MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
April 6, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:33 p.m., April 6, 1993, in Room 119 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Mr. Robert E. Price, Chairman
Mrs. Myrna T. Williams, Vice Chairman
Mr. Rick C. Bennett
Mr. Peter G. Ernaut
Mr. Ken L. Haller
Mrs. Joan A. Lambert
Mr. John W. Marvel
Mr. Roy Neighbors
Mr. John B. Regan
Mr. Michael A. Schneider
Mr. Larry L. Spitler
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
Senator Ernie Adler, Capital Senatorial District,
Mr. Jim Gibbons, Assembly District 25, Washoe County
Senator Sue Lowden, District No. 3, Clark County
Mr. Joe E. Dini, Jr., Speaker, Assembly District 38
Senator Lawrence E. Jacobsen, Western Nevada Senatorial District
STAFF MEMBERS PRESENT:
Mr. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
Mr. Lorne J. Malkiewich, Legislative Counsel, Legislative Counsel Bureau
OTHERS PRESENT:
David Horton, Legal Counsel for the Committee to Restore the Constitution
Ralph Heller, Economist, Reno, Nevada
Tom Johnson, President, Carson City Chapter of the Committee to Restore the Constitution
Donald Stracken, works in the mineral industry
Brad Lawrence, retired attorney, former law school instructor, formerly on the staff of the National Judicial College and presently operating Legal Research and Writing Services for members of the Nevada Bar
Bradley E. Vote, Nevada citizen
Brendon Trainor, active in Libertarian Party of Nevada
James Dan, Northern Regional Representative, Libertarian Party of Nevada
M. Douglas Miller, President, Nevada Miners and Prospectors Association
Chairman Price asked the committee to take action on AB 305.
ASSEMBLY BILL 305 - Authorizes levy of property tax for costs of protecting supply and distribution of water of irrigation districts. (BDR 48-1792)
After discussion, the committee decided to take action on AB 305.
ASSEMBLYMAN HALLER MOVED TO DO PASS AB 305.
ASSEMBLYMAN REGAN SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY BY THOSE PRESENT.
Chairman Price opened testimony on AB 188.
ASSEMBLY BILL 188 - Directs issuance of Nevada Silver Coins. (BDR 31-1094)
Chairman Price informed the public the teleconferencing equipment was not transmitting to Las Vegas.
Lorne J. Malkiewich, Legislative Counsel, Legislative Counsel Bureau (LCB), expressed it was LCB's belief AB 188 was unconstitutional. He explained the basic problem was the Constitution gave Congress the power to coin money and regulate the value thereof and prohibited states from coining money. Article I, section 8, of the Constitution said the Congress shall have power (lists the various powers of Congress) to coin money. Article I, section 10, designated no state shall coin money. Mr. Malkiewich vocalized those reasons were the basic constitutional objection. AB 188 would provide for Nevada to coin money. It was LCB's opinion under Article I, section 10, of the Constitution made AB 188 unconstitutional.
Mr. Malkiewich paraphrased the argument would be Congress had not exercised its power to coin money and instead Congress created the Federal Reserve, which was (in the proponent's estimation) an unlawful delegation to a private consortium, rather than an exercise by Congress of its constitutional duty. The proponents would argue Article I, section 8 and Article I, section 10 were interrelated. The proponents would state Congress was to coin money and regulate the value of currency and the Federal Reserve was unconstitutional. Congress had not fulfilled that duty thereby relieving the states of the prohibition against coining money. The proponents believed it was not only authorized but the appropriate way to address Congress's failure to carry out its constitutional duty.
Mr. Malkiewich expressed LCB's argument was the initial premise that the Federal Reserve was unconstitutional. Mr. Malkiewich said he knew of no cases holding the Federal Reserve was unconstitutional. What little precedent he found on the issue indicated the people who attempted to challenge it did not even have standing because there was no injury. He vocalized if the Federal Reserve was not unconstitutional, the whole argument fell apart. He explained even if the Federal Reserve was unconstitutional, LCB believed the appropriate remedy was for Congress to adopt constitutional legislation or the Federal Reserve be declared unconstitutional in court. LCB did not believe because the Congress violated their duty to coin money excused the states from their prohibition against coining money. LCB believed the proponent's position was conjecture and not based upon precedent case law.
Chairman Price asked what the down side would be if AB 188 was passed. Mr. Malkiewich assumed the federal government would most likely challenge it in court. At that point the statute would have to be defended. The first decision would be whether the state would defend the statute. Assuming the state did defend the statute, there would be additional legal fees, time spent by the attorneys and if it was unsuccessful, perhaps the cost of the federal government to bring in the legislation.
Mr. Haller divulged there were restrictions imposed on gaming in Nevada with regard to coins, tokens and chips, etc. Mr. Haller was of the impression it was federal prohibition that prevented coining of money. Mr. Malkiewich said he believed Mr. Haller was correct and said gaming coins could be used for gaming purposes, but could not be used as legal tender for the same reason.
Mr. Neighbors mentioned at one time California issued script that could be used anywhere in the state and asked why that was constitutional. Mr. Malkiewich said he was not familiar exactly with what the script was, but thought it was a debt the state owed. The state did not have the money so the state issued script that some people observed and some banks observed, but some did not. It was not currency and was not coin in the sense of the Constitution. Mr. Malkiewich reiterated he was not sure of the exact mechanism California used to issue the script.
Mr. Malkiewich responded to Mr. Neighbors stating AB 188 proposed to use the coin as legal tender and that was the problem. He continued stating if the coin was used as a gaming token or a souvenir there was not a constitutionality problem.
Mrs. Williams asked if AB 188 was passed and actually went to court if it would be an extremely high profile case. Mr. Malkiewich speculated the case would gain national publicity. He indicated the costs incurred in defending the case would be driven by the extent the state pursued the case and the extent the federal government pursued the case. In the event the case was overturned, then the court could assess costs against Nevada. Mrs. Williams was concerned with the image of the state of Nevada.
David Horton, Legal Counsel for the Committee to Restore the Constitution responded to Mr. Malkiewich's concerns. Mr. Horton said the suggestion that it was up to the Congress to correct the problem the Congress had generated, overlooked a good portion of the constitutional law that controlled those situations. He said there were instances where the Constitution would say one thing, the federal agencies would do something else, and the states would keep silent. Under those circumstances it was constitutionally the result that federal agents who started out having no authority whatsoever in that area ended up having authority due to the inaction of the state.
Mr. Horton said the precedent cases largely arose from tax protesters claiming the Federal Reserve currency was illegal because the Federal Reserve Act was unconstitutional. Mr. Horton believed it was rather similar to situations with regard to other constitutional infractions. An individual did not have authority to speak for any state. Consequently if the state observed a situation where the Federal Reserve Act was in fact unconstitutional, an individual was not in the position to speak for the state of Nevada in objecting to the transfer of the power to issue money to a private corporation. Mr. Horton was of the opinion the Federal Reserve was a private corporation. A state speaking in its highest sovereign capacity did have a remedy of using its legislative power to correct the matter within the borders of the state.
Mr. Horton continued, stating the position that the Congress was abiding by the Constitution with regard to money needed to be carefully examined. It was true with regard to the nickel, quarters and dimes because the seigniorage from those bits of currency were paid twice a year into the treasury; however, no seigniorage from the profit of creating money out of paper was paid into the treasury under the Federal Reserve Act. Consequently, there was a portion of the currency that was not objectionable. It was not correct to assume because there was no case, that the Federal Reserve was constitutional. There had been at least five states who had examined the question and came to the conclusion it was a violation of the Constitution and had memorialized the Congress to that effect.
Mr. Horton said it came down to the question of what Nevada wanted to do under the circumstances where the Constitution directed the Congress, not the Federal Reserve, to issue all of the money, and the Congress had not done so. The currency was the issue of a private European-style central bank.
Mr. Horton testified whenever litigation was possible, one had to look at who the parties were, what court would the case be filed with, and whether there was jurisdiction. With regard to AB 188 it would be an act taken by the state of Nevada in its highest sovereign capacity. Under Article III of the Constitution where a state is a party to the suit, there was only one court that had possible jurisdiction. That court was the Supreme Court of the United States. Mr. Horton stressed there needed to be a party that had standing to bring the suit. He said if there was not party to challenge something there would be no lawsuit, regardless of which court it might go into.
Mr. Horton stated the susceptibility of the proposal to litigate had to do with the rules of jurisdictional acceptance by the Supreme Court of the United States. It would not be another state to bring suit, but instead might be the Federal Reserve if the Federal Reserve could show standing. Mr. Horton explained under the position taken by the state of Nevada, the Federal Reserve lacked standing because it was itself a violation of the Constitution. Of course, that question would have to be answered.
Mr. Horton told committee members even if the Congress decided to sue the state of Nevada, then the rules of jurisdictional acceptance would apply. Mr. Horton postulated the Supreme Court would then see that the Congress, under section 3 of AB 188, was admonished for its violation of the Constitution. That meant it was a policy making body being challenged by the state of Nevada, likewise AB 188 would be an expression of the policy making branch of Nevada. Under the rules of the Supreme Court policy questions were not decided. It would not be litigated. Mr. Horton believed there were many other items dealt with every day in the legislature that had far more litigation potential than AB 188.
Mr. Horton opposed the statement that AB 188 sought to replace U.S. currency with Nevada currency. That statement was not correct and would become apparent with some of the other testimony. He quoted The Federalist Papers, "Such measures as the exigency may suggest and prudence justify." The state would take advantage of a defect in the execution of the Constitution which opened up an opportunity which happened to be economically advantageous to Nevada.
Mr. Horton referred to his prepared testimony Exhibit D attached hereto. He commenced reading directly from his prepared testimony Exhibit D. Mr. Horton referenced Tab 1 of his prepared testimony and explained it was the discussion of why the present efforts to try to improve the economy were not working. He continued reading from Exhibit D.
Mr. Horton produced a casette tape entitled "KPTL Talk Radio With Dave Horton" dated February 28, 1993. Mr. Horton indicated the tape was an interview with Dr. Robert Barone on money, banking and the Nevada economy. The original tape is located at the Legislative Counsel Bureau, Research Library, Sedway Office Building, Carson City, Nevada.
Senator Ernie Adler, Capital Senatorial District, asserted to committee members it was constitutional to mint a state silver coin toke for use in slot machines, which would produce considerable revenue. He said if the committee chose not to pass AB 188, the committee could, as a first step, choose to authorize the minting of the token.
Jim Gibbons, Assembly District 25, Washoe County, spoke in support of AB 188. Mr. Gibbons expressed his support due to the bill's effect on capital formation through banks. State legal tender yielded a fractional reserve on which banks might choose to loan. Mr. Gibbons believed AB 188 would allow local banks to increase their cash reserves increasing the pool of loanable funds. He iterated the increase in loanable funds would provide the stimulus necessary to generate new capital formation and consequently AB 188 would have a positive effect on capital formation within the borders of Nevada.
Mr. Gibbons continued, stating due to the multiplier effect the entire economy of the state of Nevada would benefit. The coinage would only be Nevada legal tender ensuring the capital capacity created by AB 188 would not flow out of Nevada. Mr. Gibbons believed AB 188 was far less controversial than represented earlier.
Ralph Heller, Economist, Reno, Nevada, concurred with Mr. Gibbons' comments. Mr. Heller was uneasy about the increasing degree that Nevada financial institutions were under out-of-state control. Mr. Heller said each step taken to chart an economic course of independence was a step in the right direction.
Mr. Heller apprised the committee members in the federal fiscal year ending September, 1990, federal, state and local taxes accounted for 39.7 cents out of every dollar of the American economy. In 1993 it was closer to 33 or 34 cents out of every dollar.
Mr. Heller said during John Kennedy's presidency defense, spending accounted for 52 percent of the federal budget. In Ronald Reagan's last budget, defense spending was 28 percent of the federal budget. The problem was in the non-defense spending which was going up infinitely faster than the defense spending.
Mr. Heller said the figures out of the yesterday's New York Times depicted the last fiscal year ending September 30, 1992, showed Medicaid up 29 percent, Medicare up 26 percent and spending for goods and services for the defense department were down 8 percent. The point was the pressures placed on Washington were exactly the same pressures Carson City faced. Since 1980 Nevadans had endured 6 state gasoline tax increases. During the same period of time the federal government only raised the gasoline tax once. Nevada had in the last decade raised its cigarette tax three times for a total of 350 percent. During that same period of time the federal government raised the cigarette tax only once.
Mr. Heller said Nevada's ability to raise the money to address financing of programs required innovative solutions outside the general tax structure. That was the appeal of AB 188 to Mr. Heller; its capacity to raise money for state spending.
Senator Sue Lowden, District No. 3, Clark County, came before the committee as a gaming executive. Senator Lowden had been asked to supply the committee with any adverse information regarding the effect of AB 188 on large casinos. She had reviewed the proposal with the Chief Financial Officer and Chief Executive Officer of Sahara Resorts and found there were no negative effects on the larger casinos. She expressed many of the tourists would retain the Nevada coin as a souvenir.
Tom Johnson, President, Carson City Chapter of the Committee to Restore the Constitution, represented he had been studying the coin bill extensively for approximately five months. Mr. Johnson had a degree in engineering math and graduate study at University of Santa Clara in business administration, econometric modelling and computer simulation.
Mr. Johnson referred to his slide presentation and tab 4 of Mr. Horton's testimony (Exhibit D). The chart was entitled Population Trends and iterated Nevada was under unique pressures. The chart showed percentage growth of Nevada versus the western states versus the United States. The growth required enormous capital investments to build new housing and new services. Growth caused a continual stress on Nevada for the last 50 or 60 years.
Mr. Johnson referred to the chart (tab 4A Exhibit D) showing Nevada had the least control of its public lands than any other state in the union. He said 86 percent of Nevada's public lands were currently controlled by the federal government. He asserted the effective utilization of the public lands had been reduced through increased regulation and economic burden. Industries such as mining could disappear entirely. Mr. Johnson's point was Nevada had been required, because of its growth, to accomplish more and more with less and less.
Mr. Johnson referred to another chart (tab 5 Exhibit D) displaying M1 in billions of dollars. This chart was Mr. Johnson's estimate of the M1 money supply in Nevada. His estimate was approximately $5 billion. He explained M1 was the sum of the cash in demand deposits. The chart illustrated in a period of 14 months an increase in M1 of approximately 10 percent if AB 188 was passed.
Mr. Johnson referred to another chart (tab 6 Exhibit D) showing Additional State Revenues. He estimated the profit from the issuance of the coin would be $375 million. The chart also displayed the coin would support additional economic activity that would generate $439 million per year in additional state sales tax. The $439 million would accrue ever year for as long as the Nevada silver coin remained in circulation.
Mr. Johnson referred to another chart (tab 6A Exhibit D) entitled Benefits of the Nevada Silver Coin Bill. He read from the chart items marked one through nine.
Mr. Spitler noted the coin would be used in place of the paper money and asked how the coin would generate the additional sales tax. Mr. Johnson explained Nevada banks were not lending money with many projects waiting to be launched. It was Mr. Johnson's belief Nevada would be supplementing Federal Reserve notes and additional income would be experienced.
Mr. Neighbors also questioned the dollar amount generated by the sales tax. Mr. Johnson said a 10 percent increase in the money was a significant amount of money. The enormous amount was caused by the velocity of money. If an extra dollar of M1 was placed in the economy and turned over every single week, then every week it was generating income. Mr. Neighbors compared the $439 million to be the equivalent of Nevada's two cent sales tax revenue with an additional penny and a half.
Mr. Schneider asserted the banks had plenty of money, but because of federal regulations one could not borrow it. Mr. Schneider asked if the silver coin were put into circulation if it would be easier to borrow money. He asked if the silver coin would come under the federal guidelines of the banking industry and if that was the reason why there would be more money circulating? Mr. Johnson responded the silver coin would generate an increase in economic activity due to the additional M1. Mr. Johnson hoped the coin would help mature Nevada's economy. As the process occurred it would make more money available. Mr. Johnson did not know if it would be easier to obtain a loan.
Donald Stracken, mineral industry, addressed Mr. Schneider's question, stating one needed to look at the differential between the interest earned on the money in Nevada banks and the interest charged to borrow. Mr. Stracken said currently it was very difficult to borrow because the earned interest rate was 3 or 4 percent at the most and a consumer loan charged 12 percent. If the coin was brought into circulation, Nevada would see a decrease in the amount of interest charged by the banks and therefore the money would be more freely available.
Mr. Ernaut directed a question to Mr. Horton. Mr. Ernaut pointed out the coin could be treated as legal tender or as a casino souvenir. Mr. Ernaut asked if Mr. Horton was against a compromise and issuing the coin as a casino souvenir as opposed to legal tender. Mr. Horton believed the casino souvenir would still bring in a significant improvement, but would rather coin the legal tender because the effect on the general economy would be greater. Mr. Ernaut and Mr. Horton exchanged points of view.
Mrs. Lambert was concerned if AB 188 was passed, that Congress might pass a law saying any state coining its own money would not receive federal highway funds, aid to dependent children or medicaid funds. Mr. Horton said that could be handled with imaginative and energetic use of state legislative power.
Joe E. Dini, Jr., Speaker, Assembly District 38, emphasized there was some merit to AB 188. Mr. Dini introduced AB 188 for Mr. Horton. The bill meant a lot to the business people, the mining and the silver producers. Mr. Dini asserted section 2 of AB 188 made a number of findings by the legislature. Among other things Mr. Dini believed the state of Nevada was now free to issue money because Congress had failed to meets its obligation to issue all money for the nation pursuant to section 8 of Article I of the United States Constitution.
Mr. Dini delineated section 3 of AB 188 provided Nevada should issue into circulation silver coins in the amount of $50 million. The coins must contain one ounce of fine silver and must be alloyed to 90 percent fineness. The coin must bear the state seal on one side and the words "Contains One Troy Ounce Fine Silver," "Twenty Dollars," "Nevada Legal Tender" and the year of issue on the other side. AB 188 provided the coin would be retired as received into the state treasury if the legislature determined Congress was fulfilling its constitutional obligation to issue money by requiring the Federal Reserve Bank to retire the circulating notes; and causing the issuance of sufficient notes of the United States and other currency to meet the needs of the commerce of the United States and of Nevada.
Mr. Dini asked the committee to support AB 188 or work out something that would pass. It would be a source of revenue for Nevada and unique for the state of Nevada.
Mr. Regan postulated if the coin was minted at the Carson City Mint (CC Mint), a coin collector would pay a premium price for such a minted coin. Mr. Regan thought Nevada had contracted the CC Mint sign to a gentlemen in Virginia City. Mr. Horton said the CC Mint sign was under contract, but it was his understanding due to failure of performance, the CC Mint sign was back under the control of state purchasing. Mr. Horton believed the CC Mint mark would still be available.
Brad Lawrence, retired attorney, former law school instructor, formerly on the staff of the National Judicial College, and presently operated Legal Research and Writing Service for members of the Nevada Bar. Mr. Lawrence read directly from his prepared testimony attached hereto marked Exhibit E. Mr. Lawrence added there were some fictions the Federal Reserve was a private agency. He pointed out to the committee the Federal Reserved consisted of seven board members who served terms of 14 years, were appointed by the President of the United States of America and confirmed by the Congress. The Federal Reserve was not a private organization and an independent government agency, just as there were many other so-called independent government agencies.
Mr. Lawrence suggested the committee examine the dollar bill and note the two signatures on the reserve note. One was the Treasurer of the United States and the other was the Secretary of the Treasury. The Federal Reserve was not a private organization.
Mr. Lawrence continued reading from his prepared testimony attached hereto as Exhibit E.
Bradley E. Vote, citizen, read directly from his prepared testimony attached hereto marked Exhibit F. Mr. Vote supported the intent of AB 188, but opposed section 2, lines 3-24 of AB 188. He continued reading from his prepared testimony and suggested a format for a joint resolution to the Congress of the United States attached to his testimony (Exhibit F).
Chairman Price asked to include in the record the attendance roster from Cashman Field Center in Las Vegas, due to the fact the teleconferencing equipment was not transmitting. The attendance roster of Las Vegas citizens is attached hereto marked Exhibit G. He entered into the record Home Rule Coalitions from Nye, Elko, Lyon, Churchill, Lincoln and Clark Counties were in Las Vegas signed up to testify in favor of AB 188. Loretta Browning also had signed in support of AB 188.
Senator Lawrence E. Jacobsen, Western Nevada Senatorial District, testified in favor of AB 188. Senator Jacobsen related personal experiences indicating how valuable coins were and how coins could be a source of raising money. He mentioned the museum had coins for sale and it was a profit item.
Brendon Trainor, active in Libertarian Party of Nevada, testified the general broad intent of doing something about the constitutional monetary situation through AB 188 was something most Libertarians felt was a good idea. Mr. Trainor was voicing his own opinion and not representing the position of the Libertarian Party of Nevada. Mr. Trainor mentioned his concerns with section 2, paragraph 3, of AB 188 asserting he took issue with the wording "Congress would issue all money." He did not believe that was the general agreement. The general agreement of Article I, section 8 of the United States Constitution specifically said "Congress shall coin money...." There was no general agreement that Congress would issue all money. Mr. Trainor pointed out that whether or not the Federal Reserve was a public or private organization was an issue that reasonable people could argue.
Mr. Trainor said if one went back to Constitutional history, one would find Congress was given the power to coin money and the states were explicitly prohibited from doing so. Furthermore, in Article I, section 10, of the Constitution the states were explicitly forbidden from making anything but gold and silver coin a tender in payment of debt, while the federal government was not granted the power of making anything legal tender explicitly in the Constitution. He was of the opinion there was no provision in the Constitution stating Congress was supposed to print paper money. The Congress was not in default under the Constitution. The provision was to coin money which was always understood up until 1933 as gold and silver coin.
Mr. Trainor endorsed Mr. Vote's idea of adopting a resolution as written in Mr. Vote's prepared testimony (Exhibit F).
James Dan, Northern Regional Representative, Libertarian Party of Nevada, testified he was speaking on behalf of himself and not the Libertarian Party of Nevada. Mr. Dan agreed with the concept of AB 188, but had some strong reservations. Mr. Dan read directly from his prepared testimony attached hereto marked Exhibit H. Mr. Dan proposed two amendments to AB 188 to install some safeguards, as delineated in his testimony attached hereto marked Exhibit H.
M. Douglas Miller, President, Nevada Miners and Prospectors Association and Legislative Director of Veterans of Foreign Wars, testified in support of AB 188. He informed committee members the mining industry tried to borrow money in Nevada, but were turned down. There was overregulation and problems of just plain survival. It was not possible to survive in Nevada in the mining industry today with the federal government imposing strict regulations. Mr. Miller said it was time for Nevada to stand up to the federal government and pass AB 188.
There being no further business to come before committee, the meeting was adjourned at 3:26 p.m.
RESPECTFULLY SUBMITTED:
DIANNE LAIRD
Committee Secretary
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Assembly Committee on Taxation
Tuesday, April 6, 1993
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