Bankruptcy for governments considered

Thursday, March 3, 2005 | 9:22 a.m.

CARSON CITY -- A Senate committee was asked to decide Wednesday whether local governments that fall into debt should be allowed to file bankruptcy.

James Wadhams, lobbyist for the Nevada Rural Electric Association, told the Senate Government Affairs Committee that permitting a general improvement district to file for reorganization under the federal bankruptcy law would permit an "orderly process" to solve the problem.

Committee members started discussing whether that authority should be extended to all local governments.

Senate Bill 67 ran into immediate opposition from Carole Vilardo, executive director of the Nevada Taxpayers Association, who said "our state's credit rating would tank" if local governments were allowed to file for bankruptcy.

She noted that current law allows those local governments in distress to work with the state Department of Taxation to remedy their problems.

SB67 was prompted by an issue two years ago in a dispute between the Overton Power District and the Idaho Power Corp. The Overton Power District, which supplies electricity to Mesquite and other areas in northeast Clark County got into a dispute with the Idaho company over a long-term purchase agreement for $320 million worth of energy. The Idaho company filed a lawsuit against the Overton Power District.

Before it ever went to trial, however, Overton Power agreed to pay the Idaho firm $52 million to settle the case. The fact that Overton Power had been facing the massive lawsuit led to talk in the 2003 Legislature about permitting the Overton District to file for reorganization under a Chapter 9 bankruptcy.

Delmar Latham, general manager of the Overton Power District, said although the lawsuit had been settled "the underlying problem with exists with other municipalities." At the time, he said the power district considered itself a quasi-municipality and was not covered by the law that bailed out other local governments.

If there had been a major judgment against Overton that it could not pay, the Idaho company could have come in and taken all the assets such as equipment, trucks and other items. "Mesquite could go back to lamp lighting," Latham said. "We don't want to be running to the courthouse," if the bankruptcy bill was to pass, but there needed to be ways to ensure that creditors are paid, he said.

Sen. Warren Hardy, R-Las Vegas, the chairman of the committee, said it "was a near death experience in Overton. The problem is real."

But banking representatives agreed with Vilardo and told the committee that the state's credit rating would be hurt if any of its local governments filed bankruptcy.

Vilardo said the current law could be expanded to include improvement districts. She said the existing law has worked in several cases where local governments became mired in debt they could not pay.

For instance, the tiny community of Gabbs in Nye County could not meet its debt obligation in paying for its water plant. Working with the state Tax Department, Nye County took over the obligation.

The White Pine School District also ran into major financial problems, Vilardo said. The taxation department re-negotiated some of the district's contracts, and there was no tax increase related to pulling the school district out of its financial bind, she said.

Representatives of other general improvement districts also opposed the idea of allowing bankruptcy. Jim Bentley of the Indian Hills General Improvement District south of Carson City, said the state has good controls over these districts.

The committee that did not take action on the bill, but Hardy appointed himself as a subcommittee of one to examine the issue further.