Building Nevada - January 2007

Building Consensus

Construction Industry Faces the 2007 Legislature

by Jessica Santina

It’s been a turbulent couple of years. Since the 2005 legislative session, Nevada has experienced one of the country’s biggest housing booms, then a housing slowdown. As one of the country’s fastest-growing states, it’s wrestled with managing that growth, which has resulted in soaring energy prices, limited water resources and increased highway traffic.

As lawmakers head into the 2007 session, builders, contractors and developers around the state are preparing to go to battle over several of these issues, which could ultimately affect everyone in Nevada.

Infrastructure Issues

“We’ve been advising legislators that Nevada’s infrastructure needs to be addressed and now it’s come to the point where we’re facing close to a $4 billion bill in order to pay for infrastructure over the next 10 years, and that’s just to get to the most basic level of service,” said Buzz Harris, assistant executive director for the Nevada chapter of the Associated General Contractors (AGC).

That’s why the Nevada AGC, a non-profit association made up of approximately 300 heavy highway and commercial contractors from the top half of the state, intends to lobby for pro-infrastructure measures in 2007. It’s a tough task in a state with a firm low-tax stance, said Jeanette Belz, an independent lobbyist for the AGC. “Everyone’s always saying, ‘No tax increase on my watch’ because it gets used against them later, as we saw very clearly in this last campaign season.”

In the last session, the AGC proposed a gasoline tax increase of 2 cents per year for five years; although this increase would have been a direct form of taxation and use – you don’t use the road, you don’t pay the tax – the bill died in the Legislature. “In some ways, we’ve been a lone voice in the wilderness,” said Belz. “But it’s a problem that is not going away.”

What exactly is the infrastructure problem? That’s what the Governor’s Blue Ribbon Task Force was created to determine. Following the 2005 session, Gov. Guinn appointed 14 legislators and community leaders, including Nevada AGC Executive Director John Madole, to study future highway projects in Nevada. They were charged with reviewing the need for future Nevada Department of Transportation (NDOT) projects, project costs and revenue projections, and then evaluated potential funding options.

Their findings, released in early December 2006, indicate that, where transportation is concerned, Nevada is verging on a crisis. Between 1990 and 2003, Nevada’s population grew by 92 percent, and the number of vehicle miles traveled on its roads more than doubled, from 9 billion to 19.46 billion; these numbers reflect the fastest rate of growth in the nation. By 2010, Nevada’s population should grow by 2.8 million. Las Vegas is the 10th most congested city in the U.S. Unless drastic steps are taken, by 2030, driving times in Las Vegas will exceed those of present-day Los Angeles.

Currently, NDOT has 10 “Super and Mega Projects” on its books, which are needed to help ease congestion and accommodate growth, and are expected to total roughly $11 billion. Yet, the NDOT projects a shortfall of $3.8 billion (in 2006 dollars) by 2015. And there hasn’t been an increase in fuel taxes, registrations or driver license fees in this state since 1992.

Among the task force’s many recommendations are the following:

• Tougher enforcement of vehicle registrations for those moving here from out-of-state;

• Redirecting the entire 2 percent state sales tax on vehicles and vehicle repairs to the State Highway Fund for NDOT;

• Appropriation of at least $170 million in 2008-2009 from the general fund surplus to highways, and any future general fund surpluses above the expenditure cap for “one-shot” state highway expenditures;

• Indexing state fuel taxes to inflation, with a maximum increase of 4.5 percent annually;

• Increasing the driver license fee by $20 for the highway fund.

Another potential drain on the Nevada’s highway fund is the Real ID Act of 2005, which states that by 2009, each citizen must receive a national identification card from the local Department of Motor Vehicles. Issuing this card will require more staff – and more money. Increased driver license fees would help offset costs of the Real ID program.

“So far nobody’s come forth with a bill relative to highway funding,” said Belz. “But I assume we’ll advocate for those, because it has to be addressed.”

The AGC isn’t the only entity concerned about infrastructure. The Builders Association of Northern Nevada (BANN), which represents 900 members in the residential building industry from Northern Nevada, will be looking closely at eminent domain, along with others in the industry.

