CARSON CITY -- Despite an uncertain economy and the threat of Indian gambling in California, Nevada has retained a strong credit rating from three major rating services.
Representatives of Standard & Poors, Moody's and Fitch spent two days in Las Vegas examining the state's finances and the economic outlook for Nevada.
State Treasurer Brian Krolicki said Wednesday that Nevada received a good rating for its sale of $21.5 million in certificates of participation for construction of a 120,000-square-foot building in Carson City to house the state Department of Conservation and Natural Resources.
It is the state's first venture into this type of lease-purchase arrangement. It made a negotiated sale of the certificates with Lehman Brothers to pay an interest rate of 4.64 percent. The state will pay out $38.2 million over the next 27 years for the building. Krolicki estimates the deal will save the state $2.7 million as opposed to renting, and the state will end up the owner of the building that could be worth $48 million in 27 years, he said.
It will also end up with 30,000 more square feet than it is leasing now.
Ground was broken Monday for construction on the project. Gov. Kenny Guinn said state agencies lease 750,000 square feet of privately owned office space in Carson City. The state spends more than $22 million statewide in leasing office space.
Guinn said he has instructed agencies to "look into this (lease-purchase) option for other locations in Nevada, including Las Vegas. It is important that we use this innovative financing program in the creation of new buildings, where applicable, for the most efficient use of our taxpayer dollars."
The money appropriated by the Legislature to lease private space will be used to pay off the state securities that are financing the building. Under this method, the full faith and credit of the state is not pledged to the certificate holders, Krolicki said.
If the Legislature refuses to provide the money to pay off the certificates, the holders of the securities would end up owning the state building, he said. If the full faith and credit were pledged, the state would be obligated to pay off the general obligation bonds.
Krolicki said because the faith and credit is not pledged, the rating of this certificate of participation carries a slightly lower credit rating than general obligation bonds.
The certificates are not under the state's debt limit of 2 percent of assessed valuation, he said.
Standard & Poors assigned an AA- rating for these certificates of participation, saying the outlook for the future economy was stable.
It said the "prospects for continued very strong economic growth face some challenges over the medium to long term as the casino industry responds to potential threats from Indian casinos in California and the expansion of gaming elsewhere.
"Nevertheless, the Las Vegas area is generally expected to show some resilience in the face of gaming competition, given that it offers a fairly unique product and has diversified into a broader entertainment theme."
Standard & Poors rates general obligation bonds for the state at AA, said Krolicki.
Moody's gave these securities an Aa3 designation, saying it expects the trend of recovery from the 2001 terrorist attacks and growth to continue in Nevada.
"The state has a history of strong budget management and quick response to revenue tightening," Moody's said.
It said: "Although legal gaming continues to proliferate outside of Nevada, the expansion of gaming activities in smaller venues outside of the state may actually benefit the state by whetting the appetite of gamblers for the large-scale gaming provided by Las Vegas casinos."
Moody rates general obligation bonds for Nevada at Aa2.
Fitch put an AA on the certificates compared with the AA+ rating for general obligation bonds. Fitch said the "recession and the events of Sept. 11 caused a short hiatus (in growth) but employment is again increasing and in January 2004 was over 4 percent above a year earlier."
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