Supreme Court asked to decide debt-limit issue

Friday, Jan. 12, 2001 | 11:01 a.m.

CARSON CITY -- A test case has been filed in the Nevada Supreme Court to allow the state to use another way to acquire office space and other buildings without violating the constitutional debt limit.

Employers Insurance Company of Nevada brought the suit Thursday to resolve the question of whether the state can enter into a lease-purchase arrangement for 20 years without it counting against the debt limit. The Nevada Constitution permits the state to borrow up to 2 percent of its assessed valuation.

The borrowing limit as of July was about $916.2 million. All of that except an estimated $130 million was used up.

To fashion the test case, Employers Insurance Co. entered into an agreement with the state Department of Conservation and Natural Resources to sell one of its buildings in Carson City under a lease-purchase agreement in which the department would acquire title after 20 years.

The suit says the contract is a rent expense, not a long-term debt agreement. The state, said the suit, can pull out of the deal at any time. The contract would terminate if the Legislature didn't appropriate the money for the rent during the 20-year term.

The friendly suit was brought against the state Board of Examiners that refused to approve the contract. Attorney General Frankie Sue Del Papa, a member of the board, said these lease-purchase agreements must be counted against the state's debt limit.

At present the state pays for its construction either with cash or with bonds that are counted against the debt limit. A similar lease-purchase arrangement by the state in the 1970s was struck down by the Supreme Court.

The court permitted a lease-purchase of computer equipment in 1998.