MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
June 3, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:12 p.m., on Sunday, June 3, 2001, in Room 2135 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 Mike McGinness, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Randolph J. Townsend
Senator Joseph M. Neal, Jr.
Senator Bob Coffin
COMMITTEE MEMBERS ABSENT:
Senator Ann O’Connell (Excused)
Senator Michael Schneider (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman Lynn C. Hettrick, Douglas and Carson City (part) Counties Assembly District No. 39
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Mel Schwake Jr., Concerned Citizen
Dudley Kline, Concerned Citizen
Steve Talbot, Concerned Citizen
Kim Greenspan, Concerned Citizen
Chairman McGinness:
We will open the hearing on Assembly Bill (A.B.) 668.
ASSEMBLY BILL 668: Temporarily limits annual increase in taxable value of property in certain areas for assessment of property taxes. (BDR 32‑ 1551)
Assemblyman Lynn C. Hettrick, Douglas, Carson City (part) Counties Assembly District No. 39:
In the Lake Tahoe Basin, property is very scarce and going up rapidly in value because of the restrictions placed upon it by the TRPA (Tahoe Regional Planning Agency) and the desirability of the location. A prime example is a family who bought a 32-acre parcel in 1926 on which they have an 800 square foot cabin. It has become entrapped in one of the SEZ (stream environment zones) TRPA zones and they cannot do anything to the property. They cannot develop it, they cannot expand the cabin, they cannot divide the property, they cannot do anything to it, and they have been paying $7500 a year in property tax for the 800-square-foot cabin. Last year, with the new evaluation in the basin, their property tax went to $105,000 a year. At that point it is not worth it for them to own the property. They will sell the property for a lot of money, but that is not the issue. The issue is no one can touch the property and the only buyer is the U.S. Forest Service. When, or if, the U.S. Forest Service takes the property, it goes off the tax rolls and the land immediately goes to in lieu of taxes. Douglas County, Washoe County, and Carson City lose the tax money.
Right now Douglas County is struggling for tax dollars to keep its Tahoe-Douglas Fire District afloat. If we keep sending this property to in lieu of taxes, we will not be able to fund our services at Lake Tahoe. These folks will be forced off the land and not one private person will buy it because they cannot touch it. We are seeing this process over and over again. The assessor in Washoe County came in and said there are 8500 parcels in Incline Village and 1500 of them have already gone to in lieu of taxing.
The intent of this bill is to put a 6 percent cap on the increasing value between now and when Senate Joint Resolution (S.J.R.) 11 of the Seventieth Session goes to the ballot next year. It provides for relief from property taxes based on legislation passed by this Legislature.
SENATE JOINT RESOLUTION 11 OF THE SEVENTIETH SESSION: Proposes to amend Nevada Constitution to authorize abatement of property tax for certain owners of single-family residences. (BDR C-1435)
Assemblyman Hettrick:
We could then draft something that would accommodate these kinds of unusual spike increases and try to take care of this property being forced out of private hands and into the public domain. This bill sunsets in 2 years. We went back 10 years to see what the average value increase of property in the basin was and found it is 5.6 percent. We have capped the tax at 6 percent. On average this is not going to hurt any of the counties, and they have agreed to it in the Assembly where we amended it heavily. All we are trying to do is not have someone “spike” their taxes from $7000 to $105,000 and force them off the land before we can do something to help.
The first part of the bill starting on page 1 to line 26 on page 2 essentially explains what and why we are trying to do this. On line 26, it says as long as you have a regional planning agency and they are establishing environmental threshold-carrying capacities then the assessor shall limit the increase to 6 percent. Further, it says if you split the land, then the taxable value has to go on an apportioned basis on the split. If you combine parcels it would have to do the same thing. We are not trying to let anybody get out of paying taxes, we are trying to cap it so we do not see these huge spikes.
Senator Neal:
How are you getting around the equalization problem of taxation?
Assemblyman Hettrick:
We drafted the language first and then we had to get a letter from the LCB (Legislative Counsel Bureau). The letter came back and said on its face the bill is unconstitutional because you cannot get around the just valuation clause. This current bill on its face is not unconstitutional, and is why I did not have to present a letter to you. Now, is it possible this legislation is unconstitutional? Yes, it is possible. But, it is not on its face. There is no court case in point which is why we drafted this as we did and sunsetted it. This was to try to give some relief to these folks so they are not driven off the land before we can address this constitutionally with S.J.R. 11 of the Seventieth Session you passed.
Senator Neal:
You do not know whether or not it is constitutional?
Assemblyman Hettrick:
Yes. It is not unconstitutional on its face.
Senator Coffin:
What is the value of these 32 acres, and have these people had an offer on the land?
Assemblyman Hettrick:
They have not had an offer on the land and do not want to sell. It has been in their family for 75 years. The U.S. Forest Service went around offering to buy, but it was not a formal offer. The land is worth millions, but this is not the issue. Even though the land is worth millions they have not realized a penny off it. If they sell it they will pay the taxes but not any of it will be in property tax. It will not protect that for the county. This is as much to protect the county as it is the landowner. It is killing the counties to have this land go in lieu of, and if we do not stop this we are going to tax everybody off the land. Somehow we have to protect this land, it is not protecting anybody. The tax now is $7000 annually for an 800-square-foot cabin.
Senator Coffin:
The tax is on the land not the cabin?
Assemblyman Hettrick:
Yes.
Senator Coffin:
Is this a lake view piece of property?
Assemblyman Hettrick:
This particular piece of property is in a stream zone and I do not think it has a lake view. It is near the lake but it is not on a beach.
Chairman McGinness:
The limiting language starting on page 2, line 30, says, “property located within a region covered by a regional plan adopted by the governing body of a regional planning agency created to establish.” By limiting that do you know how many parcels you are affecting?
Assemblyman Hettrick:
The information we received based on this bill estimated 10 parcels are going to be affected. This will cap everything in the basin for 1 year at 6 percent, and that is why I mentioned to you the average increase in the basin is 5.6 percent. This will cap everything because if I do it the other way, Senator Neal was exactly right. If I pick individual properties out, that is illegal and unconstitutional on its face, and I cannot do that. The county assessors and everyone have come back to me and said in fact this is the kind of spikes we will see. About 10 to 20 parcels in the basin is all it will affect. But, it will actually cap the entire basin. (Testimony from Hilton Atherton, Concerned Citizen, electrical engineer, Bently Nevada Corporation, Minden, was read by Assemblyman Hettrick [Exhibit C]).
Senator Coffin:
Are there any other areas in Nevada this would describe?
Assemblyman Hettrick:
No, at the present time there are not. This was drafted purposely to do that, so we would not have a negative impact and cap anywhere else, because, as the chairman pointed out, the language starting on page 2, line 30 says it takes a regional planning agency that is establishing an environmental threshold-carrying capacities for a region that exhibits unique environmental and ecological values. That describes exactly what TRPA is doing and it does not apply to any other region in this state at this moment. I asked a question of the legal staff at the LCB (Legislative Counsel Bureau) and the answer was, if tomorrow morning the regional planning agency in Clark County decided to establish a carrying capacity based on the desert tortoise, then it would apply to them, but they would have done it to themselves and they would have chosen to do that and limit their own property rate. If they do not do that then they will not have a problem with it. It affects no one but three Nevada counties in the Tahoe basin.
Senator Coffin:
They have limited development based on these kinds of circumstances in the Las Vegas Valley, not identical circumstances. You mentioned the tortoise that, in fact, did change, or in essence, reduce the amount of developable land until a preserve was found. I do not know of any other circumstance which makes it harder if you do not have any other like areas.
Assemblyman Hettrick:
The intent was not to have it affect any other counties because they are not seeing these kinds of individual spikes on land that is unsellable.
Mel Schwake Jr., Concerned Citizen:
I am representing my mother who owns a piece of property, in the Glenbrook area below the firehouse that was purchased by my parents in 1964. The taxes have gone up approximately 90 percent from the previous fiscal year to this fiscal year. I would like to thank Assemblyman Hettrick and the Taxation Committee for hearing this. I think this legislation goes a long way towards identifying the problem. One observation I made to the Assembly concerning the economic features happening here, because the U.S. Forest Service is buying up so much of the land in the basin, the supply is being drastically reduced and the demand, even if it stays normal or increases, the price logically would go up. Las Vegas or Clark County get some of the benefits of the trades when the forest service trades land. They get a slight reduction in the pressure on supply and demand by creating a little more of a supply.
The Constitution of the State of Nevada, Article 1, section 1, provides for our alienable rights. It says, “All men are by Nature free and equal and have certain inalienable rights among which are those enjoying and defending life and liberty; Acquiring, Possessing and Protecting property and pursuing and obtaining safety and happiness.” I think the inalienable right of possessing property is the only thing that protects us from having to liquidate our property for taxes or any other reason.
Senator Neal:
Are we dealing with property taxes?
Mr. Schwake:
Yes, real property taxes.
Senator Neal:
Is the assessment being done on the property by the assessor in the area?
Mr. Schwake:
Yes.
Senator Neal:
If the assessor assesses your property at a certain value then you are supposed to pay the taxes according to that, correct?
Mr. Schwake:
The assessment is at 35 percent. The constitutional requirement is just valuation.
Senator Neal:
On the 35 percent not being changed, is it because the value of your property is going up so the 35 percent becomes much higher in terms of what you have to pay? If we put a cap on it, that would mean you could still enjoy the increased value without paying the taxes.
Mr. Schwake:
Certainly, the market at Lake Tahoe where supply is anticipated to be reduced even further with the U.S. Forest Service buying more land, due to supply and demand, the prices are going to go through the roof. I am also a third-generation rancher in Carson Valley. Were it not for the “greenbelt” law, I would not be a rancher in Carson Valley. Yes, the values of the ranch are going up, but I gross $100 per acre on the ranch.
Senator Neal:
This is a different situation in which you have an area in Lake Tahoe where you have the value of the property continuing to increase and the taxes will go up correspondingly, but, the question is whether or not it is fair to put a cap on it when at the same time you are going to enjoy the increased value of the property. For instance, when someone bought the property back in the 1960s, it is considerably higher now than what they paid for it in 1960; therefore, if they should happen to divest themselves of that property by sale and accrue a profit, then the profit will also be higher.
Mr. Schwake:
That would also be true for stocks and many other types of financial instruments that have gone up equally in value that pay no property tax in the state of Nevada.
Senator Neal:
On the other hand, we invest in property hoping it will increase in value.
Assemblyman Hettrick:
First, do they get to enjoy the value? The value went up, but it is the same value, the 800-square-foot value. It has not gone up in value to them, it has gone up in value on paper because they have not sold it and realized the profit. That is what the federal government says about stocks and property. If you have not sold it, even though you have realized a gain, you have not realized the gain until you sell it. So, they are not enjoying the increased value, they are enjoying the property as they bought it. They invested in it and their investment is costing them interest money to keep it. If I bought stocks on the same basis you were talking about, and the stocks would go up in value, I would pay no tax but would be paid dividends. When I buy land it can go up in value, I realize nothing, but, it is eating my income. I pay everyday to have the pleasure of retaining that land plus the money I invested to buy it. I go back to the issue that we are not trying to protect these people, they are willing to pay exorbitant taxes on these lands compared to what most people pay for property. The problem is, it is getting so exorbitant it is going to drive them off their land which will go in lieu of, and then they lose it and nobody benefits. The county will also lose the income, which is what we are trying to address with this bill.
First, it sunsets and will only cap 1 year of increase. Second, S.J.R. 11 of the Seventieth Session goes to a vote of the people and if they do not agree then this bill goes away and the property taxes go forward. It will not change a bit if the people do pass S.J.R. 11 of the Seventieth Session. Then I will be back trying to get the legislation passed which is to try to cap this fairly and legally for everyone.
Senator Neal:
Assuming you did lose the constitutional amendment and we have capped the property based on this bill, does the taxpayer who benefits from the cap have to pay the retroactive portion?
Assemblyman Hettrick:
It will not have to be retroactive because it will only cap 1 year. It will go into effect this year and they have already had their increase this year. It would hold to a 6 percent increase next year which would be the cap, then it would sunset. If S.J.R. 11 of the Seventieth Session does not pass then the assessor can re-evaluate the property and their taxes will go forward. We are only talking about a 1-year cap at 6 percent in the basin where the average is 5.6 percent.
Chairman McGinness:
Assemblyman Hettrick, you indicated three counties will be affected.
Assemblyman Hettrick:
Washoe County, Douglas County, and Carson City which has only one parcel in the entire Lake Tahoe Basin, They are not materially affected. Douglas County and Washoe County assessors worked with me and they signed off on this bill before we passed it in the Assembly. They have no problems with the bill.
Chairman McGinness:
If A.B. 668 passed it would give them a 1-year relief window until we find out if S.J.R. 11 of the Seventieth Session passes. Please give a brief scenario on what S.J.R. 11 of the Seventieth Session would provide.
Assemblyman Hettrick:
Senate Joint Resolution 11 of the Seventieth Session says after the vote of the people the legislature may enact a law that allows for the abatement of taxes based on severe economic hardship. They will have to prove the economic hardship and the people will not be able to get this “as a blanket.” The point of the resolution was to address issues like this.
Chairman McGinness:
They will have to prove it to the assessor.
Assemblyman Hettrick:
Correct, or however we write the legislation.
Chairman McGinness:
We will open the hearing on Assembly Joint Resolution (A.J.R.) 8. Assemblyman Hettrick please explain how A.J.R. 8 fits into all of this.
ASSEMBLY JOINT RESOLUTION 8: Proposes to amend Nevada Constitution to provide for separate taxation of certain property regulated by interstate compact and to provide for abatement of tax upon or exemption of part of assessed value of undeveloped land or single-family residence under certain circumstances. (BDR C-785)
Assemblyman Hettrick:
The reason for A.J.R. 8 is S.J.R. 11 of the Seventieth Session speaks only to single-family residential units. It does not speak to undeveloped land and the intent here is to pick up undeveloped land as well, so we do not force someone off undeveloped land in the basin. That is the entire intent of this resolution.
