contribution' of $42 million in property which
will have to be funded, as well as inevitable cost overruns detailed
previously. In addition, on this borrowed money there will be the net
present value of the related interest payments. For example, the $42
million in 'make-up' funding for the UP land transfer will result in this
additional borrowed amount plus some $19,165,000 in the net present value
of interest payments (20 years at 5.5%), resulting in an additional
financial cost of $61,165,000. It is important to note that this financial
cost will be incurred even if the construction cost estimates of the city
prove true, but that is hardly likely.

Next, we must consider into our calculations of financial costs the likely
construction cost overruns. Using only the high-end estimates presented
previously ($198,185,000), plus the net present value on this borrowed
amount ($90,435,000) results in an additional financial cost of
$288,620,000. This amount, added to the UP make-up debt, results in a
total financial cost for the ReTRAC Project of some $349,785,000. Clearly,
if city officials have mistakenly calculated that they had this project
fully funded, then they should try the new math, any new math.


ReTRAC Part 9 - The Enabling and Supporting Legislation
and the Role of Political Maneuvering

The ReTRAC Project has been especially favored with strong political
support and key legislation. The first of these legislative initiatives
came during the 1997 Nevada Legislative session in the form of Assembly
Bill 291. AB 291 provided Washoe County with a one-quarter percent
optional sales tax to be used for specific public works projects. Similar
legislation for Clark County was also passed by the 1997 legislature and
approved by the voters there to increase the capacity of their water
treatment facilities. In Washoe County the tax was divided into two parts:
a one-eighth percent sales tax for flood control and various emergency
response improvements, and a one-eighth percent sales tax for railroad
grade separation, i.e., the ReTRAC.

There was an important difference in how these tax measures were approved.
In Clark County, the voters were allowed to approve their optional sales
tax. In Washoe County, by contrast, a majority of the county commission
decided to do things differently. Recognizing the current anti-trench
sentiment and the fact that a smaller tax (bond) measure had been
overwhelming rejected by the public in the early 1980's, the lame duck
Washoe County Commission voted 4-1 to directly approve this optional sales
tax and hurriedly passed the measure in December 1998. To insure that the
tax could not be revoked, bonds were issued against the tax before incoming
commissioners could be seated and repeal it, which most probably they would
have done.

The next piece of favorable legislation, Senate Bill 255, was hurriedly
passed early in the 1999 Nevada Legislative session to correct a 'defect'
in AB 291. In December 1998, an injunction was filed on behalf of a
downtown Reno casino to prevent the City of Reno from issuing any more debt
($6 million had been issued) backed by the new sales and room taxes. In
order to effectively circumvent the restraining effects of the court
injunction, SB 255 amended AB 291 to allow the optional sales tax and new
one percent room tax to be used for any and all project-related expenses,
in addition to debt servicing per AB 291. This created a far more fiscally
irresponsible situation, for now city officials could use the sales and
room taxes for funding any and all out-of-pocket project expenses, not just
those specifically defined and officially presented as "project
construction costs".

Senate Bill 475, Design/Build, represented the final nail in the
cost-containment coffin for the ReTRAC Project. Also passed by the 1999
state legislature, this bill came down to the wire and was actually signed
by the Governor after the session ended. Essentially, SB 475 was written
specifically for the ReTRAC Project and allows for cost adjustments to
public works projects when new requirements are "discovered" which were not
incorporated into the original design or project bids. In essence, SB 475
encourages project bids (i.e., cost estimates) to be made with the least
amount of final design as possible. In this way, virtually everything
"uncovered" (literally, in this case) during construction can now be used
to revise the original bid upward. This is the major reason why this
project, even after several years of extensive assessments and analysis by
numerous consulting firms, is only 5 percent designed. Any further efforts
to complete design and better estimate the project's costs would only
restrict future inevitable cost increases.


ReTRAC Part 10 - The ReTRAC Project: Assessing the
Winners and Losers

In virtually all major public fiscal schemes, of which the ReTRAC Project
certainly qualifies, there are those who pay the taxes and those who
benefit either without paying or benefit out of proportion to their tax
payments. Increasingly, the public is becoming sensitive to public
policies which result in shifts of benefits away from those paying for
them. Without question, the ReTRAC Project represents a public works
project in which the taxes on the many have been effectively funneled to
benefit the few.

Of the total 'legitimate' sources of funds related to this project (i.e.,
omitting the Union Pacific Railroad's noncash $42 million property
transfer), the one-eighth percent optional sales tax component levied on
all Washoe County residents comprises nearly 58 percent of total fund
sources. In order to make up for this $42 million shortfall, the City of
Reno will need to sell additional debt backed either by increased property
taxes and/or increased fees and charges for public services. Consequently,
as the enormity of this project unfolds and its full financial implications
and impacts on the general population become better recognized, perhaps the
current complacency of the many who are funding this downtown construction
debacle will turn to focused frustration towards those few that have
perpetuated it. However, by then it will be too late to stop it. In fact,
it may be too late even now.

The ReTRAC Project began as a tax (Assembly Bill 291) looking for a
project. Beginning with the 1997 legislative session, this effort has
represented arguably the best orchestrated, most expensive, most disguised
and certainly the most egregious public works spending program in Reno's
history. Never before have so many special interest groups, ranging from
politicians, city officials, casino executives, consultants, engineers,
contractors, builders, public relations firms and even the media shown such
support and solidarity for a project which is likely to create such
pervasive damage to Reno's political, financial, economic and environmental
conditions. Certain downtown casino properties, apparently oblivious to
the ultimate costs of this project and having witnessed little substantive
private investment downtown since the 1995 Silver Legacy construction, no
doubt feel that public investment in any form is a most welcome respite
from the absence of private investment. The Reno City Council also sees
themselves as winners in this process for tenaciously following through on
a major project and thereby breaking a long history of failed downtown
development projects.

The losers, of course, include the rest of us who only now are beginning to
recognize that the tax burden imposed on the many is being effectively
channeled to benefit the few. What has perhaps been overlooked in this
process is that we are all likely to be the losers. The ReTRAC project is
not a revenue project; it will not create new business, permanent jobs, or
generate additional incomes or ever pay for itself. In fact, future
operations and maintenance costs for road approaches, bridges, a road
underpass, trench sidewall crack grouting and sealing, and the pumping and
treatment of contaminated groundwater infiltration will go on virtually
forever. And when these future money bills come due, it will be too late
to ask ourselves why we did not more fully assess this project in the
beginning and stop this process when we had the chance.


ReTRAC Part 11 - Reno Railroad Trenching: Public
Expenditures Versus Private Investment

A fundamental belief embedded in the ReTRAC Project by City of Reno
officials is that by lowering the Union Pacific Railroad tracks through
downtown Reno the city has shown its determination and commitment to the
principal of redevelopment and economic vitality. Unfortunately, the
assumption that his will likely be the much-needed catalyst for follow-on
private investment is seriously flawed. The ReTRAC Project in no way
improves the competitive features of downtown Reno's or Washoe County's
basic gaming and tourism industry. It provides no additional attractions
by which the city can attract new tourists and appeal to new gaming and
tourism markets. It adds no new and unique entertainment values necessary
to distinguish this market from any number of rising gaming jurisdictions
along the West Coast and nationwide. It in no way helps Reno to better
differentiate its rather tired gaming product from the growing threat of
Indian gaming in California which is destined, despite near-term legal
setbacks, to eventually evolve into something approximating Nevada-style
casino gaming. It in no way moves Reno any closer to the new paradigm of
the multi-featured entertainment and resort complexes of the Las Vegas
gaming market.

Consequently, the ReTRAC Project will have little, if any, effect on
encouraging new and continued capital investment in the downtown Reno
economy. In fact, the opposite may be true. As the City of Reno has
effectively tapped virtually every conceivable tax source for this project,
as well as create some new ones in the process (sales, room, and special
assessment district taxes), it has severely weakened its own fiscal
condition and greatly restricted its 'tax capacity', or its ability to
raise new taxes. By restricting this tax capacity, the city cannot now
generate new public funds for truly worthwhile projects or to maintain
existing rates of delivery for public services should existing tax bases
weaken and taxes decline.

In effect, the city has attempted to replace virtually nonexistent private
investment with far less optimal and efficient public investment. Of
fundamental importance is that the inherently limited supply of public
funds necessitates that the city not squander them on economically sterile
public works projects. Furthermore, you do not encourage private
investment by making the tax burden on existing businesses and consumers
even more onerous. Just because the enabling legislation (AB 291) was
precise in allowing the sales tax to be used only for a 'railroad grade
separation project', this does not mean that the tax should have been
imposed. A tax imposed for a really bad public works project is infinitely
worse than no tax and no project at all.

In a world of limited public resources, what is needed most urgently for
the Reno and Washoe County economies is more judicious government spending
on public works projects that will foster much-needed private investment.
Instead of this, the City of Reno has chosen to squander virtually all of
its available monies, as well as a considerable portion of future monies,
raise everyone's tax burden, overlay the downtown redevelopment district
with yet a third special assessment, weaken Reno's image as a good place to
invest and do business, and place the city on the verge of its worst
financial debacle in its history.


