MINUTES OF THE JOINT MEETING OF
ASSEMBLY COMMITTEE ON WAYS AND MEANS
AND
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
May 18, 1993
The joint meeting of the Assembly Committee on Ways and Means and the Senate Committee on Finance was called to order by Chairman Morse Arberry Jr., at 9:00 a.m., on Tuesday, May 18, 1993, in Room 119 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda.
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mr. Morse Arberry, Jr., Chairman
Mr. Larry L. Spitler, Vice Chairman
Mrs. Vonne Chowning
Mr. Joseph E. Dini, Jr.
Mrs. Jan Evans
Ms. Christina R. Giunchigliani
Mr. Dean A. Heller
Mr. David E. Humke
Mr. John W. Marvel
Mr. Richard Perkins
Mr. Robert E. Price
Ms. Sandra Tiffany
Mrs. Myrna T. Williams
SENATE COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Lawrence E. Jacobson
Senator Bob Coffin
Senator Diana M Glomb
Senator William R. O'Donnell
Senator Matthew Q. Callister
ASSEMBLY COMMITTEE MEMBERS ABSENT:
None
SENATE COMMITTEE MEMBERS ABSENT:
None
STAFF MEMBERS PRESENT:
Mark Stevens, Fiscal Analyst
Dan Miles, Fiscal Analyst
Gary Ghiggeri, Deputy Fiscal Analyst
Bob Guernsey, Deputy Fiscal Analyst
Judy Matteucci, Budget Director, presented revised revenue projections from the Governor, (Exhibit B). She stated the revised income estimates for the biennium were reduced by approximately $3 million in FY 94 and $1 million in FY 95. Additionally, she advised some agencies were unable to maintain budget reductions in FY 93 so they were decreased from the previous estimate of $16.2 million to $15.9 million. Continuing, Ms. Matteucci advised reversions for FY 93 had been increased by $50,000 excluding reversions from budget reductions. Supplemental appropriations were also increased by approximately $1,000 to reflect appropriations which were not previously included in the Executive Budget. The previously referenced adjustments resulted in the revised unappropriated balance for July 1, 1993 being reduced from $58.2 million to $52.4 million. She noted the revised unappropriated balance met the 5 percent statutory requirement.
Due to a revised purchasing reversion proposal $1.2 million would be reverted in FY 95 which lowered income projections for FY 94. Unappropriated balance for July 1, 1994 was reduced from $69 million to $62.9 million due to: (1) errors which resulted in reduced appropriations; (2) increased assessed valuation in the Distributive School Account; and (3) a higher slot tax projection for FY 94.
Ms. Matteucci summarized the new projections as follows: (1) income projections were down in FY 95 from $1,083,521,517 to $1,082,781,115; (2) FY 95 reversions were increased from $14 million to $16.9 million to reflect increased purchasing and net proceeds of mines trust fund reversions; and (3) FY 95 appropriations were reduced from $1,104,738,300 to $1,101,043,689 to reflect local school support tax projections and increased assessed valuations. The unappropriated General Fund balance projections for July 1, 1995 were reduced from $55,290,937 to $55,114,451. Ms. Matteucci noted significant adjustments to revenue projections listed on page A2 of Exhibit B. The net proceeds of mines tax had been adjusted from $17.3 million to $16.4 million for FY 94 and $17.8 million to $16.5 million in FY 95.
Senator O'Donnell noted gold prices were increasing and asked why the downward adjustments had been made to net proceeds of mines tax. Perry Comeaux, Executive Director, Department of Taxation, explained the forecasts on the net proceeds of minerals was based on the best information available from the mining companies. It was anticipated slight increases in production and the prices of gold. Mining companies were able to increase the number of deductions which had a negative impact on the tax. Estimates for the biennium were approximately 27 percent.
Senator O'Donnell asked what price of gold per ounce was used to forecast the net proceeds of mines tax. Mr. Comeaux replied for $355/ounce for FY 94 and $360/ounce for FY 95. He explained increased local government tax rates resulted in a 1.25 percent per year decrease in revenue to the state from the net proceeds of mines tax.
Senator Callister reiterated the reasons for the revenue reduction in net proceeds of mines tax: (1) mining deductions were increasing; and (2) as local government property tax increases the portion to the state decreases. Senator Callister asked for clarification on the types of deductions awarded to mines. Mr. Comeaux explained the ore removed was more costly to excavate and refine; therefore, deductions relating to the cost of production increase. Senator Callister asked if the decrease in net proceeds of mines tax was due to the industry becoming more adept at utilizing deductions, auditor inefficiency or a decrease in the overall quality of the ore body. Mr. Comeaux stated for the most part the costs of production were increasing. Senator Callister concluded the tax from this revenue source would continue to decrease. Mr. Comeaux asserted mining companies could develop new ore bodies, however, development cost were deductible as well. He concluded unless there was a strong upward trend in the price of gold, the net proceeds of mines tax would continue to decrease.
Mr. Marvel asked if projections for the mining tax assumed the federal energy tax would be imposed. Mr. Comeaux stated it had not been a factor in deriving projections. Mr. Marvel noted miners had speculated the energy tax as proposed would cost approximately $30 per ounce of gold. Ms. Matteucci asserted the energy tax would not be imposed until 1995 and at that time it would become a factor in deriving projections for the net proceeds of mines tax.
Ms. Giunchigliani inquired about the deductions available to mines. Mr. Comeaux explained deductions included development cost in the year the costs were incurred. Mines were allowed deductions for the costs related to extraction, refinement, transport and sale of the ore. Additionally, mines could deduct related depreciation and insurance. Ms. Giunchigliani concluded all business start-up costs were deductible and until the ore was sold, the state did not receive tax benefit. Ms. Giunchigliani asked if the ore could be held prior to sale to prevent the state from receiving tax benefit. Mr. Comeaux replied generally mines did not prevent the sale of ore to prevent paying the tax. Ms. Giunchigliani concluded the state was front-ending costs and did not receive benefit until the ore was sold. Mr. Comeaux agreed in part, however, mines paid tax based on estimates made a year in advance. Ms. Giunchigliani asked who determined the deductions. Mr. Comeaux replied the Legislature determined the deductions. She asked how long it had been in effect. Senator Raggio explained the net proceeds of mines was a Constitutional limitation. Mr. Comeaux clarified the Constitution required that only net proceeds be taxed. The Legislature defined "net proceeds" in the statutes. Ms. Giunchigliani noted the statute could be amended.
Mrs. Evans asked if implemented, could the energy tax be deducted. Mr. Comeaux speculated it would be deductible. Mrs. Evans concluded the proceeds from the tax would be reduced by local and federal government tax rates.
Senator O'Donnell asked if projections had factored in federal intervention into the gross proceeds mines tax. Mr. Comeaux stated it had not been factored in the base for the projected revenue. Senator O'Donnell concluded federal intervention could further impact the revenue projection. Mr. Comeaux agreed.
Senator Callister noted the significant extent to which sales tax was driven by mining construction and gaming construction. An immediate and commensurate reduction in sales tax revenues would occur if ore production decreased. Senator Callister asked if the reduction in production and exploration for new ore bodies had impacted sales tax revenue over the last biennium. Mr. Comeaux replied the experience differed from county to county. Senator Callister asked if the increased price of gold could urge new mining exploration. Mr. Comeaux replied significant change in sales tax revenue resulting from new exploration had not been noted recently. However, the rise in the price of gold would have a positive impact on development in the future.
Speaker Dini asserted if an 8 percent federal royalty was imposed on mining, new mining development in the state would dwindle.
Speaker Dini asserted if an 8 percent federal royalty was charged to the mining industry new mining exploration would cease.
Mr. Price noted the mining industry had voluntarily complied with the business tax. Therefore some additional revenue was received from the mining industry.
Ms. Giunchigliani argued the instability of the state's tax base should be of major concern to committee members. She advocated a strong, stable and broad-based tax.
Ms. Matteucci noted the changes in sales tax projections were made in the second year of the biennium from 2.3 percent to 2.8 percent. The sales tax projection for the current fiscal year was estimated at 8.1 percent. As a result of the last collection, the sales tax percentage increase was approximately 8.3. Taxable sales were up approximately 7.7 percent. In the FY 94 the year to year comparison for sales tax was a 3.4 percent increase. Comparisons were based on the assumption that a drop off would occur as a result of the completion of the three mega-resorts in Las Vegas. Projections applied 4.5 percent to a base number, then factored out the percentage attributable to construction.
As a result of new information from U.S. WEFA Forecast, March 1993 sales tax projections were increased from 2.3 percent to 2.8 percent in FY 95, Exhibit B. U.S. WEFA projected sales tax revenue projections were 8.4 percent in FY 93, 1.5 percent in FY 94 and 5.2 percent in FY 95. Ms. Matteucci noted although the administration estimated lower percentage rates for sales tax revenue than were estimated by the U.S. WEFA Forecast, the projected revenue in dollars for FY 95 were similar, $330 million. Sales tax revenue projections were conservative because the administration was concerned about construction lag after the completion of the Las Vegas resorts and the impact of the sluggish California economy.
Ms. Matteucci explained a list of taxable sales by business code and type Exhibit B, page 19. She noted the two largest components of sales tax revenue, Eating and Drinking Places and New and Used Auto Dealers, were currently running approximately 5 percent. Ms. Matteucci argued March collections, which were 7.2 percent for Eating and Drinking and 16.2 percent for New and Used Auto Dealers, strengthened the overall revenues for the two categories. She argued sales tax revenue projections over the next biennium should be conservatively based to account for a lag in construction and mining exploration.
Ms. Giunchigliani noted a radio news broadcast earlier that day stated sales tax revenue had increased by 12 percent. Ms. Matteucci replied the March sales tax revenue was a 10.6 percent increase. She noted the apparel stores category reflected a 12.7 percent increase to date. The two categories which most accurately depicted the sales tax revenue, eating and drinking places and new and used auto dealers, reflected a 5 percent and 4.8 percent increase, respectively. Ms. Giunchigliani stated an argument had been made for raising sales taxes because it was believed tourists would pay the majority of the increase. However, it seemed citizens of Nevada generated the majority of the revenue from sales tax. Ms. Matteucci stated the economy had not settled into a pattern and recommended conservative sales tax revenue projections. She noted the impact of sales tax revenue on the Distributive School Account and the General Fund.
Senator Rawson asked if there were any changes in the deferred tax program. Mr. Comeaux replied the level of the program had been fairly stable for approximately the last year. Approximately $15 million had been deferred in the program to date. Senator Rawson asked if it was appropriate to change the program or was a contractual arrangement made with companies. Mr. Comeaux stated the possibility had not been explored. The argument a contract existed could be made by companies since the deferral period was statutorily defined.
Ms. Matteucci noted the Sales Tax Commission to the General Fund would double, increasing from .5 percent to 1 percent. The increase in the commission was part of the Governor's attempt to balance the budget. General Fund commission rates would equalize at 1 percent to all of the LSST, county and local components of the sales tax.
Harlan Elges, Chief, Administration, Gaming Control Board, explained the change in the projected revenue collected by gaming, Exhibit B, pages A8 and A9. Mr. Elges explained License Fee on Gross Revenue. He asserted the economic decline in California and the nation would have impact on gaming revenues in the state. January projections were decreased because slot and game wins fluctuated significantly. He said original General Fund gaming revenues were projected to be 2.8 percent, excluding proposed slot tax revenue. Those projections were now reduced to 2 percent. If the slot tax and mega-resorts were included, projections would be 11.2 percent in FY 94 and 6.2 percent in FY 95.
Restricted slot flat fees tax was originally projected to be $4.2 million. In the event the new percentage fee tax (slot route) included restricted locations, new projections were reduced by the amount of flat fees for restricted locations. Non-Restricted Slot Flat Tax projections were changed very little and included estimated tax revenue from the new casinos.
Ms. Matteucci noted the proposed slot route tax was based on an interim study and the Summary of Finding is included in Exhibit B. The study suggested an aggregated tax collection for the slot route operations. The study results facilitated a substantial increase in the gaming tax revenue projections if the increase in the tax was approved.
Ms. Matteucci explained, based on information from the Department of Taxation, projected revenues for the Liquor Tax and Licenses and other Tobacco products taxes were recommended to decrease. Based on new employment information from the Employment Security Department, Business Privilege Tax was recommended to increase by approximately $300,000 in FY 94 and decrease by approximately $800,000 in FY 95. New resorts would facilitate increased employment, projected new employment was 5 percent in FY 94 and 4 percent in FY 95. Based on information from the Athletic Commission revenue was projected to increase to $1.5 million for FY 93. Due to low interest earnings to the General Fund, the State Treasurer recommended a decreased revenue projection for Interest on Bank Deposits. Based on the revised telemarketing budgets submitted to the Senate Finance Committee, projected revenue from Telemarketing License Fees were down from $1,425,190 to $667,569 in FY 94 and from $287,667 to 0 in FY 95.
Ms. Matteucci noted projected revenue from Assessed Valuations had been increased slightly, which resulted in a decrease in the General Fund appropriation necessary for the Distributive School Account. Original Assessed Valuation estimates were $64.4 million; new projections were $65.3 million. She noted annual slot tax revenue was expected to increase in FY 94 because of gaming industry growth. However sales tax revenues were anticipated to decrease in FY 95 because of the change in the assumptions relating to sales tax.
Senator O'Donnell asked why the Assessed Valuations varied between counties. Mr. Comeaux stated a number of factors could influence increased Assessed Valuations. The primary factor was construction. Construction increased property value which, in turn, boosted the Assessed Valuations.
Mr. Marvel noted although Humboldt County was experiencing growth, the Assessed Valuation was decreasing. Mr. Comeaux advised he would provide information to explain Humboldt County's decreasing valuations at a later date.
Ms. Giunchigliani noted redevelopment areas in Carson City, Clark County and Washoe County, were excluded from Assessed Valuation. She asked if the Department of Taxation had calculated the cost of the exemption to the state in lost revenue. Mr. Comeaux stated the Department had not calculated the revenue loss. Ms. Matteucci noted revising the redevelopment agencies exemptions had never been discussed.
Senator Callister referred to the Gaming and Sales revenue projections. He asked if sales tax projections had ever been estimated at a lower rate. Ms. Matteucci advised she would research and report the information. She noted the projections attempted to remove the impact of new construction. Once construction was removed from the base, the year to year comparison was lower. The base to base comparison was approximately 4.5 percent on a 5.3 to 5.5 percent base for the current year and another 4.5 percent in the second year of the biennium. Ms. Matteucci explained if constructions had been included in the base for FY 93, projections would have been 5.5 percent and 4.5 percent over the next biennium. She explained sales tax projections were lower, 2.8 and 3.4 percent, because construction was factored out of the base. Senator Callister noted sales tax projections were extraordinarily low which implied a recessionary economy over the biennium. Senator Callister asserted the administration was operating on a presumption that the national and California economy would be recessionary over the biennium. He did not understand how the administration could work from a recessionary forecast and still project an 8 percent increase in gaming revenue. Senator Callister suggested gaming revenue projections were speculative, ignored the prospect of Indian Gaming and were based on false presumptions of an expanded gaming market due to new resorts in Las Vegas. Ms. Matteucci asserted without new construction, gaming revenues would have increased by 2 percent in FY 94 and 3 percent in FY 95. Therefore construction would bring at least a one-time boom in gaming revenue to the Las Vegas economy. After the initial revenue the market would stabilize and new capacity could be calculated.
Senator Callister asserted market share could shift between casinos as a result of the new resorts. He asked if reallocating market share had been factored when determining new gaming revenue projections. Mr. Elges explained the Mirage had been the test case for new gaming revenues from new construction. The change which resulted from the Mirage was removed from gaming revenue projections. Senator Callister argued sales tax revenue projections and the economy were quite strong when the Mirage was opened. Therefore, it became treacherous to use the Mirage as a model for market share expansion when current underlying economic circumstances were radically different. Mr. Elges explained new resort revenues were calculated by projecting the current win per unit over the next biennium and then adjusted downward. Therefore increased capacity was adjusted for current economic circumstances.
Senator Callister asked if gaming revenue projections had been adjusted to reflect the possibility of Indian gaming in California. Mr. Elges stated it had not been a factor because Indian gaming had not been authorized and therefore was difficult to measure. Senator Callister speculated California's current economic situation would encourage an agreement between the state official and tribes. He argued lack of consideration of the possibility was engaging in an absurd level of self deceit. Ms. Matteucci noted the issue of Indian gaming was being discussed in the California court system and unless an out-of-court settlement was reached, it was impossible to predict when and if gaming would be permitted in California.
Chairman Arberry adjourned the hearing at 10:41 a.m.
RESPECTFULLY SUBMITTED:
C. Dale Gray
Committee Secretary
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Assembly Committee on Ways and Means
Senate Committee on Finance
May 18, 1993
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