The Committee on Ways and Means was called to order at 7:40 a.m., on Wednesday, February 3, 1999. Chairman Morse Arberry Jr. presided in
Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List.

COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry Jr., Chairman

Ms. Jan Evans, Vice Chairwoman

Mr. Bob Beers

Mrs. Barbara Cegavske

Mrs. Vonne Chowning

Mrs. Marcia de Braga

Ms. Chris Giunchigliani

Mr. David Goldwater

Mr. Lynn Hettrick

Mr. David Parks

Mr. Robert Price

COMMITTEE MEMBERS ABSENT:

Mr. Joseph E. Dini, Jr.

Mr. John Marvel (Excused)

Mr. Richard Perkins

STAFF MEMBERS PRESENT:

The Chair recognized Lorraine T. Hunt, Lieutenant Governor, who appeared before the committee members as the Chairman of the Commission on Economic Development and the Commission on Tourism. She introduced Mr. Bob Shriver, Executive Director of the Commission on Economic Development (CED), and Tom Tait, Executive Director of the Commission on Tourism.

Mr. Tait thanked committee members for the partnership that had been extended between the legislature and the Commission on Tourism, and the extraordinary assistance that had been provided during the flood of 1997. That emergency assistance allowed the Commission on Tourism to disseminate in excess of one million pieces of information over a period of 4 days to cities in the primary market. That information dispelled the impact of negative publicity arising from that flood. He went on to explain that publicity included photographs of the airport with water circulating through the engines of the airplanes. That negative publicity lasted for almost ten days on CNN, and virtually every other network newscast as well. He continued and said the efforts the legislature had provided toward the restoration of an historic building that became the headquarters of the Commission on Tourism was also appreciated. The city of Carson City, and the state as a whole, owed the legislature a debt of gratitude for allowing the historic building to be saved from a modern restoration. The reception at the new headquarters was to be held February 22, 1999. He went on to say the air service development mission that had been authorized by the Interim Finance Committee had resulted in incredible strides forward. The Commission on Tourism had ventured with the Governor to Asia, Latin America, and Europe. Eight months ago there were no non-stop flights from Tokyo. Today, there were six non-stop flights per week. In another month there would be seven non-stop flights per week, at which point the Commission on Tourism would be able to say that Tokyo and Asia were open to Las Vegas. Mr. Tait explained the Commission on Tourism had arranged tremendous cooperative agreements between Allegro Airlines and other Mexican carriers to expand service from Mexico City, Guadalajara, Leon, and Monterrey. There were no multiple flights operating weekly from those cities in the on-season, and in the off-season from two of those cities. Those agreements, together with the cooperative agreements being signed with Lufthansa and Condor Airlines this coming on-season, to provide non-stop service from Frankfurt, Cologne, and hopefully Munich and Berlin, would open Nevada to the world. Those were only a few examples of some of the negotiations in process due in large part to the work of committee members and their Senate counterparts. Lastly, Mr. Tait thanked committee members for the tremendous extension of service to the Commission on Tourism’s joint effort with the Las Vegas Convention and Visitor’s Authority to open an office in Seoul, South Korea.

Mr. Tait said Nevada was faced with severe challenges, more so now than ever before in the history of the Commission on Tourism. He explained the commission had been created in 1983 as a hedge against competition from the threat of Atlantic City and to promote the cultural scenic, historic, and recreational attractions in Nevada. He went on to say that except for Utah and Hawaii, the remaining 48 states had gaming. Gaming was in virtually every province in Canada and perhaps, within the next 5 years, would be in the resort cities in Mexico. He said competition was keen. As a result, Las Vegas and Reno were in the process of providing a new polished, grandiose appearance that would take those cities into the next millenium. Mr. Tait explained those new appearances would not be without impact.

Room tax collections were currently on a spike high because of the opening of the Bellagio megaresort in Las Vegas. By and large, however, those tax collections had been down during the last year and a half. The Commission on Tourism had projected a 6 percent increase in room tax for 1997 and 1998; however, the actual was 3.5 percent. The Commission on Tourism was projecting a 3 percent increase in room tax collections over the next biennium
(3 percent per year). He explained that domestic markets were softening while international markets were expanding. That was the result of calls from people like Glenn Schaeffer, Steve Wynn, Arthur Goldberg, and others, who said the Commission on Tourism must inure its product to the international market if it were to succeed. Inventory in Las Vegas was growing, with 125,000 rooms available by mid-2000. Room rates in existing properties, and even in the new resorts, were down. He said there were resorts where he had never seen a room rate less than $59. However, today’s rate for that same room was $29. Mr. Tait explained room tax collections were based on room rates and the average daily rate. The decline in room rate had a significant impact on the Commission on Tourism’s ability to produce room tax revenues. Wholesaler access to rooms had never been higher at virtually no cost. Reno was projecting no increase in room taxes over the next biennium while Las Vegas was projecting only a 4 percent increase.

The average age of customers to Reno was increasing faster than the chronological number of years. Mr. Tait explained the Commission on Tourism must target a lower customer base by finding ways to attract younger customers. He felt Reno was aware of and had addressed that issue by focusing attention on the attractiveness and recreational aspects of the Sierra Nevadas, the high-tech aspects of a new addition to the convention center, and other technological improvements at the airport. Proposition 5 was looming in California. He went on to say that in the plus column, resorts that were being created in Las Vegas were the most fabulous in the world. The improvements being made in the Reno/Tahoe area were substantive, practical, and would certainly reposition Reno as an attractive business and leisure destination. McCarran International and Reno-Tahoe Airports were positioned well not only geographically, but had enough gate space to handle an increase in tourism that would carry Nevada well into the millenium. Roadways in Nevada were being upgraded. Mr. Tait reported Interstate 80 was always going to be a congestion problem, especially during winter when capacity levels were reached quickly. Interstate 50 would be widened into California, hopefully all the way to Apple Valley. Mr. Tait reiterated that Nevada currently had six non-stop flights from Tokyo, and additional flights would be coming from Germany and Mexico in the future. If bi-lateral and open-skies agreements could be worked out, non-stop flights would also be scheduled from London.

Mr. Tait explained the Commission on Tourism was in the process of launching a 15-month millenium program in the State of Nevada beginning
October 30, 1999 and running through January 15, 2001. He went on to say Nevada was the only state in the country that could carry off such a program because there were 2,000 ways to play, 2,000 restaurants, and 2,000 different opportunities for events and shows that would exist during the 15-month celebration. The Commission on Tourism had geared-up all its collateral materials, promotional activities, advertising, and marketing programs in support of the 15-month millenium program. Mr. Tait passed to the committee members several samples of the advertising campaign the Commission on Tourism expected to use. The millenium logo "Nevada 2000, Making Millenium Magic" would be branded on all advertising and special events to be showcased throughout the state. Also passed to committee members was a sample jacket that would also be showcased during the program.

Mr. Tait said Nevada had become well-positioned for the 2002 Olympics. The Commission on Tourism was aware Nevada was a bed-base for the 2002 Olympics with proper market positioning. There were currently 6,500 rooms in the core area of Salt Lake City. There was anticipated to be over 10,000 press members working the 2002 Olympics. He pointed out that arithmetically, there would have to be another location for those people to stay. Reno was the closest proximity to Salt Lake City for first-class hotel rooms for sponsors and other individuals wishing to visit the games. The Commission on Tourism believed they would have appropriate air shuttle service and accommodations available for many of the primary and secondary sponsors of the Olympics, as well as for many of the typical guests.

Mr. Tait explained Nevada had taken a leadership position in the advocacy of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (Section 10) which would not inhibit trade, commerce, or tourism. Lt. Governor Hunt had submitted a bill draft request for a joint resolution by the legislature that asked for a continuation of that policy, and a review of Section 110 of the Immigration Reform Act of 1996.

Continuing, Mr. Tait explained Nevada’s Rural Tourism Grants Program continued to provide funds for outstanding events and shows, including Shakespeare at Sand Harbor, the Cowboy Poetry Festival, and hundreds of other events throughout the year. The Rural Motorsports Office had moved along faithfully, having helped in the production of several planned rural races, spearheaded the development of one major race in 1998, and was on the ground floor in the development of a 2,000 mile millenium race scheduled for next year.

The Commission on Tourism’s website had far surpassed the number of phone and mail-in requests for information on the state and its attractions. There were 360,000 visits to the website during the 1998 calendar year. Mr. Tait reported the Governor’s Conference on Travel and Tourism attracted 1,037 delegates in 1998; 28 percent over the record numbers. The Rural Tourism Roundup, a hands-on marketing seminar for rural tourism professionals, continued to draw upwards of 250 attendees. That seminar was in its 10^th year. The Scenic Byway Program of Nevada was one of envy in the nation, having two roadways designated as national scenic byways in the first selection round, having received over $1 million in federal discretionary highway funds directly related to the program, and having the foresight to designate the Las Vegas Strip as the first nighttime scenic byway in America. Nevada now had prominence in
Rand-McNally, National Geographic, and AAA roadmaps distributed throughout the world.

Because of the lowering average daily rates and softening in the marketplace, spending patterns for the Commission on Tourism over the next biennium were very much "hold the line." There were no major enhancements, and maintenance items reflected only inflationary levels or, in the case of equipment, necessary replacements. Mr. Tait addressed two items not reflected in
The Executive Budget, Budget Account 1522. First, the start date for the administrative assistant to the Media Administrations Manager had been accelerated from FY 2001 to FY 2000. Likewise, the Commission on Tourism requested an expansion of the salary field of four unclassified staff members who had not received a merit pay increase in 4 years. The Commission on Tourism did not want the legislature to give those individuals a raise, but rather grant the Commission on Tourism the latitude to do so on a case-by-case meritorious basis over the next biennium.

Mr. Tait explained all budget requests were based on a 3 percent increase in room tax receipts and the desire to keep the reserve at close to $1 million in the event of another natural or man-made catastrophe. Principal maintenance expenditures were in the advancement of the marketing and advertising budget for a total of approximately $900,000 over the biennium, continued reinforcement of the Rural Grants Program at approximately $750,000 over the biennium, support of two existing international offices in the United Kingdom and Japan, and the opening of a new Asian office in Seoul, Republic of Korea. He continued to explain the marketing increase would enable the Commission on Tourism to further its reach with the Millenium Program, better prepare itself for the 2002 Olympics in Salt Lake City, and provide proper support for rural events, shows, and attractions. The Rural Grants Program continued to be the mainstay of Commission on Tourism’s outreach to Nevada. There were dozens of innovative programs in communities throughout the state that were deserving of funding and would help the tourism development diversification efforts of towns that had very few places to turn for funding. Mr. Tait explained the request to open an office in Seoul had been a high priority for Las Vegas and the Commission on Tourism for 2 years. The economic crisis in Asia had caused the Commission on Tourism to place a hold on that item until it became clear that Nevada had continued to receive increased numbers of Korean visitors, even though the United States was down by 5 percent of inbound Korean visitors during the last year. Korea now sat as the sixth largest market and the Commission on Tourism expected it would move into the top five by the turn of the century. Continuing, Mr. Tait explained the proposed office in Korea would be managed by the Las Vegas Convention and Visitors Authority and would divide its activities between that city and the balance of the state. He said major budget enhancements included an increase in subsidy to the Motion Picture Division of the Commission on Economic Development (CED) and the two personnel items previously mentioned. Those enhancements would cost approximately $200,000 over the biennium.

The Chair recognized Mr. Hettrick who referred committee members to
The Executive Budget, performance indicators, and questioned number 5, "length of visitation." He also questioned number 4, "percent of customers influenced by web" which was marked "N/A" in all columns. He had divided the total number of visitors to the state into the budget for FY 1998 and FY 2001, and said it appeared the Commission on Tourism was spending about 16 cents per visitor. He said that even though the budget was flat, FY 2001 reflected a level of spending of 23 cents per visitor. That spending level represented a 50 percent increase in cost per visitor. Mr. Hettrick pointed out those were the kinds of performance indicators the committee members needed to measure effectiveness relative to money spent.

The Chair recognized Mrs. Chowning who referred committee members to performance indicator number 8, the increase in international office trade and consumer activity. She said the Commission on Tourism had projected only 339 leads and yet were able to derive 15,712 leads. Mrs. Chowning wanted to know how those additional leads were achieved. Mr. Tait explained the individual who prepared the "leads generated" report had compiled a list of all leads which included incoming phone calls from travel agents and airline personnel. In past years, the number had reflected only those leads from trade shows and principle wholesale contacts. Mr. Tait told committee members he had retabulated those leads based on his historical collection process. That "leads" total was 346.

The Chair recognized Vice Chair Evans who referred committee members to performance indicator number 2 "user visits" on website, and noted the substantial increase. She asked if that increase was attributed to more people having computers available and becoming familiar with the web, or if the Commission on Tourism had done something special. Mr. Tait said the increase was unquestionably attributable to more people using the website. In 1996 the Travel Industry Association of America projected 10 percent of the business public was using the website as a basis for planning its travel. In 1997 that number had jumped to 37 percent, and in 1998, the Association was looking at over 40 percent. The Commission on Tourism was expecting an exponential increase in the number of people using the website to plan travel. Mr. Tait explained tickets or hotel rooms were not necessarily booked using the website, but rather, the website was used as a resource to determine what attractions were in the area, hotel availability, and what prices were the best value for their dollar. The Commission on Tourism expected the website to far surpass or even replace paper within the next 10 years.

The Chair recognized Mr. Marvel who asked when the Korean office would be opened. Mr. Tait responded the Las Vegas Convention and Visitors Authority (LVCVA) was in the process of completing the inter-local agreement which had been drafted the week of January 25, 1999. The LVCVA expected interviews would be conducted with prospective general sales agents within the next month. Mr. Tait expected the office would likely be open by April or May 1999. Mr. Marvel asked how much the LVCVA had contributed to the project. Mr. Tait said his guess would be the LVCVA would probably be a match of either 1½, or 2 to 1 over the Commission on Tourism’s $100,000 contribution. Mr. Marvel asked if it would be feasible to include Reno in the mix. Mr. Tait said discussions had been conducted with Mr. J. Phillip Keene III at the Reno/Sparks Convention and Visitors Authority (RSCVA) about having Reno physically get back in the mix. He pointed out Reno was having serious budget shortfalls, huge capital expenditures, and bond indebtedness that had to be paid off. It was unlikely that in the next couple of years Reno would be able to be a direct contributor. He added the staff of the Commission on Tourism had been selling Reno right along with the rest of the state.

The Chair recognized Ms. Giunchigliani who requested committee members be provided with a dollar amount of funds that would have been provided to the Commission on Tourism from LVCVA. Mr. Tait would provide that information. She asked if there was a way to translate "hits" on the internet to actual purchases. Mr. Tait said the Commission on Tourism was in the process of designing a conversion study that would show how many people came on to the website, how many people used its resources, and how many people were influenced by those resources and ultimately planned a vacation or came to the State of Nevada. Ms. Giunchigliani said her concern during the interim opening of the Korean office was twofold. First, she felt the legislature should have made the decision rather than the Interim Finance Committee. Second, was airport gate access. She asked how the Commission on Tourism worked with the various airports in Nevada to ensure there was sufficient gate access. She added it was wonderful for the Commission on Tourism to recruit people from London and Asia, but if there was no gate access, Nevada would not benefit. Mr. Tait explained the international terminal (terminal 2) at McCarran currently had nine gates and customs facilities operational. The "D gates" had been constructed to assume the increased responsibilities of terminal 2. His belief was that McCarran would be very energetic in its desire to move customs and other international flight functions over to the D gates to accommodate the overflow from terminal 2. Mrs. Giunchigliani asked if the Commission on Tourism coordinated with McCarran officials to ensure there were gates to accommodate its recruitment. Mr. Tait said representatives accompanied the Commission on Tourism during the recruitment process. Mrs. Giunchigliani said in view of articles she had read by Randy Walker and others in the southern part of the state over the last six months, the big issue besides the room percentages going down for the first time ever was the fact that, even with the opening of the D gates, there was not sufficient gate access. Concluding, she asked to go on record and said the Washington office should be closed.

