Officials debate lease-purchase deal

Thursday, Jan. 22, 2004 | 9:19 a.m.

CARSON CITY -- State Treasurer Brian Krolicki and Controller Kathy Augustine, both Republicans, don't see eye-to-eye on the lease-purchase financing of a state office building.

But Krolicki convinced the other members of the state Board of Finance, including Gov. Kenny Guinn, on Wednesday that the lease-purchased is the best way to pay for construction of a 120,000-square-foot building for the state Department of Conservation and Natural Resources.

Groundbreaking is scheduled for next month on state property south of the Capitol and the building should be completed in May 2005.

But the financing package, which is being used for the first time by the state for a building construction, continues to generate controversy.

The conservation department is now leasing offices from private landlords at seven locations in Carson City. When the building is complete, the agency would pay off the debt instead of renting and have a 120,000-square-foot building.

Guinn said the building would be worth $75.6 million when the state pays it off in 27 years. Jacobsen Construction Co. won the bid for building the structure for $19 million.

If the Conservation Department continued leasing, it would spend $72 million in the next 27 years, taking into account inflation and other items, Krolicki said. By using the lease purchase, the state will spend $71 million, or $1 million less. No extra taxpayer money will be used, he said. And the state will end up with 30,000 additional square feet over what it is leasing now, he said.

The state does not have cash on hand to pay for the building upfront. It has bonding capacity, but Guinn said his priorities are to use that for construction projects within the University and Community College System and for state prisons.

Augustine saind voters rejected a proposed constitutional amendment to allow this type of financing, The vote in 1994 was 300,876 against to 55,024 in favor.

She said the plan was "circumventing" the state's debt limit that allows the state to borrow up to 2 percent of the assessed valuation. She said there was "over half a billion" in capacity for borrowing.

"The people were against this lease purchase," Augustine said. "We are allowing larger growth of government."

Augustine echoed some of the same arguments put forth earlier this month by Republican Secretary of State Dean Heller when he voted against the financing package on the state Board of Examiners.

Krolicki said there was nothing in the Nevada Constitution to prohibit lease-purchase arrangements. He said an opinion from the Nevada Supreme Court cleared the way for such deals.

Guinn stepped in during the debate between Krolicki and Augustine to say, "This is 100 percent risk-free to the state."

But Augustine insisted the state should go through "the normal procedure" in constructing state buildings -- either paying cash or bonding.

The board voted 4-1 for the financing with Augustine dissenting.

A financial instrument called Certificate of Participation will be sold and the state expects to pay an interest rate of 4.75 percent for 27 years. If the state issued bonds, the interest paid would probably be about 4.5 percent, state officials said.

David Funk, president of Nevada Security Bank and a member of the finance board, called it a "very good business decision." Constructing a master building to bring the seven offices of the conservation department together is cost-effective, he said.

If the state defaults on paying off the holders of the Certificates of Participation, they, through the Bank of New York, would take over the property and start leasing space, and the state could start charging $225,000 a year for leasing its property for the building.

To facilitate the deal, a nonprofit corporation called Nevada Real Property Corp. acts as the go-between party in the lease-purchase. It does not receive any money. Its officers, including Krolicki, do not receive any pay.

All of the money goes through the Bank of New York, the trustee in the deal.

The finance board, at the urging of Guinn, decided to find a way to purchase insurance to protect officers in the nonprofit corporation from liability in the event of lawsuits.

The financing package must now be approved by the Legislative Interim Finance Committee. It will then return for final ratification to the examiners board in March or April.

In other action Wednesday the state Board of Finance approved issuing $18 million in bonds toward the construction of a 272-unit apartment complex in North Las Vegas for low- to medium-income families.

The project, called Glenbrook Terrace Apartments, is at Centennial Parkway and McCarran Street. Fore Property Development Co. of Las Vegas is the developer.