minutes OF THE Meeting

of the

ASSEMBLY Committee on Taxation

 

Seventy-First Session

May 8, 2001

 

 

The Committee on Taxationwas called to order at 1:36 p.m. on Tuesday, May 8, 2001.  Chairman David Goldwater presided in Room 3142 of the Legislative Building, Carson City, Nevada, and by videoconference to Room 4401 of the Grant Sawyer Office Building in Las Vegas, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Guest List.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Mr.                     David Goldwater, Chairman

Mr.                     Bernie Anderson

Mr.                     Morse Arberry Jr.

Mr.                     Greg Brower

Mr.                     David Brown

Mrs.                     Vivian Freeman

Mr.                     John Marvel

Mr.                     Harry Mortenson

Mr.                     Bob Price

 

COMMITTEE MEMBERS ABSENT:

 

Mr.                     David Parks

Ms.                     Sandra Tiffany

 

GUEST LEGISLATORS PRESENT:

 

Senator Raymond C. Shaffer, Clark County Senatorial District 2

Assemblywoman Dawn Gibbons, Washoe County Assembly District 25

 

STAFF MEMBERS PRESENT:

 

Ted Zuend, Fiscal Analyst

Cheryl O’Day, Committee Secretary

 

OTHERS PRESENT:

 

Carole Vilardo, Nevada Taxpayers Association

John Sande, Legislative Advocate, Harrah’s Entertainment

Phil Satre, Chairman, CEO, Harrah’s Entertainment

Don Carano, CEO, Eldorado Hotel

John Frankovich, Legal Counsel, NEWCO

Steve Greathouse, Vice President, Mandalay Resort Group

William Osgood, Executive Director, Downtown Improvement Association, Reno

Daryl Drake, Real Estate Broker

Barney Ng, Owner, Siena Hotel Spa Casino

Lynne Keller, General Manager, Gold Dust West Casino and Motorlodge

Scott Craigie, Legislative Advocate, Satellite Properties

Michonne Ascuaga, CEO, John Ascuaga’s Nugget

Tom Kearns, Private Citizen, Washoe Valley

Robert Barengo, Legislative Advocate, RSCVA

Doug Bierman, Legislative Advocate, NTS Development Corporation, Lincoln County, City of Caliente, Eureka County and Lander County

Warren Hardy, Legislative Advocate, Associated Builders and Contractors

Mike Lynch, Legislative Advocate, Builders Association of Northern Nevada

Irene Porter, Executive Director, Southern Nevada Homebuilders Association

Danny Thompson, Legislative Advocate, Nevada State AFL-CIO

John Jeffrey, Legislative Advocate, Southern Nevada Building and Construction Trades Council and Southern Nevada Central Labor Council

Birgit Baker, Administrator, Employment Security Division (ESD)

 

TESTIFYING VIA VIDEOCONFERENCE FROM LAS VEGAS

 

Ed Gobel, President, Council of Nevada Veterans Organizations, and Founder, Lowden Veterans Center and Museum

John Locksley, original member of the Tuskegee Airmen

Mary Knapp, Women Marines Association

George W. Dunaway, Sergeant Major, United States Army, Retired; and President, Chapter 51, Special Forces, The Green Berets

Ray Kelsey, Air Force Sergeant Association

Ray Werbrich, Submarine Veterans of World War II

Lee Keyzer, Retired Sergeant Major, United States Army

Dr. Lupo Quitoriano, Nevada Paralyzed Veterans of America

 

Chairman Goldwater called the meeting to order at 1:36 p.m.  A quorum was present.

 

Chairman Goldwater invited Senator Shaffer, Clark County Senatorial District 2, to testify on S.B. 156.

 

Senate Bill 156:  Makes various changes concerning exemptions from property and vehicle privilege taxes for veterans. (BDR 32-124)

 

Senator Shaffer, Clark County Senatorial District 2, announced he would not be able to testify and requested that Ed Gobel testify from Las Vegas, in his stead.  Senator Shaffer had brought forth S.B. 156 on Mr. Gobel’s behalf.

 

Chairman Goldwater disclosed that the committee had heard a good deal of testimony in support of tax exemptions for Nevada’s veterans.  He recommended that Mr. Gobel keep his testimony brief.

 

Ed Gobel, President, Council of Nevada Veterans Organizations, and Founder, Lowden Veterans Center and Museum, thanked the committee for receiving his testimony and the testimony of those veterans who would testify after him.  He also expressed their appreciation to Assemblyman Neighbors for a bill brought forward in the previous Assembly that would open veteran benefits to those who had served in peacetime roles.  Mr. Gobel related there had not been an increase in exemption benefits in 48 years since S.B. 182 of the 46^th Legislative Session in 1953.  S.B. 156 would implement the increase in exemption benefits over a period of four years, “making virtually nil the impact to the State.”  It was therefore not necessary for the Senate Committee on Finance to hear S.B. 156, and Mr. Gobel anticipated it would not be necessary for S.B. 156 to be heard by the Assembly Committee on Ways and Means.

 

The impact on the counties, also spread over a four-year period, would be minor.  All the county assessors had been approached in the planning and negotiation stages of S.B. 156.

 

Mr. Gobel emphasized S.B. 156 had “a real chance of passing for the first time” and urged the committee’s support.  Mr. Gobel said they had received 369 requests in the last 30 days for burial assistance for veterans in southern Nevada and gave the breakdown as follows:

 

• Vietnam Veterans                    158
• Korean War Veterans          68
• World War II Veterans             135
• Others                            8

 

In the last 12 months they had received 4,711 requests for burial assistance:

 

·        Vietnam Veterans           1,920

·        Korean War Veterans     768

·        World War II Veterans          1,803

·        Others                           220

 

Mr. Gobel suggested those figures indicated within the next 15 to 20 years or less the amount of combat veterans could very well be zero.  He pleaded with the committee to pass S.B. 156 while the veterans could still benefit from it.  Many veterans had “put their lives on hold” for their country and came back to a “tremendous disadvantage.”  He did express his gratitude for the property tax exemption given Nevada’s veterans.

 

Mr. Gobel informed the committee several veterans would follow him and present their testimony.

 

John Locksley, original member of the Tuskegee Airmen, testified in support of S.B. 156.  Following his military service he purchased a home in California and received a property exemption of $800 annually.  The exemption was less in Nevada.  He expressed his support of S.B. 156 on the behalf of others like himself who “needed the exemption.”

 

Mary Knapp, Women Marines Association, served in the Marines during World War II.  She stated the increase in the cost of food and housing over the years necessitated the passage of S.B. 156.

 

George W. Dunaway, Sergeant Major, United States Army, Retired, and President, Chapter 51, Special Forces, The Green Berets, requested the committee pass S.B. 156 in its current form.

 

Chairman Goldwater asked Mr. Gobel how many veterans would be testifying.  He would note the number of veterans present to testify in favor of S.B. 156.  Mr. Gobel offered to bring forward two or three more to testify.  Chairman Goldwater approved and thanked Mr. Gobel.

 

Ray Kelsey, Air Force Sergeant Association, expressed his support of S.B. 156 and thanked Mr. Gobel and the committee for their time.

 

Ray Werbrich, Submarine Veterans of World War II, had served as the organization’s Nevada State Commander, Secretary-Treasurer, and was currently editor of its newsletter.  Mr. Werbrich had been in Nevada over 50 years and was one of the original beneficiaries of S.B. 182 in 1953.  He would like to see:

 

At least one increase in his lifetime…it would never make up for 48 years of being ignored, but would go a long way toward showing that we veterans who served in time of war were appreciated.

 

Mr. Werbrich related an example of price increases he experienced.  A smog check on his wife’s vehicle the previous year cost $14, with coupons.  In one year the price had increased to a minimum of $20 with coupons.  He expressed the need for the committee to pass S.B. 156 on behalf of all veterans.

 

Lee Keyzer, Retired Sergeant Major, United States Army, veteran of both the Korean War and Vietnam War, expressed his appreciation for the discount received in their taxes annually, but pointed out the $50 that meant so much to the veterans in 1953, did not provide the same assistance 48 years later.  He expressed his support of S.B. 156, noting it was time for Nevada to recognize its veterans, especially those who served in combat.  He thanked the committee for listening.

 

Dr. Lupo Quitoriano, Nevada Paralyzed Veterans of America, founded the chapter in Nevada.  In support of all disabled veterans, Paralyzed Veterans of America, and all those who offered their lives for Nevada and the country, he asked the committee to help improve their quality of life by approving S.B. 156.

 

Chairman Goldwater asked if there was further testimony for or against S.B. 156.

 

Carole Vilardo, Nevada Taxpayers Association, noted S.B. 156 had been reworked considerably so the impact would be minimized.  She informed the committee that state law originally required, between 1953 and 1983, that the veterans benefiting from exemptions in Nevada had entered their military service from Nevada.  In 1983 the law was changed to include any veterans, as long as they served within the period of time specified by statute.  Ms. Vilardo’s concern was with the first and second sections of S.B. 156 by which a grant would be increased.  She appreciated the disabled veterans’ section being increased and indexed but was concerned with, “in effect, almost arbitrarily increasing the rates and then indexing, when we don’t have a means test on the first two sections of the bill.”

 

Chairman Goldwater asked if the $3 million fiscal note over the biennium belonged with the original version or the amended version of S.B. 156.

 

Ms. Vilardo believed it was on the original version.  The fiscal impact was less and was in increments.  With the growth of Nevada, especially with older people moving into Nevada, the proposed exemption would be constantly increasing.

 

Assemblyman Anderson, in light of the passage of time and the buying power in 1953 as compared with today, asked Ms. Vilardo if the exemption at the rate they were giving it was “at equal value, or even close to equal value” to the exemption when it was first established.

 

Ms. Vilardo said originally when most of the exemptions were put in they were a “symbol of appreciation.”  Many states, rather than provide exemptions, forgave one or two years of property taxes upon the service member’s return home.  She was aware of the difference in purchasing power, but maintained it was, in effect, a “thank-you.”  Ms. Vilardo pointed out S.B. 156 was written better than other bills they had considered.  She contended that if exemptions were given when there were no other qualifiers, the recipients should be means tested.  The exemptions were to be given as stipends, rather than to match buying power; they were a gift.  Ms. Vilardo said buying power was no longer the same, but proposed the exemptions were not intended to keep pace with buying power.

 

Mr. Anderson understood that Nevada wanted an ongoing exemption for, and recognition of, veterans.  He contended other states chose different means to compensate their veterans.  Mr. Anderson restated his concern for the diminished value of the dollar.

 

Chairman Goldwater interjected it was a philosophical issue.

 

Ms. Vilardo reiterated the exemptions were originally for veterans who entered service from Nevada.  She asserted the ground rules had changed “dramatically.”  Chairman Goldwater replied there was the “time value of money issue.”

 

Assemblyman Brower contended the total number of eligible veterans in Nevada would be decreasing, due to the large number of veterans who were dying.  He asked Ms. Vilardo if she agreed.

 

Ms. Vilardo replied she had not matched numbers and therefore could not agree or disagree.

 

Chairman Goldwater closed the hearing on S.B. 156 and opened the hearing on S.B. 221.

 

Senate Bill 221:  Authorizes City Council of City of Reno to increase tax on rental of transient lodging and levy special assessments to pay costs of certain capital improvement projects. (BDR S-916)

 

John Sande, Legislative Advocate, Harrah’s Entertainment, testified in support of S.B. 221.  He informed the committee that Harrah’s Entertainment, Mandalay Resort Group, Eldorado Resorts, and the Silver Legacy would contribute to the project should S.B. 221 be approved.  Mr. Sande introduced Phil Satre, Harrah’s Entertainment; Don Carano, Eldorado Resorts and The Silver Legacy; John Frankovich, NEWCO; and David Houston, Salomon Smith Barney, whose firm was the number one underwriter of government projects in Nevada.

 

Mr. Sande provided for the committee a booklet entitled “Proposed Events Center Fact Sheet,” (Exhibit C).  The proposed project was a 115,000 square foot special events center in downtown Reno that would be immediately north of the bowling stadium.  The total project would cost $65 million including the land acquisition.

 

S.B. 221, Section 1, would authorize the City of Reno to establish a special improvement district in downtown Reno only.  They had met with all the interested property owners in downtown Reno and had reached an agreement whereby the total improvement district assessed each year would be $900,000.  Of that, the four properties Mr. Sande had named agreed to pay $700,000.  The other downtown businesses would be assessed by the City of Reno to pay the remaining $200,000.  That assessment would be based upon the benefits expected to be received by those businesses.  Office complexes and residential buildings would be excluded.

 

Section 2 would allow the City of Reno to impose an additional room tax, only in the downtown area, of 1.5 percent to fund the project along with the special assessment district.

 

Mr. Sande emphasized only the people in downtown Reno, who supported the project unanimously, would pay for the project.  Those outside of downtown Reno would not pay in any part.  Mr. Sande stipulated they were simply seeking enabling legislation, as the proposal needed to go before the City of Reno.

 

Mr. Sande presented background information provided on page 3, entitled “Summary of Senate Bill 477 – 1999 Legislative Session,” of Exhibit C.  The resultant compromise among the parties involved in S.B. 477 of the Seventieth Legislative Session was to:

 

• Set aside enough room tax to fund a $105 million expansion of the Reno Sparks Convention and Visitors Authority’s (RSCVA) Convention Facility.
• Set aside $1.5 million annually for an undetermined project in downtown Reno that would promote tourism in Washoe County and help revitalize downtown Reno.
• Set aside up to $350,000 annually for the City of Sparks to market tourism.

 

S.B. 477 created the Truckee Meadows Tourism Facility and the Revitalization Steering Committee, or “Stakeholders Committee.”

 

The Stakeholders Committee had two responsibilities:

 

• Identify a capital improvement project in downtown Reno to promote tourism by a two-thirds majority vote.
• Identify the “method or methods” of financing the capital improvement project.

 

Mr. Sande asserted there was never an agreement or intention, of which he was aware, that the $1.5 million to be set aside annually would be the only money to go toward downtown Reno.  He added that in addition to the room tax and the special assessment district, the four downtown properties referenced in the beginning of his testimony agreed to make a capital contribution of $20 million to ensure the project would be “economically viable.”

 

Chairman Goldwater asked if there were any questions of Mr. Sande.  There were none.  Chairman Goldwater advised Mr. Sande that his committee would not be comfortable with a vote on this day.

 

Phil Satre, Chairman, CEO, Harrah’s Entertainment, informed the committee he had become a member of the Stakeholders Committee in 1999.  He related that his responsibilities as a member of the Stakeholders Committee were twofold:

 

• To identify a capital project in downtown Reno to promote tourism.
• To identify the method or methods of financing that project.

 

In August 1999, the committee commenced to hold approximately 13 public meetings.  Numerous specialists testified.  In September, NEWCO proposed a written proposal to develop the special events center in downtown Reno to promote tourism and revitalize the city of Reno.  Approval at that time was unanimous.  Since then, three of the entities that had approved the proposal raised objections.

 

In September of 2000, NEWCO presented its proposal to the Stakeholders Committee to finance the events center.  The proposal was as follows:

• Utilize the annual $1.5 million as identified in S.B. 477.
• Increase the room tax in a special improvement district.
• Utilize $20 million in subordinated notes from the members of NEWCO.

 

The Stakeholders Committee referred that proposed financing method to the redevelopment agency for the City of Reno for financial review and input.  There was no objection at that time.

 

In November of 2000, the Stakeholders Committee, having received the response of the Reno Redevelopment Agency, approved the method of financing.

 

In closing, Mr. Satre emphasized the merit of the proposed special events center.

 

Don Carano, CEO, Eldorado Hotel, referred to page 2, “Events Center Objectives,” of Exhibit C.  He related that the downtown had been fully supportive of the present convention center south of Reno, as well as its expansion.  He emphasized that Cordish Company, who was the master developer of the city’s redevelopment plan, publicly stated it would not commit to the redevelopment project unless the events center project continued.  Mr. Carano stressed the need for Reno’s redevelopment in light of competition from California’s gambling market.  He knew of no other alternative and regarded the events center as “absolutely necessary for the revitalization of downtown Reno.”

 

John Frankovich, Legal Counsel, NEWCO, testified as to the financing proposal implemented by S.B. 221.  He directed the committee to page 6, “Specifics of Financing Proposal,” of Exhibit C.  Salomon Smith Barney compiled the proposal that was reviewed and approved by the staff of the Reno Redevelopment Agency and their bond counsel.  It was submitted to the Stakeholders Committee for their approval.  The property owners of downtown Reno were approached; 80, or nearly all of them, signed an agreement to support both the room tax increase and the special assessment district.

 

The cost of the project would be $65 million; $45 million was to come from bond financing, which would be derived from the room tax resultant of S.B. 477 and S.B. 221.

 

Twenty million dollars in subordinated notes would come from NEWCO.  Mr. Frankovich explained the notes were to be repaid, but they were subordinated to all the bonding debt and all the operating costs of the facilities.  Once those were paid and covered, there might be a return of a portion of the $20 million.

 

Chairman Goldwater asked Mr. Frankovich to explain the funding of the $20 million with regard to the subordinated notes.  Mr. Frankovich replied that only the four members of NEWCO had funded the $20 million, at $5 million each.  The offer was made and still available to anyone else who wanted to participate on a pro rata basis.

 

The second portion of the financing proposal dealt with the operating loss that was inherent to such a project.  Arthur Anderson, SMG, and Salomon Smith Barney, evaluated there would be an annual loss.  That loss could be $758,000 for the first “stabilized” year.  During the following years, when the facility would be operating, loss would increase as costs increased.

 

Mr. Frankovich explained that the provisions set forth in S.B. 221, with respect to the room tax increase and the special assessment district, dealt with the expenses of the project.  Important to note, he divulged, was the fact that the financing was being paid for by those who would benefit the most from the facility.  Countering comments that public money was going to a private facility, Mr. Frankovich asserted it was a public facility to be “operated by an independent company that would operate it as a public facility as required by Reno Redevelopment.”

 

Assemblyman Anderson pondered, in light of the ongoing costs of the facility, what would happen should the redevelopment district ever come to an end.

 

Mr. Frankovich informed Mr. Anderson that redevelopment was not the source of the funding.  The money was coming from the downtown assessment district and the room tax.

 

Assemblyman Anderson asked if the assessment district would have a continuing life span of its own.  Mr. Frankovich responded it was anticipated to be a 30-year special assessment district.  Mr. Frankovich explained what would happen if the project generated too much money.  Annual audits would be performed and after the first ten years, an audit would evaluate the continuing necessity of the special assessment district.  He explained that although it was a redevelopment project, it was not related to the Reno Redevelopment Agency other than going through the approval process.  At the end of the 30 years, the facility would be owned by the Reno Redevelopment Agency or whatever the successor to that might be.

 

Mr. Frankovich related the financing plan had been criticized because it might generate too much money.  He offered it was better to have a plan that was “too generous than too tight, because that’s doomed to failure.”  If too much money were to be generated, the bonds would be paid off earlier, and the assessment district and/or the room tax would be eliminated earlier.  The Reno City Council would determine the appropriate response.  Mr. Frankovich emphasized the money was public money and could only be used for public finance.  It would not go to NEWCO or any private person.

 

Mr. Frankovich informed the committee other financing plans would be brought forward.  He advised the committee that the Reno City Council would determine the details of the financing plan.  The legislative decision would simply enable them to take action up to a certain amount.  Opponents did concede the necessity of the events center and an increase in room tax and a special assessment district.  The issue to be resolved by the Reno City Council was the amount of the room tax and special assessment.

 

Steve Greathouse, Vice President, Mandalay Resort Group, reiterated what Mr. Frankovich had alluded to earlier - that they were “taxing themselves, as well as putting equity money in, to create a public facility” that would benefit downtown Reno as well as the rest of the Truckee Meadows.  He was strongly in support of the project.

 

Assemblyman Price asked if NEWCO was a registered Nevada corporation.  Mr. Frankovich responded NEWCO was not yet formed but would be a Nevada limited liability company whose members would be Mandalay Bay, Harrah’s, Eldorado and Silver Legacy.  Mr. Frankovich affirmed for Mr. Price that it was a public/private partnership.

 

Assemblywoman Freeman referred to page 9 of Exhibit C, which compared the Fremont Street Experience project in Las Vegas to the events center project in Reno.  She asked how successful that project had been.

 

Mr. Frankovich could not relate the success of the Las Vegas project.  The reason the comparison was included in Exhibit C was to demonstrate the similarity between the financing plans.  Mr. Greathouse pointed out he was a member of the Las Vegas Convention and Visitors Authority and Las Vegas Events.  He was generally familiar with the Fremont Street Experience and thought the downtown operators were pleased.  Through the Las Vegas Events and the Las Vegas Convention and Visitors Authority, special events were sponsored that were supportive of downtown Las Vegas.  Although not competitive with the Strip, the area did experience growth it had not experienced prior to the project.

 

Mr. Satre agreed with the comments of Mr. Frankovich and Mr. Greathouse.  He emphasized the specific goal of the events center project in Reno was:

 

To create a demand generator . . . that would fill rooms midweek with high quality visitors . . .that would improve air service into downtown Reno. . . .that would make our product much more competitive with . . . Northern California Indian Gaming operations.

 

The center could house special events such as concerts and boxing matches.  Unlike the Fremont Street Experience project that would be a 20‑minute experience, the events center would “hold people in and cause them to walk around downtown Reno and create traffic.”

 

Assemblyman Marvel asked if the new facility would detract from the present facility or complement it.

 

Mr. Frankovich replied the answer generally given by the consultants was that they were complementary facilities.  The downtown facility would be 115,000 square feet; the one in the south end of town would be over 400,000 square feet when completed.  There would be some overlap in the smaller events, but not in the major “market targets.”  They were expected to be “highly compatible.”

 

Chairman Goldwater commented that his experience in Las Vegas rendered “more seemed to be better.”

 

Mr. Satre added, the events center would provide attractions needed to compete with gaming in Northern California.

 

Assemblyman Price related he had been to a few Indian casinos and in some areas Nevada companies were contracting with the Indian nations to operate their casinos.  He asked the panel if they knew of any such companies in Reno.

 

Mr. Satre responded that his company contracted with Indian casino operations around the United States.  He thought there would be several Indian casinos operated by companies already in the business, as well as large and successful operations run independently.

 

Assemblyman Anderson asked if the events center and the Reno Convention Center, on the southern end of Reno, would be competing with each other, and if that precipitated the objections by other properties.

 

Mr. Satre responded there were plentiful analyses which suggested two markets, one for a downtown convention and events center and a market for the larger one being funded through S.B. 477.  The events center had been contemplated in S.B. 477 as well.  He added that the agreement between the downtown operators to participate in the funding of the convention center on South Virginia Street was a heavily negotiated agreement.  It was negotiated on the premise in S.B. 477 that the downtown operators would get a facility to help revitalize and reenergize downtown Reno.  Mr. Satre felt it was expected that there would be, naturally, some competition because they were trying to improve downtown Reno.

 

Assemblyman Anderson recalled one of the concerns in 1999 was whether or not S.B. 477 would be a generator for a downtown convention center.  He thought it was not intended to generate a convention center.

 

Mr. Sande replied that was not the understanding of the parties.  The summary of S.B. 477 was outlined in Exhibit C to address that concern.  Convention facilities were addressed throughout S.B. 477.  He recalled Tony Armstrong, then councilman for Sparks, was opposed to S.B. 477 as the tax increase would build a convention facility in Reno.  Mr. Armstrong remarked Sparks would like to build their own convention facility.  He preferred that funds generated in Sparks remained in Sparks for that purpose.  Mr. Sande pointed out there was also much testimony from the Nevada Resort Association (NRA) and others that clearly indicated a convention center was one of the possible outcomes of S.B. 477.  S.B. 477 also provided that the Stakeholders Committee would determine the type of tourist‑related facility to build in downtown Reno.  Mr. Sande divulged that 13 public meetings later, the committee determined the best facility would be a downtown special events center that could have meetings during the week and also special events on the weekend.

 

Assemblyman Anderson asked when Mr. Armstrong had presented the aforementioned information.  Mr. Sande recalled that Mr. Armstrong had testified on April 1, 1999, to the Senate Committee on Taxation.  He was not sure if he had testified similarly before the Assembly Committee on Taxation.  He reiterated the purpose of the inclusion of S.B. 477 in Exhibit C was to answer any questions as to the purpose of the Stakeholders Committee.

 

Mr. Greathouse added that in the year prior to the 1999 Legislative Session, the general manager of Circus Circus, Reno, had made presentations to various groups in Reno proposing the entire convention center be located downtown.  It was clear in discussions leading up to Reno and Sparks coming together in support of S.B. 477, that if they paid taxes to support the Reno Convention Center on South Virginia Street, there would be a facility downtown.

 

Assemblywoman Freeman asked who performed the annual audits.  Mr. Frankovich replied that the money would be collected by the Reno Sparks Convention and Visitors Authority (RSCVA) and paid to the bondholders.  There would be annual financial reviews of the revenues and expenses of the facility, and in accordance with the bond covenants, to pay for the bondholders.  Mr. Frankovich added that the Reno Redevelopment Agency also required an audit.  There would be at least one audit per year.

 

Assemblywoman Freeman asked Mr. Satre to explain how the competition from the Indian gaming market was different.  Mr. Satre expounded that people exposed to gaming in other states came to Nevada for a single, long visit, between five and six days, once or twice a year.  Over 50 percent of Nevada’s customers came from California; Reno, Lake Tahoe, and southern Nevada depended upon them to compete effectively.  However, California was a “high frequency, convenience-oriented market.”  The “high frequency, proximate visitor,” when faced with the decision of traveling over Interstate 80 in a snowstorm to visit Nevada, would choose to stay in California and visit a large casino there.  This was a new type of competition.

 

Assemblywoman Freeman commented that many of the architectural firms based in Nevada were working with the Indian gamers in California.  Some also designed casinos for Colorado.  She suggested that provided an economical base for Nevadans as well.

 

Chairman Goldwater asked if there was further testimony in support of S.B. 221.

 

William Osgood, Executive Director, Downtown Improvement Association, Reno, informed the committee they were a nonprofit organization made up of 75 business and property owners in downtown Reno.  He noted that none of the contributing properties in NEWCO were members of his association. 

 

The Downtown Improvement Association assumed the role of being an honest broker.  Over 100 business and property owners in downtown Reno attended the meeting held with NEWCO.  When NEWCO presented their proposal for the special improvement district and room tax, there were “hard questions and concerns.”  But underlying their concerns was the recognition that the facility was needed; it could be the “demand generator” that would benefit downtown Reno’s economy.

 

NEWCO listened to the people’s concerns and recognized the special improvement district should be determined based on the benefit to be realized by the individual entities.  They allowed the small property owners and business owners to be part of the process.  Mr. Osgood remarked rather than being expected to “just philosophically approve” the idea, they were provided a financing plan to make it work.

 

Mr. Osgood disclosed that the RSCVA had other public/private partnerships representing downtown Reno; the National Bowling Stadium was a product of such a partnership.  It brought travelers into Reno when they were needed the most.  The RSCVA had been involved in special events, both in the funding, the marketing, and the supporting of them over time.

 

Mr. Osgood expressed there had been numerous changes in the RSCVA and downtown property owners were concerned about its stability.  It appeared, however, that “the ship was righting itself.”  He related that S.B. 221 would enable the downtown properties to “step up to the plate” to ensure their survival.

 

Chairman Goldwater recognized Ms. Gibbons and invited her to sit with the committee.  He asked for further testimony in support of S.B. 221.

 

Daryl Drake, real estate broker, had observed redevelopment issues in the Reno area for many years.  He helped sponsor conferences that addressed the impact of Indian gaming on the economy of northern Nevada.  Mr. Drake asserted the impact was no longer a threat; rather it was a reality.

 

Mr. Drake emphasized it was now imperative that northern Nevada differentiate itself from the “destinations of convenience by expanding and improving” its attractions and image.  He perceived the downtown conference center as essential to the success of Reno’s redevelopment efforts.

 

Mr. Drake thanked the four entities of NEWCO for their private investments and efforts toward the development of the center.  He acknowledged public/private partnerships for redevelopment projects were “tenuous at best.”  In light of the difficulties inherent to the funding and operating issues, he was encouraged by the efforts of the parties involved to reach a compromise.  In closing, Mr. Drake urged the committee to approve, in this session, legislation necessary for the project to go forward as soon as possible.

 

Barney Ng, owner, Siena Hotel Spa Casino, viewed the events center as necessary to Reno and offered his full support.  His property being new, he expected he would suffer the greatest shortcoming from taxes. And at his distance from downtown Reno, he would probably receive the least benefit.  Despite these drawbacks, he fully supported the events center as a beneficial addition to downtown Reno.

 

Assemblywoman Freeman asked if Mr. Ng was included in the redevelopment district.  He responded that he was.

 

Lynne Keller, General Manager, Gold Dust West Casino and Motorlodge, witnessed the “rise and fall” of downtown Reno from 25 hotel/casino properties to the current 11 properties.  The outlying areas of south Reno and Sparks grew during this period because, Ms. Keller believed, they had better access, less crime and homelessness, and were closer to the convention center.  Although downtown Reno improved accessibility with the addition of parking garages, and crime statistics improved as well with the addition of a downtown police district, Ms. Keller maintained it still lacked a facility that would attract visitors.  The events center would be the beginning of such an attraction.

 

Even though the Gold Dust West was not included initially in the project, and served mostly local residents, they sought inclusion in the project that might help the tourist industry of downtown Reno.  Ms. Keller anticipated that anything done to improve the downtown area would affect other properties in the area, including their own.  She urged the committee to support S.B. 221.

 

There was no further testimony in support of S.B. 221.  Chairman Goldwater invited the opponents to testify.

 

Scott Craigie, Legislative Advocate, Satellite Properties, introduced the members of Satellite Properties:  John Ascuaga’s Nugget, represented by John Ascuaga and Michonne Ascuaga; The Peppermill Hotel Casino, represented by Nat Carasali; and the Atlantis Hotel Casino, represented by John Farahi.

 

Mr. Craigie related to the committee that the members of Satellite Properties had supported downtown projects, including the funds for lowering the railroad tracks, the Bowling Stadium, and the “seed money” for the events center as contained in S.B. 477.  He expressed the vital issue was that of placing a facility, funded by public tax dollars, in competition with private investors.  That would be very different from the norm in Nevada.  The events center would be similar in size to the convention facility at John Ascuaga’s Nugget.  Mr. Craigie introduced Michonne Ascuaga, who would relate to the committee the costs involved in operating, maintaining, and marketing a convention center of that size.

 

Michonne Ascuaga, CEO, John Ascuaga’s Nugget, was a Convention Sales Manager for several years.  She had traveled throughout the country soliciting associations to hold their meetings in the Nugget.

 

The Nugget had about 110,000 square feet of meeting space.  This, she stated, was roughly what was being proposed for the events center in downtown Reno.

 

Ms. Ascuaga reported the dimensions of the ramp and loading dock, the banquet kitchen, and the storage area.  She pointed out that the current convention center “did not just happen. It came as the result of several expansions.  It took years of building our business and reinvesting our money back into our facilities to get where we are today.”

 

Ms. Ascuaga disclosed the Nugget spent $10 million on a parking garage partly for accommodating convention guests and concertgoers.  They had ten employees who did nothing but solicit associations and corporations to come to Reno with their meeting business. In one year’s time, their travel and marketing expenses averaged about $250,000.

 

The Nugget had over 230 employees who did nothing but service conventions.  Their salaries amounted to about $3.2 million per year.  That did not include security, janitorial, and some of the other departments that played a role in servicing conventions.

 

Ms. Ascuaga communicated they continually invested “very heavily” in their facility.  In the past 20 years they invested over $40 million in their facilities.  Those costs included keeping pace with technology, facilities improvements, debt costs, $250,000 in travel and marketing expenses annually, and $3.2 million in labor expenses annually.  She explained they did not have “tax streams” to help with their costs.  What helped them cover their expenses was the ability to charge the meeting planner and meeting attendees the higher room rates.  She pondered what would happen if they went against a competitor that did not have the same rate structure.

 

Ms. Ascuaga clarified their stance.  They did not object at all to the events center; they understood it was necessary for Reno to have a project to revitalize the downtown “core.”  They did not approve of the financing.  She revealed that when the RSCVA was established in 1959 as the official regional convention and visitor’s authority, it was funded by room tax, a tax paid by the tourists, for the purpose of marketing the region.

 

They were very concerned about a precedent being set “by allowing a private enterprise to go around the RSCVA and carve out a portion of the room tax.”  She wondered what would happen if Sparks or Incline Village came forward asking to fund their special projects through room tax dollars.  Ms. Ascuaga was concerned that such financing would “undermine the regional marketing program for the area.”

 

Mr. Craigie relayed Mr. Ascuaga’s concerns that S.B. 221 presented an inequitable situation.  He built his facility, invested heavily, incurred the costs, and was able to make a profit.  Mr. Ascuaga had pointed out that the RSCVA brought business ideas and leads to all of the properties.  The properties in turn competed against each other and bid.  The Hilton by the airport had a substantial facility they put into this marketplace.

 

Mr. Craigie contended it was not equitable if an entity had “all of its marketing, all of its debt service, all of its operations, and all of its maintenance fully covered by public tax dollars” while its competitors had to pay all of those costs out of their revenues.  Mr. Craigie related that Mr. Ascuaga would never have predicted that Nevada would put a fully tax-funded competitor up against his property.

 

Chairman Goldwater related the same argument came full circle in southern Nevada and that they were now seeing private companies building convention facilities to compete directly with the tax‑funded entities.  He asked Mr. Craigie if that was not coming “full circle” and an example of “more is better.”

 

Mr. Craigie replied that more was better and reiterated that his clients did support the seed money.  He differentiated the two situations from each other.  He described the situation in Las Vegas as an entity seeking public tax dollars for their facility.  That is what was rejected.  The concern over S.B. 221 was its ability to enable the city to create a competitor funded 100 percent by public tax dollars.

 

Presenting his opposition to S.B. 221, Mr. Craigie referred to his handout entitled “Downtown Convention and Events Center,” Exhibit D:

 

• Tab 1 provided a comparison in room tax rates for all the direct market competitors.  If the room tax rates rose 1.5 percent, Reno would be the second highest among the competitors, only .05 percent below Denver.  Mr. Craigie was concerned with the effect it would have on the entire region.  It would be difficult to have a region‑wide increase again, to address such needs as marketing, the airport problem, or cost overruns, because they would have “hit the ceiling.”  It would eliminate their flexibility.

 

• Referring to an insert behind Tab 1, entitled “Reno-Sparks Convention and Visitors Authority, Revenues and Expenditures – By Function,” Mr. Craigie emphasized that “facilities alone do not deliver tourists.”  He emphasized the necessary expenses of marketing.

 

• Tab 2, page 2, illustrated that the RSCVA operated seven facilities, and their expenditures continuously increased.  All but one lost money, and this, in turn, drained funds from marketing.

 

• Tab 2, page 3, was an article entitled “Debt on facilities is third of RSCVA’s $37.8 million budget plan,” from the April 15, 2000, edition of the Reno Gazette-Journal.  It reported that $3.4 million, or 8.9 percent of the budget, was dedicated to promotion and advertising in the region.  The RSCVA’s biggest expense was payment of a debt on facilities, $13.8 million, or 36 percent of the budget.  Personnel cost was $10.7 million or 28.2 percent of the budget.  Mr. Craigie reinforced his concern that money was not spent on marketing.  Page 4 listed the marketing expenses, which Mr. Craigie pointed out were far less than his clients spent on marketing.

 

Chairman Goldwater interrupted to advise Mr. Craigie that the state spent a great deal of money marketing outside of the RSCVA on behalf of Reno and northern Nevada.  Mr. Craigie recognized that and expressed his appreciation but pointed out that if they were going to completely reshape their marketplace, which they would have to do with the gaming in California, marketing had to be a higher priority for the regional group.

 

• Page 5 was an article entitled “RSCVA will submit a $38 million budget,” from the May 17, 2000, issue of the Reno Gazette-Journal.  The article reported the RSCVA expenditures.  A large portion of the money was going toward debts.  The article stated the RSCVA’s dollars available for marketing had been depleted by the debt owed on the National Bowling Stadium.  “By their very nature,” Mr. Craigie pointed out, “all these facilities lose money.”  He contended when a community spent money on that many facilities, it “sapped” the community’s energy from what it needed to do.

 

• Page 8 provided other indications that the costs were “skyrocketing.”

 

• Page 10, an article entitled “Marketing budget may not be enough, RSCVA officials say,” from the May 17, 2000, edition of the Reno Gazette-Journal, indicated that the RSCVA had to be very creative because they had so little money for marketing.

 

Chairman Goldwater interrupted Mr. Craigie and asked if his clients were members of the RSCVA and if they had voted on the projects.  Mr. Craigie responded they were members and had voted on the projects.  Mr. Craigie added they had large responsibilities as members of the money committees and explained that when a commitment was made, “they have to live up to it.”  He voiced their reservations about more financial commitments that would hurt them.

 

• Tab 3, pages 1 and 2, presented the extent to which airline traffic into Reno had decreased between December 1998 and December 2000. Mr. Craigie perceived the reduction in air service as “a direct threat to the viability of this marketplace.”  He advised that revenue should be reserved in case it was needed to save the airport.

 

• Page 3 revealed Reno/Tahoe International Airport statistics, which portrayed the steady decreases in airline travel.  Mr. Craigie revealed that the airport in Las Vegas had constant investment for 30 years, but the RSCVA would not have the reserves to make such improvements to their airport.

 

• Page 4 was an article entitled “Board questions convention center bookings,” from the October 18, 2000, edition of the Reno Gazette-Journal.  Not enough business was booked for the Reno-Sparks Convention Center.  Some groups would not book until the construction began or was completed and “cited concerns about Reno air service and fares.”  Mr. Craigie observed that particular statement had occurred in almost every business story.

 

• Page 5 was a booking cancellation.  Michonne Ascuaga explained that it represented a group considering Reno for a December 2001 convention.  They chose San Diego instead because of the difficulty getting into Reno as a result of its limited air service.  She revealed it was one of many such cancellations, and this particular reservation was for 1,000 rooms per night for a four-night stay.

 

Chairman Goldwater interjected that the committee might “move” a bill that provided for the use of jet fuel tax dollars to market Reno’s airport.

 

• Page 6 was an article entitled “Bowlers prepare to wrap up national tourney,” from the July 6, 2000, edition of the Reno Gazette-Journal.  In that article, Ruth Williams, Women’s International Bowling Congress (WIBC) tournament manager, commented “It’s no secret that airlines are always a problem into Reno” and added it “really hurts.”  Mr. Craigie added that if something was not done to improve the airport situation, the National Bowling Center could be turned into a money-loser on a much greater scale.

 

• Page 8 was an article entitled “Tourism officials unveil plan to lure women bowlers,” from the June 29, 1999, edition of the Reno Gazette-Journal.  In that article, the WIBC identified Detroit as one of the top five markets from which the RSCVA could acquire more participants.  Mr. Craigie divulged that the RSCVA lost the Detroit market.

 

• Page 11 of Tab 3 was an article entitled “Reno airport mulls financial inducements to lure airlines” from the April 26, 2001, edition of the Reno Gazette‑Journal.

 

• Under Tab 4 an insert entitled “Memo of Understanding,” dated February 22, 1999, referred to the 1999 room tax increase.  It related the discussion among the RSCVA, the Railroad Improvement District, and the Reno Redevelopment Agency.  Mr. Craigie pointed out the reference to “public/private partnership” in the last paragraph and emphasized that from the beginning, the project was a public/private partnership.  However, S.B. 221, as written, was 100 percent public money, with subordinated notes to be paid off if the revenues allowed.

 

• Tab 4, page 1, was an article entitled “Tourism agency hustles for room-tax hike,” from the Reno Gazette-Journal.  It reported that the room tax increase needed unanimous approval from the Nevada Resort Association (NRA).  Some downtown NRA members, as well as Mr. Craigie’s clients, were uncomfortable with the $105 million proposal citing it was too much money.  Mayor Griffin commented the expense was “too high. . . it would suck up all the money RSCVA has and could diminish its marketing budget even further.”  He suggested phasing in the project over a period of time.

 

• The insert behind Tab 4 was an article entitled “Room tax hike clears hurdle,” from the February 23, 1999, issue of the Reno Gazette-Journal.  Mayor Jeff Griffin was quoted as saying:

 

Any project downtown – likely to be a multi‑use facility for meetings, special events and retail stores – will be a public-private effort, funded primarily by private dollars.  The public and private parties contributing money to the project are expected to share revenues from the project based on their level of contribution to it.

 

Mr. Craigie reiterated that from the beginning, this was a public/private partnership, with $30 million in seed money.  He conveyed that his clients’ memory was, universally, “$30 million was the public contribution, period.”

 

• Tab 4, page 2, was an editorial entitled “Agreement bodes well for the future.”  The author’s understanding was that beyond the first 2 percent of the countywide tax, “the other 1 percent from the casinos outside downtown . . . would be used as seed money for a public/private partnership to create the much-needed multi-use facility downtown.”

 

• Tab 4, page 3, an article entitled “Room tax bill faces key vote,” from the Reno Gazette-Journal, reported, in Mr. Craigie’s words, that “even with the deal made, Incline Village and Sparks held out.”  There was nothing going to them.  He divulged that everyone held together and said, “Keep it as the entire community…don’t start to fractionalize our system.”  He claimed the system was being “fractionalized.”

 

Mr. Craigie directed the committee’s attention to S.B. 221, Section 1, subsection 1, which read:

 

The City Council of the City of Reno may by ordinance create a local improvement district and levy special assessments within that district to provide money.

 

Mr. Craigie explained that was the special assessment money; it was not being created by the RSCVA; it was not regional; it was city-wide only.

 

Mr. Craigie directed the committee’s attention to Section 2, subsection 2(b), which referred to room tax revenues.  It read:

 

An additional 1.5 percent of the gross receipts from the rental of transient lodging is hereby authorized to be imposed by the City Council of the City of Reno on or after July 1, 2001, in an area determined by the City Council . . .

 

Mr. Craigie maintained that as a redevelopment agency they had the right to do those programs; he had no objection to that.

 

• Section 4, subsection 3, defined the program:  “The Reno Redevelopment Agency may enter into a contract with an entity . . . pursuant to which the entity is authorized to acquire, establish, construct, . . .” or in Mr. Craigie’s words, “build the whole thing.”  He contended that S.B. 221 “institutionalized” the position taken by Sparks and Incline Village two years ago:

 

It bypassed regional planning, put money into a specific city to do marketing, pay debt on a specific facility in that city, and to pay maintenance, operations, etc.

 

Mr. Craigie predicted that regional planning would never be the same in Reno if S.B. 221 passed.  He maintained the community needed the ability to react as a region.

 

• Tab 4, page 4, was an editorial entitled “Room tax hike must be OK’d,” that stated a portion of the tax increase would be seed money for a downtown project.

 

• Tab 4, page 5, was an article entitled “Cordish unveils sweeping plans for downtown Reno,” from the April 27, 2000, edition of the Reno Gazette-Journal.  The Assistant City Manager, Donna Kristaponis, was quoted as expecting most of the tab for the development of a multi-use center in downtown Reno to be picked up by private investors.

 

• Tab 4, page 8, was an article entitled “Gaming Execs named to panel on room-tax use” from the June 16, 1999, edition of the Reno Gazette-Journal. In reference to the article, Mr. Craigie commented the Stakeholders were appointed and even as they were appointed in June of 1999, the article stated the annual tax contribution “could be used to secure $20 million in bonding for a project which will be a public-private venture with significant private investment.”

 

• Tab 4, page 11, was an article entitled “Area clubs step up debate over downtown-center plan” from the June 22, 2000, edition of the Reno Gazette-Journal.  Mr. Craigie quoted the article “Currently, the $60 million center’s funding is envisioned to be about half private and half public.”  This was not what S.B. 221 presented.  In the same article Nat Carasali was quoted as saying “Hopefully we can add additional amenities to the city other than duplication of facilities that we already have throughout town.”  Mr. Craigie interpreted this as another indication that they were “on the record early” on the issue.

 

In the same article, Michonne Ascuaga reportedly revealed that “her room taxes will help to fund a center almost identical in size” to the Nugget’s facility.  According to the article, the Nugget and others had hoped the downtown facility would tend more toward special events, as it had not “been a major player in conventions.”  Ms. Ascuaga was quoted as saying “If you want to be in the meeting business. . . build (a meeting facility) yourselves.  We built our own.  Build yours.”  Again Mr. Craigie pointed out that his clients’ position had been on the record.

 

• Tab 4, page 18, was an article entitled “Officials want more answers before giving green light to events center,” from the July 28, 2000, edition of the Reno Gazette-Journal.  The article reported the downtown facility would get as much as $30 million of its funding from the room tax increase.  The remainder would come from downtown hotel-casinos.  Mr. Craigie stated they understood $30 million was the maximum to come from the room tax increase.

 

• Tab 5, page 2, was an excerpt from a document, which described the Fremont Street Experience.  Mr. Craigie cited the Fremont Street Experience in Las Vegas as a good example.  The document revealed the Fremont Street Experience was central to many of the downtown facilities.  He noted it was, in this way, very similar to the project proposed for downtown Reno.  The article read, “The Fremont Experience is one component of a larger effort intended to revitalize downtown Las Vegas.”  In this way it was also the same, Mr. Craigie offered.  “Here’s where it’s different.”  The article went on to describe the features of the “product.”  Mr. Craigie emphasized the product had no private sector competitor.  “The money was not used to put somebody in direct competition with the Hilton down by the airport in Reno.”

 

• Referring to page 3 of the same document, Mr. Craigie said that even though there was no direct competition, “not quite a third of the money still comes from the private sector.”  He referred to this as “equity contribution from those companies.”  And if that equity contribution was not used up, that is, the funds remaining unspent were not needed for capital, they would go into the working capital to pay operation, maintenance, and repair.

 

Chairman Goldwater asked Mr. Craigie if the pirate show at Treasure Island was equally as entertaining as the Fremont Street Experience.  Mr. Craigie responded that it was.  Mr. Goldwater used this as a comparison noting both companies were in favor of doing more.  Mr. Craigie replied that was a good example on that particular level.  However, he contended, spectators did not spend money as part of those activities.  It was not like a convention or an event specifically designed to raise money.

 

Michonne Ascuaga commented that Steve Wynne had a property at the Fremont Experience also from which he benefited.  Mr. Goldwater agreed and said he was a primary proponent of it.

 

• Tab 5, pages 4 and 5, was an article entitled “Report could put monorail on track,” from the May 27, 2000, edition of the Las Vegas Review-Journal.  Mr. Craigie cited the monorail project as a good example of an investment to help a community of resorts.  The article reported, “The construction of the monorail had no precedent.  It would become the only transit system in the United States to be built and operated without government subsidies.”  Mr. Craigie revealed ticket revenues from tourists would be bonded and paid as the cost.  The article stated, “The monorail is being built and paid for by the tourists.”

 

Mr. Craigie submitted one more handout, Exhibit E.  Page 1, entitled “Downtown Convention Center – Public Tax Dollars Collected and Spent,” summarized the money involved in S.B. 221.

 

• S.B. 477 of the Seventieth Legislative Session provided a room tax increase of 1 percent with a first year yield capped at $1,500,000, and a 30-year yield of over $75 million.

 

• S.B. 221 provided for a room tax increase of 1.5 percent with a first year yield of approximately $1.7 million, and a 30-year yield of over $85 million.

 

• S.B. 221 provided for a special assessment district that would produce a first year yield of $900,000, and a 30-year yield of $27 million.

 

Mr. Craigie remarked those revenues would be collected entirely downtown.  He proposed that it not be collected entirely downtown.

 

Mr. Craigie explained that page 2 of Exhibit E was a mediation proposal offered by former Senator Richard Bryan.  Mr. Craigie offered that in principal, the proposal would interest his parties.  He had not yet spoken with former U.S. Senator Bryan to see if there was any commitment from anyone to not share the proposal.  Mr. Craigie would not represent the proposal as one that his properties or any others had “signed off on” yet, but felt since there was a hearing, it was an opportune moment to present the proposal, which he referred to as “a work in progress.”  The RSCVA board had discussed the proposal that day in “very general terms.”  The proposal suggested that:

 

• The downtown events/convention center total cost would be capped at $65 million. This would include land acquisition, furniture, and equipment upgrades.

 

• NEWCO would contribute $20 million in equity to the completion of the downtown events center project.

 

• S.B. 477 would generate $1.5 million from the increased room tax, which would yield approximately $30 million in bonds, put to construction costs.

 

• S.B. 221 would provide a $1,350,000 special assessment district revenue stream.  Former U. S. Senator Bryan’s proposal accepted NEWCO’s reduction to $900,000 and applied it to the operating loss for the downtown events center.

 

• S.B. 221’s downtown room tax revenue would be replaced by a 0.5 percent countywide room tax collected by the RSCVA.  This revenue would be used to finance the balance of funds needed to complete construction of the events center.

 

• Any tax revenue over the $65 million project cost would go to the RSCVA, an immediate infusion of regional marketing and sales funds:

 

- 0.5 percent yields approximately $1.4 million.

 

- Approximately $750,000 of that revenue would be needed to bond the $15 million in construction project costs.

 

- Approximately $650,000 would go to the RSCVA’s marketing and sales efforts.

 

• Future room tax increases would be required to be approved by the RSCVA.

 

Mr. Craigie concluded his testimony hopeful of an amendment that would receive mutual agreement.  He noted a room tax increase required the approval of the legislature. Mr. Craigie believed the law should stipulate that room tax increases required the approval of the RSCVA prior to being presented to the legislature; the principal commitment should be made there also.

 

Mr. Craigie contended if S.B. 221 passed as it was, the legislature would see Sparks and Incline Village at the next session.  He claimed money would have been taken to “undercut, to market against their own operations and facilities.”  Mr. Craigie felt the area would be “handicapped” if they lost the ability to plan and market as a region.

 

If a unanimous agreement with numbers similar to what was proposed by former U.S. Senator Bryan was not attained, Mr. Craigie hoped he could return with a specific amendment “sculpted” out of the same set of principles.  He wanted the committee to realize there were alternatives that were both reasonable and beneficial.

 

Chairman Goldwater complimented Mr. Craigie on his presentation.

 

Assemblyman Anderson agreed.  He asked Mr. Craigie if the $750,000 to bond $15 million in construction project costs, presented on the Mediation Proposal, was over a 30-year life expectancy of the bond.  Mr. Craigie responded that would be an annual amount.  They hoped it would increase by 3 percent per year over the 30-year life of the bonds.  He affirmed for Mr. Anderson it was a “30-year life.”

 

Assemblyman Anderson asked if this was predicated on the belief that the Redevelopment Agency would have an extended life beyond its normal legislative life.  Mr. Craigie responded the plan, if accepted, would be done regionally, through the RSCVA and not through the city.

 

Mr. Craigie reiterated the plan had not yet been fully discussed and agreed upon by his clients, but he had been told to “put the plan on the table.” He also explained it would be contingent upon none of the room taxes being collected going to the operating shortfall.  His clients were willing to allow room taxes collected from their properties to go toward debt payments and toward the downtown facility just as bonds were paid for other facilities such as the golf courses, the Bowling Stadium, and the Convention Center.  What they opposed was their properties providing operating revenues for competing facilities.  Mr. Craigie emphasized:

 

It was hard enough for them to swallow that there will be a state‑funded entity that will compete directly against them and create this bidding inequity. . . For them to also have some of their money go directly to that marketing effort is for them beyond reason.

 

Mr. Craigie explained that the Mediation Proposal recommended the $900,000 be applied to the operating loss after whatever revenues were generated inside the facility.

 

In light of the controversy, Assemblywoman Freeman requested that Chairman Goldwater instruct the parties to come together and bring a proposal back to the committee.  She recognized the need to deal with some important issues such as the airport and the operating deficit.  Mrs. Freeman requested that Jeff Beckelman, the new director of the RSCVA, appear before the committee and offer his input.

 

Mr. Craigie commented the “civil war” was not healthy for the community or the industry.  He was strongly in favor of hearing from Mr. Beckelman and felt “he had every chance of doing what needed to be done.”

 

Assemblywoman Freeman emphasized the importance of another hearing in light of the controversy and the impact of any decision.

 

Assemblywoman Gibbons observed that the marketing expenditures did not seem to match the increased revenues.

 

Mr. Craigie explained that with any budget short of revenue, there existed certain fixed costs or commitments made, that were “hard costs that you have to spend.”  For example, cost overruns came in from the Bowling Stadium.  A commitment had been made to the project, so the RSCVA had no choice but to complete the project.  Unfortunately, in many cases, losses at some of the facilities were unexpectedly high.  New construction projects, or unexpected requirements for capital improvements, have sometimes left marketing, and even personnel, as “the residual piece that just has to react to the other necessities.”  Mr. Craigie established that such expenses “cut into” the revenue.

 

Tom Kearns, private citizen, introduced himself as one who lived in Washoe Valley “where they do not have any voice in the county.”  He observed that a significant amount of money had been wasted on this project.  He said it was a good project “only if they allocated the funds out of their own bank accounts.” He contended the downtown businesses could afford to do so.  Mr. Kearns felt the city of Reno should not be given authorization for “anything.”  He recommended that if the state was to give authorization for any kind of revenues, it should be given to state law enforcement agencies, city firemen, and teachers and remarked that “we need to get our priorities straight.”  He claimed there were many citizens who agreed with him but who were not free to attend the hearing.

 

Chairman Goldwater asked John Sande if he had additional testimony to present.

 

Mr. Sande restated that S.B. 221 did provide for a public/private partnership, contrary to opponents’ claims that it was public money.  As was stated earlier, the four downtown properties were paying 70 to 80 percent of the room tax and approximately 80 percent of the monies from the special improvement district.  That money would come directly out of their pockets.  Others in downtown Reno, who would also be paying, supported S.B. 221.

 

Mr. Sande accused the opponents of trying to “kill this facility.”  He related this was the third time they had come up with a proposal; the proposal they offered in the Senate would increase the room tax by .4 percent.  However, that would require general obligations from the city, and the city did not want to issue general obligation bonds.  Mr. Sande wanted the project to be successful with sufficient revenues.  He concluded by offering an expert who could address for the committee the problems with the opponents’ proposal.

 

As there was no further testimony in opposition to S.B. 221, Chairman Goldwater closed the hearing.

 

Chairman Goldwater directed Mr. Beckelman, director of the RSCVA, to meet with Assemblywoman Freeman to respond to her questions.  Secondly, a subcommittee consisting of himself, Mr. Marvel, and Mrs. Freeman, would meet with the mediator and the interested parties in search of “middle ground.”  If it appeared they could move forward with something that seemed acceptable to all parties, they would.  If not, the committee would make its determination.

 

Robert Barengo, Legislative Advocate, RSCVA, informed Mr. Goldwater that Mr. Beckelman, director of the RSCVA, was at the hearing but had to leave early.  He would return to meet with Mrs. Freeman.  Mr. Barengo stated they were not taking a position in the issue, and he hoped the parties could arrive at an agreement.

 

Submitted, for the record only, was a letter received from William C. Thornton, Director, Club Cal Neva-Virginia Hotel‑Casino, Exhibit F, which endorsed S.B. 221 and commended the efforts of The Eldorado, Silver Legacy, Circus Circus, and Harrah’s.

 

Also submitted, for the record only, was a memo from Pete Cladianos, Jr., Vice Chairman of the Board, Sands Regency Hotel‑Casino, Exhibit G, which offered a compromise on S.B. 221.

 

Chairman Goldwater opened the hearing on S.B. 227.

 

Senate Bill 227:  Revises and repeals provisions that exempt certain property from taxation. (BDR 32-892)

 

Carole Vilardo, Nevada Taxpayers Association, explained S.B. 227 originally started out as a “repeal-er” for two sections of tax abatements.  One was the recycling abatement and the other was the solar energy abatement.  She substantiated that both issues were being addressed because they had “dropped off the list” when we were cleaning up all the economic development abatements last session.

 

The Commission on Economic Development had not realized there was a provision on recycling that they specifically wanted to remain in the bill.  Ms. Vilardo related that the provision was found in Section 1 and Section 2.  It required that 50 percent of the items to be recycled were generated from the site in which they wanted the recycling.

 

The other “repeal‑er” involved the solar energy exemption, which had never been used.  Ms. Vilardo recalled some of the committee members had been concerned about the addition of “biomass, wind, etcetera.” to solar energy.  She divulged that they had opposed it on that basis, and also based upon the fact that solar energy just “hung out there.”  The assessor did not know if the abatement was valid or not.  Ms. Vilardo communicated that a similar bill involving Assemblyman Mortenson set up very specific conditions to take advantage of the abatement for both the sales tax and property tax for renewable energy sources that met the conditions of the Commission on Economic Development, certified by the Department of Taxation.

 

Ms. Vilardo pointed out an error in S.B. 227, Section 9, subsection 2, which stipulated, “Sections 2 and 5 of this act expire by limitation on June 30, 2006.”  Subsection 3 read, “Section 3 of this act becomes effective on July 1, 2006.”  An amendment approved by the committee had changed the sunset to June 30, 2005, with an effective date of July 1, 2005.

 

Assemblyman Price asked Ms. Vilardo to clarify the dates in subsection 9.  She explained that the provisions for renewable energy, which were very specific, would sunset on June 30, 2005.  An individual could still apply to the commission, but they would not get “arbitrarily” the full exemption.  That section was very specific.

 

Doug Bierman, Legislative Advocate, NTS Development Corporation, Lincoln County, City of Caliente, Eureka County and Lander County, urged the committee’s support of S.B. 227.  He emphasized the impact S.B. 227 could have on rural economic development and diversification.

 

Mr. Bierman referred to his document, Exhibit H.  His map indicated some of the projects under consideration in rural Nevada involving the Bureau of Land Management’s (BLM) clearing of pinon‑juniper.  Mr. Bierman communicated that much of Nevada’s rural energy potential was located in rural Nevada.  S.B. 227 would greatly assist the efforts of Nevada’s rural counties “to diversify and expand their economies.”

 

Mr. Bierman proposed that S.B. 227 would help stabilize energy prices.  He explained that rising electrical rates threatened many agricultural producers in rural Nevada, especially those who pumped groundwater for irrigation.  Alfalfa hay producers in Lincoln, Eureka, and Lander Counties could be affected significantly.  He predicted “locally available competitive energy sources could both lend stability to energy costs and provide employment and income to rural residents.”

 

Mr. Bierman added that extensive geothermal resources existed in Eureka and Lander Counties, particularly in the Beowawe area.  Lincoln County and the city of Caliente were cooperating with the Nevada Test Site Development Corporation, to develop industrial parks in Caliente and Alamo.  In Lincoln and White Pine Counties, the BLM was developing plans to thin an estimated four million acres of pinon-juniper woodlands, where “thousands of tons of biomass” would result in the landscape treatments being proposed by the BLM.  Each ton of pinon-juniper biomass contained between 12,000 and 15,000 Btu’s (British thermal units) of energy, which was comparable to coal.

 

Mr. Bierman concluded his testimony and thanked Chairman Goldwater.

 

Chairman Goldwater closed the hearing on S.B. 227 as there was no further testimony.  He opened the hearing on S.B. 380.

 

Senate Bill 380:  Revises provisions relating to contractors. (BDR 32-944)

 

Warren Hardy, Legislative Advocate, Associated Builders and Contractors, testified in favor of S.B. 380.  He viewed S.B. 380 as a regulatory reform act for contractors.  Mr. Hardy submitted his remarks to the committee (Exhibit I).

 

He prefaced his remarks by informing the committee that general contractors were required, by law, to guarantee the Union Trust Fund and Benefit payments, Industrial Insurance Compensation payments, Unemployment Compensation payments, and the Business Activity Tax payments of the subcontractors they employed.  Mr. Hardy claimed that S.B. 380 removed the contractor’s obligation to guarantee the Unemployment Compensation payments and the Business Activity Tax payments of the subcontractors they employed.  It did not affect the Union Trust Fund payments or the Industrial Insurance Compensation payments; those directly affected the employee, and it was not the intent of S.B. 380 to effect such changes.

 

Mr. Hardy surmised that the issue raised by S.B. 380 was whether or not independent businesses should be responsible for the business obligations of other independent business entities.  He related there were concerns in the Senate that S.B. 380 could affect wages, benefits, and Union Trust Fund payments.  Mr. Hardy divulged that changes in language were made to address those concerns.

 

S.B. 380 still mandated the general contractor to require proof that the subcontractor had a business license. However, the general contractor no longer was required to guarantee that the subcontractor had paid his business tax.

 

During the hearings on S.B. 380 in the Senate, the Department of Taxation informed the committee they could not release to the general contractors, without the subcontractors’ permission, information as to whether or not the business tax was paid.  Therefore, Mr. Hardy concluded, it would be futile for contractors to require proof that subcontractors had paid their business tax.

 

Mr. Hardy also conveyed his opinion that the requirement to obtain proof of Unemployment Compensation payments was a regulatory issue that “did not belong in the hands of an independent entity.”

 

Mike Lynch, Legislative Advocate, Builders Association of Northern Nevada, conveyed his agreement with the testimony presented by Warren Hardy.

 

Irene Porter, Executive Director, Southern Nevada Homebuilders Association, testified in support of S.B. 380.  She established that subcontractors were much “different today.”  They were larger businesses and were “independent businessmen responsible for their own lives.”

 

Ms. Porter substantiated that “prompt pay” bills were now performed with local government for large contracting jobs; there was proposed legislation this session by which prompt pay would be provided in the private sector as well.  This would ensure that subcontractors were paid promptly.  Ms. Porter determined that, as a result, subcontractors should be responsible for their own payments; the general contractor “should not have these liabilities.”  Rather, it was the responsibility of the individual agencies to regulate and enforce subcontractors’ payments.

 

Chairman Goldwater revealed that when he sponsored his mortgage regulation bill, he tried to eliminate government involvement as much as possible by providing for “natural checks and balances” in the private sector.  For this reason, he liked the idea of requiring the contractor to obtain proof of the subcontractor’s payments.

 

Ms. Porter countered that government involvement could be removed by their not requiring contractors “to do their collection for them.”

 

Danny Thompson, Legislative Advocate, Nevada State AFL-CIO, testified in opposition to S.B. 380.  He submitted to the committee his letter to Assemblyman Goldwater dated May 7, 2001 (Exhibit J).  Mr. Thompson emphasized that although there were many good contractors and subcontractors, there were many who were not.  The existing law was intended to ensure that the money owed the state was collected.  The contractor, being the entity that paid the subcontractor, could best ensure that the subcontractor paid his/her bills.

 

Mr. Thompson further presented that subcontractors often came from outside of Nevada.  He described construction as a “highly volatile business” in which construction workers were hired, laid off, and would then leave.  Mr. Thompson recalled the Unemployment Fund being near bankruptcy in the 1980s and submitted if that were to happen, every employer in Nevada, not only the subcontractors, would have to pay more.  He accentuated the need for the current legislation by citing the shortage of, and demands on, state funding in Nevada.  He perceived S.B. 380 as “a step backwards” and asserted his opposition to the proposed legislation.

 

John Jeffrey, Legislative Advocate, Southern Nevada Building and Construction Trades Council and Southern Nevada Central Labor Council, communicated that only the general contractors had any control over the subcontractors.  Subcontractors were not “truly” independent businesspersons; rather they were dependent upon the general contractor.  Subcontractors and their employees depended upon the general contractor for their paychecks.  Employees of the subcontractor were legally deemed employees of the general contractor.

 

Mr. Jeffrey referred to a wage survey document that represented the employer’s cost per hour for electrical workers’ wages (Exhibit K).  There were 16 items the contractor had to pay; 12 of those had to be paid by the general contractor if the subcontractor did not pay, either by agreement or statute.  He projected the most S.B. 380 would do was eliminate one of those 16 cost items for an electrical contractor.

 

Mr. Jeffrey was concerned that S.B. 380 could be a step toward removing the liability and the responsibility of the general contractor to make those payments for the subcontractor.  He advised the committee there were “thousands” of construction workers in Clark County and that many of those subcontractors “did not have a great concern about paying their bills.”  If the subcontractor was not able to make the payments, the general contractor would be responsible for the payments.  Also, as workers became unemployed, the absence of checks resultant of S.B. 380 would lengthen the time needed to investigate unemployment claims, thus delaying payments.

 

Assemblyman Brown disclosed that his firm represented various construction interests.  In reference to Mr. Jeffrey’s statement that the subcontractor was reliant on the general contractor, Assemblyman Brown noted there were protections in the lien laws that provided recourse for subcontractors.  He also expressed there were legal arguments to be made with regard to a subcontractor being an employee of an employer.  They were separate legal entities.  He had difficulty justifying that general contractors guaranteed subcontractors’ payments.

 

Birgit Baker, Administrator, Employment Security Division (ESD), submitted her testimony to the committee (Exhibit L).  She opposed S.B. 380 as amended because it removed a process “that protected timely payment of unemployment benefits” and would consequently endanger the integrity of the Unemployment Insurance (UI) Trust Fund.  In addition to delaying payment of unemployment benefits, S.B. 380 would have a negative impact on the UI rate structure for contributing Nevada Employers.  Benefits had to be paid whether or not taxes were collected.

 

Ms. Baker related to the committee that the construction industry accounted for about 11 percent of the registered employers in Nevada, 25 percent of the UI claims filed annually, and 22 percent of the blocked claims - claims delayed because a subcontractor did not pay or report wages.  With respect to the UI Trust Fund, as of March the construction industry accounted for 30 percent, or approximately $2 million, of the accounts receivable.

 

Ms. Baker informed the committee there was a certification process in place by which prime contractors could protect themselves from potential liabilities due to the subcontractors’ nonpayment of taxes.  In 1990, 225 certifications were processed; currently they were processing about 4,700 certifications annually.  In calendar year 2000, they collected approximately $500,000 in unpaid taxes through the certification process alone.

 

Assemblyman Marvel asked Ms. Baker if this was her testimony in the Senate as well.  Mr. Baker replied that it was and pointed out that in the Senate, the bill had not been amended at the time she testified.  At that point they were neutral.  However, when S.B. 380 was amended, the verification process was removed.

 

Assemblyman Marvel asked Mr. Thompson and Mr. Jeffrey if either of them had the opportunity to discuss the amendments.  Mr. Thompson replied they were there at the work session when the amendment was proposed.  He added that the figures had been presented to the committee during the hearing.  Mr. Jeffrey was most concerned that with the deterrent in place, construction represented 22 percent of the blocked claims.  He feared the consequences to the fund and to other entities should the deterrent be removed.

 

Assemblyman Marvel felt the problem lay with the subcontractor and asked how the subcontractor could be held more responsible to guarantee payment of the tax.  He understood it would be difficult for the general contractor to be responsible for the payments; he would not have access to the records of what was paid.

 

Ms. Baker recalled testimony that the Department of Taxation could not release information.  She informed them the Unemployment Division was able to disclose information to the prime contractor; that was part of their certification process.  Ms. Baker contended the certification process was complicated and time‑consuming, but could be streamlined without legislation if the present requirement was left in place.

 

Assemblyman Marvel asked Ms. Baker if she had spoken with the proponents of S.B. 380 about her proposal.  She replied she had not but would be happy to do so.

 

Assemblyman Brown asked if perhaps subcontractors did not pay because they knew there would be recourse against the general contractor.  He also wondered, if the general contractors were not required to pay, what kind of resultant increases there were in premium payments across‑the‑board for all contractors.

 

Ms. Baker replied she was not familiar with any such studies.  She believed that under the certification process she referenced, it was not the general contractor that would be paying, rather the general contractor would withhold those funds from the subcontractor until they had proof the taxes had been paid.

 

Assemblyman Brown asked if either Mr. Thompson or Mr. Jeffrey could verify Ms. Baker’s statement.  Mr. Jeffrey replied, acknowledging he was more familiar with Trust Fund payments, that the general contractor did not make the final payments until he knew the subcontractor had made his or her payments.

 

With regard to Trust Funds, Mr. Jeffrey explained if a contractor did not make a monthly or quarterly payment to the Trust Fund, they approached him immediately.  He would be reminded it was ultimately his or her responsibility under the law to pay, and the contractor would pay.  The next check for the subcontractor would be a dual endorsed check; the Trust Fund had to sign off on the check and the subcontractor had to pay the Trust Fund that money.

 

Mr. Jeffrey expounded on the certification process.  He related that several years ago a bill was passed allowing the general contractor to get information from both the Nevada Industrial Commission (NIC) and Employment Security.  He did not think a list of who paid and did not pay could be obtained.  However, he believed a general contractor could obtain the information if he requested it for a specific contractor.  The general contractor could therefore have the information before he made the final payments to the subcontractors.

 

Assemblyman Brown asked if the general contractors would be impacted by the late fees.  Mr. Jeffrey could not answer.  Ms. Baker thought the late fees would apply to the subcontractor’s account.  If the general contractor had withheld funds pending that payment, the fees would be paid through that process.

 

Assemblyman Brown ascertained the premium plus the late fee would exceed the amount the general contractor withheld for that subcontractor.

 

Also, regarding withholding monies, Mr. Jeffrey affirmed for Assemblyman Brown the amount of money withheld was the retention amount.  Mr. Brown speculated there could be numerous other obligations to cover as well, in addition to amounts due under either the “head tax” or UI.  Assemblyman Brown conveyed his understanding that the retention would not be very much, when all was said and done, in terms of the obligations that existed.

 

Mr. Jeffrey responded that would be true if the subcontractor did not pay his bills.  He maintained, however, that the general contractor held money back to pay those bills.

 

Mr. Jeffrey related his views of the construction industry as one in which essentially the same subcontractors repeatedly did not pay their bills.  He commented that the general contractors continued to retain them because they were the low bidders.  Mr. Jeffrey found it difficult to find the general contractor not responsible for the bills when he knew from the beginning there would be problems with the subcontractor.  He accused such contractors of “trying to get the best of both worlds:  they want the lowest possible bid and no responsibility for the payment.”

 

Assemblyman Brown asked if there was any other legal remedy, such as removal of licensure, for failure to make those payments.  Mr. Jeffrey replied they usually ended up in bankruptcy, they “borrowed from Peter to pay Paul throughout their career.”  He contended that only the general contractor had control over who was on a job.

 

Assemblyman Brown disagreed with Mr. Jeffrey; he felt the owners knew, and had a voice in, which subcontractor was on the job.  Mr. Jeffrey replied that the owners usually did not know “who is the good guy and who is the bad guy.”  They agreed it depended on the ownership relationship.

 

Mr. Brown repeated his earlier question.  If S.B. 380 were to be processed, and general contractors were not responsible for making the payments, he speculated the difference might be offset by raising premiums for the industry as a whole.  He wondered what impact that would have on the other contractors?

 

Mr. Hardy thought he could offer a solution.  He related that they addressed labor’s concerns in the Senate.  They had offered some amendments and removed some portions; he thought the issues were resolved.  He concluded the present concerns surrounded unemployment compensation.  Mr. Hardy felt they had enough “wiggle room” to meet with labor and the department to resolve those concerns.

 

Chairman Goldwater directed Mr. Hardy to work with the representative of labor.  He announced that when they stood before the committee in support of S.B. 380 the committee would be ready to take action.  Chairman Goldwater closed the hearing on S.B. 380.

 

As Chairman Goldwater no longer had a quorum, he informed Assemblywoman McClain the committee would hear A.J.R. 11 at Thursday’s hearing.  The meeting was adjourned at 4:38 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Darlene Nevin

Transcribing Secretary

 

 

 

Cheryl O’Day

Committee Secretary

 

 

 

APPROVED BY:

 

 

 

                       

Assemblyman David Goldwater, Chairman

 

 

DATE: