MINUTES OF THE

      SENATE COMMITTEE ON GOVERNMENT AFFAIRS

 

      Sixty-seventh Session

      April 19, 1993

 

 

 

The Senate Committee on Government Affairs was called to order by Chairman Ann O'Connell, at 2:00 p.m., on Monday, April 19, 1993, in Room 227 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda.  Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

Senator Ann O'Connell, Chairman

Senator Sue Lowden, Vice Chairman

Senator William J. Raggio

Senator Dean A. Rhoads

Senator Thomas J. Hickey

Senator Leonard V. Nevin

Senator Matthew Q. Callister

 

 

STAFF MEMBERS PRESENT:

 

Caren Jenkins, Senior Research Analyst

Tanya Morrison, Committee Secretary

 

 

OTHERS PRESENT:

 

Karen Kavanau, Director, Department of Data Processing

Andrea Engleman, Lobbyist, Nevada Press Association, Inc.

Howard Barrett, Lobbyist, Nevada Taxpayers Association

Bob Hadfield, Lobbyist, Nevada Association of Counties

Guy Hobbs, Comptroller, Clark County,

Michael Alastuey, Lobbyist, Clark County School District

Marvin Leavitt, Lobbyist, City of Las Vegas

Carole Vilardo, Lobbyist, Nevada Taxpayers Association

 

 

 

 

Chairman O'Connell opened the hearing on Senate Bill (S.B.) 339.

 

SENATE BILL 339:  Provides for establishment of capital improvement districts.

 

 

 

 

 

      SENATOR NEVIN MOVED TO INDEFINITELY POSTPONE S.B. 339.

 

      SENATOR HICKEY SECONDED THE MOTION.

 

      THE MOTION CARRIED.  (SENATORS RAGGIO AND CALLISTER WERE ABSENT FOR THE VOTE.)

 

      * * * * *

Chairman O'Connell closed the hearing on S.B. 339 and opened the hearing on Senate Bill (S.B.) 340.

 

SENATE BILL 340:  Specifies procedure for designating data processors in individual agencies.

 

Karen Kavanau, Director, Department of Data Processing, spoke on S.B. 340.  She explained Nevada Revised Statutes (NRS) 242.071 currently mandates the Department of Data Processing to prevent the unnecessary proliferation of data processing personnel within the executive branch.  She stated it is virtually impossible to do, without this bill, but the real problem lies in reclassifications.  She explained management within the agencies have the right to submit reclassifications based on duties and tasks assigned to personnel.  She told the committee S.B. 340 would give the Department of Data Processing the opportunity to review the reclassifications prior to the approval by the Department of Personnel.  She added it only applies to those agencies which are mandated to use the services and or equipment of the Department of Data Processing and would not affect those agencies who are now accustomed to hiring their own staff for their data centers.

 

Senator O'Connell asked what agencies would be affected by this bill.

 

Ms. Kavanau stated agencies not affected were the Department of Motor Vehicles and Public Safety, the Department of Safety, the Department of Transportation, the Employment Security Department, the Legislative Counsel Bureau, the State Industrial Insurance System, the University System, the Public Employee Retirement System and also right now the Department of Wildlife is also exempt from services, but they will attempt at the next session to bring them back in to service of the Department of Data Processing.   She told the committee all of the other state departments would be included in the requirements of this bill.

 

Chairman O'Connell closed the hearing on S.B. 340 and opened the hearing on Senate Bill (S.B.) 342.

 

SENATE BILL 342:  Requires certain appointments by governor to be confirmed by senate.

 

 

Senator Rhoads addressed the committee members on S.B. 342.  He handed out copies of his written testimony (Exhibit C and Exhibit D) which is tables and copies of excerpts from other states' statutes for comparison to Nevada's statutes. 

 

Chairman O'Connell asked Senator Rhoads to walk the committee through the steps the procedure will follow.

 

Senator Rhoads stated:

 

      The way it will work according to this bill is if the Governor appoints a new water engineer, or say the director of the Department of Natural Resources, then the Senate Committee on Natural Resources would hold hearings and the Assembly Committee on Natural Resources would hold hearings and then those two bodies would make a recommendation.  If either committee turned it down then the senate could not make the official vote for that appointment.  But if both committees recommend that Joe Smith be the director of the natural resources then that is reported to the floor of the senate and the senate will then vote and recommend to the Governor that that person be appointed.

 

Andrea Engleman, Lobbyist, Nevada Press Association, Inc., spoke to the committee on S.B. 342.  She stated the Nevada Press Association normally does not get involved in this type of bill, but in light of reorganization the Nevada Press Association is taking a new view towards some of these bills which do provide a check and balance.  She explained agency heads will no longer be reporting to public boards, but will in fact be reporting directly to the Governor and where decisions which used to be made in front of the public will now be made behind closed doors.  She stated she has more concern for some checks and balances.  She suggested this bill could be one of those checks and balances, although she stated she is curious about the process before she can take an official stand in favor of this. 

 

Senator Rhoads explained this bill adopts the Arkansas procedure.  He further explained there would be a hearing for each body of the legislature on an agency appointee and if either one of the bodies turned this individual down there would be no confirmation.  But if both committees approve the appointment then the recommendation would be made to the full senate and then the full senate would vote on this appointment on the floor. 

 

 

 

 

 

Chairman O'Connell closed the hearing on S.B. 342 and opened the hearing on the overall situation of bonding.  She told the committee Senator Callister had asked for more information on bonding issues and the entire committee agreed to have an open presentation on this subject.

 

Carole Vilardo, Lobbyist, Nevada Taxpayers Association, spoke on bonding.  She presented the committee with an overview of the bonding issue in Exhibit E.  She stated:

 

      Our involvement on the infrastructure of financing has been heightened over the last couple of sessions because of the amount of special district laws that have come up, in addition to impact fees which were provided for, but are being used currently only by Washoe County.  The inconsistencies we have found in the way you finance infrastructure, Madame Chairman, you addressed bonding, but actually some of the information we have put together to bring before the committee is more than just bonding, it is what impacts the financing.  I think none of us at this panel actually have a disagreement as to why you should use bonds.  I think where we get into differences is what happened with the tax shift with putting a rate at $3.64 and in reality though, my feeling is if we were at $5.00 we would still be having the same problems we are going to be discussing today and some of the overview situation you have asked for.  If I can, to try to put some cohesiveness to what I am going to say, I took and prepared and pulled some extracts, in fact, as of 1:15 [p.m.] we finished the matrix which you have in front of you on the financing.  On the ivory colored sheets, we thought it would be handy just for the committee's point of reference and I think some of you may have already received this from us because it will be part of, at this point, a booklet.  It is up to some 24 pages right now that we will be publishing on infrastructure financing in Nevada.  The first sheet you have on the ivory identifies the types of bonds that are allowed plus the limitations and probably most important for purposes of discussion this afternoon it gives you an overview on the local government debt limits.  The second page is just a general overview of the local government's security law which is NRS [Nevada Revised Statutes] 354.  The state financing mechanisms are addressed in NRS [Nevada Revised Statutes] 353 and I did not provide you with any updates on that since this was primarily local.  But it talks about the General Obligation Bond Commission which has the authority for oversight when a bond issue goes out.  It talks about special obligation bonds, how the public in effect, is notified of what they will be involved with relative to property taxes when those bonds are out.  And then because of some issues that have come up this session, we have put in the third page of that attachment which is bonding versus pay-as-you-go [bond issue] which was taken from Shearson, Lakeman and Hutton for the advantages and disadvantages on both issues.  I think one of the other members at the other end of the table will probably be talking about some disadvantages on pay-as-you-go [bond issue] and I think Howard [Barrett] has a specific explanation.  The next sheet you have, the matrix and that is off the narrative we provided the committee a few weeks back and has since been updated.  When you have the opportunity to take a look at the breakdown of what is allowed in here, you are going to find that there are at least two provisions that deal with flood control.  There are at least five provisions that deal with streets, curbs, gutters, sewers.  You will find that up until we get to page 6, that generally you are allowed to use some form of general obligation bonding in addition to revenue bonds and something that our local governments are utilizing a good deal more and that is revenue or double barrelled bonds and these are a revenue source which comes in, but for which the full faith and credit of the entity is pledged.  Almost all of those through page 5 allow you to use a property tax rate and in some instances a special assessment.  On page 6, those are impact fees and we generally defined impact fees as those paid by a developer whether it was a home builder or a home builder and general developer and we did not double list it, but there is a provision on the first page on the capital projects funds available to schools, it is the third item down which is an impact fee also, that is the residential construction tax.  We see these special impact fees being used or requested more because they are not considered within the property tax rates and the property tax rates as the committee knows are statutorily capped at $3.64 and constitutionally capped at $5.00.  I think the other point that is important to remember in discussing these caps in light of some other comments that will be made is that if you start butting up to a cap, the local governments may try to negotiate down, however, any bond indebtedness by a school district or their operating rate, by statutory provision, is held down so while a local government may be made up of cities and counties and some specific taxing districts, a METRO taxing district or a hospital district, a library district, the schools would not be involved in buying down on some of these rates because they are held harmless.  That is a statutory provision.  That is in their bond rating and on their general obligation on what the state puts through on distributive school funds that is in part what is set by property tax rate.  I can provide you with the exact statute on that, I don't have it right now.  The third is just for your information.  Again, I think you have it, but it shows the local government debt as of June 30, 1992...

 

Senator Rhoads asked:

 

      To go back to the front page on the white sheet, on a capitol project fund on schools and counties and with less than 35,000 students, there is language on the books, I understand that would allow residential construction to tax up to $1,000 per unit.  I remember in some of my counties which are fast growing with all of the mines and new houses and new schools coming on board, that was discussed back then.  Did any counties put that on to your knowledge?  That $,1,000 construction cost per house. 

 

Howard Barrett, Lobbyist, Nevada Taxpayers Association, stated:

 

      Douglas County is the only one that imposes that at this time.  There is a bill in this session that has been proposed to change that, both the amount up to $3,000 and the amount of the population up somewhat higher.  The bill I believe is in the other side of the house and I don't think it is very healthy at this point.

 

Senator Rhoads stated:

 

      I was somewhat critical of the counties.  They had this option on the books and they never did use it.  They just went to the voters all the time as a pay-as-you-go [bond issue] program or something.  I just wondered why more of them didn't use it.

 

 

 

 

 

Mr. Barrett said:

 

      I assume they have not been able to get a vote on it.  In Douglas County they also have the option of putting on the highway, the transportation impact fee and that went to a vote of the people and the voters turned that down.

 

Bob Hadfield, Lobbyist, Nevada Association of Counties, stated:

 

      I believe at one time that Storey County had that too.  I believe there have only been two counties that have done it.  I lived through doing it when I was with Douglas County.  It is very controversial.  You are right, senator, it does provide an edge, but I believe that came on before the pay-as-you-go [bond issue] in general for schools and they have gone to that more favorably with the property tax.

 

Ms. Vilardo said:

 

      One other point if I might within these, you will find with very few exceptions in the redevelopment area, in the urban development areas, that extraordinary maintenance is allowed for.  In most other cases where you are into property tax usage, maintenance and operations is not allowed for.  It is primarily to finance or put the infrastructure in place.  There are some of the impact fees that will allow maintenance and because of the problems in butting up to the cap, this is something we have seen in the district bills that have been requested by this legislature and that is the use of normal maintenance and operations.  The other thing is that generally speaking again, when you have these special votes on these types of capital improvements under these statutes, most of this voter approved debt is outside of the 106 percent revenue cap.  Local government may receive 106 percent in property tax revenue over the prior year and that does not include new construction.  In most cases, it also excludes most of these voter approved bond issues.  And I think at this point I would turn it over to Howard [Barrett], because I think you can't discuss the bonding and the financing without saying a little something about the combined tax rates and you have another set of sheets that we provided (Exhibit F).  It is one sheet with White Pine County on top and then three gray sheets. 

 

 

Chairman O'Connell stated:

 

      For the committee's information, those of us who sat on tax [taxation committee] have just heard a very serious problem that White Pine County is having and in reference to, since we are looking at White Pine initially, I wonder Bob [Hadfield] would you like to share with the committee some of the situations that they are running into right now or the particular situation they are running into.

 

Mr. Hadfield said:

 

      As Senator O'Connell alluded to, we invited White Pine County to come before the Senate Committee on Taxation to explain a very complex problem they have.  If I understand correctly you may have a single sheet in front of you (Exhibit F) that provides information on their 1993-94 budget.  Essentially with the change, two things have occurred that have put the county in what we consider to be a crisis situation.  One was the passage of the school bond issue in White Pine County which was a 55 cent tax rate which is layered on top of an existing 50 cent pay-as-you-go [bond issue] which is of course, added to the school operating rate so that $1.80 of the combined tax rate in White Pine County is utilized in schools.  What has happened with the passage of that bond issue, combined with a decline in assessed valuations, that is the result of gas and oil lease information from the Bureau of Land Management.  We have a combined tax rate, the highest combined tax rate in the county is about $1.44.  The chart you have before you does not indicate that the state tax rate is 15.75 cents, it is incorrectly listed as 14.40 cents which increases the rates.  Now, Carole alluded to the process of buy down.  When you have a rate in excess of $3.64, someone has to give on the tax rate.  It used to be in the old days with a $5.00 tax rate the tax commission would be the final arbiter, but before that happens the county commissioners hold a meeting and invite all taxing entities to attend and you essentially ask somebody if they are going to reduce their tax rate.  But, as Carole [Vilardo] alluded to now, under present law, unlike when we were under the $5.00 limitation, the school district can't give anything.  They have nothing to negotiate.  So in White Pine County $1.80 of that rate is completely tied up and that cannot be reduced, which leaves White Pine County and the City of Ely the ones that would have to essentially reduce their rate to get the money that is needed.  It is not on this sheet, but we are talking about $600,000 is the equivalent of the reduction in revenue out of a $4 million General Fund that White Pine County has to have to reduce that tax rate.  They can buy out the town of Ruth, that is the small assessed valuation and for $2800 they can wipe out the tax rate in Ruth, but when it comes to getting it down in the City of Ely they would have to buy it down somewhere in the neighborhood of anywhere between $2800 and that $600,000 figure and neither the city or the county can give up that revenue.  So what we are confronted with is, in this case, a county that will have to reduce its operating tax rate by 55 cents in order to get anywhere near the neighborhood of the $3.64 rate and that is not possible without the county essentially giving up 15 percent of its total revenue into the General Fund which already is a sparse operation out there.  They have given two employee raises in the last 8 years and they are in a very difficult situation.  I think it also points out the volatility of assessed valuation in the situation in White Pine County where their assessed valuation declined.  As we know, in a rural setting and in a mining community that is very possible.  For example, we have Nye County that has a very sizable school bond issue and if the major mining for some reason went down in Nye County I would believe the Nye County School District would be faced with the inability to pay their debt.  But, the point I would like to make is it is the county first, because they are the only other ones that have the county-wide tax rate and I should say in White Pine County the hospital district has a county-wide rate so in order to get that down to $3.64 without involving any other unit, the hospital and or the county would simply have to reduce their revenue.  Beyond that we are into a buy out which is an equity situation too.  If you buy out a city tax rate with general dollars, the non-urban residents are really subsidizing urban residents or if it is an improvement district or whatever because you are taxing all of the people a higher tax rate to buy down that smaller, albeit a higher tax rate for the people in the city.  But the dollar amount is less on a county-wide rate, it would be less to pay it off.  So it is a problem and it is with us right now and there is no way to solve the White Pine County problem.  You could say that the school could forget about the pay-as-you-go [bond issue], but they can't because they borrowed money and pledged the pay-as-you-go [bond issue] as the payments so the school cannot give up the 50 cent pay-as-you-go [bond issue] for a year to help out.  And that pay-as-you-go [bond issue] goes 2 more years before it goes to its 10-year-life.

 

Chairman O'Connell stated:

 

      I think that is a dramatic illustration of what we get into when we have the competitions for the same dollars again.  And every time we allow the creation of one of these districts that is what we are faced with again.  I didn't mean to interrupt you, Howard [Barrett], but I thought that was such a good example of what Carole [Vilardo] had just talked about that it might give the committee a better understanding of what we are doing.  So Howard [Barrett], if you would like to continue.

 

Mr. Barrett continued:

 

      Along that same line, we don't have the final figures right yet, but this same kind of problem is likely to develop in some of the other counties.  In the City of Elko, for example, they are proposing increasing their city rate from 39 cents to 62 cents.  Now, in Carlin, up there they are already at the $3.64 so I don't know what the other jurisdictions are going to do up there, but they may be having the same problem up there.  I think one thing I would like to point out that Carole [Vilardo] touched on, but maybe we could reiterate again.  Each government subdivision has an amount of bonded indebtedness that they are authorized to issue.  For example, the state has the constitutional limitation of 2 percent.  School districts have a statutory limitation of 15 percent, the counties I believe are 10 [percent].  They vary by different amounts.  If you total up just the usual ones, the state, county, schools, city and...

 

Chairman O'Connell asked, "Marvin [Leavitt], is the city the same as the county, 10 percent?"

 

Marvin Leavitt, Lobbyist, City of Las Vegas, answered, "No.  The cities are by their individual charters, some of them by general law, most of them are between 20 and 30 percent, however."

 

 

 

 

 

Mr. Barrett stated:

 

      Carson City is at 10 [percent], Wells I believe is at 40 [percent], generally they are at 20 [percent].  But if you take just those general ones, not any special districts or anything else, that is 47 percent of the assessed valuation.  Now if all of those bond limits were at the top and a piece of property was bonded for 47 percent of its assessed valuation, I assume it would be rather difficult to sell those bonds.  Now the 47 percent doesn't include 10 percent for library districts, 5 percent for airports, 10 percent for hospitals, 5 percent for convention centers, 50 percent for general improvement districts, 10 percent for the park bond issue that you just passed and then there are some others.  Having just those you come to 137 percent, obviously you can't sell bonds for 137 percent of the assessed valuation.  Forty-seven percent would be difficult.  So those bonded debt limitations are to a great extent, meaningless.  The only real limit on the amount of bonds that can be sold, there are two limits.  The first one I suppose is the amount the taxpayers are willing to vote and the second one is two amounts I suppose.  One is the amount you can sell at a reasonable rate of interest and that is not clearly defined any place and the big problem is for the amount to stay within the $3.64.  The more special districts that are authorized to add to the ones that are already on there, the more there is going to be a demand not only for the bonded indebtedness property tax, but also for an operating property tax.  Before the state redid its property tax and reduced the property tax from $5.00 at the state level, there was very little use of special districts.  In Clark County for example, there was no tax rate in 1981 or 1982, no tax rate for special districts, because there were no special districts.  Since that time, because of the special districts in Clark County, there is a tax rate of 21 cents.  So by the controls put on the 106 percent of the tax revenue by increasing the number of special districts, the tax rate in Clark County for special districts has gone from zero [cents] to 21 cents.  The same thing roughly is true in the other counties, although that [Clark] being the largest has the most weight.  I think those are the only points I wanted to bring up.

 

 

 

 

Guy Hobbs, Comptroller, Clark County, stated:

 

      The part that I wanted to spend some time discussing, and we may be taking things out of order a little bit, but we did provide a copy of what is titled the Clark County Debt Management Policy (Exhibit G) to each member of the committee.  In large part this policy was put together in recognition of a lot of the types of things that have been discussed so far today.  I agree with Howard [Barrett] there exists some level of natural cap on the amount that a local government can be able to bond at any particular time.  Although it is a very difficult amount to quantify and that is why you have things like a 10 percent of assessed value limit and the cap of $3.64 is to make an effort to quantify the limitations that are being placed upon taxation and bonding.  One of the things that we have discovered over time and particularly in the last several years having been fairly actively involved in the credit markets is that probably the first threshold we would run into in limitation would be that imposed by the rating agencies which I think Howard [Barrett] referred to a moment ago as the level at which you can continue to sell your credit effectively.  In other words, the bond ratings to each one of the local governments that issued that are very important to us to secure the types of attractive rates that we would like to be able to get.  The higher the credit rating the lower the interest rate, generally, because of the association with risk.  And if at any particular point in time, either Moody's or Standard & Poor's thought that you were reaching into the high level of bonded indebtedness or beyond the ability of the taxpayers to adequately support, they no doubt would raise a red flag and either do it in the form of a downgrade which would mean higher interest cost to the entity or by putting you on credit watch or some other mechanism available to them.  We certainly want to avoid anything like that and believe that through some internal mechanisms we consult or police our issuance of debt.  In a large part that is why we have spent the last 8 or so months working on the debt management policy that you see before you.  At our most recent board of county commissions meeting, the board of county commissioners in Clark County did adopt this as their policy for debt management.  This policy includes two main sections.  The first section is that which deals with debt capacity and that is what most of the discussion thus far has been about.  What are the limits that are imposed upon us, how much debt do we currently have, how do we compare to other entities roughly our size in terms of per capita debt, debt as a percentage of effective buying income, debt as a percent of assessed valuation and other ratios to look at.  We spent the first several pages trying to analyze our position both on a direct tax supported debt basis and an indirect tax supported basis, the difference being those directly associated with Clark County issues, the indirect would be those that overlap parts of Clark County and would consequently include the cities, school district and others.  I might just point out a couple of pages as we go through this very quickly.  Page 3 of the Debt Management Policy summarizes for Clark County the total amount of direct net tax supported debt that currently is outstanding and that would be about 2/3 of the way down on your page and the number is $714 million.  Our 10 percent limits based on an assessed valuation of approximately 15 billion would be 1.5 billion so we are somewhere in the ballpark of just under half of our bonding capacity at this point.  When you add in some of the debt that is also funded by pledged revenues in the enterprise funds it would take the number up to 840-1/2 million which are remarkably large numbers.  On the next page, page 4, bottom right hand corner under fiscal 1993 the number becomes nearly 1.5 billion when you add in the indirect net tax supported debt.  That indirect net tax supported debt is summarized for you on the top of page 5 and it would again include the debt which exists in an overlapping sense for the Clark County School District, the various cities and some of the special districts we have in Clark County.  Down on the bottom of page 5 we think that is an interesting comparison.  We tried to select other municipalities that were roughly close to Clark County in size and draw some comparisons and on a debt per capita basis we compared rather favorably.  On a debt to taxable value we compared rather favorably and on debt to effective buying income we still compare rather favorably.  The one area that we feel we have some work to do is the far right column, however, and this is one of the reasons that we have pushed forward with the debt management policy to send a strong and clear signal to the rating agencies that Clark County is very willing to take the bull by the horns in Clark County and manage its own debt.  We feel very strongly that Clark County and other areas of the state have been undergraded by both of the rating agencies.  They do an extremely good job, but they are also extremely conservative about the ratings they tend to give out and we feel very strongly that Clark County and many of the entities within Clark County should at least be an AA credit at this point.  Because there are so many issues that we are facing in the very near future we intend to make our case very strongly with both the rating agencies.  We have, of course, the potential of $80 million in park-related bonds to issue, if in fact that passes.  We will be the issuer for the METRO jail bond since that is a county wide issue and that would be another $20 million.  We currently have $40 million in government center bonds that are just making it to the General Obligation Bond Commission and in fact just about 2 hours ago went through the General Obligation Bond Commission and those will be revenue supported General Fund obligations.  Also METRO has another $24 million on the ballot for substation improvements, so right there alone within the next few months you could see what is a fairly large amount of bonding activity again taking place in Clark County to the tune of potentially up to $164 million, a minimum of $40 million.  So the credit rating would be a very important factor in the issuance of that debt because once again the higher the credit rating the lower interest rate and the lower the obligation, particularly if the general obligation to repay on the part of the tax payers.

 

Chairman O'Connell asked, "Guy [Hobbs], do we have any indication about what the school district is going to be doing when they were talking about a billion dollars?"

 

Michael Alastuey, Lobbyist, Clark County School District answered:

 

      Not at this time.  Obviously the media did give some treatment to some perspective long, long term needs.  Obviously our last program exceeded $600 million and that has been since 1988.  We are towards the end of the build out on that so it would simply be a matter of speculation and projection at this time.  The figure that circulated in the media was highly speculative, but you could be sure that any program that we bring would be of some magnitude.

 

Chairman O'Connell asked, "Do we have any bonds that are coming to fruition right now?"

 

 

 

 

Mr. Alastuey answered:

 

      We are in the early stages of the retirement of our bonds at this point.  We sold some bonds in [19] 88, some more in [19] 90 and the final batch I believe in [19] 91.  So we are in the early stages of retiring those issues.  Our principal balance at this point out of the $600 million, I'll just grab a number right now, it is probably in the 560 [million dollar] range or whatever.  We will be retiring lots more bonds in increasing amounts obviously as the interest payments are made and as level debt service is assumed through the 20-year course of the existing debt.  But, like I say, we are in the early stages of that and have not retired very much of that debt.

 

Senator Hickey asked, "What is your bond rating?"

 

Mr. Alastuey answered, "Our rating right now is A+ according to Moody's and Standard and Poor's, the same as the county at this time."

 

Mr. Hobbs continued:

 

      One other page of note in the debt capacity section would be page 12 ( Exhibit G) which summarizes the recent history of the property tax rate which supports debt service in Clark County.  I draw your attention to 1983 when the debt rate was at its most recent high of 51 cents per $100 of assessed valuation.  The debt rate in Clark County currently is at about 18 cents and as you can see by looking at the table for the projections beyond 1993 it is expected to continue to decline.  One of the primary reasons for that in structuring most of the debt in Clark County, we structured on a level debt basis and consequently the increases in assessed valuation from year to year forced the debt rate down.  One of the ways the rating agencies have viewed it in the past is the property tax tolerance method which is not a way we are necessarily trying to impress them with at this point, but they have taken note in the past that the county and county residents were willing to pay a rate of up to 51 cents and only being at a fraction of that now, that would indicate to them there is substantial capacity.  There are a variety of different methods the rating agencies might use to ascertain what the ceiling or the debt limitations for any particular agency might be and certainly property tax rate and willingness to pay property taxes would be one of them.  On page 14 and this is a point we feel is very important in order to attack this issue head on.  As a part of our debt management policy we have disclosed all of the issues we see coming forth in the near future.  This would be over the course of the next 3 to 4 years.  You can see on there a sum that I just mentioned, the parks bonds at 77.4 million, government center bonds at 40 million, detention center bonds which are part of the METRO package at 20 million and then you see additional, what we term contemplated debt for Clark County that may or may not occur in the amounts you see and it may or may not occur within the years you see ascribed to each one of them.  One of the things we think is essential for all of the local government units within a county to do is to disclose what the contemplated debt is, probably most appropriately through a body like the General Obligation Bond Commission, at least on an annual basis or when your plan for contemplated debt changes.  In that regard, all of the agencies that were referred to earlier as competing for portions of property tax can see what everybody else's plans are and with more of that on the table, perhaps seek opportunities to work together to accomplish certain capital improvements than they might have.  That is a recommendation, I understand, is part of some language that is being contemplated to be brought before the legislature this session.  That would include both a requirement to have in place a debt management policy, not being specific as to what any of the policies might be as well as requiring disclosure of contemplated debt before a body like the General Obligation Bond Commission.  In the second section of the debt management policy which begins on page 19, and I won't go through that in any detail.  I'll just make mention of what the intent is.  We spend a considerable amount of time discussing the various types of debt instruments there are available to local governments, some have already been referred to here as straight general obligation bonds, revenue bonds, as Carole [Vilardo] referred to double barrel bonds which are revenue bonds additionally supported by general obligation, certificates of participation and so forth.  It goes further than that and indicates which ones the county might be more inclined to use under which conditions.  It also goes further and indicates the types of sales the county would be inclined to make.  There is an often sided debate between competitive and negotiated sales.  Clark County has a clear preference for competitive sales over negotiated sales because it has been our experience that competitive sales guarantee you the lowest rate on a given day or is generally as flexible as negotiated sales.  One of the other determinations we made recently with the issuance of the master transportation bonds which was the largest general obligation issue of this type that we had done, is that the previously ascribed to threshold of $100 million is being the level at which you want to consider going with a negotiated sale.  In fact it was more like $250 million for a credit like Clark County, a frequent issuer, fairly well known in the market, straight forward general obligation.  So we have stated a definite preference for competitive sales because we believe it is the least cost method of sales, but have also addressed in the event there would be a negotiated sale and those types of conditions would be extremely large size, extremely complex type of issuance involving derivative products or a counter party like an interest rate swap, something of that nature or an extraordinarily volatile market.  You may certainly want to consider negotiated sales in situations like that.  But the policy firmly embraces straight-forward competitive sales because of their cost-effectiveness for Clark County.  The first part of the policy is that which we expect the rating agencies to look at most closely and in fact, we involved both the rating agencies in the creation of this policy.  They reviewed several drafts.  We also involved about half a dozen underwriters and got various types of feedback from the underwriters, most of it very supportive as a matter of fact.  We believe a consideration of debt management policy is important for any municipality that is actively involved in the credit market and I wanted to bring this forward for your review.

 

Marvin Leavitt, Lobbyist, City of Las Vegas, stated:

 

      If I might I would like to discuss with you where I think things have gone in recent years and where I see some problems and where we might actually have some solutions.  If you look at what has happened in the City of Las Vegas since we had the major tax shift in 1981, we had a tax rate of $2.20 essentially in that subsequent year and we have a tax rate of approximately $2.95 this current year.  So you see we have had a 75 cent increase in that rate over that period.  Now, of that amount, 25 cents has come as a result of the state levying additional tax on behalf of the schools which essentially came to the benefit of the state so the school rate has gone from 50 to 75 cents, but of course since that is a factor in the formula, that essentially was additional revenue, well I don't want to say additional revenue, but many of the state did not have to pay for the support of schools when it was done.  So this was essentially just a relief for the state.  Of course the state didn't even have a tax rate at all during right after we got out of the [19] 80-81 year and they now have a tax rate of 14 cents so we could add that to the 25 cents so we've got 39 cents of the 75 cents is directly related to the state and its operation through the property tax system.  So that is part of it.  In addition, when we look at the chart we can see we've got a 21 cents described as special districts so we didn't have anything during the time of the [19] 80-81 period of time.  And that has come from several sources, part of it being previous METRO overrides.  Those aren't bond issues really.  I guess maybe part of it was for bond issues related to 911, but the majority of it is straight property tax levy to pay the operating expenses regarding the 50-50-55, you know the 50 new officers coming on line for a 5-year period and if approved by the voters they are getting ready to go into another one of those.  So we have had a number of things that have caused this rate to go up.  Now the operating rates of the city and the county have also increased and I am talking about the operating right now that is controlled by the 1.06 percent.  I might just indicate that the 1.06 percent they are all familiar with relates strictly to operations.  It has nothing to do with debt.  So there aren't any debt issues that you can get that are under that limb unless you go to a dead issue that is not approved by the voters and such so that you are paying for within the limit.  We can talk about that in just a minute, but in general the 1.06 percent relates to operations.  Now those of you who have been here for several years can recall several sessions ago, a discussion came up when the tax shift originally came into effect in [19] 81.  There was a very substantial error made in the estimation of sales tax.  What the result of that error being is that in that year it drove property taxes down substantially below what they would have been had the error not come into existence.  And so a substantial part of what we see in the increase in the operating rate of the local governments is a result of one legislative session making up that difference or partially making it up at least.   If the difference between what the property tax would have been had that error not been made in the estimation of the sales tax and what the property tax actually was as the result of that error.  Now that cannot happen now because they are not tied together anymore, but at that time there was a direct relationship.  So the higher the sales tax estimate the lower the property tax.  In that one particular year, we had plans for a substantial reserve fund, we had 13 months of revenue going into a 12-month period and even when we took the 13th month and put it in, it still did not equal the estimate.  So you can see there was a substantial difference and that has caused this operational rate.  So you can see there is a substantial part of the difference now between the 220 and the 295 essentially that is unrelated to debt.  Now part of that 21 cents that I talked about a few minutes ago that relates to special districts comes as the result of voter approved debt for the library district which has had several bond issues coming over these years and of course that does relate specifically to debt.  That is sort of where we have been and where we are now as it relates to debt.  You notice the City of Las Vegas debt (Exhibit G) that we charted over the last 3 years has gone from 10 cents to 7 cents to 5 cents based upon the property tax.  Now what has happened, if you look at the sheet that I supplied you that shows the debt of a city, you notice that most of the debt that we've got relates to the sewer.  We have had substantial multi-expansion of the sewer plant, extension of lines and an upgrade of the plant to satisfy federal requirements that are involved in those three big issues as you can see there, for the sewer debt.  Each one of those bonds are of the type where they are paid from sewer fees and do not currently use any property tax.  However, we have property tax backup in the event the sewer fees were insufficient, but that does not appear likely to be the case in this particular debt.  Now as to the problem we've got.  If I can I would like to discuss special districts for a few minutes as to what kind we've got and what causes the problem.  If the special districts...we've got a number of different kinds that exist around the state.  One thing, we  have what we think of as a normal assessment district where we levy an assessment against the property which is going to be benefitted specifically by local improvement or someone puts in streets, curbs, gutters, street lights, that kind of stuff and does not normally ever require any property tax levy.  Quite often those come as a result of people who are in a rural area and it has now become an urban area and they have specifically requested those improvements be put in.  Those really don't have anything to do with property taxes and I think we don't really need to consider those in the main deliberations as it relates to the property tax specifically.  Now we have districts and we have a number of them in Clark County where we have tried to establish some means of funding a project that we can see extends beyond the individual entities that is not just related to Clark County, but might well relate to the City of Las Vegas, City of North Las Vegas and Henderson and so on.  You can see we have a regional flood control district that is that type of an animal.  We've got this regional transportation.  We've got the convention authority.  We've got all of those things you might classify as special districts, and I suppose the health district is another we can classify under that and all of those kinds of things relate from trying to combine the entities into some organization for some special service that we want to provide over an area that is larger than an entity itself.  The library district, I suppose, would be another one, particularly where the City of Las Vegas and Clark County are concerned where we have an entity that goes beyond the boundary of either district.  Now we have another type district.  The Clark County Fire District is a good example.  Where the county desires to provide service within the unincorporated area of the county, but it really doesn't extend to the entire county that is unincorporated so you establish a district within say the Las Vegas Valley so you can provide service to an area that does not extend to the entire county.  Then we've got a district that is similar to some of the ones we've got at the Lake [Tahoe] up here that by the time you combine two or three of them they almost become very similar to an unincorporated town so you have some way of providing maybe sanitation service or water service or garbage removal service or those type things to areas.  Those come about for heaven only knows the number of reasons.  Half the time I think it is because you have people that can't get along with other people so you...say for instance the residents of one particular area can't get along with the county commission so they want to establish a separate district to provide services for themselves that are not being provided county-wide.  So we use those districts.  Those districts are used for a large number of different types of projects so they become...they are very different in nature.  You can just think of the ones we've got in Clark County where they are used for flood, they are used for transportation, they are used for libraries, they are used for fire.  And I don't know that there is anything necessarily wrong with those type districts.  We've got a special district...for establishing as it relates to the Metropolitan police and some of the means they have of taxing people to live within the boundaries serviced by the Metropolitan Police Department.  And so the establishment of a district in and of itself does not provide property tax going to that district.  The only way a property tax goes to that district is; 1. Is if the legislature allows it to go to that district.  Or 2. If the voters approve it to go to that district.  If say, Clark County right now wanted to establish a new district for parks or something, unrelated to bond issue, they wanted to establish that district and put operating money into it, they have no way of doing it other than a vote of the people.  There is nothing in the statutes that automatically provides if you want to go out and establish some districts so you can somehow or another get tax money going into that district without one of those two or three steps that I have discussed with you.  So you don't automatically get any great benefit by establishing a district unless you can get the legislature to approve it.  As you recall, you had one before you the other day that related to libraries for North Las Vegas which would have provided property tax money going into that district.  Indeed that would have been a property tax levying district if you had approved that.  That would be the type that I have referenced to.  Now, as to what we might do with the problems.  We have talked about the White Pine situation a lot.  If you look at the numbers on White Pine...White Pine should never have gotten themselves into this situation.  You know we have a mechanism set up for the General Obligation Bond Commission to review and one of the specific things they have an obligation to review is the effect upon tax rates or proposed bond issues.  I recognize White Pine had a decrease in assessed valuation, but the decrease in assessed valuation goes from 117 million to 112 million.  Now that is not going to throw your property tax rate over by 50 cents or $1 or whatever it is.  It looks like to me we got the mechanism in place for this General Obligation Bond Commission that their duties were...particularly if they were expanded, but we've got it in place so they have an opportunity and obligation to review those.  If you arrive at the $3.64 limit and someone is proposing a bond issue that is 50 cents of property tax, that ought to give you a clue at least that you are going to have a big problem next year and I think that is part of the situation.  Now I see one difficulty and I am not sure what the solution to that is, but where we have...the General Obligation Bond Commission has already called meetings at the beginning of every year and everybody submits their debt plans for that year.  Now quite often those don't ever come about or new ones come on line.  We might have to somehow or another put more teeth into how to plan for this debt so if you go past a certain point and you have not notified this General Obligation Bond Commission...I am just speaking off the top now...If you haven't notified them as to your plans and they've considered that when they've determined what debt they are going to allow, then you don't have anymore debt until you go to the next cycle or something.  The situation we have right now is they are almost looking at each individual issue as it comes before them, so if the city comes before them today and we want 5 cents and they might not know the county is going to come before them 3 months down the road with another one and somebody else...the library district is planning on coming with another 10 [cents] and the school districts got in mind another 35 cents or something.  So it looks like the solution to part of this is some kind of coordination so that at some point in the year the various entities are willing to commit themselves for what they are going to do and then the General Obligation Bond Commission puts that in their plan.  Unless there is some specified emergency we don't go beyond that.  I think that is something at least we have got to consider.  Otherwise, what can happen if you get a very small entity that can come in and because they don't have much assessed valuation and need a big debt, they can eat up so much of the rate that it essentially blocks almost everyone else in the county from using the rate.

 

Senator O'Connell stated, "Which is exactly what has happened to them."

 

Senator Nevin asked:

 

      Marv [Leavitt], how would you set up a red flag system to where if something like that were about to occur

 

      everybody would be notified?  Is it just everybody not letting everybody else know what they are doing at a particular time?

 

Mr. Leavitt answered:

 

      I don't think it is intentionally done by anyone, but I think what happens is you'll go along during the year and you get each entity who is operating entirely separately over here, pretty much in the developing plans for projects.  And say for instance...say the city...we might be developing plans for new fire stations to go out into the northwest area or something and we have been working on that.  As we go along during the year and lo and behold comes along early summer we say we've got our plan together and we want to go to the voters in November, its a general election year, we want to go to the voters in November and so we go to the General Obligation Bond Commission in June or whatever date it takes to get us so we have enough time to get on the ballot and we present them our plan.  Now maybe the members of that commission knew nothing about this plan coming together before they got hit with it.  Now it could have been that the county or the library district or the school district or whoever...all of us are doing the same thing as we go along during the year.  Each of us developing plans independently, none of us trying to do anything to the rest of them, but each of us developing plans that are not coordinated in a way to control what the effect of the rate is.  I think when we do that we get into a situation similar to what White Pine has gotten themselves into.  If that actually happened in Clark County the problem would be a lot bigger than the problem in White Pine County.

 

Senator Nevin stated:

 

      The first thing that comes to my mind is that somebody is out there saying we are so close to the limit that we better get a jump on this before somebody else can get in there and catch them while they are sleeping.  Not saying that this ever happens, but I guess it is just coordination with everybody and letting everybody know what is happening.

 

 

 

 

 

Mr. Leavitt said:

 

      I think what is likely to happen...and you can see it and I don't think anything is wrong with this is...I will give you an example of the Regional Transportation Commission.  You know, every entity in the valley has projects they would like to get approved.  All of us have needs and the needs go beyond the limits.  Everybody knows there is only so much money there so they negotiate with each other before the fact.  No, not after the fact.  The negotiation after the fact is the kind we are talking about in White Pine, but they negotiate with each other before the fact and discuss what they are going to do because they know there is a finite limit to the amount of money.  I have an idea that maybe such a thing would go on and it seems to work fairly well.  That is the amazing thing.  I think all of the entities have been reasonably happy with the outcome of that and maybe we have reached the point that we have to do that with debt.

 

Senator Hickey asked, "You are coming down to the point.  What about the board?  Has there been any thought given to that?"

 

Mr. Leavitt asked, "The board?"

 

Senator Hickey answered, "Yes."

 

Mr. Leavitt stated:

 

      Well we've got in place the General Obligation Bond Commission.  Now whether that needs to be reconstituted, needs to have an obligation to do more probably than they are currently doing or whatever.  But, it looks like to me the time has come on a statewide basis to do something like this so they have more teeth and can control what is happening.

 

Senator Hickey asked, "Can this board work with all the entities or is there...Is that generally acceptable in Clark County with all the entities?"

 

Mr. Hobbs answered:

 

      I certainly think it can.  The boards are probably made up of all the entities who have a stake in the outcome of the decision...stake in the tax rates.  I think the problem is, not to repeat something Marv [Leavitt] said, but maybe just state it a little bit differently.  The commission finds themselves routinely in the position of making decisions about issues in a vacuum.  They know what debt has been issued in the past, they know what the current property tax rates are if it is a general obligation and they know what all the current ratios are, but they don't know what is coming 2 months from now, a year from now, 3 years from now.  I think in order to make a fully informed decision about the overall impact on all of the overlapping districts, they need to have some idea about what is contemplated and some reasonable assurance that that plan means something.  That is one of the reasons, along with the debt management policy we are strongly suggesting a disclosure of contemplated debt to occur at least annually or more often if the plan changes so everybody knows the commission is aware that they have these things coming 2 months from now, 6 months from now and can make their decision with those things in mind as well.  I think that has been sorely lacking.

 

Chairman O'Connell stated:

 

      We have a bill that I have requested for debt management that requires all of the counties to take a look in a similar way as the plan that Clark County has presented to us today as to what they are doing.  Coincidentally, when we were talking to Marv [Leavitt] and Guy [Hobbs], Guy informed us they had already taken steps to do this so he was very helpful with the language of that bill that hopefully is going to drop any time now.  When Matt [Senator Callister] asked that we have some kind of a presentation so we have a better understanding and we do have about three more bills coming our way that deal with this issue from the other side, if they get out of the other house.  It should help to address the issue that White Pine is going through now.  Hopefully if there is enough sophistication out there with the people who are heading up those departments...Do you think there are?  Do you think there would be any problem with this, Bob [Hadfield]?

 

Mr. Hadfield stated:

 

      I believe that such a plan as you are talking about would go a long way in helping resolve the problem.  I think what I am disturbed about is that this information was brought to the bond folks in White Pine County by the county and that is a problem.  I think Marv [Leavitt] has done an excellent job of alluding to how, and the same with Guy [Hobbs], how you can deal with this.  But one of the problems we've got now is it is almost after the cat is out of the bag.  We've got four counties that are at the gap and just to give you an idea of how this works, Lander County needs a new jail.  The only way Lander County can put a jail on the ballot is to reduce their own operating rate and we all know if they build a bigger and newer jail, chances are it is going to cost them more to operate.  So that is a catch 22 and if they don't build a new jail, the courts will probably order them to build a new jail.  Then comes the question of what tax rates take precedence?  Marv [Leavitt] had this question on the assembly side.  Is it just simply voter approved?  You know, first one in the door, last one out.  In White Pine County can you use pay-as-you-go to secure debt?  I thought pay-as-you-go was you accumulated the money and then you did something.  It seems to me that there might need to be a clearer definition of a lot of things that this group could look at and refer to.  But essentially the State of Nevada needs money and your tax rates going up as Marv [Leavitt] alluded to and usually we are in here every session negotiating some deal with the state where we agree to pay for something and we give up a...pay a little like China Springs we are paying for in the tax rate and it looks like we will pay for more of that.  Its not just local government, it's the State of Nevada and local government.  We all have to be a part of the solution.  We know you used to build your prisons out of year-end cash and you can't do that anymore.  So we expect your tax rate is going to go up.  Your tax rate preempts local tax rates as I understand it.  School tax rate, operating rate preempts local debt rate.  I think we need to take a look at the whole thing in addition to putting in a policy for local government.  We've got to sit down and decide what the best way to fund debt is for the State of Nevada and all of its entity.  In that I agree, I don't think there is ever going to be enough money to try to deal with what everybody wants, but there has got to be some priority set in place here.  Because we are at the $3.64...its just going to get worse and worse.  The way it stands, its the counties that are at risk, not the school districts, the cities to some extent, but its the counties that are at risk first.  We have to do something about it.  I think the state has to be a part of it too.

 

Mr. Leavitt stated:

 

      We have been discussing debt here today, but of course as Bob [Hadfield] alluded to, we have the operating side of this whole thing too.  We had a discussion on the assembly taxation committee a while ago about the operating side.  When you get up near the rate, whose operating rate has precedence.  Obviously you've got to pay for the debt, there is no doubt about that.  But if you pay for the debt, whose operating rate has precedence.  If the legislature approves a rate does that have precedence over rates that come through the formula.  If the voters approve a rate does that have precedence over what the legislature has approved or what comes through the formula.  If you've got some special thing like METRO here does the general county rate have precedence over a special district.  You can see the problems once you get into bumping up against that rate and then we've got everybody fighting with each other over the rate and somehow or another if we are going to do it, we've got to determine what has precedence and how much are guaranteed and all of that.  So you can see there is a problem on the operating side as well as the debt side to this. 

 

Chairman O'Connell asked, "How does the bond council look at this?"

 

Mr. Hobbs stated:

 

      The bond commission really doesn't deal as much in the incremental operating rate increases.  They would look at the overall prevailing rate and one of the things that has to be affirmed before the General Obligation Bond Commission is the fact of whether it is a straight property tax issue that would not take you over the $3.64 cap and that is really about it.  Not much more than that.  Also, just to play off of one of Marv's [Leavitt] points a little bit further.  In Clark County in the unincorporated towns right now we are taxing on the average probably 15 to 20 cents less per $100 of assessed valuation than we are authorized to.  And one might start to think that the closer you push to the $3.20, $3.30, $3.40 range the inclination would be to go grab that 15 to 20 cents just to make sure you secure your share of it.  That is not the type of thinking that we want to be doing.  We only want to be levying what we feel we need to provide the basic services from year to year and not feel we have to go out and grab a portion of it just to secure what we deem as our share.  There has to be a better mechanism than that and thus far I think the county has been able to avoid the temptation of doing that.  Although that is an awful lot of money being left on the table from year to year by foregoing the taxes.

 

Senator Nevin stated:

 

      It sounds like to me, Madame Chair, what Marv [Leavitt] has been saying is somewhere along the line some type of protocol has to be established and the procedure has to be followed from step one all the way through so everyone knows what is happening.  Is that what the bill does?

 

Chairman O'Connell answered, "Well...I don't think as thoroughly as perhaps it has been discussed here today, but in general that is what it does.  Guy [Hobbs] would you like to talk a little more about that?"

 

Mr. Hobbs stated:

 

      Well, initially the bill would simply suggest that all of the information about contemplated debt be disclosed on an annual basis which it is not now. And thus allowing the General Obligation Bond Commission to make an informed intelligent decision within the context of all of the debt that has yet to be issued and not just looking at that which has been issued in the past.  That was step one and a big step.  One of the things we are a little unsure of is exactly how all of the entities will respond to the joint sharing of all of this information which has not been shared as readily in the past.  Hopefully that would be enough to do it so you wouldn't have to establish a state, school, county, city, special district type of protocol.  That is the way it would come down.

 

Senator Nevin asked:

 

      Then this would address what Senator Callister has had the concern on.  It is time to decide do you want a school, do you want a police department, do you want a park and start directing the money where the people want it to go rather than where each little agency thinks it should go.

 

 

 

 

 

Mr. Hobbs answered:

 

      Theoretically it could come down to that where you only have 10 cents of cap left and you end up with proposals on the ballot that could be up to 30 cents.  There would be nothing that would necessarily preclude that, but you obviously couldn't tax above the $3.64 limit.  So you would have to essentially force a choice and I am not quite sure how something like that would work.  Probably the best thing would be to avoid a showdown like that between all of the different governmental needs through a little joint cooperation, hopefully.

 

Senator Callister asked:

 

      Just a couple of quick questions.  I appreciate the presentation Marvin [Leavitt].  First, just on this issue of the bond commission.  I am not certain I understand what present authority do they have really to do anything as they are presently structured?

 

Mr. Leavitt answered, "They have authority.  They have to approve an issue if it is going to go to...if it is a general obligation issue which will go to the ballot." 

 

Senator Callister asked, "Any, any general obligation.  So what is the device?  We have to approve then they approve?  Or they approve and then we approve?  Or do we approve only special districts?"

 

Mr. Leavitt answered, "You approve only when you are creating something new.  Lets say for instance, if the county or the city or the library district or the school district or whatever wants to issue bonds..."

 

Senator Callister stated, "Once they have been given that authorization they have it."

 

Mr. Leavitt answered, "That is right."

 

Senator Callister asked, "And thereafter they go to the bond commission?"

 

Mr. Leavitt stated, "That is correct.  Now as we stated earlier the bond commission mainly takes a look at the...says we've got the total...the rate in this area is $2.75 and this bond issue requires a nickel, you obviously got enough room there."

 

Senator Callister asked, "They look at only that one snapshot in time.  They don't look at the competing interests."

 

Mr. Leavitt answered:

 

      That is right.  At the beginning of the year they get a proposal for the year, but it is not too meaningful.  So nobody is required to follow that and they can come along at any time during the year, add new debt to their proposal or whatever and so the proposal at the beginning of the year is not a meaningful proposal the way it is working right now.

 

Senator Callister asked, "What is the makeup of the bond commission?"

 

Mr. Leavitt answered, "It is composed of a whole bunch of representatives, but essentially it has got the county, the city from the county seat, another member representing the other cities, its got someone representing the school district, its got two public members on it.  I don't know.  Its got those at least."

 

Senator Callister asked, "When was the last time they refused anybody permission?"

 

Mr. Leavitt stated, "I am not familiar with any time that they refused anyone."

 

Senator Callister asked, "So they never said no to anybody because they have always been under the cap.  So it is like we might as well not have had them except when you get to the decision which is an obvious one which is either bust the cap or don't bust the cap."

 

Mr. Hobbs stated, "They are not making any political or qualitative judgements about the issue.  If it meets the tests which Marv [Leavitt] indicated that is within the $3.64 limit and it is under the 10 percent aggregate ceiling..."

 

Senator Callister stated:

 

      You answered the question before I could get a chance to ask you.  Sounds like we are trying to defer to them something maybe we should be doing which is making the political or as you call it the qualitative decisions.  That is the heart of this, it seems to me, as all of you agreed at some point, you can't have everything.  You can't afford everything everybody wants.  So who should make those political or qualitative decisions.  It seems to me it should go to your elected officials as opposed to perhaps the commission itself.  And yet I don't find much appetite amongst most of my associates here, so I'm not going to suggest that we are all the bravest bunch of fools in town to jump up and say, 'Let us be the ones that start saying no.'  Obviously I think you are right.  The system we have now is not working.  It is fragmented.  The entire system, if you stand back from it, is an absolute hodgepodge how we decide to fund everything in this state.  If it is new it comes to us so people keep trying to wrap it in some new wrapper and bring it to use and give it the sex appeal that cops or parks will have.  And it is you guys that do that.  It is your municipalities that come to us.  That has become the clever new device to solicit funding for a 'sexy' project.  I want to go to a more even basic problem though.  This troubled me as I hear all this conversation, I appreciate all the conversation, but when I go back and try to explain this to the people who elect me, the thing they understand the least is why we have to do this at all.  There is an absolute general perception that growth will pay for the cost that it occasions.  I invite Marv [Leavitt] in your experience, you've been here a lot longer than I have and longer than most of us here, why is it that growth doesn't pay for itself?  I have my own expectations as to what the answer is, but I don't want to cloud your answer.  So, why in all of the Nevada system whether it is at the local basis, whether it is operation or debt financing because I think you are right to recognize that we are rapidly approaching, in my estimation, those two are going to conflict if they aren't already, why doesn't growth pay for growth?

 

Mr. Leavitt stated:

 

      Lets divide that into two parts.  One on the debt side and talk about the capital infrastructure and then we'll talk about the operational side.  If you look at what happens when somebody, lets just take a house, an individual house that somebody is going to move into and see what comes as a result of that house.  Someone builds a home and they have a heavy one-time sales tax coming in as a result of that which relates to materials that come into that home.  Now we have had a switch around.  If you think prior to [19] 79 we had a lower sales tax, but we had a much higher property tax rate.  Now we can talk about...if we look at actual dollars we can say, 'well the property tax coming in now is as much as the property tax coming in during [19] 81.'  But if you look at the Las Vegas Valley now compared to what it was in [19] 81.  You know it is obvious by the time you compare inflation and such, even though the numbers might be the same, that is not a meaningful number.  So in reality then, initially when someone moves in the only thing the government is going to get out of that to benefit is the sales tax coming.  Let me just mention in passing, but I don't want to dwell on this one.  We have seen the economy switch around a little bit over the last 10 or 15 years.  I'll bet if we took a comparison of everyone's income and compared to what is taxable from a personal property standpoint, we will find there is a diminishment.  In other words, sales tax.  I don't think sales tax keeps up with people's income because we are concentrating more and more on services and you think of how you spend your own money now as compared to a few years ago.  We are paying more on services now and no services are taxed.  I don't want to dwell on that, but I think you could see that would be the point.  Anyway, what I am saying now is when we get the up-front money coming from the sales tax on this residence or the sales tax on anything else, we're essentially, and the state does it and that is one of the reasons the state has trouble, local government is doing it, we live on that money as far as operating purposes are concerned.  If you look right now into the system, it is coming heavy money from those big hotels that are being built in Las Vegas, right?  It comes into the system and the state is spending every dime that is coming in.  Local government is spending every dime that is coming in and we are spending that for operating purposes.

 

Senator Callister stated, "So we are taking one-time money, revenue, sales tax generated by the construction of new houses, hotels, whatever and building it into our base.  In terms of ongoing expenditures."

 

Mr. Leavitt said:

 

      That's right.  And you see...now has the state spent money unwisely?  You go through these long budget processes to determine you're not.  Local government is the same way and besides that you have added like a business tax.  So that has not even been sufficient to do it.  So what happens then, when construction falls off then we've got big problems.  We solve that problem either by adding additional business tax or local government tries to add some more money...we really didn't add any money this last time to our operating.  We've seen some more debt money coming on.  So essentially then it's almost the part of the increment of the tax money coming in that relates to one-shot money.  I would say if you build a home, there is only one time really you are going to get that big shot of money from the sales tax, and that is what we live on, and that is when it is built.  But yet we are using that for operating purposes and so the result of that...when we fund debt...if you look at what has happened in Clark County and I think all of you can see it, especially those of us who live there, you look at that transportation system that is being built down there now.  You look at the huge amount of roads that have been reconstructed and such in recent years down there, you can see huge expansions to sewer plants and everything, all of which require sizable amounts of debt money.  I don't think that even if we took that sales tax that comes from growth and put it in, it is still not enough to fund these projects.  By the time you combine all those projects, we're talking about billions of dollars of asset infrastructure.

 

Senator Callister stated:

 

      I want to leave the debt side alone.  I think conceptually that is an easier animal to get somebody's brain around to say you have to build sewer capacity for 100,000 people all at once, not one home at a time.  So you have a big up-front capital outlay that in theory is going to occasion some debt service to service that over the period.  I want to go to the more fundamental issue which is I've got 5,000 new hotel rooms when a hotel opens up.  In theory that should be 10 to 15 thousand new jobs.  That means people come to Clark County to take those jobs, they now pay a home sales tax or rent an apartment or whatever and in that aspect help deliver that one-time payment you are talking about that comes from the payback on the sales tax.  But why doesn't their existence offset the cost of the services that are incurred by the local and the state government because of their existence?  Why doesn't their mere presence pay?  Because the public thinks that is what happens.  The public thinks 5,000 new jobs, that is great, that is going to help lighten my load, it is going to spread out further the obligation to pay for the cost of fundamental state services and yet that is not happening, it is just the reverse.

 

 

 

 

Mr. Leavitt stated:

 

      Lets take a look at one that is a little easier to see I think.  Lets take a school, a high school.  You move all of these people in, you move them in right now and all the kids arrive with them and you have an immediate need to put all those kids in a school.  You can see there is no way under heaven that the amount of money that they are paying right now for taxes are going to fund not only the school...

 

Senator Callister insisted, "But why?  Why is that?  You are saying now they are underpaying for the services they receive."

 

Mr. Leavitt answered:

 

      It is exactly the same thing.  Lets suppose you get a job, you're coming out of college and you're getting a job and you want to build a job.  Can you pay for that home out of your first paycheck or your second paycheck or your third?  You are going to finance that over a long period of time because there is no way, by just the money you are earning on a regular basis can fund that great big capital need.  And that is exactly the same way a government is. 

 

Senator Callister stated:

 

      I understand on the capital side, I was talking about the operational side.  I think you were closer to it a minute ago and I don't want to lead you because I want to get there rationally because I think we all have to deal with this.  It seems to me what you just said must be the case.  Either government is engaging in fabulously wasteful spending;  lot of people believe that to be the case at the local level, the county level, the fire district level, the library district level, at the state level or the average Nevadan is not paying his way.  It has got to be one or the other it seems to me.

 

Mr. Leavitt explained:

 

      Let's go back to the local government funding now and talk about what we...look at our two principal revenue sources which I would say would be sales tax and property tax.  Let's take the property tax...

 

Senator Callister clarified, "For local government that is."

 

Mr. Leavitt continued:

 

      Yes, for local government.  For the state it is sales tax and gaming tax, but for local government I would say the two principal revenue sources that apply to all local governments would be either property tax or sales tax.  We have a formula by which we determine the amount of money that comes to us on an annual basis for property tax.  Let's see how the formula works.  First of all you take the amount of money you got last year, you multiply that by 1.06 which is supposedly an inflation factor built into that, then to determine a tax rate you divide that by the current value your property was on the last years tax rolls.  So regardless of how much that value is going up you determine a tax rate and then you apply that tax rate to all the properties.  Now let's see what the effect of that is.  You provided one...you provided for inflation.  The 6 percent provides for inflation and has provided for inflation in recent years adequately.  You run into periods where it is below and periods where it is over, but it seems to work adequately.  When you apply that assessed rate to the total property, putting new property on the roll, so if you had 5 percent new property coming in on the roll and  you had 6 percent inflation, then you've got 11 percent growth and you've handled essentially what your needs are.  Now, if you look at the sales tax, that is a little different animal.  When times are good, really good, sales tax probably grows more rapidly than the needs of our government.  Back in 1979 when the state had so much money, remember it accumulated between sessions and you estimated an ending fund balance of like 25 million and you ended up with something like 100 million or something.   That was why the first property tax decrease came.  But anyway when times are good sales tax grows very rapidly because it responds very quickly to changes in the economy.  It responds very quickly both in the up-side and the down-side.  So when times are good it can be down from where it was in the previous year.  And of course that is the problem the states have and that is the problem that we have  had in recent years.  So when you combine those things coming on line, you can just see that your revenues might or might not equal what your demand for services are.

 

Senator Callister asked, "Do you think under the present system the average Nevadan pays for the services dollar for dollar that he receives?"

 

Mr. Leavitt answered:

 

      Try to take it to individuals.  I don't have any idea.  But the local governments...you know we have not had any new taxes in recent years.  We look at the local government, we have not had taxes in recent years with the exception of the voter approved METRO taxes.  Those have been additional taxes that have been coming on line and those have been new officers.  Except for that we have not really...we followed those formulas and have essentially been living on that.  I don't know and you have not seen a lot of bills coming from local government this session that says we think you ought to increase the taxes for operating purposes that come to us.  You've seen a bunch of them which relate to specific debt problems and such, but I don't know, you look at what is happening particularly in Clark County in the last 10 years.  We have had a lot of infrastructure down there.  That is another problem I think and I need to mention this.  I think we have reached a point in Clark County and I can't speak for the rest of the counties, but I think we have reached a point where we went from a small community to a big community, it seemed to hit about 2 or 3 years ago when we saw that lo and behold our freeways were completely clogged up and that had never happened before and all of a sudden people are not willing to sit out in the desert and say I am satisfied not to have any of these municipal type services.  [The people are saying] I am part of this big city and I want those and all of a sudden it seems when you reach that point the cost of doing this on a big area is more difficult for us to meet.  I think that is part of it.  I think we've just reached the point...if you look around the United States when you reach a point that you [cities] get a certain size, you've got certain benefits as well as certain costs that accompany that.

 

Mr. Hobbs stated:

 

      We oftentimes get the questions too that if the assessed valuation is going up year after year and a big part of that increase is attributable to new valuation, how come our revenues aren't keeping up with that.  You might look at page 9 of the debt management policy which summarizes the assessed value growth in the county for the last 5 or 6 years and the average percentage growth that you see there is probably in the 10, 11, 12 percent ballpark over that 6 year period.  That is what the assessed valuation has grown by.  The allowed revenue has been capped at 6 percent so even though the valuation has increased by 11 or 12 percent a year, the actual revenue you can derive from that has only been allowed to increase by 6 percent so we placed artificial constraints upon ourselves that don't allow us to keep pace with certain things like the growth and assessed value and the revenue that would come from that.  That is a grossly simplistic way of looking at it, but in my mind that has always explained part of it.  We have a fairly patchwork revenue and distribution system throughout our tax system whereby certain revenues that are generated in the unincorporated areas go the cities and certain revenues that are generated in certain parts of the state go to other parts of the state and so forth.  That has also made it very difficult to create a source and use between the revenues derived from growth and the expenses that you acquire as a necessity because of the growth coming in.  It has made it very difficult to make a one for one argument and I certainly applaud Marv's [Leavitt] efforts for trying to do that, but the most graphic example that I have been able to come up with is just that.  The assessed valuation has grown at a remarkable pace over the last 5 or 6 years, but it is the revenue that is actually capped.  So as far as we are concerned, the assessed value can increase by 50 percent a year and you would still effectively be capped at 6 percent.

 

Mr. Barrett stated:

 

      The state's bonded indebtedness has not really been discussed here yet and I think it should be discussed a little bit.  This last several sessions of the state legislature have appropriated substantial amounts of money since the bond indebtedness limitation was increased by a vote of the people in [19] 89.  I don't...the figures are here, but it is a substantial amount of money to the point where most of the states bonded indebtedness had been used up, but there is about 15 percent of the bonded indebtedness that is available.  In the past, the state did not rely on the bonds, they could not, under the constitutional limitation.  Instead it used the surpluses that we were just talking about a minute ago for capital improvement in one-shot items instead of using them has been the practice the last couple of sessions for triggers, if additional money came in, triggers for salaries.  Because the state's bonded indebtedness is practically used up at this point, it would appear to be wise, to us anyway, that the state rely once more on using unanticipated cash balances for capital improvements and not use them as triggers for salary increases or whatever other kinds of increases had been used in the past.  That is part of the reason why the state's bonded indebtedness tax rate has gone up substantially over the past few years and if the state continues to issue bonds it will probably go up even more in the future which adds to the problem for local governments.

 

Senator Lowden commented:

 

      I would just like to make a comment on what Senator Callister said initially about the legislature not having the courage or whatever the term it was to deal with these bond issues and I agree with him that we've got to come to grips with it.  But for me I think that knowing that the public is ultimately going to decide what they want and how they want to spend their money is the reason I've voted for them with enormous pressure from the counties to get these bonds passed out of this body in order to get it on the ballots.  What I would like to see and what I haven't seen are the questions, the ballot questions.  I would really like in the future, if it is possible, to be able to see for myself what is going on the ballot.  We keep asking for assurances from the counties to tell the people the truth in plain language to let them know what is really going on, to make them see a total picture about the caps which I don't think they realize.  If I had to make a decision myself, I would have the courage, I would vote no on all of them right now and I don't even feel bad about that because I don't think people are ready to spend money.  I ran on that.  So I don't have a problem with that myself.  The deciding factor for me has always been that it is ultimately the public's decision, if in fact they are really being told the truth and that is what I am not sure of and that is what I feel bad about.

 

Chairman O'Connell stated:

 

      Let me kind of share the problems they have with you because Guy [Hobbs] and I have had this conversation many times.  It is very hard to give a simple example on a ballot question because of the overlapping districts that you get into.  You also still have islands and so you cannot take an example that is clearly an example for the entire county because it is going to effect...depending on how those overlay, the taxing districts overlay on each other, it is going to vary from one side of the street almost to the other side of the street.  So they have done...we were so emphatic about this over the bonding issue and I want to really thank Guy [Hobbs], he has bent over backwards to try and simplify this for us.  Would you like to add anything onto that?  There is no such animal almost as an example that you can use on the ballot question that is going to be applicable to every district.

 

Senator Nevin stated:

 

      I think there is and I think the way it is, is when you put the question there, you have to let them know that this is going to effect police, fire, parks, other things they are looking at, schools.  You just can't put out a question saying lets build a new park for this area.  Lets all get behind and build the park, help the kids and give them someplace to go and it should say, 'but if you do, you may be giving up a school, a fire department, a police department.'  There are other things you have to look at because the problem we throw out on these questions is we make them fluffy.

 

Senator O'Connell said, "We don't say either, or."

 

Senator Nevin stated:

 

      And that is where we have to start getting the message across.  Because the people pass a bond issue and the first ones that call me at home screaming about their taxes going up are the people who voted a bond issue because they didn't realize what they were voting for.  They say, 'How come you raised my taxes?'  I say I didn't and what are you referring to.  They tell me this or that went up and I ask if they voted for the bond issue for the fire department and they say they did because we needed a fire department.  That is when I tell them I didn't raise their taxes that they raised their own taxes, but they don't quite connect with the message.  I'm not saying people are stupid because they are not, they are well informed, but it comes to a point that they become so inundated with all of this information they don't know what is going on and they think if they pass a bond issue for a school then it is coming out of the taxes they pay to the state to pay for the school, but it comes out of their property taxes.  That is where the problem arises.

 

Mr. Hobbs replied:

 

      I wish there was a quick and simple answer to that.  Without a doubt the wording on ballot questions and explanations is probably something that deserves some additional looking into over the course of the next couple of years.  One of the difficulties we run into is trying to find a common denominator in the ballot question or the language that means the same thing to each person that reads it. It is a difficult problem and it becomes the mythical $100,000 home.  I have a feeling that that should be about $135,000 at this point, but then it becomes an odd number to work with as well.  You would certainly like to be able to tell each individual exactly what it is going to cost them, but everybody's home values are different and everybody lives in different overlapping districts and what Senator O'Connell was mentioning a minute ago is very true.  You would like to tell them what their total tax bill would be before and after they voted on it, but there is hardly any way to do it because you have the city, you have the City of Henderson, you have numerous districts in Clark County alone and it becomes almost impossible to customize ballot questions for each individual person that is going to receive a ballot question.  What we ultimately did with the parks question is we did list as informatively as we could without making the question a phone book thick in length, the general improvements that would be done if the bonds were approved for tennis courts improvements to community centers and so forth and then also what it would be on a $100,000 home in the explanation of $45.79 over the average term of the bonds for both the operating and the debt.  That question got a little more complicated because it was the first time we had ever merged both operating and debt into one question which makes all the sense in the world to do, but that was the first time we had ever done that.  In the case of this particular question, over time the debt rate is going down and over time the operating rate is going up, fortunately over the 20-year period they stayed somewhat level, fortunately.  We also didn't kick the operating rate in full speed until about the fifth year and that is why on our question you see a number of, if I recall, 7.4 million or thereabouts being referred to in fiscal [19] 97 and [19] 98 because we thought it better to only levy the operating rate when we actually needed the revenue as opposed to setting it at a level in the first year and levying it solidly all the way through.  So it became a rather complicated matter and there is no question in our minds that it is something we need to talk about a little bit more so there is consistency amongst all of the municipalities putting ballot questions on.

 

Senator Nevin stated:

 

      I am sure every member on this committee has gotten the same phone calls I get and when it comes to property tax increases, the first ones to scream are the people saying, 'you shouldn't let people who rent vote for this stuff because they never pay the tax.  It is always us.  We have to share.'  But of course that is the one man, one vote rule and there is nothing we can ever do about it, but they are always complaining about that.  They say we should have a law that says property owners should only be able to vote on property tax increases and renters should not be allowed to vote.  They just don't understand the process.

 

Senator Callister stated:

 

      It is a good question and any of the four, including you Howard [Barrett] knows.  Has anybody ever tried to do or has there been a study done either in Nevada or elsewhere that either a; in Nevada specifically tried to establish what the average Nevadan receives, dollar value for services through a combination of school, streets, justice system, etc., fire.  What does he receive?  What is the dollar value of the service?  vis-a-vis, what he contributes under the existing tax structure we have.  It seems to me that is one of the most fundamental kinds of questions.  It probably, almost certainly is not determinable to an absolute degree, but I would rather imagine that some very bright fellows like you could come up with an evaluatory methodology that would help us in answering that question.  That can't be quite that impossible to try to analyze.  The second thing is has anybody ever attempted to determine, this is a sensitive issue, but I am going to try to broach it nicely, Dean [Senator Rhoads] and I have had some conversations about this, to determine the extent to which rather obviously the amount you contribute in sales tax as a Nevadan, to a sales tax based system, property taxes to your local municipalities.  Is it function of your income level?  My suspicion is when we continue to create, as my county does, a lot of fairly paying modest jobs, you tilt the system.  It isn't just a function as Senator Nevin points out, of property taxes alone, but that when you get to a certain level, even though you are creating massive numbers of jobs, you are also largely, I would imagine, creating disproportionate users versus contributors.  Has anybody tried to do those kinds of studies or have they been done elsewhere?  Especially that latter economic study that I am suggesting.  Do you have any familiarity with it based on what you have read elsewhere?

 

Mr. Barrett answered:

 

      The only one I am aware of that comes close in Nevada is that last tax study you had about 6 or 8 years ago or something, that $450,000 one.  That is the closest I know of in Nevada to answer some of the questions that you are talking about.

 

Mr. Leavitt stated, " And that doesn't do it very well."

 

Senator Callister stated, "Yes, that is my recollection.  It doesn't cut to the heart of this dilemma which is also part of the reason why it is politically such a challenge.  We sit around and have this nice conversation and I guarantee the average Nevadan thinks the system pays for itself."

 

Mr. Leavitt replied:

 

      It is so difficult even on this.  If you just take a look at schools for just a minute.  If you have somebody living out in Sun City and they don't have any children and they think, well that whole cost has no relationship to me, I have not violated any laws so all this huge police force you have down here relates to somebody else, I have not had a single call for fire service my entire life so how can you charge me for that.  You start talking about it becoming an individual basis and it becomes a real nightmare.

 

Mr. Barrett stated, "That is just when you talk about Clark County.  There are a number of states and Nevada is probably one of the most extremely different states because of Clark County and then because of Esmerelda and Eureka and all the others so you try to work all of these in and you've really got a complex problem.

 

Chairman O'Connell stated:

 

      There is no easy answer to this.  Your presentations were all excellent and I can't tell you, on behalf of the entire committee we really do appreciate all of the time, the effort and the work you put into it.  I think it is certainly going to give us a much better handle and benchmark on our actions as a committee when we are having these issues come before us.  I really thank you.  I know it has been very helpful to Senator Callister just to have the information available and I think it has been real good for those of us who are on taxation as a review and what we are looking at.  We appreciate it very, very much.

 

There being no further business, Chairman O'Connell adjourned the meeting at 4:10 p.m.

 

 

 

 

                              RESPECTFULLY SUBMITTED:

 

 

 

                                                      

                              Tanya Morrison,

                              Committee Secretary

 

 

 

APPROVED BY:

 

 

 

 

                                

Senator Ann O'Connell, Chairman

 

 

DATE:                           

??

 

 

 

 

 

 

 

Senate Committee on Government Affairs

April 19, 1993

Page 1