MINUTES OF THE Meeting
of the
ASSEMBLY Committee on Taxation
Seventy-First Session
March 6, 2001
The Committee on Taxationwas called to order at 1:30 p.m., on Tuesday, March 6, 2001. Chairman David Goldwater presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Mr. Roy Neighbors, Vice Chairman
Mr. Bernie Anderson
Mr. Morse Arberry Jr.
Mr. Greg Brower
Mr. David Brown
Mr. John Marvel
Mr. Harry Mortenson
Mr. David Parks
Mr. Bob Price
Ms. Sandra Tiffany
COMMITTEE MEMBERS ABSENT:
Mrs. Vivian Freeman (Excused)
GUEST LEGISLATORS PRESENT:
Assemblywoman Dawn Gibbons, representing Assembly District 25
Assemblywoman Chris Giunchigliani, Assembly District No. 9
STAFF MEMBERS PRESENT:
Ted Zuend, Fiscal Analyst
Kathryn Ely, Committee Secretary
OTHERS PRESENT:
Rose Dominguez, Former Member of the State Board of Equalization
David Pursell, Executive Director, Department of Taxation
Marty Johnson, President, Johnson Consulting Group
Douglas Thunder, Deputy Superintendent, Administrative and Fiscal Services, Department of Education
Thomas B. Ciesynski, Chief Accountant, Washoe County School District
Gaylyn Spriggs, Representing Nevada Taxpayers Association
Juanita Cox, Representing People Organized for the Next Generation (PONG)
Janine Hansen, President, Nevada Families Eagle Forum
Penny Brock, Private Citizen
Assembly Bill 205: Makes various changes concerning state board of equalization. (BDR 32-493)
Assemblywoman Dawn Gibbons, representing Assembly District 25, sponsored A.B. 205 on behalf of Rose Dominguez, a former member of the State Board of Equalization. A.B. 205 made changes to the State Board of Equalization, including requiring the Governor to designate the vice chairman, and to select two alternate members in the absence of certain members.
Testifying from Las Vegas, Rose Dominguez was concerned about member attendance at scheduled board meetings. Cases had been scheduled that were significant and would have had an impact on various counties. The board was the proper forum for an appeal lodged by a taxpayer to challenge an assessed valuation on personal property. Ms. Dominguez explained there had been cases with significant monetary value scheduled for hearing and, on some occasions, the board did not have a quorum, which resulted in postponement. At no time during the eight years she served on the board was there an alternate or temporary member that could be called on if a board member was unable to attend. She knew other boards of this nature had provisions for alternates so that decisions could be made properly and promptly. The board was restricted to a certain time period, March through September, to hear appeals.
Mr. Marvel asked the rationale for the Governor appointing a vice chairman. Ms. Dominguez was not certain; the issue for her was to have at least two temporary or alternate members who could be present to deal with the appeals. Mr. Marvel understood that the board heard appeals that were denied by local boards. She said he was correct; the process happened only if the appellant was not happy with decisions of the counties.
Mr. Anderson asked whether alternates would be provided information concerning cases, and would they have access to available information on the appeal issue if they were called upon to make a decision in the absence of a regular member. He voiced concerns about these alternates stepping in, and about paying these people to attend every meeting. Ms. Dominguez responded the daily stipend paid to members was minimal compared to the dollar amount involved in some of the cases.
Ms. Tiffany asked for the present number of board members. Ms. Dominguez responded there were five members and a quorum was three. Ms. Tiffany asked if there was ever a meeting held without a quorum and Ms. Dominguez responded in the affirmative. Ms. Tiffany inquired whether A.B. 205 was presented to the board for consideration and if the Governor had been briefed. Ms. Dominguez responded negatively to both questions.
David Pursell, Executive Director, Department of Taxation, stated that in the past, decisions of “substantial effect” were heard on or before April 15 in order for the local governments to use the information to prepare tentative budgets.
Mr. Brown asked if there had been “quite a few instances” where board members missed two or more consecutive meetings. Ms. Dominguez responded “yes” and within a two-year period, it was “quite frequent.” A.B. 205 would remove those members from the board.
Assemblywoman Tiffany believed the State Board of Equalization was an important board and if attendance was a problem, perhaps a per diem or salary might be required. She asked Mr. Pursell to consider in his testimony how they could attract qualified people and have them attend the meetings.
There were five members appointed by the Governor: a designated professional appraiser, a certified public accountant, one experienced in utility valuation, and two from general business. Mr. Pursell felt the board had done a good job each year convening meetings, setting agendas and determining whether there were cases that might have a conflict. Mr. Pursell viewed last year as an anomaly. The certified public accountant resigned in the middle of the year, and it took longer than expected to locate and appoint a designated professional appraiser [sic]. There were meetings in which there was not a quorum.
The concern Mr. Pursell harbored was in the provision of A.B. 205 stating that if a board member missed two consecutive meetings, the Governor “shall” remove the member. The “shall” was not a permissive; it was a mandatory action. Mr. Pursell thought such required action by the Governor hampered the board in conducting meetings, because the board held two-day meetings, two 2-day meetings and perhaps three meetings within a month, and circumstances might occur that prevented a member from attending two consecutive meetings. Recently, the Governor appointed a designated professional appraiser that resided in northern Nevada and another that resided in southern Nevada. This would eliminate possible conflict issues that could arise in matters that involved appraisal petitions. Mr. Pursell felt the language would not allow the Governor to exercise discretion regarding appointments.
Referring to Mr. Anderson’s earlier question regarding whether alternates would be kept apprised of the cases and would have access to available information, Mr. Pursell believed this would be required. In response to Ms. Tiffany, he replied he had not seen A.B. 205 until it was drafted and was not certain it was needed because the state board as currently organized made every effort to ensure there was a quorum at each meeting. Assemblyman Anderson asked him why he was concerned about the “shall” statement, to which Mr. Pursell responded from his perspective there could be situations where for an unforeseen reason a participating member would be removed because he missed two consecutive meetings for a good reason.
Ms. Dominguez opined Mr. Pursell failed to see that the members of the board produced the meeting schedule after they checked their personal calendars. She understood there would be “mitigating circumstances” and if the language of two consecutive meetings was too strong, she suggested changing it, provided there was sufficient emphasis on attendance and the importance of the board. She did not feel Mr. Pursell addressed the issue of providing for alternates, which would help ensure a quorum and move appeals on quickly without the delay of rescheduled meetings. Absenteeism had occurred more often than just during the past year. There were appointed members who missed more than two meetings. Rescheduled meetings were more costly than having alternate members.
Mr. Anderson asked if a member failed to appear for two consecutive meetings and fell subject to the bill, would the Governor be able to reappoint that person if he so chose? Ms. Dominguez responded in the affirmative.
Ms. Tiffany queried if phone calls to the members were made prior to a scheduled meeting to verify attendance. Mr. Pursell informed her his department provided the support staff to the board and they were responsible for scheduling meetings based on the caseload. Ms. Tiffany concluded the board had notice whether there would be a quorum. Mr. Pursell agreed. She asked Mr. Pursell if he was in agreement with a provision for naming alternates and replacing the “shall” to a “may.” Mr. Pursell responded he was in agreement. Ms. Dominguez was also in agreement. Assemblywoman Gibbons also agreed to these recommendations. Assemblyman Mortenson then asked for clarification of the amendments. Ms. Gibbons replied the amendments would change the “shall” to “may” and, in Section 2, line 15, add “additional meetings held in the state.”
Mr. Marvel asked Mr. Pursell to comment on these amendments: did A.B. 205 need the amendment or did they need the bill? Mr. Pursell stated the change in terminology would eliminate his concern with regard to the mandatory removal of a member in the event two consecutive meetings were missed.
Vice Chairman Neighbors closed the hearing on A.B. 205 and opened the hearing on A.B. 137.
Assembly Bill 137: Makes changes relating to statutory limitation on total ad valorem tax levy. (BDR 32-1069)
Assemblywoman Chris Giunchigliani, Assembly District No. 9, explained that Marty Johnson, Johnson Consulting Group, was contracted to work with the interim committee to study school facilities construction and maintenance. A.B. 137 was the first of three bills that resulted from Mr. Johnson’s findings, and it was the first recommendation of the board. A.B. 137 was a continuation of A.B. 353 of the Sixty-Ninth Session, which provided financing programs to assist the needs of local government school construction. Ms. Giunchigliani reminded the committee that Clark County had assessed gaming an additional 1 percent and added a real estate transfer tax, which allowed them to build out a project for ten years that assisted the southern part of the state. The rural counties and Northern Nevada were allowed to “do something” with sales tax and a real estate transfer tax.
Four years ago, under A.B. 353 of the Sixty-Ninth Session a contractor was hired to examine the needs of facilities and maintenance. The study provided a “ballpark” figure of approximately $436 million for maintenance costs, including a statewide need for construction, renovation and repair totaling over $1.9 million for public schools. The Nevada Constitution required a common public school to be provided, both the education portion and the facility portion. By constitution, Nevada funded the state school system educational needs at the state level. Bonds were the only way local governments were allowed to do school construction, unlike the public university system, which was able to apply through the Board of Regents to a capital improvement program (CIP) list.
Ms. Giunchigliani offered, if the committee preferred not to use A.B. 137 and allowed access directly to the CIP list, that might help solve many problems, especially for the rural needs. This was a statewide issue, but there were local jurisdictions that were having a great deal of problems. A.B. 137 allowed, through a vote of the people, the local jurisdictions, or the local school boards, to exceed the $3.64 cap. That might be controversial, but it was a reasonable approach to take because it involved a vote of the people; it was not the legislature dictating it, nor was it by ordinance or statute. A determination of the need would be made and put before the voters. There were at least six counties at the cap and a couple more were within the realm of it. Ms. Giunchigliani commented that a debate on salaries and benefits continued, but the reality was repair, and if the repairs were not made and facilities not maintained, it would cost more in the long run (Exhibit C). The small amount of dollars that was available for a local school district to renovate, repair, remodel or rebuild was indicative of the problem. This was the purpose for recommending a vote of the people to exceed the $3.64 cap.
Marty Johnson, president, Johnson Consulting Group stated A.B. 137 allowed a local government to ask the voters to approve a property tax increase that exceeded the $3.64 limit. Six Nevada counties, in either a specific area or the entire county, were at or very near the $3.64 limit. Another four counties, including Clark and Washoe, were within 10 percent of the $3.64 limit. The 10 percent was a “magic” limit to the Debt Management Commission, which approved part of the process of all general allocation bonds or property tax questions. The problem with the $3.64 was basically it prohibited local governments from funding projects on their own.
Continuing, Mr. Johnson explained two years ago the legislature was asked to provide $16 million to two school districts for facilities, because they could not pay for them themselves. Both districts were at the $3.64 limit and even if they had wanted to pay for those facilities on their own, they did not have the ability to do so. A.B. 137 removed the state from the business of lending money to certain districts and not to others. This was an important issue. In Pershing County, the school district lowered its property tax rate by $.50 over the last five to six years. The tax rate in the city of Lovelock remained at $3.64. The school district did what it was supposed to do under law; as a result of bond payoff, the assessed value changed and the tax rate was lowered. When they needed a facility there was no way to approach the voters and have a facility built because they were at the $3.64 cap. A similar situation occurred in Carson City where the school district lowered its tax rate almost 30 cents over the last six years, but the total tax rate stayed the same. One of the reasons for that was the school districts could only levy 75 cents for operating purposes pursuant to statute. Whatever other property tax they levied had to be approved by the voters, either for bond issues or for a tax override, a pay-as-you-go system, such as used in Elko County. This was a prime example of one benefit of A.B. 137. The Elko County School District was attempting to reauthorize a 75-cent tax rate they used on a pay-as-you-go basis. They planned ahead to avoid using bonds. They paid cash for their facilities. As a result, the tax rate in Carlin was about $3.64, which made it difficult to determine whether or not the school district could get the full 75 cents to go to the voters. Without the 75 cents, the district would be forced to use a bonding proposal similar to what was soundly defeated by the voters in 1996.
There were some benefits in A.B. 137 available to all local governments as well as school districts. The election question must state the tax rate was outside the $3.64 limit and the voters needed to approve it. It was not retroactive; it was only for questions that were approved after the effective date of the legislation. Even with other revenues, such as the Clark County School District received from the real estate transfer tax and room taxes, property taxes would still account for over half of the revenues that the school district used on an annual basis for the construction of facilities. So, unless other significant tax revenues were found, which were nonexistent in many of the rural areas, property tax really had to be the base of funding for school district capital facilities. Without A.B. 137, more districts would request money in future sessions because there was no other way to pay from their own resources.
Mr. Marvel thought he made a motion to get legislation drafted for discussion purposes, but what he intended was what the state required for their debt service. For example, currently the rate was 15 cents. He did not think there would be a higher ceiling. Fifteen cents added to the $3.64 needed approval of the electorate. Mr. Marvel envisioned this when he made his motion.
Mr. Johnson recommended allowing local governments to levy the needed tax rate. He believed there had been various proposals floated regarding various tax rates being exempt from the $3.64 limit. But cities and counties were able to raise their tax rate every year when they prepared their budget while others were able to make do with the tax rate and revenue they generated. If just certain rates were exempt from the $3.64, it was possible, by the time a school district or any other local government could submit a question to the voters, they would be right back where they started because in the annual budgeting process other local governments might have used that rate.
Mr. Marvel interjected the local government had no control over the legislature. They were trying to maintain the temporary figure of 15 cents, but the amount could go up to 25 cents just for the state’s capital improvement programs. However, that would further erode local government’s ability to raise taxes.
Ms. Giunchigliani considered the idea of exemption from the $3.64 limit, subject only to the $5 constitutional cap. That was still open for argument. They wanted to present tools to the legislative body so school districts had an opportunity to raise revenue in a variety of ways to deal with school maintenance, repair and construction. The format taken would be the committee’s decision initially, but in keeping with the interim committee this was the intent of the recommendation, at least for discussion purposes.
Mr. Marvel commented that every school district had done an inventory of their maintenance needs. Backlog maintenance costs reached into the hundreds of millions of dollars. He opined that was “about half scary” of what would be needed for infrastructure.
Ms. Tiffany asked, “Were comments made from the debt commission in Clark County on the issue?”
Ms. Giunchigliani responded they finally received public notice. Four years prior the school construction committee was an interim committee, but not recognized as such. The committee advertised the meetings and, when the recommendations were made, the Nevada Taxpayers Association and various other groups were notified of the meeting. Ms. Giunchigliani stated there was “not a lot of input, unfortunately.” There followed some discussion whether members of the debt commission were aware of A.B. 137. Ms. Tiffany asked how many of the counties would actually benefit from raising the cap. Mr. Johnson responded, presently there were six counties within 6 cents of the $3.64 and there were another four counties that were within 30 cents of the $3.64 limit and, within a couple of years, other counties would get very close to the $3.64 limit. So even if this method was chosen, a sunset provision would not work, but there was a pattern of having a “set aside” and a willingness to watch for abuse. If there were a sunset, it would be important to consider where various districts were with their financing needs. The districts generally ran in a four-year to ten-year cycle. When districts brought bond issues to the voters, they were generally looking at about a 20-year time horizon for payoff of those bonds. Normally, the tax rate would drop over time as the assessed value increased. For some period of time, some jurisdictions might be over the $3.64 limit and for the remainder of time others would be under the limit. Mr. Johnson felt it was important that a sunset worked within those parameters.
Ms. Tiffany voiced a concern for placing A.B. 137 into law because not all counties needed a cap relief. She agreed with Mr. Marvel that some counties were in “dire straits” but some counties tended to “get themselves into a little bit of trouble.” If this method was chosen, perhaps use could be staggered so that four counties could utilize the method for a period of time, then the next six counties could do the same. Ms. Giunchigliani expressed a willingness to discuss that type of inclusion or amendment.
Mr. Neighbors commented on the 15 cents. He recalled in the ‘80s when the tax shift occurred and the “dust cleared,” the state was out of the ad valorem business. Little by little the counties built up 15 cents. The irony was there was no limit; there was no clear language regarding the 15 cents so it could go to any number. He suggested taking it out of the $3.64 might help.
Ms. Giunchigliani agreed with Mr. Neighbors and said that was discussed by the legislature. During the last session, when the Governor found the bonding for the $16 million to assist those rural districts, the issues postponed the problem. Too often in education “band aids” were applied. She thought this was a more appropriate avenue rather than the 15 cents. Mr. Neighbors provided the example of a Lincoln County school that building safety inspectors rejected because of cracks in the wall and other defects. The school needed $1 million for repairs but they did not have a tax base that would even pay the interest on the $1 million.
Chairman Goldwater felt A.B. 137 was a good idea. He thought the $3.64 cap was a “contract” Nevada had with its voters. Contracts could be renegotiated. He recalled reviewing White Pine County’s budget during the last session. Some of those local governments provided services with fees from different funding sources, and other local governments provided services through the property tax because they were reluctant to raise other fees. Chairman Goldwater believed if the issue was viewed from a contract standpoint, the voters must be completely confident there was a willingness to change the terms of the contract. Could A.B. 137 assure the property tax would be used for the proper things?
Mr. Johnson replied the success of bond issues and tax override proposals revealed the amount of the tax rate was secondary to a trust and belief that the board would manage the money well. Some proposals that did not increase current taxes failed or passed with a very narrow margin, and proposals that did raise taxes passed overwhelmingly. Voters needed to “buy in” to the projects and the entity that proposed the projects. He thought in reality what was needed would actually happen because the local government, school board, or city council had to make the case to the voters that the project was necessary, that the amount of money requested was reasonable and that they would deliver the project on time and on budget. If they did not, the voters had a long memory and would not approve future proposals.
Douglas Thunder, Deputy Superintendent for Administrative and Fiscal Services, Department of Education, stated the department, in terms of funding, had little to do with construction of facilities, but strongly supported the effort to make funding available. He knew some of the districts were indeed in dire straits to find funding for capital projects. Lincoln County was probably one of the biggest examples where they had relatively little land that could be assessed so even the 25 cents on the value they had was still not an abundant amount. The department supported A.B. 137 and would do what it could to help.
Thomas B. Ciesynski, Chief Accountant, Washoe County School District stated the board of trustees supported A.B. 137. Washoe was one of the districts that Mr. Johnson had identified as being close to the $3.64 cap. He provided specifics:
In conclusion, A.B. 137 gave taxpayers the opportunity to review needs. The school district could take bond issues to the electorate and let them decide what project was worthy of their consideration.
Mr. Marvel asked Mr. Ciesynski if the district had considered the pay-as-you-go method. Mr. Ciesynski replied it had been discussed and reviewed. Mr. Marvel reported in his rural counties the method had been quite successful.
Gaylyn Spriggs, Nevada Taxpayers Association, thought A.B. 137 might be referred to the “253 Committee” (Exhibit D) since they had done considerable work on the “rate creep.” Independent action such as this might have an affect on the overall problem they were trying to achieve. The association did not oppose doing something for school facilities.
Juanita Cox, representing People Organized for the Next Generation (PONG) opposed A.B. 137 (Exhibit E) because it would raise property taxes above the $3.64 per $100 assessed valuation. It allowed debt from bond issues to be exempt from the property tax cap if a ballot question contained a clear statement that it would be exempt from the limit. Taxpayers could not afford more taxes. Chairman Goldwater reminded Ms. Cox that A.B. 137 would need approval of the voters for any tax rate increase.
Janine Hansen, President, Nevada Families Eagle Forum, testified against A.B. 137. At the time the tax shift was passed in 1981, the per capita state, county and local tax burden in Nevada was about average in the country. By the end of the decade Nevada had a per capita tax national ranking destined to go higher and higher. In 1989, Nevada was the 16th highest, in 1992 the 14th highest, in 1994 the 12th highest and, in 1997, the last year Ms. Hansen had information for Nevada, was rated 6th highest. The tax increase was blamed on growth; however, it was not correlated to that. The U.S. Census Bureau published comparative statistics for the decade 1980 to 1990, which showed Nevada’s population grew by 50 percent, but the tax revenue increased by 190 percent. The average tax revenue growth for all states was 104 percent. During an 11-year period ending in 1993, Nevada’s tax revenue increased 223 percent, while its population increased 59 percent and the U.S. Consumer Price Index went up 49 percent. Ms. Hansen noted during the 11-year period the tax revenue in Nevada rose more than twice as fast as the population and the cost of living combined. There was a significant tax burden, which Nevada had to face over these past years. It appeared there was an interest in raising taxes, but there was supposed to be a cap. What was the use in having a cap if it was continually skirted? The cap should be repealed if that was what was intended.
Another problem was that ballot questions were difficult to interpret. What might appear to be clear to an attorney in “governmentese” was not clear to the average individual.
Rural county problems would not be solved by continued pressure for them to raise taxes. One innovative approach might be the Nevada Public Lands Ownership Act. According to the June 1996 Reader’s Digest, a family spent between 50 and 60 percent of its income on federal, state and local taxes. This was more than any single item including housing, food, health care or education. Government was the greatest burden and the greatest threat to the economic health of the family. Creative solutions were needed to resolve the issue without further burdening families who were already struggling under the tax burden.
Mr. Mortenson disputed a statistic Ms. Hansen referred to. He stated it gave a distorted picture because, while Nevada was the 6th highest, the taxes an individual paid placed Nevada second from the bottom. Only Tennessee paid less individual taxes than citizens of Nevada. The big difference in this contradiction was the enormous sum the gaming industry paid. That did not mean taxes should be raised because the citizens suffered from the side effects of gaming, such as roadway congestion and polluted air. Citizens paid higher taxes to compensate for some of the problems they created. Mr. Mortenson observed in studies of various tax organizations, Nevada was the most regressive state in the Union in terms of how little the tax affected the poor as opposed to the rich. That came about with the fact that Nevada’s high proportion of tax was sales tax. He stated Nevada did have tax problems, but it was distorted to say that Nevadans “were being taxed to death as individuals.”
Ms. Hansen commented there were different statistics available. There were other problems that Nevada had as a result of gaming. Ms. Hansen asked the committee to refer to the list of 47 taxes (Exhibit F). Much of the burden was the federal as well as the local taxes.
Ms. Penny Brock, a Nevada property owner, was concerned should this tax be presented on a statewide vote. Clark County had the largest population. If it came forward with a ballot initiative, which might be appropriate for Clark County, would the rural counties and Washoe County be included, and how would northern Nevada be able to counter a Clark County initiative? Her other concern was if the ballot language was not clear, how would the property owner afford to take their issue to the Supreme Court. Homeowners were left without funding to oppose what other taxpayers were actually funding from school ballot initiatives. How could this be corrected?
Chairman Goldwater closed the hearing on A.B. 137, stating arrangements to work on alternatives would be made. He would discuss the alternatives with Ted Zuend, Fiscal Analyst, and other members of the “253 Committee” and revisit A.B. 137.
Mr. Anderson, requested permission to have the Research Division review whether the language in A.B. 205 would extend term limits beyond the original intent.
Chairman Goldwater adjourned the meeting at 3:10 p.m.
RESPECTFULLY SUBMITTED:
Linda Lee Nary
Transcribing Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: