SENATE COMMITTEE ON FINANCE

MINUTES OF THE

SENATE Committee on Finance

Seventy-First Session

February 9, 2001

The Senate Committee on Financewas called to order by Chairman William J. Raggio at 8:00 a.m., on Friday, February 9, 2001, in Room 2134 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator William J. Raggio, Chairman

Senator Raymond D. Rawson, Vice Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal Jr.

Senator Bob Coffin

Senator Bernice Mathews

STAFF MEMBERS PRESENT:

Gary L. Ghiggeri, Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Michael J. Chapman, Program Analyst

Judy Jacobs, Committee Secretary

OTHERS PRESENT:

Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development

Karen G. Baggett, Deputy Director, Division of Economic Development, Commission on Economic Development

Robin Holabird, Deputy Director, Nevada Film Office, Division of Economic Development, Commission on Economic Development

Tina Tomasco, Operations and Finance Manager, Commission on Tourism. Commission on Economic Development

Audrey Allan, Director, Rural Community Development, Division of Economic Development, Commission on Economic Development

Roger Tokarz, Director, Procurement Outreach Program, Division of Economic Development, Commission on Economic Development

Margene Stenger, Accountant Technician, Commission on Economic Development

Nancy A. Dunn, Interim Executive Director and Business Manager, Commission on Tourism

Richard Moreno, Publisher, Division of Publications, Commission on Tourism

Commission on Economic Development – Budget Page ECON DEV & TOURISM-1 (Volume 2) Budget Account 101-1526

Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development, commented on the contents of a document prepared for the hearing. (Exhibit C. Original is on file in the Research Library.) He noted budget 101-1526 covers the areas of business development and research under which most inquiries about doing business in Nevada are handled. He said the research element involves providing information on the economic climate, regulations, locations, tax advantages, transportation, availability and costs of labor, and other information tailored to specific inquiries.

Mr. Shriver said information regarding the people making inquiries is passed along to one of the 13 development authorities in the state who act as client service teams. He said most inquiries come from public/private partnerships, which he opined provide major keys to success because they are driven by local people, especially in the rural areas.

Mr. Shriver reported the commission is successfully utilizing a new policy analysis tool, Regional Economic Modeling Inc. (REMI), which analyzes the public economic impact of various inquiries. He noted it allows the commission to work with local governments on incentives and what expectations and impacts may be. He said one major issue is the ability for the commission to assist rural areas in economic development. He called the commission staff members in urban areas outstanding, but admitted there are challenges in the rural areas that require more assistance from the commission.

Mr. Shriver testified that during the past year programs have been developed based on what communities prefer. A strategic plan for rural Nevada, called Building Prosperity, has been adopted. He explained projects must use a “ground up” approach in which residents analyze their communities and determine what they want and need. As a result of the new approach, he said, White Pine County has developed a “home-grown” jobs program since the Robinson Mine closed. He averred collaboration and creativity are necessary to resolve such issues in rural Nevada where there are limited resources.

Mr. Shriver reminded the committee that during the last legislative session, a telecommunications outreach federal grant program addressed the question of how to join rural Nevada to the rest of the world through the creation of fiber-optic networks. He reported that program is succeeding very well.

Mr. Shriver said branding Nevada as the place to do business is the essence of the slogan being used for overseas marketing. He stated advertising is done primarily in California, but also in trade publications and in Canada. He said the commission is targeting the energy issue in some of its California publicity, and there has been interest from some of the press including The Los Angeles Times, The Wall Street Journal, and CBS’ Market Watch, which featured some of the advertising programs.

Mr. Shriver noted the cost of advertising has gone down since a website was developed, which he opined is the best way to contact businesses. He said the marketing strategy is to use the website as a link to publications and keep information up-to-date. He reported trade shows are also used to publicize the advantages of doing business in Nevada. He added industries in medical manufacturing, electronics, and plastics were targeted over the last biennium, often in conjunction with cities and counties around the state.

According to Mr. Shriver, the “Made in Nevada” program will have a long-term benefit. He said it was not funded 2 years ago, but the Commission on Economic Development entered a partnership with the University and Community College System of Nevada (UCCSN) Manufacturing Assistance Program (MAP) to fund the effort. He noted there is a listing of over 250 Nevada companies available on the website, primarily related to consumable products. He explained the website assists interfacing with other companies in the state, and finding services and raw materials. He said there has been good publicity in newspapers and on radio stations, and he suggested the program be expanded.

Mr. Shriver stated another part of the budget relates to special projects, mostly events such as luncheons honoring new and expanding businesses. Senator Raggio asked how many attended the luncheons. Mr. Shriver responded the luncheons have grown to the point where it is difficult to find facilities to accommodate everyone.

Karen G. Baggett, Deputy Director, Division of Economic Development, Commission on Economic Development, interjected that approximately 3,200 to 3,400 have attended the luncheons. She agreed there have been problems finding facilities that are large enough. Senator Raggio commented the luncheons are a good way to recognize industry and new businesses, particularly those that have had some significant achievement, and the luncheons provide a great incentive for the community. Ms. Baggett responded the division attempts to welcome new businesses through a short reception each time, which includes the Governor or members of the Legislature and which provides picture-taking opportunities for local publicity. She noted most companies appreciate the gesture.

Mr. Shriver said follow-up shows many companies continue to expand in Nevada because of the business-friendly environment. He added that an economic development conference is held that alternates between southern and northern Nevada. He said each conference emphasizes key areas; last year the issue was the skills of the workforce. He noted one of the fastest growing areas is global trade and investment, which play an active role in expansion of existing business, with major emphasis on encouraging Nevada businesses to become exporters.

Mr. Shriver noted in the global economy of today, competition can be worldwide, not just from within the United States (U.S.). He said the commission is attempting to create more opportunities for export and to assist companies in the best ways to accomplish exporting. He said the fear of going overseas is lessening all the time, and there is a growing number of people in the state who have that expertise. He stated the goal is to encourage exportation of more products. He indicated there is also emphasis on bringing major foreign investment into the state, with many projects coming on line that will have a significant impact.

Mr. Shriver stated the commission has cultivated more than 80 consul-general programs in Los Angeles and San Francisco. He noted many opportunities and investment leads have come through the consulate offices. He announced there will be an opportunity to meet honorary consul corps representatives in Carson City on February 21, which he said will be a good way to use the resources of private enterprise to promote Nevada programs.

E-250 Eliminate Duplicate effort – Page ECON DEV & TOURISM-4

Mr. Shriver said there are no significance maintenance requests in the budget, but there are program enhancement requests in marketing. One is a request for $20,000 to maintain and improve Nevada’s presence on the World Wide Web. He reiterated that is one of the best marketing techniques to promote interest in the state and what it has to offer.

Mr. Shriver indicated another enhancement requests $25,000 each year to apply for a State Environmental Initiative (SEI) grant from the U.S.-Asia Environmental Partnership (USAEP), a division of the United States Agency for International Development (USAID), which is part of the U.S. State Department. He explained it is a $150,000 matching grant to support international public-private partnerships to bring technology to developing countries, primarily in Asia. He said he anticipates the other $125,000 for the match will be obtained from in-kind or cash donations by private companies and other parts of the public sector such as the Desert Research Institute (DRI). He reiterated much of the commitment is in the form of in-kind donations such as the time and technical expertise available from DRI. He said the commission has identified six manufacturers that intend to donate approximately $57,000 in cash.

Mr. Shriver noted the focus of the SEI grant will be on air-pollution control and clean-energy alternatives. He opined there is a lot of expertise in Nevada that can be used to great advantage, and that will eventually bring $2 million to $2.5 million into the state as income to Nevada companies. He noted one of the most successful programs has been participation in the Western United States Agricultural Trade Administration (WUSATA) trade missions. He reported Nevada companies have written up to $3 million in contracts at one-time trade shows. He said the commission pays $1,000 for membership dues, and various companies generally pay expenses for the commission members to attend trade shows.

E-710 Replacement Equipment – Page ECON DEV & TOURISM-5

Calling attention to enhancement module E-710, Senator Raggio pointed out it requests 16 desktop computers and 18 copies of anti-virus software for 14 full time equivalent (FTE) positions. He asked whether that is more than necessary. Ms. Baggett responded the Department of Information Technology (DoIT) approved replacement of computers, 5 in one year, and 11 in the next year. Mr. Shriver agreed the request should be reconsidered.

Motion Pictures – Budget Page ECON DEV & TOURISM-7 (Volume 2)

Budget Account 101-1527

Referring to Exhibit C, Mr. Shriver outlined the objectives of the film office. He said the film office supports use of Nevada cities and rural locales, and services in the production of motion pictures, episodic television, commercial films, documentaries, and industrial films. He noted the office provides services ranging from scouting and site planning, to producing the Nevada Production Directory (Exhibit D. Original is on file in the Research Library.), to working with studios, agencies, and independent producers who find they save time and money by filming in Nevada. He stated the office plans to develop a permanent base for expansion of the Nevada film‑production industry.

Mr. Shriver asserted an office that will provide assistance and direction to companies interested in filming in Nevada will help diversify the economy. He said,

rather than leave it to companies to contact various locales, the film office has available 45,000 photos highlighting potential locations in Nevada. He noted the film office also serves as a one-stop shop to assist in obtaining permits, personnel, and services related to the production of films. He added the office also serves as an informal network and problem-solving agency for local industry professionals.

Mr. Shriver pointed out all the funding for the film office is derived from room tax transferred from the Commission on Tourism. He noted $90,000 has been collected from selling ads in the Production Directory. He said the net profits are used for attendance at marketing trade shows, primarily in the Los Angeles area, and to provide tours of the rural areas for those in the industry.

Mr. Shriver suggested the budget account, number 101-1527, should be changed from “Motion Pictures” to “Nevada Film Office” to more closely reflect activities of the industry. He stated much time is spent on projects such as episodic television commercials and music videos. He reported the film industry brought $123 million into the state during the 12 months preceding December 31, 2000. He opined, at a minimum, the actual impact is probably double that.

Senator Raggio inquired how the figures were determined.

Robin Holabird, Deputy Director, Nevada Film Office, Division of Economic Development, Commission on Economic Development, responded that a formula has been developed based on experience with production companies. She explained the companies have been asked to fill out a form indicating their expenses and from that the division has been able to extrapolate other costs incurred. She opined nearly every project spends in a similar manner, although a movie with Julia Roberts and Brad Pitt has a far more flexible budget than a movie with just a $2 million budget, and such factors are considered. She added that the office usually knows where persons involved are staying, which may range from the Four Seasons to the Econolodge.

Senator Raggio drew attention to a projected increase in the economic impact of the film industry under the performance indicators to $100 million in fiscal year (FY) 2003. He remarked it seems like a lot. He asked for comment. Ms. Holabird responded that figure was surpassed last year, but she surmised there may be a production slowdown due to impending strikes in the industry.

Senator O’Donnell commented on an advertisement in the production directory that he deemed inappropriate. Ms. Holabird said she was not familiar with the ad and she would scrutinize it. However, she noted, the industry is not easily offended.

Mr. Shriver asked Ms. Holabird to review some of the past and upcoming productions slated for Nevada. Ms. Holabird recited some of the motion pictures and television productions made in Nevada, which are listed in Exhibit C under the section on Motion Pictures.

Senator Jacobsen asked whether there have been any productions about wild horses. Ms. Holabird replied the office has photos and supplementary material in one of the rural guides that is often sent to interested parties. She added there are several projects that deal with the subject of wild horses that are currently in development, one by the producer of Dances with Wolves. She noted one project underway is a documentary on making the film, The Misfits.

Rural Community Development – Budget Page ECON DEV & TOURISM-12 (Volume 2) Budget Account 101-1528

Mr. Shriver stated the Rural Community Development (RCD) program consists of several elements, but the most familiar is the Community Development Block Grant (CDBG) program. He said the aim of the programs is to build prosperity through collaboration with various governmental agencies, including federal agencies. He said the CDBG assists rural areas in improving living conditions and bringing in economic opportunities, including development grants, training, and technical assistance.

Mr. Shriver declared RCD is critical to coordinate resources, including four programs funded by federal Housing and Urban Development (HUD) and administered by four separate state agencies. He added RCD has created and assisted operation of community business resource centers, providing a “one-stop shop” for nontraditional loan programs in the rural areas. He noted the program helps build technical training and helps local communities in planning. He said RCD not only assists in those areas, but also often provides the bricks and mortar. He noted CDBG funds can be used for engineering costs and as matching dollars.

Mr. Shriver reported HUD allows $100,000 plus 2 percent of annual grant funds to be used for administration of RCD, and the state is required to match 2 percent of the grant that comes from a General Fund allocation. He noted this results in a significant costs benefit to the state, a ratio of nearly 6:1.

Mr. Shriver declared the program is very popular in the rural areas because it operates in a grassroots fashion. He said staff does not allocate the funds; instead the communities involved decide on use of the grants.

Mr. Shriver drew attention to a revision to the budget (Exhibit E) passed out earlier in the meeting, explaining that the revision was made to address questions that arose at an earlier hearing before the Assembly Committee on Ways and Means. Senator Raggio requested the revisions be pointed out.

Tina Tomasco, Operations and Finance Manager, Commission on Tourism, Commission on Economic Development, explained the funding stream was reallocated because some General Fund appropriations were in the federal line items that should not have been there. The revisions resulted in a reduction of General Fund appropriations.

Audrey Allan, Director, Rural Community Development, Division of Economic Development, Commission on Economic Development, testified $37 million has been invested in rural areas by CDBG since 1981. She stated the revised budget includes no enhancements, and the only maintenance items are those necessary to cover inflation.

Ms. Allan stated the cost of benefits in the CDBG program was 23 times the cost of administering the grants in FY 2001, indicating it has been a very strong program for the state. She suggested even with inflation the cost-benefit ratio will continue to be strong in the coming 2 years of the biennium at 1:16 and 1:15.

Ms. Allan asserted one of the greatest benefits of the CDBG program is that funds can be used by local communities as a match for other grants. By using the funds as a match, she estimated that in FY 1999 the cost-benefit ratio amounted to 1:168 and in FY 2000 amounted to 1:174. She anticipates RCD will continue to highly leverage CDBG funds with other public and private funds in the future.

Ms. Allan reiterated use of the funds for planning and engineering provides more benefits and allows rural areas to apply for funds they might not otherwise be able to access. She cited United States Department of Agriculture (USDA) Rural Development grants and state revolving funds for water and waste-water applications as examples of funds used for planning and engineering. She added it enables communities to submit projects annually that are ready to move forward. She noted Housing and Urban Development (HUD) requires a timely expenditure of funds, and indicates there should not be more than 1.5 times the annual HUD award on hand at the end of any fiscal year.

Senator Mathews questioned the great number of CDBG grants for water-related issues. Ms. Allan responded the grants allow compliance with federal mandates that come in under the Safe Drinking Water Act. She surmised a time will come in the future when the funds will be tapped by communities to address problems such as the arsenic content of water.

Senator Raggio requested that Ms. Allan research the potential problem for communities facing water problems. Ms. Allan agreed to do so.

Ms. Allan pointed out RCD does not have a single focus as many agencies do. She noted it is involved in everything that affects rural community development from water to public lands to job creation. She explained that because the mission is so broad and because there are not enough resources to address every issue, it is critical that planning be effective. Once needs are identified and planning is in place, the RCD works closely with other federal, state, and local agencies to address the most pressing needs.

Senator Raggio asked whether RCD anticipates that approximately $3 million will be available for the programs. Ms. Allan responded RCD anticipates about $2.8 million to $3 million will be available because of the popularity of the program at the federal level.

Ms. Allan described the commission’s strategic plan for rural Nevada, called Building Prosperity. She said during the past year eight meetings, with over 125 participants, were convened in the rural areas to gather input and develop goals. She said the results yielded 37 goals and 121 implementation strategies. She indicated the matters considered included such concerns as rural economic diversity, infrastructure, and leadership capacity. She asserted the base of the framework is government responsiveness to the needs of rural Nevada.

Ms. Allan reported that in January a mobilization summit to initiate some action planning was conducted in Carson City with over 100 people from federal, state and local agencies, both public and private. She said participants prioritized goals, with focus on seven issues: economic diversity, capital availability, infrastructure, housing, workforce, medical and human services, and public lands. She noted the summit concluded there are many projects to pursue that will not require much in the way of funding at present.

Procurement Outreach Program – Budget Page ECON DEV & TOURISM-17 (Volume 2) Budget Account 101-4867

Roger Tokarz, Director, Procurement Outreach Program, Division of Economic Development, Commission on Economic Development, distributed a copy of a revised budget (Exhibit F) and a printed overview of the Procurement Outreach Program (Exhibit G). He explained the program works to increase the flow of local, state, and, primarily federal funds into Nevada businesses. He explained the Procurement Outreach Program (POP) provides training and technical assistance to help companies find, bid on, and win government contracts. He added offices in both northern and southern Nevada have resource centers to assist businesses with extensive reference material and Internet access. He asserted POP helps simplify the process of selling products and services.

Mr. Tokarz related that during the past biennium the client base for POP increased to 1,185 companies that each pay a one-time enrollment fee of $50. He reported 613 companies were awarded $130.9 million in contracts.

Senator Raggio opined the fee is low and asked whether it would be feasible to ask companies to pay more. He surmised companies receive substantial benefits if they connect with federal contracts. Mr. Tokarz replied most of the 1,185 companies are not large and are composed of only two or three people. Senator Raggio suggested some sort of success fee could be imposed. Mr. Tokarz responded fees were doubled after the last biennium, and the program will consider the matter of raising the fee further, perhaps imposing an annual fee.

Noting funds come from the federal Department of Defense, Senator Raggio asked whether other states have similar programs. Mr. Tokarz replied they do, that the Defense Logistic Agency offers a small-business program that is called Procurement Technical Assistance. He explained the Procurement Technical Assistance Program divides up about $18 million of federal funding statewide with a maximum of $300,000 for a city or a county with a population of 150,000. He said there are currently 84 programs operating in 49 states since Hawaii does not have the program.

Senator Raggio asked how much other states charge in fees. Mr. Tokarz responded most states do not charge a fee because it is a federally-funded program designed to support the small business community. He noted the charter allows imposition of a fee, but most states do not impose fees. Senator Raggio commented even a small company that receives the benefits of the program would be willing to pay more than $50, particularly if they have been awarded a federal contract.

Mr. Shriver interjected:

Part of the input out of that $130 million, the criteria the feds logistics agency utilizes, is a ratio of $41,000 in grant funds, retains or, in some cases, creates new job opportunities in Nevada. We believe the Procurement Outreach Program is one of our better retention and expansion programs for small businesses. Roger [Mr. Tokarz] was mentioning the majority of our members are of the small `mom and pop’ sole proprietorship.”

Senator Raggio asked whether it is possible to show the program would not have received those contracts without the agency. Mr. Tokarz responded that the federal government requires POP to provide written documentation for any contract that it is claimed came about as a result of the program, and there is an annual audit. He said the last four audits have been rated by the Defense Logistic Agency as highly acceptable, which is the highest rating the program can achieve.

Mr. Tokarz drew attention to Exhibit G, the overview of the program, and said he uses it to attract people into the program. He noted it explains the services provided by the agency step by step, and gives an accounting of the activity of the program over the last 10 years. He related the program has been in operation for 15 years during which time local, state and federal governments have invested about $6 million in Nevada. In return, he said, the program has assisted in procurement of $390 million in contracts, a return of $65 for every $1 invested.

Mr. Shriver said:

Part of the $41,000 retention grant dollar per job, over the last biennium, relates to about 3,100 retained jobs in Nevada, and we think that’s significant. As you can see on the part of your performance indicators, this last year we had a significant increase and one of it is a one-time contract for a renovation project, the Fallon Naval Air Station.

Mr. Shriver acknowledged that is not a normal process. He added the program is usually in the $40 million a year range for most contracts. He stated it is a significant accomplishment for a company based in Reno to win the contract.

Senator Raggio noted the revised budget (Exhibit F) indicates federal funds will be allocated for decision units M-100, M-300, and M-301, and revisions have been made to M-305 and E-225. He asked whether those will reduce the General Fund appropriations requested.

Margene Stenger, Accountant Technician, Commission on Economic Development, responded:

The revisions are due to soft-share upgrades that have been postponed, and they are not available to the POP department until the next biennium. Therefore, the funds are not needed and we were able to correct the federal grant amount to reflect 300,000 and also reduce the need for General Fund.

Commission on Tourism – Budget Page ECON DEV & TOURISM-21 (Volume 2)

Budget Account 225-1522

Nancy A. Dunn, Interim Executive Director and Business Manager, Commission on Tourism came forward to testify.

Senator Rawson asked whether the Commission on Tourism produces the highway maps distributed to tourists. Ms. Dunn told him the maps are produced by the Nevada Department of Transportation (NDOT), but the tourism agency pays for them and distributes them. Senator Rawson suggested communities immediately across the Nevada borders be shown. Ms. Dunn promised to pass along the suggestion.

Ms. Dunn read from printed testimony (Exhibit H) and noted the challenge coming from the development of gaming in California. She boasted that the commission is made up of “many of the most accomplished and innovative minds in the tourism industry.”

Senator Mathews asked whether a consumer could serve as a commission member. Ms. Dunn replied that the statutes indicate members must have an interest in the tourism industry. Senator Mathews commented the membership appears to be from large and influential businesses, and she opined the views of small business owners might be beneficial. Ms. Dunn replied the commission is appointed by the Governor, but it works with smaller subcommittees made up of a broader selection of business people.

Ms. Dunn noted that Wall Street analysts have projected a 21 percent revenue decrease in Reno over the next 4 years, decreases of 15 percent in Laughlin and Lake Tahoe, and a downturn in Las Vegas. Thus it will be very important for Nevada to diversify its tourism base and become less dependent on gaming, she said. However, she noted, Nevada has become a leader in regional, national, and international travel markets over the past 18 years.

Ms. Dunn stated the number of hotel and motel rooms in Nevada has increased by 99.2 percent over the past 18 years, much higher than the national average. She added that gaming revenues increased by 170 percent and lodging tax revenue increased by 371 percent. She said figures compiled by the Travel Industry Association of American indicate travel spending in Nevada reached nearly $18.7 billion in 1998.

Ms. Dunn said when California passed a proposition to allow gaming, the Nevada Commission on Tourism (NCOT) received an authorization from the Interim Finance Committee (IFC) to spend $1,798,000 to mitigate the effects of the competition. She related a $1 million commitment was made to the V & T Railroad reconstruction after studies indicated the number of riders could reach 250,000 each year once the route between Virginia City and Carson City is complete. She surmised that should lead to additional tourism revenue of approximately $11.7 million. She stated that another program started in January, called the Nevada RV (recreational vehicle) Sweepstakes, is designed to encourage tourists to visit rural Nevada. One RV show this year, she said, attracted 8,000 RV owners, and many more similar events are scheduled.

Ms. Dunn stated Nevada has joined a regional cooperative to promote travel in the west, including the 2002 Winter Olympic Games. She added other plans include construction of a kayak course on the Truckee River and promoting other natural assets. She noted the River Festival in Boulder, Colorado, draws 300,000 tourists over a 3-day period.

Ms. Dunn said the commission will focus on creating, expanding, and enhancing Nevada attractions. She included promotion of scenic wonders, cultural and historic sites, and outdoor recreation in the list of Nevada tourism attractions.

Ms. Dunn explained the base budget requests continued funding for 9 classified and 11 unclassified positions, and authorization to continue Nevada Commission on Tourism (NCOT) mandates and programs. She noted operating costs amount to just 19 percent of the overall base budget, while marketing represents 63 percent. She said the adjusted base budget includes transfers of 18 percent of the funds to support tourism activities in the Nevada Film Office, the Division of State Parks, Division of Wildlife, museums, arts, and the commission’s Nevada State Office in Washington, D. C.

Ms. Dunn said the agency compiles a variety of statistics on tourism. She reiterated the projections by national analysts that tourism revenue in Nevada will decline by 21.6 percent as gaming grows in other states. However, she opined, parts of Las Vegas will not be affected and may even have an increase. She said she anticipates lodging tax collections may increase by 4.5 percent in each year of the biennium, an increase estimated at $500,000 per year.

Ms. Dunn said M-100 decision units include adjustments for inflation in postage and insurance costs, and M-300 decision units reflect fringe benefit changes and cost of living adjustment (COLA raises.

M-200 Demographics/Caseload Changes – Page ECON DEV & TOURISM-23

Referring to M-200, Senator Raggio inquired what activities will be performed by requested new positions, and whether the Rural Race Coordinator is a full-time position. Ms. Dunn responded the Rural Race Coordinator is a full-time position coordinating motor races taking place all over the state throughout the year. One new development specialist position, she said, will be in charge of the RV program and the purchase of a $100,000 motor home, the grand prize in the sweepstakes. She noted it is a 3-year program, and Nevada is the first state in the nation to implement such a program. She said 74 Nevada recreational vehicle parks or entry points will be participating in the sweepstakes, including 16 state parks, but excluding urban Las Vegas.

Senator O’Donnell asked whether the RV program has started yet. Ms. Dunn answered it started in January in conjunction with the annual Quartzite, Arizona, gathering, which draws thousands of people. She explained the IFC approved a contract to start the program, and now the agency wants to turn that into a full-time position as discussed earlier with the IFC. Senator Raggio asked whether it would be less expensive to maintain the contract. Ms. Dunn replied it might be less expensive in the short term, but the position will be assigned to the growing RV and rural programs, and in the long run it may be less expensive to make the position full time.

Ms. Dunn pointed out $500,000 will be dedicated to marketing with emphasis on northern, rural, and parts of southern Nevada to broaden the base in nonmajor markets. She added it is essential to promote Nevada tourism worldwide.

Senator Raggio asked whether Ms. Dunn had an itemization of advertising expenditures depicted in M-200 at $967,000 and $1,400,000 for the 2 years of the biennium. Ms. Dunn agreed to provide a list to the staff. Senator Raggio asked how much is included in the base budget for advertising. Ms. Dunn replied it is approximately $4 million each year, and there is a request to enhance advertising by $500,000. The funds will be used primarily to mitigate the effects of the proposition approving gaming in California, she said.

Ms. Dunn said there is currently one advertising contract, but consideration is being given to breaking that up into several smaller contracts. She explained the advertising contracts are awarded according to responses to the request for proposal (RFP) put out by the agency. The normal review process is 6 months. Senator Raggio cautioned the contract is very lucrative and warrants careful review. He noted it will be monitored by the Legislature. He declared the issue is very important to the state at this time and will have great economic impact. He requested the staff be provided a copy of the existing contract for advertising and any surveys on the effectiveness of the advertising program. Ms. Dunn agreed to do so.

Ms. Dunn acknowledged the agency request for an increase in the rural matching‑grant program of $125,000 and $250,000 that will bring the total grant program to $1.5 million by FY 2002-03. The grants are made as matching funds to local entities to promote tourism in rural communities. She opined that without the funds rural Nevada would lose the ability to promote events.

Ms. Dunn reported the maintenance unit includes an increase in funding transfers that were requested by the Department of Museums, Library and Arts to cover cost increases in their programs.

Senator Raggio asked whether there is a COLA included for the Washington, D.C. office. Ms. Dunn responded no increases were included in The Executive Budget for the office, and it is run under a contract issued through the Governor’s office. She offered to inform the committee when the contract concludes. Senator Raggio asked whether it has been determined whether the contract will continue through the next biennium at the amount indicated in the budget. Ms. Dunn responded the office has not proposed any increases.

Michael J. Chapman, Program Analyst, Fiscal Division, Legislative Counsel Bureau, clarified that some of the funding for the Washington, D.C., office comes through transfers from the Division of Tourism, the Nevada Department of Transportation, and the Division of Economic Development.

According to Ms. Dunn, the agency reallocated funds to areas of need after a recent evaluation of existing funds, while keeping overall expenditures at the same level as at present. She noted realignments are included in requests for enhancements. Other enhancements, she said, include increases in transfers to other state agencies for tourism-related activities. She outlined the transfers as set forth in her written testimony (Exhibit H) and suggested more details will be forthcoming when the agencies involved come before the budget committees.

E-250 Eliminate Duplicate Effort – Page ECON DEV & TOURISM-25

Ms. Dunn noted most of the requests dealing with the commission itself are listed under E-250 with a realignment of costs. She admitted these do not reflect a savings, but should result in better efficiency. She said at present the commission pays outside agencies through contracts amounting to over $245,000 for interactive marketing services and gathering statistics. She stated two new unclassified positions, with associated costs, should lower the cost of these functions by $97,000 and $105,000 in the 2 years of the biennium. The funds saved could be reallocated to advertising.

Continuing to address decision unit E-250, Ms. Dunn explained NCOT currently spends nearly $130,000 on outside contracts to produce visitors’ guides and other publications, but by transferring the publication to Nevada Magazine there should be immediate savings. She noted the salary portion of the request is included in decision unit E-806. She mentioned the transfer to the Department of Museums, Library and Arts under decision unit E-350, which will enhance promotional activities. She noted the E-710 request is to replace broken equipment and ten computers.

E-720 New Equipment – Page ECON DEV & TOURISM-26

Ms. Dunn said E-720 includes a request to purchase radio equipment currently being rented for conferences and meetings. She pointed out the average rental cost through hotels is approximately $4,700, while the purchase price is $7,500. She said NCOT produces two or more events each year, so the purchase will pay for itself within the first year. Senator O’Donnell suggested NCOT investigate the costs associated with using cell phones rather than radios. Ms. Dunn commented cell-phone service is frequently unavailable inside some hotels, and often the agency must work inside the kitchen, basement or warehouse for the conferences.

Ms. Dunn noted the request in decision unit E-730 from the Division of State Parks to transfer funds for tourism-impacted parks, not currently reflected in The Executive Budget. She said there is also a request for a reclassification and pay increase for an unclassified position under E-806. She explained the agency suggests reclassifying the position of Business Manager to Deputy Director.

Ms. Dunn concluded her testimony with a restatement of the need to expand and diversify promotion of tourism. She repeated her assessment of the intense competition being faced by the state, and suggested funds spent on tourism will help strengthen Nevada’s economic base.

Senator Raggio asked how many of the 23 FTE positions in the budget are unclassified. Ms. Dunn responded 11 existing positions are unclassified, the remainder are classified, and the 3 new positions being sought would be unclassified. Senator Raggio asked why so many positions are unclassified. Ms. Dunn replied the statute setting up the Nevada Commission on Tourism specified that the professional and technical staff would be in the unclassified service.

Calling attention to the reserve in the base budget, Senator Raggio noted the actual figure for FY 2000 indicates nothing, whereas the work program for FY 2001 indicates $4.7 million, and the agency has requested $5 million. He said the summary also indicates an actual reserve of nothing for FY 2000 but with a reserve of $4.8 million at the end of the biennium. Ms. Dunn replied:

The reason it reflects a zero in the actual year is because that funding is transferred forward to the next year, which would be 2001. So reserve will show at zero in your base year, but then you will see it as a balance forward in the second year, for 2001. Now also, the adjusted base has been adjusted to reflect the increases that we are projecting in 2001, which is not part of your biennial request. If it is not adjusted in the base year, then we seem to be missing that one year of increases that we are projecting, which is fiscal year 2001, and it is not part of the budget calculation, because it starts with your base year.

Ms. Dunn added that is how the reserve goes from $4 million one year to $6 million by the end of the biennium.

Gary L. Ghiggeri, Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, explained the reserve will not show up in the base years because no funds have been expended and only expenses are indicated in the budget. He said the funds in the reserve in FY 2000 are reflected in the balance forward in FY 2001.

Senator Jacobsen voiced concern regarding the needs of the railroad museum in Ely. He suggested inmates from the camp near there could be utilized to improve maintenance and thus benefit tourism. Ms. Dunn agreed the railroad museums are a great tourism draw. She noted one of the transfers included in the budget is aimed at providing contract custodial services during the busy spring through fall seasons.

Senator Neal asked whether the cost allocation to the Office of the Attorney General might be low in light of anticipated wide participation in the motor home sweepstakes. He noted that any time prizes are offered, the chance for litigation rises. Ms. Dunn responded the allocation is an assessment determined by the attorney general’s office after the deputy attorney general for the commission reviewed the program extensively. She said the review was made before the commission went public with the sweepstakes.

Senator Neal pointed out purchasing assessments for which $6,000 was requested were increased to $27,000 by the Governor. He asked what that item covers. Senator Raggio indicated that is an assessment set by the Purchasing Division.

Nevada Magazine – Budget Page ECON DEV & TOURISM-30 (Volume 2)

Budget Account 530-1530

Richard Moreno, Publisher, Division of Publications, Commission on Tourism, came forward to testify on the Nevada Magazine budget. He gave copies of the magazine, the 2001 historical calendar, and other pamphlets available to the public to members of the committee.

In response to a question from Senator Raggio, Mr. Moreno said the magazine has been self-supporting for some time, but it has a relationship with the Commission on Tourism. As an example, he said, the magazine sells the commission 27,000 subscriptions, which are distributed six times each year to travel agents to use as promotional tools. He explained a follow-up survey of travel agents indicates approximately 10 people see each magazine, meaning 270,000 people located outside the state read about Nevada. He added overruns of 80,000 to 100,000 of the calendar of events included in the center of the magazine are sold to the Commission on Tourism that distributes them in packages they send out in response to inquiries.

Senator Raggio noted the revenues include subscriptions. Mr. Moreno responded the subscriptions are discounted to cost for the commission.

Mr. Moreno commented the magazine has been in publication for 65 years and a series of articles will commemorate the anniversary during this year.

Mr. Moreno reported primary enhancements in the budget reflect inflation and request cost-of-living increases, including anticipated postage and printing increases. He noted the other enhancement addresses the funds transferred from the Commission on Tourism when the magazine will assume major publishing for the commission. He reiterated the magazine will be able to publish those documents less expensively than what is being paid to private contractors at the present time. He added this will allow taking advantage of in-house expertise by staff that works on Nevada issues every day to assist in promotion of tourism.

Mr. Moreno said some of the projections are purposely stated high because advertising revenue can be flexible and volatile. He noted in any given year the loss or gain of one large advertiser can swing the budget by $50,000. He explained that is why the budget historically projects higher advertising revenue each year to prevent the necessity of going to IFC. He said the budget is predicated on revenues, so no funds are expended that are not raised. As an example, he pointed out the print category is much higher than the actual cost, because when more advertising is sold it is necessary to print more pages. He acknowledged the higher figures are used as goals and provide flexibility.

Mr. Moreno said a gift shop discussed during the last session is finally coming into being. He attributed the delay to the lack of security doors blocking access from the public. He reported funding for the doors was approved by the IFC and construction should begin with the next 2 weeks. He noted there are already quite a few walk-in visitors and a sign will be placed in front of the building advertising the gift shop.

Mr. Moreno reported the magazine is expanding partnerships with other state agencies to take advantage of opportunities. He noted mailings are sent out with billings for the Department of Motor Vehicles and Public Safety, in which subscription offers for Nevada Magazine are inserted. He said over the past 6 months that has produced 1,300 new subscribers. He added the division produces a guide to state parks, which will be sold in the gift shops of those state parks offering that service, and the guides will be used as promotional items for the magazine.

Mr. Moreno commented that 3 years ago the magazine started a “best of Nevada” survey, and the program has been very successful. He said many properties around the state now publicize their ratings by the survey, and that results in promotional value for the magazine and helps advertising sales. He added the travel-update newsletter published through contracts for the two convention authorities and the Commission on Tourism is now being published six times a year. He noted it is included in the 27,000 subscriptions sent to travel agents. He said the magazine runs an Internet site found at Nevadamagazine.com, which has been receiving an increasing number of hits and through which items in the gift shop will be offered.

In response to a question from Senator Raggio, Mr. Moreno said next session the magazine may request a new position to help with the gift shop, but at present he said it cannot be justified from a revenue standpoint. He noted 3,000 more calendars have been sold this year than in 1999, and sales continue to increase.

Senator Jacobsen voiced concern as to whether there are old items in storage that failed to sell through the gift shop. Mr. Moreno responded there are, and the intention is to offer some of the items in storage at a discount. He added the Internet site is offering them. He stated the intention of the magazine to keep the gift shop open on the next Nevada Day when many people are in Carson City.

Senator O’Donnell asked whether the magazine has approached some of the airlines with an offer to provide copies of Nevada Magazine. Mr. Moreno replied at one time the magazine was distributed to Reno Air, but distribution was ended when Reno Air signed an exclusive contract with another magazine distribution agent. He noted most airlines have similar arrangements with other publications in which they have exclusive rights to advertising, and those publications pay a fee to the airlines. He said some of the bus companies place Nevada Magazine in seatbacks. Senator O’Donnell suggested the magazine submit articles to airline publications.

There being no further business to come before the hearing, Senator Raggio adjourned the meeting at 10:18 a.m.

RESPECTFULLY SUBMITTED:

Judy Jacobs,

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

DATE: