MINUTES OF THE
ASSEMBLY COMMITTEE ON WAYS AND MEANS
Sixty-seventh Session
March 16, 1993
The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry Jr., at 7:40 a.m., on Tuesday, March 16, 1993, in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
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
COMMITTEE MEMBERS ABSENT:
None
STAFF MEMBERS PRESENT:
Mark Stevens, Fiscal Analyst
Gary Ghiggeri, Deputy Fiscal Analyst
Birgit Baker, Program Analyst
OFFICE OF THE GOVERNOR, WASHINGTON OFFICE - PAGE 8
Opening testimony, Leo Penne, Director of the State of Nevada, Washington, D.C. Office, offered background remarks and submitted Exhibit C. Established February 1986, Mr. Penne said the office was unique in two respects: 1) the promotion of economic development was top priority; and 2) the office services were available to almost any organization, institution or company in the state. He said the office was funded by: 1) The Nevada Commission on Economic Development; 2) the Nevada Commission on Tourism; and 3) the Nevada Department of Transportation through a contract with the Governor's Office. The office structure and organizational reporting were also described.
Mr. Penne said the proposed budget for the Washington office was $218,974 for FY 93/94 and $230,478 for FfY 94/95. No program expansion was proposed. Requested amounts would maintain the office at the current level. The increase of 6.4 percent for FY 93/94 and 5.3 percent for FY 94/95 would cover cost of living salary increases (2 percent for the director in each year, and 4 percent for the other two staff persons in each of the two years) and increases in health insurance premiums, Social Security, unemployment insurance and rent.
According to Mr. Penne, funding provided by the Commission on Economic Development would be at the FY 91/92 base level of $99,900 in each of the two years; funding by the Tourism Commission would be at the FY 91/92 base level of $49,950 for each of the two years; and funding from the Department of Transportation (DOT) would be increased to $69,124 in FY 93/94 and $80,628 in FY 94/95, from the FY 91/92 base level of $49,950. The increase in the share of the budget from the DOT reflected the Washington office's increased activities relating to transportation issues. Mr. Penne expected this level of activity would not only be maintained but would increase over the coming biennium.
Mr. Penne stressed the office's priority was economic development and the range of responsibilities reflected this. This included support for the Commission's investment attraction program as well as work in federal contracting, infrastructure financing, exporting, and science and technology. The office basically supported the program of the Commission on Economic Development and responded to the needs of other economic development organizations in the state.
Mr. Penne explained when they worked in areas beyond economic development the first response was to funding agencies. Thereafter, judgments were made regarding the significance of a particular project.
Chairman Arberry noted in the Governor's base recommendation there would be an increase in DOT's support of the office from 25 percent in FY 93 to 31 percent in FY 94 and approximately 35 percent in FY 95. He wondered if NDOT would be using more of the office's resources than in the past. Mr. Penne responded this was their highest activity in the past two to three years and it was expected to increase. In the last two years the proportion of office time exceeded the 25 percent share of the budget provided by NDOT.
Chairman Arberry questioned what accounted for the increase. Citing a practical example, Mr. Penne said in early February Governor Miller, currently serving as lead governor on transportation for the National Governors' Association, was responsible for a resolution on transportation funding. The aim was to produce highway funding for Nevada by getting the program increased. They also sought to get a larger share of the basic formula program for Nevada by taking advantage of discretionary programs within the DOT and by securing earmarked projects through the Congressional Appropriations process.
Mr. Marvel questioned what would happen to the demonstration money and whether there had been any changes from the Intermodal Surface Transportation Efficiency Act (ISTEA) program. Mr. Penne answered there had been no changes. However, there had been discussion regarding the elimination of the authorizations for the demonstration projects contained in the original ISTEA legislation as a deficit control measure. He did not think Nevada's demonstration projects totalling approximately $84 million would be affected. Mr. Penne told the committee the Governor felt all the funding authorized in that act should be provided over the term of the program.
Mr. Penne said Nevada was working with other states to get the economic stimulus funding for transportation. This would total some $3 billion for the nation and would produce $15 million for Nevada. His office was also trying to secure full funding for FY 94. In the 1994 appropriations process they had made coordinated requests for three or four special projects which would be funded through earmarked funds.
Mrs. Williams asked Mr. Penne to explain the differences between the services provided by the Washington Office of the Governor and the Washington Consultant's Office. Mr. Penne said in 1989 he had recommended the state secure the services of a highway financing specialist in order to guarantee Nevada obtained its share of federal funding; and the generalists were not sufficiently knowledgeable to do this. The Nevada Department of Transportation consultant in Washington, D.C. was a leading technical specialist in the program and a former federal highway administrator. Bringing together the NDOT consultant's expertise and the expertise from Mr. Penne's office had resulted in Nevada increasing its share of the total funding obtained for particular highway projects.
Mrs. Williams was still unclear what the differences were. Mr. Penne said generally his office took information derived by the NDOT consultant and worked with that. He added that when funding was received from the federal government, it was designated for certain projects. If there were no projects ready to go in the category in which funding was received, the highway consultant would review current law, assess the processes of NDOT and by recommending a technical change in the law, could alleviate the problem making it possible to spend the money. Basically, the consultant did the technical work and Mr. Penne did the political work.
