MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
May 4, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 1:25 p.m., Tuesday, May 4, 1993, in Room 332 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:
Mr. Peter G. Ernaut (Excused)
Mr. John B. Regan (Excused)
Mr. Michael A. Schneider (Excused)
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Mr. Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
OTHERS PRESENT:
Brian C. Harris, Governor Miller's Office
Michael J. Griffin, CPA, Deputy Commissioner, Nevada Department of Insurance
Marie H. Soldo, representing Sierra Health Services
Robert R. Barengo, representing Humana Insurance of Nevada
James L. Wadhams, representing the American Insurance Association and Nevada Independent Insurance Agents Association
Carole Vilardo, Nevada Taxpayers Association
Steve Stucker, Laughlin Associates, Inc.
Lewis Laughlin, testifying on behalf of the Nevada Association of Independent Businesses
Don Merritt, a Nevada citizen
Jim Fontano, a Carson City resident
Bonnie James, representing the Las Vegas Chamber of Commerce
Ned Air, a Nevada citizen
Chairman Price opened the hearing on AB 331 continuing testimony from the Thursday, April 29, 1993, meeting.
ASSEMBLY BILL 331 - Requires annual prepayment of tax on insurance premiums. (BDR 57-1714)
Brian C. Harris, Governor Miller's Office, spoke in support of AB 331. Mr. Harris indicated he had been working with representatives of the industry hopefully to clear up some of the problems with AB 331. Mr. Harris provided committee members with a copy of a proposed amendment to AB 331 attached hereto marked Exhibit C.
Mr. Harris pointed out Commissioner Rankin informed him on page 1 of the proposed amendment (Exhibit C) subsection 2, which had been deleted, needed to be included.
Mr. Harris iterated the new subsection 2 listed in italics provided for the prepayment of the tax to be paid in two portions on March 1st and June 15th of each year. Mr. Harris walk the committee through the amendment section by section.
Michael J. Griffin, CPA, Deputy Commissioner, Nevada Department of Insurance, responded to a question explaining subsection 6 of the proposed amendment (Exhibit C). He conveyed if an insurer was one day late, the interest would be one-thirtieth of the 1.5 percent.
Mr. Spitler asked for clarification with regard to an overpayment. Mr. Griffin articulated if an insurer made an overpayment, the overpayment would be a direct credit against the estimated tax liability the next calendar year. Mr. Griffin responded to another question stating the business did not have the option of having the overpayment returned, it had to be applied against future tax liability. He expanded stating if the business did not continue to do business in Nevada, the insurer could apply for a refund.
Mr. Spitler wanted to know who had been contacted in amending AB 331. Marie H. Soldo, representing Sierra Health Services, commented almost all of the domestic health insurers had been in conference with the Department of Insurance and Mr. Harris.
Mr. Marvel asked what would happen if the overpayment went beyond the second payment date. Ms. Soldo explained all reconciliations would occur on March 1st of the following year. She thought the amount would be credited and applied to future payments. Ms. Soldo revealed for Mr. Marvel the insurer was not entitled to interest while the state was using the money. Mr. Marvel believed there would be equity if the interest was paid. He thought there should be a return on the investment because the state was using money not yet due.
Mr. Harris illuminated for a committee member the insurance industry was not the only industry that prepaid. Mr. Harris alluded the other industries that prepaid were gaming and mining.
Robert R. Barengo, representing Humana Insurance of Nevada, stated the gaming industry paid one quarter in advance.
Mr. Spitler asked what the impact would be on consumers by the new configuration of payment. Mr. Griffin said it was not a driving factor that would cause rates to be escalated precipitously. Mr. Griffin said he could not say it would not have any impact at all and probably would have some impact, but the impact would not be very material. It was in another category and not a major function in the rate filings. Mr. Griffin offered to send the committee a summary sheet from one of the rate filings. Mr. Spitler did not think very many consumers understood rate filings and just wanted to know if there actually would be an increase in the premiums as a result of the changing the formula of how the insurance premium tax was paid. Mr. Griffin responded a very minor increase of materially less than 2 percent.
Ms. Soldo believed it would have some impact. Ms. Soldo said her company did not anticipate any mid-contract increases. If there was going to be any increases, the increases would occur at the time of renewal. She did not anticipate any major impact.
Mr. Griffin pointed out premium taxes were collected throughout the country in many variations. Credits were applied in many different ways. Mr. Griffin said Nevada would be the first state to collect the premium tax in advance.