Page 2, line 5, says if the property does ultimately develop then it must be taxed. The reason is, if you go back and do it on a sales basis, it becomes a Proposition 13 in California. This is not allowed by our Nevada Constitution, and S.J.R. 11 of the Seventieth Session does not address that issue. So, it cannot be done on the basis of a sale. It can only address development, and any development will pay a full-blown tax at regular price. If I developed it, I would pay the full-tax bill, not on the land, but full-tax bill on anything else.
Chairman McGinness:
Let us go back to the scenario with the person that has 30 acres with a cabin and the only buyer is the U.S. Forest Service. They get their taxes capped for 7 years and in year 8 they decide to sell and get, let us say $10 million. The U.S. Forest Service does not do anything to it. Is that considered subsequent development? Would the county be able to go back and recapture 7 years of taxes?
Assemblyman Hettrick:
Yes, that is the intent, the county would be able to go back and recapture 7 years of taxes. That is the open ground under the agricultural exemption which does allow for a 7-year recapture.
Chairman McGinness:
We are setting up a “greenbelt” for open land.
Assemblyman Hettrick:
Exactly.
Dudley Kline, Concerned Citizen:
I am a retired engineer with the Nevada Department of Transportation. I have lived at Lake Tahoe for 40 years and commuted to and from Carson City everyday. Now I am being put into a difficult position where my taxes are as much as my yearly retirement. My taxes have gone from $11,881 a year to $21,272 which is roughly a 79 percent increase. When you talk about a “greenbelt” I feel this is counter productive. The kinds of spikes we are having is going to force me to either sell to a developer or develop the property myself. I have an 800-square-foot house on the lake front and a home by the highway and it was never my intent to sell. The property has been in my family since 1939. I have owned it since 1960. My wife has taught school at the lake and my children have gone through the schools at the lake. I was wondering what is going to happen to the people like us? You are going to have nothing but mansions all around the lake area. You are not going to have any people working for the highway department or teaching school because they will not have a place to live. These are problems that have already developed there. They had a hard time hiring a new principal at the local school at Lake Tahoe because the principal could not find an affordable home.
Steve Talbot, Concerned Citizen:
I am a veteran and I have lived in Gardnerville for 35 years. We have a place at Lake Tahoe that has been in the family since 1937, and we have four generations on the property. I feel there needs to be something done to resolve this issue of tax increases that is forcing some of us common working people out of the lake basin area. For example, the house we built in Gardnerville, in 1974, had taxes of about $1000 a year and at that same time we bought the property at the lake from family members and the taxes then were about $1000 a year. Now the taxes in Gardnerville are about $2500 a year and the taxes at the lake are close to $15,000 this year. It makes it very difficult for people who are trying to make their living without the kind of income that a lot of the people have who are moving into the Lake Tahoe area but are not living in the county. It is a second home. They are not a part of the county and they are not contributing to the county. It makes it tough for us to maintain and live up there. The house we have was built in 1937. It is not a huge mansion, it is not winterized, it has no insulation inside, it is strictly a summer home. There has to be some way to address these problems. I do not mind paying taxes, and we pay plenty of taxes, but to the point where you have to put families out that have been there for four generations does not seem right. I would like to get some sort of help to maintain it. The property is valuable there is no doubt about it, but, no one wants to sell. It is four generations in this family, and it is important. That is why it is important to us and why we stay on the property.
Kim Greenspan, Concerned Citizen:
I have already had to list my house for sale. I have three children and my husband and I have been in the Lake Tahoe Basin since 1984. We have sold five lake front acres already to the State of Nevada. My property is adjacent to the property Assemblyman Hettrick referred to. We cannot stay. Our taxes are $9000 already and I cannot possible fathom $35,000 in taxes. So, we have listed our home and it is regrettable. But, we need to take care of our family. We do not have any more land to sell and the county has lost taxes on our five acres of lakefront property.
Chairman McGinness:
We will close the hearing on A.B. 668 and A.J.R. 8.
SENATOR RHOADS MOVED TO DO PASS A.B. 668.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION FAILED. (SENATOR NEAL ABSTAINED FROM THE VOTE. SENATOR COFFIN VOTED NO.)
*****
SENATOR RHOADS MOVED TO DO PASS A.J.R. 8.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR COFFIN ABSTAINED FROM THE VOTE. SENATORS O’CONNELL AND SCHNEIDER WERE ABSENT FOR THE VOTE.)
*****
Chairman McGinness:
We will bring up A.B. 668 on the floor and provide the two committee members that are absent with the information. I adjourn the meeting at 2:47 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: