MINUTES OF THE
SENATE Committee on Taxation
Seventy-First Session
March 1, 2001
The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:03 p.m., on Thursday, March 1, 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 Ann O’Connell
Senator Joseph M. Neal, Jr.
Senator Bob Coffin
Senator Michael Schneider
STAFF MEMBERS PRESENT:
Kevin D. Welsh, Deputy Fiscal Analyst
Rochelle Trotts, Committee Secretary
OTHERS PRESENT:
Carole Vilardo, Lobbyist, President, Nevada Taxpayers Association
Marvin Leavitt, Lobbyist, City of Las Vegas
Mary C. Walker, Lobbyist, CPA, City of Carson City, Douglas County, and Lyon County
Chairman McGinness:
At the Nevada Taxpayers Association dinner on February 28, 2001, Marvin Leavitt received the lifetime achievement award. The Senate Taxation Committee would like to add our congratulations to Mr. Leavitt. I now open the hearing on Senate Bill (S.B.) 203.
SENATE BILL 203: Makes various changes relating to ad valorem taxes to pay for operation of regional facilities. (BDR 31-890)
Carole Vilardo, Lobbyist, President, Nevada Taxpayers Association:
Last legislative session a bill wound up in Senate Judiciary that allowed a 5 cent property tax levy for five counties, for operating expenses. In this instance for a juvenile facility, the state provided capitol funds because the counties did not have enough money. We had gone to Senator James and the chairman here (Senator McGinness) and said the bill does not belong in Judiciary because it is property tax. In fact, it is so narrow that, potentially, if we cannot get it in to your committee and amend it so we have good parameters, it is going to be a case like the local-option sales tax. We will have 15 options; we will have individual counties coming in, where they want to do something regional and keep adding these 5-cent levies. At any rate, the sponsor of the bill last session was Assemblyman Dini and he agreed to the amendment. Unfortunately by the time we got it switched from Judiciary to Taxation and had the amendments ready it was too late because of the deadline. With all involved it would be put into the 253 committee (Senate Bill 253 of the Sixty-ninth Session), to review the parameters that were being set up and bring it back for your consideration when that had been done.
SENATE BILL 253 OF THE SIXTY-NINTH SESSION: Creates legislative committee to study distribution among local governments of revenue from state and local taxes. (BDR 17-193)
There has been discussion about the fiscal plight of the rural counties to provide some mechanism for operations that, in effect, might encourage regionalization of facilities. This bill moves that 5 cents out of chapter 62 of Nevada Revised Statutes (NRS), which actually deals with judicial issues and puts it into chapter 354 of NRS to keep the property tax rates and limitations relatively consistent in the chapter. It sets up specific conditions to be a regional facility that has to be agreed to by inter-local entities. Each entity could set up this amount, but nobody is obligated to set it up.
Senator Rhoads:
Give me an example of a regional facility?
Ms. Vilardo:
A regional facility could be a detention facility, an adult correction facility, a juvenile correction facility, and/or a wastewater treatment plant. We tried to keep this defined to things that represent essential services. Public safety and health were included, but the lifestyle-type issues such as parks, or a fairground, were not included, because it was looked at in context particularly with the needs of the rural counties. The counties are strapped for available rates of ad valorem tax. With the financial plight of some of these counties, this would possibly allow for regionalization. This will be perceived as a tax increase because you are expanding that 5 cents to all counties, from five counties. What happens is you do not have to levy it, but it has to be established each year to assist with operating. With the 5 cents, as it was last year, there was one county in the first year of implementation that did not need the 5 cents, so they did not levy it. It has got to be based on what you need and re-justified every year or it is not ongoing. Hopefully, it might present some help to those counties. From a policy issue, I do not think anybody wants to see happen with our property taxes and what has happened with those local-option sales taxes where we have 15 different local options for a quarter of a percent. This is what we are trying to avoid.
Chairman McGinness:
The regional juvenile detention facility located in Silver Springs was a cooperative effort of Churchill, Lyon, Carson City, Douglas, and Storey counties. Last session we established that and basically what this does is sets out the parameters. There were not any guidelines because we did not have time to do it, but this gives guidelines to all counties.
Ms. Vilardo:
This does include Clark County. We did not put a population restriction on it and wanted it to be used for essential issues, not lifestyle issues.
Senator Rhoads:
Only section 8, page 5, lines 12 and 13, does not apply to Clark County?
Ms. Vilardo:
That is chapter 62 of NRS and only applied to the five counties. Clark County was specifically excluded. It is being taken out and put in to chapter 354 of NRS, with all the new conditions.
Senator Townsend:
Ms. Vilardo, you mentioned something that is for safety, are you referring to, page 1, line 8, “related to public safety, health or criminal justice”? Is that the only place it is narrowed?
Ms. Vilardo:
Yes. Personally, when we did public safety it encompassed criminal justice, but evidently their were some concerns that it might not allow some of the facilities we are talking about, like the detention facilities, or that public safety would be more police or fire, rather than criminal-type issues.
Senator Townsend:
When we redefined the Department of Motor Vehicles and Public Safety, that is exactly what had happened. If you use that term now it is not related to juvenile or criminal justice in any way. You said it is not related to lifestyle. Lifestyle in our rural counties might be different than in our urban counties.
Marvin Leavitt, Lobbyist, City of Las Vegas:
The language in section 4, the provision in that chapter references the ones by which we determine the normal operating revenue from property taxes from all local governments. We normally refer to that as a 6 percent formula, the one that allows them the 6 percent growth. This would be in addition to that and, notice at the bottom line of the first page, it allows the rate not to exceed 5 cents per $100 of assessed valuations. That would be the maximum rate that could ever be charged. Section 5 determines the accounting requirements, budgetary and financial reporting, that would relate to the money in this fund. If the funds should terminate, there is a provision that says any remaining money will go into one of two funds. At the top of page 3, money in the “fund established pursuant to NRS 354.6113 or NRS 354.6115.” NRS 354.6113 is a special fund established for capital projects and NRS 354.6115 is a stabilization and natural disaster fund. The other provision, in section 6, simply makes this the definition as it relates to this fund consistent with the definitions we find in chapter 354 of NRS, which is the general chapter for local governments relating to finance and budgeting. On page 5 there is some deleted language which goes back to this regional facility for children and eliminates the authority to levy an ad valorem tax, but, of course, replaced with the regional facility for children, as it appears in section 3, on the first page, and make it applicable to the 5 cents previously mentioned.
Senator Neal:
As far as other regional facilities are concerned, do we have this type of tax in place to build a facility and provide the operating cost for the facility?
Ms. Vilardo:
Existing, in statute since 1989 has been a property tax, which may be levied by counties, not in a regional manner, but each county may levy a property tax without a vote of the people for a capital project. There is a mechanism that each county could use for a levy, if they had the operating rate. They could use part of it through an interlocal agreement, build the facilities and then have the funds to operate. You can build or operate more than one regional facility, but you cannot levy up to 5 cents for each. The aggregate absolute cap maximum is 5 cents.
Senator Neal:
What is the meaning of the language on page 2, line 12, subsection 4?
Ms. Vilardo:
In the original testimony, on the original bill, in the original facility, it was not to be a levy of 5 cents forever because you have a county that has increased assessed valuation. For example, 1 year they have 5 cents but then a major plant or mine opens which increases the assessed valuation, which then if you kept it at 5 cents would give you even more money you needed to operate. That is why each year you need to reevaluate what part of that 5 cents, if any, you need. This is at least a decent taxpayer protection to something that is not going to a vote of the people, just because we set it here. It is not going to be here forever. The hearing tells you on what basis any part of that rate is going to be used.
Senator Neal:
If you have more money in the fund than what is needed, the county commissioners here in question would have to reduce that rate of ad valorem tax?
Ms. Vilardo:
That is correct.
Senator Neal:
After reducing, can they increase it, if necessary?
Ms. Vilardo:
Yes. That is the reason for the annual provision. Each year they take a look at whatever regional facility it is they have agreed to for each county involved. Each county knows what their share of the operation is for that facility. Based on the cost and their share for that ensuing fiscal year, they set whatever the amount is, up to 5 cents. Two years ago when this went into effect, Churchill County did not have to set the rate at all.
Senator Neal:
On what basis was the determination made, concerning the 10 percent or less in the fund that would trigger this decision?
Mr. Leavitt:
The 10 percent relates to what you want to leave in a fund indefinitely for financial stability purposes. When you determine how much revenue you need to operate this fund, you do not want to use your ending balance down to 0.
Senator Neal:
What about 5 percent?
Mr. Leavitt:
In most local governments we have said you should have 1 month of operating expenses, which is 8.33 percent and I suppose this is rounding from that to give us 10 percent in the fund.
Chairman McGinness:
If, in a given year a commission levied the full 5 cents and found they had a major mine open, would they not be required to reduce that? They would have to have a public hearing at what time the public could come forward and say you do not need it any longer.
Mr. Leavitt:
There is no provision that says you are forced to have a budget that is no larger than the amount from the previous year. If you follow that through for a couple of years, and suppose they have been levying 4 cents, which has been sufficient to cover operating expenditures over time. You have a major industry come into one of these counties and the assessed valuation has drastically increased which goes through a budgetary process to determine the revenue they will need for operational purposes. They are allowed the 10 percent and show operating expenditures remaining the same then you are going to have a reserve much larger than 10 percent. The only way they would not is if they increase operating expenditures by enough to cover all of this, which becomes obvious through the budget process.
Chairman McGinness:
The fail safe for the taxpayers is, every year the commissioners have to take a look at that and make a determination.
Senator Neal:
Explain how the counties dissolving the interlocal agreement would work.
Ms. Vilardo:
If the counties would dissolve because it is a property tax rate, let us say they did this in the middle of the year, they dissolved and decided the interlocal agreement was not going through. The way the law reads, they would be collecting that property tax for the next 6 months. The budgets are set annually, so now we come to the budget period, we no longer have this agreement to fund this, for whatever reason we do not have the facility anymore. I decide at this point and time because of the way the law reads, there is no way I can continue to levy this, I have no agreement, no facility to operate and have to take it out of my budget. In addition, I have had this additional accumulation plus the 10 percent, which would go into the two funds Mr. Leavitt was referring to: stabilization or capital. There might be a windfall, even though for some counties the windfall might be $50,000. We did not want it to be used for operational expenses for something else because it would be a source of revenue that would not be there in the future. We wanted a place that made sense to go and improving your rainy day fund for when the economy goes bad in the area or using it for straight capital, which is not ongoing.
Senator Neal:
What is not listed on page 2, then the interlocal agreement of the contract would cover all of those other things the counties might want to include, in terms of termination of the agreement itself?
Mr. Leavitt:
There could be a number of things related to termination of an agreement. What this does specify, however, after you do all of this, there is money available, this money does not go to the General Fund of either of these two entities, but goes either into the funds specifically identified for capital projects in the statute or the one specifically identified as a stabilization fund or that fund can also be used to offset the effect of natural disasters. It would not go into the General Fund to be used for operations. The idea is allowing the levy of the money, this 5 cents over and above the money that is available to local governments for operational purposes. As a result of that, if you terminate, it should not go back and be used by local government for operational purposes, only to be used for these specialized purposes in one of these two funds.
Senator Neal:
This would require each county, if that should happen, to set up this type of fund and can only be used for a specific purpose?
Mary C. Walker, Lobbyist, CPA, City of Carson City, Douglas County, and Lyon County:
I represent three of the five entities that have this regional juvenile facility, which is working very well. One of the problems we had was to find a long-term funding source which would guarantee other counties, all participants in the agreement, if you had counties who were to leave this partnership because of monetary considerations and in the entire juvenile, or other regional facility, it would not be the burden of one particular entity. In order to go into this partnership, it was very important to have a long-term funding source for the operations of this facility. The original bill, when first presented, was just for rural counties less than 100,000 population. Senator Raggio requested that population cap be raised to include all counties less than 400,000. Senator Raggio wanted Washoe County involved because of the juvenile and other public safety facilities. The current law says you can enact the 5 cents for regional juvenile facilities for all counties less than 400,000 population. It is not a tax increase. We are currently able to do that, except for Clark County. Another public safety problem for rural entities is trying to find funding for 911. This is a wonderful mechanism to go into regional 911. For example, Carson City is spending over $1 million in the current year for its 911 system. The 911 system next year will be another million dollars. If we were able to have a regional partnership that would dramatically decrease the cost. The 911 system in Washoe County is shared by many of the governments; the university, Washoe County, Reno, are all part of an interlocal agreement to provide 911. In the smaller counties, unless we do partner with other counties, we do not have entities that are fiscally strong enough to partner with. This does give us the opportunity to partner amongst ourselves or the other counties. It does fall into the 253 committee’s, of the Sixty-ninth Legislative Session, concerns to try and provide more regionalization for the rural counties.
Senator Neal:
Give me some history as to the type of facility that would have been built that has not been built because we did not have this type of law in place.
Ms. Walker:
In 1997, the north had a major flood. The rivers flooded from the runoff of the mountains to the ends of each river in Douglas, Carson City, Lyon, and Washoe Counties. If, under the health and public safety, we were able to have regional storm-drainage facilities, even if we took some of Carson City’s money to go into Douglas County to provide some of the storm-drainage facilities then that will help Carson City from not being flooded, which would then help Lyon County from not being flooded, because the river goes through all of these locations. Storm drainage is a huge dollar item, not just in constructional cost also in operational cost. This would be one mechanism that could be of great benefit. This could also be for operations for health services in the rural communities. We have insufficient health services, particularly mental health. We do not have the mental health care type of services to get people to the services. You find those services in Washoe and Clark Counties but you will not find that in the rural counties. This could help us with the operating cost on our mental health facilities.
Senator Neal:
This could be up to five or six counties involved?
Ms. Walker:
Absolutely. We have five counties on our juvenile facility and it is working wonderfully.
Senator Neal:
If some counties raise more money than other counties, how do you equalize that?
Ms. Walker:
What we did on the juvenile facility is we apportioned the cost of the juvenile facility based on the number of students in each jurisdiction, in each of the five counties. Lyon County is the administrator of the juvenile facility. What will happen at the budget hearings during the spring of every year, when they look at how much money is going to be required to pay for the operating cost for the next year, they will take that dollar amount and proportion it out based upon the number of students in each entity, then you take that amount, let us say for Carson City it was $200,000. In Carson City you would need a 2-cent ad valorem, each cent is per $100,000. Carson City has the ability to either enact the 2 cents or take it out of their general operating budget. So far, Carson City has taken it out of its general operating and has not enacted any tax levy for the juvenile facility, however, both Douglas and Lyon Counties have enacted. During the budget process they get a bill from Lyon County stating the dollar amount, the proportion it shared based on student population, and the bill for next year. Each board for each county decides if they are going to enact the tax.
Senator Neal:
How would that work in terms of drainage systems?
Ms. Walker:
It would be the same. It could be based on mileage or the area of service. You would probably have to have some engineering work done in that regard, to how much benefit it would be to each entity.
Senator Neal:
These types of things would be worked out within the agreement itself?
Ms. Walker:
Yes.
Chairman McGinness:
I close the hearing on S.B. 203. Senate Bill 221 has been dropped from this agenda and as soon as we get a date, we will put it together. We heard Senate Joint Resolution (S.J.R.) 11 of the Seventieth Session on Thursday, February 22, 2001. The assessors testified that they have no mechanism to address an economic hardship. All the assessor can do is waive the penalties and this would give them a mechanism. There was no testimony in opposition.
SENATE BILL 221: Authorizes City Council of City of Reno to increase tax on rental of transient lodging and levy special assessments to pay costs of certain capital improvement projects. (BDR S-916)
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)
SENATOR RHOADS MOVED TO DO PASS S.J.R. 11 OF THE SEVENTIETH SESSION.
SENATOR O’CONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR NEAL ABSTAINED FROM THE VOTE.)
*****
I adjourn the meeting at 2:41 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: