State tests new way to finance buildings

CARSON CITY -- A test case is headed for the Nevada Supreme Court seeking to allow the state to use lease-purchase agreements to finance new buildings without exceeding its debt limit.

If the strategy is determined to be legal, the state would be able to construct more buildings, which it needs.

The state is restricted in the Nevada Constitution to borrowing up to 2 percent of its assessed valuation. To finance buildings, the state often issues bonds, which are considered debts and counted toward the debt limit.

To see if lease-purchase agreements may be considered outside the debt limit, a test case has been devised by state Treasurer Brian Krolicki.

The state Conservation and Natural Resources Department has agreed to lease a building in Carson City from Employers Insurance Co. of Nevada for 20 years at a cost of $1.7 million. At the end of the lease, the state would own the property, which is about two blocks from the Capitol.

The state Board of Examiners Friday rejected the lease-purchase on grounds that it violates the state constitution. According to the plan, Employers Insurance Co. will now ask the Supreme Court to rule that the lease does not count toward the debt limit.

Attorney General Frankie Sue Del Papa, a member of the examiners board, has issued a legal opinion that this lease-purchase would be a debt and violate the constitution. She suggested a better way to attack the problem would be for the Legislature to enact a lease-purchase law, which would then be presumed constitutional.

If that law were challenged, the state would have better standing to defend a lease-purchase arrangement, rather than using the contract with Employers Insurance as a vehicle to get into court, she said.

A lease-purchase agreement would give the state another option in its efforts to stretch its money for building. The Supreme Court, in a 1970 decision, has already ruled against lease-purchases for buildings. But the court in 1998 allowed equipment to be acquired through the method.

To free up more money for construction, the Legislature could ask voters to amend the Constitution to raise the debt limit to 3 percent. But that would take an estimated five years to get the final approval necessary.

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