Republican Gov. Brian Sandoval is proposing using alternative tax revenues to support more than $50 million in general obligation bonds the state wants to issue to pay for significant infrastructure improvements.
General obligation bonds are typically backed by state property taxes, but Nevada’s treasurer anticipates the state won’t have any capacity until 2020 under its current debt structure. A portion of the property tax is the primary source of repayment for general obligation bonds.
Nevada’s real estate market has been hard-hit by the recession, leaving no capacity in property taxes to do the bonding. The dedicated levy in Nevada on property taxes is 17 cents per $100 of assessed valuation.
In Sandoval’s $6.55 billion budget for the 2013-2015 biennium, he proposes issuing $58 million in general obligation bonds that would be repaid from the state’s liquor tax. The governor has budgeted $85 million for capital improvement projects.
“It’s not a done deal yet,” said Jeff Mohlenkamp, director of the Nevada Department of Administration. “It might be liquor or slots, but (the bonds) will have a defined, steady, consistent revenue stream.”
Mohlenkamp said that though the bonds would have a different dedicated source of revenue, they would still be secured by the general fund of the state. If the Legislature approves liquor tax- supported bonds, the governor could use the same funding mechanism in the 2015-2017 biennium, he said.
Mohlenkamp said it was too early to project beyond that because conditions might change creating new capacity for property tax-supported general obligation bonds.
“We are going to assess where we are and then assess if there is any capacity in traditional property tax revenues,” he said.
Treasurer Kate Marshall’s GO Debt Capacity and Affordability Report for 2013-2015 projects that the state will have no new capacity to issue general obligation bonds until 2020, based upon the state’s current and forecast assessed valuation.
Marshall hasn’t indicated whether she will support the liquor tax-funded general obligation bonds but has agreed to testify at any legislative hearing on the proposal.
“I support putting the state in the next possible position to maintain its credit rating in order to ensure a secure future for Nevada,” she said in a statement.
Nevada general obligation bonds are rated AA-plus by Fitch Ratings, AA by Standard & Poor’s, and Aa2 by Moody’s Investors Service.
Mohlenkamp said the bonds are not for large infrastructure projects but are sized for maintenance projects that were deferred during the recession. Among the projects are replacing heating, ventilation and air conditioning units in several state buildings.
“These are large maintenance projects with a shelf life of 20 years,” he said.
Contact reporter Chris Sieroty at email@example.com or 702-477-3893. Follow @sierotyfeatures on Twitter.