Chairman Arberry asked what the ramifications would be if they eliminated the consultant. Mr. Penne answered this would probably result in a 50 to 75 percent reduction in their capacity to produce positive results. Ron Hill, Deputy Director of the Department of Transportation, interjected, saying there was a great deal of beneficial advice on technical issues provided by the consultant which others could not provide. Chairman Arberry asked to be assured the $150,000 paid to the consultant was producing $150,000 worth of results. Mr. Hill reiterated the benefits from both offices in that Mr. Penne's office provided daily coordination with the Congressional delegation; whereas the consultant provided essential technical experience on how to change the law to enable a project to proceed. The consultant was paid a set rate for so many hours a month and after that was paid $175 per hour. Mr. Hill agreed to provide a detailed accounting of the consultant's time spent on Nevada issues.
Mr. Spitler speculated perhaps the performance indicators of the offices was the most effective way to determine exactly what each office had accomplished. In response, Mr. Penne said ultimately they did almost nothing independently from the other participants. Their effectiveness was completely intermingled.
Questioning the State Budget Office, Mr. Spitler wondered why there was a cost of living increase requested when no like increases were available to other state workers. Woody Thorne from the Budget Office, indicated any time there was a question of contract issues the negotiation process depended upon supply and demand in a particular area when the final contract amount was determined; and this was determined on a case-by-case basis.
Ms. Giunchigliani asked Mr. Penne if the committee could see a copy of his contract or job description, who conducted job performance evaluations, etc. Mr. Penne said there was a 12-item list of responsibilities contained in the contract, describing the Washington Office responsibilities. The evaluation of his performance and/or the office was with the funding agencies and the Governor's office. He added he was responsible to the Commission on Economic Development, the Commission on Tourism, the Nevada Department of Transportation and the Governor's office; and his performance was dependent upon their satisfaction with his services. He pointed out his contract provided for a 30-day cancellation by either party without cause; and no formal evaluation would be conducted. Ms. Giunchigliani said she did not believe the performance indicators were there; there was no provision for performance evaluations; nor was there any way to measure or determine whether the dollars expended were actually returning a profit. She asked if Mr. Penne conducted performance evaluations for his staff, the subcontractors, etc. He said he did. Mr. Penne opined their performance was being constantly monitored. Yearly objectives were established and performance was relative to those objectives. Ms. Giunchigliani suggested the objectives should be shown in the budget as a measurement tool to see if there was a satisfactory outcome.
Ms. Giunchigliani also asked Mr. Penne to provide a list of companies which had located in Nevada because of the efforts of the Washington Office, and what infrastructure financing had occurred. Mr. Penne said he would be happy to provide the material.
Ms. Giunchigliani then asked if the contract consultant did work for other states. Mr. Penne said, "Yes." She asked him to provide details of what other states the consultant worked for and the time spent on non-Nevada projects. Mr. Penne told Ms. Giunchigliani that over the past 12-month period, Nevada had used approximately 30 percent of the lead person's time and additional time had been used from other professionals.
Pursuing the subject, Ms. Giunchigliani questioned if the lead consultant was paid $175/hour and what the support staff was paid. Mr. Hill responded they paid $150/hour for 40 hours per month and this included all fees (including clerical) for the work done by that consultant. Approval from the director was required for work beyond 40 hours. Ms. Giunchigliani also wanted to know if there were stated objectives, a job description or contract for the support person. Mr. Hill said he would be happy to provide the information.
Ms. Giunchigliani asked what the office did in developing Nevada's first priority, economic development. Mr. Penne described work which had resulted in the City of Caliente receiving a $500,000 grant for a geothermal plant; a Carson City company had received a $20,000 Department of Energy R&D grant, which would likely be followed by larger grants in succeeding stages; companies in Sparks and Las Vegas had benefitted from favorable appropriations decisions which the office had assisted in; in the present biennium they had sponsored three or four events which had opened the way for Nevadans to do business in Washington, D.C. One of these groups was the Nevada Federal Contractors who met with federal contracting officials. Another benefit was the Rural Economic Development trip scheduled to take place in late March which provided the Rural Economic officials a chance to talk to federal agencies and others. There was a $150,000 grant to the Commission; a $1 million capitalization of the Rural Loan Fund; annual "Invest in Nevada" which brought various state heads to Washington on a marketing trip; in May 1993 there was to be an International Trade Executive Seminar in Washington which would bring 10 or 12 of Nevada's leading business people in the field of international trade to Washington. Ms. Giunchigliani asked who paid for the marketing trips. Mr. Penne said they were cost shared.
Ms. Giunchigliani questioned if Mr. Penne's contract had been negotiated with the cost of living adjustment. Mr. Thorne said this was not specifically in the contract. The contract was only for a specified amount for services.
Ms. Tiffany noted the Public Service Commission (PSC) had appeared before the committee requesting additional money for another consultant for the Federal Energy Regulatory Commission. It was estimated this would result in approximately $205,000 for consultants. She wondered if there was any way Mr. Penne's office could supplement some of the consulting to decrease the proliferation of additional consultants. Mr. Penne said he had spoken to staff from the PSC and concluded their needs were too extensive for his office to provide services. He said they needed a lawyer (or lawyers) who had both educational backgrounds and considerable practical experience in the field of rates, as well as established relationships with federal rate setting or oversight agencies. However, Mr. Penne thought his office could provide general staff support.
Ms. Tiffany questioned whether Mr. Penne could suggest ways to minimize the addition of numerous consultants. Although Mr. Penne thought there was merit in Ms. Tiffany's line of questioning, when the NDOT highway consultant was retained, his contract had specified there would be close coordination between the Washington Office and NDOT. This working relationship was carefully maintained. Ms. Tiffany asked Mr. Penne to prepare a written statement showing what services his office could provide so the committee could better respond when agencies asked for additional consultants.
Mrs. Williams asked how many Nevada representatives there actually were in Washington, D.C. Mr. Penne estimated there were between 18 and 24. Mrs. Williams then questioned how many of these people were working on the same thing. In response, Mr Penne assured her the task was to work together on matters of common interest, but there was no duplication of effort.
Chairman Arberry asked Mr. Penne to provide the committee a list of the Nevada representatives working in Washington, D.C. He noted although there appeared to be concerns among some committee members, there were at the same time, many members of the committee who were supportive of the work Mr. Penne's office was doing.
Also speaking in behalf of the Washington Office, Mimi Rodden, Caliente-Lincoln County Preservation, commended Mr. Penne and his staff on their efforts towards tourism, economic development and cultural resource management.
John Chrissinger, President of C.H. Capital, a small company dealing with the state, also commended Mr. Penne's office and staff. He cited legislation which Mr. Penne had been instrumental in developing which would greatly benefit the private sector and promote the development of a healthy environment for corporations looking to relocate or expand in Nevada. If this legislation was enacted, Mr. Chrissinger said they would have projects amounting to $63 million representing 1,200 jobs and $30 million in construction.
Michele Bergfield, Chief Executive Office of Sierra Nevada Corporation, a military defense electronics firm located in Sparks, Nevada, said in 1988 her company employed 10 people and was running in the red. Through Mr. Penne's support and appropriation assistance from Washington, D.C., the business now grossed $15 million/year, was operated in a 57,000 square feet building, had 80 employees and an in-house day care center housing 15 children.
Tom Brady, Nevada League of Cities, also commended Mr. Penne's office and staff.
COMMISSION ON ECONOMIC DEVELOPMENT - PAGE 588
Lt. Governor Sue Wagner, appeared in her capacity as Chair of the Commission on Economic Development. She submitted her prepared comments, Exhibit D, and read them into the record. She described the genesis of the Commission, introduced the Commission members present and noted members not in attendance. Lt. Governor Wagner brought attention to a new plan to update the Nevada State Plan for Economic Diversification and Development, "Focus 2000," Exhibit E, a copy of which had been distributed to committee members. (Exhibit E has not been included as an exhibit with this set of minutes but may be viewed at the Legislative Counsel Bureau Research Library.)
Lt. Governor Wagner described the goals and objectives of the new plan to:
1. Improve job opportunities and increase wages.
2. Attract diversified and sophisticated firms.
3. Protect, upgrade and expand existing industry.
4. Develop business capital capabilities.
5. Streamline governmental regulatory practices.
6. Develop a stable tax policy.
Priorities would focus on: 1) improving job opportunities and raising income for all Nevadans; 2) developing the California initiative; and 3) to emphasize the Quick Start/Job Training. In the Commission's efforts to encourage high-wage-paying companies to enter the state, incentives were to be offered such as the Quick Start Job Training Program, sales tax deferrals and business tax abatement. However, these incentives would be offered only to companies who paid higher wages and offered competitive benefit packages.
Lt. Governor Wagner then more thoroughly described the California Initiative, the Quick Start Job Training Program and the Procurement Outreach Program (POP). She told the committee POP was an aggressive program to bring federal dollars into the state and to date had assisted over 600 Nevada firms to obtain federal bids which resulted in the award of federal contracts totaling $70 million. The Nevada Motion Picture Division had attracted a great number of motion picture, television and video productions and had brought nearly $77 million into Nevada in FY 91-92.
Continuing, Lt. Governor Wagner stated the Commission would be stressing an international program relating to the North American Free Trade Agreement. As for the Governor's proposed reorganization, Lt. Governor Wagner pointed out the Reorganization Committee had recognized and given the Commission on Economic Development department status. This had placed the importance of a vital economic development program within the top realm of government activity. Since economic growth was vital to the state's survival, Lt. Governor Wagner was certain the Commission would accomplish that goal.
Mr. Dini asked Lt. Governor Wagner what the legislature could do to provide the Commission with additional tools to attract new industry to Nevada. Responding, Lt. Governor Wagner stressed the importance of enhancing the Quick Start Program. She suggested the money earmarked for that budget was not sufficient. Incentives were essential in this area and Lt. Governor Wagner said she confidently spoke for the Commission on that point. Additionally, she recommended a larger marketing budget. Clearly, she said, they were not competitive with other states in their marketing efforts.
Mr. Dini noted several things had recently come to light which were affecting economic development. One significant deterrent was the State Industrial Insurance System. Lt. Governor Wagner agreed completely. She said she had not specifically mentioned this need since they had been apprised there was pending legislation specifically designed to address that problem.
Recalling the hearing on the budget for the Nevada State Library, Mrs. Evans mentioned the Center for Science, Engineering and Technology, and asked why it was decided to place the office within the State Library rather than Economic Development. Lt. Governor Wagner replied she had been in consultation with a number of Congressional people as well as business people, and the preponderance of feeling was the Center should be included in the Commission on Economic Development. Indeed, she said she had spoken to the Governor on this very issue, but there had been no resolution yet. She was not privy to the rationale for placing it in the State Library, but she was convinced it would work very well as a part of the Commission on Economic Development. Lt. Governor Wagner opined the state needed to move ahead very rapidly in the field of Economic Development. Mrs. Evans felt it was urgent for Nevada to pick up the pace in soliciting businesses wishing to move out of the state of California. She also thought the committee should again consider the reorganization placement of the Center for Science, Engineering and Technology. She was also concerned about the proposed transfer of the Small Business and Procurement Outreach office from the Commission on Economic Development to the proposed Department of Business and Industry.
Mr. Price perceived he should possibly declare a potential bias and/or conflict. In having chaired the Commission on Economic Development at its inception, he had always maintained a certain amount of bias toward the Commission.
Echoing the concern with the placement of the Center for Science, Engineering and Technology, Ms. Tiffany asked how the state could make the fine and political distinction between bringing in new business and dealing with the Yucca Mountain issue. Lt. Governor Wagner said she thought the Commission's role was to educate the public. She believed the importance of the Nevada Test Site and the potential loss of jobs in the state was quite overwhelming. She thought the two issues could be -- and must become -- separated. She stated adamantly she had been on record since 1975 as opposed to the nuclear waste cite at Yucca Mountain. She added she had no difficulty in separating the issues in her own mind and convincing the public they were separate issues.
Continuing, Ms. Tiffany stated when the committee worked on closing the budgets she would propose the transfer of the Center for Science, Engineering and Technology from the State Library budget to the Economic Development budget. She asked Lt. Governor Wagner if she thought the Commission would be working with the same budget and staffing, and within the same parameters. Lt. Governor Wagner said it would be very easy to work within the same parameters. She said, ". . . That will be very easy to do. We have not come to this table today without having given this a great deal of thought in terms of not only this office where it should be placed, but what we could potentially do with that -- not just that `yes, we think it belongs there because it makes more sense,' but what could we then do."
Returning to a discussion on Quick Start, Mr. Humke remarked he had understood the loss of the opportunity to bring in Alaska Airlines was because the Airline had said job training incentives and Quick Start, specifically, were not adequate relative to other states. He asked if Lt. Governor Wagner had any knowledge of this. From her own knowledge, Lt. Governor Wagner recalled after Alaska Airlines maintenance center had looked at a number of states, they leveraged one state against another and ultimately, did not move at all. In an effort to discover the real reason for them not coming to Nevada, the Commission had found one of the main deterrents was the State Industrial Insurance System (SIIS). However, the whole area of job training was also in question.
Mr. Humke remarked he now thought it was important to provide Quick Start money. Lt. Governor Wagner agreed. She said it not only provided an incentive, it also developed a Nevada labor force.
Regarding the California Initiative, Mr. Humke asked what else the state could do to bring some of those businesses into Nevada. Lt. Governor Wagner referred the question to Tim Carlson, Executive Director of the Commission on Economic Development, who had recently visited California along with representatives of other economic development groups from Nevada.
Mrs. Williams asked if the FY 1993 performance indicators for the Motion Picture Division remained accurate; whether they should be increased; and how the loss of a position would affect the Commission's ability to bring in more money in this area. Lt. Governor Wagner could not answer completely and referred the question to other staff members. Regarding the loss of the position, Mr. Carlson said losing the position would absolutely have a detrimental effect on the Commission's ability to promote this aspect. He agreed to obtain data for Mrs. Williams which would suggest to what extent the function would be affected. There was general agreement the motion picture/advertising/video industry was extremely important to the state.
Reflecting on testimony from Lt. Governor Wagner regarding per capita income in Nevada going from fifth place to fifteenth place, Mr. Heller asked what programs were in place to encourage businesses to pay good wages. Lt. Governor Wagner replied the opportunities available to encourage high wages were incentives. There was little the state could do to stop a company from offering substandard wages -- except to offer incentives. Responding to Mr. Heller's question as to what that wage level was, Lt. Governor said she had been under some scrutiny because she had not been totally enthusiastic about welcoming certain companies into the state because they did not meet certain guidelines. She thought it was important to bring forward the kinds of companies offering a decent wage and benefit package. She did not think it was appropriate to feel content with bringing in numerous companies, filling vast areas of floor space and ultimately offering only $4.50/hour. This, she stated, was not her idea of economic development.
Cecilia Colling, Deputy Director for the Commission on Economic Development, came forward to explain to committee members there were two incentive programs in which a wage determination was involved. One was the Quick Start Job Training Program. In order to qualify for this program a company was required to offer 70 percent of the average statewide industrial wage; and to have a certain number of employees who would be trained in certain areas. Thus, the training dollars were directed to training people. Mr. Heller asked what 70 percent of the industrial wage was. Ms. Colling answered this was approximately $7.68. The other program was a Business Tax Abatement Program which required 100 percent of the statewide industrial wage for qualification. Mr. Heller questioned whether the average figures included management. Ms. Colling acknowledged if management wages were included, the figures would be skewed, however, she said when the incentive was considered, this was taken into account.
Mr. Heller asked if there were businesses the Commission on Economic Development actually discouraged from locating in Nevada. Both Lt. Governor Wagner and Ms. Colling assured the committee it was not the Commissions' business to discourage anyone from coming to Nevada; but neither would they be encouraged, nor would a business offering substandard wages meet the guidelines for incentives. Mr. Heller suggested perhaps it would be possible to track the predominant wages of industries locating in Nevada with performance indicators.
Ms. Giunchigliani commented the offering of benefits should also be taken into account when tracking wages. She also suggested the Employment Security Department be asked to break out the average wage differently in order to avoid commingling management and non-management wages.
Noting the proposed reorganizational move of the Procurement Outreach Program (POP) and Small Business to the Department of Business and Industry, Ms. Giunchigliani asked what affect this would have on Economic Development programs. Mr. Carlson said there was a recommendation from the Commission on Government Reorganization to make the move, but this had been reevaluated and with more current information it would be addressed at the appropriate time during the hearing on those budgets. Ms. Giunchigliani noted the fracturing of entities which she thought rightfully belonged in Economic Development. She did not think the Commission on Tourism should be separated from Economic Development. She then asked Mr. Thorne why this had been done. Mr. Thorne said it had appeared to be a good fit to move the Small Business program into Business and Industry Department, and specifically into the Industry Development Division. He acknowledged there had been changes in funding sources and there was further scrutiny going on in this area.
Responding to Ms. Giunchigliani's question regarding the combination of the Commission on Tourism and the Commission on Economic Development, Lt. Governor said it seemed appropriate to look at the potential. Because of time constraints during the summer, a meeting between Mr. Reichardt Vice Chairman of the Commission on Tourism and the Tourism subcommittee had not occurred; thus, no recommendation to combine the two Commissions had been made. However, she said she intended to call a meeting of both Commissions to discuss the issue. Although she thought the discussion should take place at the Commission level, she did not see it as appropriate for discussion during this legislative session.
Moving to a question of tax policy and a stable tax base, Ms. Giunchigliani asked if tax abatements did not add to instability. Lt. Governor Wagner opined it did not.
COMMISSION ON ECONOMIC DEVELOPMENT - PAGE 602
Tim Carlson, Executive Director of the Commission on Economic Development, remarked budget account 1526 was entirely a General Fund budget. Speaking to the subject of the budget reduction, Mr. Carlson reminded the committee the FY 92 reductions were determined mid-year and six months later the Commission was asked to provide steeper cuts for FY 93. Although the cuts were to include a percentage of the general funds appropriation for all four of the Commission's budgets, all the FY 92 cuts were taken from budget account 1526. Different priorities were needed for the FY 93 cuts; thus, the cuts were spread over three budgets. The second round of cuts eliminated the foreign offices in Taiwan and Japan, the Quick Start Job Training funds and one staff position. The second set of cuts had restored the advertising funds, the California Initiative and travel. Most of the changed priorities were reflected in the Governor's recommended enhancements for FY 1994 and FY 1995. Two and a half positions were cut, one senior associate international, one account clerk and one half senior associate rural. The advertising category reflected FY 92 actual expenditures but did not reflect the changed priorities.
Continuing, Mr. Carlson said the Rural Nevada programs represented an EDA grant which had expired; however, there was a possibility of receiving a second year award for FY 93 which might carry forward into FY 94. Also, a verbal commitment of $100,000 had been received. The Matching Grant, Special Category had been slightly reduced; the Taiwan office had been eliminated; and Quick Start Job Training had been recommended at the FY 92 actual level of $40,558. The Governor had recommended restoring Quick Start funding to $150,000 in the enhancement section. Also, funding for the International Trade Office in Japan was eliminated; and the Economic Plan Update funding had been deleted because the plan was completed. The California Initiative base funding was at the FY 92 actual of $21,573. The Governor had recommended the full funding at $50,000 as an enhancement.
Mr. Carlson said the Governor had recommended enhancements in out-of-state travel, in-state travel and operating expenses, to reflect the changed priorities of the Commission. In addition there were moderate maintenance increases for fringe benefits included.
Chairman Arberry questioned the out-of-state travel expenses. On page 588 there was an amount of $11,096 and part of this was included for $2,642 for "other travelers." Ms. Colling explained the "other travelers" included in the budget could include advisory board members, Commission members, the Lt. Governor and the Governor. This would be for such things as a trade mission into California. Chairman Arberry asked Ms. Colling to provide the committee with a list of the trips and the people who went on the trips. Ms. Colling agreed to provide the list.
Speaking to the advertising category and two of the performance indicators, Mr. Spitler noted the advertising reduction of $50,000 and wondered if ultimately more revenue would be lost than what was represented by the $50,000 reduction. Mr. Carlson agreed this was what the indicators predicted. Mr. Spitler opined if the advertising budget presented a potential of raising money for the state, other areas of the budget should more appropriately be targeted for reduction.
Ms. Giunchigliani asked what percentage of the Development Authorities' budgets was represented by state funding. Mr. Carlson replied each of the 12 Development Authorities was different. Ms. Giunchigliani asked Mr. Carlson to provide that information. She also asked what requirement there was to continue receiving state funding, whether the Development Authority had to report to the Commission on what types of locations were represented and what companies had come in. Mr. Carlson said there was an extensive reporting system and they would provide her with information regarding this issue, but they also did an on-site evaluation of each of the authorities to determine what they accomplished. Regarding the performance indicator of new sales tax deferrals, Ms. Giunchigliani noted there was an issue raised in 1992 regarding a hotel which had requested a tax deferral. She asked what the status was. Ms. Colling said this $10,758,310 had been deferred in FY 1992. Ms. Giunchigliani said she would like to see a copy of the criteria utilized for determining tax referrals and standards for a new company coming into Nevada. Ms. Colling pointed out page 3 of the Focus 2000 booklet (Exhibit E), stated the overall objectives of the Commission on Economic Development. When the sales tax deferral was granted for the hotel in question, the guidelines had not been developed. Ms. Giunchigliani then asked if objectives had been created which would justify the previous deferral or whether it was based on more appropriate objectives such as truly new job development. Ms. Colling reiterated through meetings and discussions regarding the need to diversify tourism, more emphasis was placed on diversification of industry. A business would first be evaluated on a case-by-case basis and if it qualified for the sales tax deferral program, this could be in effect for a maximum of five years.
Speaking to the Rural Nevada programs, Mr. Dini noted a bill in the process which would provide some $40,000 each year for rural programs. How did this affect the $1 million federal grant? Ms. Colling explained the EDA grant had subsidized the Rural Nevada Development Corporation and for each year of the grant they were able to negotiate a contract for $40,000 to provide the operating and state match. The EDA grant only continued for two years. Once a $100,000 commitment for FY 1993 was received from EDA, another contract would be negotiated which would go into the first quarter of FY 1994. After that first quarter there would no longer be grant funds available for the Rural Nevada Development Corporation. The Commissions' request for an enhancement had not been recommended by the Governor.
Chairman Arberry questioned Mr. Thorne on the Governor's proposal to move Small Business and the Procurement Outreach Program into the new Department of Business and Industry. He asked whether the eight positions would be relocated from the Commission's office? If so, would the Commission's budget be required to absorb the rent cost? Mr. Thorne said he could not answer the question, but would get back to Mr. Arberry with the answer.
Questioning the funds to the special impact areas being reduced from $31,250 to $25,000 for a matching grant, Chairman Arberry asked why this had been reduced. Ms. Colling told him in 1991 a contract of $25,000 had been negotiated with the Small Business Development Center. They had hoped to negotiate another small contract with the City of North Las Vegas using the remaining funbds, but after the budget cuts were unable to negotiate the contract.
Mr. Price pointed out there was a pending bill draft in the Assembly Committee on Taxation which would require a company to first submit a sales tax deferral proposal to the Commission for approval and then it would go to the Tax Commission for approval. This would result in scrutiny from two responsible groups.
Mr. Dini asked if the elimination of the foreign offices had hurt Nevada in any way. In response, Mr. Carlson said it was perhaps too early to tell. Because of its earlier presence, the Commission was still working with certain Japanese companies. Mr. Dini expressed concern regarding the closure; however, Mr. Carlson thought Mr. Dini would be very pleased with the new shape of the Commission's International Division. Although only a one-man office at the time, the individual was very experienced, and expanding into the Canadian and Mexican markets offered great promise.
Mr. Marvel questioned whether the Commission on Economic Development would agree to allow funding of tourism and recreation in the rural communities. Mr. Carlson agreed this could be considered. Mr. Marvel then asked Chairman Arberry if the committee could initiate a bill draft to address the rural funding.
MOTION PICTURES - PAGE 593
Mr. Carlson explained the Motion Picture budget, Budget Account No. 1527, was 75 percent funded by room tax dollars and 25 percent from the general fund. The base budget reflected the actual expenditures of FY 92 and the loss of a Management Assistant II position. Maintenance funds were included to provide for more contract support, operating expenses and travel to cover the increase in work load and to cover the loss of the position. He said the Governor had recommended an enhancement to replace an old computer and the purchase of a cellular phone. The phone would aid the northern staff to cover the service area while in the field.
Mr. Carlson went on to point out the committee had received a directory of motion picture activity in the state (attached as Exhibit F). Bob Hirsch, Director of the Division of Motion Pictures, then came forward to testify. He indicated the Motion Picture Division had operated under a system of performance indicators the past two fiscal years, and went on to describe the results.
Mr. Hirsch stressed the need for additional personnel. He said the Motion Picture Division had succeeded in earning the trust of the industry by providing honest and reliable service; however, other states were becoming more and more competitive. The proposed budget, he pointed out, was a maintenance budget allowing nothing for growth. The staff of three professionals was working at full capacity; a full-time secretarial position was lost in the Southern Nevada office; the Northern office was staffed by one professional and a half-time secretary. Although the Deputy Director had been responsible for bringing increased production to the Reno/Tahoe/ Carson area, one person was not adequate to cover the whole state. Mr. Hirsch indicated one possible solution was the use of highly trained contractors, but he felt the recommended level of funding for contractor services was unacceptably low.
Mr. Hirsch described the film projects being presently scheduled and said of the 100 top movie money earners, 8 had been made in Nevada.
Chairman Arberry asked Mr. Hirsch what he would do if he had more money. In response, Mr. Hirsch opined what was probably most needed was to establish not just a location state, which the Division had succeeded in doing, but to establish a permanent base for the industry, production facilities within Nevada and a permanent and regular work force. This goal would take time and patience. Chairman Arberry asked just how much money this would take. Mr. Hirsch responded he would need time to consider this before answering and agreed to get something to the committee in writing.
Continuing the line of questioning, Chairman Arberry asked Mr. Hirsch what kind of impact the MGM Theme Park would have for the Motion Picture Division once it came on line. In response, Mr. Hirsch acknowledged it was a motion picture-driven theme park which, of course, benefitted the Motion Picture Division. When the MGM Film Co. was sold there was no longer an interest in a permanent production facility, but as it presently stood it would certainly stimulate continued interest in Nevada as a filming location.
Considering the loss of a position, Mrs. Williams wondered if the performance indicators for FY 94/95 remained accurate. Mr. Hirsch thought they were accurate if his office continued working as they presently were. She also asked what kind of impact the loss of the position would have on the Division's ability to provide services. Mr. Hirsch stated service and trust was what they really operated on. Being unable to respond properly to requests and projects generated a negative word-of-mouth reputation.
Sally Lear and Tim Wilson, representing a group called Film Makers Association of Northern Nevada (FMANN), indicated Nevada had received some $256 for each dollar spent in bringing in and developing film projects. Beyond that the promotional value of film projects beamed around the world was invaluable to the state and produced incalculable dividends. Mr. Wilson noted a trend towards western and outdoor films and thought the time was right to pursue those projects. At times, however, Mr. Wilson said, so many projects had been attracted, it was often difficult to find contractor money to send him and/or another location contractor out to convince the producing entity they should bring their business to Nevada.
RURAL COMMUNITY DEVELOPMENT - PAGE 598
Budget account 1528, Rural Community Development, Mr. Carlson reported, was funded 2 percent by the general fund and 98 percent through federal Housing and Urban Development (HUD) funds. He said the base budget reflected the actual general fund expenditures for FY 92 and the estimate of the federal allocation for each year of the biennium. He also thought it was possible for the funds to be enhanced by the President's new stimulus package. If additional funds became available, he said they would take the matter to the Interim Finance Committee. He reviewed the maintenance budget which covered fringe benefit increases and an enhancement request for $160,387, which was actually a "carry forward" to cover the gap in the revolving loan fund.
SMALL BUSINESS - PAGE 508
Budget account 4867, Small Business and Procurement Outreach, Mr. Carlson said was funded from U.S. Department of Defense funds, a transfer from the Office of Community Service Energy Conservation Program and the general fund. Programs in this budget were expected to be relocated to the Department of Business and Industry under the reorganization plan. The base budget reflected actual expenditures for FY 92; maintenance reflected an increase in the hours of the two part-time employees in the procurement program from 20 hours a week to 30 hours a week to cover an increase in the work load as well as an increase for in-state travel and operating and an increase in fringe benefits. Mr. Carlson explained, due to a change in the federal Low Income Housing Energy Assistance funding, transfers from Welfare for any purpose were prohibited. A new funding source was needed for the Small Business Program and certain funds through the Department of Energy had been identified as appropriate for this program. However, the entire $186,160 could not be raised and the budget was cut back to $101,705 for FY 94 and $97,353 for FY 95. A staff position and a contract with the Nevada State Development Corporation for State Business Administration (SBA) loan packaging had been cut.
Chairman Arberry remarked in the revised budget the Governor recommended $20,774 for FY 94 and $15,774 in FY 95 for Small Business Operating Funds. He asked Mr. Carlson to comment on the specific cuts which would be necessary to meet this reduction. The Business Manager for the Commission on Economic Development, Clara Fitz, responded the reduction constituted the cut of the contract for the loan packaging program. The total amount of the contract was $40,000 per year. Coming forward to explain more fully, Ms. Colling said there were two basic cuts. The budget for the Small Business Program, she said, was very tight so they had to consider one mid-management position. The contract which provided the finance loan packaging was $40,000. Thus, there was a total reduction of approximately $80,000.
Ultimately, Chairman Arberry said, he would like to know what impact the reduction would have to Small Business clients. Ms. Colling said the cuts would take place in July and for FY 1993 they still had funds through the Low Income Housing Energy Assistance program. However, due to a change in federal regulations, those funds would not be available after July 1, 1993. Ms. Colling agreed there would probably be some cuts after July, but she could not predict how the program would be affected. She anticipated the Las Vegas office with its staff of three would probably have to cut back by 25 percent the number of people they could advise. As for the loan packaging, Ms. Colling said she believed they would still be able to refer them to the contractor even though the Small Business budget would not be subsidizing the contract.
Mrs. Williams asked if the reorganization and the relocation of the office would have any affect on federal funding. Mr. Carlson said they were investigating this presently. They were trying to determine whether the required matching funds could be found in its new location. Presently, he thought they were approximately $50,000 short as far as matching amount was concerned. If the $50,000 was not found, they would be unable to meet the match and they would then have to decide about the location of the program. Mrs. Williams wondered when they would know whether they would be able to meet the required match. Ms. Fitz said they had requested additional information from the budget office as to what the various functions of the new agency would. Once they had this information they could determine what the relationship would be to the Procurement Outreach Program; and they would be better able to determine how much additional indirect costs would be attributable to the program. Presently, however, they did not have the total package.
Mrs. Williams then inquired whether the budget office had any information. Ron Sparks, State Budget Office, replied the agency had been provided information in order to make a determination on the indirect cost rate. The proposal would be made in April 1993 to the federal government to find out if they would accept the proposed cost rate. Mrs. Williams stressed she was asking about how the proposed reorganizational move would affect federal funding, and whether the federal government would allow it in the agency's new location. Mr. Sparks assured her the federal government would allow this. The agency could receive the funds into any department and they would be proposing to allow the funds to come into the new Department of Business and Industry Department. As far as the amount they would qualify to receive in indirect cost match, this was still an undetermined amount. Mrs. Williams again asked if the office location had an impact on what the indirect costs could be. Mr. Sparks indicated it could, but the budget office did not intend for it to affect the indirect cost rate. However, this was being worked on and when the additional information was provided to the agency, they would be able to provide a more in-depth analysis. Responding to Mrs. Williams insistence, Mr. Sparks said it was their intention to get the information to the agency during this week. He agreed there was a difference of approximately $50,000 from what they were receiving in the past. Ultimately, Mrs. Williams said she wanted to know if they would have the information in sufficient time to close the budget. Mr. Sparks said they would. As to when, Mr. Sparks said they would get the information to the agency during the week and he predicted they would easily know within a week. As for the federal government, Mr. Sparks said they could not provide that information because the federal government would not respond to their inquiry until the proposal was placed before them. Mrs. Williams asked if the problem would exist if Small Business was not moved. Mr. Sparks said no, there would not be the problem.
Reiterating, Chairman Arberry ascertained the "when" was "in a week." Mr. Sparks agreed; he added they would know exactly where they stood as far as the $50,000 gap; and said they would convey this information to the Ways and Means Committee as soon as they knew.
Mr. Perkins also expressed concern with the cuts in the Small Business program; and Ms. Colling said there would be one less person to provide advice and counsel to business. Mr. Perkins suggested new performance indicators should be prepared to better reflect the cuts anticipated.
COMMISSION ON TOURISM - PAGE 602
Lt. Governor Sue Wagner again came forward to discuss the budget for the Commission on Tourism. She provided an overview and update of the activities of the Commission. It was noted in 1983 Nevada's cities were driving the market and promotion of the state -- there was no organization tapped into the extraordinary recreational resources of rural Nevada, nor was there a composite view of the state. In addition there was no advocate for the historic and scenic attractions in Nevada; and no tourism policy board to masterplan Nevada's tourism future assuring competitiveness for Nevada throughout the world. She pointed out the Nevada Commission on Tourism was created 10 years ago to fulfill these functions and more.
Lt. Governor Wagner submitted Exhibit G, a copy of her prepared remarks, and Exhibit H, a tourism promotional packet. She introduced the members of the Commission and described the extensive functions and goals of the Commission. (Exhibit H is not included herewith but may be viewed in the Legislative Counsel Bureau Research Library.)
Lt. Governor Wagner spoke to competition and what the agency and the legislature could do to assure Nevada's leadership position as the number one worldwide gaming and recreational tourism destination. In order to ensure the leadership position remained, Lt. Governor Wagner stated it was necessary to shore up the foundation supporting growth. She pointed out continued attention was necessary in the advertising and promotion programs, a strong educational agenda was needed and the preservation and expansion of a sound tourism policy was essential. Without attention to these things, Lt. Governor Wagner said, it could not be assumed the existing foundation would adequately support Nevada's move into new global and family markets.
Lt. Governor went on to say, ". . . One area of concern to the commission is the transfer of special revenue funds generated from room sales, and earmarked for support of commission marketing programs, to general fund agencies. These transfers have occurred without the benefit of accountability by the recipient agencies to the commission; without notice of the duration of the transfer; and without a provision that reduces the amount of the transfer in the event room sale revenues do not meet budgetary expectations. . . .". Lt. Governor Wagner told the committee she had drafted a letter spelling out the problems inherent to a policy of continued fund transfer which was to be sent to each committee member within the next few days. She invited discussion to reach a resolution to what the commission considered a very serious problem.
Thomas Tait, Executive Director of the Commission on Tourism, came forward to explain the budget. He explained the Commission was funded entirely by room tax revenue generated from the 32,250,000 visitors expected in 1993 which would generate approximately $5,165,000. In 1994, 33.5 million visitors with a 5 percent increase would generate a potential operating budget of approximately $5,486,000. Mr. Tait asked Jim King, Vice President of Finance of R & R Advertising to aid him in discussing the enhancement budget.
Mr. King said they had suggested a program in 1992 which would hopefully increase visitation to Nevada as well as increasing intra-state travel. This program would include the various private sector destinations and other tourism entities and would present a plan to develop a book of place coupons advertising state attractions. Mr. King said the Commission would produce the book and distribute it not only to the people responding to advertising every year as well as those within Nevada responding to advertising for the program. Mr. King described the proposed book.
Ms. Giunchigliani asked if a Request for Proposal (RFP) was let for the selection of the R & R advertising agency. Mr. Tait said there was currently an RFP let for 1994/95. Ms. Giunchigliani noted in the performance indicators there was no way to measure what impact the ad campaign would have. She suggested there was a need to somehow separate and determine the impact of the ad campaign. She asked Mr. Tait to provide a copy of the Request for Proposal for the advertising agency. Mr. Tait agreed to provide a copy of the RFP.
Since the Committee ran out of time, Chairman Arberry stated the committee would have to finish the budget for the Commission on Tourism and hear the budget for Nevada Magazine at 7:30 a.m. on Friday, March 19, 1993.
There being no further business, the meeting was adjourned at 11:00 a.m.
RESPECTFULLY SUBMITTED:
Iris Bellinger
Committee Secretary
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Assembly Committee on Ways and Means
March 16, 1993
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