The Chair recognized Vice Chair Evans who inquired as to commercial air service to the airport at South Shore. She said there was an effort to re-institute commercial air service to that area and asked if the Commission on Tourism was working with representatives from the airport. Mr. Tait said the Commission on Tourism was supportive of those efforts which, unfortunately, had not translated to funds. He indicated the Commission on Tourism was willing to meet with airlines, airline sales representatives, and virtually anyone who might be able to provide assistance in that area. Unfortunately, the Commission on Tourism had been able to provide little assistance due to the high airline fares of those airlines flying into the South Tahoe airport. He pointed out Reno-Tahoe Airport had provided excellent air service. The cost factor and schedules were such that South Shore would not be able to see the kind of air service available at Reno/Tahoe and the surrounding resort area. He pointed out there was limited access at South Shore during the winter due to the tremendous amount of snowfall.

Chairman Arberry asked for an explanation of the responsibilities of the Korean office. Mr. Tait responded office staff would meet with Korean outbound tour wholesalers and other customers throughout Asia. He explained the Commission on Tourism had relied upon the Japan office to deal with Asian customers, however, that had not been a productive venture outside of Japan principally because there remained a tremendous animosity between the Japanese and many other of the Asian peoples. The Koreans did not share that unease with many of the people in Taiwan, Singapore, and Thailand, that existed with the Japanese over the past 50 to 60 years. He said culturally, Korea was better positioned as an outreach office for the balance of Asia, and would perhaps move into the People’s Republic of China as that republic became a viable market (somewhere around 2005 to 2010). Chairman Arberry asked if the Korean office would promote tourism to bring more tourists to the State of Nevada, and Mr. Tait responded it would. Chairman Arberry advised a line item performance indicator was necessary to justify to committee members the effectiveness and productivity of its international offices.

Chairman Arberry referred committee members back to The Executive Budget, specifically the projections on room tax, and requested more elaboration. Mr. Tait explained during the last legislative session the Commission on Tourism had projected 8 percent per year. Those numbers had been consistently lower than projected. In fact, he said, last year’s collections were 3.34 percent. Independently of Las Vegas and Reno, the Commission on Tourism had prepared its analysis based on the room rates being charged* * *. Chairman Arberry interrupted and asked what the rate was to date. Mr. Tait responded there was currently a spike due to the opening of the Bellagio and the activities that surrounded the recent heavyweight title fight in Las Vegas. He said the rate for the first ten months of calendar 1998 was approximately 10.3 percent.

Continuing, Mr. Tait said that independently of Reno and Las Vegas, the Commission on Tourism had prepared its analysis based on the average daily rates being charged, the ground and air traffic patterns coming into Las Vegas, the increase in inventory, and the shift in market share that was taking place from resort to resort. The projection was 3 percent per year, or 6 percent over the biennium. The Clark County Commission had announced a projection of
4 percent. Reno had projected flat. Chairman Arberry asked if the 3 percent took into consideration the new properties that were coming on line, and Mr. Tait responded that it did. He reiterated daily rates were going down and room tax collections were based on the daily room rate. A room that had typically been charged at $59 was now charged at an average of $29. As a result, room tax collections suffered significantly. He explained those declines had occurred up and down the strip in Las Vegas. Rooms were being given to wholesalers at a much lower price than the average $29.

The Chair recognized Ms. Giunchigliani who requested a 10-year history of what the average daily room rate had been for five or six of the major Las Vegas properties. Mr. Tait would provide that information to committee members. She pointed out, in the past, Nevada had a 97 percent room occupancy rate. That rate was currently down to 87 percent. Ms. Giunchigliani pointed out almost every major property had its own internal marketing staff and asked why and how the state was involved. Mr. Tait responded the locations had recruited small numbers of very affluent casino customers. The Commission on Tourism had recruited tourists. Ms. Giunchigliani asked if the Commission on Tourism ever used the casino marketing staff’s linkages. Mr. Tait said casino marketing staff had been invited to receptions but, due to their focused target, did not like to share client information. Ms. Giunchigliani asked if casino marketing staff garnered more benefit from opening a Korean office than the state. Mr. Tait explained the customer was different. The Commission on Tourism was trying to recruit the masses to experience the overall attractions of Nevada while the casinos were trying to recruit a specific customer for a specific hotel. Ms. Giunchigliani stated the majority of the room tax went to the convention authorities and asked if the convention authorities were wisely using those dollars for advertising which translated to betterment for Nevada. Mr. Tait said the advertising campaigns for Reno and Las Vegas reflected an image advertising for the community. In fact, he said, for the first time in history, Las Vegas had shifted away from the traditional "open 24-hours" gaming experience to recreation, family orientation, shopping, travel, and food. A supplement had just appeared in major national advertisements that was 50 percent food and
50 percent retail. He explained Las Vegas had taken focus group information and translated it into image advertising to supplant in the minds of people the idea that Las Vegas was more than a gaming institution. He added the tactic had been enormously successful. Ms. Giunchigliani asked for an actual breakdown of monies distributed to local governments from room tax collections. Mr. Tait replied the Commission on Tourism’s budget only captured the dollars local communities gave to the state. The balance was retained by the communities. Ms. Giunchigliani said it would be interesting to see what local communities had kept. Mr. Tait said that was 5/8ths of 1 percent.

Referring to The Executive Budget, the Commission on Tourism’s out-of-state travel expenditure figure, Chairman Arberry asked how the success of each trip was measured. Mr. Tait said success was measured by the number of leads generated and the kind of activities the Commission on Tourism perceived the hotels were doing with those leads, i.e., whether or not those leads had turned into customers. He added the Commission on Tourism would know immediately if those leads were worthless. Mr. Tait pointed out hotels used the "leads" information provided by the Commission on Tourism religiously. The "leads" information was converted to customers. If the "leads" information was not useful, the hotels would never support the Commission on Tourism’s efforts to travel overseas, or go into domestic markets, and its reputation within the hotel industry would be one of less repute than was deserved. Chairman Arberry stated another performance indicator was necessary to reflect the success of the "leads" information.

Moving to The Executive Budget, the Commission on Tourism’s "advertising" line item, Chairman Arberry pointed out that figure was decreased and asked how the Commission on Tourism could promote itself with a decrease in advertising. Mr. Tait explained the decrease in advertising was the biggest hit the budget took as the result of a realized room rate tax of only 3 ½ percent. He added the "advertising" line item would be replenished in 2001. Chairman Arberry asked how the decrease would effect the Commission on Tourism’s performance. Mr. Tait replied the Commission on Tourism would not be able to accomplish the "buys" it had wanted to. The Commission on Tourism would not have a presence in the number of magazines and publications it had hoped as the result of the "advertising" line item being reduced $350,000 to $400,000.

Referring to The Executive Budget, Chairman Arberry questioned the duties of the Rural Race Coordinator position approved by the 1997 legislature. Mr. Tait explained over 40 races took place throughout the state which included races at the Las Vegas Speedrome. Many of the races were off-road rural races, several of which passed through Las Vegas and Ely. Mr. Tait then passed to committee members a copy of the new racing brochure. The brochure listed the different races in the Nevada. He went on to explain the duties of the Rural Race Coordinator were to coordinate with race producers to ensure appropriate race aficionado and press contacts, and to assist in the development of new races. For example, Mr. Tait said there had been a new race in 1998 that was a race of Ferrari’s and Ferrari-style autos that went approximately 1,000 miles into Nevada. The race began and ended in Reno. He said the Ferrari race would be continued in future years as would the 2,000-mile millenium race being produced by Casey Folks. Mr. Folks put on approximately five to six races per year throughout Nevada. Mr. Tait said those races provided a boon to rural Nevada and the Rural Race Coordinator provided a point of contact for those people involved in emergency medical services, police services, the Bureau of Land Management (BLM), the Bureau of Indian Affairs (BIA), the ranchers, and anyone else having access to lands that might be used for rural races. As a principle point of contact, the Rural Race Coordinator was able to work with different individuals to obtain the necessary permits and ensure a race went on with a limited amount of red tape. Mr. Tait explained the Rural Race Coordinator had been generated and sponsored by the Commission on Tourism as an idea from Tonopah and other rural communities in Nevada. Chairman Arberry clarified the reason the question had been asked was he wanted rural areas to develop and benefit from the Rural Race Coordinator position, but was not aware of specific races being conducted in rural areas other than the camel and bull races. Mr. Tait said that issue would be rectified. Chairman Arberry advised if the Rural Race Coordinator was not performing a service to the rural communities, that position would be cut from the budget.

