The Committee on Taxation was called to order at 1:30 p.m., on Thursday, April 22, 1999. Chairman David Goldwater presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. David Goldwater, Chairman

Mr. Roy Neighbors, Vice Chairman

Mr. Bernie Anderson

Mr. Morse Arberry, Jr.

Mr. Greg Brower

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. Mark Manendo

Mr. John Marvel

Mr. Harry Mortenson

Ms. Sandra Tiffany

COMMITTEE MEMBERS EXCUSED:

Mr. John Jay Lee

Mr. Bob Price

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Attached and made part of the record are bill explanations (Exhibit C) presented by Kevin Welsh, Fiscal Analyst, Legislative Counsel Bureau.

Upon silent roll call it was determined there was a quorum present. Chairman Goldwater requested anyone interested in testifying to sign the guest register and explained the committee had three bills, all of which were recommendations of the S.B. 253 Committee. With the committee at that time was Kevin Welsh from the Legislative Counsel Bureau's Fiscal Division who would be working with the members until Ted Zuend was available.

Kevin Welsh concurred with the explanation by the Chairman stating the bills on the agenda were all recommended by the S.B. 253 Committee. Ted Zuend and Kevin Welsh staffed the committee and would continue to staff it as an ongoing legislative committee. He pointed out, as staff, he could not comment on the merits of the bill but would take the committee through the bills and try to explain what, technically, they could do.

Mr. Welsh summarized the bill (see Exhibit C) which addressed the establishment of a tax rate for a special district. The bill required, when a special district established a tax rate for its operation and debt, it must segregate the tax rate that was used for operation from the tax rates that may be used for capital acquisition, bonded indebtedness, or debt. It further stated that the information had to be made available to the public and also said when the debt was retired or the capital acquisition was paid off, the tax rate would go away.

Chairman Goldwater recognized Mr. Marvel for a question at which time he asked Mr. Welsh if the legislature had done that before for the counties. He believed they had to separate the bond indebtedness so the state knew what the capital rate had been. Mr. Marvel was advised by Mr. Welsh in the affirmative adding they did that in the "red book" where the tax rates for bonds were listed and the debt was separately calculated or was separately listed in the operating rate.

Assemblyman Marvel pointed out, on most of his tax statements they segregated it out so the taxpayers would know what the amounts were.

Mr. Welsh agreed that had been done in the past but added in the event they had a new tax district, it would need to be segregated out. The reason it was segregated was not so much for reporting but so the one tax rate, used for capital acquisition or for the debt, could be "sunsetted" with the operating rate still in existence.

Chairman Goldwater asked Mr. Welsh what arguments were heard in S.B. 253 committee against that type of "sunset" language and was advised the only argument he could recall, and perhaps Mr. Zuend may be able to help him with that, but it was simply that the S.B. 253 committee thought it was overly intrusive into the operation of the special district.

Continuing his line of questioning, Chairman Goldwater asked if it was easy for the General Improvement Districts (GID) to compute those classifications and learned from Mr. Welsh there should be no problem. He added it was not so much the classification but the fact that it was segregating the rates so one could "sunset" and one could continue.

Recognizing there were no further questions from the committee, Chairman Goldwater asked if there was anyone in the audience wishing to testify on the bill and acknowledged Carole Vilardo.

Carole Vilardo, president of the Nevada Taxpayers Association indicated she wished to speak in support and advised the committee it was the recommendation of her association that the issue be considered by the S.B. 253 committee. One of the generic issues the committee looked at was the issue of rate creep; how the rates kept rising and, as she pointed out, the GIDs were a carve-out within a county. Using the Gardnerville Ranchos as an example, the legislature had during the 1994 general election, a situation where they were asking for an increase of $.50 in their tax rate for roads. What they found in trying to analyze what made up tax rates was the fact that if they created a GID district, it was being created because there was an infrastructure need. A tax rate was being set for the infrastructure and within that rate was also the operations funding.

When the elected officials went to the voters for facilities and they were going to use property tax, the officials would usually go to the voters and say, "We're going to build X and it’s going to be approximately this interest rate and it’ll be this length of time." When the GID’s were going to the voters to establish what their rates were they never went away. What the S.B. 253 committee was trying to say in this and what they asked the GID’s to look at, was to say, "You were formed to build something and then to service and operate it. You don’t need the same rate." They may need a rate for maintenance but if they had to do something else extraordinary they could not do so within the other part of the rate that was for operating and maintenance. "What built the facility should go away just like it would for a county or city that went on the ballot questions." That was the genesis for this.

The GID’s, according to what Ms. Vilardo would have liked to have happened, were the rate to have been bifurcated, to have gone back to say, "Okay, this district was formed to do X, the rate given was this, and within this rate was this amount to build whatever." To that end, the districts disagreed saying it would be very difficult. In many cases, the districts were old enough they were now using the rate to do major renovation. She concluded the bill was a perspective bill; it was either for new districts formed, or they would have to bifurcate the rate out exactly like was done on a ballot question. If the ballot question included facilities plus operations and maintenance, or if it was an existing district that in the future wanted a greater rate because of the facilities, it would have the "death date," so the authorities did not keep the escalated rate in place.

Chairman Goldwater called upon Ms. Gibbons for a question and then Mr. Mortenson.

Assemblywoman Gibbons asked if all the GID's in the state have elected officials governing them or were some appointed and was advised by Ms. Vilardo she did not think she was qualified to answer that. The districts she had dealt with officials were elected, but she believed the statute allowed for appointments as well. She had observed Bob Hadfield, executive director of the Nevada Association of Counties and Mary Walker, representing several different counties were present and could probably better address that question.

Assemblyman Mortenson spoke next asking Ms. Vilardo when an entity did a GID, which would be a temporary increase, would they be allowed to exceed the $3.64 cap and was advised by Ms. Vilardo in the negative adding they would not as that was the problem with rate "creep." If an entity had a district with a very high rate that included the facilities and, if they kept the rate up and another entity such as the county or a school district wanted to use it, they would have a problem utilizing it.

