MINUTES OF MEETING
ASSEMBLY COMMITTEE ON TAXATION
Sixty-seventh Session
June 23, 1993
The Assembly Committee on Taxation was called to order by Chairman Robert E. Price at 5:25 p.m., Friday, June 23, 1993, in Room 331 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
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. Ken L. Haller, Excused
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau
OTHERS PRESENT:
Mark Brown, representing CMS Generation Company
Jack Roberts, Manager of Domestic Projects, CMS Generation Company, CMS Energy Company
Thom Shelton, CMS Generation Company, CMS Energy Company
Dan Tobias, E. A., Barakat and Chamberlin, Inc.
Janice Wright, Deputy Director, Nevada Department of Taxation
Jeanne Douglass, associate, Commission on Economic Development
Carole Vilardo, Executive Director, Nevada Taxpayers Association
Tim Carlson, Executive Director, Nevada Commission on Economic Development
Alan Glover, Nevada Power Company
Jim Hawke, Office of Community Services
Barbara Campbell, member, Nevada Tax Commission
Kit Weaver, Carson City Assessor, on behalf of Nevada Assessors Association
Chairman Price announced there would be no testimony or action taken on AB 679. The bill explanation is attached as EXHIBIT C.
ASSEMBLY BILL 679 - Delays dates for adopting final budgets, setting tax rates and payment of first quarterly installment of property taxes for fiscal year 1993-1994. (BDR S-2060)
Chairman Price asked for testimony in support of AB 768. The bill explanation is attached as EXHIBIT D.
ASSEMBLY BILL 768 - Provides exemption from tax for equipment to conserve energy or use substitute sources of energy. (BDR 32-1894)
Mark Brown, CMS Generation Co., introduced Jack Roberts and Thom Shelton also of CMS Generation, and Dan Tobias, principal enrolled agent for Barakat and Chamberlin, Inc. He stated they were present to discuss the concepts of AB 768 with the committee relative to a project being developed by CMS in the Moapa Valley area. The project was a waste-scrap tire-fueled power plant. He explained they anticipated construction on the project to begin in February, 1994. Negotiations had begun with Nevada Power for the sale of generated power during the 1991 session and had included, of course, the Public Service Commission and the 1991 Legislature. He stated CMS understood some of the philosophical problems inherent in granting exemptions, but he believed CMS could provide a compelling case based on long-term benefits which would be derived from the project for the state.
Jack Roberts, Manager of Domestic Projects for CMS Generation, a subsidiary of CMS Energy Corporation, a utility holding company headquartered in Dearborn, Michigan, read from and referred to his prepared remarks. His notes were an outline of the entire project and its potential benefits which are attached as EXHIBIT E. He added negotiations with Nevada Power had been ongoing in conjunction with an associated company, Oxford Energy, for over five years and had been concluded on June 10.
Mr. Roberts elaborated on the savings which would result from the 1991 federal Intermodal Surface Transportation Efficiency Act (ISTEA) exemption. He explained, because the plant would effectively consume a large percentage of Nevada's scrap tires each year, Nevada Department of Transportation (NDOT) would be eligible for several million dollars in savings because it would not have to comply with the mandate to incorporate 20 percent recycled tires into its rubberized asphalt applications. Connecticut which had a similar plant in operation was currently 80 percent exempted. CMS had contacted Garth Dull, Director of NDOT, to investigate potential savings for Nevada.
Mr. Roberts added these types of energy producing, recovery plants were excluded from the proposed federal BTU tax. Even though such tax was not apparently imminent, it would be a good hedge against its costs if the tax was revived in the future. He concluded CMS had enjoyed working in Nevada due to the amount of support they had experienced, not only from the county but also from the state agencies with whom they had dealt. The most difficult part had been the complex negotiations with Nevada Power and part of the final agreement had included concessions made assuming constitutional relief from property taxes as proposed in this bill.
In answer to a question from Mr. Marvel, Mr. Roberts said financing for the project was being sought through Morgan Stanley and DLJ. A contract was expected within the next week. He added Clark County had supported the project in a major way by agreeing to provide up to $45 million in bonds. Twenty-two million dollars worth had already been issued, another eight million and fifteen million would be available once the project was underway. CMS had been unable to seek funding until after the contract had been signed with Nevada Power and a final decision was also dependent upon passage of AB 768. Responding further to Mr. Marvel, Mr. Roberts stated the avoided costs for Nevada Power represented a savings to the ratepayers of approximately eight percent over the life of the contract. Approximately 13,000 feet of transmission line had to be constructed to the nearest substation.
Dan Tobias, Barakat and Chamberlin, Inc., explained the property would be assessed at the Clark County level. Mr. Tobias submitted a report dated March, 1993 prepared by Barakat and Chamberlin, Inc. which profiles the CMS Moapa energy project which is attached as EXHIBIT F. Mr. Marvel asked if county assessment would cause any difficulty with the Department of Taxation.
Janice Wright, Deputy Director, Nevada Department of Taxation, verified the assessment would be made at the county assessor level and she did not see any difficulty with that procedure. She added there might be some need for expanded language to ascertain which property was real property by virtue of its being leasehold improvements and what would remain personal property. In response to another question from Mr. Marvel, Ms. Wright said utility properties were all assessed at the local county level.
Mr. Tobias clarified the machinery would be assessed as personal property rather than as improvements to real property and it would have a shorter depreciable life. He had verified such with the Clark County Assessor.
Mrs. Lambert asked if this bill would apply to all companies who were retrofitting their property to become more energy conservative. Ms. Wright stated it would apply to any company which could meet the provisions of the bill. Mrs. Lambert stated she could possibly have a conflict of interest, depending on the final form of the bill. Mr. Tobias interjected, if the retrofit still depended on fossil fuels it would not be included, regardless of how conservative the project would be.
Chairman Price explained there were several new electrical cogeneration plants, either under construction or in the planning stages, which had been granted sales tax deferrals. He asked Mr. Tobias how much of a tax exemption CMS had been granted from sales tax on equipment. Mr. Tobias said their sales tax deferral was $150 million over five years.
Mr. Tobias explained there were currently some natural gas fired cogeneration plants owned by Mission Energy on line. He believed the geothermal and gas fired plants were also under the sales tax deferral plan. Ms. Wright stated they were taxed by the county assessors as personalty, not as utilities. In response to a question from Chairman Price, Mr. Tobias said this bill, as it was currently drafted, would not apply to solar energy plants as they were already exempted under another section of the law. He believed NRS 361 was initiated when Luz Engineering was trying to set up their solar generation plants. A brief discussion followed relative to the comparative exemptions on various energy producing plant facilities and resources.
In response to Mr. Neighbors, Mr. Roberts said Nevada was their site of first preference and they had not gone to any other state with their proposal. Additionally, he responded, if this tax exemption was not granted it would be extremely difficult to secure adequate financing for the project. The proposed coverage ratios had included an allowance for this exemption.
Mr. Neighbors asked if Ms. Wright thought granting this exemption would have any negative impact on the court case or the status of the taxability of the property at the Nevada test site in Nye County. Ms. Wright replied she did not believe there was anything discriminatory in this law because it dealt with a specific set of circumstances which would not relate in a general nature to federal property. She saw nothing in the granting of this exemption and its language which would cause the Nye County case to be denied.
Chairman Price asked what the estimated value of the project would be on completion. Mr. Tobias responded it would be $155 million. In response to other questions regarding financial and tax consequences, Mr. Tobias referred to EXHIBIT H for details.
Mr. Marvel asked if other states were granting exemptions to similar projects. Mr. Tobias stated he represented a client which was negotiating a similar project with Arizona. He said the Anaheim, California company had been seeking exemptions based on its cogeneration status. They would be placed under a class eight classification which would give them a 70 percent reduction off basis to calculate their property taxes. He said Arizona was directly competing with Nevada for those types of projects. He stated his client had also looked at Nevada.
Mrs. Williams pointed out there was no real direct comparison between Arizona and Nevada as Arizona had an income tax which was substantial and a corporate income tax. Therefore, the benefits which were granted were reduced by those factors.
Thom Shelton, CMS Generation, submitted a copy of a letter in support of the project from Moapa Town Advisory Board which is attached as EXHIBIT G.
Jeanne Douglass, Associate with the Commission on Economic Development (CED), said she had worked with the company and a tax deferral had been granted by the CED; however, she had not had the opportunity to review the bill sufficiently to study the potential impact. She did not know if there was a consensus among the commission members as to the wording in AB 768.
Carole Vilardo, Executive Director, Nevada Taxpayers Association, said she did not oppose the bill for what it specifically did, but she would not approve any exemptions until tax policy could be reviewed and set for the benefit of the state at large. If the bill was processed, she believed it needed to provide a death date for the legislation and there should be a difference made between the death date for real property (17-22 years perhaps) and personal property (a shorter 10-year term). She did not feel these exemptions should be granted forever. She also said the effective date of the bill should be July 2, 1993 so as not to interfere with this year's budget process.
In response to a point made by Mr. Marvel, Ms. Vilardo confirmed granting of this exemption and, indeed, other redevelopment projects' tax treatment could affect the total evaluation of the tax base and could undermine the ability to have sufficient value to offset bonding indebtedness in some counties. Ms. Vilardo added she thought it was necessary to develop and diversify Nevada's economy, but all aspects were not being treated uniformly. Also, the benefits of economic development were not being studied sufficiently to determine if they were worth the trade offs, related assessed values and state financing capability. The questions were far-reaching and needed to be addressed in light of an overall state tax policy. Some safeguards needed to be put into place.
Discussion followed regarding why the Commission on Economic Development had not been more prepared to state its position.
Tim Carlson, Executive Director, Nevada Commission on Economic Development (CED), apologized for not having been present sooner. He submitted a personal statement in support of the project, but said he was unable to speak on behalf of the entire commission. His statement is attached as EXHIBIT H. Mr. Spitler said, as a member of Ways and Means, he was constantly requested to fund more money for these commissions and it was amazing to him they now appeared before the Taxation Committee unprepared to take a position on a matter such as this. Mr. Carlson said they simply had not had enough time to properly review the impact of the bill in its current form. He added they had worked with CMS in the past months and he knew they had the support of Moapa and Clark County.
Mr. Roberts told Mr. Marvel financing for the project would be extremely difficult to obtain if the bill did not pass. Even with the exemption the coverage ratios were marginal. If the bill did not pass, CMS would still try to go forward with the project. Chairman Price said it would have been helpful to have a representative of Clark County and some of the labor organizations present for their input.
In answer to a question from Mr. Neighbors, Mr. Roberts added they had purchased 40 acres already with an option to purchase an additional 60 acres. Escrow was due to close October, 1993. Another question he posed was responded to by Ms. Wright. She stated the New Mexico case he referred to had centered on a sales tax exemption granted and pertained to whether or not the entity purchasing the object was a constituent part of the federal government. The case had been decided on the specifics of the transaction and the decision did not have far reaching impact on other nonidentical situations. This was a private, for-profit business and a completely different situation.
Mr. Tobias, in answer to Mr. Spitler, said the working relationship between CMS and CED had been very good compared to other states. He had worked with CED for about three and one-half years and had found them most cooperative. Mr. Roberts added they had been unable to go forward and present this bill until after the approval of their contract with Nevada Power on June 10, 1993. He saw no difficulty in adding a death date and changing the effective date of the bill, either.
Mr. Neighbors asked if the project would not, effectively, take 100 acres off the tax rolls. Mr. Tobias said the Moapa township would lose about $28,000 of the $780,000 tax deferral, or 11 cents per $100 of assessed valuation and, yes, the land would be taken off the rolls for the duration of the exemption.
A discussion relative to CED's involvement ensued.
Mark Brown explained they came with the bill draft in March, 1993. However, until a contract agreement was finalized with Nevada Power, there was nothing to discuss. In the meantime, he had received continued support from Clark County, Moapa township, the governor's office, Southern Nevada Economic Development and Mr. Carlson and Jeanne Douglass at CED. He said it was primarily the process which had frustrated their presentation and they had been hamstrung by the continued negotiations with Nevada Power.
Alan Glover, Nevada Power Company, stated their position was neutral as to AB 768. The savings negotiated in their contract, however, were not going to be passed on to the ratepayers of Nevada Power. Because of the small amount, the savings would benefit the shareholders. He told Mr. Spitler there was no language in the bill or in negotiations which allowed them to pass through savings from transactions of this type. Mr. Spitler asked, wherever power was obtained and for whatever savings were achieved, why were those savings not factored in to reflect the lower cost passed through to the ratepayer. Mr. Glover stated the savings was useful to CMS in obtaining their financing.
Mr. Roberts said part of their negotiations with Nevada Power was dependent upon the exemption in AB 768 which had allowed them to give Nevada Power an eight percent rate concession. He said the contract with Nevada Power included provisions relating to pass through of any additional state or federal tax exemptions granted. Those additional exemptions would be further passed back to the ratepayers, based on a sliding scale formula set forth in the contract. Answering a question from Mr. Spitler, Mr. Roberts concluded the possibility of obtaining necessary financing if the bill passed was about 99 percent. If the bill did not pass, the feasibility of the project being financed was very bleak.
Jim Hawke, Office of Community Services, said it was somewhat strange for him to be testifying in opposition to AB 768. Normally, he would be a strong supporter of this type of legislation. However, he felt the bill pointed up the need to develop a consistent tax policy. Another piece of legislation before the committees this session would provide for a two-year study of energy policy. He said something like this bill might be the most significant policy statement passed to bring new business to Nevada. But, he was concerned it could also have tremendous impacts on local governments.
Mr. Hawke explained he had been a member of the Private Activity Bond Committee (PABC) which had first dealt with Oxford Energy (until their bankruptcy) and subsequently with CMS. He added, if passed, he would like to see the bill include a pass through of savings provision for the ratepayers.
Mr. Spitler stated he was baffled by the lack of responsiveness from Mr. Hawke's organization as he was by CED. He said if the state waited two years to study the situation, by then private enterprise would get the message and invest elsewhere. He explained the state agencies needed to help these companies gain assistance, not discourage them. Mr. Hawke said Mr. Spitler's point was well taken. He had worked toward gaining support and approval for this particular project for almost five years, but he had difficulty with AB 768. The lack of policy had become a major problem as well as the need to gauge the negative impact on local governments.
Mr. Hawke said when he was on the bonding committee and CMS was pursuing $30 million in financing, CMS had told them if they did not receive the tax-exempt funding they were not sure they would locate the plant in Nevada. Mr. Hawke intimated those funds could have gone to many other broader-based programs, but it was granted to CMS. Those funds were still available to CMS from the PABC, of which the League of Cities and Nevada Association of Counties were members.
Mr. Ernaut said he was flabbergasted with the lack of enthusiasm exhibited by CED and other agencies which he felt should be more pro-active. He said Nevada needed to be ready now when the companies were interested in locating or relocating in Nevada.
Mrs. Lambert asked, on page 1, line 6, if the word "or" was deleted and "and" was substituted, if it would tighten up the qualification process for this exemption. Mr. Hawke said Mrs. Lambert had a good point and such a change would help to clarify the purpose for the exemption. He added exemption for only the specialized equipment would make more sense to him, rather than exempting the land, too. He said many conservation programs had been put into place by Sierra Pacific and others without any consideration being given as to whether or not they were tax exempt. In fact, he added, Arizona had a provision in its law to exempt property taxes on recycling facilities. But, he said without some kind of concession in Nevada, it would be difficult to complete toe-to-toe with Arizona.
Mrs. Lambert also said on page 1, line 14, if the "(a)" should not be "(b)". If the bill was processed she suggested those technical corrections be made.
Mr. Carlson expanded on his previous remarks and said CED was very much in support of the project. It was simply opposed to the bill as presented because they had not had sufficient time to review it and its impact. Two days' notice simply was not enough. He also suggested, in closing, there might be a provision included whereby, if CMS did not continue to do business in the state or decided to leave, they would be required to repay the tax allowance.
Barbara Campbell, Nevada Tax Commission, said she thought the language should be checked to make sure new operators or successors would have to comply or requalify for the exemption.
Kit Weaver, Carson City Assessor, on behalf of the Assessors Association of Nevada, said the July 1, 1993 effective date was unreasonable. He suggested an effective date of July 2, 1993 in order to allow for anyone who might currently qualify, since the budgets would already be set for the coming fiscal year.
There being no further business to come before committee, the meeting was adjourned at 7:05 p.m.
RESPECTFULLY SUBMITTED:
LINDA CHANDLER LAW
Committee Secretary
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Assembly Committee on Taxation
June 23, 1993
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