ASSEMBLY COMMITTEE ON WAYS AND MEANS

MINUTES OF THE meeting

of the

ASSEMBLY Committee on Ways and Means

Seventy-First Session

May 8, 2001

The Committee on Ways and Meanswas called to order at 5:05 p.m. on Tuesday, May 8, 2001. Chairman Morse Arberry Jr. presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Morse Arberry Jr., Chairman

Ms. Chris Giunchigliani, Vice Chairwoman

Mr. Bob Beers

Mrs. Barbara Cegavske

Mrs. Vonne Chowning

Mrs. Marcia de Braga

Mr. Joseph Dini, Jr.

Mr. David Goldwater

Mr. Lynn Hettrick

Ms. Sheila Leslie

Mr. John Marvel

Mr. David Parks

Ms. Sandra Tiffany

COMMITTEE MEMBERS ABSENT:

Mr. Richard D. Perkins, Excused

STAFF MEMBERS PRESENT:

Mark Stevens, Fiscal Analyst

Russell Guindon, Deputy Fiscal Analyst

Carol Thomsen, Committee Secretary

Connie Davis, Committee Secretary

Chairman Arberry announced that the committee would commence with the hearing on A.B. 19.

Assembly Bill 19: Creates forecast council and related technical advisory committees to produce long-term forecasts of state revenues and expenditures and estimates of impacts of proposed programs. (BDR 31‑203)

Russell Guindon, Deputy Fiscal Analyst, Legislative Counsel Bureau (LCB) presented Exhibit C, a packet entitled, “The Task Force for Long-Term Financial Analysis and Planning’s Recommendations for a Long-Range Forecast and Planning Process,” to the subcommittee. He explained that A.B. 19 was requested on behalf of the Task Force for Long-Term Financial Analysis and Planning, which was created by A.B. 525 of the Seventieth Session. According to Mr. Guindon, the task force was directed to develop a permanent, nonpartisan process for the preparation and periodic update of long-term forecasts of the state’s revenue and expenditures for use in the state’s budget planning and appropriation process. The task force was required to prepare a written report on, or before, September 15, 2000, to be submitted to the director of the LCB for distribution to legislators. Mr. Guindon stated it was his understanding that the report, Bulletin Number 01-10, had been distributed to the members of the committee (Exhibit D).

Mr. Guindon advised the committee that he would provide an overview of the structure and composition of the task force, along with the responsibilities included in the recommendation from the task force in creation of the long-term forecast process. Referencing the page included in Exhibit C entitled, “Appendix C – Long-Term Forecast Process,” Mr. Guindon pointed out that one of the first issues visited by the task force was the Economic Forum. As the committee was aware, the Economic Forum was the body responsible for producing the state’s official short-term forecast. According to Mr. Guindon, the task force determined it would not interfere with the structure and function of the Economic Forum, or its relationship with the Executive and Legislative Branches of government, since it had been producing short-term forecasts for the last four biennia. Rather, the task force decided it would create the Forecast Council, a body that would be responsible for the review and approval of long-term revenue and expenditure forecasts that covered a ten-year period.

Mr. Guindon explained that the Forecast Council would consist of seven members: two members from the legislature; two members from the Office of the Governor; and, three members from the private sector. The members from the legislature would include the Senate Majority Leader and the Speaker of the Assembly. Mr. Guindon noted that the task force, in its recommendation, allowed the legislative members to appoint a designee, however, that designee had to be from the appropriate legislative body in terms of representation of the Senate or the Assembly. The Governor or his designee would be a member, along with a second member appointed by the Governor from the Executive Branch to serve on the Forecast Council. Mr. Guindon pointed out it was the intent of the task force members that, if at all possible, the active membership of the Forecast Council would include the Majority Leader of the Senate, the Speaker of the Assembly, and the Governor. Flexibility which allowed for the appointment of a designee was provided in light of possible scheduling difficulties. The three members who served from the private sector would be appointed by the Governor, and would be the only members eligible to serve as Chairman of the Forecast Council. The Chairman would serve a four-year term, which could be renewed at the discretion of the Governor.

Continuing, Mr. Guindon reiterated that the Forecast Council would be responsible for reviewing and approving the long-term forecast. To that end, the task force decided to create two additional bodies which would be responsible for preparing the revenue and expenditure forecast for presentation to the Forecast Council. Mr. Guindon explained that the Revenue Technical Advisory Committee would be the body responsible for producing the ten-year long-term revenue forecast, and would consist of nine members: the Senate Fiscal Analyst; the Assembly Fiscal Analyst; the Director of the Department of Administration; the Chief of the Bureau of Research and Analysis, Department of Employment, Training and Rehabilitation (DETR); the State Demographer; and, the Vice Chancellor for Finance of the University and Community College System of Nevada (UCCSN). Each of the aforementioned members would be allowed to appoint a designee from their body to sit in their stead as members of the committee. The last three members would be comprised of representatives appointed by the Governor from the state’s private sector, and would be the only members eligible to serve as Chairman. Each appointee would serve a four-year term.

Mr. Guindon stated the Expenditure Technical Advisory Committee would be responsible for producing the ten-year, long-term forecast of expenditures which would be presented to the Forecast Council. That committee would consist of 11 members, with the first 6 members being identical to those on the Revenue Technical Advisory Committee. The remaining members would consist of: the Director of the Nevada Department of Prisons; the Director of the Department of Education; the Director of the Department of Human Resources; a representative from local government, either county or city, appointed by the Governor to a four-year term; and, a representative from the private sector, appointed by the Governor to serve a four-year term. Remaining consistent with the other two bodies, only the private sector member would be eligible to serve as Chairman of the Expenditure Technical Advisory Committee.

Mr. Guindon indicated he would explain the reasons behind the decision of the task force to have six identical members serve on the Revenue Technical Advisory Committee and the Expenditure Technical Advisory Committee. In regard to the Senate and Assembly Fiscal Analysts, and the Director of the Department of Administration, Mr. Guindon explained that those persons also served on the Technical Advisory Committee to the Economic Forum, and it was felt they would have the ability to marshal the resources of any state agency or employee in order to utilize the services necessary to produce the long-term forecast. The Chief of the Bureau of Research and Analysis, DETR, was appointed because that agency actually had economists on staff, collected a great deal of economic information in terms of employment and payroll, and was involved in projections and economic forecasts. The Vice Chancellor of Finance, UCCSN, was appointed to both committees because the system also had economists on site, and would bring very valuable resources and expertise to the committees.

Modeling the process after those of other states, Mr. Guindon pointed out that the two technical advisory committees would be allowed to create work groups that would consider particular revenue and expenditure programs. For example, on the revenue committee, the work group could consist of persons from the Gaming Control Board’s budget and fiscal staff, in order to produce long-term forecasts of gaming revenues. Mr. Guindon stated on the expenditure side, persons could be considered from the Department of Education’s fiscal and budget staff, or persons from the private sector, in an effort to produce long-term forecasts regarding enrollment growth, or factors that might drive enrollment growth.

The final element of the structure of the forecast process was the Office of Financial Analysis and Planning (OFAP), which was created by A.B. 525 of the Seventieth Session, and consisted of an actual position located in the Fiscal Analysis Division of the LCB; Mr. Guindon explained he was currently serving in that capacity. The task force had considered the responsibilities and duties for the OFAP with regard to the long-term forecast process, and Exhibit C delineated those duties and tasks.

Mr. Marvel asked which forecast would be utilized by the legislature in crafting the state agency budgets, the Economic Forum or the OFAP. Mr. Guindon emphasized that the legislature would continue to utilize the forecast from the Economic Forum. That issue was of great concern to the task force, and it was pointed out that the Economic Forum was included in the Nevada Revised Statutes (NRS), and had been producing the official short-term forecasts utilized by the Governor in constructing The Executive Budget. Mr. Guindon reported that the task force would not interfere with the established process; however, he felt there were areas where the long-term forecast could be utilized in the legislative budget process.

Continuing his presentation, Mr. Guindon explained that one issue of concern to the task force was the production of the ten-year forecasts, and how they would be utilized in the state’s budget and planning processes. The Forecast Council would be required to submit a written report by March 1 of every even-numbered year that included all long-term forecasts of all revenues and expenditures on which it prepared forecasts. That report would be submitted to the Director of the LCB and would be distributed to all legislators, the LCB staff, the Governor’s Office, and the Department of Administration for distribution to the appropriate state agencies. Mr. Guindon stated that in an effort to establish the report as a visible element of the state’s budget and planning process, the task force would require that the long-term report be formally presented to the Senate Finance and Assembly Ways and Means Committees at the beginning of each legislative session.

Mr. Guindon pointed out that every report produced by March 1 of each even-numbered year would include a discussion of changes included in that forecast from the previous long-term forecast. The report would also specifically identify the changes in the current forecast that were due to programs or measures approved during the previous legislative session. The task force reasoned that the inclusion of such information would make the report more beneficial to the Governor, the legislature, and the public. It would also be an effort to separately identify the impact of the various programs that had been approved by the previous legislature, and the impact they had on the long-term forecast with regard to the state’s fiscal outlook. Continuing, Mr. Guindon reported that the task force had also determined that each forecast report would include a comparison of past long-term forecasts, along with the actual performance of each revenue and expenditure category. The task force believed that providing a historical record of the actual performance of the forecasts compared to the actual activity would be useful, not only to the committee members involved in the process of producing the forecast report, but also to the Governor and the legislature.

According to Mr. Guindon, another element considered by the task force with regard to the use of the long-term forecasts was for such items as Medicaid caseload projections, education enrollment growth, and possible utilization by agencies and the Governor in preparation of actual budgets. The task force ultimately decided that would set too many restrictions on the process, since the forecasts would be produced in March, and agency budgets were due by the following August, with the Governor ultimately submitting The Executive Budget in January of the following year, because there was a possibility that changes would occur during that time frame. Mr. Guindon stated the task force did want to establish that the long-term forecast would be viewed as the official report utilized as much as possible in state planning and budgeting. The task force would request that when an agency submitted its budget, any caseload or revenue measures included in the budget request that differed from the current long-term forecast be addressed. Mr. Guindon noted that stipulation would also apply to the Governor in preparation of The Executive Budget.

Mr. Guindon explained that the Chairman of the Forecast Council would be allowed to request that an update be made to the forecast prior to the next statutory deadline. The final element of the long-term forecast process was that the task force wanted a mechanism in place so that if a measure was introduced, either by the Governor via The Executive Budget or by a legislator, that contained a significant fiscal impact in either revenues or expenditures, such measure would automatically trigger a review. At that time, the appropriate technical advisory committee would produce a long-term outlook of the fiscal impact of the proposed measure. The trigger mechanism decided upon was a figure of 2 percent, or greater, of the second-year projection from the Economic Forum’s December 1 forecast. For example, stated Mr. Guindon, based upon the Economic Forum’s latest December 1 projection, 2 percent would amount to approximately $38 million.

The OFAP would be responsible for reviewing those measures to determine if a trigger had occurred, which would prompt a review. Mr. Guindon explained that the determination of whether a trigger had occurred would be based on the estimated amount of the impact of the measure for the first full year of implementation. Mr. Guindon pointed out that there was a fiscal note attached to A.B. 19, which would require $9,462 per year for the process, mainly for the travel and per diem of the legislators and the private sector members.

With no further testimony forthcoming regarding A.B. 19, Chairman Arberry closed the hearing. The next bill for committee consideration was A.B. 434.

Assembly Bill 434: Provides exemptions from certain taxes for property used in researching, developing, constructing and operating facilities to generate electricity from renewable resources. (BDR 32-1054)

Harry Mortenson, Assemblyman, District 42, Clark County, addressed the committee in his capacity as sponsor of A.B. 434. He explained the bill would provide exemptions and abatements for certain taxes for property used in the research, development, construction, and operation of facilities to generate electricity from renewable resources. Mr. Mortenson stated the initial draft of the bill contained a large fiscal note, however, failed to contain a time line which would prevent existing facilities from taking advantage of the tax exemptions. The bill was amended, and Mr. Mortenson called the committee’s attention to a Memorandum dated May 2, 2001, from David P. Pursell, Executive Director, Department of Taxation, Exhibit E, which read in part:

Based upon a review of Amendment No. 445 to Assembly Bill 434, more specifically the amendatory provisions found in Section 4, subparagraphs 2 and 3; it appears that the fiscal impact over the biennium has been eliminated regarding existing property used in researching. . . .

Mr. Mortenson assumed that any fiscal impact had, therefore, been removed from the bill. The provisions of the bill would award certain sales tax abatements, exclusive of the state’s 2 percent, to recipients for a continuous time frame of ten years. Real property would also be exempted for ten consecutive years. Mr. Mortenson explained that the provisions of the bill would sunset in five years, unless it was continued by the legislature. The idea was to bring businesses into Nevada with high paying jobs in research and development and, at the same time, assist with the energy crisis while maintaining clean air. Continuing, Mr. Mortenson explained the bill would include the renewable resources of biomass, geothermal, wind, hydrogen fuel cell, and solar energy. Hydrogen fuel cells were an extremely “hot” item, with every major automobile company working to develop autos powered by such fuel cells, and Mr. Mortenson explained that the exhaust from hydrogen fuel cells consisted of nothing more than water vapor, making it an incredibly clean source of fuel.

According to Mr. Mortenson, the Nevada Test Site contained excellent facilities that could be utilized by a company in the development of hydrogen fuel cells, either for commercial power generation or for locomotion. The test site also had the largest flasks in the world for the containment of liquid hydrogen; those flasks were used during the nuclear rocket program. Mr. Mortenson noted that if a company could utilize that resource, it would be a tremendous cost break. The bill would not eliminate tax sources, because companies already in existence would not be eligible for tax abatements or exemptions.

Mr. Mortenson noted that two amendments had been omitted in the first reprint of the bill. Nevada Power had suggested an amendment to the bill which stipulated that at least 75 percent of a facility’s fuel source for the production of electrical energy must be from renewable resources, and he would request such an amendment be added. The second amendment would give local governments the authority to veto the granting of exemptions. Mr. Mortenson would also agree with that amendment, and would provide staff with a copy of the requested amendments.

Robert Hadfield, Nevada Association of Counties (NACO), voiced support for A.B. 434, and support for the aforementioned amendment regarding veto power for local governments, as had previously been discussed when the bill was reviewed by the Assembly Committee on Taxation. Mr. Hadfield stated local governments understood the need to attract industry to Nevada, and were not opposed to the idea of tax abatements or exemptions. As a matter of policy, NACO did have difficulty with expanding the exemptions across-the-board, however, the association would support the bill as amended. Mr. Hadfield indicated that NACO felt, as a matter of public policy, that those who would be affected by the loss of revenue should be presented with the opportunity to review the proposal and provide input regarding whether an exemption would be supported by the community which stood to suffer a loss of revenue. Mr. Hadfield believed that communities would grant exemptions, however, should have the option of voicing an opinion rather than an exemption being issued without prior notice to the local government. He noted that point would be addressed by the proposed amendment.

Bjorn Selinder, County Manager, Churchill County, voiced support for the bill, with the suggested amendments. The purpose of the bill was commendable, i.e., the development of as much alternative energy as possible in Nevada. Mr. Selinder noted that Churchill County had a tremendous reserve of known geothermal resources, with six geothermal generators currently in operation. The county, however, would voice support for NACO’s expressed concerns regarding the ability of local government to be allowed input in the review of proposed tax exemptions. Such action would allow the affected local governments to carefully weigh the economic impacts that might arise from the granting of such an exemption.

Doug Bierman, Senior Research Associate, Intertech Services Corporation, approached the committee on behalf of the Nevada Test Site Development Corporation, Lincoln County, the city of Caliente, Eureka County, and Lander County. He stated that, from the perspective of those he represented, the interest was in the area of economic development and diversity. There were a great many renewable resources in the rural areas of Nevada, and those counties would benefit greatly by passage of A.B. 434.

With no further testimony forthcoming regarding A.B. 434, Chairman Arberry declared the hearing closed, and opened the hearing on S.B. 249.

Senate Bill 249: Makes supplemental appropriation to Secretary of State for unanticipated shortfall in money budgeted for salaries and costs for information services. (BDR S-1253)

Renee Lacey, Chief Deputy Secretary of State, indicated S.B. 249 represented an unanticipated shortfall of approximately $220,786 for the Office of the Secretary of State in monies budgeted for salaries during the current fiscal year. That figure represented the Secretary of State’s “best guess” in conjunction with the Department of Administration’s “best guess” for projections of salaries through the end of the fiscal year.

According to Ms. Lacey, the shortfall occurred because of overestimated salary vacancies when the current budget was prepared, and the fact that merit increases were not built into the budget. The bill would also address costs for information service technicians provided by the Department of Information Technology (DoIT) to the Secretary of State’s Office. According to Ms. Lacey, the Secretary of State paid two to three times the salaries for those technicians to DoIT, and had attempted to address that cost in the current budget. Those technicians would be added to the salary structure of the Secretary of State’s Office in July 2001, which would result in a substantial savings.

With no further testimony regarding S.B. 249, Chairman Arberry declared the hearing closed. The next item for committee review would be S.B. 250.

Senate Bill 250: Makes supplemental appropriation to State Department of Conservation and Natural Resources for certain shortfalls in budget. (BDR S-1260)

R. Michael Turnipseed, P.E., Director, State Department of Conservation and Natural Resources, informed the committee that S.B. 250 would address budget shortfalls created because of personnel expenses incurred by the retirement of Mr. Turnipseed’s predecessor. The costs included a $23,559 shortage in payment of retirement costs, along with shortages due to frozen merit and cost- of-living increases of $31,202, for a total of $54,761. The department realized a portion of that amount from the Board of Examiners via a transfer of funds from the Division of Water Resources, and a transfer from the Water Planning budget. The total deficit remained at $21,689. Mr. Turnipseed indicated that S.B. 250 also addressed the 50:50 co-op program with the United States Geological Survey (U.S.G.S.) for stream gauging and water level measurements. When the budget was prepared for the current fiscal year, Mr. Turnipseed noted that the department had built in a 5 percent cost-of-living increase for the U.S.G.S., however, that increase amounted to 13.5 percent because of a funding formula change, which resulted in a shortfall of $18,492.

Chairman Arberry declared the hearing on S.B. 250 closed, as there was no further testimony, and opened the hearing on S.B. 251.

Senate Bill 251: Makes supplemental appropriation to Department of Education for shortfall in money budgeted for contractual obligations for Terra Nova Tests. (BDR S-1262)

Douglas Thunder, Deputy Superintendent for Administrative and Fiscal Services, Department of Education, explained that S.B. 251 would provide a supplemental appropriation to meet a shortfall created by contractual obligations for the Terra Nova Tests. Originally, stated Mr. Thunder, the shortfall was estimated to be significantly larger, however, upon receipt of the actual bill, it was lowered to the current amount of $38,890. The shortfall was created because there was not a sufficient growth element built into the original six-year contract for the Terra Nova Tests. Mr. Thunder noted that in order to meet some of the academic standards programs, more children had undergone testing than originally planned when the contract was negotiated. He noted that the contract had been addressed in the proposed budget for the department.

Mrs. Chowning asked whether more children had been tested because of the growth experienced in the state, primarily in southern Nevada, and indicated the legislature was aware of the testing requirements for certain grade levels. Mr. Thunder explained there was an element in the Terra Nova Tests that required the department to indicate why children were not tested, and score sheets were processed for all children, even if there was no legitimate reason for their lack of participation in the test.

Ms. Giunchigliani remarked that when children were exempted because of language barriers or special education requirements, teachers used a marker to note that those tests or sections were invalid. She asked whether the department was still required to score that portion of the test, and was that the factor which drove up the costs. Mr. Thunder replied in the affirmative. Ms. Giunchigliani inquired whether there was more than one company that produced the Terra Nova Tests. Mr. Thunder stated the test was the product of the company currently under contractual agreement with the department. When the department entered into the contract approximately five years ago, Mr. Thunder thought there were approximately three companies competing for those tests. The department would put the contract out to bid via a Request for Proposal (RFP) process during the next biennium, and all eligible contractors would be considered at that time.

With no further testimony forthcoming regarding S.B. 251, the hearing was closed, and Chairman Arberry opened the hearing on S.B. 492.

Senate Bill 492: Clarifies provisions governing transfers of money to fund to stabilize the operation of the state government. (BDR 31-1476)

Don Hataway, Deputy Director, Budget Division, Department of Administration, stated S.B. 492 came about because of a misunderstanding between agencies of the Executive Branch regarding how the funds were to be transferred to the Rainy Day Fund from the General Fund. The language contained in S.B. 492 represented the method the Budget Division felt the allocation had been made in the past, and should be made in the future. Mr. Hataway indicated the bill would clarify the language contained in the statute. In lines 20 and 21 of the bill, the phrase, “. . .and for the funding of schools. . . ,” was added by the LCB Legal Division, and did nothing more than clarify that funding for schools was part of the process.

Mark Winebarger, CPA, Chief Deputy Controller, Office of the State Controller, read the following statement into the record:

The State Controller supports the proposed amendment to NRS 353.288. This bill is the result of differing opinions between the State Controller’s Office and the Department of Administration as to the definition of revenue in sections 1 and 1(a).

This amendment would change the statute to reflect the Department of Administration’s current interpretation and result in an FY 2000 transfer of approximately $7.5 million.

If the statute is not revised, the Controller’s interpretation of the statute would require a transfer in excess of $28 million, an amount that would put the Rainy Day Fund at its maximum legal limit per section 2 of NRS 353.288.

As no further testimony forthcoming, the hearing on S.B. 492 was closed.

With no further business to come before the committee, Chairman Arberry adjourned the hearing at 5:47 p.m.

RESPECTFULLY SUBMITTED:

Carol Thomsen

Committee Secretary

APPROVED BY:

Assemblyman Morse Arberry Jr., Chairman

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