Mr. Spitler asked on a proportionate basis if other states were more lenient or more stringent in how insurance premium taxes were collected. Mr. Griffin believed it was in the eye of the beholder. He vocalized Nevada, at 3.5 percent, was fairly high on the scale of the percentage of tax, but he did not believe Nevada was any more or any less stringent than any other jurisdiction. Mr. Griffin said he could provide Mr. Spitler some follow up detail that provided a layout of how various other jurisdictions applied the premium tax law.
Mr. Bennett pointed out while there were other industries that prepaid the tax, he was not aware of any industry that prepaid the tax in the fashion AB 331 specified. He believed the other industries paid one quarter in advance, not necessarily a year in advance. Ms. Soldo thought mining paid annually, but it was different. Ms. Soldo asserted the way AB 331 requested prepayment of the tax was in fact unusual.
Mr. Bennett asked if the administration considered going back to a quarterly prepayment once the initial revenues were collected. Mr. Harris did not know if that had even been considered, but would check on it.
Mr. Marvel wanted to know if in one year the payment would actually be a "double hit." Mr. Griffin responded if one looked at the 1995 fiscal year that ran from July 1, 1994, through June 30, 1995, there would be two quarterly payments made in the first two fiscal quarters and then the next payment would be the estimated payment on March 1, 1995, for the 1995 calendar year. He asserted Nevada would then gain the cash flow benefit and the actual $30 million differential.
Mr. Marvel expressed concern about the insurance companies' cash flow. He asked if there was some way it could be phased in as opposed to two big hits. Mr. Griffin conveyed in discussions with the industry representatives, while the industry was not totally enamored with the idea of paying tax in advance, the industry did agree with AB 331. Mr. Marvel preferred to hear from the insurance companies on how AB 331 would affect the cash flow.
Mr. Barengo illuminated currently the insurers paid quarterly payments and March 1st was a settlement for the last year and a first quarterly payment. Under the new provisions that would be the first half payment and June would be the next half payment. In actuality it was a double payment, but not a full year double payment. Mr. Barengo responded to Mr. Marvel stating some companies might have a cash flow problem.
Mr. Barengo stressed AB 331 included a provision that the prepayment was not something that could be used as an incident of capital impairment. He referenced section 2 of the proposed amendment (Exhibit C) and read said section. Mr. Marvel asked if Mr. Barengo anticipated any premium increases. Mr. Barengo set forth lack of interest on the portfolio was a factor in determining rates, but he did not know how much of a factor it would be.
Mr. Griffin responded to Mr. Marvel commenting the impact of AB 331 on premium increases would not be that major. Mr. Barengo would not say if the impact for all insurance companies would not be that major, it would depend on the insurance company.
Mr. Marvel asked if there was any percentage estimate of premium increases that could be mandated by the passage of AB 331. Mr. Barengo was not aware of any estimate.
James L. Wadhams, representing the American Insurance Association and Nevada Independent Insurance Agents Association, commented AB 331 was extraordinary bad tax policy. Any tax that required any activity to pay a tax in advance of the transaction that was contemplated to be taxed was bad tax policy. He did not quarrel with the notion the transaction itself ought to be taxed, but to pay the tax before the transaction was entered into was extraordinary. He had a difficult time understanding the logic and public policy behind the prepayment of the tax.
Mr. Wadhams conveyed he understood in gaming the interest was not necessarily in collecting the tax in advance, but was in making sure in an industry where solvency per se was not regulated, there was at least money being held in anticipation of the potential of a gaming company going out of business. He iterated in the mining industry the tax was paid annually at the beginning of the year, but noted the tax was not in advance of the transaction. He explained gold mining was on contract, which additionally were forward contracts, so the transaction had in fact been completed, save and except for the delivery of the ore.
Mr. Marvel asked if the future's contract applied to all types of mining, not just gold. Mr. Wadhams said he would have to defer and return with an answer. He knew gold was sold on a future's contract and that was why the legislature felt comfortable with the advance payment process in 1987. Mr. Marvel believed copper was also on a future contract. Mr. Wadhams pointed out again the payment was not made in advance of the transaction, the transaction was for all practical purposes complete and definable as to the amount of revenue that was going to be generated.
Mr. Wadhams appreciated the candor of Mr. Harris in stating AB 331 was something Nevada needed to balance the budget. Mr. Wadhams suggested the committee consider using AB 331 to balance the budget of this biennium and then consider a more rational policy to draft into the bill after this biennium putting the tax policy back into a quarterly mechanism in advance. The quarterly mechanism had more logic to it than a year in advance.
Mr. Wadhams addressed the questions with regard to rate impact. Insurance companies by and large were financial institutions. He believed if the cost was increased, the cost would be passed on to the rate payers. Mr. Wadhams said there absolutely would be an impact. He provided examples of several different types of insurance companies and the various structures and diverse premiums and how the impact would vary depending upon the size of the company. A smaller company would be heavily impacted whereas a large company would have the cash flow to adjust accordingly. A small company would have to borrow the money just to stay in the market.
Mr. Wadhams informed committee members the specialty markets wrote business on an admitted basis (as licensed insurance companies.) In some cases as few as two, three or four policies a year were written and perhaps none the next year. It depended on what was going on in that particular marketplace. Those insurance companies would be extremely reluctant to stay active in a Nevada marketplace. The businesses in Nevada that needed that type of insurance product to protect their assets and the people who might be injured by the activity were the insurance companies that would be exposed.
Mr. Wadhams illuminated the mechanism in the insurance law called surplus lines was a method by which insurance companies could do business on a nonadmitted basis. He believed the insurance commissioner should consider, to the extent AB 331 went forward, opening up the opportunity so at least those people in business activities needing the specialized insurance not generally available would not be blocked from obtaining insurance because of the impact of this legislation.
Mr. Wadhams referenced specific points on page 1 in the second paragraph that stated the minimum payment must not be less than the amount of the actual premium tax due in the preceding calendar year. Mr. Wadhams commented if it was a large carrier in a private passenger auto that consistently had 20 percent market share, it would not be a large problem, but the domestic companies might not be able to stay in the market and do business. There might even be carriers for a variety of reasons that restructured their business and would not be doing business the next year or would be doing a reduced amount of business for any number of reasons. That would require a known overpayment that would carry forward for up to two years before the refund could be made. Those types of businesses would be at a disadvantage. Mr. Wadhams stressed there was no provision contained in AB 331 to make an adjustment under circumstances known early in the year. He believed that point ought to be considered.
Mrs. Lambert said if AB 331 was drafted to solve the current cash flow problem and the money went into operating revenues, it would create a larger cash flow problem in the future when there was not a prepayment. Mrs. Lambert did not think it could possibly sunset and lose one or two quarters revenue.
Mr. Wadhams stated for the year 1995 the second and third quarter and the reconciliation payments were to be made in the first half which would put it in the preceding fiscal year so it would close out the biennial budget with the extra cash. There would be no payments in the third quarter and fourth quarter in 1995. Mr. Wadhams suggested the transition be done very carefully so the next biennium's budget would not be totally disrupted. If the legislature and the administration were aware the policy needed to be changed when the legislative session began in 1995, and the budget be built according to a revised tax plan, he believed it could be taken into account because the payments would begin again in 1996. He explained the payments would not be lost, but just being spent in the upcoming biennium and leaving a hole in the next biennium. He believed language could be drafted to conduct the transition carefully giving both the legislature and the administration ample time and budget preparation to prepare for a transition back to quarterly in advance as in gaming.
Mrs. Lambert said it was still $30 million up front now and then a $30 million change in cash flow which would not be new revenue being spent on ongoing operating programs. In the next biennium the $30 million would not be there, plus at least one-half to one-quarter of that would be out of the cash flow in the future biennium by changing back to a non-prepayment or a shorter prepayment. Mr. Wadhams said building a one-time payment into an operating budget was a problem for the next legislature. Mr. Wadhams hoped with all the citizens and industries of Nevada, a more rational stable tax policy could be crafted.
Mr. Wadhams continued and referenced page 2, subsection 6 of the proposed amendment and made a technical point quoting from Exhibit C, "or fraction of a month, from the March 1st reconciliation of the following year" should in fact read, "or fraction of a month, from the March 1st reconciliation for the preceding year."
Mr. Wadhams referenced page 3, line 1 of the proposed amendment (Exhibit C) with regard to advanced payments. He raised the issue when a small insurance company had to borrow the amount of money to pay the prepayment, the company would have to borrow the money for an extended period of time. The amount should include not only the principal amount, but the interest as well. Mr. Wadhams indicated he discussed that item with the commissioner and she concurred, so perhaps language could be drafted to represent the technical adjustment. In addition, he suggested the deletion of the words beginning with "deemed" to the end of that sentence.
Mr. Wadhams indicated he had participated in the discussions regarding AB 331 and tried to be constructive. The companies he represents were not domestic companies and were larger companies. That was why he felt constrained to make certain policy statements without necessarily appearing in opposition.
Mr. Wadhams pointed out for Mrs. Williams some of the specialty risk insurance companies could deal with high explosives or certain unique transportation risks or certain kinds of animal shows or prize fights. Mrs. Williams asked if the insurance premiums were extremely high for those types of situations. Mr. Wadhams said typically high. The point he was trying to raise was the specialty risk insurance companies might write one policy for one year and then might not write a policy for another two years. Mr. Wadhams had a mechanism to get that risk placed through surplus lines. It was more of a mechanical problem as long as it was recognized the commissioner needed clear authority to be able to make those kinds of exceptions. If those exceptions were not made, those companies would not have recourse for some reimbursement if there was an injury.
Mrs. Williams asked Ms. Rankin if the Insurance Commission anticipated asking authority for the surplus lines. Ms. Rankin responded she did not see the situation exactly the same way Mr. Wadhams did. She understood his position, but the commission had not delved into the surplus lines chapter in the bill and changed any of the quarterly payments. Mrs. Williams understood that, but thought it might be dealt with in a separate action. Ms. Rankin said specialty insurers who obtained a license from the Insurance Commission were not selling under surplus lines. The insurers were selling as an admitted company. Those very small companies that had a small market in Nevada might not choose to be admitted anymore because very few policies were written and therefore would apply as a surplus lines company and not bother with all of the other regulation. She thought Mr. Wadhams was saying the consumer was losing because there was less regulation of those companies. Ms. Rankin said taxwise, those companies were not bothering with the prepay and were proceeding under surplus lines. Ms. Rankin said the market would not disappear, but the market would change from an admitted totally 100 percent regulated to the surplus lines market which had some regulation, but a different environment.
Mr. Neighbors vocalized he had recently been contacted by a constituent indicating AB 331 had a lot of room for error. He said that particular company said the net proceeds had been estimated at approximately $100 million more than the company actually had on the budget. It was a $1 million hit, not $1 million assessed. It really was no one's fault, but was just bad estimates. Mr. Neighbors believed there was a lot of room for error. He said that was a lot of money.
Mr. Neighbors pointed out whether the insurance company prepaid (which meant the insurance company would lose interest on the money), or whether the money was borrowed (which meant the insurance company would have to pay interest on the money) what assurance was there that it would not be passed on to the customers. Mr. Wadhams did not hesitate to convey it would be passed on to the consumer, but the impact would depend on the nature of the company and what kind of products were sold.
Carole Vilardo, Nevada Taxpayers Association, opposed AB 331. She stated it was not only a matter of bad tax policy, it was a matter of bad budget policy. The bill would require the insurance companies as collectors of the insurance premium to make a prepayment before it was received. Ms. Vilardo believed some of the technical problems had been addressed insofar as not receiving interest on the money, possibly having to pay interest on money and the fact it was being used as an accounting measure to gain $30 million to trigger $30 million of ongoing operational expenses.
Ms. Vilardo stressed not only would there be $30 million that would need to be addressed in the next legislative session locked in as expenditures, but there would be demographic and cost of living or inflationary escalators. That would mean the legislature would come in that much short of searching for another solution. She emphasized AB 331 was extremely bad budget policy. The triggering must be stopped through unanticipated surpluses on ongoing operational expenses. She believed AB 331 was a bad choice and would come back to haunt the legislature.
Mr. Marvel asked if Ms. Vilardo was stating if in a period of time there would be another $30 million hole. Ms. Vilardo asserted there was some hard policy decisions that had to be made. Ms. Vilardo stated the subject of what to do with taxes had been discussed a number of times and look what had happened every year since the 1980's. She said holes had always been plugged. Somewhere along the line tax policy needed to be put in place that provided revenue Nevada could use. Hard choices needed to be made, but handling items like AB 331 only compounded past problems. It had to stop someplace, and she hoped it would stop with opposing AB 331.
Ms. Lambert voiced it could come to solving problems in the future with possibly prepaying the Local School Support Tax (LSST). Ms. Vilardo said that was her point. The problem was being built in before the current problems were addressed.
Mrs. Williams agreed with Ms. Vilardo with regard to obtaining a rational tax policy, but she disagreed with the statements made earlier about the prepayment of gaming taxes. Mrs. Williams believed the prepayment of gaming taxes had contributed to the problems because of the anticipated amounts of revenue. She continued when the money was not there it created a hole. The tax policy must encompass all businesses regardless of what the product or market might be. Mrs. Williams iterated on the other hand she did not believe tax policy could be developed in the next six or seven weeks and cure all the problems that had been ten years in the making or more. There were critical unmet needs. Mrs. Williams was willing to accept ideas with regard to the critical unmet needs. Mrs. Williams said what needed to be done was to set a course to find solutions and address the immediate problems. Ms. Vilardo emphasized the Nevada Taxpayers Association still opposed AB 331.
Mr. Spitler asked what type of plan the Budget Department had to deal with the 1995 gap. Mr. Harris said he would relay the question to Ms. Matteucci.
Vice Chairman Williams closed the hearing on AB 331.
Vice Chairman Williams opened the hearing on AJR 21.
ASSEMBLY JOINT RESOLUTION 21 -
Proposes to amend Nevada constitution to require two-thirds majority of each house of legislature to increase certain existing taxes or impose certain new taxes. (BDR C-166)
Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau, provided committee members with a Bill Explanation for AJR 21 attached hereto marked Exhibit D.
James A. Gibbons, Assembly District 25, spoke as the prime sponsor of AJR 21 which proposed to amend the Nevada Constitution to require a two-thirds majority vote in each house of the legislature to increase certain existing taxes or to impose certain new taxes.
Mr. Gibbons commented AJR 21 was introduced with the idea of public confidence in mind. He stated the public confidence in the legislature and the legislative process was at an all-time low. Elected officials were at the bottom of the wrung on the ladder of public confidence. Mr. Gibbons believed the answer to the problem of public confidence was that the legislature needed to focus on the actual needs of the public rather than the wants of the public. That would require a transformation of the thought process and a transformation that would make the legislature focus more on the responsible utilization of the taxpayer's money.
Mr. Gibbons said it was clear to him that the government did not have a funding problem, but a spending problem. Nevadans wanted public service but did not want to pay for wasteful government. The issue was one of perception and confidence, perception the legislators wastefully spend the public's money. The public lacked the confidence and believed the legislators would raise taxes to cover the sins.
Mr. Gibbons iterated the concepts of economics said taxes always reduced the amount of money that would have been used by the private sector to increase production and thus employment, consequently yielding or fueling the gross national product and increasing overall standards of living. Governments wasted money through inefficiency. The problem would not be solved by better people, by better management, by better systems or by more money because the problem was a structural problem in government and the incentives in government were skewed against the public interest.
Mr. Gibbons asserted there were two alternative approaches to balancing government budgets when spending exceeded taxation. The conventional wisdom was first to reduce services or increase taxes; however, Mr. Gibbons suggested there was a third way and that was use government money more wisely and more efficiently. It was a simple household and business concept and strategy; when the income was not there, the expenses should be decreased.
Mr. Gibbons stressed AJR 21 amended the Nevada Constitution to require bills providing for a general tax increase be passed by a two-thirds majority of both houses of the legislature. The resolution would apply to property taxes, sales and use taxes, business taxes based on income, receipts, assets, capital stock or number of employees, taxes on the net proceeds of mines and taxes on liquor and cigarettes.
Mr. Gibbons explained AJR 21 was modelled on constitutional provisions which were in effect in a number of other states. Some of the provisions were adopted recently in response to a growing concern among voters about increasing tax burdens and some of the other provisions dated back to earlier times.
Mr. Gibbons described the provisions in the other states. In Arizona any bill that provided for a net increase in revenues had to be passed by a two-third majority vote of each house. A veto of a tax bill could be overridden by three-fourths majority. In Arkansas any bill to increase property, excise privilege or personal income taxes had to be passed by a three-fourths majority vote. Mr. Gibbons continued illustrating an amendment had recently been enacted to the California Constitution requiring a two-thirds majority vote in each house for new taxes and tax increases and prohibited new taxes on property, sales or transactions involving real property. Mr. Gibbons iterated in Colorado the legislature could, in an emergency, increase taxes by a two-thirds vote in each house. The tax increases had to be submitted to the people for approval at the next election. The same provisions also imposed strict spending limits on state government. Mr. Gibbons revealed in Delaware an increase in a tax or fee had to be approved by a three-fifths majority of each house. Mr. Gibbons said the Florida Constitution required bills that increased the income tax to more than 5 percent of net income had to be approved by a three-fifths majority of each house. In Louisiana a two-thirds majority was required. In Mississippi bills for the assessment of real property had to receive a three-fifths majority in each house. In Oklahoma the constitution required revenue bills had to be approved by three-fourths of the members of each house. South Dakota required a two-thirds majority for bills increasing income sales and property taxes. Mr. Gibbons said in Delaware in order to secure the confidence of many companies residing there, a two-thirds majority was required in each house to amend its incorporation law. Illinois required a three-fifths majority to pass a law affecting cities with home-rule.
Mr. Gibbons believed a provision requiring an extraordinary majority was a device used to hedge or protect certain laws which he believed should not be lightly changed. AJR 21 would ensure greater stability and preserve certain statutes from the constant tinkering of transient majorities.
Mr. Gibbons addressed some of the anticipated objections. Some will claim AJR 21 would deprive the state of revenues necessary to provide essential state services. Mr. Gibbons conveyed that was not the case. AJR 21 would not impair any existing revenues. It was not a tax rollback and did not impose rigid caps on taxes or spending. Mr. Gibbons thought it would not be difficult to obtain a two-thirds majority if the need for new revenues was clear and convincing. AJR 21 would not hamstring state government or prevent state government from responding to legitimate fiscal emergencies.
Mr. Gibbons examined the voting record for every new tax and increase which would have been affected by AJR 21 for the last three decades. Mr. Gibbons found in most instances the bills obtained a two-thirds majority vote even though a simple majority was required. He referred to an example of research performed illustrating the voting record on bills, a copy of which is attached hereto marked Exhibit E. Exhibit E illustrated in all but a few instances the tax increases were passed with more than the two-thirds requirement.
Mr. Gibbons concluded by saying the measure did not propose government do less, but actually AJR 21 could permit government to do more. AJR 21 was a simple moderate measure that would bring greater stability to Nevada's tax systems, while still allowing the flexibility to meet real fiscal needs. Mr. Gibbons urged the committee's approval of AJR 21.
Mr. Spitler asked Mr. Gibbons in his research if the other states required similar legislation for approval of a state budget, or if the state remained with a simple majority to approve a budget and the two-thirds or three-fourths majority to approve the funding mechanism. Mr. Gibbons said his research did not focus on the approval process of the budget. Mr. Gibbons said he would have it researched and produce the information for Mr. Spitler.
Mr. Spitler articulated if one looked at empowerment and on one hand a simple majority declared what the budget should be and on the other hand a super majority declared the funding mechanism, it was actually empowering a smaller group of people not to fund the budget. Mr. Gibbons communicated he would have to do some more research before he could give an informed answer. Mr. Gibbons believed the two should go hand in hand.
Mr. Spitler asked if the other states actually spent less since the imposed legislation. Mr. Gibbons articulated with the depth of research required to answer the question, Mr. Gibbons did not possess that sort of detail.
Mrs. Williams asked Mr. Gibbons if the states he cited had an income tax. Mr. Gibbons said South Dakota and Florida did not have an income tax. Mrs. Williams conveyed when there was an income tax it changed the considerations considerably.
Mrs. Williams was compelled to point out the Ways and Means Committee constantly heard about the waste in government. She suggested the Ways and Means Committee was not looking at waste or wants, but looking at the needs driven by extraordinary growth that far exceeded any other place in the country. There were structural problems other states were not faced with. She pointed out many of the other states mentioned had decreasing populations and did not have the same demands. Mrs. Williams would like to see the waste identified. Mrs. Williams said it was incumbent upon people who thought there was waste to sit in the hearings, listen to the testimony, understand the budgets and what the numbers meant and then make a determination on whether it was waste or want and not need. Mrs. Williams agreed with Mr. Gibbons in that Nevada needed major structural and policy changes.
Mrs. Williams asked Mr. Gibbons if he thought AJR 21 could possibly inhibit structural change by requiring a super majority. Mr. Gibbons respectfully disagreed and said structural change to him meant incentives built into the government structure. AJR 21 did just the opposite and forced the legislature in the decision process to make the structural changes in government itself. Mrs. Williams pointed out the flip side of the coin revealed a minority of people could make sure progress would not occur and change would not occur. Mrs. Williams said there were always people who were resistent to change. The fact needed to be considered a small minority of people could blockade the ability to move forward and change policy. Mr. Gibbons surmised that was the one avenue that raised a flag in the issue, whether or not one addressed it from the minority standpoint of being able to say no versus the super majority required to say yes on a tax bill.
Mr. Neighbors only had a problem with the concept that the minority might be able to tell the majority exactly what to do. He added none of the other states Mr. Gibbons listed had the growth problems Nevada had. Mr. Neighbors saw one of the problems as telling everyone "we need to diversify" and invite people into the state and then turn around to local government and say "now you provide the service."
Mr. Gibbons again addressed the issue a two-thirds majority allowed for a minority. Mr. Gibbons stressed the purpose of AJR 21 was to identify true tax needs. He referred to Exhibit E stating it was a very rare instance that only less than two-thirds majority vote in both houses was accomplished. That required the legislators to find the broad support by identifying the need for the tax. The vote in Exhibit E showed 90 to 100 percent of the legislators, in a majority of the times, felt compelled to raise taxes. Mr. Gibbons stressed to Mr. Neighbors Florida was indeed a growing state. The demands in Florida, in terms of growth in senior citizens which drove Florida's budget, probably exceeded the state of Nevada in terms of dollar requirements.
Mrs. Williams pointed out Florida probably collected more in taxes to start with. Florida's tax rates were higher, the property taxes were higher generating more revenue. Mr. Gibbons said Florida also did not have 87 percent of the state owned by the federal government, so Florida's property taxes brought in a lot more revenue. Mr. Gibbons said Nevada based its property tax on 13 percent of the state and expected that to run the whole state.
Mr. Marvel referred to Exhibit E stating last session was the only time the two-thirds majority would have made a difference, and it was somewhat fictitious because of the fair share issue. Mr. Gibbons said that was exactly right, and additionally there was one measure that would have required only one more vote to make it two-thirds in the Assembly. Mr. Marvel said in speaking in terms of reality many of the Washoe County people voted against any tax because of the fair share issue.
Steve Stucker, Laughlin Associates, Inc., spoke in favor of AJR 21. He iterated Laughlin Associates, Inc., was resident agent for some 5,000 corporations in Nevada. Part of Laughlin Associates' business involved the selling of Nevada to businesses in other states. He said many of the businesses did contribute to the tax base in Nevada, many of which did not impact the infrastructure or services provided by Nevada.
Mr. Stucker said many of the businessmen he spoke with were concerned about the stability of the tax structure in Nevada and the appeasement of special interests. He realized some taxes were necessary to provide governmental services, but those which were good for Nevada as a whole ought to be the ones that were considered and not those benefitting the larger special interests.
Mr. Stucker felt the passage of AJR 21 would ensure that a tax was not only necessary, but also would benefit what was perceived to be the vast majority of Nevadans if a two-thirds majority was required. It would also minimize fluctuations in the tax structure.
Mr. Stucker expressed the concern of the businesses was the stability to the tax picture in Nevada. It would allow the businesses to make a little more informed judgments as to whether to move to Nevada as opposed to somewhere else. It had been mentioned the general perception among citizens, as well as those businesses, bureaucracy did not live within its means and the easiest thing to do was to increase taxes rather than to curb spending. He thought AJR 21 would give that message. Laughlin Associates urged the committee's support of AJR 21.
In response to a question from Mr. Spitler, Mr. Stucker said it was not just perception that drew the businesses to Nevada, but whether the tax base was stable without constant fluctuations. Mr. Stucker iterated for Mr. Spitler that Laughlin had a board of directors and was incorporated. Mr. Stucker did not know if Laughlin required a two-thirds vote on authorizing expenditures. Mr. Stucker advised Mr. Spitler when Laughlin's board voted it was spending Laughlin's own money. Mr. Spitler countered stating when he voted he did not believe he was spending someone else's money, but indeed his own as well. Mrs. Williams clarified all of the legislators were taxpayers as well and were subject to the same unhappy circumstances as everyone else.
Lewis Laughlin testified on behalf of the Nevada Association of Independent Businesses (NAIB) in support of AJR 21. NAIB was 765 small independent businesses employing in excess of 10,000 employees in Nevada. Those businesses and the people that worked for the businesses overwhelmingly supported the proposition that taking money out of their pockets through increased taxes or new taxes should not be easy and only done when it was absolutely clearly and convincingly necessary for the good of all of the people of Nevada and not just some particular powerful special interest or bureaucracy.
Mr. Laughlin conveyed the perception existed on the part of independent business people and on the part of the taxpayers at large that sometimes their money was not taken seriously enough by the government. By passing AJR 21, whether or not it was a perceived problem or the real problem, government would be responding to the needs and the desires of the people to take their money seriously. NAIB supported the proposition there should be some form of tax stability. There had been many changes in Nevada's tax policy. Nevada had not had a tax policy and hopefully passing AJR 21 before new taxes were implemented might force the issue of implementing something stable for tax policy.
Mr. Laughlin said if AJR 21 was passed the prospect of taking more money out of Nevadans' pockets would be less easy and less tempting to those who would benefit by doing so. He stated Nevada would actually need "need" for the money as opposed to "greed" that was contained in certain budgets. Mrs. Williams interjected since there were so many members of the money committee that served on the Taxation Committee, she asked Mr. Laughlin to provide a list of the budgets that contained "greed" and not "need." Mr. Laughlin said he would be happy to send a list as well as suggestions on how to save money in the state budget process. Mr. Laughlin suggested common sense indicated there was some waste in government.
Mr. Laughlin iterated in a ten year period from 1980 to 1990 tax revenues in Nevada increased by 190 percent while revenue increased by only 50.1 percent. Tax revenue exceeded Nevada's growth by 397 percent. Mr. Laughlin urged the committee's support for AJR 21.
Mr. Zuend responded to Vice Chairman Williams stating a study was performed for the Nevada Resort Association by Grant Thornton that cited something to the effect (with regard to sales and property taxes only) each new resident generated approximately $6,000 in new services, but initially only paid $900 or $1,000 in taxes. Mr. Laughlin said it was important to note that the study did not include many fees paid that went into the general revenue. Vice Chairman Williams stated if the new residents generated the revenue commensurate with moving in, Nevada would not have to be passing bond issues.
Mr. Laughlin informed committee members that a two-thirds vote was not necessary for expenditures of funds within Laughlin Associates. Mr. Laughlin said within the framework of Laughlin Associates the Board of Directors set the general policy and framework for the officers. Laughlin focused on bottom-line results. If the bottom-line results came in, the money would be spent, but if the bottom-line results did not come in, then the money would not be spent.
Don Merritt, a Nevada citizen, testified in support of AJR 21. Mr. Merritt said the committee had a wonderful opportunity to demonstrate to the people of Nevada the committee's concern for money. He iterated knowing two-thirds majority was required in both houses to increase taxes, true need would be addressed. Mr. Merritt indicated he would not oppose a tax increase if it was absolutely necessary and would be willing to pay his share. He stated there were times when temporary taxes were put in place and he believed the temporary taxes were still in place and yet there were current budgetary problems. Mr. Merritt urged the committee to vote in favor of AJR 21.
Jim Fontano, a Carson City resident, voiced concern with regard to taxation and the perception of the citizens with the government. Mr. Fontano testified in support of AJR 21. Mr. Fontano believed passing AJR 21 would assist with the perception of the government the citizens had. He believed the passing of AJR 21 would show some of the citizens the government was concerned.
Mr. Fontano echoed some of the testimony previously heard and added most citizens would agree to go along with a tax increase if there was a real need. Mr. Fontano offered his support for AJR 21.
Carole Vilardo, Nevada Taxpayers Association (NTA), testified in support of AJR 21. She echoed most of the testimony already presented to the committee. The NTA supported the bill because since 1988 there had been the need to accomplish structural fiscal reform, both tax-side and budget-side and AJR 21 was just one element in creating tax structural fiscal reform.
Bonnie James, representing the Las Vegas Chamber of Commerce, voiced the Chamber's support for AJR 21. She said most of the citizens did not realize most of the taxes passed out of committee had in fact passed with a two-thirds majority vote.
Ned Air, a Nevada citizen, strongly supported AJR 21. Mr. Air said he would like to use AJR 21 as a tool to entice businesses.
Ms. Air addressed Mrs. Williams comments with regard to waste and agreed there were many problems that needed to be met and he sympathized; however, when he drove down a street and saw three guys sitting around a hole talking while one guy was in the hole digging, he perceived that as waste. Mr. Air relayed a story that he believed demonstrated waste. Mr. Air encouraged the committee to do what was needed to gain a better perception from the public. Mr. Neighbors said it was Mr. Air's perception when he drove pass a manhole the employees were wasting time, but OSHA requirements might state there had to be a person standing above the manhole. He pointed out it could also be perception on the part of the citizen.
Vice Chairman Williams closed the hearing on AJR 21.
There being no further business to come before committee, the meeting was adjourned at 3:30 p.m.
RESPECTFULLY SUBMITTED:
DIANNE LAIRD
Committee Secretary
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Assembly Committee on Taxation
Tuesday, May 4, 1993
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