Las Vegas Sun

October 24, 2014

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Boom and bust in a company town

HAWTHORNE -- Steel clouds dense as wool ride the morning wind to the valley's edge, halting atop Mount Grant where they gather strength and turn ragged black. The massive forms jostle and grate as a column of pale gray vapor slides down the mountain.

The wind scatters the mist and its promise of snow as it picks up speed, flying past Walker Lake, whipping through the military base and entering Hawthorne.

One square mile of city life surrounded on three sides by the Army, while the fourth is flanked by sagebrush under the command of the Bureau of Land Management.

Hawthorne is pure company town. The city, population 5,000, has been home to sailors, airmen, soldiers and Marines. The tiny weekly newspaper carries letters to the editor written by Bible-quoting patriots. It is one of the last communities where Armed Services Day is the biggest celebration of the year.

Although residents remain loyal, the military's commitment has waned for this isolated community 320 miles northwest of Las Vegas. The Defense Department issued orders and the soldiers moved. The base began to resemble a ghost town as houses were boarded up, then demolished.

National security no longer requires the tremendous quantities of munitions stored a half-mile outside Hawthorne's city limits. With the thawing of the Cold War came orders to deactivate thousands of bombs buried in bunkers outside Hawthorne.

The Navy left, then the Army. A private contractor, Day & Zimmermann, was hired to continue tearing apart weapons and recycling the scrap metal and explosives.

Although the contractor added "Hawthorne" to its name, local workers angry over the military's departure in 1980 sabotaged offices, stealing files, a company spokeswoman said.

The federal contractor won back residents' trust and a symbiotic relationship grew between company and community. Old Army barracks have been trucked into town and converted into a local motel, while another barrack houses the county's welfare office. Bomb cases shaped like coffins are used as watering troughs for livestock.

"We understand cow counties. We're not polished professionals, we're boondockers. ... We're just local folk," General Manager Cliff Cichowlaz said with a wink.

But the contractor is the government's employee and when U.S. officials talk of a smaller and more efficient bureaucracy, Day & Zimmermann Hawthorne must become a smaller and more efficient company.

"In the days that it was Navy it was a blank check to the county," Chief Deputy Assessor Marlene Bunch said. "Now everything's being run like a tight ship."

Bunch explains to long-distance callers that the county assessor cannot afford to return their calls. In October, Mineral County commissioners froze raises and new hires and ordered county employees to pinch pennies.

The county librarian does not buy new books and county workers cannot make any major purchases, such as a new transmission in a county truck, without prior approval from two commissioners, Chairman Bob Lybarger said. Twice, money had to be borrowed from other funds to pay the 100-plus employees.

Mineral County's desperation illustrates the dilemmas of all company towns. But because the company is the U.S. government, Hawthorne's struggle also reflects state and county officials' discomfort with Congress' efforts to save money by pushing programs and costs onto local authorities.

One cost-saving technique has been the refusal to pay property taxes at the Hawthorne Army Ammunition Depot. In the early 1990s, the military decided it would not reimburse the taxes the contractor paid to the county for its use of federal equipment.

Day & Zimmermann Hawthorne stopped paying the $1.5 million in yearly taxes and Mineral County lost 57 percent of its property tax base.

"Jesus, how much do you want us to pay?" asked Cichowlaz. "We pass that on to the government and what are they going to say? 'Go to hell.' "

Elsewhere in Nevada, federal contractors stopped paying taxes and counties sued. The Air Force, Army and Department of Energy countersued, arguing that local governments essentially were taxing the federal government, prohibited under the Constitution.

Throughout the southern part of the state and up into central Nevada, counties united and presented a solid front to the federal government and its contractors: Pay the taxes.

In Clark County, the fight is philosophical. Federal contractors working for Nellis Air Force Base and the Nevada Test Site would contribute 1/13th of 1 percent of the property tax base.

"You provide an unfair competitive edge to private contractors who use federal equipment and not pay taxes," said Clark County's assessor, Mark Schofield. "The outcome could set a dangerous precedent for the marketplace and free enterprise."

In Lincoln County, the assessor's office is prohibited from challenging contractors' position because the classified military base near Groom Lake called Area 51 is off-limits to its audits.

But in the worst shape is Mineral County. The County Commission is cutting the budget and plans to seek financial assistance from the Nevada Legislature this session.

But fiscally prudent commissioners instructed employees to not depend on the contractor's unpaid taxes, so the situation is not as grim as it could have been.

Mt. Grant General Hospital will donate $50,000 in medical care because commissioners cannot keep the indigent fund in the black.

The elementary school's choir program was canceled. Two vice principals, two teachers, a maintenance worker and a bus driver who doubled as a mechanic were laid off. The schools' roofs need to be patched but without money the only solution is placing buckets in classrooms, hallways, the gymnasium and the weight room.

Last year, the state had to bail out the school district with a $428,000 loan.

"I'm angry because I don't have any control over it," said Superintendent Granvill Gage. "The school district itself has nothing to do with the assessed value (of federal property). ... But I cut out music and they lose part of their education."

Within the community are pockets of ill will and frustration with Day & Zimmerman Hawthorne's refusal to pay taxes. Some residents feel the contractor and the federal government have the social responsibility to contribute to the local economy. Others are resentful that county authorities have not tried to seize the military equipment and sell it in order to obtain the taxes -- an act permitted under state law.

"You turn on (public) TV at night and ... they'll be ripping me a new end," said General Manager Cichowlaz. "Personally we don't mind paying the taxes, but we are agents of the federal government."

From 1980 to about 1992, Day & Zimmermann Hawthorne paid yearly possessory use taxes of about $230,000. But in 1993 the Nevada Legislature revised the tax statute (which had been declared unconstitutional by the 9th U.S. Circuit Court of Appeals), and a new formula for assessment was adopted. Day & Zimmermann Hawthorne now had to pay $1.5 million in taxes, while pulling in about $1 million in profit.

No way, said the Army and contractor, and they hunkered down for a long, costly legal battle. Mineral County was unprepared to fight this courtroom war. Residents' needs could not be ignored and so the county district attorney, Brian Kunzi, broke rank with Clark, Nye, Lincoln and Churchill counties and offered to settle.

"There was enough fear for us to want to try to settle this thing," Kunzi said. "There's a real economic question of can we tax this base out of existence.

"Whatever Clark County assesses is insignificant and that gives them the luxury to play hardball with the Air Force and Department of Energy. There's no appetite for that here."

Most county officials agree that if the base -- which employs two-thirds of the county's work force -- left, Hawthorne could easily become another ghost town dotting the lonely stretches of desert bordering U.S. 95.

"The Army has been very clear; if they have to pay $1.5 million then that has to come from operations," Kunzi said.

The need to settle became more pressing this fall when a Las Vegas federal judge ordered Clark County to return to the contractors $1.5 million in taxes collected under an unconstitutional statute. Nye County, which hosts the Nevada Test Site and the Nellis Bombing Range, was ordered to refund $4.1 million.

Two weeks ago, two Las Vegas federal judges issued opposite rulings on the issue of whether the taxes collected under the corrected statute were being properly assessed: One judge said yes, the other no. Both decisions will likely be appealed.

The Mineral County Commission signed the proposed settlement, worried about receiving a similar order to refund millions of dollars it did not have. Last week, commissioners reaffirmed their decision -- even after the county assessor, Gloria Hughes, pointed out that a mathematical error in the settlement could cost the county $41,000.

"God, we should have checked, double-checked and triple-checked the numbers," Commissioner Jackie Wallis said. "But we didn't."

Wallis and Commissioner Lybarger explained that the county gave its word to the federal government and there would be no going back. The money that could have paid the county's medical indigent bills or a vice principal's salary slipped through their fingers.

While the other counties watch as Nye prepares for another two years of appeals, Mineral County waits for word from the Army on whether it will agree to the settlement.

If the military accepts, the contractor's taxes drop from $1.5 million to about $255,000 a year. The county's property tax revenues will shrink by 46 percent unless residents' taxes are raised to make up that difference.

With the recent passage of a $6 million school bond, Mineral County will have one of the highest property tax rates in the state. The County Commission would exceed the state property tax cap if it attempted to recoup the lost revenue from Day & Zimmermann Hawthorne.

"Our tax base is shrinking and we can't pull any money out of a turnip," Wallis said. "Voters would come in and shoot us (if taxes were raised). That's the truth."

But voluntary decision to give up of millions of dollars in potential revenue is hard for some residents like Hughes to accept. The assessor eyes the 2,600 bunkers spread across the Walker Lake Valley and sees $80,000 on each one. The settlement would reduce the assessed value to zero.

"I think Mineral County could have done much better," Hughes said. "If we had just stayed together -- there are other counties who are waiting. I wish there had been more solidarity."

But ranks have been broken. Hawthorne aligned itself with the company, surrounded as it is on all four sides.

"Hawthorne is a boom town and a die town, a boom town and a die town," Deputy Assessor Bunch said. "This is going to be one of those periods where we're going to be hitting bottom. It'll be tough, but we're survivors."

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