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Sisolak's Innovation Zone concept, repackaged as a study, gets first public hearing — without its original backer

Daniel Rothberg
Daniel Rothberg
State Government
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Labor unions and blockchains advocates testified Tuesday in support of Gov. Steve Sisolak’s request that the Legislature form a joint special committee to study the idea of allowing private developers to effectively form new local governments, or Innovation Zones. Even initial skeptics of the highly-publicized concept signaled that they were open to the study. 

But there was a notable absence at the hearing: The concept’s original backer, Blockchains Inc., did not testify. In fact, the company’s name was rarely mentioned in the one-hour hearing.

After the hearing, Pete Ernaut, a lobbyist for Blockchains, said that the company did not testify because the study was about the Innovation Zone concept, rather than one specific project.

“The study is not a referendum on this specific project,” Ernaut said. “It’s an opportunity to vet the entire concept, so it was more appropriate to have the governor and the Legislature work on the details and create the committee. And we will have more than adequate time to make our case, because we very much believe in the project.”

Tuesday marked the first public hearing for the Innovation Zone proposal, a concept that was embraced by the governor and originally pushed by Blockchains. The company, which owns about 67,000 acres of land in Storey County, wanted to create a new local government. 

But after the concept received an icy reception from lawmakers, rural counties and progressives in his party, the Democratic governor, last month, scrapped plans to pass enabling legislation.

Instead, Sisolak proposed alternative legislation, SCR11, to study the Innovation Zone proposal. That concurrent resolution, heard before the Senate Committee on Legislative Operations and Elections Tuesday afternoon, would comprise six lawmakers appointed by legislative leadership. 

The committee would be tasked with recommending whether to take further legislative action on the idea, evaluating the effects of Innovation Zones on everything from economic development to affordable housing, local tax revenue and natural resources, including the availability of water.

Under the proposed language, the committee would submit a final report by the end of the year. 

“It became clear in recent weeks that a proposal of this magnitude was not going to fit into this particular session,” Scott Gilles, Sisolak’s senior advisor, said in a presentation for SCR11. “The governor believes this idea warrants and deserves a proper vetting, a proper analysis and time to work through the complex pieces of the proposed legislation.”

Any future Innovation Zone legislation that did pass, Gilles noted, would have general application.

“Yes, there obviously is a project, which everyone has read about, in Storey County that would be looking to take advantage of the legislation,” Gilles said in response to a question from a legislator. “But it would be general law legislation that could be taken advantage of anywhere throughout the state if the appropriate financial commitments and plans were in place.”

Sisolak first unveiled the Innovation Zone concept in his State of the State speech in January, but he offered few details. A few weeks later, Blockchains , a cryptocurrency startup with land in Storey County, began to circulate draft legislation for the Innovation Zone proposal. 

That draft bill would have allowed private developers, with large land holdings, to effectively form new county-like governments if they committed to invest more than $1 billion over 10 years and identified a new revenue source for the state. Yet the proposal raised numerous questions, and many were quick to draw comparisons between the proposal and former company towns.

Although early drafts of the Innovation Zone legislation were circulated, a final version has yet to be released to the public. Gilles said a final version is still being drafted, but Sisolak’s office is  hopeful that the Legislative Counsel Bureau will finish a final draft by the end of the session.

Once a final draft is released by the Legislative Counsel Bureau, Gilles said that a “joint special committee would have a draft piece of legislation to work off of through that committee process.” 

At the hearing Tuesday, business interests and representatives from labor unions in Southern and Northern Nevada came out strongly in favor of the Innovation Zone proposal and the study. 

“This issue represents the biggest opportunity in Nevada to diversify our economy, and probably the biggest opportunity to put Nevadans to work,” said Danny Thompson, representing IBEW 1245, IBEW 396, Operating Engineers Local 3 and Operating Engineers Local 12. 

Several advocates of Blockchains technology, including Brock Pierce, who co-founded the cryptocurrency Tether and starred in The Mighty Ducks, also spoke in favor of the study.

Despite public criticism of the draft Innovation Zone legislation, only one group criticized the study contemplated in SCR11. The opposition came from a progressive group, highlighting the political challenges that Sisolak would have likely faced if he had pushed the initial bill draft.

Annette Magnus, the executive director of Battle Born Progress, said that when the state faces so many issues from unaffordable housing to health care access, “it is grievously inappropriate the amount of time and energy spent this session discussing the proposal to give a billionaire CEO and an unproven company their own autonomous form of government.”

Among the concerns with the draft bill was where Blockchains would get enough water to build out the Innovation Zone, which contemplated a development with about 36,000 residents.

The Nevada Independent highlighted numerous concerns with supplying water to the Innovation Zone proposed by Blockchains. Blockchains had purchased faraway water in northern Washoe County, about 100 miles away from its property. Pumping and moving that water could be costly and negatively affect the hydrology around Pyramid Lake, the terminus of the Truckee River.

For decades, the Pyramid Lake Paiute Tribe has fought to bring more water to the lake as part of an effort to restore two imperiled species, the cui-ui and the Lahontan cutthroat throat, the state fish. In written testimony Tuesday, Pyramid Lake Paiute Tribe Chairwoman Janet Davis said the tribe initially opposed the proposal “due to a lack of transparency and tribal inclusion.”

But Davis wrote that the tribe was neutral on the legislation to create the study, as it required the inclusion of tribal perspectives and an evaluation of how Innovation Zones might affect water. 

“In addition,” Davis wrote in testimony, “we would like to note that any analysis of the potential for the creation of new forms of governments, such as an innovation zone, should protect the tenets of adjudicated agreements, such as the Truckee River Operating Agreement, and must include the need for government-to-government consultation with Native American tribes.”

Rural counties had also raised serious concerns with the original proposal. In March, Storey County commissioners voted to oppose “separatist governing control” within their jurisdiction.

A Storey County water district that serves the Tahoe Reno Industrial Center, where Blockchains owns most of its land, identified several issues with the proposal. The Tahoe Reno Industrial General Improvement District was primarily formed to serve businesses, not residences.

On Tuesday, Storey County Manager Austin Osborne said that the county was neutral on the interim study. But he said the county believed that the joint special committee, if it is empaneled, would find that “the separation from government is not necessary and is not appropriate.” 

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