In the November election, voters passed Ballot Question 2, an eminent domain initiative drafted by PISTOL (People’s Initiative to Stop the Taking of Our Land), which seeks to amend the Nevada Constitution to allow public land that stands undeveloped for five years to be sold back to the original private owner at its original price. The measure must pass once more to affect the Constitution.

“This is very concerning to us, because we think it will have a significant negative impact on the state and the taxpayers, and frankly, on the ability to develop transportation projects,” said Bambi Spahr, executive director of BANN, who adds there are already bill draft requests in the works to challenge Question 2, and that BANN will be advocating for those.

“If you think about how roads are constructed, it’s a long process,” explained lobbyist Belz. “Land is divided up parcel by parcel. You have to do environmental impact studies, get zoning permits and all that. Five years just doesn’t cut it.”

Guy Wells, chairman of the Nevada Contractors Association, said his group will also work against the PISTOL initiative. “If PISTOL passes, it will be disastrous for the construction community, making it impossible to acquire right-of-way land, and it will make smart-growth planning impossible,” he stated.

BANN will also advocate for better management of the state’s resources. As Mike Dillon, BANN’s community relations and government affairs director, explained, this begins with water. In fact, following the 2005 session, an interim committee was established to address Northern Nevada’s water concerns. This SCR 26 committee met to discuss how best to use, manage and allocate Nevada’s water resources. Its recommendations will be addressed in the 2007 session, and BANN expects to advocate for those.

“That will probably mean discussion about making a new entity, perhaps a Northern Nevada water authority,” said Dillon, who added that this new authority would then be responsible for working with developers, leaving the Truckee Meadows Water Authority (TMWA) to deal mainly with ratepayers.

Housing Concerns

The relationship between infrastructure and the housing market is certainly on the mind of Irene Porter, CEO and executive director of the Southern Nevada Home Builders Association (SNHBA), which represents home builders, light commercial builders and master-planners in Southern Nevada. As Porter explained, the recent downturn in the housing market concerns all Nevadans. The SNHBA will support any legislative issues that stimulate the market.

“The home building industry pays a huge amount of taxes in Nevada, which are used for everything from low-income housing, to schools, to the state budget,” said Porter. “As taxes paid by home builders slow, so will funding. Infrastructure like roads, parks and community centers won’t be funded for citizens, so that should be of concern for everyone.”

She said that while the housing slump now provides numerous affordable options for homebuyers, it has unfortunately resulted in a number of layoffs in the industry. “It’ll be particularly important during this session to keep this in mind, and support nothing that exacerbates the situation by forcing more layoffs.”

Spahr added that in the 2005 session, a study and interim committee were established to address affordable housing in the state. She expects BANN to support bill drafts that would provide for more affordable housing.

A Shortage of Land

According to Tony Dazzio, president-elect for the National Association of Industrial and Office Properties (NAIOP) Southern Nevada Chapter, in the next five years, Las Vegas will run out of contiguous, industrially-zoned land. This land, which is designated for projects like “big box” developments and distribution warehouses, is essential to the region’s economic prosperity, said Dazzio. “These types of projects support gaming, residents, and goods and services moving through the city. If you run out [of land], the costs of housing those services go up, and that’s transferred to the customer.”

In the event of a land shortage, taking these services outside the community would mean a loss of revenue and increased costs associated with storage. “We recognize that growth is essential to our economic vitality, and we support a balance of residential development growth as well as industrial growth,” said Dazzio. “We would oppose converting any industrial land for residential use, unless a viable substitute is located.”

“Balance” will be NAIOP’s primary theme when it comes to taxation as well, because while Nevada’s favorable tax structure is good for growth, you can’t have growth without infrastructure. “We support reasonable tax incentives and the authority of elected officials to set a fair tax policy,” said Dazzio, “and we’d oppose any taxes that would create an undue burden for citizens or reduce our favorable position in the nation. It’s about striking a balance.”

Defending the Industry

Senator Warren Hardy of District 12 in Southern Nevada is also the president of the Associated Builders and Contractors (ABC) Las Vegas chapter. ABC Las Vegas represents approximately 260 non-union members. Hardy said that while the 2005 legislative session was an active one for his chapter, this one should be fairly quiet.

