MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
April 15, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Thursday, April 15, 1993, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
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
COMMITTEE MEMBERS ABSENT:
Senator Raymond D. Rawson, Vice Chairman
STAFF MEMBERS PRESENT:
Dan Miles, Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Dee Crawford, Committee Secretary
OTHERS PRESENT:
Judy Matteucci, Director, Department of Administration
Howard Barrett, Nevada Taxpayers Association
Senator Raggio introduced Amendment Number 301 to Senate Bill (S.B.) 195 to the committee.
SENATE BILL 195: Revises fees relating to numbering and ownership of motorboats.
Senator Raggio announced a revision has been drafted to S.B. 195, by way of Amendment Number 301, changing the effective date of the bill to January l, l994.
Senator Raggio closed the hearing on S.B. l95 and opened the hearing on Amendment Number 302 to S.B. 239.
SENATE BILL 239: Increases amount that person who awards certificate of number for watercraft may retain from fee paid for certificate.
Senator Raggio announced a revision has been drafted to S.B. 239, by way of Amendment Number 302, changing the effective date of the bill to January l, l994.
Senator Raggio closed the hearing on S.B. 239 and opened the hearing on S.B. 23.
SENATE BILL 23: Establishes two-tiered system of forecasting future state revenues to assist in providing balanced state budget.
Senator Raggio turned the gavel over to Senator Coffin and moved to the testifier's table. He distributed Exhibit C, Proposed Amendment to S.B. 23, (Exhibit C - Original on File in the Research Library) to the committee and testified in support of the amended version.
Nevada, unlike 32 other states, does not have an official revenue forecasting system, Senator Raggio proclaimed. Senator Raggio explained S.B. 23 has been changed in its entirety, as indicated in Exhibit C, in an attempt to find an improved method for revenue projections. He stated the goal was to devise a method of official forecasting from which the executive and legislative branches could both be governed.
In the course of his investigation, Senator Raggio discovered other states have experienced similar concerns in trying to cope with the fluctuating cycles of the economy. The issue is compounded in states that meet biennially, such as Nevada, he acknowledged.
In developing official forecasts, other states have devised different economic forums which allow participation by both the public and private sectors. Senator Raggio reported states currently undertaking the method of using economic advisory councils are Delaware, Florida, Indiana, Maryland, Massachusetts, Nebraska, South Carolina and Washington.
Senator Raggio quoted excerpts from Exhibit D, Legislative Finance Papers, The Legislative Role in Revenue and Demographic Forecasting, (Exhibit D - Original on File in the Research Library). Senator Raggio cited knowledge that in most states, the legislature does not participate directly in the process of revenue forecasting. Senator Raggio opined the legislature should be involved in the revenue process since, ultimately, the legislature is the entity that must approve the budget, as recommended by the executive branch.
Senator Raggio provided an overview of Exhibit C, section l, of the amendment. He stated the amendment recognizes the State of Nevada requires a balanced budget. He opined there is a need as the population, resources and demands grow, for Nevada to have a better procedure to determine accurate estimates of revenues that will ensure a balanced budget. Senator Raggio pointed out the process could be enhanced by obtaining input from experts in both the public and private sectors.
Continuing, Senator Raggio drew the committee's attention to section 2, Exhibit C. The amendment stipulates that every even-numbered year, recognizing Nevada must budget on a 2-year cycle, the Governor would impanel an economic forum consisting of five individuals. One individual would be appointed by the Governor, four would be nominated by leadership in the legislature and thereafter appointed by the Governor. Senator Raggio suggested wording could be included that the economic forum be appointed at the pleasure of the Governor, but panel members could be removed for cause.
Senator Callister joined the meeting at 8:30 a.m.
Every member of the forum would possess demonstrated ability in the field of finance, economics, taxation, investments, or money management, in order to bring knowledge and professional judgment to the deliberations of this forum, Senator Raggio envisioned. The individuals that comprise the economic forum would not be employees or officers of state government, nor the University and Community College System of Nevada.
