MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
June 8, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Tuesday, June 8, 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 Glomb
Senator William R. O'Donnell
Senator Matthew Q. Callister
COMMITTEE MEMBERS ABSENT:
Senator Raymond D. Rawson, Vice Chairman (Excused)
GUEST LEGISLATORS PRESENT:
Senator Dean A. Rhoads, Northern Nevada Senatorial District
Senator Mike McGinness, Central Nevada Senatorial District
Marcia de Braga, Assembly District No. 35
John W. Marvel, Assembly District No. 34
STAFF MEMBERS PRESENT:
Dan Miles, Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Ted Zuend, Deputy Fiscal Analyst
Marion Entrekin, Committee Secretary
OTHERS PRESENT:
Lorne J. Malkiewich, Legislative Counsel, Legal Division, Legislative Counsel Bureau
William A. Bible, Chairman, State Gaming Control Board
Judy Matteucci, Director, Department of Administration
Robert S. Hadfield, Executive Director, Nevada Association of Counties
Bjorne P. Selinder, County Manager, Churchill County, Nevada
James Regan, County Commissioner, Churchill County, Nevada
Alan Kalt, County Comptroller, Churchill County, Nevada
Samuel P. McMullen, Representing the Washoe County Manager's Office
Guy Hobbs, County Comptroller, Clark County, Nevada
Janice A. Wright, Deputy Executive Director, Department of
Taxation
Mary Walker, Financial Director, Carson City, Nevada
Senator Raggio opened the hearing for discussion of Senate Bill S.B.) 475:
SENATE BILL 475: Eliminates Nevada racing commission and transfers responsibilities to Nevada gaming commission.
Senator Dean A. Rhoads, Northern Nevada Senatorial District, stated he supports the passage of S.B. 475 which would transfer the administrative and regulatory responsibility of supervising horse racing and greyhound racing from the Nevada Racing Commission to the State Gaming Control Board. He explained the Nevada Racing Commission has had difficulty supervising the county races that take place annually in Elko, Ely and Winnemucca.
Senator Raggio asked if the passage of S.B. 475 would eliminate the Nevada Racing Commission altogether.
Lorne J. Malkiewich, Legislative Counsel, Legal Division, Legislative Counsel Bureau, said passage of S.B. 475 will eliminate this commission.
John W. Marvel, Assembly District No. 34, appeared in support of the passage of S.B. 475. He explained in the last few years there have been budgetary and other problems involved with the races that causes him to believe the operation of the races will operate more efficiently under the control of the State Gaming Control Board.
William A. Bible, Chairman, State Gaming Control Board, stated the passage of S.B. 475 will not only change the supervision of racing from the Nevada Racing Commission to the State Gaming Control Board but will also make the board the enforcement agency for that activity.
Mr. Bible recommended an amendment to delete section 19 of the bill and allow the state to maintain the 1 percent of the pari-mutuel handle involved in wagering on racing activities in the state. He also suggested an amendment to section 11 to have the State Gaming Control Board work in conjunction with the county boards in managing the annual races in rural Nevada. The board could then delegate management of the race to the appropriate county. Mr. Bible suggested the addition of a new section which would be subsection 4 to provide the authority to the board to delegate when they feel it is appropriate any aspect on the conduct of the race to the state fair association, county fair and recreation board, or any association which is either supported by state or county funding.
Judy Matteucci, Director, Department of Administration testified the proposal to shift the supervisory and regulatory responsibility to the State Gaming Control Board was discussed with the Governor by Senator Rhoads. She stated the proposal to eliminate the Nevada Racing Commission has been included in the Governor's Executive Budget and he supports the passage of S.B. 475.
Senator Raggio closed the hearing on S.B. 475 and opened discussion on Senate Bill (S.B.) 506.
SENATE BILL 506: Makes various changes relating to supplemental city-county relief tax.
Mr. Malkiewich explained the primary reason for S.B. 506 is to correct errors determined after the fact by the passage of Assembly Bill (A.B.) 104 of the Sixty-sixth Session.
ASSEMBLY BILL 104 OF THE SIXTY-
SIXTH SESSION: Makes various changes relating to taxation.
Mr. Malkiewich said the errors contained within A.B. 104 of the Sixty-sixth Session, known as the "fair-share" bill, largely revolved around incorrect figures used to determine the amounts of revenue to be received by Churchill County and the formula to adjust revenues for the so-called rural guarantee counties from year to year. A substantial shortfall was experienced by Churchill County as a result of the Supplemental City-County Relief Tax (SCCRT) formula as contained in A.B.104 of the Sixty-sixth Session.
Mr. Malkiewich provided the committee with an in-depth overview of sections 1 through 17 of S.B. 506.
Mr. Malkiewich pointed out the result of the changes made in section 1 of S.B. 506 is that the rural guarantee counties, Douglas, Esmeralda, Eureka, Lincoln, Lyon, Mineral, Nye, Pershing, Storey, and White Pine, will lose some revenue. The bill identifies the counties that will lose money as a result of a change in the formula then will allow them to impose various taxes to make up that amount.
Senator Callister arrived for the meeting at 8:45 a.m.
According to Mr. Malkiewich, section 16, subsection 1 proposes an appropriation from the state General Fund to Churchill County of $1,020,276.
Senator Coffin asked, "Was there any other way that this bill could be drafted other than a General Fund appropriation to equalize these distributions to try to correct the mistake that was made?"
Mr. Malkiewich replied:
The problem faced in addressing this is the SCCRT revenue is a "fixed pot" and if you are just going to transfer $500,000 or $600,000 a year to Churchill County...you have to take it from somewhere and where you take it from is the question. By making this up by adjusting the rurals and hurting them by reducing them through the change in the formula will spread it out. By moving Churchill County into rural guarantee all the nonrural guarantees will pay proportionately...then the appropriation from General Fund revenue is paid by the entire state. The problem you are facing is if you take it from SCCRT revenue, you take it from someone else.
Senator Coffin responded:
As I read section 16....We give an appropriation to Churchill County which helps them, but what are they going to do with the money? The net effect of the money would be to pay it to Washoe County because of the reduction in property taxes thereby allowing the percentage receipt of SCCRT to Washoe County to increase. Is that what happens?
Mr. Malkiewich replied there is no reduction in Washoe County's payments under the bill. There is an increase in SCCRT receipts by all counties that are not rural guarantees and two-thirds of the benefit would go to Clark County.
Senator Coffin asked, "....Will we be solving this problem again in the next session with another General Fund appropriation? I am worried this is a onetime fix and I am worried about that."
Mr. Malkiewich answered:
My understanding of putting all of the appropriate counties and rural guarantees at the appropriate levels is this will fix the problem. Two years ago we did not know that because of mistakes on how Churchill County's allocation was calculated they were going to be so adversely affected. Certainly it is possible if there are dramatic changes in the way that sales tax revenues are generated in the state that we may have adjustments to make in the future. I do not see anything that is built into this change in the formula that would necessarily require that there be a further adjustment 2 years from now. The biggest problem to be addressed is that Churchill and Lander counties will be out-of-whack. By putting them in rural guarantee we are giving them an appropriate allocation of SCCRT. I am not aware of other problems with the distribution formula.
Senator Coffin remarked:
You have said that this kind of pits the rurals against the rurals. It hurts some rurals at the expense of other rurals so we have an unusual situation. It is the first time Clark and Washoe haven't been at war in a legislative session over this type of thing.
Mr. Malkiewich said the rural counties that are being adversely influenced by this do have the rural guarantee and were insulated from some of the shortfalls in the sales tax revenues during the past 2 years.
Senator Mike McGinness, Central Nevada Senatorial District, testified:
There were two significant errors in A.B. 104 [of the Sixty-sixth Session]. A $14 million equipment purchase by a geo-thermo plant in Churchill County that should have been a one-time addition was put in as a recurring addition. There was also an error of an $8 million credit from a large retailer that was given to Churchill County that should have been given to Clark County....That inflated Churchill County's numbers by $22 million when A.B. 104[ of the Sixty-sixth Session] was processed. That resulted in a loss of about 4 to 5 percent of Churchill County's budget. When you put that in perspective, the comparable loss to Clark County would be $93 million and $30 million to Washoe County. Douglas and Carson City would each have a loss of $4 million. It is my opinion if Churchill County had known these numbers during the debate they would have chosen to go into the rural guarantee column. As a result Churchill County taxpayers ended up adding the .25 percent sales tax, adding 25 percent to the motor vehicle privilege tax and adding 1.91 cents to property tax. The cumulative loss to date is just over $1 million. Those two significant errors is what got us here today.
Senator Coffin said:
It is difficult to tell from the way the bill is written who will win and who will lose. I believe Churchill and Lander will now become recipient counties, and the remainder of the counties will remain in or become donor counties. Are they also recipient counties?
Senator McGinness responded he thought some of the other counties will be affected adversely.
Senator Callister said he shares the belief that something has to be done to solve the Churchill County problem. He asked if the passage of S.B. 506 would be the only available option because he does not feel an appropriation of $l.1 million from the General Fund is appropriate at this time. He asked:
Are there not some other options short of simply appropriating $1 million to resolve it? It seems to me whenever we go to the General Fund to address any need we are really raising somewhere between 60 and 75 percent of that in Clark County revenue. It seems to me we are taking $600,000 to $650,000 of Clark County revenue, appropriating it to the General Fund, handing it to Churchill County who will then hand it to Washoe County. Perhaps that is the only answer but is there not some other option such as allowing additional levies to be raised in those communities or allowing additional extension of time? Are there no other options short of the appropriation of $1.1 million? That is the same question I am going to have for everybody that comes up here.
Senator Raggio commented:
In your absence Mr. Malkiewich did explain the bill. There is authority in the bill for the counties that do suffer a loss for 1 year only to raise all of the same fees and taxes that were authorized in the previous bill for the other counties.
Senator Callister said he is interested in knowing if Clark County had drafted their version of the bill.
Marcia de Braga, Assembly District No. 35, said there is a desperate situation existing in Churchill County that resulted from errors or economic depression. She pleaded for the passage of S.B. 506 to make "fair share" equitable to Churchill County and Lander County as well.
Robert S. Hadfield, Executive Director, Nevada Association of Counties, said he wanted to provide the committee with more background about the involvement of the Nevada Association of Counties (NACO). He testified:
Section 1 of S.B. 506 takes a NACO bill draft and incorporates it into this legislation. Almost immediately following the 1991 session we began to take a closer look as to the specific language in A.B. 104 [of the Sixty-sixth Session] and how it might be interpreted with regard to future budget years. That dialogue started with a few of the counties instrumental in the A.B. 104 [of the Sixty-sixth Session] situation including Washoe and Clark counties as well as Carson City. In early 1992 we began to enter into discussion as to whether the way A.B. 104 [of the Sixty-sixth Session] was written actually accomplished what the 17 counties collectively felt we agreed to in the 1991 session of the legislature. We wondered what numbers would be used to run the formula. We contacted the Department of Taxation and had formal meetings with them regarding what we meant by "prior actual year" in terms of driving the revenue for the rural guarantee counties....We were concerned with how the population projections would drive the formula used in A.B. 104 [of the Sixty-sixth Session]. We were likewise concerned about the wording that we thought meant actual prior year and recognized with the Department of Taxation that is not what that said. We knew from meeting with the Department of Taxation we should impose technical amendments to the bill that would change it to agree to what we [NACO]) had agreed to in 1991.
In 1991 we agreed that from the base year numbers that were given for the guarantee counties that those numbers would grow by population plus the Consumer Price Index [CPI] or the overall rate of in-state or out-of-state sales, whichever was lower. Everybody understood in 1991 that for the rural guarantee counties that wording was used so we would not benefit at the expense of the exporting counties. If there was a decline in the economy, all counties would share in that decline. That did not happen. That is why we had that language in the bill. That matter was brought before all 17 counties in July 1992, and they directed us to put it in a legislative program....It was reaffirmed in our annual conference in November [1992].
As you can see by the wording [in S.B. 506] we are proposing, the first year happens to be a negative number....The in-state and out-of-state sales for the whole year statewide declined by almost 1 percent which is the reason why the revenue estimates for the guarantee counties have declined....That is two declines. That takes care of the almost 1 percent real decline, but it also holds them harmless from the approximate 4.5 percent increase that they were expecting and anticipating and prepared their budgets on.
We [NACO] are in communication with all those counties. We had thought we could put this bill together much more quickly. We did not anticipate they would already be in the middle of their budget process by the time we would be able to get a bill draft. That is the NACO component of the bill.
For the record, Mr. Hadfield submitted Exhibit C, a letter from NACO,urging support of the passage of S.B. 506.
Senator Coffin asked if the original NACO bill called for a General Fund appropriation.
Mr. Hadfield replied:
No, I want to get to that point now. We had our components that we were working on with everyone, and at the same time we were aware that Lander County...that could have gone either way...was beginning to see the closure of Battle Mountain Gold. Those of you that know Lander County realize there is no other economy out there to speak of. We had all the counties in discussions at various times. NACO brought together the parties, and there were direct discussions between Washoe, Clark, and Churchill counties in an effort to address the situation. We introduced Lander County into it and Carson City because of their involvement in previous discussion. This bill was built out of the various groups coming together trying to identify a solution to the overall problem.
With regard to the situation in Churchill County....As you know we eliminated the SCCRT reserve fund a number of years ago. Frankly we could not identify with regard to the sales tax funds themselves...without changing these numbers all around all over again...how to address that issue.
Senator Coffin said he realized the legislature made this mistake but at no time was he aware that a General Fund appropriation would be needed. During the latter part of 1991 he began calling for a special session of the legislature for several reasons that included rewriting the mistake the legislature made through a redistribution of the SCCRT. He acknowledged if there is no other way to approach a solution without a General Fund appropriation, this avenue would have to be considered. He still hopes an alternate solution will surface.
Senator Callister asked:
Under the original language of A.B. 104 [of the Sixty-sixth Session], didn't we craft a mechanism whereby all of the rurals would help alleviate the "hit" to Washoe County through what we called the Washoe County adjustment? This was a phasing in of their obligation....I am not certain if I am correct in characterizing this as a reimbursement or repayment as a result of a prior year's tax over distribution out of the SCCRT....Isn't that what is at the heart of this? Am I correct....?
Mr. Hadfield replied there was a phase-in component that still exists that is not eliminated in this bill.
Senator Callister asked if the phase-in component was at the expense of the rurals. He maintained the rurals were the ones that were to assist Washoe County by contributing on an annualized basis to offset what would otherwise be an overly draconian onetime impact on Washoe County.
Mr. Hadfield replied there was an agreement with some of the counties since it was not feasible to have Washoe County make the adjustments that the bill called for.
Senator Callister commented, "Kind of a 'share-the-pain' notion, correct?"
Mr. Hadfield said at the time it was believed that was the right thing to do.
Senator Callister remarked:
I recall many of you coming to me and asking me to participate in finding some middle ground and asking me to go back to my county to utilize my position to try to accommodate a lessening of the hit to Washoe County. Aren't we really saying since there is an error in the mechanics of the formula...rather than just addressing that error...let us also appropriate $1 million to give to Churchill County so that they can give that money towards the phase in of the Washoe County adjustment? Is that not where this new $1 million would go?
Mr. Hadfield wished to defer to Churchill County, the recipient of the money.
Bjorne P. Selinder, County Manager, Churchill County, Nevada replied:
I suppose you could look at the phase in that way. When we entered into this agreement, everyone assumed that the numbers had been correctly prepared; and nobody anticipated this problem being created. We are trying now to deal with a situation that resulted from an overstatement in revenues to Churchill County and an overly large hit.
I think to the extent that Churchill County was impacted I would have to say that Washoe County would also be impacted as a result of this problem....We did identify any number of different scenarios and finally zeroed in on the onetime appropriation as being the least painful to the counties that would be the most impacted by this shift.
Senator Callister asked which counties if there were no $1 million appropriation.
Mr. Selinder replied Churchill and Washoe counties.
Senator Callister asked if the bill is processed absent the appropriation found in section 16 what the impact would be.
Mr. Selinder answered Churchill County would continue to contribute to the phase-in formula and they would suffer the $1 million loss. In the alternative if there were some other changes made, Washoe County would suffer the loss.
Senator Callister commented the committee needs to know all the facts in order to make a reasonable decision. He wished to point out:
When you appropriate $1 million of General Fund money what you are really doing is taking about $600,000 to $650,000 worth of revenue really generated in Clark County and under the guise of this bill handing it to Churchill County to help alleviate a mechanical problem that must be addressed....The net benefit of that is not just to Churchill County. I am told that as much as $600,000 or $700,000 of the total net benefit passes through to Washoe County. I think that is what we have to face here today....I am told there were other proposals made, and I would like to hear what the other proposals were.
Senator Raggio said he appreciates the concerns posed by Senator Callister but in the interest of time requested that those who wished to speak on this issue be given the chance to do so. He pointed out the comment had been made that the procedure was in error. He does not believe the procedure was in error but the numbers that were relied upon in reaching a final settlement of the matter were in error and were not discovered until after the 1991 session of the legislature.
Continuing, Senator Raggio said he does not believe he should have to respond to Senator Callister's concerns and clarified:
None of the counties involved made an error in this case when the final settlement of the fair-share argument was reached. When we left in 1991 we all assumed this argument was put to bed and we had a sense of relief that was going to be the case. Churchill County knowingly did not make an error. Washoe County certainly did not make an error. Clark County certainly did not make an error. If there was an error it was in the Department of Taxation in this state who collected the figures and offered the information that was used on which the final determination was made. We should start with the premise that no one in any of these counties purposefully made an error in determining the final numbers. I think we are all trying to deal with what the effects were of an error that was not created by any of the counties or participants when this formula was put in place. Is that fairly stating the situation?
Mr. Selinder replied in the affirmative. In defense of the Department of Taxation, he believed the raw numbers were provided and the error was generated. It did not become apparent to Churchill County until well after the adjournment of the 1991 session.
James Regan, County Commissioner, Churchill County, Nevada, testifying in behalf of the Board of County Commissioners said all 17 counties have been involved in the writing of the bill draft for S.B. 506. He pointed out the staff of Washoe and Clark counties, NACO, and the League of Cities were extremely cooperative and worked together on the bill draft.
Mr. Hadfield wished to clarify that to his knowledge the League of Cities was not involved in the meetings he alluded to in his testimony just as they were not involved in the same level of discussion in 1991.
Senator Callister questioned if there was an equitable distribution not because of someone's intent but because of a distribution formula arrived at because the state is sales tax reliant making it difficult to always know how to apportion revenue that is generated. He supports revisiting the formula that was structured for A.B. 104 of the Sixty-sixth Session and crafting a new one based on accurate numbers. He does not support appropriating another $1 million from the General Fund since he feels the $1 million will be used to ease the net impact on Washoe County at the expense of Clark County.
Senator O'Donnell asked if Churchill County initially had overstated their sales tax revenue.
Mr. Selinder replied:
No, I think it should be noted that Churchill County did not overstate sales tax revenues but through a series of conditions that occurred, one being a geo-thermo sale and the other an error created by a sales-tax payor reporting on the wrong line....
Senator Raggio interjected, "I do not think that was Churchill County's error. The company that collected the sales tax wrote it on the wrong line and credited it to Churchill County rather than to Clark County and inflated by a large amount the collections that were allegedly taking place in Churchill County.
Senator O'Donnell asked, "If the impact was to Churchill County...54 cents is what was represented to me....Who got the rest of the money? Did the other money go back to the SCCRT?"
Mr. Selinder answered the money did revert back to the SCCRT for redistribution and all of the other counties received some benefit including Clark County, although they received a modest benefit.
It was distributed as a result of the way the formula was set up and every other county received some benefit as a result of Churchill County's overstated revenue-generating capability.
Senator Raggio emphasized that during the construction and determination of A.B. 104 of the Sixty-sixth Session during the 1991 session, Churchill County relied upon information that was not prepared by them. Having an opportunity at that time to decide whether they ought to be in the category of a guarantee county or exporter county, to its detriment relied upon misinformation and opted to become an exporter county.
Senator O'Donnell pointed out when this anomaly occurred all the counties were benefactors including Clark and Washoe counties.
Mr. Selinder said it would really be necessary to go back to 1981 when the original SCCRT formulas were established. He said since that time Churchill County has only been a net importer receiving more than it generated only once in that entire period of time up to the time changes took place in 1991. Churchill County had always received less than $1 back for every $1 generated at the local level. He said the anomaly that was created in the 1991 session further reduced that apportionment back to Churchill County.
Alan Kalt, County Comptroller, Churchill County, Nevada, testified:
I am the one who came up with that 54 cents. What that represents is Churchill County gets 54 cents of the amount of money that we generate at Churchill County for both in-state and out-of-state collections. The adjusted distribution to Churchill County is 54 cents on $1 as calculated in March of 1993. The current figure is slightly higher. The remaining amount goes to the phase-in adjustment and the remainder into the pool that is shared upon by all of the remaining exporters.
Samuel P. McMullen, Representing the Washoe County Manager's Office, remarked:
There are other alternatives. Functionally those could disproportionately impact Clark County. There is no question about that. This will make it totally unacceptable and totally impossible. You could do things that would disproportionately impact Washoe. You need to understand the bill. That is A.B. 104 [of the Sixty-sixth Session] had two fundamental parts. One was a fair-share fix between Clark and Washoe counties. However, when that formula was being developed there was a side issue, a very important second issue which is the part we are talking about now....There were other exporting counties identified and determined by the numbers in A.B. 104[of the Sixty-sixth Session]. The first thing that happened is Washoe County decided there ought to be a phaseout of that export to the extent it would benefit Washoe. We called it the "Washoe adjustment" and this year we call it "the phase in." The theory of this was people would go on their own resources in their county...if rural counties were exporting dollars not appropriate with respect to that coming to Washoe. There was a 5-year phase-in mechanism done, put in by Washoe, for the express purpose of phasing out that export. That is a second feature of this bill and exactly what we are talking about now. The facts are that what was negotiated in terms of fair share was a package that looked that way and acted that way, and as a subset of that was also a secondary aspect even though it causes Washoe additional pain over the ensuing 4-plus years when we would phase out that export. We went through about $17 million worth of additional funds being raised out of Washoe County in year one, and we will arguably pick up increments through the years as that export phases down. That was our way of trying to be fair to those rural counties who were exporting. This is a part of that mechanism...has nothing to do with fair share. It tried to go beyond that fair-share issue...and said if that is true let's try to make it true even with respect to other rural counties. If we would have had correct information it may have been structured different, but the operative mechanism would have been the same.
There were exporting dollars. They needed to be adjusted back out. The issue is they were incorrectly reported on forms to tax so that the origin of those were not correctly established. The formula was drafted that way. If you think about it that way it makes an appropriation...the proper mechanism. There is no reason to penalize anyone. There is no reason to take it off the top of SCCRT where Clark would be disproportionately affected. There is really only one fair solution and that is a $1 million appropriation.
Guy Hobbs, Comptroller, Clark County, Nevada, wished to comment regarding the amount of cooperation and communication Clark County has had over the last 2 years between the counties through the facilitation of NACO. He thanked Mr. Hadfield for all of the efforts he and the counties put into the drafting of S.B. 506. He testified:
We began speaking immediately about many components of the bill [S.B. 506] within a matter of days following the implementation of A.B. 104[of the Sixty-sixth Session]. There was immediate concurrence on the part of all of the counties that some of the technical corrections needed to be made since they did not follow the original spirit of A.B. 104[of the Sixty-sixth Session]... particularly the sections that deal with the moving of the comparative years to two actual prior years instead of one actual with one estimate which makes it more predictable for the rural counties...they know 1 year ahead of time that their growth rate in the succeeding fiscal year will probably be in the ballpark of 6 percent so they can begin to plan their fiscal processes earlier....Also securing a reliable statistic for population was very important as well. There is a lot of what is included in the bill we had immediate concurrence on. We also had frequent dialogue on other matters once they became apparent such as the situation that was adequately described to you concerning Churchill County and Lander County as well. A myriad of scenarios were discussed including the theory of all counties sharing equally in the fixing of Churchill County that has some other technical ramifications that may sound good but there were some other technical difficulties to doing something like that...to dealing with the Washoe adjustment almost singularly and having that be a correction for Churchill County which has an impact on Washoe County...and some other scenarios that came up.
We were trying to use a consensus approach amongst the counties to bring forward a bill....By consensus the approach that appears in the bill before you is that of the group....We have felt in Clark County it was Churchill County's position to dictate what they felt the best solution to their problem would be and not ours to dictate for them what the best solution would be. We have been very cognizant to allow Churchill County to remain in the driver's seat in terms of picking amongst the alternative scenarios we analyzed. Although we are dealing with a very difficult subject here, it is refreshing that the communication has remained as open as it has been.
Senator Callister said he wanted to be certain he is correct regarding his understanding of where the $1 million additional appropriation will go to under this bill. He asked:
Does that $1 million go towards alleviating that subset of A.B. 104[of the Sixty-sixth Session] which is that phase-in component and Churchill County's obligation to participate in the phase in, or does the $1 million go directly to the primary focus of A.B. 104[of the Sixty-sixth Session], which is the fair-share dispute resolution?
Mr. Hobbs answered
If one were to try to chart all of the financial inter-relationships created by A.B. 104[of the Sixty-sixth Session] you would have a flowchart that would look much like the vein system in humans. Under current law for the next 3 years in amounts roughly equal to $500,000, $300,000, and $150,000, Churchill County will be required to make an adjustment which is part of current law....An adjustment payment that Washoe County as a part of the phase-in solution calls for...so they will be required to make that payment. As a part of this bill Churchill County would receive $1 million if the appropriation were the chosen remedy in fiscal year 1993-1994 which will help them deal with operating problems which they intended to speak more about than they did today. Operating problems that have been created in their budget because of the strains of the lack of revenue...the 54 cents on the dollar that they mentioned, the cutbacks they have had to make in various services, the depletion of their fund balance which manifest these types of problems. The $1 million will allow them to continue to provide services. One of the things they must continue to deal with is the fact they have this obligation under A.B. 104[of the Sixty-sixth Session] to pay.
Senator Callister asserted:
What you are really saying is this is a one-shot appropriation to Churchill County. It does not say it has to be spent on their obligation over the next 3 years to pay us $500,000, $300,000, and $150,000 which is their contribution towards the phase-in Washoe County adjustment which was proposed by Washoe County and others last session to alleviate the onetime impact that may have occurred. We need to acknowledge that publicly. We are taking $1 million of General Fund money to make it easier for Washoe County to subsidize at state dollar expense Churchill County's obligation to assist what was originated as a Washoe and Clark County dispute.
Mr. McMullen replied:
We [Washoe County] did it at our own initiative. We said there is a secondary problem and that is other counties are exporting out...Elko is one and Churchill was identified as one...and for peace that this bill in 1991 was supposed to bring us...that even though it meant extra burden on our taxpayers in the coming years, the right thing to do was to solve that second issue as well and build that in. Yes, it does make that hit on Washoe County less as it is phased in....What it does is functionally maintain and keep intact an agreement made across the board....It has nothing to do with a direct issue between Clark and Washoe. It was something that was between Washoe and other exporting counties and was something we tried to negotiate.
Senator Callister said he finds this to be a disingenuous argument. He commented:
For you to tell me today that if 2 years ago we had our data right, that what we would have done is require all of the other counties that we did include in the phase in that was requested by Washoe County to participate to this extent....In the case of Churchill County because they are a small county with a small tax base and other fiscal problems...we were going to appropriate $1 million of state money and plug that in lieu of their participation of the Washoe County phase in. You expect me to believe today that is what we would have done 2 years ago, had we known the right data...that this would have been the remedy? As opposed to simply saying let us construct the formula properly and require all counties to share equally in it...or do what I feel would have been far more likely 2 years ago, and that is simply to say we are not talking about fair share with this money, and we are talking about trying to incrementalise [sic] the repayment of an obligation by Washoe County to make it less painful. We would simply not have factored that component in to the extent that we did.
Senator Raggio reminded the committee not to debate the bill and to allow time for the witnesses to speak.
Senator Callister asked Mr. Hobbs:
I would like clarification on the two options you referenced. One is that all counties share equally which you said included some technical ramifications. Secondly, you suggested the other option was to eliminate the Washoe County adjustment. I would like to know what that would mean. Thirdly, I would like to know what was the proposal that I was led to believe Clark County was working on that did not include a $1 million appropriation.
Mr. Hobbs responded:
To answer the last question first. We haven't worked on a bill draft independent of the rest of the group...we have had our opinion as we dealt with the rest of the group that sometimes differed with that of some of the others. Looking at having the counties all share equally....It is difficult to talk about these numbers that appear in spread-sheet fashion that have various elements of mathematical involvement as you move from left to right. We can provide those to you under both of the scenarios and any others anybody would like to see.
Senator Callister interrupted and noted, "You said there were some technical ramifications as though that was a problem in adopting that alternative remedy that would not cost us $1 million...."
Mr. Hobbs said mathematically it would be no problem to produce something like that. He further stated:
Part of the problem we identified with equal sharing was that Clark County did not believe it was a part of the problem in Churchill County and neither were we a part of the estimates by the Department of Taxation...nor are we involved in any phase-in adjustment between Clark and Churchill counties. We felt strongly that perhaps doing it on what would seem an equal basis would not necessarily be equal because another major county, Washoe County, would continue to receive an adjustment from Churchill County. We would not be receiving any adjustment from Churchill County but we would be paying the lion's share of the adjustment to fix Churchill County. That was part of the problem of doing it on an equal basis which in theory sounds good....When you look at the sources and uses of all of the money and trace it through, it did not appear to be as fair to Clark County.
The last option mentioned would isolate the impact quite obviously between Churchill and Washoe counties. Again, over the next 3 years Churchill County is slated to pay roughly the $1 million that you see in the bill. If they were not required to pay that, it would positively impact their local economy to that dollar extent and it would negatively impact Washoe County to the same dollar extent. Certainly Washoe County does not feel that is a preferred method to pursue.
Senator Callister remarked:
If the purpose of the original bill was to accomplish an equitable distribution of sales tax on a statewide basis, would Clark County have thought 2 years ago that the right way to resolve the issue would be to recalculate the formula amongst the various counties and then appropriate an extra $1 million of sales-tax revenue and plug it back in to offset the impact in one county.
Mr. Hobbs replied:
If you could accurately foresee a hole in the formula to that extent...obviously the solution that was being considered would be considered unfeasible. You would not assume you would have to plug a formula like that if you had that accurate foresight.
I would like to make a point very clear about the formula. We, and the other counties to the extent we have discussed it over the 2 years, believe that the formula can work. I think most of us are looking forward to the day when there actually is some equilibrium in the tax structure so that we can do some long range planning....
Senator Callister remarked, "Now you are talking about the SCCRT distribution formula. I thought we were referring to the phase-in formula."
Mr. Hobbs said it is part of the entire formula mechanics for the 5-year period. Other parts of the phase in includes the 3-year payback which will end in the next fiscal year which involves $2.2 million a year.
Senator Callister asked if A.B. 104 of the Sixty-sixth Session as originally composed encompassed the notion of a Washoe County adjustment.
Mr. Hobbs answered in the negative.
Senator Coffin addressed his question to Mr. Hobbs and stated:
I have been told informally there is money in here for Clark County and that Clark County will benefit from this. How does that work?"
Mr. Hobbs answered:
The section of the bill that would move the prior 2-year statistic for the change in the rural guarantee....Moving those particular statistics does have a 1-year benefit for Clark County. We would be moving the statistics back to a year which represents a one-half of 1 percent decline in statewide taxable sales. From a year-to-year comparison it would have had a 6 percent growth rate in it. By moving it back since the rural guarantees will grow by a lesser amount, there is more money available for the exporters to divide up.
Senator Coffin asked how much money he was talking about.
Mr. Hobbs answered about $960,000.
Senator Coffin asked if this was money Clark County was contemplating on receiving when A.B. 104 of the Sixty-sixth Session was passed.
Mr. Hobbs replied, "Indirectly. If A.B. 104[of the Sixty-sixth Session] had been interpreted the way the original intent was for the bill, that is the sum of money Clark County would be receiving this fiscal year."
Senator Coffin said he does not want to have Clark County living off the rural counties during the ensuing 2-year period. Mr. Hobbs said the impact is isolated to a 1-year period.
Senator Coffin said section 12 of S.B. 506 causes him some concern because it calls for some of the rural counties to raise their property tax and they are at their limit already. He would like to have information provided to him regarding what the impact will be in those counties.
Mr. Hadfield said he has some information that he will provide to Senator Coffin and the rest of the committee.
Senator O'Donnell opined the net cost to Clark County in terms of a $1 million General Fund appropriation would be in the neighborhood of $600,000 to $750,000. The positive benefit to Clark County would be about $900,000 considering the "2-year previous" language reflected in the bill (S.B. 506). He pointed out this would result in a positive benefit to Clark County of about $150,000 to $250,000 if the bill is passed as it is today.
Mr. Hobbs said that would be correct and noted that both the appropriation and the positive impact to Clark County are confined to one single fiscal year.
Senator Raggio said you cannot measure what each county pays to the General Fund due to the different types of revenue that goes in it. He said in the human services area probably 80 percent of the budget goes to Clark County.
Senator Glomb said A.B. 104 of the Sixty-sixth Session did correct statewide inequities that had been around for quite sometime in spite of the fact that a flaw or accounting error caused the problem that surfaced in Churchill County. She remarked:
The basic plan agreed upon in A.B. 104[of the Sixty-sixth Session] is still in place. I think it is too easy for us to regionalize this issue. We should start looking at this as a statewide issue. It belongs to all of us. We reached a peace treaty 2 years ago and to try to unravel it now and get us all embroiled in arguments deciding where the money is coming from is going to hurt everyone. There is no sense in starting from square one. I am glad to see you have reached an equitable plan...by coming to the table and counties are working together....It points out the ridiculous situation that exists with the tax system in this state. If I as a taxpayer, and my constituents, cannot understand the formula it is taxation without
representation. I think it is time that we start moving forward and continue correcting these ridiculous inequities.
Mr. McMullen said if S.B. 506 passes, there is strong hope that the fair-share arguments can be put to rest. He has noted a lot more cooperation and amiability amongst the county representatives during the many discussions that have taken place. He remarked, "What you are doing is taking $1 million and buying peace in the valley."
Mr. Hobbs said although he agrees with Mr. McMullen, it is difficult to predict what other anomalies may surface in other rural areas. He feels very strongly that something has to be done to fix Churchill County and believes the method of fix as presented in S.B. 506 should be considered.
Janice A. Wright, Deputy Executive Director, Department of Taxation, testified:
Part of the problem appears to have surfaced last session [because] Churchill County thought it was going to get a certain amount of money when in fact due to its own economy and some language that was drafted it did not get what was anticipated. There was a mechanism in the bill that was designed to allow it to make those up. There were five sources of revenues called "make-up revenue." The implementation of the make-up revenue has afforded Churchill County more money than it would have lost, so the mechanism of the $1 million appropriation has already been accounted for at the local level. They have made up about $1.3 million. If it is the desire of this committee to go ahead and further provide revenue to Churchill County, that is certainly within your authority to do so.
In the make-up revenue aspects there were two other counties that used this, Washoe County and Humboldt County. In Washoe County there is a mechanism in this bill that is going to say now Washoe County will not be required to use Department of Taxation figures for the calculation of how much they would have lost and how much they have made up. Again, if it is the desire of this committee to do so that is fine. I would like to draw to your attention that so far to date the make-up revenue has more than exceeded the loss experienced by the county. I think we see in Churchill and Washoe counties the same thing occurring.
I would like to caution you there are some other players in this that are not apparently represented here today. The calculations appear to indicate that Lander County is going to take over a $600,000 loss due to the enactment of this language. They are not provided the mechanism to make that revenue up. In the last section of the bill that you allow the individual counties to make up some amounts...it is in section 15 of S.B. 506....I do not see Lander County there, and I wonder if it is an oversight or whether it was intentional.
Senator Coffin said legislative counsel indicated this was the outburst of those counties who were not receiving money and that Lander was receiving something from this appropriation. Therefore, they omitted Lander County. He was led to believe that Lander County was on the plus side of the appropriation. He asked, "Are you saying the formula will cause Lander County to go further down?"
Ms. Wright answered in the affirmative. She continued her testimony:
The circumstances are that the Department of Taxation has not been a player in drafting S.B. 506. We just saw this bill a few days ago when it was finally introduced and we ran some quick numbers. I think what we are doing is revisiting what happened in the 1991 session. Again, the Department of Taxation did not see the language of A.B. 104[of the Sixty-sixth Session]. You had already adjourned and left....When we implemented the language of the bill a lot of problems came to light. What I would hope to do today is bring it to your attention before we adjourn so we can deal with these mechanisms now and either change them to do what it is you intend to do or somehow rearrange the language. It is our intention to clarify this and merely to state that Lander County, because of no longer being a point-of-origin county and being a rural-guarantee county, is going to experience a loss.
Senator Raggio asked if that would be a onetime loss. Ms. Wright said it would be an ongoing loss but the onetime amount by moving them is not accounted for. She said this involves $600,000 to a small entity.
Continuing, Ms. Wright said:
In addition what we found in doing a preliminary analysis is, were we to move Churchill County from a point-of-origin county to a rural-guarantee county, they also are going to experience a loss.
Senator Raggio asked Ms. Wright what she would suggest the solution would be.
Ms. Wright said it would be easier for her to have the opportunity to work with a subcommittee than present the items section by section to the entire group.
Senator Raggio suggested she work with the group that drafted the bill. Ms. Wright said she would do so.
Senator Raggio asked when the Department of Taxation first discovered the problem with Churchill County.
Ms. Wright replied in March 1991 the Department of Taxation became aware of the original problem.
Senator Raggio remarked, "We were still in session. You discovered that there was an error during the session?" Ms. Wright answered in the affirmative. He then asked, "What did you do when you found it out?"
Ms. Wright responded, "We provided that information to some of the drafters of A.B. 104[of the Sixty-sixth Session] such as Carson City. We gave them numbers. The number we gave them showed that a taxpayer had misreported on the wrong line."
Senator Raggio asked, "Did you provide that to the legislature knowing we were reviewing A.B. 104[of the Sixty-sixth Session]?"
Ms. Wright responded, "Yes, sir. I did testify in front of [the] Assembly [Committee on] Taxation." She further commented:
I was asked that question by Chairman [Robert E.] Price. He was discussing the numbers and asked if they were the numbers from the Department of Taxation. I testified on the record they were not the numbers that were provided by the department. Discussion then ensued, `What is it we are looking at? What are these numbers?' Apparently some of the drafters of the bill said they took some raw numbers from the department and we did some calculations to them and we prepared some spread sheets.
At that time...the information was known. Further discussions were held later in the session. As I started to see changes to the bill come through, I could see there were certain problems that were developing in a couple of counties. I did go to a couple of legislators and explained this may not be what they are trying to do.
It was not available to the Department of Taxation in final version until after you had already adjourned. At that point we went ahead and calculated the numbers to determine the impact. When we issued that information, the newspapers in Churchill County and a number of other individuals noted there had been a mistake.
Senator Raggio said it was unfortunate this happened because the information should have been used at the time it was reported.
Ms. Wright said she would take the responsibility for a part of the problem that occurred because she did not fully understand how A.B. 104 of the Sixty-sixth Session was drafted. She also did not understand what the impact would be to some of the counties. Ms. Wright now is interested in bringing information to the committee to allow them to see the impact before action is taken on S.B. 506.
Senator Raggio said he was not interested in assessing blame on Ms. Wright or anybody else but is interested in finally resolving the issue. He asked for those who participated in the drafting of S.B. 506 to work with Ms. Wright regarding her concerns about the language of the bill.
Mary Walker, Financial Director, Carson City, Nevada, testified they had become aware of the error in August 1991 after the 1991 session had finished.
Senator Raggio noted, "She [Ms. Wright] said she went to Carson City in March [1991]."
Ms. Walker replied:
That is correct. What happened is the error had actually occurred in either September or October of 1990. They discovered it in December 1991. It was corrected in March, but it was actually discovered prior to that time. What the Department of Taxation told me in December, 1991 was I had a gentlemen on my staff...one of my staff accountants who went to the Department of Taxation to pick up some tax information. According to the Department of Taxation they gave him some information concerning Churchill County which I am sure confused him...if that did occur...he never even worked on A.B. 104[ of the Sixty-sixth Session]. That information was not brought to me. I would really question with 4 months of testimony why it wasn't brought to the legislature or to Churchill County rather than this staff.
Senator Raggio interjected:
I do not know that this is particularly helpful at this point, deciding who made the error. I think it still brings us back to the point that the ones that are directly involved in this did not make the error. I do not believe this committee wants to impose sanctions on any individual, agency, the legislature, or whoever made the error. What we are trying to do is put it behind us.
I would ask you [Ms. Wright] to work immediately with this group to find out if any of these numbers need adjustment before this committee acts upon this bill.
Senator Callister said he was not certain he understood the testimony given by Ms. Wright and voiced:
I recall that we authorized the five different sources of supplemental revenue to the counties that were going to experience the loss. I did not realize, and I do not understand in the context of today's earlier testimony, that both Churchill and Washoe have utilized those five sources of revenue to more than offset the extent to which the $1 million would be dedicated to help them offset that $850,000. I would invite some comment from Churchill County. I think that is a crucial matter.
Mr. Selinder answered:
I am not sure where these numbers are coming from, but I can tell you right now in our records we are looking at about 82 or 83 percent of the total amount that is allowed under the make-up formula. So we are certainly not exceeding our revenues. There is no way we could be doing that because all of our revenues are depressed.... I am having a hard time following this line of testimony. It should be stated that we have taken advantage of four out of the five options that were provided, and yet that does not make up for the total amount of losses we are experiencing. No way.
Senator Callister said that was his point. He believes there is an absolute discrepancy of testimony that must be clarified. He asserted:
Either they have offset it by assessing it to their own constituents or they haven't. We need to know that because as troubled as I already was by the appropriation, I would be significantly more troubled by an appropriation to Churchill County that will then get passed along to Washoe County that comes disproportionately out of Clark County revenues that has already been offset by increased revenues at the expense of Churchill and Washoe County folks. That would really trouble me. I think we have to get to the bottom of this and get some numbers we can rely upon.
Mr. McMullen explained:
The first estimate of loss out of A.B. 104[of the Sixty-sixth Session] was done by the Department of Taxation. I cannot remember the exact number. It was somewhere between $17 million or $18 million. Washoe County Commissioners had the issue of raising appropriate make-up revenues by the sources that they thought were available. They used all of them...in fact they increased property tax over 8 cents per $100. Last year the sales tax increase was up by 1 percent so we had a flat year, second year. This year we have seen some increases and are trying to figure out exactly how much to reduce that make-up revenue. I think part of that is built into this bill.
The issue that was just stated is based on the Department of Taxation using a standard across the board 8 percent estimate of growth in revenue from sales tax. Our actual is 4.29 percent. You can see there is an increase in the estimate of sales tax which would mean that maybe by their numbers it could be argued there is an over collection. That is not the case. It is half of that increase. I just want to make it clear that there are differences here. I think it really points again...just like the rurals when they regenerated this request to get to actual....It is a confirmation of the issue about having other people make estimations for you when in fact you are the one that has to live and die by those estimates.
Senator Raggio asked the officials from Churchill County and Washoe County to submit the information regarding the amount raised for the five options to compare to the lost revenue. He commented:
It has to be noted that Churchill County like Washoe County has one-quarter percent more sales tax than all of the other counties and has a higher motor vehicle privilege tax. As a result many residents are going to neighboring counties and revenue is lost. For example, I think Washoe loses $350,000 because people in Washoe go to another county to register their car. You have to take those things into consideration. At some point the counties that are making up their revenue are going to be allowed to get back in line with other counties.
Mr. Kalt commented he cannot understand how the Department of Taxation can state that Churchill County has over-collected revenue. According to data in his office, the county will experience a shortfall in the current fiscal year of approximately $130,000.
Senator Raggio closed the hearing on S.B. 506 and opened the meeting for discussion of Senate Bill (S.B.) 507.
SENATE BILL 507: Makes appropriation to Nevada racing commission for certain operating expenses.
Senator Raggio explained the committee requested this bill based upon Exhibit D, a memorandum and attachments from Sharon G. Brandsness, Commissioner of the Nevada Racing Commission.
Since there was no testimony concerning this bill, Senator Raggio requested that Exhibit D be made a part of the record and closed the hearing on S.B. 507.
Senator Raggio opened the hearing for discussion of Senate Bill (S.B.) 429.
SENATE BILL 429: Requires certain peace officers to complete program of training for detection and investigation of and response to cases of sexual abuse or sexual exploitation of children.
Senator Glomb referred the committee to Exhibit E, a proposed re-draft of S.B.429 submitted by the Office of the Attorney General. She noted the major changes suggested are reflected in dark, bold print to clearly specify that the bill should address sexual abuse or sexual exploitation of children.
Senator Raggio noted the wording for the proposed redraft for section 3, subsection 3, should correct the word "shall" to "may." He suggested a formal amendment to S.B. 429 be prepared to be brought before the committee for action.
Senator Raggio closed the hearing on S.B. 429 and adjourned the meeting at 10:43 a.m.
RESPECTFULLY SUBMITTED:
Marion Entrekin,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
June 8, 1993
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