The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Friday, February 5, 1999, in Room 2134 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Raymond D. Rawson, Vice Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

STAFF MEMBERS PRESENT:

Patricia Hampton, Committee Secretary

OTHERS PRESENT:

Senator Raggio read a letter from Brent T. Adams, District Judge, Second Judicial District, commenting on the authorization of a $120,000 grant to the National Judicial College to conduct four death penalty workshops for lawyers and judges, and to create a web site. He said the Nevada Supreme Court has just amended Rule 250 by adding continuing legal education (CLE) requirements for lawyers handling death penalty cases. Judge Adams wrote there is no other program in the state that meets these requirements and it would be cumbersome, time-consuming, and expensive for the State Bar of Nevada to create such a program. A delay might lead to a shortage of qualified lawyers to represent indigent defendants in these cases.

Senator Raggio said Judge Adams has conferred with Chief Justice Robert E. Rose, Attorney General Frankie Sue Del Papa, and Percy Luney, Jr., President, National Judicial College. He said it seems the best and most inexpensive solution is to award another grant, in the same amount, for continuation of this important program.

Senator Raggio pointed out Judge Adams is requesting a bill draft. The senator suggested a bill draft be requested, but emphasized this is no assurance the funds will be available.

Senator Raggio called attention to a fiscal report on the Seventieth Nevada Legislature, which has been prepared by the Fiscal Analysis Division of the Legislative Counsel Bureau (Exhibit C. Original is on file in the Research Library.). He asked Dan Miles, Fiscal Analyst, to brief the committee on the report.

Mr. Miles said the fiscal report is a brief analysis of the Governor’s proposed budget. He noted there is a section within the report on some historical trends in both revenues and appropriations, in total state budgets over the last eight years. He said there is also a section on the projected General Fund balance and the "rainy day fund." Mr. Miles stated another section shows recent tax changes as approved by the Legislature over the last four sessions and any proposals by the Governor this session. He said only some minor changes are being proposed by the administration this time. He pointed out in section 4, there is a summary of General Fund appropriations proposed by the Governor, listing supplementals to the onetime appropriations requested, as well as a listing of the capital improvement programs (CIPs) recommended, and a position summary.

In conclusion, Mr. Miles said there is a listing, by functional area, of all of the agencies in state government. He pointed out some tables show the requested budgets. He said there is also a short text describing what, if any, changes are being proposed for each of the agencies. Mr. Miles stated this is primarily a reference document that is more convenient than the three-volume Executive Budget.

Senator Raggio complimented the staff on the preparation of this reference tool. He said it makes it much easier to make responses on these issues.

Senator Raggio stated Senator O’Connell pointed out that at the November 30, 1998, meeting of the Legislative Committee on Workers Compensation, the committee indicated a need for a statewide blood-borne pathogens program, to eliminate the confusion among state agencies when dealing with incidents of state employees being exposed to contagious diseases. He said this references necessary funding for a program of this nature to be overseen by the Risk Management Division. He said the proposal includes a budget request for $43,000 each year of the biennium, to cover salary and Medicare expenses for an occupational health nurse. He stated he has requested Mr. Miles review the budget. Senator Raggio said the joint subcommittee dealing with the budget request could take any action.

Senator Raggio acknowledged a letter from Senator Dean Rhoads, Chairman, Nevada Legislative Committee on Public Lands. He said the lands committee was approached by Michael Bowman, Contract Executive Director, Humboldt River Basin Water Authority, requesting support for a bill draft request (BDR). Senator Raggio explained that the committee proposed a $250,000 appropriation from the General Fund to the Humboldt River Basin Water Authority, for the study of water management and storage opportunities. Senator Raggio requested Mr. Miles to see whether the committee has requested a BDR.

Commission on Economic Development – Budget Page TOUR/ECON-1 (Volume 2)

Budget Account 101-1526

Robert E. Shriver, Executive Director, Division of Economic Development, provided a handout highlighting several budget accounts (Exhibit D. Original is on file in the Research Library.). He said the division is working on devising a meaningful way of evaluating performance measurements. He stated the division is planning to work with Assemblyman Hettrick and the fiscal staff to make sure there are performance measurements that will provide needed information, and that the division can be held accountable for.

Mr. Shriver said partnerships with the 12 regional development authorities have enabled the division to create 15,000 jobs over the past biennium. He referred to page 8 of Exhibit D that shows the impact in capital investments for Fiscal Year (FY) 1998. He pointed out competing states invest heavily in economic development but said that in terms of success, Nevada can compete with any state. Mr. Shriver said the program is maturing and the value of what the division does is getting across. He said that in this budget, the division’s role is to promote, throughout the world, economic advantages to businesses. He stated the division does this through target industry advertising or general image advertising, to spread the word about the business-friendly environment and the opportunities in Nevada.

Senator Raggio asked whether information on page 8 of Exhibit D reflects businesses coming to Nevada as a result of the commission’s economic development efforts. Mr. Shriver responded yes. Senator Raggio inquired what could be added to get a truer picture. Mr. Shriver noted these figures include southern Nevada. Senator Raggio said it would seem a lot more development would have occurred in the southern part of the state than in northern Nevada, but it does not show that in the figures. Mr. Shriver answered that industries counted are what are called basic industries, industries that earn the majority of their income outside Nevada. He said that in overall business growth, there most likely is more growth in southern Nevada. He emphasized that in the coming year, significant results will be seen in the south.

Senator Rawson referred to figures shown on page 2 of Exhibit D showing the small amount of funds the state has put into economic development compared to adjoining states. He said his perception is that the amount of effort being put into economic development in Nevada is not as much as in the surrounding mountain states.

Berlyn Miller, Vice Chairman, Commission on Economic Development, stated the incentives offered to companies to come to Nevada are not very competitive compared to those offered by surrounding states. He stressed they do very well with what they have, but they cannot compete, particularly with Utah and Arizona. He maintained Nevada is at a distinct disadvantage.

Senator Rawson said he perceives businesses are leaving California and going to Utah or other states, rather than coming to Nevada. He noted the committee is interested in approving the recommended budget, but also interested in looking at improved statistics. He stated he would like to see a significant increase.

Senator Raggio inquired about the incentives being offered by Utah and Arizona that Nevada does not provide. He pointed out Nevada has no personal or business income tax. He said it seems a "lack of taxes" would be a major incentive that causes businesses to come to Nevada. Senator Raggio pointed out there is a constitutional limitation that in some way limits the ability to provide special classifications. He asked for suggestions, even if it requires a constitutional amendment, which would provide incentives other states give that Nevada cannot currently offer.

Mr. Miller responded that other states fund companies for training, with no strings attached and no requirements for programs. He noted Nevada requires business to go through the community colleges to train employees and there are wage-rate qualifications. He called attention to the extremely high cost of land in Nevada compared to neighboring states. Mr. Miller pointed out that in some cases, the companies are given land and forgiven taxes on the property for 20 to 50 years.

Senator Raggio said the Nevada Constitution prevents this and asked whether the division is proposing an amendment. Mr. Shriver answered Senator Rawson has been active in trying to find mechanisms to allow capital formation for Nevada startup businesses. He said this is one of the elements Nevada suffers in. He stated the number one issue of any business looking at coming to Nevada is the availability of skilled workers and the ability to train workers. Mr. Shriver referred to the Train Employees Now (TEN) Program. He said this program is funded at $500,000 a year, whereas several other states provide tens of millions a year in funding. He stated these states place a lot of emphasis on training, and retraining skill sets for their residents. Mr. Shriver pointed out Nevada’s training program is restricted to upgrading the skills of Nevada residents, so they can earn a higher wage.

Mr. Shriver explained Utah does not apply sales tax on machinery, gives tax credit for jobs, and offers state direct loans. It also offers property and ad valorem tax exemptions for industry, and direct contributions for training. He said the Utah Governor has proposed adding $19 million this year to the state’s economic development budget. He explained that all prospects processed by the Commission on Economic Development are turned over to the local communities where the business will locate. Mr. Shriver stated the commission’s job is to help develop the prospects and get them to the communities as soon as possible, because individuals in a community can best sell that community.

Mr. Shriver pointed out that one thing stressed with the development authorities is that an environment of regulatory assistance, not resistance - which sometimes happens - needs to be created. He said the division has been praised by many of the clients for providing quick response and thorough briefings. He pointed out access to government is a key issue. Mr. Shriver noted the smallness of Nevada is an advantage. He said that with the assistance of Senator Rawson, staff, and Lieutenant Governor Hunt, the division needs to develop sound proposals on how to increase economic development.

Senator Mathews inquired whether some states have constraints similar to Nevada’s. Mr. Shriver replied that in the mountain states, Wyoming is the one without an income tax. He said one can look at Washoe County and the tremendous growth and spread of diversified industry, which has probably fueled the economy in recent times, and see that economic development is having some impact. Mr. Shriver emphasized that lack of corporate income tax gets a company to look at coming to Nevada, once the company is here it looks at leveraging the services. He stressed the geographic location of the state is an advantage. He said the state is positioned well; it is a matter of constantly getting the message out and making sure leaders in government, business, and education work together.

Senator Jacobsen asked whether the charts and grafts in Exhibit D indicate local activities. He said he never sees the state effort put into economic development, only county effort.

Mr. Shriver said the regional development authorities have to receive money from the private sector. He stressed it is most important that the local authorities receive the credit due them in their local communities. He said this is how the partnership works. He explained the division develops the image advertising, targeted sector advertising, and trade shows, and the communities participate in this effort. He reiterated any prospect is referred to the local authority as soon as possible. Mr. Shriver pointed out that particularly in the rural areas, the division works through the Rural Community Development program for infrastructure development. Once businesses become established, the division works with them through the procurement program to find new opportunities to expand the businesses. Mr. Shriver pointed out the film office works with the same development authorities and chambers of commerce for film locations, both man-made and natural. He said the local communities need to get credit for these activities more than the division does.

Senator Neal raised the question of whether the political influence of gaming in the state is cause for a company not to locate in Nevada. Mr. Miller replied yes. He said one of the biggest single problems has been the perceived state image. The companies are concerned about bringing employees into the lifestyle of Nevada. Mr. Miller said that as gaming continues to spread around the country and more Fortune 500 companies locate in the state, it is getting better. He reiterated there is no question the state’s image is still a major problem.

Mr. Shriver said that while it is a burden "image-wise", the infrastructure which gaming provides, namely airports and transportation systems, is positive. He said the division has learned to sell companies on Nevada by having them talk to companies that have located here. He stated these companies do the best selling job because they have gone through the experience and have dealt with the gaming issue. Mr. Shriver emphasized Nevada’s economic development entities have probably had to work harder than those in other states to bring in businesses, but over time they have been able to overcome some of the negative perceptions.

Mr. Shriver explained funds are provided through grants to the 12 regional development authorities that use the funding to help attract more private dollars and more local government monies. Particularly in the rural areas, he noted, there are more local government, county or city monies for economic development than there are in the three urban development authorities. Mr. Shriver said a tremendous job has been done with those dollars leveraged through the communities. He added the Rural Community Development program provides some infrastructure development as well.

Mr. Shriver said the division would like to retain a minimum of $500,000 per year for the training program. He maintained these funds are used very well. He explained they would like the authority to carry forward these monies throughout the biennium. He stated the funds could be well managed with the commission, and this authority would allow more flexibility in dealing with business cycles of companies coming to Nevada that do not coincide with the state’s fiscal year. Mr. Shriver suggested some projects that would be coming to Nevada could be lost due to having to revert funds to the state and then request them again.

Mr. Shriver said pages 10-12 of Exhibit D show how the workforce training funds are used. He called attention to the amount of funding allocated by other states for workforce training in comparison to the funding of this program in Nevada. He said this is one of the biggest areas of concern. Mr. Shriver pointed out the average cost to the state per trainee is $778. He said a study performed on the training money allocation last year shows the companies spent an additional $3 for every $1 invested by the state for employee training. He pointed out the state wage is $13.37 per hour and the division requires the new companies receiving services to pay 75 percent of the state wage or about $10 an hour. Mr. Shriver noted these are 1998 figures. He explained the wage earned by trainees is $11.96 per hour, and the average wage of the company the trainees worked for is over $15.20 per hour. He maintained these monies are being judiciously used and by carrying the funds forward, the division would be able to use them better.

Senator Rawson noted that a decrease in funding was recommended for the work program in this budget. He asked where the reduction is. Senator Raggio pointed out the budget recommends a total decrease of 4.29 percent from the FY 1999 work program and a slight reduction of .4 percent in FY 2001. Senator Raggio noted an increase in matching grants, from $925,000 to $995,000.

Mr. Shriver explained the request in maintenance and in enhancements is to retain the $500,000 in training funds and to increase the monies sent to the local development authorities. He said this would help the division fulfill its mission while it looks for other possible funding mechanisms. He noted these dollars are considered as an investment, especially the training and grant funds. Mr. Shriver said one of the things the division would like performance measurements to show is how the monies are leveraged. This would reflect the number of companies relocating to Nevada, number of jobs as a result of relocation, wages, and so on. He maintained this would be a good indicator of how well state General Fund dollars are being used.

Mr. Miller called attention to some state grant federal funds no longer available. He said the agency was given guidelines from the administration to keep this budget in line with the previous budget. He noted the Governor has indicated he would be supportive if the division could come up with some recommended programs. He stated the division is currently working with the local development authorities to develop some programs. Mr. Miller concurred that the ability to carry training funds forward from one biennium to the next would help.

Mr. Miller said the commission would like to identify areas where funds could be moved to make them more effective, and get more return for the investment. He stated the division would like to take these funds and place them in an account. The funds could be spent by a vote of the commissioners only, on specific programs which provide a return. They could not be used for administrative costs, travel, or other purposes.

Senator Raggio noted Exhibit D shows Idaho’s economic development agencies have significantly more employees than their counterparts in Nevada and almost double the total dollars, yet that state appropriates much less from its General Fund than does Nevada. He asked whether Idaho’s agencies have other sources earmarked for economic development. Mr. Shriver answered that some of the funding for economic development in Idaho might be workforce development money. He stated that in Nevada the Department of Employment, Training and Rehabilitation (DETR) receives these funds from the federal government. He said some of the figures shown on page 2 of Exhibit D might include tourism dollars. Page 4 of Exhibit D shows figures that do not include tourism dollars, he noted.

Senator Raggio inquired whether Nevada’s economic development effort is supplemented, in southern and northern Nevada, by money from the private sector. Mr. Miller responded most of the regional authorities raise more money privately than the state contributes. He said he is concerned the private funds are shrinking due to consolidations and mergers of companies within the state. He pointed out that what used to be five or six companies is now one company and, in some cases, the new company is not contributing at the level any one of the previous companies did.

Senator Raggio stated the committee would like to commit more General Fund dollars because tourism is Nevada’s basic industry. He said that due to there being limited funds available, he wanted to point out there is the opportunity to address this issue with other than state funds. Mr. Miller remarked he mentioned the decline in contributions because he thinks it is incumbent upon everyone to be aware of this fact, and to talk to these companies and convince them to become good corporate citizens in the state.

Senator Jacobsen pointed out only 13 percent of Nevada’s land is available for development. Mr. Shriver said the Nevada Test Site Development Corporation has developed a bill to address this situation, which in its initial writing is confined to areas around the test site. He said it might be useful to expand this to bill to include all rural areas. He pointed out one of the key issues in the rural areas is the lack of developable industrial property. He said when clients are taken to an area, they want to see at least the start of an industrial site, such as ingress-egress to and from highways and utilities stubbed to the property line. Mr. Shriver maintained the division is working very diligently through the Rural Community Development to do these things. He said the money from the private sector in rural Nevada is just not going to be available without the emphasis from the division to get it done.

Mr. Shriver stressed that once initial site preparation occurs and businesses see value, the private dollars can be brought in to help support the further development of the sites. He reiterated the commission, particularly in the rural areas, must take the initiative. He said the urban areas can attract a good share of private funding from commercial lenders, so there is not as much of a concern.

Karen Baggett, Deputy Director, Commission on Economic Development, testified she has worked for the federal government as well as the state regarding land issues. She said there are some areas that possibly the State Lands Committee could look at, and some areas that have not been addressed may be negotiable. She stated this would certainly be the case in the rural areas and in urban areas such as Clark County.

Motion Pictures – Budget Page TOUR/ECON-7 (Volume 2)

Budget Account 101-1527

Charles Geocaris, Director, Motion Pictures Division, Commission on Economic Development, said the division is aggressively marketing and promoting the state to filmmakers throughout the world. He said the new directory, 1999 Nevada Production Directory will be one of the main marketing tools (Exhibit E. Original is on file in the Research Library.). The directories will be sent to filmmakers. Mr. Geocaris pointed out Nevada is in competition with 300 other film offices based throughout the world. He said that every few months others are opening. He stated one of the reasons is the jobs and dollars that are generated in the community. Mr. Geocaris maintained the revenue left in the communities by the production of films is staggering. He said the film office targets marketing towards specific productions, trying to bring projects to the state for interior filming as well as location filming.

Mr. Geocaris noted that each day a major production is filming here, the film company is spending about $100,000 in the state. He called attention to the fact a lot of production is being lost to Canada because of the monetary exchange rate. This has been occurring for the past 10 to 15 years. Mr. Geocaris said film companies have been able to save nearly 40 percent on their budgets by going to Canada. Mr. Geocaris noted a lot of the film offices in the United States are addressing this problem with a new organization called "Film U.S.," to see what can be done to offer incentives to keep production here and keep those in the business working.

Mr. Geocaris said the Motion Picture Division is working closely with production communities in the northern and southern parts of the state. He stressed there are many talented people in both sections of the state and the film office is marketing their services to production companies coming in to use Nevada’s resources. He pointed out there are Emmy award-winning individuals representing many areas. Mr. Geocaris said the film office is trying to bring to the attention of individuals in Hollywood and elsewhere that when they come to Nevada, the necessary talent resources are available.

Mr. Geocaris further stated the film office is trying to showcase locations that prospects may not think of when they think of Nevada, not just the neon and casinos, but the beautiful areas that exist in the state. He noted that recently a group of major film studio executives, who were being shown some areas in the state, were amazed that there is such a variety of "looks" in Nevada. He said this would be stressed in the future, to hopefully pull in more productions that are being lost to surrounding states such as Utah, Arizona, New Mexico and Colorado.

Senator Raggio requested Mr. Geocaris tell something about his background. Mr. Geocaris said Mayor Daley appointed him to the Chicago Film Office, which he ran for a number of years. Prior to that he was a filmmaker and had been making films since he was in high school, and he became involved in the film commission business about 12 or 13 years ago. He said the film office in Chicago worked very hard to make it one of the top film centers in the world, and he looks forward to helping in Nevada. Mr. Geocaris stated the potential is here to turn Nevada into a major film center.

Senator Raggio said incidents that occurred over the last few years, as a result of the operation of the film office, caused some production companies looking to do work in Nevada to become dissatisfied. He inquired whether the situation has been dealt with and asked for some assurance there would not be a reoccurrence. Mr. Shriver answered the division over time has looked at what has been happening with the film office and whether the office was getting the right projects. He and the commissioners felt it was time for a change and that is why Mr. Geocaris has joined the office.

Mr. Shriver said a lot of the difficulties that occurred, most particularly in the Las Vegas area, have been forgotten and there is a good feeling in the entire production community in the south, that everyone is working together to help one another. He noted the types of production the film office is bringing to the state, including the potential of two television series based in Las Vegas. He said this shows to Hollywood and the commercial industry based in New York, Chicago, and Los Angeles that changes have been made, and they will like dealing with Nevada. Senator Raggio complimented Mr. Geocaris on the production directory. He noted this provides information that will be helpful to the companies.

Senator Neal asked whether the Motion Picture Division is still having trouble getting cooperation from those whose property is being used. Mr. Geocaris answered that when situations occur the division tries to interface and tries to help both parties resolve the problems quickly so as not to slow the production. Senator Neal inquired about permits from the local entities. Mr. Geocaris replied this is one of the things he reviewed when he arrived, and everything is working very well. He said that providing a process people feel they can get through, without a lot of red tape, keeps companies coming back to Nevada.

Senator Rawson noted that for 17 years he has gone to Chicago on business each November, and each time he has wondered how Nevada could get its film commission to be as successful as the one in Chicago. He pointed out that Nevada would be a much easier place in which to film. He said he was very impressed with Mr. Geocaris’ record and accomplishments.

Senator Raggio stated there is a good understanding of this budget. He pointed out an increase of 3.14 percent in FY 2000 and .8 percent in FY 2001. He said most of these funds will come from room tax. Mr. Geocaris explained this would be a transfer of funds from tourism to the film office to administer the program. Mr. Shriver said the increases primarily have to do with personnel vacancies and a changeover to a new director, and this increase would bring the base budget to the previous level.

Karen G. Baggett, Deputy Director, Division of Economic Development, explained the $25,000 was for advertising. Mr. Geocaris added this was for the new production directory and to remain competitive with advertising efforts to market the state. He stated the Motion Picture Division plans to place ads and begin familiarization tours to bring ad agency executives and producers, who have never filmed in Nevada, to the state to show them Nevada’s available resources and locations to encourage them to bring major productions to the state.

Rural Community Development – Budget Page TOUR/ECON-11 (Volume 2)

Budget Account 101-1528

Mr. Shriver noted this program operates strictly outside Washoe and Clark Counties with the exception of Gerlach and Wadsworth in Washoe County. He said funds from the U.S. Department of Housing and Urban Development (HUD) are used for infrastructure development. He pointed out there is a 17:1 return on investment in rural Nevada due to leveraging of the federal dollars. He said this is the only way rural communities can use these federal monies to leverage other federal funds. Mr. Shriver emphasized this is the only program that operates in this manner.

Audrey Allan, Director, Rural Community Development, stated the mission of this program is to help the rural communities in their effort to become economically viable. She said the primary tool used is the Community Development Block Grant (CDBG) program, which is funded by HUD. Ms. Allan stated that since 1982, when it was decided to accept the program, CDBG has been a major investor in the development of Nevada’s rural communities. CDBG is the only source of funds derived from the federal government that can be used by the units of general local government to match other federal grant-in-aid programs, Ms. Allan told the committee. She said that unless local governments have funds in their own budgets, CDBG many times provides the only source of funds that can be used for planning and capacity building. Without these funds, many rural communities could not afford to go forward with the kinds of improvements that are necessary to make them economically viable, nor could they afford to meet many of the mandates imposed upon them. Ms. Allan said one example would be the need to improve community water and sewer systems mandated by the federal Safe Drinking Water Act (SDWA), which could not be done without grant assistance.

Ms. Allan commented she has been working in community development since 1988, and the thing she recognizes is that the agency is dealing with some of the same issues as is the Legislature. She called attention to the fact that many of Nevada’s rural communities are remote and not-so-rural. She said these communities face enormous challenges that affect their ability to become economically viable, such as having inadequate tax bases. She noted many communities rely on single industries such as mining, and many more are landlocked by public lands. Ms. Allan told the committee there is often a lack of sufficient infrastructure in the rural communities. Most face health care problems, and the majority do not have sufficient housing, let alone affordable housing. She maintained commercial financing is often hard to obtain. She pointed out many of the communities also lack the population to help them spread out the cost of large projects such as water or sewer systems, and they certainly do not have economies of scale.

Ms. Allan acknowledged it generally costs more to construct projects in the rural areas than in the urban areas because of the state and federal labor laws. She pointed out the vast travel distances and remoteness can inhibit contractors from bidding on jobs. Additionally, the enormous construction going on in urban areas makes it difficult, in some areas, for rural communities to get contractors to bid projects. She added this is a major problem in Lincoln County.

Ms. Allan addressed the public lands issue. She said the University of Nevada, Reno (UNR) sponsored a taskforce to look into this issue. She stated she served on the task force along with representative from the Nevada Association of Counties. Ms. Allan noted the state has not established a policy to help communities with this problem. She pointed out there are land exchanges that may benefit one area to the detriment of another area. Ms. Allan said these are serious issues that need to be considered.

Ms. Allan stressed that the kinds of activities Rural Community Development undertakes are major investments. She said the agency is dealing with a lot of capital projects in the rural areas, primarily in infrastructure development. She noted they also do economic development projects, planning and capacity building, and homeowner rehabilitation.

In conclusion, Ms. Allan thanked the committee for its past support. Noting that since 1982 the administrative costs of the program have remained relatively flat, she said additional funds have only been requested twice. She emphasized the state’s investment of $102,000 in FY 1998 returned almost $22 million in direct value. She said this is a cost benefit ratio of about 1:213.

Senator Raggio said the Governor is recommending $125,000 a year from the General Fund for this budget. He noted the HUD contract is expected to continue at $2.8 million per year. Ms. Allan agreed. Senator Raggio asked about the revolving loan fund. Ms. Allan explained the revolving loan fund was established in 1984 using CDBG dollars. She said the fund does not make direct loans. The funds are awarded in the form of grants to local governments, which then make the funds available to local businesses. Senator Raggio inquired who replenishes the fund. Ms. Allan responded the Rural Community Development does. She said the fund is annually augmented, but if the monies are not used by a certain date, they revert to the general CDBG program to be used for other capital improvement projects.

Senator Raggio noted the projects that have been funded are very diverse. He referred to the list of completed projects shown in Exhibit D. He asked how the dollars are leveraged. Ms. Allan explained leverage is achieved due to the ability to use the CDBG funds as a match for other federal grant-in-aid programs.

Senator Raggio called attention to a problem that exists in Pleasant Valley in White Pine County. He said this community does not have a school and students are bused 45 minutes a day to a school in Utah. He asked Ms. Allan to look into this situation and see whether there could be some aid to assist the community in getting a school.

Ms. Allan pointed out some of the efforts being made toward economic development in the rural areas. She said the cities and counties in these areas are taking economic development seriously. They are doing better in planning and seeking to expand their tax bases through industrial development. Ms. Allan noted the assistance to Storey County for a rail crossing and to Churchill County for a highway deceleration lane that enabled the county to get the SMI Joist Company relocation. She said the agency is working with Pershing County to help the county develop its publicly owned industrial development. Ms. Allan said Wells is being assisted with a heavy industrial development park and Elko County received assistance with its fire academy. She added that the Rural Community Development also helped get sewer lines extended into Elko’s industrial park. She stated the agency is partnering with the Nevada Test Site (NTS) to help develop a high technology corridor that involves Nye, Esmeralda, and Lincoln Counties.

In conclusion, Ms. Allan said Rural Community Development is working with Mineral County to complete some infrastructure development to assist the county in its efforts to attract a manufacturer of electric transformers considering relocating there.

Senator Jacobsen inquired whether Storey County is being assisted with its water system. Ms. Allan answered a study has been funded that will help the county identify what needs to be done.

Procurement Outreach Program – Budget Page TOUR/ECON-16 (Volume 2)

Budget Account 101-4867

Mr. Shriver stated the funds received from this federal program assist small businesses in learning about federal contracting. He said that over time the program has been expanded into state and local government contracting and on occasion works with international procurement opportunities. He pointed out the federal dollars are not necessarily being spent in Nevada. They are spent in the form of contracts the federal government has allocated across the country through its Defense Logistics Agency (DLA). The Division of Economic Development has helped Nevada companies procure those contracts, which in turn means greater business for Nevada’s small and minority-owned businesses. Mr. Shriver said some large companies, those with over 500 employees, have participated. He explained this program helps businesses to expand, add new employees, and grow their businesses through federal, state, and local government procurement.

Roger Tokarz, Director, Procurement Outreach Program, remarked the program has been in existence for a total of 13 years. He said that since its inception, the state and federal governments have contributed nearly $4 million toward this program. He maintained the return on investment is $58 to $1. Mr. Tokarz stated currently the program is directing its attention to very small, disadvantaged and female-owned businesses, and approximately 67 percent of the client base falls into those categories. He said the Procurement Outreach Program is working with these individuals to develop the business opportunities by providing the access, knowledge, and resources necessary for them to compete for the federal, state, and local procurement opportunities. He remarked the agency has been extremely successful with several companies in the area and has been working with other agencies to help create an organization to support the small business community.

Senator Raggio asked whether the U.S. Department of Defense grant is the primary source of revenue. He inquired whether the funding is expected to remain at $300,000. Mr. Tokarz responded this is the maximum funding for a statewide program. Senator Raggio said $145,065 is provided from the General Fund in the first year and $149,329 in the second year. He asked whether this is the match required. Mr. Tokarz explained the appropriation from the General Fund is added to an indirect rate calculation that is utilized for economic development. He said the total value of the last program was $658,818, consisting of cash from the General Fund, $300,000 from the federal government, and the remainder from the indirect rate match.

Commission on Tourism – Budget Page TOUR/ECON-19 (Volume 2)

Budget Account 225-1522

Thomas G. Tait, Executive Director, Commission on Tourism, referred to the 1997 Legislative Session when he had requested the reserve be kept at a $1 million level so there would be a fund to deal specifically with areas of man-made or natural disaster. He stressed that because of the committee’s action in 1997, the commission was able to act quickly following the flooding in Reno to develop a marketing program to get the message out to primary and secondary markets. He stated approximately 1.1 million people received word in the Sunday newspaper edition of virtually every newspaper in the Pacific Northwest, as well as primary markets in San Francisco, Sacramento and "the valleys" in California, letting them know that Reno was open. He said this allowed them to mitigate some of the damage to tourism caused by publicity of the flood.

Mr. Tait said the old federal courthouse has been restored with funds appropriated last legislative session and is now open to tourists, and the office for the Division of Tourism is located there. He stated this building is a historic reflection of Nevada and the type of activity the Commission on Tourism has been commissioned with over the past 15 years.

Mr. Tait said the funds appropriated for the air-service development missions, resulting in visits by the Governor to Asia, Latin America and to Europe, have brought remarkable results. He said the recently approved Korean office is another indication that the Legislature is working to create the partnership that allows the commission to expand to markets in the international showplace, as others in Las Vegas and Reno have done. He maintained this will help Nevada remain competitive as the world gaming, recreational-leisure, historic, scenic, and cultural mecca of the United States.

Mr. Tait thanked the committee for the dedication and commitment given by the Legislature to the tourism product in the State of Nevada. He pointed out there are severe challenges faced by the state, more so now than anytime since the creation of the commission in 1983, which was a direct result of the opening of Atlantic City to gaming. He said the domestic markets are softening and international markets are expanding, but not at an equal or consistent rate. Mr. Tait stressed air service to Las Vegas is critical to the continued development of the Las Vegas market. He stated Las Vegas will have 125,000 rooms by the year 2000, but room rates at existing properties, as well as the new resorts, are much lower than projected. He said that on the first air-service development to Asia, there were many comments about the unavailability of rooms to wholesalers and foreign tour operators. He said that currently, access to rooms by wholesalers has never been higher. Mr. Tait said the rates being charged to wholesalers are well below the norm.

Mr. Tait explained Reno is projecting no increase in its room-tax base for the coming biennium and with Las Vegas is projecting only a 4 percent increase in its room-tax collections. He said Reno is creating an impetus for attracting younger customers, and is moving into the convention market and positioning itself as the site for virtually unlimited recreation. He stated this is a positive step in the right direction.

Mr. Tait referred to the pending implementation of Proposition 5 in California as a concern. He said that on the positive side, the most fabulous resorts anywhere in the world are being developed in Las Vegas. He noted the improvements to Reno-Lake Tahoe properties are keeping them fresh and modern. Mr. Tait stated Reno and Las Vegas are well-positioned, modern, and fully capable of handling additional customers. He pointed out roadways between Nevada and its neighboring states are being upgraded and widened, and capacities are being maximized for the future.

Mr. Tait said Nevada now has six nonstop flights a week from Tokyo, which will soon be increased to one flight a day. He pointed out that 6 months ago there were no flights from Tokyo. He said the belief is that the visit to the Asian market, and the enormous work done by McCarran International Airport and the Las Vegas Convention and Visitors Authority (LVCVA) brought this to fruition. He stated there is a commitment from other airlines to partner on new nonstop service from Frankfurt, Cologne, and likely from Munich and Berlin. He said service from Mexico City and Monterey has been expanded, as well as new service from Leon and Guadalajara. He mentioned bilateral agreement changes are pending with the government of the United Kingdom, in an effort to open scheduled air service to that area.

Mr. Tait called attention to the presentation launching Nevada’s 15-month millenium celebration, which will begin October 30, 1999, and extend through the Martin Luther King holiday, January 15, 2001. He said Nevada is in a good position for the 2002 Olympics and may in fact serve as a substantial room base for those traveling to Salt Lake City, Utah. He pointed out the Salt Lake Valley has 6,500 rooms, and few additional rooms will be under construction between now and 2002. He said more than 10,000 representatives of the world press alone are expected at the Salt Palace. There will be chartered service to Salt Lake City several times a day from both Las Vegas and Reno.

Mr. Tait mentioned Nevada has taken a leadership position in the advocacy of a sane national immigration policy. He said Lieutenant Governor Hunt has a bill draft asking for a resolution in support of those efforts.

Mr. Tait pointed out Nevada’s rural tourism grants program is continuing to provide outstanding show and activity events including Shakespeare at Sand Harbor, and the Cowboy Poetry gathering and has significantly aided in the development of a business plan for Baker, Nevada and the Great Basin National Park.

Senator Rawson inquired about what is going to be done in Baker. He said it would appear that a significant amount of infrastructure is needed there. Mr. Tait explained the first step was to develop a business plan, not only a marketing program. He said the plan identified all of the infrastructure needs Baker has, and its interaction with the park. He explained representatives from Great Basin Park, the U. S. Bureau of Land Management (BLM), and the U. S. Forest Service were included in the planning. He said once all of the needs were identified, a plot plan was constructed by which Baker could proceed, along with White Pine County and the entire heritage area, to decide what the priorities for funding would be. This would include, but not be limited to, a visitor’s center, street improvements, sewage lines, and power construction.

Mr. Tait said the Rural Motorsports Office, created by the Legislature in the last legislative session, has helped in the production of several planned rural races. The office spearheaded the development of one major race in 1998 that will be ongoing, and was on the ground floor of the development of the 2,000-mile millenium extravaganza race set for next year.

Mr. Tait pointed out the commission’s web site has surpassed the number of phone and mail-in requests for information on the state and its attractions. He expressed the opinion that the web site will replace the need for publication of collateral materials.

Mr. Tait said the Governor’s Conference on Travel and Tourism in Las Vegas attracted 1,037 delegates in 1998, 28 percent more than had ever attended a Governor’s Conference. The Rural Tourism Roundup continues to draw upwards of 250 delegates and provides marketing stimulus to rural tourism professionals from all corners of the state.

Mr. Tait stated Nevada’s Scenic Byway Program is the envy of the nation. Two roadways have been designated as scenic byways and over $1 million in federal discretionary highway funds, directly related to that program, have been received. Mr. Tait said having the foresight to designate the Las Vegas Strip as the first nighttime scenic byway gives Nevada prominence in Rand McNally, National Geographic and AAA roadmaps distributed throughout the world.

Mr. Tait maintained that because of the lower average daily room rates and the softening in the marketplace in general, spending patterns for the commission over the next biennium will stay much the same. He said no major enhancements are requested, and maintenance items are at inflationary levels or, in the case of equipment, necessary replacements.

Mr. Tait discussed acceleration of the start date for the Media Relation Manager’s Administrative Assistant position, which has been approved by the Governor, from FY 2001 into FY 2000. He said this item is not shown in the budget summary. He noted all requests are based upon a 3 percent increase in room tax receipts and a desire to keep the reserve close to $1 million, in the event of another natural or man-made disaster. He stated principal maintenance expenditures are in the advancement of the marketing and advertising budgets. Mr. Tait explained that because of the reduction of income from this fiscal year, which has necessitated a $400,000 reduction in expenditures, approximately $900,000 is needed over the biennium to rebuild the budget. He added $750,000 will reinforce the rural grants program and provide support for the two existing international offices in the United Kingdom and Japan, as well as the opening of a new office in the Republic of Korea.

Senator Raggio asked whether the office in Korea will be a contract shared by the LVCVA. Mr. Tait answered the LVCVA will be a major partner and will manage the office. He pointed out the LVCVA contribution is expected to be considerably greater than the $100,000 contribution of the Commission on Tourism. He reminded the committee the LVCVA manages the offices in the United Kingdom and Japan, and attention is focused jointly on Las Vegas and the balance of the state as a destination. Senator Raggio asked why the particular interest in Korea. Mr. Tait replied the Korean market has been designated as a potential primary source for tourists.

Mr. Tait said that before the economic turndown, the Korean market was increasing at high double-digit rates. A 28 percent increase in the number of tourists had been projected for the biennium, moving Korea from number 6 in the international markets to number 4. He said Korea was soundly hit by the economic downturn. Inbound tourism from this market into the United States declined, but it continued to increase by 5 percent into the state of Nevada. Mr. Tait pointed out Korea has recently had an increase in its bond rating, which brings it back up to a level closer to where the International Monetary Fund would like to see it. He said the LVCVA is very enthusiastic about the possibility of setting up an office in Korea before other states and jurisdictions have an opportunity to take advantage of that burgeoning market. He predicted tourism into Nevada, from Korea, will be back into double digits by the new millenium.

Senator Raggio asked about the line item transfer of $62,000 to the State Arts Council shown in the budget summary. He noted this item is now deleted, but the transfer to the Division of Museums and History is increased. He inquired whether the arts council is now included in that transfer. Mr. Tait answered he believes so. Senator Raggio stated he wanted to make sure this transfer would not eliminate funding to the arts council.

Mr. Tait said the Rural Race Coordinator initially was responsible for the development of a brochure which formally identified all of the different races in rural Nevada and included the races that take place at the Las Vegas Motor Speedway. He said there are 41 races that take place in rural Nevada. He pointed out many of these races go unnoticed, except for the communities in which they take place. Mr. Tait explained the infrastructure in these communities is used to develop the race and to house the competitors and the press. He said these races are not large tourism events, but the competitors themselves are a tourism product for a rural community. He added that in some cases 300 rooms can be filled in Ely, Elko, or Tonopah, and this is very vital to those communities, especially when the events often take place mid-week and over the weekends. Mr. Tait emphasized the race coordinator has been moving in the direction of getting the national racing press to take a look at the races in the rural communities. He maintained Nevada is the rural race center of the United States.

Senator Jacobsen asked who determines whether a race would go through the cemetery at Virginia City. Mr. Tait said he did not know. He explained that typically there would be a permitting process with anyone having landholdings. He said if the property were owned by Virginia City, the authorities there would have to issue the permits and likewise with whomever owned the property. Mr. Tait stated the promoter would design the course, and the Commission on Tourism would work with the promoter to seek the necessary permits. He said if there is any controversy, the commission holds public hearings or whatever is necessary to respond to concerns.

Nevada Magazine – Budget Page TOUR/ECON-25 (Volume 2)

Budget Account 530-1530

Richard Moreno, Publisher, Division of Publications, Commission on Tourism, pointed out no enhancements or new positions have been requested in this budget. He also pointed out the Nevada Magazine underwent a redesign one and a half years ago. He said it was decided to make the magazine more contemporary, and the logo was replaced with one more modern. He maintained the redesign helps to position the magazine to reflect the modern Nevada, which is called the Sophisticated West, rather than the Old West. He said elements of the Old West remain in the magazine, and there are always history stories in every issue. He stated the magazine also wants to reflect the modern Nevada, and Nevada Magazine is now an accurate reflection of what Nevada is all about.

Mr. Moreno said the division is pleased to be involved with the millennium project. He stated the Nevada Events section, in the middle of the magazine, is being converted to a millennium calendar section during the 15-month period of the celebration to promote special events, which are a key element in the program. He  said the magazine’s web page will be linked to the millennium web page that the Commission on Tourism is developing. Mr. Moreno pointed out that through the mail-order operation and on-line gift shop, the magazine will be retailing millennium products being produced with the Commission on Tourism and with the commission’s advertising agency.

Mr. Moreno said a business plan for opening a gift shop in the historic Commission on Tourism building is being finalized. He stated the division plans to have the shop open in the next few months.

Senator Raggio asked when the committee might tour the tourism building. Mr. Moreno answered there will be a reception February 22, 1999, from 5:30 to 7:30 p.m. He noted the committee members will receive invitations.

Senator Raggio inquired about the move of the Division of Economic Development offices. Mr. Shriver said the move is to be completed by June 1999. He extended an invitation for members of the committee to come by to see the progress.

Senator Raggio noted $311,000 is shown in the budget for single-issue sales, and $888,000 for subscriptions. He asked whether the Commission on Tourism subscribes to a percentage of the sales. Mr. Moreno explained the Commission on Tourism purchases approximately 100,000 copies of the events section of the magazine. He said one of the budget line item reflects the transfer of money, from the Commission on Tourism to the magazine, for the purchase of the calendars. The events calendars are inserted into all of the fulfillment packages, which allows Nevada to have the most updated events calendar of any state. Mr. Moreno said most states put out a quarterly or annual calendar of events, and Nevada’s is published bimonthly.

Mr. Moreno explained the commission purchases approximately 26,000 subscriptions of the magazine, which are sent to travel agents. He said this allows Nevada Magazine to be used as a direct sales tool for the Commission on Tourism. He pointed out the amount of total sales is approximately $560,000, and the commission pays the same rates as any private company paying for a bulk subscription.

Senator Raggio asked whether sales have increased since the move to the new location. Mr. Moreno answered the move only occurred in October 1998, so it is difficult to determine whether there has been an increase related to it.

Senator Raggio inquired whether there are any General Fund dollars going into the Nevada Magazine budget other than the money through the Commission on Tourism. Mr. Moreno explained the funds from the commission to Nevada Magazine do not come from the General Fund. Senator Raggio commented the magazine is a very nice product. He asked whether the magazine is also responsible for the calendars. Mr. Moreno answered it is. Senator Raggio commented on the quality of the pictures collected for the calendar. He said those receiving the calendars are very impressed.

Senator Coffin acknowledged the good response his business received from the advertisement the firm placed in the magazine in 1997. He said this indicates to him that individuals are using the advertising service provided through the magazine. Mr. Moreno added that about 70 percent of the readers are out-of-state.

Senator Jacobsen asked why the State Printing Division does not print the magazine. He inquired whether the printing office, if it had the equipment, would print the magazine. Mr. Moreno replied that to produce a color magazine, a web press is needed. He said such presses are very expensive and there is only one in Nevada, which is in Las Vegas. He added the company in Las Vegas has not bid on the contract in the past 6 years. Mr. Moreno pointed out the State Purchasing Division handles the bids. He explained this is a low-bid arrangement as required by state statute. He noted the magazine has had the same printer for 10 years.

Senator Jacobsen inquired about the usability of the building. He emphasized the building needs some identification. He indicated the Humboldt Honor Camp would make a sign if the material were furnished. Mr. Tait thanked the senator and said the division would certainly do that.

Mr. Miles provided the committee with a listing of budget-closing recommendations to be developed by joint subcommittee and those recommended by fiscal staff (Exhibit F).

The meeting was adjourned at 10 a.m.

RESPECTFULLY SUBMITTED:

Patricia Hampton,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

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