State hails decision over buildings

Friday, April 13, 2001 | 10:52 a.m.

CARSON CITY -- The Nevada Supreme Court has opened the door for the state to help finance its building program, giving it an alternative to spending millions of dollars in renting private space each year.

"This is tremendous," said state Treasurer Brian Krolicki, who fashioned the lease-purchase plan that was before the court.

The state, he said, spends $15 million to $20 million annually to rent private office space for its agencies. Permitting lease-purchase is "good business," he said.

To construct a building or a prison, the state now pays cash or borrows the money through bonds, which are repaid with a 15-cent addition to the property tax rate. When it borrows that money is counted against the constitutional debt limit, which is 2 percent of the state's assessed valuation.

The court's decision Thursday will permit the state to enter into a contract with a private developer to build a structure, then lease it for a long period to the state which, in turn, would own the building after a set period of time.

The issue before the court was whether such lease-purchase agreements represent public debt and must be charged against the limit.

The unanimous decision noted the limit was placed in the constitution after other states defaulted on their obligations. In its new decision the court overruled a 1970 decision that prohibited this type of building financing.

"Instead we adopt the sound reasoning of a majority of our sister states, which have concluded the lease-purchase agreements, such as the one at issue here, do not violate constitutional debt limitations," the court said. According to the arrangement, Legislature is not obligated to continue appropriating money to cover the lease payments, so it does not fall within the debt limit.

The developer can reclaim the property if the payments are not made, so no issue exists as to the state debt limit, the court said.

The case advanced before the court on a setup case in which a contract was signed by the state Buildings and Grounds Division to enter into a 20-year lease purchase agreement for a building belonging to the Employer Insurance Company of Nevada. The building is located about two blocks from the Capitol and would be used by the state Department of Conservation and Natural Resources.

The state Board of Examiners, upon the advice of Attorney General Frankie Sue Del Papa, rejected the lease-purchase on grounds it amounted to a state debt. This opened the way for a test suit to be filed.

The court said the agreement provides that the contract "terminates in any fiscal year for which the Legislature chooses not to appropriate sufficient money to meet the lease payment terms. And Employers Insurance has the right to retake the property if the payments are not made."

As of July 1, 2000, the 2 percent assessed valuation allowed for $1 billion in bonding capacity. There was $228.3 million unused capacity, and Gov. Kenny Guinn has proposed issuing $200.2 million in new bonds.