MINUTES OF THE JOINT MEETING OF

      SENATE COMMITTEE ON FINANCE

      AND

      ASSEMBLY COMMITTEE ON WAYS AND MEANS

 

      Sixty-seventh Session

      January 25, 1993

 

 

 

The joint meeting of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman William J. Raggio, at 8:15 a.m., on Monday, January 25,  1993, in Room 119 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda.  Exhibit B is the Attendance Roster.

 

 

SENATE COMMITTEE MEMBERS PRESENT:

 

Senator William J. Raggio, Chairman

Senator Lawrence E. Jacobsen

Senator Bob Coffin

Senator Diana M. Glomb

Senator William R. O'Donnell

Senator Matthew Q. Callister

 

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 ABSENT:

 

Senator Raymond D. Rawson, Vice Chairman (Excused)

 

STAFF MEMBERS PRESENT:

 

Dan Miles, Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Mark Stevens, Fiscal Analyst

Gary Ghiggeri, Principal Deputy Fiscal Analyst

Dale Gray, Committee Secretary (Assembly)

Marion Entrekin, Committee Secretary (Senate)

 

 

OTHERS PRESENT:

 

Ted Zuend, Deputy Fiscal Analyst, Legislative Counsel Bureau

 

 

 

Senator Raggio opened the meeting by indicating the chair and co-chairman desire to have all joint meetings started in a timely manner.  He reminded all committee members to adhere to their request and arrive for meetings on time.

 

Senator Raggio noted there was an absence of a quorum on the senate side, but the meeting would proceed as scheduled. In the event of a vote, they would have to wait for a quorum. 

 

Senator O'Donnell arrived at 8:20 a.m. and Senator Raggio indicated a quorum was now present for the senate.

 

Dan Miles, [Senate] Fiscal Analyst, Legislative Counsel Bureau, introduced his counterpart, Mark Stevens, Fiscal Analyst, for the assembly, Ted Zuend, Deputy Fiscal Analyst, and Gary Ghiggeri, Principal Deputy Fiscal Analyst.  A briefing on revenue projections for the coming biennium will be provided today by this group who are responsible for the compilation of revenue estimates for the Legislative Counsel Bureau.  He explained their estimates are separate from those reflected in the Governor's Executive Budget compiled by the Department of Administration.

 

Ted Zuend, Fiscal Analyst, Legislative Counsel Bureau, began the presentation by reviewing activities of the last biennium, focusing on the 1991 session, what actually occurred, and some of the reasons things went wrong.  Mr. Zuend read from prepared text, Exhibit C, "What Went Wrong."  He then referred the committee to the charts contained in Exhibit D from which he continued his presentation.

 

Ms. Giunchigliani referred to page 6 of Exhibit D and asked why gaming revenue was reflected as an economic indicator for Nevada rather than sales tax revenue as in California. She pointed out since the state fell short in sales tax revenue, it would be helpful to have statistics available for review.  Mr. Zuend said an independent firm in Arizona helped prepare the statistics and felt gaming revenue was a better indicator for Nevada.  He said their office does receive a few selected taxable sales forecasts but  nothing conclusive is available at this time.

 

Senator O'Donnell stated he had gathered from Mr. Zuend's testimony that the information provided was passive information whereby the committee is looking for a credible forecasting mechanism that can be used in the future.  He referred to the Nevada economic indicators reflected on page 6 of Exhibit D and said he is not sure a future prediction can be made using this data.

 

In response to Senator O'Donnell's inquiry, Mr. Zuend said the Legislative Counsel Bureau did not have a contract with anyone to provide economic data in 1991.  However, during the previous session, a contract was approved between the Budget Division and the Legislative Counsel Bureau to hire an outside contractor to help provide the data base to arrive at a more dynamic approach to revenue estimates.  Mr. Zuend said a second handout of charts, Exhibit E, that will be covered at this meeting at a later time, will reflect information that will track how the revenue estimates prepared by the Fiscal Analysis Division compare to those produced by the outside contractor. 

 

Mr. Arberry commented there is a mass movement of people and businesses moving out of California and asked what this movement will mean to Nevada.

 

Mr. Zuend said California has always had a large impact on Nevada,  especially in the gaming area.  However, gaming revenue may take a downward trend since it appears there are more people moving out rather than into California.

 

Mrs. Williams asked if there are any demographic studies that would indicate, by age group, the number of people moving into Nevada.  She is particularly interested in knowing the percentage of people who are retired and have moved to this state.  Mr. Zuend believes the state does maintain statistics along these lines, but he is uncertain regarding the accuracy of the projections.

 

Mrs. Williams wished to state for the record:

 

      My concern is that we do consider this because as we project on a 2-year cycle with the budget, we have to consider the possible impact this will have on the budget and the money that we need to spend to make sure services are adequate.

 

Mr. Zuend pointed out the late l980s were an exceptional period for Nevada because population growth was progressing at a very fast pace of about 7 to 8 percent.  According to the [United States] Bureau of the Census and statistics from the state's demographer, at the present time this growth is probably at a 3.5 percent growth-rate.  Mr. Zuend feels the present growth-rate would more likely encompass more senior citizen growth whereas a higher percentage growth-rate implies an expanding job market and individuals coming to the state from a more depressed area. 

 

Mrs. Williams stressed she is concerned this be considered in terms of the impact that population growth may have on the state budget.

 

Mr. Marvel asked if a study had been done on the degree the cutback of defense spending impacted on the economy of California.  Mr. Zuend said there has been a study published by the California Commission on State Finance, which concluded this cutback had a very important impact on their economy.  However, all of California's economic problems are not due to that factor.

 

Mr. Heller expressed his concern about using the early 1991 economic forecasts reflected in Exhibit D for future planning since the numbers are not reliable.  Mr. Zuend agreed, but reiterated the state has now hired an outside consultant to assist them with economic forecasts, and has a contract with a national forecasting group to assist along these lines.  Additionally, his office is now charting revenues on an ongoing basis in more detail than ever done in the past.

 

Senator Raggio remarked:

 

      I believe it should be recognized these committees have the capability of either accepting in full or in part the projections either in the Governor's Executive Budget or from our own fiscal staff and also relying upon our own economic indicators.  In my experience a gut feeling is sometimes better than some of these economic projections.

 

Senator O'Donnell asked if national economic forecasts are used in compiling statistics for Nevada.  He felt that tracking Nevada numbers alone will not provide reliable data for future planning purposes.  Mr. Zuend assured him that national numbers are tracked,

and agreed Nevada is dependent totally on the national economy as well as the California economy.

 

Mr. Dini inquired regarding the proliferation of Indian gaming and the effect it will have on Nevada gaming.  He also expressed his interest in the median age of individuals who have migrated to Nevada since spending levels would vary according to the age group.

 

Mr. Zuend said the Fiscal Analysis Division is trying to follow information regarding Indian gaming.  There is presently no way for them to incorporate the information into a formula at this point.  It is Mr. Zuend's understanding that legislation will be forthcoming to place a moratorium on Indian gaming, but until this is imposed, there is no way to judge the impact on Nevada.

 

In response to the second part of Mr. Dini's question, Mr. Zuend explained that the model the outside consultant (Foremetrics, Inc.) is producing for the state not only tracks population growth but also tracks employment growth. 

 

Senator Raggio commented that any economic study group looking at projecting gaming revenue would be deficient if it failed to look at the proliferation of gaming, including Indian gaming.  He also feels the same would be true of any study group on economic revenue projection which is not building some factor into the age group of movement into the state. 

 

Ms. Giunchigliani asked if the wage-base and personal income are different or refer to the same thing, and Mr. Zuend replied that personal income is essentially the sum total of income by individuals, the lion's share of which is probably wages and salaries.

 

Ms. Giunchigliani commented:

 

      When you are talking about growth, if the number of jobs that either are coming here or going someplace else are your standard minimum wage jobs, that is going to have a different effect....If you look back at California,  your personal income and your taxable sales are very closely aligned.  Are there any studies that show for growth purposes the wage-base that may need to be there in order to begin to drive the economy that we can take a look at?

 

Mr. Zuend answered in the negative.  However, he said they receive statistics from the Employment Security Department as fast as they can produce them that track the wages and salaries.  He said there is a 6-month lag in receipt of information by the Employment Security Department since they must depend upon employer input to the system. 

 

Ms. Giunchigliani asked:

 

      Do you recall...the dollar figure because as we were saying growth does not necessarily pay for itself and it is very difficult to explain to people why, when a family moves to Nevada, what they actually have generated in revenue versus what they actually were using in service.  Do you remember those numbers at this point?

 

Mr. Zuend said he did not have the numbers at hand, but there were studies that looked at that and the numbers were widely divergent, $600 to $3,600 for the cost of services to the actual taxes paid in the first year or two by a new resident.  It then began to reverse itself in about the third year as individuals became established in the state.       

 

Mrs. Evans, referring to the question of the business tax, said when that measure was passed there was an amendment for an abatement which provided money for capital investment, wages, number of employees, etc.  She asked if anyone had applied for this. 

 

Mr. Miles responded there had been two applications under the business tax abatement regulations.  One had been withdrawn and the second was certified to receive an abatement, but later withdrew on the advice of the Commission on Economic Development.

 

Mrs. Evans commented she has a bill coming on this issue to make some adjustments.  She said when the committees meet with the Commission on Economic Development wages should become an important criteria for review.

 

Mr. Miles resumed coverage of Exhibit D referring the committee to page 8.

 

In response to a question by Mr. Arberry concerning revenue from cigarette taxes, Mr. Miles pointed out that revenue from this source is projected to decrease due to health factors, the increase in the tax, and the impact of Indian smoke shops throughout the state.

 

Mr. Humke said he noted a disparity in the category Fees and Fines and asked for an explanation concerning this.

 

Mr. Miles stated there was a switch in the categories Insurance

Licenses from Fees and Fines to Licenses only, which is the appropriate category.  He stated in the original projection the revenue was listed under Fees and Fines because at that time it was a combined revenue source, but it is now under Licenses only.

 

Mrs. Williams, referring to the category Insurance Premium on page 8 of Exhibit D, noted an increase in this area.  She asked if this was the result of collecting money that had previously been uncollected, and if the increase projected is the result of placing full legitimate fines on individuals who have not been paying in a timely fashion.

 

Mark Stevens, Fiscal Analyst, Legislative Counsel Bureau, said in fiscal year 1992 there was a $1.7 million collection from prior year tax that was unanticipated in their projections from the previous session.  He said he would have to check with the insurance division regarding fines.  He is uncertain at this time if fines are being aggressively imposed.  Mr. Stevens further stated the collection of fines is included in the Fees and Fines category of revenues and not in the Insurance Premium Tax portion of revenues.

 

Mrs. Evans asked what the outcome would be if there was a change in the way cigarettes are taxed to the way other tobacco products are taxed. 

 

Mr. Zuend responded this clearly would be a benefit to the state in terms of revenue because the state currently taxes a percentage of other tobacco products based on the wholesale price. Each time the wholesaler increases his price, the tax imposed by the state also increases.  He said there seems to be a good deal of inflation in cigarette costs and the price keeps going up even though consumption is going down.  Therefore, as Mrs. Evans suggested it would be a much more productive source of revenue to the state if the legislature opted to change the way cigarettes are presently taxed.

 

Mr. Miles continued with his presentation of Exhibit D, page 9.

 

Senator Raggio asked why the figures from the controller's office differ so greatly from revenue as projected by the Legislative Counsel Bureau.  He pointed out that he detected almost a negative in the anticipated General Fund balance.

 

Mr. Miles responded one must be cautious in reading the controller report because it is prepared in two different ways.  One is a normal accounting method but there also are other schedules within the document which purport to bring the accounted version into compliance with a budgetary version.  He said these schedules are what have to be looked at for a correct interpretation.

 

Mr. Marvel referred to page 9 of Exhibit D to the category "DSA Supplemental (agency estimate)" and asked if it reflected $50 million in the hole or is this an agency estimate.

 

Mr. Miles said that is the estimate of the Fiscal Analysis Division based on their Local School Support Tax (LSST) projection for this year.  He stated when the Governor released his original reduction plan last summer, a $79 million shortfall was projected because the Fiscal Analysis Division had anticipated a more pessimistic sales tax projection at that time. 

 

Mr. Heller concurred with Senator Raggio regarding the differences in figures projected by the controller's office. He suggested it might be a good idea to bring someone in from that office to review with the [joint] committees how they arrive at their figures.

 

Mr. Miles referred the committee to the charts in Exhibit E which contains revenue projections for the last half of 1993 and the next biennium.  He said material for the preparation of this handout had been gathered over a several month period from a number of resources and publications that provide economic data.  He stated much of this information involved California since that state is the biggest link to the Nevada economy. 

 

Mr. Miles also commented that since last session, the Legislative Counsel Bureau now subscribes to a publication from the Wharton Economic Forecast Associates (WEFA) which is one of two major national economic forecasting firms. To keep the cost down, this publication is shared with the Budget Division. The Legislative Counsel Bureau also contracted, along with the Budget Division, with a California consulting firm known as Foremetrics, Inc., which has developed a computer economic forecasting model.

 

Additionally, Mr. Miles said extensive study went into the relationship between construction of three major mega-resorts (MGM Grand Hotel and Theme Park, Luxor, and Treasure Island Water Park) being built in the Las Vegas area with taxable sales.

 

Mr. Zuend covered pages 1 to 5 of Exhibit E during which time general questions ensued from various members of the committee concerning the economic projections.  Mr. Zuend pointed out that the "California Economic Indicators" reflected on page 2 would tend to project a pessimistic outlook for California forecasts.

 

Senator Callister referred to page 4 of Exhibit E, "Nevada Taxable Sales and Gaming Win Growth Rates," and noted for fiscal year 1990- 1991 the taxable sales percentage was 1.3 percent and for fiscal year 1991-1992 the percentage was 0.5.  He then noticed a jump to the next projection for fiscal year 1992-1993 where the taxable sales percentage was shown as 7.7.  He asked if this is due to the data contained on page 5 of Exhibit E for the 6-month period June through November that suggests an optimistic projection in taxable sales.

 

Mr. Zuend said Mr. Stevens will discuss this in more detail later in the meeting.  However, he stated they have data for a 6-to 12- month period of actual collections from which they based the projections.

 

Mr. Perkins referred to page 2 of Exhibit E and noted data for the "California Commission on State Finance" (CCOSF) appears to be fairly pessimistic for California.  He asked how that would impact upon Nevada revenue and taxable sales.

 

Mr. Zuend responded the forecasts in and of themselves do not bode that well for Nevada prospects to really improve to the rates experienced back in the early 1980s.  However, he stated the outside consultant (Foremetrics, Inc.) has considered this information in his modeling and this still shows Nevada is picking up, particularly in taxable sales.

 

Mr. Perkins then asked if the Fiscal Analysis Division considers some of the figures to be accurate or on the conservative side.  Mr. Zuend said he believes the California forecasts are on the pessimistic side.

 

Mr. Stevens continued coverage of Exhibit E, page 6.

 

Senator Coffin noted the stock market seems to be bidding-up the price of gaming stock which he believes is based on increased future earnings estimations that are greater than what has been projected in Exhibit E.  He asked if there have been any studies made of this.

 

Mr. Zuend responded in the negative but said with the expansion of gaming outside of Nevada, there is reason to believe there is market potential as long as the [United States] Congress continues to maintain a "hands off" approach in this area and the big corporations continue to invest in various forms of gaming arising in other states.  He believes presently there is optimism about the near-term future of gaming, which may be a reason for the increase in gaming stock at this time.

 

Ms. Giunchigliani asked if there is any way to separate from the actual volume of sales the collection percentage increase that was actually due to the increase in the state sales tax.

 

Mr. Stevens said page 5 of Exhibit E outlines the areas in taxable sales where the state has experienced growth.  However, he said the cumulative growth figures for the first 6 months in All  Categories (taxable sales) was 7.1 percent;  Construction Related, 14.4 percent; General/Specialty/Food Stores, 6.9 percent; Eating and Drinking (establishments), 6 percent; New and Used Autos, 3.4 percent; and All Other, 4.7 percent. 

 

Mr. Stevens returned the committee's attention to page 7 of Exhibit  E and advised them this reflects a detailed comparison of actual with estimated revenues for fiscal years 1992-1993, 1993-1994, and 1994-1995.

 

Mr. Heller asked if in the next 5 months the Fiscal Analysis Division expects sales tax returns to be over 8 percent.  Mr. Stevens responded in the affirmative.

 

Mr. Heller pointed out data from the Comstock Bank was reflected under "Nevada Economic Indicators" on page 3 of Exhibit E.  He asked where this bank gets their information for their forecasts since they appear to be the most accurate.  He added that it had come to his attention that the data the Comstock Bank uses may come from the Nevada Department of Water Planning.  He also said if they are getting their data from the state in order to do their forecasting, perhaps there is a resource the Fiscal Analysis Division is not tapping into that provides very accurate forecasts. 

Mr. Zuend said he has the exact same data base that the Nevada Department of Water Planning uses.  They shared their entire data base with the Fiscal Analysis Division.  He said his forecasts may be different but the data is the same.

 

Mr. Stevens said he will be reviewing with the committee information on the projections from the Comstock Bank, as this information is covered in Exhibit E at a later point.

 

Mr. Marvel asked what projections were used to arrive at the price of gold.  Mr. Zuend said the Fiscal Analysis Division is using information provided by the Department of Taxation for gold projections.  He stated, however, that this is a revenue source that is very volatile from year to year.

 

Senator O'Donnell asked about the model from which revenue projections were derived.  He commented he would feel more comfortable with the national or Foremetrics, Inc. model rather than data from the state Department of Taxation since they would use data homogeneous to Nevada with no input from the rest of the nation.

 

Mr. Zuend said the Department of Taxation is running a time-series analysis based on Nevada data using regression analysis.  He stated the outside consultant, Foremetrics, Inc., uses regression analysis but uses variables starting with national variables along with separate forecasts of California variables to then prepare Nevada forecasts.

 

Mr. Price commented that in using the sales and gaming tax estimates, he observed the figures are different on pages 6 and 7 of the handout (Exhibit E).

 

Mr. Stevens said page 6 only listed the percentage fee collection, or that component of the gaming tax.  However, all of the gaming taxes were rolled into the estimate shown on page 7.  The sales tax shown is not only the 2 percent but also the administrative fee that is collected then distributed to local government.

 

Mr. Price also inquired regarding the projected sales tax.  He asked if the deferral granted to the new MGM Grand Hotel and Theme Park figured into the projection.

 

Mr. Stevens said the Fiscal Analysis Division has tried to look not only at the MGM Grand Hotel and Theme Park sales tax deferrals but also other sales tax deferrals.  He said, however, it is difficult to do this because it is unknown when the tax will actually be paid.  Therefore, this information has not been completely integrated into the estimates projected.

 

Mr. Zuend clarified that the MGM Grand Hotel and Theme Park deferral is not included in construction estimates shown in Exhibit E.  He said that construction is actual casino activity that the Gaming Control Board originally collected figures for that will be paid concurrently.  The portion that is due to the deferral is not included in the numbers reflected.

 

Mr. Arberry asked if there is any information available about

what will happen to some of the existing Las Vegas casinos that may be operating under marginal conditions when the three new mega-hotels now under construction come on line.

 

Mr. Stevens said this information will be covered after discussion continues on Exhibit E.  Mr. Stevens then resumed his coverage of Exhibit E, pages 7 to 10 and responded to general comments from the committee concerning revenue projections from the Gaming Control Board.  Mr. Stevens did clarify that revenue estimates are based on existing law and not on bills that may be introduced since there is no way of knowing which bills, if any, will pass.  

 

Senator Raggio asked for clarification on the gaming estimate in 1994.

 

Mr. Stevens responded the Gaming Control Board is projecting a 5.5 percent growth this year, the Fiscal Analysis Division is projecting this to be 4.5 percent growth.  In the first year of the biennium for fiscal year 1994 the Fiscal Analysis Division projects a 6.3 percent growth, the same as Foremetrics, Inc., while the Gaming Control Board is projecting an 8.5 percent growth.  In the second year of the biennium the Fiscal Analysis Division estimate is 6.4 percent, the growth rate assumed by Foremetrics, Inc., and the Gaming Control Board is assuming a 6.5 percent growth in the second year for fiscal year 1995.

 

Senator Raggio noted the largest difference is in the first year for fiscal year 1994 and commented, "Assuming the Governor's Executive Budget is based on the Gaming Control Board revenue, that would be a significant difference in fiscal year 1994."

 

Mrs. Williams asked if there have been any estimates made on the amount of tax deferred on the new MGM Grand Hotel and Theme Park.

 

Mr. Miles responded he had checked this morning and was advised no actual deferrals have taken place yet. 

 

Mr. Stevens resumed coverage of Exhibit E.

 

Senator Raggio remarked, "I think the significant fact to be drawn on what was covered is assuming the existing revenue sources and the anticipated levels of expenditures that are indicated, without significant change, you are looking at essentially a 4 percent a year revenue increase over each year of the biennium."

 

Mr. Arberry referred to "Hoover Dam Revenue" reflected on

page 9 of Exhibit E and noted there was a drop in the estimated revenue.  He asked if there had been a fee increase and if so, why would the estimate be lower.

 

Mr. Stevens responded the revenue amount is a set amount determined by the [United States] Congress over 50 years ago from which the state receives $300,000 annually, in lieu of property tax, regardless of a fee increase.

 

Ms. Tiffany stated her background is in computer programming and data processing.  She noted the Legislative Counsel Bureau must contract with an outside service to analyze data.  She asked if a better job could be done if more sophisticated software were brought into the Fiscal Analysis Division.

 

Mr. Zuend responded in the affirmative but stated the idea of an outside contractor is to neutralize to some extent some of the data prepared by the Fiscal Analysis Division.

 

Mrs. Williams said it is her understanding that much of Nevada's tourist base comes from southern California and asked if there is information available that would show what percentage of the California tourist base does come from this area, and the impact it has on the Nevada economy.

 

Mr. Zuend said although he did not have the percentage figure readily available, this is taken into consideration in projecting revenue estimates by the Fiscal Analysis Division as well as Foremetrics, Inc.  He stated he would provide this information to her at a later date.

 

Mr. Dini pointed out that more people are coming into Nevada but spending less money.  He believed revenue projections should be on the conservative side and this information should be factored in.  Mr. Stevens said the Foremetrics, Inc. model does take into account the latest gaming-win figures and considers any drop or gain in the amount of wins-per-person. 

 

Mr. Stevens completed his coverage of pages 11 to 14 of Exhibit E.

 

Senator Raggio adjourned the joint meeting at 10:45 a.m.

 

            RESPECTFULLY SUBMITTED:

 

 

                                    

            Marion Entrekin,

            Committee Secretary

 

APPROVED BY:

 

                                   

Senator William J. Raggio, Chairman

 

 

DATE:                               

 

 

 

                                   

Mr. Morse Arberry, Jr., Chairman

 

 

DATE:                              

??

 

 

 

 

 

 

 

Senate Committee on Finance

Assembly Committee on Ways and Means

January 25, 1993

Page 1