ReTRAC Part 12 - The Questions That Should Have
Been Asked Before Now

The following is a list of questions and recommendations pertaining to the
ReTRAC Project that should be more fully addressed before this process
proceeds any further.

(1) Request that the City of Reno obtain additional project cost updates
for all major portions of this project's design (currently designed at only
5 percent) emphasizing more accurate and comprehensive construction costs
based on current and known construction and environmental considerations
and requirements, including debt requirements, interest payments, and
expected funding and financial options and costs.
(2) Obtain public utility company-determined cost estimates for all
project-affected public utility infrastructure relocations, to include the
proposed northwest Reno storm drain realignment and the effects that
re-routing this major pipe through downtown Reno will have on other utility
relocations, street excavations and traffic flows, business conditions and
definitively determine who (city or the public utility) is expected to pay
for such relocation costs.
(3) Determine how the $42 million Union Pacific Railroad noncash property
'contribution' towards the ReTRAC Project will eventually be funded as it
is not a project cost offset, it has no cash component, it exceeds the
current market value of the transferred property by nearly $30 million, and
it is not being applied to offset actual cash construction or land
acquisition costs.
(4) With respect to this $42 million City of Reno/Union Pacific Railroad
'assessment' of the value of the property being transferred and the $12.4
million value as carried by the Nevada Department of Taxation (Centrally
Assessed Properties) and the Washoe County Assessor's Office, request City
Attorney or State Attorney General ruling on whether the extreme difference
in these property valuations (nearly $30 million) represented any form of
deception, or possibly fraud, on the part of City of Reno officials in
order to over-state the value of this property with the intent of
misleading the Washoe County Commission in passing the one-eighth percent
sales tax increase in support of the ReTRAC Project.
(5) More fully disclose anticipated financial funding schemes and
assumptions used for indebtedness of accrued tax sources to fund this
project (i.e., sales tax, room tax, SAD tax, regional transportation
funding) and anticipated bond sale arrangements (assuming the current
injunction pending before the Nevada Supreme Court is removed) and involve
the City of Reno's Financial Advisory Board in those activities and
discussions prior to effecting them.
(6) Resolve the differences between the City of Reno's final 1998 project
cost estimate of $192,850,000 and Nolte & Associates' (August 31, 1998)
greater $197,009,000 revised cost estimate for August 1998 (extrapolated to
$199,043,000 for December 1998). Determine why was the lower estimate used
and presented to the Washoe County Commission as proof of ReTRAC Project
funding when a revised and more recent cost estimate was available?
(7) Request that the City of Reno provide a listing of all consultants,
contractors, engineering and environmental firms, legal firms, vendors,
public relations firms and other persons and/or entities associated in any
way with the ReTRAC Project and having been paid, or currently being paid,
any monies for work on this project, and the amounts of those monies
expended to date.
(8) Based on the passage of Senate Bill 255 by the 1999 Nevada
Legislature, request a full accounting by the City of Reno of the dollar
amounts of the (one-eighth of one percent) sales tax and the (one percent)
transient lodging (room) tax, both of which have been specifically
allocated to the ReTRAC Project, that have been paid to date to City of
Reno employees for their time, work and involvement in the ReTRAC Project,
or funds that have been paid to any other persons or entities for costs not
specifically listed on the project's "official" project cost sheet.
(9) Obtain City Attorney or State Attorney General interpretation of the
City of Reno's environmental exposure and potential mitigation liability
with respect to the December 1998 City of Reno/Union Pacific Railroad
Memorandum of Understanding (MOU).
(10) Take necessary action to insure that the features of Senate Bill 475,
Design/Build, are not allowed to enter into the ReTRAC Project's design,
contracting and construction process by requesting that the City of Reno
establish and substantiate a definitive not-to-exceed price (i.e.,, a "cost
ceiling") for the ReTRAC Project which, when the project's total estimated
costs (to include design, construction, engineering, consultant fees, legal
and PR costs, environmental impact statement (EIS), environmental
mitigation, debt and interest payments, and city staff costs and other
expenses) exceed this amount, the project will not go forward.

Finally, failing all else, at least recommend that the City of Reno
contract as soon as possible with Stantech (formerly SEA Engineering)
and/or Nolte & Associates as the prime project contractors responsible for
cost preparation to do the entire ReTRAC Project as soon as possible at the
fixed cost specified ($192,850,000, reasonably adjusted for inflation at
3.13% based on a 2002 start date) and within the published time frame (to
be completed by the end of August 2004).

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The City Hall RR Scheme is Evil

To the Reno City Council: