Editorial: Warning signs, potholes

Friday, May 18, 2007 | 7:20 a.m.

Gov. Jim Gibbons claims his plan to finance highway construction in Nevada is an "innovation" in public financing and will not cost the taxpayers a dime. He is wrong on both counts.

His proposal rests on a plan to take future room tax revenue meant for the Las Vegas Convention and Visitors Authority, and that may be both unconstitutional and costly to the state.

Taking the room tax money without replacing it is unconstitutional, according to John Swendseid, an attorney who represents the LVCVA on bond issues, because the plan would interfere with the authority's obligation to pay its debt.

The LVCVA is committed to use future room tax revenue to pay off $230 million in bonds and has authorized using room tax money to secure $680 million in other debt known as commercial paper, some of which has already been issued.

Swendseid wrote a letter describing how the governor's plan would violate the U.S. Constitution's contract clause, which forbids states from passing laws that interfere with the repayment of a contract. Gibbons' proposal would change the deal and potentially the authority's ability to pay off the debt, which Swendseid wrote violates not just the U.S. Constitution but also the Nevada Constitution.

The proposal could also cost Nevadans money, according to Guy Hobbs, a consultant and preeminent government finance expert. In a letter to the LVCVA, Hobbs said the governor made his proposal after the authority went to market to refinance a bond issue, which is expected to save the authority $5.86 million, but before the close of the sale. The proposal could scuttle the sale because it casts doubt on the authority's future revenue picture.

As well, Hobbs said, there could be a fear in the credit market that "Nevada views its contracts with bondholders as less than iron-clad" and that could cause lenders to charge Nevada governments - and thus taxpayers - more to borrow money. Hobbs said lenders could do the same to other government agencies.

Unconstitutional and costly? This is the type of "innovation" nobody needs, and the Legislature should reject Gibbons' plan.