“I think it’ll largely be a defensive year for the industry,” Hardy said. “Construction is an extremely important sector of the economy, and we need to continue to make sure that people can continue to make a living here, so we’ll be supporting legislation that’s in line with that.”

ABC isn’t alone. The Nevada Subcontractors Association will be defending Senate Bill 241, the Right to Repair bill that passed in 2003. “We’ve had three years for that bill to work its way through the courts, and now we’ve identified areas for improvement,” explained Executive Director Cindy Creighton.

When it passed, SB 241 rewrote the Nevada Constitution to derail excessive construction defect litigation against the industry. Contractors and subcontractors were essentially offered the chance to repair defects before facing litigation.

However, Creighton said a lack of specificity still exists. “We need to know what we’re fixing,” Creighton said. “For example, a plumber may get sued for a problem that exists in a project containing 200 units. We need to know what we’re fixing, and we don’t get that the lawsuits aren’t specific enough.” And while she added that this is more a judicial issue than a legislative one, it will certainly come up in the 2007 session.

The Las Vegas Chapter of the AGC represents over 650 member companies from the bottom half of the state. Executive Vice President Steve Holloway said they have already submitted three bill draft requests for this next session, all of which help to defend the industry.

The first of these concerns construction managers-at-risk, or project managers who provide advice and construction leadership on projects, from planning and design, through contract management and supervision over the construction phase. These managers contract directly with trade contractors, so everyone works smoothly as a team. But with public works projects, all contractors are hired separately, based on their initial bids.

“The Nevada Contractors Association is supporting a bill draft request to add construction management at-risk as an alternative delivery method on public works projects,” said NCA’s Wells. “Nevada is one of only six states in the country that doesn't currently allow construction management at-risk. It essentially allows state and municipal agencies to award projects on a best-value basis instead of price alone, and limits public liability, since the construction manager agrees to assume any cost overruns beyond a negotiated guaranteed maximum price. The method, as a result, serves as a strong incentive for the job to stay within budget. Public agencies are very supportive of the idea and have participated in drafting the legislation. Their backing comes as a result of several low-bid, high-profile project miscues, including the Clark County Regional Justice Center and Detention Center in downtown Las Vegas, which both opened a year late and over budget.”

The second bill draft supported by the AGC pertains strictly to Clark County, and it has to do with transportation logistics. The bill is in response to a court decision that allowed local government entities to issue permits on oversized loads and vehicles.

“As an example, if you wanted to move portions of a tower crane from a yard in North Las Vegas to the Wynn resort on the Strip, you might have to get four different permits: one from NDOT, one from the county, one from the city of North Las Vegas and one from Las Vegas,” said Holloway. “They might each take a week, and it’s all to move the same load. Time is money, and Steve Wynn is not going to wait six weeks for a tower crane.”

As a result, the AGC went to the 2005 session with a bill that said local entities would have to work together to authorize the permitting process. The problem, Holloway said, is that none of these entities could agree upon a set of hours during which these loads could be moved. The logistics, Holloway said, don’t work. “So we’re going to the legislature in 2007 to get them to fix it,” he said.

The AGC’s third proposed bill is another defensive move, modifying Chapter 624 of the Nevada Revised Statutes. It states that if contractors aren’t paid promptly for projects, they may stop work and recover damages. While the law is good, Holloway said, it needs “tweaking,” so laborers who complete their portion of the work may collect their payments without having to wait months, or even years, for project completion. This session, the AGC will spell out conditions, so payment cannot be held up indefinitely.

A Fresh New Year

Builders and contractors around the state all agreed on one thing: the newest crop of legislators suggests promise for the industry. And clearly, with the many issues facing Nevada’s construction industry, it will be important to start on the right foot. “Many of the newly elected people are very thoughtful and have offered refreshing ideas,” said Porter of SNHBA, who echoed many others in her industry. “It looks like there will be some great committee chairmen in the Assembly, so we’re very positive.”

Jessica Santina
Jessica Santina is a freelance writer based in Reno.