Editor’s note: The Smart City proposal is in ruins. In a letter to Gov. Steve Sisolak dated Sept. 30, Blockchains CEO Jeffrey Berns wrote that his firm was withdrawing the proposal because the concept "has not gained enough traction from the State to warrant further debate." It’s the end of a long discussion about the controversial plan. Our previous story, below, explains the obstacles and objections to the proposal to build a high-tech utopia 20 miles east of Reno.
In coming up with the proposal to build a smart city just east of Reno, Blockchains’ planners let their imaginations run wild.
Unfortunately for proponents, members of the public and lawmakers did the same thing – and not in a positive way. Rather than tackling the proposal in the current session of the Legislature, Governor Steve Sisolak, who has been a cheerleader for the plan since January, now favors passing the ball to a special legislative committee for six months of study.
Panel members will be tasked to vet the idea for Innovation Zones — entities carved out of existing counties that would operate using crypto currency and blockchain technology; run their own governments; and host technology firms that aim to change the world. Blockchain technology is a decentralized, digital ledger that can record nearly any transaction.
A game changer?
The bill to authorize Innovation Zones, which was never formally introduced, would allow high-tech firms with at least 50,000 acres of land and that commit to investing $1.25 billion to set up the new jurisdictions. The first zone, owned by Blockchains, would host the smart city of 15,000 homes, 35,000 residents and a forest of commercial buildings nestled in the desert hills 20 miles east of Reno.
“There’s no doubt about it: this is a big idea. But our state is not afraid of thinking big.”– Gov. Steve Sisolak, in February.
It’s a big idea that faces huge obstacles.
‘No financial risk’
Blockchains’ television commercials aired regularly in the Reno and Las Vegas markets. The spots touted “124,000 jobs and $16 billion in economic impact with no financial risk to the state.” Politicians and business interests both in Nevada’s urban areas and rural counties are wary of the plan. Neighboring jurisdictions worry that a new city in their backyards would burden their services and infrastructure.
Further complicating matters are sexual harassment allegations against Jeffery Berns, Blockchains’ CEO and the mind behind the Innovation Zones proposal, as reported in the Reno Gazette-Journal in April. Berns has denied the allegations brought against him and his wife in the civil lawsuit filed by the couple’s former nanny, the newspaper reported.
Despite the advertising blitz; large campaign contributions to politicians and media influencers; and pressure from lobbyists, the idea failed to gain much traction.
Many lawmakers and county officials had trouble understanding the crypto currency component of the proposal and questioned why Blockchains would need its own government. Storey County, which would lose about half its land area to the smart city, is solidly against the plan. Other rural counties fear they would be the next jurisdictions where corporations would want to set up their own fiefdoms.
Sisolak said handing off the issue to a special joint committee of lawmakers rather than rushing a bill through the Legislature prior to its May 31 adjournment is “the perfect solution.” The panel will study the concept, hold public hearings at least once per month, and report its recommendations at the end of the year.
“Innovation Zones is a bold proposal for our state that deserves additional attention and discussion,” he said in a statement April 26. “… I know that legislators, stakeholders and Nevadans still have questions, and I want those questions to be discussed and answered. I want people to be enthusiastic about this opportunity, not skeptical about a fast-tracked bill.”
“Why are we doing this? Simply put, to position Nevada as the global leader in the development of blockchain technology by building the most innovative smart city on Earth. We believe deeply in the potential this technology has to improve the human condition. Put in perspective, blockchain technology is at a place many experts compare to the early stages of the launch of the internet itself.”– Jeffery Berns, Blockchains CEO, in a guest editorial in the Reno Gazette-Journal.
Worries in the rurals
Elko County Commissioner Rex Steninger noted that many of the state’s counties as well as the Nevada Association of Counties are against Innovation Zones that would govern themselves.
“I think they are going to have to lose the idea of having their own government,” he said. “Other than that, I think it’s a great idea and I hope it does go further. I just don’t see the reasoning behind a separate government. It makes me suspicious that they want to do things that county governments wouldn’t accept.”
He noted that company towns were tried and failed a century ago. “I know that they’ve put forth the idea that local governments aren’t capable of overseeing that big of a project. I argue that look what Las Vegas has done with the Strip and what Storey County has done with the Tahoe-Reno Industrial Center. Those were done under local governments.”
In addition, Steninger said tech companies already have an inordinate amount of power. He said that if the proposal becomes law, the requirements for setting up the zones can easily be changed by successive legislatures.
“Another big concern is the water,” he said. “They are planning to pipe water (to Storey County) from Gerlach.” In Nevada, water transfers are always contentious and go on for years. “People fight tooth and nail over those,” he said.
A question of water
Even if most of the concerns raised by skeptics can be assuaged, Blockchains’ existing water rights are 100 miles away. That may be biggest obstacle in the way of creating an experimental city in the nation’s driest state.
“You would think the folks who came up with what they say is a game-changing idea, would also be smart enough to do it in a place where there is water available,” said Kyle Roerink, director of the Great Basin Water Network. He noted moving water from one hydrological basin to another is “always a complicated and litigious process” that can last for decades with no guarantee of success.
Last year, Blockchains paid a reported $35 million to buy agricultural water rights near Gerlach in Washoe County, according to a deed on file at the Washoe County Recorder’s Office. The 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 the same water to Storey County. That proposal died in the wake of opposition from environmental groups, state regulators and local governments, including the Pyramid Lake Paiute Tribe.
An over-allocated resource
Roerink noted that Blockchains not only has less water than the smart city would need, but when water is transferred from agricultural use to other uses, the rights to the water are reduced.
“When the use is changed, the holder of the rights takes a bit of a haircut,” he said. “So they have less water for export than they may think, on top of having less water than they will need.” He said the hydrological basins involved are well over-allocated. In other words, the water rights on paper greatly exceed the amount of water in the ground.
To get water from Gerlach to Storey County, a pipeline would either have to go through the Pyramid Lake Paiute Reservation or have to follow a circuitous route over federal land, an option that would be “really, really expensive,” Roerink said. In addition, removing the water from the basins in the north would presumably have far-ranging effects on other water basins and Pyramid Lake.
“That water is being used to grow alfalfa at Empire Farms, where the aquifer is being recharged – the water is going back into the ground. Take it way and you don’t get any recharge.”— Kyle Roerink, director of the Great Basin Water Network.
He said water basins aren’t separate “buckets,” but are interconnected. “There are serious questions about the impacts to other rights owners and the environment,” Roerink said. He noted that Nevada has had a history of unintended consequences when the natural distribution of water resources is altered.
‘Remember Winnemucca Lake’
For example, he said, Winnemucca Lake, which was located next to Pyramid Lake, dried up after Truckee River water was diverted into the Carson River Basin at Derby Dam as part of the Newlands Project early in the 20th century. “That was surface water, not ground water, but it’s a symbol of what can happen when you do a major infrastructure project in environmentally-sensitive areas. When people want to change things, we need to remember Winnemucca Lake and how quickly conditions can deteriorate.”
Roerink said the Blockchains’ planners apparently didn’t understand the implications of their proposal on water systems or the hurdles that the experimental city would have to leap in order to become a reality in Nevada.
“We’ve seen that before,” he said. “People are always touting the next game-changer and they want to do it in Nevada. They want to come here with big ideas for a reason: they think they can roll over people and hit a jackpot.”
When the Innovation Zones idea is vetted, he said, the next big bonanza may turn out to be just another desert mirage.