For as long as Nevada has been a state, private sector influence has been a part of public life. Lobbying by 1950s casino owners shielded the Las Vegas Strip and its billions in annual gaming revenue from municipal taxation and oversight. Decades before slot machines came along, the state constitution enshrined tax limits on the mining industry, which persist to this day.
But a proposal by Blockchains LLC, a holding company based in Sparks that invests in blockchain-based software and applications, would put a 21st-century spin on the state’s special relationship — and on a perennial dream of building better cities from scratch.
The firm’s CEO, Jeffrey Berns, envisions building a city that uses blockchain — the decentralized, network-based digital technology that underpins cryptocurrencies such as Bitcoin — for business transactions and various government functions, such as personal identification and sales tax collection. In 2018, Berns purchased 70,000 acres of industrial park land outside of Reno, and in July the company released plans for “Painted Rock Smart City and Innovation Park” that describe a settlement of more than 36,000 residents, with 15,000 homes, 11 million square feet of commercial space and an economic output reaching $16 billion within 75 years of development.
To pull it off, the company says that a special government entity that it calls “innovation zones” would be required. The idea has won the endorsement of Democratic Governor Steve Sisolak. At a Feb. 26 press conference, Sisolak touted a draft bill that would authorize innovation zones as an out-of-the-box answer to the state’s longtime quest for economic diversification. Covid-19 has had a devastating impact on gaming and tourism, and Nevada is hunting for new industries.
“These times call for a more urgent pace,” Sisolak said. “Confronting the reality of this pandemic, moving forward boldly in rebuilding our economy, getting people back to work: We cannot wait for economic recovery to come to us.”
Under the proposal, any private sector applicant pursuing emerging technologies such as blockchain, autonomous vehicles, and artificial intelligence would be allowed to develop a mixed-use community, so long as it clears minimum investment and greenfield land requirements. Gradually gaining control over schools, infrastructure, utilities and other public services, the tech-backed local government would eventually have powers rivaling a county.
Blockchains LLC — which has donated $60,000 to Sisolak and a PAC supporting him over the years — originated the draft bill and is primed to be its first beneficiary. (The governor’s office did not respond to a request for comment about those donations.) Yet Berns insists that his vision is anti-corporatist. In a city, using blockchain technologies to facilitate personal identification, taxation and other services would eliminate the need for intermediaries such as banks or government agencies, he said.
“I want to create a place where blockchain is the foundation for creativity, honesty and transparency, and then build a smart city to serve the people who live there,” he said. “That’s ultimately the goal — to democratize democracy. I don’t believe we’ll have a democracy 20 years from now if we don’t do something new.”
What would a city built on blockchain look like? A handful of conceptual renderings in the company proposal shows a sci-fi suburban business park rising from the high desert. Details about the power, water and transportation infrastructure behind this futuristic oasis have not yet emerged, though Governor Sisolak has said that innovation zone developments could be carbon neutral.
Berns, a former consumer protection attorney who built a fortune trading Ethereum, a blockchain-based cryptocurrency, is not the only such millionaire with utopia-building ambitions. A troupe of California expats pledged to rebuild Hurricane Maria-ravaged Puerto Rico using the powers of cryptocurrency in 2018, but the scheme has met resistance so far. In Senegal, the R&B star Akon’s $6 billion plan for “real-life Wakanda” that runs on his Akoin cryptocurrency has drawn criticism as a would-be playground for the elite.
Some real-world governments are also looking at ways to incorporate blockchain into existing functions. Miami city commissioners recently voted to study moving certain municipal financial transactions to Bitcoin, allowing city workers to be paid in cryptocurrency, while residents could likewise use it to pay for city services. Estonia has been a global pioneer in using the technology to decentralize its personal identification and election systems, policies that have been credited for the country’s high levels of government trust.
But in Nevada, residents, local leaders and policy experts are questioning both the substance and the timing of the innovation zones proposal. Observers such as Hugh Jackson, the editor of the Nevada Current, a nonprofit news site, argue that Nevada’s twin public health and economic crises should command more of a direct response from their state government. “A lot of Nevadans are counting on legislators to at least pass some nice if modest advances on issues that matter,” he wrote on Feb 28. “Blockchains LLC doesn’t matter.” On March 2, commissioners in Storey County, where Blockchains hopes to build its city, voted to oppose what it called any “separatist governing control” that results from the legislation.
Policy experts warn of the risks of transferring government powers to private sector actors. From the public’s point of view, “it’s almost entirely downsides,” says Adie Tomer, a fellow at the Metropolitan Policy Program at Brookings Institution. “You could easily lose quality control around essential infrastructure. We just saw what happens in Texas when an energy grid operator does not make necessary investments and how dangerous that can be.”
Past company-run towns also provide lessons, Tomer said. From Pullman, Illinois, to Steinway, New York, such late 19th- and early 20th-century settlements were full of what would now be considered safety and rights violations with little recourse for residents of the era. “It’s a huge part of why we have regulations now,” Tomer said. He also pointed to the challenges faced by more recent tech-flavored city-making projects. A bid by Sidewalk Labs to build a data-driven neighborhood on a brownfield waterfront site in Toronto is the most recent in the canon; that fell apart last summer after significant pushback by privacy advocates and downturns in the real estate market. Elsewhere, ambitious planned cities-within-cities like Songdo, South Korea or New York City’s Hudson Yards have struggled to attract residents. “Building whole neighborhoods from scratch — there’s just not a strong legacy on that,” Tomer said.
In his recent remarks, Sisolak took pains to fend off comparisons to company towns of yore, stating that innovation zones would be subject to the same regulations and rules as any other city, including open meetings and ethics laws. It would be a “self-governing community, organized much like a traditional city or county, but wholly focused on the development of innovative and advanced technologies,” he said. It is unclear how that would work in practice, but an informational website cites as a comparison the Reedy Creek Improvement District in Florida, the entity set up to govern Walt Disney Company land, which includes residential communities as well as the Walt Disney World theme parks.
Another distinguishing factor written into the draft bill is that Nevada’s innovation zones would not receive the kind of tax abatements that Tesla received to build its Gigafactory in Storey County, which have saved the company hundreds of millions of dollars. Innovation zone sponsors would pay regular business taxes as well as special technology fees, and would be required to commit to a long-term investment of $1 billion and build on a minimum of 50,000 acres of land.
Whether much demand exists among the private sector to invest in building a quasi-county entity is unclear. Storey County is also home to data centers owned by Apple Inc., Alphabet Inc., and Switch, among others. Clay Mitchell, a county commissioner who voted against the innovation zone proposal, said that he has not heard of another large player seeking to take on government-level of responsibility.
Berns, the Blockchains CEO, explained that the draft legislation is designed to attract only “serious players with really innovative ideas that benefit the state” and would protect the public from the project’s risk of failure by phasing in governing powers over many years. Running a county, rather than an unincorporated community, he added, would reduce the need for public investment by the government.
“But we’d still be bound by all the state laws we’d be bound by as a county,” he said. “We’re not asking for anything in terms of tax abatements or incentives. The risk is on us.”
From a governance standpoint, at least one policy expert argues that the idea may hold counterintuitive merit. Christopher Stream, the director of the school of public policy and leadership at the University of Nevada, Las Vegas, said that innovation zones could be seen as a healthy concession of control on the part of the state. Nevada is a Dillon’s rule state, which means that cities and counties govern only to the extent that they are specifically delegated by the state, limiting local control over a number of policy areas. That is why it was state legislators and officials — not counties or cities — that held special sessions and review panels to create tax incentives for Amazon, Tesla, the NFL and other corporate players that have recently located there. Another oft-cited result of Dillon’s rule is Nevada’s education system; under state law, the state’s 17 school districts are governed separately from the cities and counties they encompass, which can hinder them from responding to local needs.
Nevada has seen numerous attempts going back to the 1950s to create more control for municipalities, but to little avail. A successful Blockchain-city could pave a path for existing localities to wield more governing power, Stream suggested. “If this is a way to break up that centralization, then that’s good for cities and communities who’ve also been hampered because of the state’s heavy handedness,” he said.
But he also acknowledged the risks of passing that power down via private tech companies, rather than, say, via existing localities. Innovation zones could be “just a way for the governor to chase smokestacks, cut the ribbon on something, and let that be the end,” he said.
The coming months will show what lawmakers make of this approach. Jon Ralston, editor of the nonprofit news site Nevada Independent and longtime political journalist, says that that the proposal may very well get a serious look, in part because of the lack of alternative ideas for bolstering the state’s economy.
“I do think that the argument that Nevada should be thinking outside the box will have some resonance,” he said. “Clearly, it convinced the governor.”