Building lease will cost Nevada millions

Wednesday, Jan. 14, 2004 | 11:29 a.m.

CARSON CITY -- With its first lease-purchase of a new building, Nevada will wind up paying $71.5 million, once the figures are adjusted for inflation, for the structure that is expected to cost nearly $24 million to build.

It is exactly the type of arrangement that voters overwhelmingly rejected in 1994. In that year's election, 85 percent of the voters said the state should not lease-purchase state buildings from pri-vate companies.

The state Board of Examiners, noting that a 2002 Nevada Supreme Court ruling gave them the authority to do so, on Tuesday voted 2-1 to lease-purchase a 120,000-square-foot building for the state Conservation and Natural Resources Department.

Gov. Kenny Guinn and Attorney General Brian Sandoval voted for the lease-purchase. Secretary of State Dean Heller voted against it.

State Treasurer Brian Krolicki told the board that the state needed to go the lease-purchase route at this time in part because the Nevada Constitution limits Nevada's borrowing capacity to 2 percent of the assessed valuation of all property in the state, and the state is approaching that limit.

The assessed valuation of all the property in the state for this fiscal year it is estimated at $63.6 billion. The state, according to the annual report of State Controller Kathy Augustine, has $451 million left in bonding capacity. But the state is limited to collecting 16 cents of the property tax rate to pay off the bonds, so the state would have to raise the property tax to pay off any more bonds, officials said.

Another reason the state needs to lease-purchase is does not have the cash to construct buildings as it did in the past, Guinn, Sandoval and Krolicki said.

Guinn said what little state construction money that is available is going to be spent on prisons and the University and Community College System because those are his top priorities.

The building will be built on state land, south of the state capitol. The Legislature allocated $3.1 million to the state Public Works Board for much of the advance work. The contractor will cover the construction cost of slightly less than $21 million, Krolicki said.

After the 27 years of payments totaling $71.5 million, when adjusted for inflation, the state will own the building.

Krolicki said it's a good deal because if the state was to continue renting all the various office space it currently uses for the department, the cost would be $73 million for approximately 90,000 square feet of office space.

The conservation department currently rents offices at seven locations in Carson City. The department has to deliver its mail around to the various offices daily.

Krolicki noted that state is spending $15 million to $20 million a year leasing office space around the state.

That could be converted into $200 million to $300 million worth of construction by using the rent money now going to private landlords to enter into lease-purchase agreements. Krolicki said other governments in Nevada use this procedure and so does private industry.

Guinn said the lease-purchase arrangement is "a way to establish efficiency."

Heller agreed that the state was "throwing money down a hole" by renting rather than owning its office space, but he voted against lease-purchasing in part because "the voters said they don't want to go down this road."

Krolicki, who pushed the lease-purchase plan, emphasized that the Nevada Supreme Court authorized the procedure with a ruling in 2002.

Heller noted that the state has a debt limit to restrain government growth.

Guinn told him, "I can't give you smaller government. I can give you more efficient government."

Krolicki said the lease-purchase does not count against the 2 percent debt limit. And he said he believed many members of the public would understand the rationale behind the arrangement because most people would rather own their own home rather than rent it.

In addition to being a vocal advocate of the lease-purchase, Krolicki is the resident agent, president and chairman of the board for Nevada Real Property Corp.

The non-profit corporation has been in existence for several years, and the state uses the corporation to lease equipment.

Jacobsen Construction of Salt Lake City is to build the office complex and the state will lease it back through a transaction handled by Nevada Real Property Inc.

Groundbreaking for the new building south of the capital should be in the spring.

During the Board of Examiners meeting, Krolicki did not point out his role in Nevada Real Property and said later that he probably should have.

During the last session, the Legislature gave its blessing to his creation of this type of non-profit corporation to make a lease-purchase work for the state. The entity will allow for the sale of "certificates of participation" in the purchase of the building.

A certificate of participation is a type of financing in which an individual buys shares of the lease revenues of an agreement made by a government.

Krolicki, as an officer in Nevada Real Property Inc., said he will not make any money on the deal and emphasized that he will not be paid for his involve-ment in the corporation and would not be an investor.

He said no money will flow through this non-profit corporation for this transaction. All the money will go through the Bank of New York, the trustee in the deal, Krolicki said.

He said he is at risk of being sued if some part of this transaction fails.

Krolicki disclosed on the annual report of the treasurer's office that he is chairman and president of Nevada Real Property Corp.