Chairman Arberry asked for clarification regarding the Commission on Tourism’s level of reserve. Mr. Tait explained the Commission on Tourism liked to keep the reserve level at about $1 million in view of the devastating impacts of the flood of 1997. He reminded committee members that in 1995 a request had been made for a cap to be placed on the reserve. The cap would maintain a predictable amount of funds in the event of a natural or man-made disaster. Prior to the 1997 flood the Commission on Tourism had seen forest fires and other natural disasters that had caused temporary rifts in tourism access, but the flood had been the most devastating. Mr. Tait recalled the legislature had been quick to act and grant enough funds that enabled the Commission on Tourism to get into its primary and secondary markets in a timely manner. He said the Commission on Tourism hoped the committee members would agree the reserve level should be kept at about $1 million. He pointed out man-made disasters included freeway shootings, a crime wave, or any other situation that might require a substantial amount of marketing assistance into an area to mitigate an immediate problem.

The Chair recognized Mrs. Chowning who had looked at the Commission on Tourism’s website and questioned the number of pictures shown for Las Vegas, "the entertainment capitol of the world." Mr. Tait explained the website was hot-linked to the Las Vegas, Reno, and Cowboy Country websites which provided additional pictures and information.

Chairman Arberry pointed out the "reserve" amount was recommended at
$1.3 million, and asked if the Commission on Tourism would have a problem with $317,000 being moved to another budget item, and Mr. Tait responded it would not.

Chairman Arberry asked if the Commission on Tourism received services from the Attorney General’s office. The Chair recognized Nancy Dunn, Business Manager, Commission on Tourism who explained the charges for the Attorney General fees were located in category 04 in the amount of $3,550 per year.

The Chair recognized Rich Moreno, Publisher, Nevada Magazine, to present the budget for Nevada Magazine, Budget Account 1530. Mr. Moreno explained Nevada Magazine was a division of the Commission on Tourism. The Nevada Magazine budget remained status quo and had not requested additional positions or enhancements. Mr. Moreno explained Nevada Magazine had been published by the state since 1936 and was a travel- and tourism-oriented magazine that focused on the attractions, special events, and recreational activities in Nevada. Referring to The Executive Budget, Mr. Moreno noted that in the last year and a half, Nevada Magazine had undergone a re-design that made the magazine look more sophisticated and contemporary. As Nevada had evolved over the years, the magazine realized it had used the same "branding iron" logo for over 25 years. Mr. Moreno said the new look of Nevada Magazine was more reflective of the eclectic nature of Nevada. The re-design of the magazine would allow for the update of merchandise such as T-shirts. The re-design would help position the magazine as a publication that would continue to grow. Mr. Moreno pointed out magazine publishing was a very tricky field wherein growth came slowly. The performance indicators reflected that slow growth. Essentially, Nevada Magazine lost approximately 20 percent of readers on an annual basis. The magazine would then have to recruit another 20 percent of new readers to replace the loss. A very modest stability and growth position was projected in subscriptions during the next few years. Mr. Moreno pointed out publishing a magazine was an expensive process and direct mail costs had increased. He said Nevada Magazine was fortunate to receive a 1 percent response for every one million documents mailed. Current circulation was holding at 85,000 readers and the magazine hoped to increase that number. Mr. Moreno told committee members Nevada Magazine had a website that had slowly started to produce subscriptions. The website included a "free issue" offer which would hopefully lead to subscriptions. The magazine had moved its gift shop to an on-line rather than physical location but had retained mail order service. Mr. Moreno said Nevada Magazine was working toward the opening of a gift shop in the new building within the next few months. A business plan had been completed that would allow the magazine to enter into retail sales. Nevada Magazine was involved heavily in the millenium project alluded to in earlier testimony and would produce the official millenium calendar of events. Mr. Moreno said the upcoming issue of Nevada Magazine would include the first of thousands of event dates for the millenium calendar. Nevada Magazine’s calendar of events would be merged with the millenium events during the 15-month celebration period. He added Nevada Magazine’s website was linked to the Commission on Tourism as well as other major tourism authorities in the Nevada. Mr. Moreno passed out copies of Nevada Magazine’s Historical Calendar for 1999 to committee members. He pointed out an historical picture of Nevada Magazine’s building (the old library and federal building) was on the cover of the calendar. Lastly, Mr. Moreno mentioned the magazine had published its first book entitled The Historical Nevada Magazine, a collection of 17 stories the magazine considered among the best history pieces that had run in the magazine in the past 60 years. Authors included David Toll, Ron James, and a number of prominent historians in Nevada. Approximately
20 percent of the print run of The Historical Nevada Magazine had sold in the first three months.

The Chair recognized Mr. Marvel who asked where Nevada Magazine was published. Mr. Moreno replied the magazine was published in Long Prairie, Minnesota. Nevada Magazine went out to bid through the State Purchasing Division and Banta Hart Printing had won the bid. Mr. Marvel asked how often Nevada Magazine went out to bid and Mr. Moreno responded every two years. He explained the magazine was produced on a web press. He explained there was only one web press in Nevada and the company that owned the press had never entered a bid. Mr. Marvel asked when the gift shop would be open. Mr. Marvel explained the Commission on Tourism was reviewing the business plan at its next meeting in an effort to open the gift shop within the next 1 to
2 months. Nevada Magazine’s ultimate goal was to open the gift shop on weekends, and to that end, physical changes were being made to the building to ensure the safety of employees and building. Mr. Marvel asked if a gift shop was currently open and Mr. Moreno said people that came into the building were not turned away. Merchandise was in the building and T-shirts were sold.

The Chair recognized Vice Chair Evans who requested an explanation of the "barter income" line items. Mr. Moreno explained the legislature had, in the past, approved statutory authority for Nevada Magazine to trade-out up to $10,000 in airline advertising for travel. That trade-off was based on Nevada Magazine being able to find an airline with which to partner. He said most recently, Nevada Magazine was able to trade-out approximately $2,500 worth of advertising with Reno Air. The recent sale of Reno Air, however, eliminated that option. Although the magazine no longer had the Reno Air option, that line item remained in the budget to allow the authority to find that kind of relationship in the future. Mr. Moreno added Nevada Magazine previously had that type of relationship with America West. Trade-out programs allowed the magazine to supplement its income in the travel area. He noted the limited travel budget was used for sales calls to Las Vegas. Vice Chair Evans questioned the $25,000 figure in the "barter advertising" line item. That figure had been zeroed out for the new biennium. Mr. Moreno said there had been limited barter advertising. Nevada Magazine had decided to remove that dollar amount which had been carried on the books for years. He indicated bartering was difficult to show in the budget due to relationships with other media outlets and the fact no money changed hands. If barter advertising was used in the future, Nevada Magazine would most likely enter into letters of agreement. In the past, the magazine had entered into that type of barter arrangement with KUNR and KNUU in Las Vegas, as well as with other magazines where a third of a page was swapped out for advertisement of the other magazine. Nevada Magazine had also bartered with Casino Magazine in the past.

The Chair recognized Mrs. Cegavske who asked if committee members would see an increase in the postage line item, and Mr. Moreno responded in the affirmative. He said direct mail had not worked, and Nevada Magazine was trying to be more creative in its attempts to obtain more subscribers. It was hoped the website would more effectively attract subscribers. Mrs. Cegavske asked what the anticipated additional charge to subscribers would be. Mr. Moreno said the magazine hoped to hold the line the next biennium. Nevada Magazine was at the high end compared to what other magazines charged for six issues. Mrs. Cegavske asked if the schools and libraries in Nevada received complimentary copies of Nevada Magazine and Mr. Moreno responded those entities had subscriptions. He explained Nevada Magazine sent out a solicitation to libraries and schools on an annual basis and asked to be included in their budget. Mrs. Cegavske asked how many schools in the state carried Nevada Magazine. Mr. Moreno said that information would be provided to committee members.

The Chair recognized Mr. Beers who pointed out that within the framework of the website, was the possibility of setting up a mail list that was essentially an electronic newsletter with no charge. Nevada Magazine would have to develop a list of people’s E-mail addresses who had expressed an interest in visiting Nevada. Occasionally, a solicitation would be sent to those E-mail addresses in an attempt to obtain subscriptions. That type of solicitation would cost Nevada Magazine nothing. Mr. Beers then expressed his concern that Nevada Magazine would come to the Interim Finance Committee because budgeted revenue appeared to be high compared to results, particularly in the advertising and sales, and subscription revenue areas. Mr. Moreno explained the magazine used numbers higher than "actuals" in both categories and used those higher numbers as goal levels. Its goals had been lowered over the last 4 years in an attempt to bring them closer to reality. He explained Nevada Magazine, being an enterprise fund, had allowed itself a cushion in the advertising and sales and subscription revenue areas. Those cushions would allow the magazine to offset a sudden increase in paper cost or the loss of a major advertiser and thereby avoid a visit to the Interim Finance Committee between legislative sessions. Mr. Beers asked if the flexibility on the spending side was the reserve, and Mr. Moreno responded it was and pointed out the reserve was reflected in both the "print" and "advertising and subscription" categories.

The Chair recognized Mr. Price who asked if the jacket that had been passed around with the new logo was available from the gift shop. Mr. Moreno explained the jacket was a sample only. Mr. Price asked if any effort had been made to have products made in the U.S.A. and not in Malaysia (such as the jacket). Mr. Moreno said he was not aware of an existing policy, but that Nevada Magazine went out to bid through State Purchasing when they purchased T-shirts, etc. Products that they were currently selling were produced by a Carson City company.

The Chair recognized Ms. Cegavske, who pointed out the "subscriptions" line item reflected 79,000 when Mr. Moreno had indicated there were 85,000. She asked if there was an increase since the publication of The Executive Budget, and Mr. Moreno explained the 79,000 was a low projection placed in that category during the last biennium. The "actual" subscription number at that time was closer to 83,000 to 85,000. He clarified the 85,000 subscription number he alluded to earlier included the total number produced.

The Chair recognized Mr. Marvel who asked if Nevada Magazine had a dialogue with Prison Industries. Mr. Moreno said they had used Prison Industries in the past to produce items for the gift shop catalog. Prison Industries would be used again once the gift shop was open. Mr. Marvel asked how much business Nevada Magazine generated for Prison Industries, and Mr. Moreno responded very little. He said Prison Industries had produced a pen set in the past which the gift shop had carried. Prison Industries had also done some printing for the magazine and produced the hard bound collections of annual subscriptions. Mr. Marvel said he hoped Nevada Magazine used Prison Industries to its fullest extent.

The Chair recognized Mrs. Chowning who asked if the website gift shop generated many sales. Mr. Moreno said the website was still too new. The website had been in existence for approximately 3 years and had been used by Nevada Magazine as a promotional tool.

The Chair recognized Bob Shriver, Executive Director, Commission on Economic Development (CED). Mr. Shriver said that in relative terms and size of budget, CED felt its return on investment to the state, through its efforts and partnerships with the various regional development authorities in the communities it worked with, had brought in significant results during the last biennium. He said there was a need to continue those efforts.

Mr. Shriver referred the committee members to Exhibit C, (Original on file at the Research Library, Legislative Counsel Bureau) a handout entitled "Commission on Economic Development, Budget Account - # 1526", which included presentations of the following budgets:

• Commission on Economic Development, Budget Account 1526;

• Commission on Economic Development, Motion Pictures, Budget Account 1527;

• Commission on Economic Development, Rural Community Development (CDBG), Budget Account 1528; and

• Commission on Economic Development, Procurement Outreach Program, Budget Account 4867.

Mr. Shriver explained CED’s public/private partnership with Nevada development authorities was unique. CED felt those partnerships were the best use of state, local, and private monies. Leveraging of private dollars at the local level enhanced CED’s General Fund monies.

Referring committee members to Exhibit C, page 1, Mr. Shriver explained hotel gaming employment had declined significantly over time. As gaming spread throughout the country, those numbers would continue to erode. The growth and jobs created the past year by CED and its partnership with development authorities was significant. 8,200 jobs were created during the last biennium. Page 2 of Exhibit C provided comparative data on economic development agency budgets of competing states. Those figures represented the difference of total federal dollars, workforce development dollars, and General Fund development, excluding tourism. CED felt Nevada was getting a significant return for the investment the state provided. Mr. Shriver explained CED’s budget included maintenance and enhancement items that were reasonable in cost. As CED became a more intensive global marketplace, its efforts to work smarter tied in through increased use of websites. The technology aspects were critical and required staff that was up-to-speed in the proper use of such technologies. CED felt that type of long-term investment would enable them to maintain employee status quo in the near future.

Mr. Shriver explained there were four areas in Budget Account 1526 which CED felt were its mandate. The first being the promotion of economic advantages and business-friendly environment of Nevada through both image and target product and industry marketing. Second was the Nevada Film office and its ability to market Nevada’s natural and man-made settings for the production of motion pictures. Third was the grants program through CED’s development authorities. Those monies went to the local level. Mr. Shriver said the communities worked well with CED to bring new companies to Nevada, and helped those companies expand. Fourth was the Procurement Outreach Program that helped small business learn how to obtain federal, state, and local contracting. Those learned methods had brought an excess of $40 million in contracts to small businesses in Nevada. Additionally, Mr. Shriver said CED used a grants program, through its rural development authorities, to develop the infrastructure in rural communities which enabled rural to compete with urban. CED had seen remarkable success in that area during the past several years. Significant in the Community Development Block Grants (CDBG) programs was the fact local communities could use those monies to match other federal
in-kind grants. CED felt that was a 17 to 1 ratio in the amount of dollars going to local communities that were CDBG rural.

Chairman Arberry pointed out the Rural Grant program reflected an additional $70,000 and asked how those dollars would be expended. Mr. Shriver introduced CED’s Commission Members Sara Beth Brown, Berlyn Miller, and Peter Thomas. He explained the commission members possessed the authority in the application of those dollars. CED had developed a consolidated rural marketing program for providing funds directly to the development authorities. That program was based on population and match money effectiveness.

The Chair recognized Mr. Marvel who asked if rural areas qualified for in-kind match monies and Mr. Shriver replied they did. He advised CED would provide information to committee members regarding the amount of monies provided in grants, the amount of local match provided by the 12 development authorities, and in-kind contributions. Mr. Marvel asked for the population threshold for an area to be considered rural, and Mr. Shriver said it was 35,000.

Chairman Arberry asked how the $70,000 in the CDBG program was established. Mr. Shriver explained CED’s original request was for a significantly higher amount. In working with the Budget Office, and in light of the restrictive budget and revenue projections, the $70,000 could be justified as pass-through grants to CED’s development authorities. More assistance would be provided to the Rural Director, Carl Dahlen, in view of the additional responsibilities Governor Guinn had assigned Lt. Governor Hunt.

The Chair recognized Mr. Marvel who said there had been many mine layoffs in his rural area. He wondered if CED had looked at that job force and commented those individuals were highly skilled technicians and Mr. Shriver replied they had. He said CED had been able to visit with rural communities and the Nevada Mining Association in the past year and a half regarding an interface program. Mr. Marvel asked if CED had worked with the community colleges and Mr. Shriver replied they had. He said community colleges provided a link between CED and the communities and were partners in the Train Employees Now (TEN) program.

Chairman Arberry commented CED’s performance indicators looked skimpy. Mr. Shriver reminded committee members CED had been through a base budget review with Interim Finance at which time a four line item limitation was discussed. He introduced Karen Baggett, Deputy Director, CED, to provide an explanation. Chairman Arberry said committee members needed to see an indication of job performance. Ms. Baggett explained CED had broken down the various aspects of its duties. For example, Budget Account 1526 broke down the expansion of research and incentive programs to include work with the TEN program as well as the community colleges. Referring committee members to The Executive Budget, Ms. Baggett explained CED performance indicators 12 through 15 reflected types of companies with which CED dealt. CED wanted to make sure the legislature understood an incentive was not granted to every company that applied. Companies that applied for incentives were subject to a qualification process She said some of the budget figures included the number of companies that approached CED for incentives. If there were a better way of presenting that information in the budget, CED was more than willing to work with committee members and staff.

The Chair recognized Mr. Hettrick who said the issue was not that CED was not providing information to committee members, but rather, the information did not relate to costs. Using the incentive program as an example, Mr. Hettrick explained CED needed to take the number of staff members used to run the incentive program and divide the performance indicator numbers by the salary of those staff members. That calculation would reflect a cost for that program and provide committee members with a tracking system. Referring to CED performance indicator 13, Mr. Hettrick pointed out staff follow-up was not a measure of performance, but a given. He advised CED must take budget dollars expended in the performance of a task and divide that by the number of tasks performed. That calculation would provide necessary cost-per-task figures. While CED’s performance indicators provided a great deal of information, however, the supplied no degree of efficiency. Ms. Baggett said CED would like to make an appointment with Mr. Hettrick and staff to determine how those performance indicators should be addressed, especially in the areas of incentive programs and employee effectiveness. Mr. Shriver added CED should have provided benefit analysis as well as cost ratios. Chairman Arberry requested CED staff sit with Fiscal Analysis Division staff to work through and revise performance indicators.

The Chair recognized Mr. Goldwater who questioned the annual transfer of approximately $100,000 to the Washington office account. He asked if CED felt those monies could better be used by CED if the Washington office were closed, or if CED felt $100,000 of benefit was actually generated from that office. Mr. Shriver doubted that amount of benefit came from the Washington office; however, CED did not want to see that amount taken from its budget.

The Chair recognized Ms. Giunchigliani who asked for an explanation of the rationale for the initial wage rates in the Train Employees Now (TEN) program (75 percent versus between 80 percent and 125 percent). Mr. Shriver explained CED realized it was doubtful entry-level wages in private business would be paid at the statewide average wage. The intent of the TEN program was to develop transferable skills and generate a higher rate of return on employment. Mr. Shriver referred committee members to Exhibit C, page 12. He explained the average employee CED provided money for in FY 1998 averaged an $11.96 hourly wage. The average hourly wage of the company which CED provided training monies to was $15.21. The FY 1998 statewide average wage was $12.91 and the current statewide average wage was up to approximately $13.37. Due to the scarcity of dollars with which CED had to work, the commissioners had provided the most dollars to those companies that provided higher starting wages. Ms. Giunchigliani asked if committee members could be provided with the criteria CED used for selecting companies to participate in the TEN program. She was attempting to find out if gaps or duplications occurred in training or if enhancements were necessary. Using Michelin North America as an example, Mr. Shriver explained CED provided $145,000 in state monies to train Michelin’s one hundred plus employees. Michelin, in turn, spent an additional $500,000 to $600,000. At the same time, CED brought Truckee Meadows Community College (TMCC) instructors to Spartanburg, South Carolina, the U.S. headquarters of Michelin, to learn electrical mechanical techniques which had become part of the curriculum at TMCC. Ms. Giunchigliani asked if those types of programs were reflected in the performance indicators. Mr. Shriver said CED was waiting for information from one company to complete that report, but indicated the ratio was 3 to 1. State law required only a 25 percent match. He pointed out a manufacturer would spend more on training than a call center or distribution company.

The Chair recognized Peter Thomas, Commissioner, CED. Mr. Thomas explained TEN monies were growing more scarce. He explained CED leveraged available dollars as best it could. A company could qualify in all aspects for TEN monies but, CED may not make that grant, especially during the first part of the year. During the last couple of years, CED had deferred those grants until the availability of funds was determined at the end of the legislative session. The lack of funds caused CED to go to Interim Finance between legislative sessions. Mr. Thomas explained CED was looking at average wage rate, company diversification, and type of training to be provided when awarding grants. CED also looked at whether the company itself was a national or international company, or if it could be relocated to Nevada. Mr. Thomas explained one of the battles fought by economic development was the perceived image of the company moving its employees to Nevada and the impact on family lifestyles. When CED successfully moved a nationally-known and respected company to Nevada that move mitigated the state’s image. Mr. Thomas commented commission members were more interested in jobs created, average salary, and job type as it related to diversification of the economy rather than tasks-per-dollar. He pointed out efficiency in tasks-per-dollar did not necessarily equal progression. He said TEN monies were not a typical expenditure, but truly an investment Nevada was making in terms of increasing its labor force and economic diversification.

The Chair recognized Ms. Giunchigliani who commented if most available jobs were in the skilled labor area, were enough corresponding courses being offered in those areas at the community colleges. Mr. Berlyn Miller, Vice Chairman, CED, said the largest single problem in company recruitment was Nevada not having the proper work force. In some cases, the community college or university system had not responded to work force changes. CED was working with companies and the community college or university system to communicate training needs. Mr. Miller explained companies submitted a training program to CED. A representative from the community college or university system also meet with CED to explain exactly how TEN monies would be allocated. Ms. Giunchigliani asked if CED interfaced with the apprenticeship counsel. Because of the limited TEN dollars, CED had not used the apprenticeship counsel; however, companies were advised in their disciplines that those programs were available. Mr. Shriver continued by saying CED did not pay for apprenticeship programs and pointed out those programs were a way for unions to place their workers. CED was seeing expertise at the Southern Nevada Community College (SNCC) in back office financial services, and call centers. SNCC recognized a certain skill base and the population growth associated with that skill base. Ms. Giunchigliani asked if giving money to the convention authority would not benefit what CED needed to accomplish as far as driving new job forces for economic development in Nevada. Mr. Shriver responded, "no." Ms. Giunchigliani called attention to the faulty tax structure in Nevada and recited a quotation from the Price Waterhouse study which said, "If it is determined that the state either has a structural problem or a tax system characterized by a high degree of uncertainty, we will discourage investment and therefore job development within the state." She said Nevada was about five to seven years late based on the recommendation of the Price Waterhouse study. The legislature should talk about potential changes needed this session and future sessions in the recruitment of companies. Ms. Giunchigliani said the base had been narrowed so much it was hard to give incentives. Mr. Shriver explained incentives were built in with Nevada’s tax structure. He said CED would be making a presentation to joint tax committees on February 9, 1999, to discuss incentives the legislature had granted over the years and economic impact of working with communities.

The Chair recognized Mr. Marvel who asked how Nevada compared with other states regarding tax incentives, deferrals, and abatements. Mr. Shriver said most states had not collected sales and use tax on the manufacture of capital equipment. Nevada was one of half a dozen states that did. Washington State also had an abatement program in place. CED had a good working relationship with the Department of Taxation (DOT) which met with clients prior to CED commission meetings and explained what qualifications had to be met. DOT would ultimately be auditing the incentives. CED felt if the tax structure changed over a period of time, it would be in favor of doing away with that sales and use tax on the manufacture of equipment. Mr. Marvel asked how the new tax structure had helped. Mr. Shriver said very well, in both personal and corporate areas. He explained Nevada was considered a regional-operation state. As CED developed more Nevada companies, corporate income tax was one of the key benefits that needed a close look. Mr. Marvel asked if there was a way of tracking companies that came to Nevada as a result of the abatements or deferrals. Mr. Shriver replied CED collected qualification indicators from most development authorities on a quarterly basis. He said the Economic Development Authority of Western Nevada (EDAWN), Washoe County, and the Nevada Development Authority (NDA) also submitted qualification indicators on a regular basis. The local group at Northern Nevada Development (Carson City/Douglas County area) met quarterly with prospective businesses and provided feedback to CED. That information would be shared with committee members.

Chairman Arberry asked for additional comments, and CED Commissioner Miller said the tax was a major item CED had to sell to counter the incentives larger states handed out. In the time he had been on the CED, Miller said the lack of a business or personal income tax was one of the major factors, the other factor being relatively cheap land. Speaking mainly for southern Nevada, Commissioner Miller said the advantage of growth and expansion had dissipated. The land in southern Nevada was no longer relatively cheaper than surrounding states. In fact, he said, many surrounding states gave companies land for manufacturing plants. Because of that dynamic, the importance of the TEN program had increased every year. Commissioner Miller explained that companies using programs like TEN had hired companies whose only business was to evaluate sites and long term costs and economic benefits of sites. Also evaluated in the formula were utility costs, land price, taxes, distribution costs, quality of life, environment, etc. The state or location that came out best in the formula was chosen. He said the formula was dynamic and changing because land prices were increasing.

The Chair recognized Mr. Marvel who asked Commissioner Thomas if the lands that were given to companies went on the tax roll, or were forever exempt. Commissioner Miller responded that decision varied from case to case. In some cases, companies were placed on the tax roll and in other cases the company was given a 10 to 20 year tax abatement on the land. He pointed out most states surrounding Nevada did not require qualifications at the level Nevada did before awarding an incentive. CED wanted the ability to roll over TEN monies during the biennium to provide grants to companies that had higher-paying jobs. Mr. Marvel asked if a Bill Draft Request had been submitted. Commissioner Miller said it was CED’s understanding that in any appropriations bill, a notation could be included that would allow for funds rollover.

Mr. Marvel said the Natural Resources Committee had been working with State Lands, and State Lands had identified areas in every county in need of future growth. U.S. Senator Harry Reid had requested that information so he could introduce legislation that would entitle Nevada to more lands. Mr. Shriver explained the CDBG program had been expanded to include more economic development planning for the rural communities. In Fallon, for example, CED used a CDBG planning grant that identified six potential industrial sites for development. Fallon used that study to locate SMI Joist to their community. Mr. Shriver explained SMI Joist made joists and decking for roof systems and employed over 200 people in Churchill County.

Mr. Shriver introduced Charles Geocaris, Director, Motion Pictures, to present the budget for Motion Pictures, Budget Account 1527. Mr. Shriver explained Mr. Geocaris came to Motion Pictures from the Chicago film office and had a long history in the production side of attracting motion pictures. He passed to committee members a copy of the new Production Directory published by CED which highlighted Nevada’s film opportunities locations.

Mr. Geocaris said the film office had been aggressively marketing Nevada to filmmakers throughout the world and featured locations which had not been exposed. He said everyone realized Nevada had availability with casinos and neon, but there were also the rural, mountain, and desert areas. Nevada would be used for commercials, feature films, television series, industrials, music videos, etc. He explained the Canadian dollar was affecting all states competing with Nevada for film production dollars. The exchange rate and incentives the Canadian government was offering filmmakers reduced Nevada’s production rate by 40 percent. Mr. Geocaris noted there was currently a
$90 million feature film going to Canada. The producers of that film determined that by filming in Canada they would save between $20 million to $25 million. Mr. Geocaris said the film office was pre-production target marketing towards products and films that could not be accomplished in Canada or other locations.

Chairman Arberry referred committee members to The Executive Budget, Enhancement 125 Accessible Flexible Responsive, and requested an explanation of benefits of the increase. Nancy Dunn, Business Manager, CED, replied the increase would maintain existing levels of support for its ad agency. Because of unfilled staff vacancies the Motion Pictures division, to include the Director position, Motion Pictures had not been able to work closely with its ad agency. Chairman Arberry pointed out that enhancement figure in the last biennium was roughly $79,000 to $80,000 and was being increased to $105,000 in the current biennium. Ms. Dunn said Motion Pictures had requested an increased effort in advertising. Mr. Geocaris said the increase in advertising would be used to market Nevada more competitively and bring more attention to the state in the minds of producers around the world. He pointed out every major feature spent close to $100,000 per day in production costs. The additional $25,000 in the advertising category would assist in the start-up of the new "Discover Nevada" program which would target production companies that had never filmed in Nevada. The Discover Nevada program would also target ad agency executives that produced commercials and were in charge of multi-million dollar accounts. Additionally, those increased dollars would expand marketing efforts to compete for advertising in the trade magazines, i.e., Hollywood Reporter, Variety, etc. Chairman Arberry said performance indicators should include that information.

The Chair recognized Mr. Hettrick who explained he added up activities in FY 1998 and divided that number into anticipated economic impact which resulted in $530,000 per activity. The actual FY 1998, however, was $326,900. He said the projection through FY 2001 was $351,000 per activity. If Motion Pictures kept those figures running on an annual basis, to include actual, committee members would have a way to compare program success. In addition, Mr. Hettrick took the actual generated impact of $51 million and divided it by actual budget for 1998. For every dollar spent, Motion Pictures generated $78.65 for the state. That was the type of information that should be included in performance indicators. He indicated Motion Pictures had projected $126 for every dollar spent in FY 2001, and pointed out that information was not being tracked in the budget.

The Chair recognized Mr. Price who commented Colorado had been the first state to develop a film commission, and Nevada was the second. He asked how many states had film commissions. Mr. Geocaris said there were over
300 internationally. Every state had a film commission as well as most cities and counties. The competition had gotten fierce.

The Chair recognized Ms. Giunchigliani who asked if Nevada had done a better job of using in-state companies for a great deal of the film* * *. She pointed out there had been problems several years back where in-state companies had not been used for the technical parts of production. Mr. Geocaris said the new film directory stressed the fact Nevada had local service people that were as qualified as any out-of-state service provided. Ms. Giunchigliani asked if other states required the hiring of in-state companies for technical services. Mr. Geocaris said that requirement could not be mandated. He said that as the infrastructure was built in Nevada, and word-of-mouth began to grow regarding the availability of technical services, production companies would use Nevada’s services. Ms. Giunchigliani asked if work comp was being collected from companies and Mr. Geocaris replied it was. Mr. Shriver added the development authority in Las Vegas was targeting, as a potential marketplace, post-production. Currently, there were several highly paid technicians that lived in Las Vegas and commuted to work in Los Angeles. Ms. Giunchigliani asked if Nevada currently had several film production sites. Mr. Geocaris said there were currently three or four projects on the table that were potential film studio sites. Development of film studios would show Nevada as more of a state-of-the-art facility and more production projects would be kept within the state. He explained interiors would be built on the sound stages rather than being transferred back and forth to Los Angeles.

The Chair recognized Mr. Price who asked about the Henderson studio site which had been voted down. He said he was glad more sites were on the horizon because there were various organizations that had wanted to develop such sites. Mr. Geocaris said Motion Pictures was working with two TV series that wanted to film in southern Nevada in 1999. Las Vegas had the largest sound stage facility in the state, owned by Larry Hamm.

The Chair recognized Bob Shriver, Executive Director, Commission on Economic Development (CED), to present the budget for Rural Community Development, Budget Account 1528. Mr. Shriver introduced Audrey Allen, Program Director, Rural Community Development. Mr. Shriver said on average, CED was returning $17 for every dollar allocated in CDBG programs. One positive aspect of the Rural Community Development program was the use of HUD monies which could be matched federal dollars to federal dollars. CED would be analyzing return-for-investment ratios throughout its budget for inclusion in performance indicators.

Chairman Arberry explained the committee members’ biggest concern with the Rural Community Development budget was the Federal Grant Award had remained constant, thereby reducing the dollar amount available for rural communities. Ms. Allen explained there was no guarantee on the level of funds provided from the federal government in any one year. The last three years, that level had been at $2.8 million per year. Chairman Arberry asked why the line item General Fund Admin. Costs went from roughly $44,000 in FY 1995 to $126,000 in FY 2001. Ms. Allen advised the last legislative session had approved a Management Assistant I position which partially accounted for the increase. She explained Rural Community Development was on a fixed income, and could only use 2 percent plus $100,000 of federal dollars for administration. The state was only required to match the 2 percent. She pointed out the total award in 1985 came to $233,600 for administration. Based on salary and rent increases, those costs would increase in FY 2000 and FY 2001 to $229,000 and $227,000, respectively. There was no way to make up the difference. Chairman Arberry expressed the committee members’ concern the increase represented expenditure of additional General Fund dollars. Ms. Allen said the CDBG program was an investment in Nevada’s rural areas. To her knowledge, the program was the only state investment into community development in the rural areas. She felt asking for the additional 2 percent was a good value for Nevada.

The Chair recognized Mr. Marvel who asked if there was an offset in sales tax receivables in funding rural communities, and Ms. Allen responded there was no offset. She pointed out the rural areas did not have much of a tax base. Mr. Marvel asked what type of projects were being funded. Ms. Allen replied those would be infrastructure-types of projects, and pointed out economic development was very different in rural areas as opposed to urban areas. There would be no development in rural areas without adequate infrastructure, i.e., water and sewer systems, streets, etc. Approximately 54 percent of dollars that came to Nevada actually went into public facility kinds of activities. Ms. Allen said planning and capacity building was another large category. Approximately $500,000 was authorized each year for public facilities for economic development, such as the development of industrial sites. Mr. Marvel asked for an example, and Ms. Allen responded Rural Community Development had invested in Churchill County, at a county-owned industrial site in Pershing County, a large industrial site in Wells, and had helped White Pine County with installation of sewer line. Rural Community Development was also working with the Nevada Test Site in the possible development of a high-technology corridor in Nye, Esmeralda, and Lincoln Counties. Studies had also been performed regarding an engineering site in Caliente. Rural Community Development was working with Mineral County on site development for the acquisition of Delta Star, an electronic transformer company. Mr. Marvel asked what the criteria was to qualify for HUD funding. Ms. Allen said the entity had to be one of the 27 units of general local government. The primary goal of HUD was to benefit low and moderate income persons. Mr. Marvel asked if a finite list was available, and Ms. Allen referred committee members to Exhibit C which included that list.

Chairman Arberry asked how urban cities such as Las Vegas could be brought into the program. Ms. Allen said she needed to interact more closely with both the City of Las Vegas and Clark County with regard to how those entities administered their CDBG grants. Mr. Shriver commented one of the issues coming out of the interim study tax committee, S.B. 253, would be to identify townships and incorporated cities, under a certain population, that would then have the benefit of being considered rural.

Chairman Arberry asked Mr. Shriver to clarify the recommended reclassification of two positions. Mr. Shriver advised those positions were approved in the Rural Community Development’s last budget but the actual dollars to support those reclassifications had not been included. Nancy Dunn, Business Manager, Commission on Tourism, explained the request during the last legislative session had been for a realignment of positions throughout CED. Many agencies had been combined into CED during the statewide reorganization. Several position titles had been inherited that were inappropriate for the duties. It was her understanding the reclassification of the two positions in question had been approved during the 1997 Legislative Session, however, the funding was not included in the budget.

The Chair recognized Mrs. Chowning, who referred committee members back to Budget Account 1526 and questioned import/export dollars to Mexico. She asked if those dollars had been cut, or if there was a projected expansion. Mr. Shriver replied the "international" line item in Budget Account 1526 was not a separate program, but rather a part of CED’s budget. Therefore, a mixture of advertising appeared throughout both the international and national line items, to include recruitment and import/export trade (primarily export). He explained CED used the A.B. 762 program to collect monies from Mexico/U.S. trade events. CED actively worked with the Latin Chamber of Commerce as well. He commented no state monies were used for travel. At its last meeting, CED approved sales tax abatements for two foreign-owned companies. Mr. Shriver said the new Director of Motion Pictures, Charles Geocaris, possessed international protocol expertise and maintained established relationships with Counsel General’s throughout the United States. He explained the Counsel General’s office in California represented Nevada. The Counsel General was the third highest ranking position in foreign embassies throughout the United States. Using Australia as an example, the Counsel General was also the Trade Minister for the Americas (north, central, and south). CED had been working with those entities on a shoestring budget. However, the new Director’s expertise allowed increased exposure. CED was developing programming with small business development centers of the University System and programs with private sectors to teach more Nevada companies how to export.

The Chair recognized Mrs. de Braga who asked if CED worked with tribal businesses and their ability to purchase land. She said the Secretary of State had issued a certificate as a non-profit foreign corporation to a company that had a development in Fallon and asked how that fit into CED’s program. Mr. Shriver replied CED primarily interfaced with tribal businesses through its development authorities and sometimes through its Rural Community Development program as well. He said there had been difficulties in the past due to the political nature of working with tribes. CED felt areas like Schurz had wonderful potential.

The Chair recognized Ms. Giunchigliani who commented women entrepreneurs were the largest growing sector of new business start-ups and wanted to know what types of programs CED had developed to work with that growing sector, especially within the banking industry. Mr. Shriver referred committee members to the next section of CED’s budget for the answer.

The Chair recognized Robert Shriver, Executive Director, Commission on Economic Development (CED), to present the budget for the Procurement Outreach Program, Budget Account 4867. Mr. Shriver explained the Procurement Outreach Program worked with the University Small Business Development Centers as well as funding mechanisms within its Rural Community Development programs to assist with new business start-up efforts of women. He pointed out the Rural Community Development program was the only area from which CED loaned monies to small business. There were other funding mechanisms in place for urban areas that included the Nevada State Development Corporation. Mr. Shriver explained the Procurement Outreach Program budget included a breakout of monies to companies that included women-owned businesses.

Mr. Shriver introduced Mr. Roger Tokarz, Program Director, Procurement Outreach Program. In response to the women-owned businesses question, Mr. Tokarz replied the Procurement Outreach Program assisted small businesses in generating 105 different contracts with either a state, local, or federal government. Those contracts represented 6.15 percent ($2 million) of available contract dollars. Mr. Tokarz said the Procurement Outreach Program was working diligently with the Small Business Administration (SBA). The SBA had a new program called "Prequal," an automatic loan program that specifically targeted female-owned businesses in start-up situations. Ms. Giunchigliani asked if advice was available in view of the fact Nevada had the highest turnover of defunct businesses within 3 to 5 years due to lack of revenue. Mr. Tokarz said during the last 12-month period, the Procurement Outreach Program had sponsored 37 different conferences. Sixty percent of the attendees at those conferences were women. Ms. Giunchigliani commented there was a lack of female mentors in the business field. Mr. Shriver explained due to budgetary constraints, there was a possibility the Small Business Advocacy Office would also cease to exist. CED felt there were important linkages and supported the continuation of that office. Through its rural programs, CED had developed a small businesses roundtable that included representatives from the Federal Government, USDA, the Forest Service, and the Rural Nevada Development Corporation. He concurred with Ms. Giunchigliani the small business mortality rate was extraordinary. Mr. Shriver said Senator Rawson had been helpful over time in trying to find a mechanism to help small business throughout Nevada. CED was constantly working with various entities looking into Nevada and taking the state more seriously. CED realized the next phase of economic development was starting Nevada businesses.

Chairman Arberry asked if a membership fee were charged to the companies that registered with CED. Mr. Tokarz responded there was an additional registration fee of $25 which had been established 2½ years ago. Half of every dollar of an investment fee was returned to the Federal Government as part of CED’s grant cooperative agreement.

Referring committee members to The Executive Budget, Procurement Outreach Program, Enhancement unit 805, Major Reclassifications, Chairman Arberry questioned the reclassification of four unclassified positions. Ms. Dunn explained the reclassification was the same scenario that occurred in Budget Account 1528. When the Procurement Outreach Program was brought under the umbrella of CED, there were unclassified titles that did not align with the duties of those positions. While the 1997 legislature had approved the reclassifications, the money did not transfer to the budget.

The Chair recognized Mr. Hettrick who expressed his concern that grant levels were running even and administration costs were increasing on a steady basis. He asked if there was any way to generate additional dollars and not use existing funds for administration. Mr. Shriver advised CED had looked at the possibility of collecting an annual registration fee as well as the budgeting scheme of counterbalancing indirect costs. Chairman Arberry asked that a list of those recommendations be submitted to staff.

The Chair recognized Ms. Giunchigliani who asked if CED worked with the school-to-careers programs within Nevada. Mr. Shriver advised CED had three staff people directly involved with those programs. Ms. Giunchigliani asked what impact the budget cuts in that program area would have. She also asked if there was a payback program. Karen Baggett, Deputy Director, CED, explained CED was involved with school-to-careers from the program’s inception. Employers were very satisfied with the program. She explained teachers on externships were going from the schools into the businesses and finding out teaching methods could be improved, changed, or altered to make learning more meaningful.

There being no further business, the meeting was adjourned at 10:42 a.m.

RESPECTFULLY SUBMITTED:

Debbie Zuspan,

Committee Secretary

APPROVED BY:

Assemblyman Morse Arberry Jr., Chairman

DATE: