State reinvents plan on way to finance buildings

Thursday, Oct. 26, 2000 | 10:47 a.m.

CARSON CITY -- State government spends an estimated $18 million a year leasing private office space for its agencies, a practice that Gov. Kenny Guinn doesn't like.

Starting next week, Guinn and other state officials will embark on a financial plan that will allow private companies to construct office buildings on state land with the state entering into a lease-purchase arrangement to acquire the structures without it counting against Nevada's constitutional debt limit.

Gov. Paul Laxalt tried a similar plan, but it was struck down by the Nevada Supreme Court in 1970. Officials say there are marked differences this time and hope for a favorable review by the Supreme Court.

For its building program, which includes the University and Community College System of Nevada, state prisons and office buildings, the state cannot go further in debt than 2 percent of its assessed valuation. As of July 1 this year, the 2 percent represented $916.2 million. But the state had already issued general obligation bonds of $787.1 million against that cap, leaving $129 million unobligated.

The Guinn proposal would offer some relief from that limit. State Treasurer Brian Krolicki put together the nuts and bolts of the plan.

On Wednesday the state Board of Examiners, headed by Guinn, will meet to consider a request by the state Department of Conservation and Natural Resources to lease-purchase a building in Carson City owned by Employers Insurance Co. of Nevada, the former state agency.

The building is about two blocks from the Capitol, across the street from the headquarters of the insurance company. Under a lease the state would pay rent of $1 million for the building and interest of $753,150 over 20 years, after which the state would own it.

The board will use the lease to test the lease-purchase plan.

Under a contrived scenario, Attorney General Frankie Sue Del Papa's office will advise the board it cannot approve the contract, noting that it would violate the Nevada Constitution because the lease payments would increase the state's debt limit.

The board, composed of Guinn, Del Papa and Secretary of State Dean Heller, would then reject the contract on grounds it runs afoul of the constitution.

The building owners, Employers Insurance, would then file a petition for a writ of mandamus in the Supreme Court, seeking to clear the way for approval of the contract.

Employers Insurance, Krolicki said, is doing a "great service to the state" for bringing this suit in order to get the question resolved.

This is a financial tool used by private industry in acquiring plants and office buildings, and the state should have the ability to take advantage of it, Krolicki said.

If the Supreme Court rules favorably, Krolicki says he will have legislation prepared to use this financing method on construction projects in 2001.

Statewide the state leases 1.5 million square feet of private space, of which about 480,000 square feet are in Carson City. The state shells out about $6 million to $7 million a year to private landlords in Carson City, where it leases the large amount of space.

The state would not issue general obligation bonds for these buildings. It would sell what are called "Certificates of Participation" to investors. The "full faith and credit" of the state would not back them.

Krolicki said the state's bond rating is AA, but these certificates would likely be rated "A."

But he said the state would not likely default on paying off one of its office buildings.