The Chair then recognized Mr. Brower with a comment directed to Ms. Vilardo reminding her the Committee on Health and Human Services had passed out A.B. 533, which was his hospital district bill. He asked if she had a chance to view the bill in the final form as he was trying to determine if there was anything about S.B. 529 that may affect the provisions in his bill for the creation of a hospital district within an improvement district area. He asked if she saw any complications between the two pieces of legislation.

Carole Vilardo replied, to the best of her memory in reviewing the bills she did not, but volunteered to take another look at them.

Chairman Goldwater asked if there was any concern within the Department of Taxation with talk of bifurcating this concerning collections. The Chair indicated Mr. DiCianno, deputy executive director, Department of Taxation was shaking his head "no." He then asked if there was anyone else wishing to testify either for or against S.B. 529 and recognized Mr. Hadfield.

Mr. Hadfield, executive director of the Nevada Association of Counties, indicated his association had participated in the S.B. 253 committee process and, for the reasons Ms. Vilardo had elaborated, they supported the legislation because they believed it would help in the overall tax cap situation.

Chairman Goldwater thanked Mr. Hadfield and acknowledged Mary Walker who introduced herself as representing Carson City, Douglas County, and Lyon County, pointing out she was a member of the S.B. 253 committee. She understood the proposal was unanimously supported by the technical committee as well as the Legislative Committee. She pointed out Ms. Vilardo brought up a very good point as to how the issue was handled differently from the other local governments, the cities and counties which, basically, put it on a par with the administration of the debt rate that the legislature would have to establish for the other entities.

Chairman Goldwater asked for further questions for Ms. Walker. There being none he thanked Ms. Walker and asked for any further testimony or comments. Seeing none, he closed the hearing on S.B. 529 with no action being taken at that time, and opened the hearing on S.B. 536, calling on Mr. Welsh for explanation of the measure.

Kevin Welsh, Fiscal Analyst, Legislative Counsel Bureau (LCB), introduced himself and proceeded through an explanation of S.B.536 (see Exhibit C) which was the result of the S.B 253 committee. He pointed out the measure was concerned with a "buy down" which was a term of the LCB. It was not something in the statutes but was a nickname the LCB gave to the particular process. Before he went into the bill, he wanted to take a little time and, hopefully, explain what the buy down process was. For instance a governmental entity had several overlapping tax districts and each had an opportunity to establish a tax rate to raise the amount of money allowed to add more revenue. Those tax rates were then added in the overlapping districts, and if the tax rates exceeded the $3.64 statutory cap, they could enter into negotiations and were required by law to try to get the combined cap down below $3.64. One of the methods they found to enable them to do that was if they had a very small district with a rather large ad valorem rate. If, for example, they had a swimming pool district and it had a $.30 rate but they only raised, say $80,000, what could happen was the county could come in and have them get rid of that rate or a portion of it. At that time the county could impose the tax and pay the county off with the amount of money they would have received. That was, pay the county the $80,000 and the county would take the rate because, spread over such a large assessed valuation, the county could raise all kinds of money with that $.30. It would amount to much more than the swimming pool district. They could then have the money to pay off the swimming pool district, in exchange for not using the rate. The problem was there would be countywide residents subsidizing the facility, and it may be a swimming pool, a sewer, or road district and so forth but they would all be subsidizing those special districts and there were some very clear constitutional questions about that.

With that understanding he proceeded to explain what the testimony was in the S.B. 253 committee hearings. The total combined property tax rate in any county cannot exceed the $3.64 statutory cap. In counties where the allowable property tax rate of all entities, when added together, exceeded the combined property tax cap, the entities were required to modify, through negotiations or individual tax rates, to keep the combined tax rates below the cap. One of the techniques used was referred to as a "buy down." That technique allowed larger governmental entities to increase their tax rate and allocate a portion of those revenues to a smaller governmental entity, allowing it to lower its tax rate and keep the overall tax rate below the cap.

S.B. 536 was crafted by the S.B. 253 legislative committee to resolve the situation by recognizing the practice of "buying down" was inappropriate and thereby prohibiting the practice. The bill did not apply to any combined tax rate established before the effective date of the act.

Assemblyman Marvel asked Mr. Welsh about the case of White Pine County when they had the bond issue for construction of the schools and because of that, they exceeded the $3.64 cap. He asked if White Pine bought down the school district and how was that handled because the school affected the whole county. He wondered if that would be considered a buy down.

Mr. Welsh admitted he could not recall how that issue was handled, however, he knew there were several things that were attempted. Eventually, the Department of Taxation took over the organization of White Pine County to resolve the issue, but he could not recall whether that was one of the buy downs or not.

Assemblyman Marvel stated he knew that had happened to the city of Carlin as Elko County had bought the city of Carlin down.

Mr. Welsh, addressing Mr. Marvel's question stated one of the problems they had was if a county came in and they could not agree to the negotiations, that meant the Department of Taxation then had to make a recommendation to the Tax Commission, and in that case, the Tax Commission would tell them what to do. That actually happened. In response to Mr. Marvel's inquiry he offered to find out if a buy down was involved in the White Pine School District situation.

Chairman Goldwater asked if the measure under consideration would create a situation such as that and was advised by Mr. Welsh in the affirmative, but the Chairman interjected that could be, only prospectively.

Mr. Welsh explained what would happen was the "buy down" provision was just one tool for getting below the $3.64 statutory cap, however, entities were not encouraged to use it as it was felt it was inappropriate and there were some feelings it was not constitutional.

Chairman Goldwater recognized Mr. Neighbors for a question or comment. Assemblyman Neighbors was uncertain his argument was a valid one but in one of the counties he represented there were two or three entities that had to be "bought down." Using the smallest city in Nevada if not in the nation, Gabbs as an example, recently their school district came in with a $40 million school bond issue. If that was added to the extended rate or the outside rate, it would have a huge effect on the city of Gabbs or any of those other little entities. And yet, out of that $40 million maybe there was $200 thousand spent in that area. So sometimes when they talk about the "buy down "and how much money it generated it begs the question. Using Round Mountain as an example, how much of the school facility money did Round Mountain get out of that $35 million. Yet that outside rate, which affected them on their rate was right there so he had some doubts. Mr. Neighbors acknowledged Ms. Vilardo in the audience and suggested maybe she would like to respond to that. As an aside, Assemblyman Marvel noted Echo Bay Mines built the schools to which Mr. Neighbors responded they did not build his schools; that money went to Pahrump. He added it took "X" number of tax rates to satisfy the loan, which was on the outside rate and if they took the outside rate and added the city rate to it maybe they could live within it. He concluded maybe he was out in left field but he had some reservations.

Mr. Welsh advised Mr. Neighbors he was not exactly familiar with what happened in the situation Mr. Neighbors was discussing so he was not able to respond to his question. At that point, Assemblyman Neighbors explained he was talking about "fairness". Mr. Welsh indicated the fairness issue was, at such time as the residents of the greater areas with the greater assessed valuations, were paying a tax rate that was going to subsidize a service they were not receiving. That was the whole fairness issue with the "buy downs."

Assemblyman Neighbors acknowledged he was very much aware of that but if the entity had a $3.30 tax rate and it took $.30 to take care of their issue, that would put them at a $3.60 tax rate which would limit the other entity as to how much they could put on the tax rate. Recalling the earlier days when the state had a $5.00 rate and, historically, all the larger entities were going to the Tax Commission, to resolve it. They had a deadline to meet. Generally the counties got approval because one cent in the county meant so much more than one cent in the city or a town. Of course, when the rate changed to $3.64, it changed all that. In conclusion Mr. Neighbors indicated he was just questioning the fairness sometimes, with the amount of money that was involved there and how it did affect little entities.

Chairman Goldwater thanked Mr. Neighbors for his input then asked if there were other questions from the committee. There being none, he asked if there was anyone else who wished to testify on S.B. 536 and recognized Mr. Hadfield.

Bob Hadfield introduced himself as executive director, Nevada Association of Counties and explained as the former Douglas County Manager, he knew very well how the "buy down" system worked. Additionally, he was also present at the Tax Commission meeting in 1998 when they upheld Nye County’s request that they not be forced to buy down the tax rate. One of the issues that came up in their discussion was the equity issue discussed in earlier testimony, "why should the people in Pahrump be required to pay for the library district at Round Mountain." That was somewhat complicated because the people in Round Mountain had voluntarily levied a $.50 tax rate on themselves and did not seem to care what their combined rate was. Because of the statutory language, there was nothing that could be done.

Continuing, Mr. Hadfield pointed out the intent of the bill was to eliminate abuses where counties and/or larger entities were the only entities with a countywide tax rate that would be able to buy anybody down. The state would not change their debt rate and the school would not change their $.75 rate so it was more of a county issue and inter-governmental county issue with smaller entities within the county for the most part. The attempt was being made to make it so counties would not be forced to buy entities down, so the Tax Commission, in essence, said it was a policy issue that required the affected parties to go to the legislature and they were not going to continue the practice. The bill before the committee, at that time, addressed that policy issue, which was, "should a larger entity be forced to buy down another entity as the only means by which they can reduce the combined tax rate to a point that meets the statutory requirements for the combined rate in Nevada."

Raising a question at that time was Assemblyman Marvel who asked Mr. Hadfield if there were any sanctions if they did that, other than just a prohibition, and was advised by Mr. Hadfield in the negative. He explained even if the bill passed, there may be some situations still in existence where another type of agreement could be reached by two local governments who could be opposed to, "buying down the tax rate" and they would agree to a different distribution of Supplemental City-County Relief Tax (SCCRT) and therefore, reduce the need for a higher tax rate. He could see where that could be done but he did not think the committee, in processing the bill, was trying to say there would be no discussions going on about a combined rate problem. They just did not want people forced to do it.

Assemblyman Mortenson wanted to recite a complicated situation that occurred in Clark County and asked if the bill would address the same issue. He pointed out he was going from memory but at one time Clark county wanted to raise taxes countywide and he thought it was the city of North Las Vegas who was near the cap. The county officials went to North Las Vegas and said, "cut your taxes, and when you do that, what we’ll do is take over one of your parks and maintain it for you." He asked Mr. Hadfield if he thought that was correct.

Carole Vilardo, president of the Nevada Taxpayers Association wished to respond and stated, as memory served, that occurred in 1977, before the tax shift, when the state was still at the $5.00 rate. It was time for the budget hearings as the budget cycle came through, and as Assemblyman Neighbors identified earlier, if under the $5.00 tax rate, if, when each entity did their budget and had the rates in place they felt they were going to need, those rates were then overlapped. If any entity, in this case North Las Vegas, caused a rate that would have gone over $5.00, there was an informal meeting held before it ever went to the Tax Commission and the entities would agree as to what they could do. She remembered that because she was at the two commission meetings where it was done. In that instance there was a park and the maintenance for park facilities, and the dollar amount at that time was approximately $70,000 that North Las Vegas wanted by this additional levy. It was something like 2 or 3 cents to the county to buy them down. North Las Vegas said they would not be bought down and that was why it went on for two commission meetings. North Las Vegas finally agreed they would be "bought down" if they got $80,000. To this day, that money was still being paid as part of the agreement. That was prior to the $3.64 cap under the $5.00 tax rate. Tax rate certification dates were the same. The procedure and the dating for tentative budgets and final budgets were a bit different and which was when local governments were "property tax dependent," not "sales tax dependent." In conclusion she assured Mr. Mortenson his memory was correct in that instance.

Continuing with his questions, Assemblyman Mortenson declared that the amount had even escalated as he knew at one time when the town board people in Clark County's, unincorporated area, found out about it, they got every one of them to sign a petition saying, "stop doing this because we need money in unincorporated Clark County for parks" and, of course, the commissioners ignored them.

Chairman Goldwater thanked Mr. Mortenson for sharing that scenario with the committee and then asked Ms. Vilardo to continue with her remarks on the bill.

Carole Vilardo stated for the record she was speaking in behalf of the Nevada Taxpayers Association in support of the bill. The bill was an issue her group had originally raised, she thought probably 6 years ago and Mr. Hadfield characterized it as absolutely right. It was an equity issue. Why should she as a person that lived in an unincorporated county pay for services for which she derived no benefit. There was no question about "helping" someone for a year or so but when it came time that it was a constant drain on the larger entities’ budget, then there was something wrong. She felt what the committee had was the result of the work of the S.B. 253 committee and the bill was one of multiple bills as part of an attempt to attack a problem again of rate creep, and how Nevada functioned better under the conditions they had with $3.64.

In fact, Ms. Vilardo pointed out, the next bill the committee would hear was tied to the bill under consideration, also. The bill was important because either the Committee on Taxation or the Committee on Government Affairs would be hearing a bill that was called the "dissolution" bill, which was the severe financial emergency bill. When Mr. Neighbors called attention to the issue of the city of Gabbs, it was one thing to say they helped out another entity and it would be like assisting a colleague. That would be acceptable for a year, maybe even two years, but as memory served her she thought Gabbs had been bought down now for at least seven years, if not longer. The last time they were not allowed the full buy down the state had 14 entities that were "buy down" entities. The Gabbs rate was, she believed $6.99, which was what they needed in light of what they had. The committee had a bigger problem, which would go to the other bill on dissolution and severe financial emergency. An entity that, at one time, had 1200 people, now has just a shade under 400; and at one time had huge commercial assessed valuation because of net proceeds, they now literally had no assessed valuation. The legislation was the review in part of the whole package to straighten out some of those problem areas.

Assemblyman Neighbors believed his efforts were based on fairness. For many years, probably dating from about six or seven years ago, Nye County’s assessed value at that time was $600,000,000 with $200,000,000 from net proceeds. There were no net proceeds north of Beatty and Pahrump had none. He assumed people were going to say, "fair share," yet all the money from the net proceeds was up north, while the funded projects were in other areas. One other thing, about two sessions ago the legislature passed a law that said anytime a school district puts on a bond issue that puts another entity over the $3.64 cap, they had to buy it down. Assemblyman Neighbors asked Ms. Vilardo if she was aware whether it had ever been done.

Carole Vilardo reminded Mr. Neighbors that was a result of what was being done under severe financial emergency. When a school district was responsible for the buy down being created, they had to participate in the buy down. Originally the language did not involve a school district; it involved those municipalities that were included. Due to the additional safeguards that were put in, it was her belief that would never happen again. That was part of the discussion for those members on the Committee on Government Affairs this morning, the "debt management bill," and beefing that up so there was better scrutiny. There had been a "due diligence problem," as to why that had occurred.

Chairman Goldwater called on Mr. Mortenson for any questions or comments.

Assemblyman Mortenson asked if the bill would prohibit something, for example if a small entity voluntarily lowered their taxes and then the county contributed an amount of money equal to what they lost, would that be covered in the bill.

Responding, Ms. Vilardo related the circumstances Mr. Mortenson set up would not be covered in the bill but during the 1997 session, the Committee on Taxation processed S.B. 253 or S.B. 254, which was one of the two bills that came out of the Senate and one of the things it did, besides creating the local government revenue pool from which to distribute money, it provided that governments within a county, there could be two or all governments, could change the distribution formula from the pool and what they wanted to accomplish if there was a facility all could share. For example, a detention facility and using for example Clark County, if the cities of Las Vegas and North Las Vegas and the County decided it was more efficient to build a detention facility and share in those costs, they could take, as the distribution came in, with their inter-local agreement, and decide to pull off X amount of dollars to fund that before the rest of it was distributed out to the three entities. It was that flexibility given so on one hand they were stopping that provision, but on the other hand, they had already given them the flexibility in 1997 to be able to adjust those funds out to the entities involved.

Chairman Goldwater invited witnesses for the purpose of expeditiousness to talk directly to the committee members and they would talk directly to the witnesses. They need not go through the Chair. He then called on Ms. Henderson, asking if she had any statements she wanted to make.

Mary Henderson introduced herself as a member of the S.B. 253 Technical Advisory Committee and revealed she had planned on saying exactly what Ms. Vilardo had talked about. She voiced her opinion that the legislation passed in the 1997 session was a very important piece of legislation they did last time which allowed local governments, where there was the second tier distribution to pooled revenues. They called it an "alternative distribution method" which was a much more workable solution, they thought, than forcing the larger local government to reduce its own services to absorb those costs from a smaller local government. It, also, gave them a lot more flexibility which she thought would absolutely handle the problem they had been talking about, especially in a county such as Clark or Washoe.

Calling upon Mr. Hadfield, Chairman Goldwater asserted the bill would only prohibit the monetary transfer for the purposes of a "buy down" and asked if It would still be statutorily acceptable to buy down with services.

Bob Hadfield indicated that would be his assumption upon reading the legislation. He opined everyone knew that entities cannot wait until the last minute and get into a tax rate fight and be forced into an untenable situation. There would be a risk where there would be a week to come up with an answer, or they were going to throw themselves on the mercy of the Tax Commission, which they got tired of. Mr. Hadfield thought that would force better communications earlier on and, hopefully, the problem would go away through the types of agreements alluded to by the previous testimony.

Chairman Goldwater wondered if the S.B. 253 committee considered prohibiting the transfer services like that or just simply the monetary transfer and was advised they did not consider it. He then asked if the committee would want to consider it, with the general consensus being they might want to put it back to the S.B. 253 committee. The Chair indicated he had a list of items for consideration as well.

He invited anyone wishing to testify in support or opposition to S.B. 536 to step forward. There was no one wanting to testify. The Chair asked if anyone had testified in opposition to S.B. 536 in the Senate and was advised in the negative he then closed the hearing. There was no action taken on the bill at that time.

Mr. Chairman next opened the hearing on S.B. 476.

Included, as part of the record was a Floor Statement prepared by Ted Zuend, fiscal analyst from the Legislative Counsel Bureau and shown as Exhibit E.

In response to the Chair's announcement the committee would take testimony on S.B. 476 and at that time, he welcomed Guy Hobbs.

Mr. Hobbs introduced himself as part owner of the firm of Hobbs, Ong & Associates and was appearing at that time as a member of the S.B. 253 Technical Committee. Mr. Hobbs observed S.B. 476 dealt with a long-standing issue related to property taxation and, in particular, the $3.64 per $100 of assessed valuation cap on combined property taxes that had existed since 1981. As the Committee was aware, there were several areas within the State of Nevada where entities had reached the $3.64 limitation some number of years ago. Those were areas that were also characterized by the economies that were comparatively much more narrow, particularly when contrasted with Washoe and Clark counties. Property tax revenues, in some cases, that which was attributable to centrally assessed property and that which was also attributable to net proceeds of mines, formed the bases of the local government revenue funding in those areas. Revenues from things like charges for services and licenses and permits in other areas that produced significant amounts of funding in other locations, were not viable options in those areas. Even if things like sales tax rates were adjusted significantly, they would not produce measurable revenue. There are very few options available in many of those parts of the state.

Continuing with his testimony, Mr. Hobbs testified in approaching the particular matter and recognizing the difficulties that many of those areas faced, they also very clearly understood the sensitivity surrounding the $3.64 cap. The Technical Committee, in deliberating that both two years ago and over the last interim, wanted to try to provide a mechanism, particularly for the rural areas that have had problems with the limitations imposed by the cap. The methodology that was selected, recommended to the Legislative Subcommittee and had been put forth for the committee’s consideration as well, looked at a particular point in time, June 25, 1998. Any local government who at that time, had a combined property tax rate that equaled or exceeded $3.50 would be considered to have a couple of the components of the $3.64 that were traditionally measured as a part of that, to not be considered as a part of the cap. That would specifically include the portion of the school district operating levy above $.50, in most cases, $.25, and also any rate imposed by the state for bonded indebtedness, which was about $.15. So the bill affected those areas that would be affected by the bill as of that June 30, 1998 which he had made available to the Committee. (List of areas included as Exhibit F) For those particular areas shown on Exhibit F they would be able to effectively achieve a level of $4.04 by the exclusion of those two components of the tax. The cap still remained at $3.64 but since two components would not be considered as a part of it, it was an effective adjustment to about a $4.04 rate.

Mr. Hobbs observed the committee would note that the bill also contemplated procedures for any local government that would elect to alter their rate above the $3.64 level required the publishing of a notice of any amounts over the $3.64 limit that a local government may be considering. As a part of its budget process and budget hearing process, raising above that level, offering the opportunity to any affected citizens to, make any objections or thoughts known at that time.

That, in a nutshell, was what was proposed by the particular bill. He felt certain there may be others that had comments and offered to answer any questions the Committee may have.

Chairman Goldwater thanked Mr. Hobbs for the information he provided and asked for questions from the Committee and recognized Ms. Gibbons.

Assemblywoman Gibbons directed Mr. Hobbs' attention to page 3 where he had been speaking about publication requirements. She did not believe the language was clear and suggested perhaps the committee should clarify more what type of newspapers they required.

Guy Hobbs concurred if anyone felt the current language lacked clarity that could easily be taken care of. In their discussions it was noted that, like a lot of other publication requirements, it should be published in a newspaper of general circulation. There had been a considerable amount of dialogue as to the size of the ad and how prominent it should be. He believed what the committee had settled upon, and again offered for their consideration, was a one-quarter page ad in not less than 8-point type in a newspaper of general circulation within the area affected.

Assemblywoman Gibbons conceded she would be more comfortable with something along that line.

Chairman Goldwater called for further questions for Mr. Hobbs, and finding none, indicated he had a few questions but first wished to hear from Mr. Hadfield.

Bob Hadfield, representing the Nevada Association of Counties, had provided the committee with a handout (Exhibit G) which he felt demonstrated better than anything he could say what had happened to some of the rural counties. The exhibit additionally contained a copy of a memorandum directed to him by the independent auditors of Mineral County, with the permission of the County Board of Commissioners. On the first page of the memo from Kafoury, Armstrong, they would notice the assessed valuation was declining in Mineral County. In the year 1999-2000 assessed valuation was going to be even lower. He estimated it would go down to $98,000,000. Reading further in the exhibit the members would see the overlapping tax rates of Mineral County showing what they had asked for or said they needed to operate. Also included was Mineral County, Mt. Grant Hospital, both with countywide tax rates and the school district operating debt service. They passed a bond issue to build a new school in Schurz at the insistence of the legislature and unincorporated towns, which was folded into the budget of Mineral County. That meant Hawthorne, Mina, Luning, and Walker, were now part of the county budget in an effort to reduce the tax rate competition. In order to fund their budget the way it was submitted they would need a $4.49 tax rate.

Mr. Hadfield called the committee's attention to the fact that the only entity that reduced its tax rate was Mineral County when they went from $1.86 to $1.75 to $1.71. Mineral County had to reduce their tax rate at the same time the assessed valuation was declining, which meant they got a "double whammy" and had to cut $882,000 from their budget. The problem they had which also was a problem for all of Nevada, was they had estimated $80,000 for the long-term care Medicaid match program and they had already spent $161,000 in 1999 and were anticipating $240,000 for the year 2000. They had a mandate on long-term care that had tripled. Their assessed valuation had declined dramatically and continued to decline and they were confronted with the other taxing entities in their county, having to keep their tax rates the same. One was the $.75 mandated tax rate for the school district which they needed so there was no debate there. They had a voter-approved bond issue on which they had to make payments, and he wondered if they were going to be able to hold the rate at $.60 because of the decline in assessed valuation as well as having Mt. Grant Hospital which also had voter-approved issues behind it. They had a situation where the county had done nothing wrong, had not done anything out of the ordinary, was not a large county that had a huge budget, had one deputy on duty 24-hours a day, and they had to cut around $900,000 out of their budget, which was a draconian cut caused by conditions outside their making. If centrally assessed properties which made up 37 percent of the county’s total assessed valuation declined any further they would have an even worse situation. That was the type of problem the mechanism before the committee today was attempting to address to at least give those county commissioners an option to do something.

Mr. Hadfield wanted to make it very clear passage of the bills was not an automatic tax rate increase as some people might believe because those were frugal people who had to stand the test of the vote in their own community. He admitted he could not tell the committee that any of them would actually raise the tax rate but he believed if they were forced into a situation where they had no recourse, they should be allowed this option under Nevada law. They were not opening the floodgates for counties all over the state but most of those counties had the declining assessed valuation that had put them in that mess. Lincoln County had 51 percent of their total assessed valuation in centrally assessed properties. Nye County had a problem but with Pahrump in their county, their assessed valuation had gone up even though there had been a decline in mining which was a huge value issue in those counties. Historically a mine went down, assessed valuation went down so the counties were stuck, and he was suggesting it was not as if they had extra people on board and they could start cutting. At the Mineral County Courthouse they had two people in each one of the offices.

Chairman Goldwater noted the committee was very familiar with and sympathetic to the plight of the rural counties. Recalling Mr. Hadfield's testimony in which he used Mineral County in his anecdote he asked what Mineral County’s sales tax was and was advised they did not levy the additional sales tax because they did not have a sales tax base. Chairman Goldwater asked if the county had levied the franchise fee and learned they had not.

The Chair, pursuing his line of questioning asked if they had levied all the license fees they had available and was advised by Mr. Hadfield they levied whatever they could because there was nothing down there except that government base, which just laid off 200 more workers. He concluded there was no sales tax base from which to derive any revenue to speak of, therefore, they had not levied all the tax that may be available.

In response to a request for questions from the Chairman, Assemblyman Mortenson opined he had no idea how to vote on this as it scared the devil out of him adding, contrary to what Mr. Hadfield said, he felt they were starting to open the floodgates. He voiced his opinion that all it would take was a change in a date and he noted from that point it would be so easy to go statewide. He admitted he did not know what the solutions were for the small counties but, for example, if the taxes went up, and the properties went down in some of those counties, they may do more damage than they intend. At one time recently, he looked at the growth of various counties and Lincoln had a negative growth. If Lincoln were to increase its tax rate, more people may move out resulting in an even worse situation if the populace knew they could move somewhere with a considerably lower tax for their home. There were a great number of elderly people that were on fixed incomes having a tough time. He concluded he did not know what the solution was but he was not certain the current idea was it.

Chairman Goldwater asked if either of the previous witnesses wanted to address Mr. Mortenson’s concerns and recognized Mr. Hobbs.

Guy Hobbs responded to the query of the Chairman, stating obviously, the additional flexibility this would gain some of those areas was not a panacea for all of their problems. There were very limited options available to allow them to be part of the solution at the local level if it was something that would not do more harm than good. One of the other observations just made was if there were no partial solutions that local levels offered in some of the rural areas, one of the long-term probabilities was that the rural subsidies, as a part of consolidated tax with a former Supplemental City-County Relief Tax (SCCRT) distribution formula would be revisited to help subsidize some of the failing or weaker economies throughout the state.

Chairman Goldwater recognized Mr. Hadfield for a reply to Mr. Mortenson at which time Mr. Hadfield conceded the counties were at a point of diminishing return and that was why they were so concerned about all those different events that were taking place. He had provided the committee with a map (part of Exhibit G) which most of them had seen, that showed the amount of federal land in black and indicated there had been more black added to it. It demonstrated the counties were on a property tax base and the white indicated on the map was the taxable land. If the committee looked at Mineral County they would see there was not a great amount of taxable land in Mineral County. He concluded his association had a bill in the legislature, to address the whole issue of how they could free up additional land for development inasmuch as if the counties did not have any taxable land, their concerns certainly needed to be addressed.

Chairman Goldwater revealed quite the opposite was occurring with the land exchanges. He then called on Mr. Mortenson for a follow-up question who pointed out to Mr. Hadfield he had not answered the Chairman’s question, and asked again what the sales tax was in Mineral County.

Bob Hadfield confided he did not know the amount, however, they had not levied the additional one-quarter cent they were allowed to levy for landfill purposes because they already paid for the federal mandate and that was one of the reasons they were broke. The reason they did not do it was because there was no sales tax base; it would not get them any money which was thoroughly discussed when the committee looked at the whole school issue and how to pay for a school out there. They were going to use sales tax to pay for a school and then when they figured out it did not generate enough money to do anything and they dropped the idea.

Assemblyman Mortenson conceded it would not generate a great deal of money but it certainly would have generated additional money if they brought it up to whatever the maximum was. He asked if anyone knew what the tax was in Mineral County.

Chairman Goldwater reminded the committee they had been issued a book, titled State and Local Government Finances showing the different revenues imposed and was something the committee members would find very interesting. He suggested to Mr. Hadfield what Mr. Mortenson was trying to obtain was the quarter-cent in Mineral County which amount he had learned from Ted Zuend who said it was $120,000 which was not enough money. The issue, however, was fairness and it was a tough issue around the state. The Chair stated, "Clark County taxpayers raise a lot of money for different things, but our taxpayers, our constituents, pay those things. We pay a franchise fee. We pay licensing fees. We pay garbage collection fees and the question is, when you go to state financing and you’re talking about state dollars going to something, are you doing maximum effort? If you are not doing maximum effort, do you deserve the State subsidy? It’s tough on education, which is where he has been paying attention to it, specifically on White Pine County. Yes, their buildings are in disarray but so are the buildings in Assembly District 42 and that would be Mr. Mortenson’s district. He would love state money for that and his constituents are actually paying more for those services. Why is the state helping and that is the issue he thought, we need to grapple with. The heartfelt stories of the plight of the rural counties, they get me. They get everyone on the committee but he thought the issue we need to settle on is simply fairness."

Bob Hadfield asserted what they were asking for in the bill was to allow the commissioners the ability, if they choose to, to levy an additional property tax in their county, paid by no one else but the residents. That was if they believed it was a better way to do it and the committee agreed they should be allowed another option. They were not asking for a state subsidy but, to be frank with the committee, it was the State of Nevada that put Mineral County in the tax-rate cap problem with the mandatory levies.

Assemblyman Neighbors, addressing his comments to Mr. Mortenson pointed out the committee did a lot of work on the bill and he felt it was good legislation. Three of those five counties, Assemblyman Neighbors believed there were five counties listed, and three of the four counties that he represented were on the list, but the tax rate was not going to be a subsidy from the state. If the counties wanted to increase the tax rate, they were going to have to answer to their own folks in the county. Something had to be done in those little rural counties. He pointed out, as an example, back in 1980 and 1981, when they had the tax shift which went from property tax to the sales tax it was really a balancing act. One cent of sales tax at that time generated so much money so that was how much property tax they took away but at that time the state was going to stay out of the ad valorem business. They had now built the tax rate back up to $.15. He called attention to the law where they would find there was no limit. If the $.15 rate was still available maybe they would not need the extra $.25 and $.15 for the rural counties. He concluded that was simply a comment on his part.

Bob Hadfield wished to comment on the sales tax at that point and remarked for the people in the audience who have driven through Mineral County, they probably found it strange that such a small community still had automobile dealerships. One of the reasons they did not want to increase their sales tax was because car dealerships were one of the good generators of sales tax. That gave them a competitive advantage against the other dealers in neighboring counties but created a "catch 22." If the sales tax was increased and the car dealerships were driven out of business had anything really been gained. He admitted it was not easy to figure out which way would be best but he thought Mineral County should be commended for what they had done which was they met the Federal mandates on the dump and they did not ask for help.

Chairman Goldwater recognized Ms. Freeman for a question at which time she noted she did not think her question had a lot to do with the bill being considered but she noticed on the bottom of the second page of the report from Kafoury, Armstrong where it addressed the medical indigent expenditures and the one and a half cents under hospital care for persons injured by motor vehicles. She was on the interim committee years ago and remembered the issues they dealt with of that type. Did that fund satisfy the question of how they provided health care for indigents.

Responding, Mr. Hadfield explained to Ms. Freeman, since they administered those two funds, he could tell her that Mineral County had benefited. He elaborated on several situations where the accident and indigent fund had been used to pay. The problem they had in the rural counties, even in the urban counties, when they had accidents they paid on, they were traumas and the patient had to be airlifted somewhere which took a lot of money. The funds were never intended to pay dollar-for-dollar but they did provide hospitals with a very important relief mechanism for what would otherwise be uncompensated care, and they did provide the counties with that fail-safe back so they could not be sued if they paid the bill.

Ms. Freeman revealed she had spoken to the Committee on Elections and Procedures regarding a study of rural health care and it seemed to her this was something the committee should look at as well because she believed it was about 10 years ago the legislature established this, so in discussing those issues, she saw it as being part of it.

Mr. Hadfield agreed the health care and long-term care issues were critical as the rural areas were becoming retirement areas and long-term care costs were eating them up. There was no way to get the money off the taxpayers, but as Mr. Hadfield pointed out there was a separate study proposed for that.

Chairman Goldwater next recognized Mr. Hobbs for his remarks who related he had one brief comment by way of clarification. While the committee had discussed, in some detail, the mechanism for those local governments that would have a combined tax rate of $3.50 or greater at June 25, 1998, there was also a provision in the bill for those that were less than a combined $3.50 at that same date. Any future increases in the state’s debt rate or any future increases above what was levied for support of schools, would be outside of that $3.64 cap as well. He wanted to clarify it.

Chairman Goldwater said he appreciated that as he felt the information was helpful in talking about subsidies. He added, when in passing the bill, it was not a direct subsidy but it was an assurance to constituents that it would not go beyond a certain point. When the legislature started doing that they were talking about removing protections from the citizens and his constituents would not be able to sleep as well at night. The Chair questioned Mr. Hobbs on whether the passage of the bill, in his professional opinion, would have an affect on any of the municipalities bond ratings.

Mr. Hobbs responded, stating in some respects it might in fact ease some concerns that several of the credit rating agencies had as they inferred all of the indebtedness against general obligation was limited tax. If approved, it would be slightly less limited, although still limited tax. In some of those areas, or most of those on the committee members’ list, were candidates for issuance through the State Bond Bank and likely would not be rated on their own but he thought it would likely add a very slight positive to the rating agencies.

Chairman Goldwater concurred, then asked for questions or comments and recognized Ms. Freeman who revealed she had served on the S.B. 253 Committee with Mr. Neighbors and understood the concern of some of the counties. She added those who served felt this was something they really needed to do and that it should be part of the entire package they had been looking at.

The Chair thanked her for her comments and asked if there were further questions. There were none and he called for testimony from the audience and recognized Mary Walker and Carole Vilardo.

Speaking first, Mary Walker introduced herself noting she represented Carson City, Douglas County, and Lyon County. All three counties took the proposed legislation to their boards and unanimously did support it even though the major effect of it would affect the smaller rural jurisdictions. She felt all of them felt very strongly that the assistance was needed. Ms. Walker wanted to go on record conceding the members and the county officials talked about the $3.64 cap which, as they all knew, applied to both the state as well as to local governments, but if the members looked at it back in the eighties, local governments had a $3.14 cap. They had $3.64 but $.50 was for schools and the state had no other tax rate so 3.14 was the rate the local governments had. Since the early eighties the state implemented the $.15 for a capital improvement program and another $.25 for schools, which was another $.40, making the tax rate available to local governments at only $2.74. The tax rate had gone down for local governments and what they were requesting currently was that $.40 of the tax cap the state took away from local governments, be reinstated but only for the smaller rurals. They were asking to go back to where they were in the eighties.

Chairman Goldwater reminded those present a lot of officials lump the schools with the local governments and forget they were two separate entities. He asked if there were questions for Ms. Walker. Recognizing there were none he called on Ms. Vilardo.

Carole Vilardo, president of the Nevada Taxpayers Association revealed she was not easily speaking to the bill but her board had been polled and of the proposals that had come forth, it was the most acceptable inasmuch as some of the counties had been put in an absolutely untenable situation. It would be her hope that the state would be on notice that they did not keep their original promise in 1979, to keep out of the property tax business. It was a problem and she could appreciate the concerns of the committee. The proposed legislation would not go to a vote of the people but there was a display-type ad required that had to be at least a quarter of a page that should get some attention. Since she knew some of the counties that were near the cap actually had room to go higher in their tax rate she thought, as Mr. Hadfield indicated, the elected officials would be extremely judicious before they made use of this. Additionally, the committee could always require a report to come back to it of any entity that did exceed that so the committee could evaluate it next session.

Chairman Goldwater, in jest, suggested that was pretty shocking testimony, to hear the Nevada Taxpayers Association take that position.

Chairman Goldwater thanked Ms. Vilardo for her testimony and asked if there was anyone else present to testify in favor of the bill. There were none. He asked for testimony against S.B. 476 and acknowledged Lucille Lusk asking her to take a place at the witness table.

Lucille Lusk introduced herself as a representative of Nevada Concerned Citizens and stated she appreciated the opportunity to appear before the committee. It seemed to her that the circumvention of the statutory limit of $3.64 was progressing to the point where the limit would be meaningless. The protections that the chairman spoke of were protections that were relied upon and they would not like to have them removed. They considered that an effective property tax increase initiated here even though the formal action would be finally taken at another location. The discussion of that always focused on the rural counties. In fact, someone had said, "only the rural counties" but as far as she could tell, the bill actually applied in all counties. Her members thought that, over time, it would virtually be used in the larger counties as well. She proceeded through the bill:

• page one, section one, lines 8 through 15, reference was made to all counties where the combined tax rate of a local government certified by the Tax Commission pursuant to NRS was at least $3.50 on such and such a date.

• On the second page, lines 4 through 12, reference made to those same entities where their combined rate was less than $3.50 on that same date.

• one group was more than $3.50, the other group was less than $3.50 which meant everyone as far as she could tell, in some way, had an opportunity to escape the $3.64 tax cap.

• The publishing of a display-type ad in 8-point type, they considered to be meaningless both because of the size and the readership count for the actual informing of the people. They did not consider this to have any impact whatsoever.

She continued if the committee was going to pass the bill, obviously the Nevada Concerned Citizens' preference was be that it not be, and that the committee would do something that was more focused on those with the need that was being represented rather than something that was broadly applicable to all of the entities. Their request was a simple one. Since the ordinary working folks, often struggling to make ends meet, were the ones that had to pay the bill directly from their hard earned money, they would ask the committee to require a vote of the people before the tax could be imposed. If the need was really as significant and demonstrable as it had been represented and the people wanted the services that the governments wanted to provide, it appeared to them the people would approve it. Reference had been made by several people about the judicious manner in which those tax increases would be imposed. They would like to let the people have a say in that judiciousness and determine for themselves how much they would be willing to pay.

Chairman Goldwater thanked Ms. Lusk and on behalf of Mr. Neighbors inquired as to whether or not she had testified on the Senate side as well and was advised Nevada Concerned Citizens was represented, however she was not the spokesman. The same testimony was presented.

Chairman Goldwater, not seeing any questions for Ms. Lusk, thanked her and asked, on behalf of Mr. Neighbors, if Messieurs Hadfield and Hobbs would return to the witness table whereby Mr. Neighbors suggested the two gentlemen be given the opportunity to respond to Ms. Lusk's concerns.

Bob Hadfield, responded to Mr. Neighbors, with regard to the second relief mechanism, it was correctly described by Mr. Hobbs as being a relief mechanism in the event the State of Nevada continued to increase their tax rate. If he looked at the situation in Mineral County, if the state tax rate went up, the only entity affected in Mineral County was the county. The county’s tax rate would be driven down. He understood the state had prison needs and they were looking at school needs, but he wanted to say to the committee, "What if the county got sued and they had to build a new jail. How would Mineral County build a new jail." If Nevada needed a new prison, the legislature would put the cost in the budget and the tax rate would go up. It would not get voted on by "the people." He appreciated Ms. Lusk’s concern and he had never been opposed to people voting on these issues.

Number three addressed a very real problem. In 1979, the state they got out of the tax rate and eliminated the 25 cent general levy to the general fund of the State of Nevada and the 11 cent state aid to medically indigent. The state was out of the tax rate but then they had to go back into the tax rate in order to help themselves. They did not raise the cap when they did that; they lowered the cap when they reduced their tax rate which was what the bill allowed under that relief mechanism. If the state raised their tax rate again, the cap would float with the rate so no local government would be punished because of the needs of the state, which was perfectly legitimate and they would not argue with their needs.

Assemblyman Neighbors concurred with him, adding he felt the issue was there would be no limit to people that did not qualify on the date of June 25, 1998. Large counties could exceed the cap and he thought that was one of the issues Ms. Lusk raised.

Guy Hobbs interjected at that time pointing out as Mr. Hadfield stated, what the section would do was to eliminate any future, further encroachment on what was effectively the $3.64 rate as it stood today in those counties that were less than the $3.50. So, it just offered a piece of protection.

Chairman Goldwater recognized Assemblywoman Gibbons who asked Mr. Hadfield since it only affected seven counties, why did they not limit it to a population base, perhaps like so many other bills, under 100,000.

Bob Hadfield explained he was not a member of the S.B. 253 Committee and therefore he could not answer that but deferred to Mr. Hobbs.

Guy Hobbs, in response, explained it was very simply put by looking at population which the S.B. 253 Committee did consider. They very likely would have made other areas eligible that had low populations as well but did not have the "greater than $3.50 problem." So, since the problem was thought to be a very close approach to the $3.64 cap, and the committee could see how many were actually at the $3.64 cap, it was thought that the S.B. 253 Committee would be targeting that more specifically and precisely by putting a property tax, a dollar threshold, on it.

Chairman Goldwater noted it probably would have run into some constitutional challenges as well. He asked if there were further questions or anyone wishing to testify in support or opposition to the bill. There being none, he thanked the committee and those who testified and closed the hearing on S.B. 476.

The Chair observed the committee would move the three bills to a work session and for the committee's information, there were 13 bills that have not been scheduled which he would get scheduled as soon as possible, so in the final weeks members would not have to worry too much about the Taxation Committee.

He asked for any other business to come before the committee. Seeing none the meeting was adjourned at 3:15p.m.

RESPECTFULLY SUBMITTED:

Nykki Kinsley,

Committee Secretary

APPROVED BY:

Assemblyman David Goldwater, Chairman

DATE: