Nevada's governor and treasurer Wednesday defended the concept of lease-purchase agreements to build new state office buildings, saying it's not a violation of what Nevadans want but a smart way to use their money.
They were joined by the two businessmen sitting on the state Board of Finance who also voted to adopt the agreement which will build new state offices on Roop Street.
Treasurer Brian Krolicki said the plan for a 120,000-square-foot, five-story building that will replace seven different rental offices now used by Conservation and Natural Resources is not a violation of anything in Nevada's constitution and its legality has been unanimously affirmed by the Nevada Supreme Court.
"We currently squander tens of millions of dollars in rent," he said. "This will convert millions of dollars into equity."
Under the lease-purchase plan, a nonprofit corporation run by state officials, including Krolicki, will raise the $19.2 million to build the building by selling certificates of participation, then have Jacobsen Construction build the new structure according to state plans and specifications. The Nevada Real Property Corp. will then lease it back to the state which will use the money it formerly spent on rent to make monthly payments much like an individual does on a home mortgage.
At the end of 27 years, the state ends up owning the building.
Krolicki said the state isn't at risk, isn't using up more of its own bond capacity and essentially pays off the building using money it now spends for rent.
Guinn said he doesn't see a fault in the plan, that it makes good business sense and that the state can get out of it at any time just by canceling the lease.
"It's just a smarter use of state money," he said.
They were joined by the two businessmen on the Finance Board - banker Dave Funk and CPA Mike Kern.
"I think this is a very smart business decision on the part of the state," said Funk. "I can't see that constituents in the state of Nevada would ever have an issue with this kind of proposal."
Kern described the lease-purchase plan as "a remarkable program for the state."
The only objection on the board came from Controller Kathy Augustine, who echoed concerns raised last week in the Board of Examiners meeting by Secretary of State Dean Heller that the lease-purchase deal is contrary to what voters said in a 1994 ballot question.
The electorate rejected amending the state constitution to specifically authorize lease-purchase by a 6-1 margin. Citing that vote, Heller opposed the proposal at the Board of Examiners meeting last week.
Krolicki said that ballot question was a different proposal at a different time and that he is certain this plan - which completely protects the state's financial interests - would meet voter approval.
"I unfortunately do think we are circumventing the debt limit," Augustine said. "When people voted on this they were against lease-purchase agreements."
She said the state should just sell bonds to build the building.
Krolicki and Guinn pointed out the state doesn't have enough property tax revenue to bond for all the buildings it needs. He said the certificates of participation to raise the necessary construction capital will sell at probably less than a quarter-percent higher interest rate than state bonds - about 4.75 percent - making the cost comparison nearly a wash.
"And at the end of 27 years, we'll own the building," he said.
Financial experts who developed the plan said the structure with interest will cost the state about $72 million over that period but the state will end up with a building which, at that point, will be valued at about $75 million.
Augustine, however, said she just doesn't think the state should be in the lease-purchase business.
The project will return to the Finance Board in March for final approval of the interest rates and contract language.
Contact Geoff Dornan at nevadaappeal@sbcglobal.net or 687-8750.
