Smart city, company town

Nevadans wary of Blockchains’ bid for self governance

IMAGE/ DESIGN BY EHRLICH YANAI RHEE, CHANEY ARCHITECTS AND TOM WISCOMBE ARCHITECTURE: Renderings of the smart city concept, which are not actual plans, illustrate futuristic buildings of metal and glass. The city would be supported by a cryptocurrency known as stablecoin.

The company planning to build a gleaming, high-tech city of the future about 20 miles east of Reno wants to carve a new county out of the high desert hills and run the local government itself.

The proposal to lop off about 40% of Storey County and turn it over to a limited liability company, now making the rounds at the Nevada Legislature, left some observers with raised eyebrows and dropped jaws. The suggestion of creating a modern company town – and building a “smart city” of high-tech industries with more than 35,000 residents in the shadow of Reno – resulted in a cascade of unanswered questions and major concerns.

Several Nevadans interviewed invoked the song “Sixteen Tons,” a classic tune about coal miners breaking their backs at their jobs only to remain in perpetual debt to the company-owned store.

 “Tennessee Ernie Ford is back!” said Michael Green, a professor of history at the University of Nevada, Las Vegas, in reference to the singer who popularized the song in 1947. “You load 16 tons and what do you get?” Green said Nevada’s history has many examples of allowing businesses wide latitude to make decisions that usually rest with elected officials. Those precedents, which include gold- and copper-mining burgs and towns controlled by railroad lines, usually put company gain above the public interest, he noted.

‘St. Peter, don’t you call me’

Green said the old company towns often operated by using company scrip – coupons that could be used as currency, but which were only accepted at the companies’ banks and  stores.  The smart city would be based on a form of cryptocurrency, similar to bitcoin. “That sounds a lot like a tech version of scrip to me,” he said.

“You load 16 tons, what do you get?
Another day older and deeper in debt.
St. Peter don’t you call me, ’cause I can’t go.
I owe my soul to the company store” 

— the refrain of “Sixteen Tons,” the song popularized by Tennessee Ernie Ford, and written by Merle Travis.

Although the analogy of underpaid and overworked laborers may not be appropriate in reference to the smart city, he said, the idea of a company being granted so much control over local resources and policies is worrisome. “It’s the idea of vertical integration, the control of all the means and methods of production,” he said. “We seen that through history, maybe not in direct control of the government, but with a company owning or controlling things they need like water companies, power grids, transportation or timber lands.

“Some people find that concept fetching, but if you are going to live in a republic, then that requires more of the citizenry to be involved than they would be in an autocracy, a monarchy or a company town.”

Government an ‘unnecessary middleman’

Jefferey Berns, the CEO of Blockchains LLC, envisions the experimental city as a place where where people “not only purchase goods and services with digital currency but also log their entire online footprint — financial statements, medical records and personal data — on blockchain,” according to a Feb. 13 Associated Press story. Blockchain, a digital ledger which keeps track of  cryptocurrency transactions, also has been used by some local governments for everything from documenting marriage licenses to facilitating elections.

Berns sees government as an unnecessary middleman between people and ideas, according to the AP story. “For us to be able to take risks and be limber, nimble and figure things out like you do when you’re designing new products, that’s not how government works. So why not let us just create a government that lets us do those things?” Berns said.

The story noted that Berns understands elected leaders in Storey County may not want an experimental city in their backyard, but he believes the idea should be a state decision. “We bought 70,000 acres of land in the county. What did they think we were going to do?” he told the AP reporter.

 Utopia on the Truckee

In 2018, Blockchains LLC bought 67,125 acres (104.8 square miles) at the Tahoe-Reno Industrial Center in Storey County for a reported $170 million, a deal brokered by center developer Lance Gilman, a county commissioner who also owns the Mustang Ranch legal brothel. Blockchains is the firm that pioneered the technology underlying cryptocurrencies, such as Bitcoin.

The Industrial Center is home to Tesla’s Gigafactory, which makes lithium-ion batteries, and many other high-profile firms, including data storage company Switch, Google, and major distribution facilities for Walmart, eBay and Zulily.

After buying the land, Berns announced the company’s intent to build a “smart city” on the site that would integrate blockchain technology into the fabric of the development.

“In 2018, Blockchains acquired 67,000 acres of land in Storey County, Nevada, for the purpose of building a better way. With our land, (Blockchains’ founder Jeffrey) Berns envisioned a boundary-less, high-tech community in which the innovative technology companies, various businesses and retail establishments operating within, and the employees, along with their families and other residents, residing in the community, would prove out that technology can transform our lives for the better and truly empower everyone.”

– from “Vision in Northern Nevada,” on Blockchains’ web site.
IMAGE/ DESIGN BY EHRLICH YANAI RHEE, CHANEY ARCHITECTS AND TOM WISCOMBE ARCHITECTURE:  Renderings of the smart city concept, which are not actual plans. “Painted Rock Smart City,” would include 22 million square feet of industrial space and house an estimated 36,000 permanent residents over a 75-year period.

An Innovation Zone

Few specific details about the smart city development had been released until this year, when Gov. Steve Sisolak in his State of the State address on Jan. 19 proposed setting up Innovation Zones, aimed at cultivating new companies, research opportunities and new technologies. Sisolak ruled out taxpayer-funding and tax abatements as financing methods for the zones, but said Blockchains wants to invest in such a zone in Northern Nevada that would “create a smart city… that would fully run on blockchain technology.”

The Nevada Legislature convened Feb. 1 and a draft of a bill that would set up that zone as well as allow companies to form their own governments began circulating among lawmakers. Those jurisdictions would have the same authority as counties, including the power to levy taxes; run public safety departments, courts and school districts; and provide other government services.

An official bill draft request relating to the proposal has not yet been submitted to the Legislative Counsel Bureau.

IMAGE/MONICANADO: Smart cities are based on interconnections via technology and touted as epicenters of innovation.

‘Inadequate’ government

The proposed bill draft states that Nevada’s “traditional forms and functions of local government” are “inadequate alone to provide the flexibility and resources condusive to making the state a leader in attracting and retaining new types of businesses and fostering economic development in emerging technologies and industries.” An “alternative form of government is needed,” according to the draft.

Under that proposal, the zones would have three-member supervisor boards with the same powers as county commissioners; the new jurisdiction would be treated as a Nevada county under state law. The businesses would have control over board membership.

Analyst hails the plan

While many objections have been raised over the self-governance part of Blockchains’ proposal, an analysis by Jeffery Mason on the Charter Cities Institute website, noted that, according to the bill draft, “democratic governance mechanisms” eventually would be introduced. Mason wrote that worries about the governance provision are overblown, and, in his opinion, even “greater regulatory and administrative freedom in particular would have been nice to see.”

According to the draft, residents of the Innovation Zone would vote in the surrounding county until there are at least 100 eligible voters living within its boundaries. After that threshold is reached, the residents would vote in elections organized by the Zone. Even so, the company would be in control of the new county’s government during the development’s initial growth spurt and, presumably, regulate the number of residents authorized to live there.

The statement that that local governments would somehow present an obstruction to the development in business-friendly Nevada — and the proposal to carve out a new county and allow it to be run by a company — left  some political observers gob smacked.

A ‘dangerous proposal’

“My jaw dropped;Good God!” said Fred Lokken, a political science professor and chairman of the political science department at Truckee Meadows Community College in Reno. “I had a ‘sold my soul’ reaction. In some ways I think it’s kind of a dangerous proposal.”

Lokken said that Nevada, compared to most other states, is already a “business-friendly” jurisdiction. He noted that any company gets upset when it meets delays for a major project. “But the delays can be reasonable to guard against errors that affect public safety; they insure proper planning.”

Giving those powers, responsibilities and obligations to private sector entities is a new concept. “I don’t think that’s been done before,” Lokken said.

Company control

A scene along the Truckee River near Painted Rock.

“I think that hasn’t happened for a variety of reasons; there are all kinds of issues with that. Counties have planning commissions and those maintain county jurisdiction yet allow for flexibility. Nevada is certainly more flexible than California. I’m not even sure what it is that they think is a little too controlling.”

He said the company-rule proposal may be “one of those ideas like STAR bonds that gets through and then later it becomes obvious that it was a mistake. It’s probably not good.”

The governor’s office has declined to discuss the bill draft. Blockchains LLC didn’t reply to the Reno News & Review’s request for comment made via the firm’s website last week.

 Unanswered questions

Lokken noted that under the Nevada Constitution a county has “amazing power and authority and we’ve never handed that to anyone other than the public sector. I’m not anti-Blockchains, I just think that they have avenues in the state of Nevada to get this done. This seems to be unnecessarily controlling; seems to set a bad precedent.”

“At what point do we recognize are we selling a part of ourselves, the very soul of our state, by turning areas over to a private company? We have bemoaned the excessive influence of gaming and mining.   That made sense when we were a desperate little state in terms of population, but I’d like to hope we’re in a better place now. There should be a compromise somewhere in between, taking advantage of the existing jurisdictions that might allow them to do what they want. I’m not even clear about what they hope to avoid. What is it they hope to streamline?”

– Prof. Fred Lokken, Department Chair of Business, Political Science and History at Truckee Meadows Community College in Reno.

Other observers also have concerns over the self-government proposal and raised questions about the availability of resources and infrastructure needed to establish the smart city along the Interstate-80 corridor east of Reno.

Regional impacts

Most of the workers drawn to the new jobs in Storey County don’t live there. Adjoining local governments have complained they bear too much of the burden for increased demand for services created by development beyond their borders.

In 2017, Nevada Assemblyman Skip Daly of Sparks introduced a bill in the Legislature that would have allowed counties with schools and services affected by developments such as the industrial center to charge those counties impact fees. Opponents argued that such a law would pit county against county and impede the development of major projects. The measure, nicknamed the “Tesla Bill,” was tabled.

On the Nevada Newsmakers show that aired Feb. 9, host Sam Shad interviewed Mary Lau, the president and CEO of the Retail Association of Nevada, who noted that the smart city plan is being floated at a time when lawmakers indicated they wouldn’t be tackling major policy issues in favor of focusing on the state budget and pandemic-related problems.

Lau and Joe Guild, an attorney with Black and Wadams, questioned the availability of enough water rights to serve the proposed city. “How do you get the water for a city like this?” Lau asked.

Page 1 of a water deed dated Nov. 17, 2020.

Water importation plans

Reno Gazette Journal, Sept. 27, 2007, pg. 4A

In November, Blockchains made a $30 million deal to purchase agricultural water rights near Gerlach in Washoe County, according to a deed on file at the Washoe County Recorder’s Office. Some of that water would have to be transported about 100 miles to the Painted Rock Smart City. In 2007, other developers had plans for a pipeline to get water from that area to Storey County. Those proposals were stymied in the wake of objections from environmental groups, state regulators and local governments, including the Pyramid Lake Paiute Tribe.

A Feb. 12 story in the Nevada Independent by Daniel Rothberg lays out the history and complexities of efforts to quench the thirst of Storey County’s current and future developments.

 Billions at stake

The new industries in Storey County, which has a population of about 4,000 people, have already made the jurisdiction one of the wealthiest counties, per-capita, in the nation. The plan also requires any Innovation Zone be tied to an industry-specific tax applied to an “innovative technology.” If there is a widespread adoption of stablecoin, the cryptocurrency associated with the smart city proposal, billions of dollars in revenue could flow from a tax on financial transactions.

Lokken and Green said they think the smart city idea is intriguing and could elevate the Silver State’s global positioning and create a major boost for Nevada’s economy. They said giving any private company carte blanche to make decisions and set policies that may not be in the public interest is a sticking point.

“The smart city concept fits in with the evolution of technology and our ability to harness it. The question becomes whether it harnesses us. If the price of the technology is the kind of power that certain officials are proposing to give Blockchains, it’s up to all of us to determine whether that’s a price we’re willing to pay.”

— Michael Green, associate professor of history, University of Nevada, Las Vegas.


Planning for the future

Nevada must diversify its economy and position itself for the future, Green said, but “we shouldn’t fall all over ourselves to grab the first big shiny object that comes our way without giving it a very close look to make sure there aren’t any spikes or needles on it.”

Lokken said the concept of the city is “a fascinating idea,” although he said he’s puzzled by the large scope of the project and wary of the proposal for self governance.

“We’re hungry to see a diversified economy,” he said. “But at first blush, if it is such a great idea, other states would be rushing to do it… There are all kinds of valid questions that need to be answered.”

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  1. Reno-Tahoe International is proud to be part of a region focused on air cargo. Ideally located, the Reno-Tahoe region and Northern Nevada serve as home for numerous West Coast distribution centers, online fulfillment centers and the Tahoe/Reno Industrial Center, which at completion, will be the largest industrial park in the world. Reno-Tahoe International’s air cargo carriers include Capital Cargo International, DHL, FedEx Express, and UPS, as well as numerous ad-hoc charters throughout the year. Reno-Tahoe International is capable of handling all cargo aircraft.

  2. The idea of a county relinquishing its police power to a corporation is absurd and insane. Corporations exist for the profit motive; counties exist for the process motive. Corporations exist only to maximize profits for their share holders; counties exist to maximize the health, safety and welfare of all their citizens. Corporations have no incentive to protect the planet for future generations; counties have every incentive to protect the present and future environment for all. And most importantly, corporations are responsible only to those who own their stock or equity interests; counties are responsible to act for the benefit of all their residents, and forbidden from favoring those having a financial stake in their decisions. Sooner or later, it will evolve into a corporate autocracy vs. the residents it seeks to control.

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