It was explained that by November l, the economic forum would prepare a written report of revenue projections, which would be presented both to the Governor and the Nevada State Legislature. On April l, while the legislature is in session, the economic forum would prepare another report either confirming, or revising, the projections. Senator Raggio stressed the point the preliminary projections of economic indicators must be made available to various state agencies to allow them to develop their own budget requests for submittal to the budget office. Senator Raggio opined, "Too often budgets are being prepared without knowing what kind of revenue projections are being utilized in the actual preparation of the budget documents."
The technical advisory committee will be comprised of one senate and one assembly fiscal analyst, the chief of the budget division of the Department of Administration, the director of the research division of the Employment Security Department, the executive director of the Department of Taxation, the state demographer and chairman of the local governmental advisory board, he explained.
Senator Raggio expressed interest to add an eighth technical member and suggested perhaps an individual from the University and Community College System of Nevada.
Senator Raggio pointed out section 8 is a key section. It indicates the final reports are the projections that must be utilized during preparation of the budget, by both the budget office and the legislature, respectively. He explained the method would eliminate competing revenue projections in determination of how the final budget would be developed.
Citing earlier testimony, Senator Raggio said the bill essentially establishes two bodies. A technical committee, comprised of the individuals who are most conversant with the data base that determines revenue projections, will furnish the information to an economic forum. The economic forum, consisting of experts in the private sector, will utilize the information provided by the public sector of the technical committee, to develop the official forecast and revenue projections.
Senator Glomb expressed her support of the amendment to the bill. She questioned the fact there was no time frame designated for the technical committee to relay information to the forum committee.
Senator Raggio answered:
The only time line dates are when the economic forum is created, which is early in the year preceding the legislative session, giving it sufficient time to work toward the goal of November l. November l is the date by which the formal revenue projection must be made.
Senator Glomb asked if the economic forum would have jurisdiction over the technical advisory committee.
Senator Raggio responded the economic forum would have no direct jurisdiction, other than to request information from the technical committee.
Senator Callister apologized for his late arrival. He opined S.B. 23 was one of the most important bills to be heard during this legislative session and he supported the measure. He asked if the executive branch would be able to exceed the final forecast in its budget development.
Senator Raggio responded they would not. Continuing, he clarified, there would be an opportunity to revisit the issue on April l.
Senator Callister referenced Exhibit C, section 4, subsection 4, and pointed out the committees were only being provided compensation for per diem and travel expenses. He asked if that stipulation was patterned after use by other states.
Senator Raggio answered, "Surprisingly, in those states that use this type of process, there are many people with this kind of expertise willing to serve, particularly in this capacity."
Senator Callister asked whether the meetings would be held in a private or public setting.
Senator Raggio stated that issue was not addressed in the bill, but stated it certainly could be included in the final draft. "Certainly their work product is public," he stated. The first draft of the bill indicated the meetings were closed, he announced. "I wanted to make sure that wasn't the case here. I want the public to begin to understand our process instead of the way it is now. I think the public has been largely in the dark about how we develop a budget and how the Governor comes up with a budget," he declared.
Senator Callister questioned the capacity for either the economic forum members, or individuals on the technical committee, to access some assistance from the private sector. He suggested specific language in the bill be developed that may allow the committees to retain the services of a private entity.
Senator Raggio expressed his concern:
We definitely want the public sector involvement in the development of all of the data base information that traditionally comes to these people. That assures the public sector has the complete involvement that it has today....The purpose of the bill was to allow the members of the economic forum to draw upon, not only their own experience, but all the information that is otherwise available to them from any source. I would not want to preclude, nor does this bill in any sense, that opportunity.
Senator Callister drew attention to S.B. 23, section 9 of the original draft of the bill, and read, "Except as otherwise provided, a member of the Governor's technical committee...shall not communicate in any manner with a member of the economic forum concerning any matter...."
Senator Raggio replied that statement was one of the reasons the bill was redrafted.
Senator Coffin suggested to consider conducting annual instead of biennial forecasts. He opined it would help cope with changing conditions and assist in situations such as special legislative sessions.
Senator Raggio declared he would have no objection to a provision that, in the event a special session were called regarding financial issues, the economic forum would be called upon to make an appropriate projection at that particular time. In order to make the system as efficient as possible, and to fit the existing legislative process, the suggested time frames seem to be appropriate as written, he maintained.
Senator Coffin supported the concept the meetings be held in public forum.
Senator O'Donnell advocated the positions would, by nature, be political appointments, but with 2-year tenures. He cited knowledge that members of the Board of Governors of the Federal Reserve Board have l2-year staggered tenures. He recommended consideration of a staggered 6-year tenure to eliminate political influence.
Senator Raggio voiced his understanding the individuals who serve on the Board of Governors of the Federal Reserve Board are employed
full-time, in compensated positions.
Senator Raggio restated the economic forum has only one purpose and that is to develop an official forecast "which is de-politicized as much as possible." He concluded, "The answer is, it probably doesn't matter one way or another, if we want to appoint them for a longer term, or staggered, but I think we ought to try it and see how well it works...."
Senator Raggio compared the economic forum to that of the Blue Ribbon Commission, created by the Governor, wherein those individuals served without political consideration.
Senator O'Donnell expressed his concern that individuals being appointed to these committees would be heavily lobbied.
Senator Raggio explained the same type of economic forum suggested in the bill has been successful in other states.
Senator Jacobsen expressed his concern about creating more commissions and boards:
...I'm glad you mentioned the Blue Ribbon Commission because a couple of years ago, I don't know how many recommendations they had, if my memory is correct, we didn't accept a one....This time, I think a very good example is the one on reorganization. I've taken the time to call a number of people that served there. They admit they had very little input. They were guided by the Peat Marwick study. I don't want any more foreigners coming in here telling us how to run our show. I just think that we're better qualified to do that. I would be more receptive to us having a forecaster in our group, in house. We don't need a forecaster every 2 years, we almost need one every time we meet....
Senator Raggio responded the committees will not serve in the capacity of an advisory board or commission. This forum, as it exists in the other states, and envisioned by this amendment, has a specific duty, he insisted, and that duty is to develop one projection. He elucidated:
Instead of guessing, which is exactly what we do, from the time we get here until the time we put that budget to bed, is guess who is right on revenue projections. Then we try to build a budget and put what we want, or what we like, depending upon which projection we like, or suits us better. This does one thing. It puts all this into focus....It's a board that a decision is required to be followed, so we know the number within which we can develop a budget. That's the major difference....
Senator Coffin recessed the meeting at 9:30 a.m. and reconvened the meeting at 9:45 a.m.
Senator Coffin invited public testimony from proponents of the amendment to S.B. 23.
Howard Barrett, Nevada Taxpayers Association, came forward to testify in support of the amendment to S.B. 23. Mr. Barrett offered the information he served as former budget director of the Department of Administration for 21 years.
Senator Coffin turned the gavel over to Senator Raggio.
Senator Raggio asked if Mr. Barrett had any concerns with the time frame with respect to when the projections would be due from the economic forum, as outlined in the amendment to S.B. 23.
Mr. Barrett opined the time schedule would be appropriate. He emphasized the recommended procedure would provide a relief to the budget office, because they will also be required to rely on the projections from the forum and need not develop their own. He confirmed the bill will provide the official estimate of the revenues and the Governor's Executive Budget will be bound by those revenues. "But, the Governor can always add on to his budget and do whatever he wants on any other revenue. Even though the bill is intended to control the Governor's budget by the amount of revenues projected, it obviously can't," he recited.
Responding to a query by Senator Jacobsen regarding what would be considered the optimum time span for an economic projection, Mr. Barrett stated, "...A projection is just a projection. Even though it were perfect, it's good only for the minute you make it...." He surmised the more current the projection, the more value it has.
Senator Raggio opened discussion to opponents of the measure. Ms. Judy Matteucci, Director, Department of Administration, announced she had not been given an opportunity to review the amended version previous to this meeting.
Upon a cursory review, she pointed out the problem of revenue projection in the State of Nevada, unlike many other states, is that Nevada's sales and gaming tax bases are highly discretionary and very difficult to estimate, particularly when a state experiences an economic downturn, compounded by attempts to accomplish a 3-year projection. She asserted:
Even if you bring the best experts in Nevada to give you new projections, I suspect they are going to have much of the same problem that the so-called public experts that have been doing this for some period of time have had.
Additionally, she declared Nevada is influenced significantly by national and regional economies. She pointed out:
...As long as your projections on what's going to happen in the national and regional economies are right, you can have some feel that your projections are going to be correct. But if those projections are wrong, as they were in l99l, then your projections can be significantly off.
Ms. Matteucci clarified the public assumption that the legislature is not currently involved in the revenue-projecting procedure used by the budget office and expressed:
...That certainly is not the case. Your staff meets with me several times during the projections, and we work out our concerns and discuss our issues. Your staff never does share with me their projections. I try and share with them what I'm going to do....We all are using much of the same information that is available to come up with the projections and that's one reason...historically the legislative staff and the executive budget staff have been very close in their projections....
Concluding, she pointed out that in the l99l legislative session, the allocation of funds to the budget office and fiscal staff were authorized to develop economic forecasts. "We have...contracted with an economic forecasting firm called Formetrics, Inc. I know we relied heavily on the projections developed by Formetrics, Inc. in our projection....They do a projection based both on national economy, regional economy and finally a state economy," she stressed.
Ms. Matteucci declared she had significant concerns regarding the amended version of S.B. 23. She declared:
I have some concerns about the makeup of the economic forum. It seems to me you're making a significant shift from the Governor being able to project his revenues, to the legislature being more heavily involved. You have four legislative appointees and one Governor appointee for the five-member economic forum.
She suggested the legislature compose the economic forum from equal representation in the form of two legislative and two gubernatorial appointees.
Ms. Matteucci opined using the time frame of November l, "Does the budget little, or no good." She emphasized by using the suggested November l date, that time frame would fall after agencies have already submitted their budgets. She stated, "It would be representing...August sales, would be the last information that we got. That's 2 months into the fiscal year. It's much too early for us to be given much of a fair opportunity for what the projections are looking like in the current fiscal year."
She requested the economic projection deadline be moved to December 3l. In conclusion, Ms. Matteucci described her opinion of the most significant problem with the proposal:
...You have a group of so-called economic experts housed in the legislature that are going to...duplicate the information that the technical committee has available to it. Pursuant to Senator Callister's observation, it isn't going to be that they are going to meet in an afternoon and be able to come up with projections....So they're going to be taking a lot more time, as both your staff and I currently do, to come up with projections that actually would be available if the technical committee were the one to make the final revenue forecast, based on the economic forecast of your economic forum. I see it...splitting. The economic information upon which to base your forecast, then you have the experts in the public sector that could do the forecast. I, personally, have no problem with consensus forecasting, having it be done with that technical committee, in public. I personally have no problems with the executive budget being based on that consensus forecast. But, I believe that is the group that should be doing the revenue forecast after receiving information from your economic forum relative to what the regional, national, and economic situation is going to be. I suggest that is a far better, and cost effective way, to approach what you're attempting to get at here...than the proposal you currently have.
I am glad to see in your revision that you are requiring the legislature to also live by those revenue estimates. You did not have that in your first bill, which was a major concern. I was glad to see your comment about new fees and new taxes, you would not be bound to that.
Ms. Matteucci suggested the following alternatives:
...If you really felt you needed this economic forum to make the revenue projections, in addition to the economic forecast, I suggest that, as they do in Maine, the budget director can change the forecast; but that those changes must be explained in public to achieve accountability and responsibility for the ultimate revenue forecast....
Finally, I think you made a major oversight in your technical committee. I suggest you really do need to have someone from the Gaming Control Board on there since that is a significant...portion of our revenue....I'm not exactly sure what the chairman of the local government advisory committee brings to that particular group, although I don't have any significant feelings...relative to that particular individual. I do have some concerns about the university economist being added to this particular group. I'm not sure they really bring some of the technical expertise of the state level.
Senator Raggio pointed out gaming information would be made available to the technical committee.
Ms. Matteucci repeated earlier testimony that a representative of the Gaming Control Board also be assigned to the technical advisory committee.
Senator Raggio opined:
The people designated to serve on this technical committee would, at all times, have access to the information from the Gaming Control Board, from the insurance division, from other people who collect revenues or are responsible for revenues, that's available now. The technical committee is designed to utilize all the information that is available in which the data base is built for these projections.
Senator Raggio queried Ms. Matteucci regarding the time frame necessary to allow the budget office sufficient opportunity to develop the Governor's Executive Budget. He asked, "If the final, official forecast is not received until December 3l, wouldn't that be too late for you to get the budget printed and submit it to the legislature by mid-January?"
Ms. Matteucci answered:
No. We finalize our revenue estimates about...December 3l....I presume the budget division will be following, with interest, the work of either the economic forum, and participating in the technical committee, so we're going to have an idea as to what their thinking is....If you restrict us to using November l information, you have cut us out of about 4 months of revenue information....
Senator Raggio envisioned the economic forum would establish the criteria to be used in the process, while the technical committee would develop the forecasts. The forecast would be submitted to the economic forum, and they would have the opportunity to modify the information.
Ms. Matteucci stated she did not glean that intent from the language in the amendment and suggested the economic forum would be redundant to much of the work that could be accomplished by the technical committee.
Senator Raggio insisted the technical committee "is going to do everything you folks are doing today."
Ms. Matteucci reiterated, "...Then why don't we make them be the consensus revenue forecaster, after we get the information from the economic forum on all the economic indicators?"
Senator Raggio answered there are built-in biases and political decisions to set aside so that the final product will be insulated from that type of input. He clarified:
This is not designed to be critical, it is designed to be constructive and to prevent the perception from the public that's how these things are done. It gives the opportunity for the private sector to participate with the public sector and share the kind of expertise that ought to go into these final decisions. I'm suggesting that to you as a way to allay some of your initial reactions....
Ms. Matteucci reiterated:
What I'm suggesting is that you bifurcate economic forecasting and revenue forecasting and that the technical committee be bound to use the economic forecast developed by the economic forum....I'm suggesting once they get the economic projections, then the technical committee can go ahead and do their revenue projections based on the economic indicators, because economic indicators underlie...all of the revenue projections that you see in the budget.
Senator Raggio asked Ms. Matteucci why should the final decision on the revenue projections be made by individuals who will benefit directly.
Ms. Matteucci wondered if Senator Raggio was "making the assumption the people that are currently doing the revenue estimates figure out if you jump the revenue estimates we're going to get a big fat salary increase and I think that's wrong...."
Senator Raggio stated that is the perception of the public.
Ms. Matteucci countered:
If that is the perception of the public, then it seems to me that the public discussion held by the technical committee, who has all the information now and will not have to duplicate it for the economic forum, regardless of who you bring in from the private sector, is going to have to develop their own data base and spend lots of time getting involved in this.
Senator Raggio disagreed.
Ms. Matteucci recounted:
If they're going to be knowledgeable, they're going to have to spend a lot of time beginning to understand the gaming projections, the sales projections, and what happens with that particular information that's going to be brought to them by the technical committee. But I'm suggesting that these discussions, contrary to what currently happens, which is they are held in a meeting in my office, or in your fiscal analyst office, be held in public with discussions relative to what the assumptions are and why they are assuming those. That, I think, should allay the public to provide the accountability you want and then both the legislative and executive budgets go forward on those projections. I think that gets to the heart of what you are attempting to do, because the public assumes there are back room deals cut and this is all some deep dark secret.
Senator Raggio clarified:
Whether personally, or not, there is always that feeling that if we can message these projections, and make them a little bigger, then we can accommodate this or that. I think that's the problem....The bigger problem is we are one of the few states that doesn't have an official forecast. We're one of those states the executive and legislative (branches) don't use a jointly constructed forecast, and we're not utilizing the kind of expertise that is otherwise available in determining that and de-politicizing it as much as we can. That's really what this procedure is all about.
Ms. Matteucci insinuated a consensus forecast by the technical committee will solve that problem. She explained:
...That it's going to meet the accountability to get de-politicized. But I don't want to exclude the helpfulness that may come from economic information that can be provided by those people that are outside government. But I'm suggesting they are not the ones that really should be doing the revenue forecasting....
Senator Raggio added that assistance would still be sought from sources such as Formetrics, Inc.
Senator Coffin pointed out much of the amendment borrows upon the legislation from the 32 states which meet annually. He suggested the forum accomplish its work on either an annual or continuous basis. He acknowledged it is difficult to use an example of a state that meets biennially with one which meets in annual session.
Senator Raggio asked Ms. Matteucci if December l5 would accommodate the needs of the budget office.
Ms. Matteucci requested the month of December to coincide with the last sales tax collection.
Senator O'Donnell expressed support for the measure.
Although he generally expressed support for the measure, Senator Callister commented he does not have faith that private forecasters will be able to do "a significantly better job than we do."
Senator Callister queried Ms. Matteucci and said:
You agree with the notion of this bill. But you are troubled by having both the technical committee and the economic forum, and you keep suggesting the economic forum will not be comprised of experts. Why is that? You keep saying they don't have any expertise.
Ms. Matteucci responded:
No, I'm not saying that at all. Not in public sector revenue estimating. They may have very much information on what the travel forecasts are, because they read trade magazines, or what the bank says is going to happen in the economy. But as far as projecting sales tax based on the very narrow base that we have, or gaming because we're going to have people coming across the line, or not coming across the line, they may not know how to project those revenue estimates.
Senator Callister recited:
I find that an astonishing remark. You think the major casinos don't factor that into their annual budgets? You think they don't try to determine and speculate upon what the level of visitation will be, which is the identical information that would go into the mix for us in attempting to determine what revenues generated on that level of visitation, manifesting itself either as sales or gaming tax, would be?
Ms. Matteucci recounted:
I'm suggesting that they absolutely follow that and that's the kind of information they should be supplying. But then based on the information they provide us as to visitor volume, the technical people are the people that should project percentage fees, slot fees, and all that sort of thing. That's what I'm suggesting. But, given the parameters of what this economic forum comes up with, that the actual projections of the dollars that you see in the budget before you be done by the technical committee because that's the group that has to do the estimates based on a fiscal year, based on all the various nuances of whatever the revenues are.
Senator Callister summarized:
Nevada's revenue base is so unique that it ought to continue outside, what appears to be the mainstream, of the other states in terms of how revenue forecasting for the public entity...[is] done.
Ms. Matteucci emphasized:
Absolutely not. What I'm suggesting to you is the people that ought to project Nevada's revenue projections, as opposed to its economic forecast, which are two different things, ought to be done by the people that deal with it day-to-day. That happens to be the senate fiscal analyst, the budget office, the folks from ESD [Employment Security Department], the state demographer, because those are the people we get together now.
Senator Callister asked whether models from other states reflect that approach, as opposed to what is suggested in S.B. 23.
Ms. Matteucci responded in the affirmative and clarified the State of Maine uses that approach.
Senator Callister expressed interest in how many states use a bifurcated approach, as suggested by Ms. Matteucci.
Ms. Matteucci clarified:
...Certainly you can develop the expertise with the economic forum. I have significant problems with the makeup of the economic forum, because you have the legislature telling the Governor what to do on a 4:l. I am suggesting they can, indeed, develop that expertise. But why you want to duplicate, or build a redundant system, when it already exists with the technical committee....I'm suggesting it's going to be sometime down the road before they get to the degree of expertise that you have on the technical committee....As far as the revenue forecasting piece, the economic forecasting piece, they certainly bring to us...a good deal of information....It's going to be duplicative and not cost effective to have the economic forum do the revenue forecasting. That's what I'm suggesting.
Senator Raggio directed fiscal staff to obtain a fiscal note for S.B. 23. Senator Raggio closed the hearing on S.B. 23.
There being no further business to come before the committee, Senator Raggio adjourned the meeting at l0:40 a.m.
RESPECTFULLY SUBMITTED:
Dee Crawford,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
April 15, 1993
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