MINUTES OF THE

SENATE Committee on Taxation

 

Seventy-First Session

March 22, 2001

 

 

The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:02 p.m., on Thursday, March 22, 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 Bob Coffin

 

COMMITTEE MEMBERS ABSENT:

 

Senator Joseph M. Neal, Jr. (Excused)

Senator Michael Schneider (Excused)

 

GUEST LEGISLATORS PRESENT:

 

Senator William R. O’Donnell, Clark County Senatorial District No. 5

Senator Bernice Mathews, Washoe County Senatorial District No. 1

 

STAFF MEMBERS PRESENT:

 

Kevin D. Welsh, Deputy Fiscal Analyst

Rochelle Trotts, Committee Secretary

 

OTHERS PRESENT:

 

Carole Vilardo, Lobbyist, Nevada Taxpayers Association

John P. Sande III, Lobbyist, Nevada Hotel and Motel Association

Philip G. Satre, Chairman and Chief Executive Officer, Harrah’s Entertainment, Incorporated

 

Donald L. Carano, Chief Executive Officer, Eldorado Hotel and Casino

John Frankovich, Attorney

Gary Carano, General Manager, Silver Legacy Resort Casino

Daryl Drake, Concerned Citizen

Lynne E. Keller, General Manager, Gold Dust West Casino Motor Lodge

Don Kajans, Chief Executive Officer, Siena Hotel Spa and Casino

Bob Rusk, Truckee River Lodge

Darren Mack, Concerned Citizen

Scott M. Craigie, Lobbyist, Atlantis Hotel Casino, John Ascuaga’s Nugget, and Peppermill Hotel Casino

Michonne Ascuaga, Chief Executive Officer, John Ascuaga’s Nugget

Pete Cladianos, Jr., Vice Chairman, Sands Regency Casino and Hotel

Samuel P. McMullen, Lobbyist

 

Chairman McGinness:

We are starting as a subcommittee.  Open the hearing on Senate Bill (S.B.) 351.

 

SENATE BILL 351:  Exempts classic aircraft from tax on personal property. (BDR 32-281)

 

Senator William R. O’Donnell, Clark County Senatorial District No. 5:

This bill will give an exemption for those individuals who want to buy a classic aircraft, war birds, and very rare airplanes for participation in a museum-type show.  What we would like to do is very analogous to what Reno has done in terms of Hot August Nights and the car museum.  In Las Vegas the temperature and the atmosphere is very conducive to storing airplanes because of the dryness of the climate.  This bill would allow certain individuals or the general public to purchase these kinds of aircrafts and allow us to establish an ad hoc museum of antique aircraft.  This bill does allow an exemption and I realize exemptions are very hard to come by from this committee, however, the reason why we do exemptions is to foster economic development and I believe this is a bill that does just that.

 

Senator Rhoads:

Do you know what the fiscal note would be?

 

 

 

 

Senator O’Donnell:

No.  It will not be much.

 

Chairman McGinness:

Kevin Welsh (Deputy Fiscal Analyst) is working on a fiscal note.

 

Carole Vilardo, Lobbyist, Nevada Taxpayers Association:

I am in support of S.B. 351.  Personal property tax is a very difficult tax to administer and is self-reporting.  When you get involved in aircraft it is not one of the easiest things to identify because of mobility.  This bill allows us to chip away in an area of taxation that is very difficult to comply with.  We urge your favorable consideration for this bill.

 

Chairman McGinness:

I close the hearing on S.B. 351 and open the hearing on S.B. 221.

 

 

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)

 

John P. Sande III, Lobbyist, representing Harrah’s Reno, Eldorado Hotel and Casino, Silver Legacy Resort Casino, and Circus Circus Hotel and Casino:

The four downtown Reno properties I am representing are in support of this bill.  I propose to tell you what S.B. 221 does and how we got here via Senate Bill 477 of the Seventieth Session.

 

SENATE BILL 477 OF THE SEVENTIETH SESSION:  Raises tax on rental of transient lodging within Washoe County to pay certain costs related to promotion of tourism.  (BDR 20-1641)

 

Mr. Sande:

We do have drawings which will show you the proposed events center in downtown Reno, a map of the area in which the tax will be imposed, a layout of where the special events center will be located, and also some of the properties listed (Exhibit C).  Senate Bill 221 is very complex, and was drafted by the City of Reno’s bond counsel.  What the bill would do is allow the City of Reno to impose an assessment and also a room tax.  This is merely enabling legislation and the actual details of the amount of the tax and the amount of the assessment will be left up to the City Council of Reno.  We have dealt very closely with members of the downtown community, gaming and non‑gaming properties, and are very happy we have been able to reach a number of agreements with those people.  The bill proposes the City of Reno could impose an assessment for a special improvement district in downtown Reno.  The area is basically the same as where the 1 percent room tax for the railroad tracks in Reno was passed several sessions ago.  That would be the same area we are talking about plus the City of Reno could expand it up to four blocks around the circumference.  It would be up to the City of Reno to try to determine who would benefit from this project.  This bill also allows the city to impose a room tax only in the downtown Reno area, up to 1.5 percent, for the purposes of funding the project.  Senate Bill 477 of the Seventieth Session was not the Reno-Sparks Convention and Visitors Authority’s (RSCVA) bill; it was the Nevada Resort Association’s (NRA) bill and was an attempt to impose a room tax in Washoe County of 3 percent across the board, except in the area of downtown Reno.  Reno was already paying 1 percent more than any place else in Washoe County, for lowering the railroad tracks.  Initially, it was very contentious as to who should pay since the purpose of the tax was to expand the convention facility in south Reno. 

 

Mr. Sande:

There were negotiations that occurred between the casinos in Washoe County and fortunately a compromise was reached, resulting in an increase in room tax of 3 percent for all of Reno except downtown, which would go up 2 percent, and from which would be set aside $105 million for the expansion of the RSCVA convention facility in the south, which, I am happy to note, is occurring now.  They have a contractor and have had groundbreaking, and it looks like it will be a wonderful project.  Also, the bill provided there would be set aside up to $350,000 annually for the City of Sparks to market tourism.  Finally, there would be set aside $1.5 million annually for an undetermined project or projects in downtown Reno to promote tourism and help revitalize downtown Reno.  The figure of $1.5 million was left over after the increase in the room tax and took care of these other needs; whatever was left went to downtown Reno.  There was no testimony ever saying this was the maximum amount from the public that could go to a facility in downtown Reno. 

 

If you look at section 6, subsection 1 of S.B. 477 of the Seventieth Session, it required the Truckee Meadows Tourism Facility and Revitalization Steering Committee “Stakeholders Committee” identify a method or methods pursuant to which the proposed capital improvement project identified by this Stakeholders Committee would be financed.  What the bill did say was there would be such a committee and, as I recollect, it was a total of nine persons; three nominated by the NRA; three by the redevelopment agency of Reno; and three by the Reno-Sparks Convention and Visitors Authority.  Also S.B. 477 of the Seventieth Session left it completely up to the Stakeholders Committee to identify the capital improvement projects to be constructed in downtown Reno. 

 

Mr. Sande:

There was nothing in the bill and nothing in the legislative history suggesting there was any limitation as to the project.  The legislature left it up to the stakeholders group and their good judgment to determine what was in the best interest of Reno to promote tourism and also revitalize downtown Reno.  If you look at the handout we gave you (Exhibit C), it is important to look at the legislative history, which is highlighted.  We have underlined some of the important parts, but it was very clear the Stakeholders Committee would determine what was in the best interest of Reno.  I should point out, as well, there was never any discussions with me or any of the downtown properties, namely: Harrah’s Reno, Silver Legacy Resort Casino, Eldorado Hotel and Casino, or Circus Circus Hotel and Casino as to any limitations on what kind of project there would be in downtown Reno or any limitation on the financing.

 

Philip G. Satre, Chairman and Chief Executive Officer, Harrah’s Entertainment, Incorporated:

Our company was founded in Reno about 64 years ago by William F. Harrah and we have expanded in that period of time in downtown Reno, most recently with the acquisition of the closed Harold’s Club and Nevada Club sites, as well as nationally.  We now have 22 casinos in 11 different states with about 42,500 employees.  We have 15,000 employees in the state of Nevada distributed across our six different casinos. 

 

What I want to talk about is the Stakeholders Committee, the group formed, Mr. Sande just outlined to you, to recommend the capital improvement projects.  I emphasize it was pluralized in your legislation for downtown Reno so it would promote tourism in Washoe County and as well as help revitalize downtown Reno.  Under S.B. 477 of the Seventieth Session, when I went on the committee along with other committee members, I am sure I did what they did.  I picked up a copy of the act and I tried to determine what I was supposed to do as a member of this committee.  I saw only two things I had to do and they were mandatory and non‑assignable responsibilities; one was to identify a capital project in downtown Reno to promote tourism and to vote on it by a two-thirds majority vote, and the other was to identify the method or methods of financing the capital improvement projects.  In commencing in August 1999, the stakeholders’ members held approximately 13 public meetings in connection with the identification of a capital improvement project in downtown Reno and the identification of the methods of financing. 

 

Mr. Satre:

One of the reasons I was interested in participating on this is, obviously, the company of which I am the chairman is deeply involved in tourism in the state of Nevada.  We are also very interested in the revitalization of downtown Reno.  I think that is evidenced by continued capital improvements which we make and I think it is evidenced by the fact we purchased two closed down, pretty scary properties sitting in the middle of downtown Reno when we bought Harold’s Club and the Nevada Club.  I am also interested because this is very important for this state, and using Governor Guinn’s words, “as an importer,” we import tourists and we import sales tax, we import gaming gross revenues, and in Washoe County, we import room taxes. 

 

In any business, we have to look at our product: how good is our product, how competitive, how big, how much do we have to offer if we are going to compete?  We know we are going to compete as importers with more and more Indian gaming operations in California.  We know we are going to compete and have been competing with gaming operations around the United States.  If we are going to compete effectively and generate more of the goods Nevada creates, which are sales taxes, room taxes, and taxes on gaming gross revenues, we need to have more and better.  This is a project I am convinced creates more and better for downtown Reno, for all of Washoe County, for the state of Nevada. 

 

What we did in order to make the determination, however, was to use a series of experts and consultants to advise us on what this project should be during these series of meetings we held as the stakeholders’ public meetings.  We began to engage others.  We engaged a man named David Cordish, who was providing services already to master planning downtown Reno, and we authorized $300,000 to him in October 1999 to help think through the master plan of downtown Reno.  We engaged experts he knew and recommended such as SMG (Spectacor Management Group), which operates convention centers around the United States on a private basis for public ownership.  We engaged Arthur Anderson with Ellerbe Becket architectural and engineering firm and went through a series of meetings until we reached a point where we were capable, in April 2000, of recommending for review and approval of funding for those analyses, a market-to-man analysis, a financial analysis, all the things you do if you were going to make an important investment like this.  Those decisions were made in April 2000.  In May 2000, we began the process of designing, locating, and how to fund.  We went to the City of Reno staff, by direction of the Stakeholders Committee, to determine how we would do all of the aforementioned processes.  In June, this same committee was presented, for approval, the final downtown core master plan and we tried to understand how we could integrate the decisions we were mandated to make by your legislation. 

 

Mr. Satre:

By September 2000, the four companies represented presented a written proposal to the Stakeholders Committee in a public meeting to develop the events center facility in downtown Reno.  We began the process of identifying something to propose for approval of the events center to be built in downtown Reno.  This was accomplished through a unanimous vote in September 2000.  It is important to note there are people who now object to this, but at the time this was reviewed and approved in a public meeting, there was no objection made to the identification and the approval of the proposed events center.  In September 2000, we presented a proposal to the Stakeholders Committee to finance the events center as follows: $1.5 million annually from S.B. 477, a room tax increase, a special assessment district in downtown Reno as outlined by Mr. Sande, and $20 million in subordinated notes from Newco, the company formed of Harrah’s Entertainment, Eldorado Hotel and Casino, and Mandalay Bay Resort Group which includes Circus Circus and the Silver Legacy Resort Casino.  In September 2000, the committee referred the proposed financing method to the redevelopment agency for financial review and input.  At that time, no objection to the proposed financing method was made by any private interest present at the meeting.  In November 2000, the redevelopment agency came back to the Stakeholders Committee providing their review and input and the Stakeholders Committee approved the method of financing as previously outlined: $1.5 million from S.B. 477, the room tax increase of 1.5 percent in downtown Reno, the special improvement district, and the $20 million in subordinated notes.  I think we have fulfilled precisely what the expectation of this legislature was when they passed S.B. 477 which was to do our best, first as the Stakeholders Committee, and then as four companies and Newco, to present a proposal to the stakeholders to do something which could affect tourism in downtown Reno and could help revitalize downtown Reno.

 

Donald L. Carano, Chief Executive Officer, Eldorado Hotel and Casino:

This facility would be located in downtown Reno between Fourth Street and Sixth Street between Lake Street and Center Street.  This area is approximately 115,000 square feet and it adds the ability for downtown to have conventions mid‑week and on the weekends, to provide a facility to handle large amounts of people.  This facility is absolutely necessary to revitalize and redevelop downtown Reno.  Our concern here is obviously our competition across the mountains; and unfortunately Reno, as opposed to Las Vegas, depends a lot on the trade we get from California.  We know the people in northern California can go by five casinos the size of the Silver Legacy Resort Casino or larger before they ever get to Reno if they only need to come for gaming.  So, we have to offer something besides gaming to have people come to Reno, Nevada. 

 

The redevelopment of downtown Reno, with the Cordish Company, has been our program, which would set forth additional entertainment facilities, retail, and restaurants in downtown Reno; however, something has to make it go.  The Cordish Company has publicly stated this facility is a necessity as a catalyst to generate the people on the street to redevelop downtown Reno.  We are very supportive of the RSCVA and the present convention facility, which they are expanding and we will continue to be supportive of it.  Of the room tax rate of 12 percent collected downtown, 9.625 percent goes to the RSCVA for the support of the facility.  We are not backing away from our support of the facility and of course we want to coordinate the facility with our downtown facility.  We have volunteered to put the executive director of the RSCVA on a new core board to coordinate with us on a daily basis.  We are not in competition; we are developing another facility, which will generate more people in Washoe County.  We know if we do not do this, what alternative do we have to revitalize downtown Reno?  We know downtown Reno in the last 10 years, from a property tax standpoint and desirability, has gone downhill.  How do we turn it around?  If we do not turn it around, it is going to continue to decline, which takes away the taxes it collects from the state, county and city, as well as the RSCVA.  We feel we will increase the average daily rate, as well as the occupancy, with this facility, again supporting the RSCVA with additional monies for marketing or whatever. 

 

What we have here is a remarkable public-private partnership, including the fact the downtown properties are putting up $20 million towards this facility, and have two outstanding national gaming properties, Harrah’s Reno and Mandalay Bay Resort Group, participating.  I think it is really significant for them to invest in downtown Reno.  I see, for the long run of downtown Reno, this is an absolute necessity and without this facility there will not be a revitalization or redevelopment of downtown Reno.

 

John Frankovich, Attorney:

I am representing a unique partnership in northern Nevada; four competitive gaming companies who have joined together for a project they feel is of great significance to northern Nevada.  Mr. Greathouse from Mandalay Bay Resort Group was unable to be here today but has submitted a letter (Exhibit D) to the committee indicating their support for this bill.  Under the direction of the Stakeholders Committee, a financing plan was put together by a group of experts, which included the Cordish Company, Arthur Anderson, SMG, Ellerbe Becket, and Turner Construction, who did the cost estimates.  We retained, separately, Salomon Smith Barney, a national underwriter, to do the bond analysis and the underwriting for this particular project.  This financing plan was modeled after the plan done in Las Vegas for the Freemont Street Experience, which used room tax money and money from private funding to fund that highly successful project. 

 

The source of funding, and the discussion in which I am addressing it, is set forth on page 6 of the handout (Exhibit C).  We anticipate the cost of the project will be $65 million and we will have $45 million in bonded indebtedness, which will be repaid by the room tax increases from both S.B. 477 of the Seventieth Session and S.B. 221, if this is adopted.  The other $20 million will come from the subordinated debt of $5 million from each of the properties.  When we say subordinated, we mean deeply subordinated; this is more like a reserve or a safety net.  If there are any problems on this property, if there are cost overruns, if the revenues do not meet expectations, or if the operating costs are excessive, that comes out of the repayment of this $20 million subordinated debt.  Under the schedules put forward, the repayment of this does not start until 2019.  It is a safety net in case something was to go wrong. 

 

The source of the funds includes approximately $1.5 million from S.B. 477 of the Seventieth Session, the room tax increase proposed by this legislation which would generate approximately $1.7 million per year, and we have a special assessment district to be created in downtown Reno which was originally proposed to be $1.3 million.  A number of property owners in downtown Reno objected to the $1.3 million, saying they did not think it was fair, or at least the allocation of it was not fair, and we have been negotiating with them over the past several weeks and months.  We have reached an agreement which does two things: one, it reduces the amount of the assessment district to $900,000 and second, it increases the share the Newco property would take, which would be $700,000 of the $900,000, leaving a $200,000 balance to be spread to the rest of downtown Reno.  If you add up those numbers, there is $4.1 million in revenues each year to satisfy the debt.  The debt service on the $45 million in bonds, not including any repayment of the $20 million subordinated, is about $3.15 million per year.  In addition, the financing is to cover an anticipated $758,000 operating deficit per year.  The number we should expect was set forth by Arthur Anderson; it was reviewed and substantiated by SMG, and concurred with by Salomon Smith Barney.  The two sources, the $3.15 million for the bonds and the $758,000 for operating loss is $3.8 million per year, just in the debt service, which leaves $300,000 from the two sources.  The $300,000 is necessary to have appropriate coverage ratio to market the bonds and is also a reserve available for the bondholders.  As time passes, and the bonds get more mature and paid down, the money ultimately can become available to repay the subordinated debt, assuming there are no other problems with respect to the operation of the maintenance of the facility. 

 

Mr. Frankovich:

This specific plan had evolved over a period of time, but the dollars and cents together with the pro formas were submitted to the Stakeholders Committee in September 2000, and referred to the financial director of the City of Reno and bond counsel to evaluate and review.  They came back approximately 2 months later and were concerned about addressing the issues of the marketability of the bonds, obtaining the best interest rate, and ensuring the bonds would be tax-free so they would generate the lowest interest rate.  When they came back in November, they recommended approval and agreed with the plan.  It was thoroughly discussed with the stakeholders. 

 

Mr. Frankovich stated:

 

There was objection, at that time, from . . .  one of the downtown property owners about this assessment district piece that we just discussed, but this was passed in November of 2000.  At that time, we had never heard any opposition from, now, the opponents of this project, and never raised any objections to the method of financing or the project prior to that time or until prior to very recently.

 

This legislation is merely the next step, which will allow this project to go forward, and we cannot go further without the enabling legislation which then has to go to the city council who will make the final determination on the areas, and the boundaries, and the exact dollars and cents. 

 

Mr. Frankovich:

There has been some dispute about who is going to own this.  This is a “public property-public project.”  It will be available to all properties in Reno to utilize.  A private management company with the goal of maximizing utilization will manage it, but if the Atlantis Hotel Casino, for instance, wants to use this facility to book a convention or an event, they are free to do so, just like anybody else.  The dollars generated by the bonds, or by the room tax, or specific purposes by statute will have public disclosure, public accounting, and annual reporting of all the proceeds, so everybody is assured the money is properly applied.  If the tax revenue generates too much money, then the bonds get paid off sooner and the tax stops.  If it does not pay or generate enough, Newco will “step up to the plate” and they will be responsible for any shortfall.  It is a win-win situation for the Reno community, and we request your favorable consideration.

 

Gary Carano, General Manager, Silver Legacy Resort Casino:

This project is a recipe for success not only for Reno but the entire community.  It allows the downtown properties, which are not able to have large convention facilities because of lack of property, the opportunity to get into the convention business with a minimal property of 115,000 square feet, as compared to 525,000 square feet at the convention center south of town.  This is not a competitive facility for the 9.625 percent tax money we send south of town.  Hopefully, this project will generate the room nights in the convention business we do not have now, at a higher room rate thus enabling us to work with our market mix, and the end result would be a higher room rate.  Downtown Reno sends over 50 percent of the convention authority’s room tax, so a healthier downtown will mean more marketing money for the convention center, which, right at this point, is lacking.  “More is better” has been discussed as exemplified by our friendly competitors in the south, Las Vegas, with many large convention facilities.  To be able to diversify our room mix will also lead, hopefully, to the answer to a much-needed problem in the entire northern Nevada, and that is air service.  We are hopefully building the room service demand which will enable our airport to get healthy again.

 

Senator O’Connell:

There is no sunsetting to this tax.  Was that intentional?

 

Mr. Sande:

Yes, I believe it was.  The tax would be imposed by the City of Reno and we would suggest it would end at such time the bonds are paid off.  The proposal was drafted by the City of Reno’s bond counsel and is probably 30‑year bonds, tax free, and at the end of the time period, the tax would go away.

 

Senator O’Connell:

How would the maintaining of the property be funded?

 

Mr. Sande:

Maintenance is built into the numbers and that is why we have tried to be conservative in proposing this.  We are trying to have some reserves built up over a period of time for maintenance because we do not want to have an experience as has occurred in other facilities where they do not plan ahead and then have to retreat.  This is being proposed and has been reviewed on the basis we would have some reserves built up over a period of time.  If they get larger because we are operating better, we are getting more people in, getting beverage sales and, so, if we do not have the deficits of $758,000, then the money can be used to pay down the bonds earlier.

 

Senator O’Connell:

Could you tell me what the lifetime is as far as your refurbishing goes?  I know with the hotel rooms it is approximately a 2-year time period but I do not have any idea what it would be for a convention center.  When you are looking at the convention setting, about what do you figure the lifetime to be, 5 years, 3 years, or 1 year, assuming you have built in the maintenance cost?

 

Mr. Gary Carano:

In the budget, we feel sufficient capital expenditure is built up with the revenues, but as far as the life, I’ll give you an example: the Silver Legacy Resort Casino is 6 years old this year and our largest room, which is 30,000 square feet, has not had to have any major refurbishment to it.  Things continue to be purchased over time, like audiovisual equipment, but as far as the equipment, carpet, wallpaper, and furnishings, those have a lot longer life than 5 years.

 

Senator O’Connell:

It is built in, but you do not have any specific number for it?

 

Mr. Gary Carano:

There is a dollar amount built into the budget.

 

Mr. Frankovich:

There is a capital expenditures component which accumulates.  It is estimated

at $370,000 per year available for capital expenditure reserves for necessary repairs, maintenance, and refurbishments.  It is built into the budget.

 

Senator O’Connell:

What is the square footage of the facility?

 

Mr. Frankovich:

It is approximately 115,000 square feet.

 

Senator Coffin:

When looking at the map in the handout (Exhibit C), in the middle there is a street not named.  What street is that?

 

Mr. Frankovich:

The street is Fifth Street and part of this project would propose to abandon that section of Fifth Street between Center Street and Lake Street.  I would indicate Fifth Street dead-ends about two blocks east of Lake Street.

 

Senator Coffin:

Does that street have any particular significance in terms of current events, functions, of traditional usage today?

 

Mr. Gary Carano:

The current street is basically used as an access to Center Street and then a left hand turn to the freeway, but also we have Virginia Street, which would be our access to the freeway.  As currently used, there is no special events or any type of access used for that.

 

Senator Coffin:

The public at this time has no reasonable expectations of typically using this street for events?

 

Mr. Gary Carano:

No.

 

Senator Coffin:

Does closing the street create any additional traffic problem for any other businesses in the neighborhood or any occupants?

 

Mr. Frankovich:

One of the processes we have to go through for this project is through the City of Reno and we do have to ask them to abandon the street.  One of the things they will do is evaluate the impacts of the abandonment.  There is very little activity on Fifth Street and very little activity to the east of Lake Street that should be impacted.  If there is a material adverse impact, the state law does not allow the closing of the streets.

 

Senator Coffin:

Do you own all the proposed properties now?

 

Mr. Frankovich:

No, the property has to be acquired through a development agreement with the Reno Redevelopment Agency to acquire and assemble this.  Portions of it are owned by the Eldorado Hotel and Casino currently and there will be private negotiations as the project proceeds.  If the property cannot be acquired through private negotiations, the redevelopment agreement would provide for the redevelopment agency to step in and exercise condemnation.

 

Senator Coffin:

On the perimeter streets, Center and Lake, Fourth and Sixth, who will own those streets?

 

 

 

Mr. Frankovich:

There is a major lawsuit in the City of Reno right now as to who owns the streets.  Whoever will own them legally will be the same person who owns them today.

 

Senator Coffin:

Where will the ownership extend, in the contemplated plan, in the Newco arrangement?

 

Mr. Frankovich:

Newco will not own any of the property.  The property will be owned by the Reno Redevelopment Agency, but the boundaries would be the two-block area you see depicted on page 7 of the handout (Exhibit C). 

 

Senator Coffin:

Comparisons have been made between the redevelopment in Las Vegas and this.  Two major problems occurring in Las Vegas over the last 12 or 14 years have been disputes about the right of public access to Freemont Street itself, and in fact, it has been designated as a park to ensure funds can go there from the city.  Also, there is the question of foot traffic and whether the street is public, who can be there, who can solicit, and so on.  Lawsuits went on for a long time and a lot more money was spent.  I suspect Fifth Street would not be a problem in the sense no one has had a claim on using the street, but the other question arises concerning eminent domain in the acquisition of land.  How close are you in negotiations with people who have had this?

 

Mr. Frankovich:

I do not think there has been a great deal of negotiations and we are still in the early planning process.  The Eldorado Hotel and Casino owns a large piece of the one block and there have been appraisals undertaken for each of the parcels.  The city is reluctant to get involved in discussing it until they know there is a real project and there is a funding source because of their concerns about inverse condemnation.  They have expressed that to us, so there is a lot of groundwork to be done on the acquisition of this site and that is why it is important the redevelopment agency be involved.

 

Chairman McGinness:

On page 6 of the bill starting on line 12, “provisions of NRS 279.619 [Nevada Revised Statutes], be used to acquire, establish, construct, expand, equip,” new language is “improve, operate and maintain.”  Is that new because those funds have not been able to be used for the operation prior?  What is the reason for the new language?

 

Mr. Frankovich:

Correct, previously it could not be used for operation.  Some portions of the funds are anticipated to be used for operations.

 

Daryl Drake, Concerned Citizen:

I am a resident of Reno, a commercial real estate broker, and a long-time observer of downtown Reno redevelopment efforts.  I served as the chairman of the Downtown Improvement Association’s Economic Development Committee and our committee evaluated various development proposals, as well as redevelopment policies, which would impact the attractiveness of this trade area for outside investment.  Over the course of the last 2 years, in conjunction with the forum for common agenda, UNR’s (University of Nevada, Reno’s) College of Business Administration, UNR’s Institute for the Study of Gambling and Commercial Gaming, the Reno-Sparks Chamber Of Commerce and the RSCVA, I have helped organize two regional conferences on the impact of Indian gaming to our northern Nevada economy.  The recommendations from those conferences were many including the importance of a regional approach to marketing the attributes and attractions of the entire region to both tourism and non-tourism sectors.  Additionally, it was understood we must improve our access to nontraditional markets and become less dependent upon our primary feeder markets.  Further, it was clear we must provide a broad spectrum of attractions which would readily differentiate ourselves from the destinations of convenience which are proliferating in our primary feeder markets.  Redevelopment and key centers such as Reno, Sparks, and Lake Tahoe are critical components of this effort. 

 

In recent meetings I have attended regarding the downtown conference center to be constructed from this supplemental funding authorization in S.B. 221, I find little disagreement this project and the expansion of the existing RSCVA convention center are necessary components of our determined strategy to magnify our competitiveness.  The greatest concern of those businesses not directly across the street from the proposed project, is the assessment formula of the special improvement district.  It appears to me there is sufficient latitude in the bill for the issue to be debated fully before the Reno City Council; I have also heard opposition from those who believe such an increase to the room tax would overly constrain the ability of the RSCVA to fund future capital requirements.  It is my opinion such fears are readily offset by the potential decline in room tax revenues if we do not pursue our strategy to improve our competitiveness in this world of emerging entertainment alternatives.  I see this facility, targeted to the mid-week business traveler, will enhance our attractiveness to air carriers by generating new incremental demand comprised of higher yielding passengers.  Since improving our air service to northern Nevada is recognized as a common critical issue, and this project, as one more item on our menu of attractions, must be completed.  In my few years of observing the dynamics and the interaction of the gaming properties in downtown Reno, I think it is astounding to see these four properties come together to provide a project that is going to benefit not only downtown Reno but regionally as well.  I strongly urge your support of S.B. 221.

 

Senator Rhoads:

Is this not an unfair advantage for this downtown project, when the operational costs are being paid by public money, whereas in some of the other convention centers in town, the private sector has to pay it.  This is not an even playing field, will it be?

 

Mr. Drake:

It is my understanding in the way it is structured, the Newco partnership will stand behind any operational deficits.  As far as competitiveness with other public facilities, we have the RSCVA.  Actually, my view is the downtown properties and the existing RSCVA convention center should compete.  There will be some overlapping in my view, but it is healthy for them to compete because they are competing for different customers and visitors to our area.  It can do nothing but enhance our attractiveness and drive additional incremental business.

 

Senator O’Connell:

How many people is the current convention center designed to accommodate?

 

Mr. Drake:

I am not in a position to answer.

 

Senator O’Connell:

You mentioned you thought it was healthy for these two entities to be in competition with one another and you really think the current convention facility would attract one kind of customer and the other convention facility would attract another.  Please elaborate on how different the customers would be as far as the attractions are concerned?

 

Mr. Drake:

The convention center is going to be attracting full-blown conventions.  This new facility is considerably smaller, about a fourth of the size, and will be attracting conferences, special events, some limited sporting events and some limited concerts on the weekend.  Because of their sizes, they are two different facilities which will be attracting different people.  The benefit of that, when I say they will be competing between each other, is the sense they would be working independently to fill their facilities.  I did not mean they would not be working in coordination with each other, because I think there is a great deal of synergy in referrals to one another of different events which cannot be accommodated either because of the size of the facility or the schedule conflicts, I see a lot of synergy in the two properties working together in that respect, but if they have competing sales forces or independent sales forces, I think there is some real benefit to that approach.

 

Mr. Sande:

We do not see this as competition as such.  As a matter of fact, the downtown properties want to work with the RSCVA and try to market both properties to the benefit of everybody in Reno.

 

Mr. Satre:

When we went through the process I described of the 13 meetings and the hiring and engagement of consultants to advise us, one of the things which was a specific area of inquiry over two of those meetings was the testimony of the Arthur Anderson consultants and the SMG consultants.  They talked about the difference between the operation of needing a convention and special events center of this size compared to the one in south Reno, which is being substantially enlarged.  What we heard from them was this could be both very complimentary, because there would undoubtedly be some groups who might not go to the south convention center, or smaller groups who would go to the downtown convention center.  That would give, according to this specialist, the opportunity for the south convention center, the larger RSCVA convention center, to market the bigger groups continuously, but there would also be a number of times where you would sell both together on city-wide conventions.  That was the testimony we took in that these centers are complimentary. 

Is this a level playing field?  I think one of the major questions you have to ask yourself is who is on the field?  This is not a field made up of casinos in Sparks, or in the south part of Reno, or in downtown Reno.  This is a field made up of casinos all over this country.  This is a field made up of casinos in California just beginning to come up out of the ground.  How do you want to compete with those casinos?  When you have created what I think is an unprecedented method of making one of Nevada’s oldest cities stronger than it has ever been by giving it the opportunity to compete against what is going on in the state of California, we are leveling the playing field with the Indians in the state of California.

 

Senator O’Connell:

When you are talking about complementing one another you are thinking of having a large convention coming to your established convention center, and you have special events or a conference which might be of interest to them, is that what you are thinking?

 

Mr. Satre:

Yes.  The other complementary thing is what the person from SMG testified at those two meetings of the Stakeholders Committee.  He said one of the things their experience demonstrated was there are a lot of meetings in the convention business that want to be in downtown settings, and Reno right now cannot sell to them because our convention facilities are located south of town.  So you are losing some of that business.  Complementary for the city is you still have the ability to sell the south convention center, but you now have something with great appeal to people who are going to other city-center convention centers and by passing Reno because we do not offer that.

 

Mr. Gary Carano:

Instead of the number of people this facility will accommodate, on weekends, we have designed it to accommodate 5000 for a special event.  The Arthur Anderson report demonstrates 200,000 room-nights a year are possible.  Even if we produce half that number, it will generate a substantial amount of room tax revenue to the convention authority.  The existing convention center south of town with 500,000 plus square feet should generate at least five times what this downtown facility will generate in numbers of room nights to the region.

 

 

Senator O’Connell:

In your planning and your intake, is it planned on the low side?

 

Mr. Gary Carano:

As far as the number of room nights generated, we believe we have taken Arthur Anderson’s report as an aggressive budget, and we have reduced it.  If we generate half of what we feel we can, demonstrated by our competition, and realize how many square feet their facilities are and how many room nights they generate, it is almost a one-to-one ratio.  I am not familiar with what the convention center generates and the track record of the convention authority has not been good, but we are optimistic with the new leadership; they will generate a lot more room nights than they have in the past. 

 

On the uneven playing field, we have heard from our opposition that is one of the cases.  We are able to absorb the rental space, as we do not charge ourselves because we own it.  It is budgeted in the operation of this facility and the facility will have to charge for the space.  The amount of money they charged to the hotels for use of the space, we will have to increase our room rate by that much, which is a significant amount if they use the entire facility at one time, or if we are not able to because of competitive nature bidding for the convention, we would have to absorb the cost ourselves.

 

Lynne E. Keller, General Manager, Gold Dust West Casino-Motor Lodge:

Although we were in the original assessment district for the railroad tracks, we were excluded from the assessment district for this proposed bill.  When we learned about it, we firmly believe, both individually and corporately, this is a great project for the revitalization of downtown Reno and asked to be included in the district.  We urge your support of S.B. 221.

 

Don Kajans, Chief Executive Officer, Siena Hotel Spa and Casino:

Most of you may know this hotel as the Holiday Hotel on the river.  We support this bill even though we are somewhat removed.  Because of the new nature of our building, we will pay a higher amount in taxes, and the assessment will be higher, but we are very much in favor of it.  Mr. Ng (Barney Ng, Owner) actually increased his investment in Reno to almost $70 million because he anticipated projects like this going in Reno, and we think it is a unique opportunity for both the state and the city to give a new attraction, and add something to the city of Reno to somewhat offset the expansion nature of casino gambling in the world today.

Bob Rusk, Truckee River Lodge:

I served downtown Reno as a county commissioner, in the legislature for 12 years, and served on the RSCVA board the last time we had an expansion.  The good news about what you will decide on today is we are coming together as a downtown community.  Ironically, there are folks who strenuously object to it.  In all due respect, there are fine individuals on both sides of this issue and I am grieved we cannot come together on this.  Consider the fact south of town we have spent all the money for the type of facility we want to build now in downtown.  The expansion in the south has benefited the south end of town as well as the entire community.  Downtown now needs a helping hand and we are very close to being able to go forward in this respect. 

 

I have served on the motel association executive board for a 30-year period and we have had six meetings on this issue and there was a great concern since the increase in the room tax is going to be more burdensome for the small properties because they are going to have to charge more room tax as opposed to properties out of the district.  The conclusion we came to yesterday was we would support, on a city-wide basis, an increase in the room tax to not only take care of the needs of Newco, but to also perhaps generate some marketing funds for the RSCVA.  No matter how this goes down, bottom line, we need this legislation to enable the city to make the final decisions allowing this process to go forward.  It fits with everything going on with the river redevelopment.  Everything that connects with these two blocks, which will be completely refurbished by Mr. Cordish, and the rest of it as a package, will put us over the top.  I urge your serious consideration.

 

Darren Mack, Concerned Citizen:

I am a property owner and a business owner in downtown Reno.  We need to get on the playing field of the whole nation in being able to bring forth projects.  The project we have here definitely initiates something of getting Reno into the marketplace as we are severely behind the time line and time curve.  At the beginning of this there were a number of people concerned with the financing, and I spoke to John Frankovich who helped work out negotiations so people felt it was fair. 

 

The only thing preventing me from standing up here and saying how great the project is, is not my concern with the project or the financing, it is more my concern with what Senator Coffin brought up, the process of eminent domain.  I think in one way it is a separate issue, but eventually this will lead somewhere and I think the legislation needs to be dealt with on a structure for eminent domain that does not damage people.  Senator Coffin brought up about what happens in Las Vegas because we still have the same system in place.  More of a concern is with the city council at some point, but I do not think we can really stop the project.  I think if I can urge anything it would be to reexamine so the small business and property owners are not damaged in the process.  This project as a whole needs to move forward for the community, and I also urge the committee to please look at the small people and the eminent domain process, because that is where this will start to go bad, but I do not think we can stop it.

 

Scott M. Craigie, Lobbyist, representing John Ascuaga’s Nugget, Peppermill Hotel Casino and Atlantis Casino Resort:

In 1999, we all came to the legislature united and supporting S.B. 477 of the Seventieth Session.  While we rise in opposition to this bill as it is constructed, we are not here in opposition to the downtown events center.  We are concerned about some of the details in the plan, and some of the details not in the plan, some issues we are going to discuss, but we believe the downtown events center is important, should be constructed, and will make a contribution to the town.  The four properties previously represented and the three satellite properties I represent have worked together and have supported a number of things in the downtown area.  We approved an increase in room taxes to lower the railroad tracks, supported the bowling stadium, and supported S.B. 477 of the Seventieth Session.  Today we will focus specifically on two issues, and the issues surrounding the fundamental question of the use of public money for these particular projects.  It is very important for me to say, upfront, none of the remarks we make or the questions we raise about how the system is set up, proposed to operate, or be paid for are in any way meant to question or challenge the motivations, or good faith, or sincerity of the proponents of this plan.  Frankly, what is going on in California, the Indian gaming and the change in the market dynamic regionally, is a genuine threat, and we believe everybody on both sides are reacting to what they believe needs to be done as we plan and build the future for our region.

 

The central issue focuses on the use of public tax dollars, and this particular program as it is set up, designed, and has been proposed, we believe is an inappropriate use of public tax dollars.  I know the seriousness and gravity of making a statement that blunt on an issue about the appropriate use of public tax dollars before a senior tax committee of the Nevada State Senate, and I am prepared to discuss and justify this issue now.  We do not make this statement lightly or frivolously, it is an important issue. 

 

Mr. Craigie:

My clients have two recommendations, one of which will provide a genuine alternative to this project and will allow the project to be constructed and supported by the entire city.  The use of public funds, we believe, is wrong on two counts.  First, we believe the manner in which the funds are proposed to be spent, and the way the dollars are going to be put into the marketplace are inappropriate.  John Ascuaga and his family are here and it is important for us to give you some background on their facility.  When Bob Miller (former Nevada Governor Bob Miller) was running for election he went and spoke to a group there and he said, in terms of his northern Nevada campaign and his first campaign for Lieutenant Governor, he figured out if he stayed at John Ascuaga’s Nugget convention center for most of the days, eventually everybody in northern Nevada would come through and he would be able to see all the voters and take care of his campaign responsibilities.  Their convention center has operated both for local groups and groups from around the country for many years.  The convention center is 110,000 square feet and when they expanded it to the 110,000 square-foot size they made a huge capital investment.  In addition, the city required them to build a garage so cars would be taken care of as well.  This was also a huge investment there.

 

Michonne Ascuaga, Chief Executive Officer, John Ascuaga’s Nugget, will give you some background on what they do, what they spend, and how they have invested in this facility.

 

Michonne Ascuaga, Chief Executive Officer, John Ascuaga’s Nugget:

I began working for my Dad (John Ascuaga) in 1983.  It was a year later I joined the convention sales department, which was the same year we opened our first hotel tower of 610 rooms.  As sales manager, my job was to solicit associations and corporations like the National District Attorneys’ Association or Anhueser Busch trying to convince them to bring their meetings to Reno, Nevada, and specifically to the Nugget.  By the end of the 1980s, I was overseeing the sales department as well as the marketing function of the hotel. 

 

In 1984, we had approximately 45,000 square feet of meeting space, which is less than half of what we have now, and though our facilities were limited, it was our first entrance into the convention business.  We realized very early the value of conventions.  As most of you know, we sit on the outskirts of town, and we felt it was very important to our mix to have group business.  Today we have about 110,000 square feet of meeting space, roughly the same amount as is being proposed for downtown Reno.  Our convention center is comprised of two large ballrooms, roughly 30 break-out rooms for smaller meetings.  We can accommodate meal functions for up to 2500 people, trade shows providing about 460 8- by 10-foot exhibits, and concerts for about 2500 people.  There is a lot going on behind the scenes of those function rooms.  We have approximately 15,000 square feet in the back of the house, which includes an 8000-square-foot convention kitchen and a loading dock and ramp facilities to facilitate the move-in of trade shows.  It also includes about 6000 square feet of storage facilities for miscellaneous equipment. 

 

Ms. Ascuaga:

Our current convention center was the result of several expansions.  There is no doubt in 1984 we could have used another ballroom, but frankly we did not have the money.  We had to build our business over time and as we built our business, we reinvested in our convention center.  In 1994, we added a $10-million parking garage, largely to accommodate our visitors and locals who were attending events in the convention center. 

 

Today we have a staff of ten people who travel the country soliciting associations and corporations, trying to get them to hold their meetings in Reno.  Though we get some leads from the RSCVA, we really have no one but ourselves to rely on to bring business into the Nugget.  Our expense, just for the travel and entertainment, not including the salaries of the salespeople, amounts to almost $250,000 a year. 

 

Just to give you an idea of what it takes to operate a convention facility, we have developed a very capable staff of about 230 people who do nothing but service the groups and directly support the convention center.  To give you an idea of the occupations this covers, we have banquet set-up people, banquet kitchen staff, banquet captains, servers, floor management, banquet bar people, banquet bar management, we have a business center working just to accommodate the conventions, a catering staff, convention services staff, a convention billing group who does nothing but prepare bills for the groups coming through, group reservations, audio-visual and sales staff.  When you look at what we pay on an annual basis, just for their salaries, it is over $3.2 million a year.  This does not include other supporting roles like security, janitorial, maintenance, and engineering, who support the convention center in addition to their regular duties. 

 

Ms. Ascuaga:

Over the years we have invested very heavily in our convention center, and with the way technology has advanced, those investments have risen as well.  Meeting planners want Internet access.  A simple projector, which allows a presenter to download from a computer onto a screen, costs nearly $13,000 for one projector.  We estimate over the past 20 years we have invested over $40 million in our convention facilities and that is not in today’s dollars.  The expense to run a convention center is significant and what allows us to cover all of this expense is to charge the meeting attendee a higher room rate.  What happens when we go up against a competitor who does not have the same cost structure is we stand to be undercut on the rate and we stand to lose the business.  We love to compete and we love the competition, but give us an even playing field.

 

Mr. Craigie:

When talking to John (Mr. Ascuaga) about this issue he described to me his next two generations of family members, and though he is looking forward to stepping back, he complained to me about the fact both Steven and Michonne (Mr. and Ms. Ascuaga) are spending way too many hours at the facility.  He is concerned about them having to go through the same thing he went through and now probably second guessing the investment decisions he made to stretch himself as far out as he is.  He is concerned the state of Nevada, having created a competitor who has 115,000 square feet and 100 percent funded by public tax dollars, is going to undercut his business.  He is concerned this facility, whose expenses for debt service, maintenance, operation, and marketing are 100 percent funded by public tax dollars, is going to put John Ascuaga’s Nugget at a competitive disadvantage.  With all of their expenses and debt load, even if they did not move forward and decided to pull back, the debt load lives on.  That is the number one issue we have when we say this is an inappropriate use of public money for us to have a fully tax-funded competitor in the marketplace.  To be fair, the proponents have talked about the $20,000-Newco investment, and it is a subordinated loan and it is proposed to be paid back, but this is where we come up with this issue and concern over the 100 percent.  As you go forward on my first issue on the establishment of a fully tax‑supported competitor, I ask you to keep in mind the situation we are putting John Ascuaga in, and to a lesser extent many other people who are in this market area.  We are not concerned about the downtown center or anybody necessarily competing with the Reno-Sparks convention center.  We see, in a very small way, being like the Las Vegas convention center.  We, all three of my clients, believe the downtown benefits.  John Ascuaga is further away from the Reno-Sparks convention center than the downtown and yet, I am told he is one of the people who benefits the most from it, because he markets into it and he markets into it with his own investment. 

 

Mr. Craigie:

The first issue was the use of the money to create a competitor and the second issue deals with financing and the way this financing program was configured.  You have a booklet (Exhibit E) and inside the back cover (Exhibit E) is a loose page.  I would like to walk through the revenue streams contained in this bill and included in S.B. 477 of the Seventieth Session.  These revenue streams are the original room tax increase, which was in S.B. 477 of the Seventieth Session.  The $1.5 million with a bonding capacity of $30 million has already been approved.  There is an additional downtown room tax of 1.5 percent on the downtown area only, and to be fair, this comes from their area, region, and customers.  That is an additional $1.7 million, which they tell us is a bonding capacity of $34 million.  There is also a special improvement district that has a $1,350,000 amount, and I do not know how the settlement yesterday affects this.  I have shown a bonding ability here just to compare price, but it is not necessarily proposed at this time to be done as bonding, and then there is the Newco loan, which is $20 million. 

 

If you go to the document immediately behind the title page (Exhibit E), titled McDonald Carano Wilson McCune is a letter dated September 21, 2000, which is the application required in S.B. 477 of the Seventieth Session.  The second page shows what they were requesting.  (Quoting from the letter)

 

The project will accommodate approximately 2,500 persons for meetings and conventions and, in addition, will accommodate 5,000 seats for concerts, special events and sporting events. . .

 

Newco will be responsible for the ownership, construction, operation, maintenance and control of the project . . . the land underlying the project will be owned by the Reno Redevelopment Agency . . . leased for 30 years . . . .  The building and all furniture, fixtures, and equipment will be the property of Newco, but will revert to the ownership of the Reno Redevelopment Agency at the expiration of the lease in . . . .

 

Mr. Craigie:

The key part is at the bottom (of the same page [Exhibit E]) and encapsulates the financing plan.  “It is anticipated the full capital cost for the project including land acquisition, demolition, site preparation . . . will be $65 million.”  The financing will be: Net proceeds from the S.B. 477 of the Seventieth Session, this $1.5 million revenue stream, “$30 million, senior debt.”  This is either a “downtown room tax and/or special improvement district, $15 million.”  This is both of these to pay off what they propose as a $15 million debt obligation, and then the notes for the $20 million. 

 

If you turn to the next page (page 4 of Exhibit E), and for the record, “the proceeds from these two (the additional Downtown Room Tax and/or Special Improvement District) are also required to pay off the $758,000 operating loss and they do need that money if they are going to have this be fully funded.” 

 

Tab 1 (Exhibit E) you have the Truckee Meadows Tourism Facility and Revitalize Steering Committee, called the Stakeholders Committee.  It was created as an operation of law.  Their meetings were a cross-section group, all open meetings and this particular set of minutes is included here. 

 

First on page 6 (Exhibit E), there was a statement made to which there were no objections from the satellite parties . . . up until and through September, our guys really believed and you can see it yellowed out in your sheet here, “Mr. Frankovich explained the additional ‘room tax’ or Special Assessment District [SAD] could provide other revenue streams;” our guys actually believed the $30 million, which we agreed to in S.B. 477 of the Seventieth Session, and one of these two taxes might have to be drawn on in order to make this work.  At the time, they really did not expect it was going to be both taxes and that we were going to look at an additional $1.7 million and an additional $1,350,000 to do this project.  The main reason to show at the last page, page 7 (Exhibit E), this plan, this application with this package as its financing plan, is what the steering committee was asked to approve and they approved and, again as the operation of law, that is the application sitting before you today somehow embodied in this bill S.B. 221. 

 

Tab 2 (Exhibit E) is another document distributed showing the description of how the $65 million will be spent and includes the land acquisition costs.  I have included the whole package because it will show you the entire facility is being built, it is very thoroughly thought out, and has all of the equipment, furniture and in some cases some of the AV (audio-visual) materials. 

 

Mr. Craigie:

Tab 3 (Exhibit E), on page 26, you will see the signatures of the four chief executive officers (CEOs) and this was circulated to the downtown group of that constituency.  They laid out a full package so everybody in the community would be aware of what the terms and costs were and how it was going to operate.  On page 24, under tab 3 (Exhibit E), it again goes through these issues: total project costs, $65 million; operating deficit is $758,000.  Note it says, “It is important to note we will be responsible for the operation of the events center.”  Then it gives the financing method.  It talks about the current room tax for providing approximately $30 million of tax‑exempt bonding capacity and it talks about the $30 million resulting from the $1.5 million.  The release of this document sometime in late September or October 2000, is actually the first time one of my clients, and I believe all three of our “guys,” realized this was not going to be an equity contribution.  They expected it was going to be equity.  Whether that was a miscommunication or a mishearing, they were surprised by and disappointed by it.  The piece that is critical (tab 3, page 25) is the balance of capital needs.  “The balance of funds necessary to construct, equip and operate the events center ($15 million plus $758,000 per year)” to make up the operating loss “will require raising approximately $3 million annually.”  Now $3 million was a totally new number in this process to us, and because of this $3 million will require additional room taxes, the 1.5 percent and the special assessment to be both raised because you can not get $3 million out of either one.  If you are going to get $3 million to take care of what is essentially this $15 million piece and the $750,000, if you need $3 million there you have to go to both of these sources.  That is where our concern is.  Either the calculation systems changed or the assumptions changed between S.B. 477 of the Seventieth Session and S. B. 221, or they made an error. 

 

If you go just in front of tab 4, there is another single page which shows the balance of needs just referred to on page 25.  The balance of funds necessary will require raising $3 million annually.  The reason we say the methodologies changed or there was an error is if $1.5 million creates $30 million in bonding capacity, then if you need $15 million, which is what you need to make this other piece work that takes $750,000 to raise this $15 million.  Now, we still have the $758,000 operating deficiency, which is an annual number, and so you have to add it in.  If you add those two together you do not get $3 million annually, you get $1.5 million annually.  This created for the Newco group a dilemma and they were confronted with what they believe was a $3 million requirement and they reacted to it by building not that package but this package with both of these pieces in there.  And that, for us, is a critical moment in the development of this issue. 

 

Mr. Craigie:

Tab 4 (Exhibit E) is a staff report created November 2000 by the budget manager of the city for the stakeholders group.  It says this facility of approximately 120,000 square feet will cost approximately $65 million.  The facility would be owned and operated by Newco for 30 years.  The project will accommodate approximately 2500 persons for meetings and conventions and, in addition, will accommodate approximately 5000 seats to hold concerts, special events and would cost $65 million.  On the next page under tab 4 (Exhibit E), the new room tax would generate about $1,750,000.  It is a little higher than what is here, but this is the revenue stream it is referencing.  The attached chart (page 32 under tab 4, [Exhibit E]), shows projected room tax, special assessment district, facility revenues as well as potential debt payment, and facility operating expenditures. 

 

The budget director in a document circulated to the stakeholders group created the full chart and put everything together and has the S.B. 477 of the Seventieth Session room tax, the new room tax, the special assessment district or special improvement, food and beverage, rental income, facility expenses, and, as the consultant suggested, the revenues from the facility do not come near the facility expenses.  Then it shows the debt payments, and the Newco debt.  The person doing this study began paying off the Newco subordinated notes in 2004, much earlier than was proposed by the downtown folks who wanted the public bonds paid off first.  That was the commitment they made, and that was appropriate philosophy to do this.  I would assume the reason the budget director did this is the sooner you pay it off, the less interest you accumulate and he would save the public some money by beginning the payments early. 

 

 

Actually, if I had been on that public body I would have appreciated the effort on his part.  Especially since they had the money, and the fact is, with these revenue streams and these expenses, they had the money.  They can start it much earlier than they probably would have needed if this were a more conservative set of numbers.  But, this is where our issue begins to develop and mature.  The amount of money here in this project, we believe, is excessive.  When we say “inappropriate use of public funds” is our key issue here, we believe they put too much money into the program, taking more public money than is necessary to make this project work.  So, as you can see the cash balance begins at $2 million and accumulates quite heavily up to $12 million to $13 million.  Actually, it gets up to $14 million in the midyears. 

 

Mr. Craigie:

The comment was made by the proponents that this is enabling legislation and there would be adjustments or changes made at the city level, which is an important and an appropriate point to bring up.  There are certain constants throughout this whole package: the size and specs of the project remain the same all the way through; the governance of the project, which is the ownership, the management, et cetera, remain the same throughout; the cost of the project remained at $65 million, all of the numbers supplied did not change; and the dollar yields from every one of the tax rates remained unquestioned and unchanged throughout the whole process, but the money sought to fund the project changed and changed dramatically.  That is where our concern really comes in. 

 

In 1981 the Legislature took firm control over local government tax and spending policies, putting strict limits on those governments.  They cut the City of Henderson’s property tax by 97 percent, going from $1.20 for $100 of assessed valuation to 3.6 cents; Las Vegas was cut 67 percent.  For 20 years, this legislature has tightly managed those spending and revenue limits and, in fact, today Henderson is asking the legislature to give it some relief in the formula.  This Legislature and this body have very strenuously managed to make sure there are tight fiscal policies at the local government level.  This committee specifically has managed this system for 2 decades.  When we look at the cash balance line on the chart (tab 4, page 32 [Exhibit E]), I see a lot of excess revenues.  Newco may have some way to spend this, the City of Reno might have some way to spend this and consultants for renewed redevelopment initiatives, but the fact is the money going through here is far too great.  The city, frankly, should be here, or the proponents should have been here, to speak of the systems of oversight, budgeting, and accountability and management practices.  We have heard the entire affirmative case for this program and you are being asked to authorize the city to put in place a huge increase in taxes, and yet the oversight mechanism, the fiscal responsibility requirements, and how they are going to be managed and carried out there have not been addressed.  This plan is entirely too loosely defined; there is entirely too much unexplained cash, and it is not budgeted at all well for this Legislature and this committee to go forward on this basis. 

 

Mr. Craigie:

If you go back to (Exhibit E) and look at tab 4, the staff report, page 30, there has been a lot of talk by me about what the surpluses are and I want to point out there is also concern here about what happens if there is a deficit.  The last sentence in the first paragraph on page 31 says, “This bond issue would not be secured by any City of Reno revenues but potentially the agency could pledge tax increment for coverage purposes only.”  We have obviously hired consultants and bond counsels as well.  The calculation I did is correct as long as you are assuming their numbers because we have nothing.  We can see how they have done all of their assumptions; there is logic in the package we have shown you.  Mr. Frankovich said, “To the extent there is a shortfall, Newco will cover those costs.”  This is the first I have heard that, and it is a good thing.  I am glad it is on the record, but it should be in a contract, it should be part of the mechanism, and should be at least part of a negotiated agreement between the Reno Redevelopment Agency and Newco.  Again, the Reno Redevelopment Agency is not here and the city is not here, there is nobody here who shows you what the responsible administration of this enabling legislation will be on the part of the city.  We are very concerned about that.  The city may reduce the tax amount, it may go to the maximum, but again they are not here to describe that and they truly should be here.  It would be a genuine surprise to me if this very conscientious, careful, and conservative committee moved forward on this particular plan at this time without more information dealing with fiscal restraint and local government accountability. 

 

There are lots of very serious questions about the complete financing and bonding package.  I suggest you not take my math as the rule of what is right.  My math is based totally on the basic data which has been presented by the proponents, but it is scant data.  The debt service is a black box and I mean the assumed structure for the bonds is not clearly spelled out.  Some of these have been mentioned but they have not been clearly and completely spelled out.  What are they pledging to pay for the bonds?  The tax increment included is not shown.  The coverage ratios are not shown.  The reserved fund mechanism is not described.  Who will issue the bonds?  I point out these issues because we wanted to reconstruct all of this and we wanted to run our own schematic (Exhibit F), which shows this whole package without the 1.5 cents and we cannot do it.  I hired two consultants who work in this area and neither one of them will let me bring any of their exhibits forward for one very important reason.  They say, “You are asking me to create a schematic I say either does or does not work, depending on what is included, whether if we take 1.5 percent and the $1.7 million out, can it stand alone.”  If you have certain assumptions, you can, but, because we do not have what we would get there, we do not have a complete package with all of the pieces in it so we can look at their assumptions.  We can take their assumptions and as a competing party we can present our own scenario, lay it out and say it would work this way. 

 

Mr. Craigie:

Now I believe, and as we do the numbers, we believe this package can work this way.  I will show you very simply what we have created again using entirely the data created by the proponents.  Our schematic (Exhibit F) shows if we take the original room tax increase, the $1.5 million, and that is what has been proposed here and it was supported and proposed in the Frankovich application, which produces $30 million, if given the math problem we did, if $1.5 million creates $30 million, $750,000 taken from the special improvement district, then $1,350,000 would create $15 million.  These are the two primary components contained in the September 21, 2000, application and approved by the stakeholder group who says it covers the $45 million debt service required, added to the Newco subordinated loan, or in our recommended case, an equity contribution.  That creates $20 million, which pays the construction project.  We do know there is a $750,000 operating deficiency.  The special improvement district leaves, at least in the first year, $600,000 which can be put to the $750,000 deficiency.  That does not balance.  It leaves a $150,000-per-year deficiency.  You do not roll in a $1.7-million room tax to pay off $150,000 a year for 30 years.  In fact, with $150,000 the first year, the cash balance actually has a $2-million surplus; if you take the new room tax which the first year is $1.8 million, you actually have the $200,000 to cover it, but that is not what really counts here.  The actual math depends on all of these assumptions that are done which we do not have.  The point for us is there is entirely too much cash rolling through this system, and if you go back and look at logically how you can address this, you can in fact eliminate the $1.7 million. 

Mr. Craigie:

Somebody needs to sort through some of these major issues.  The first recommendation I am suggesting is for the committee to ask an independent entity to look at a few of the critical issues in this project.  You have a very competent group in the Legislative Counsel Bureau staff, and I believe two or three issues ought to be reviewed by them: The original room tax at $1.5 million yielding $30 million compared to $3 million to raise $15 million; and the $758,000.  These cannot possibly have come from the same set of calculations, database, or assumptions.  Somewhere in those three there is a major change or error.  Either way this project as proposed, and as you enable it to go to the City of Reno, would have far too much cash for the project at hand.  So, my first recommendation is to have somebody go through it, take a look and make an appropriate report back to you on the bottom line. 

 

The second recommendation is we truly believe the money will prove to be there, so the 1.5 percent would not have to be assessed.  We would like to suggest we keep the 1.5 percent room tax out of this formula.  If the 1.5 percent was removed from this formula, and if Newco would make an equity contribution so they have their own equity in the way Mr. Ascuaga does, then we would be comfortable walking away from all of our objections and concerns and allowing this very needed downtown facility to move forward.  We believe an equity contribution by the Newco properties is very appropriate.  It is $5 million apiece and it is a small investment to have a fully constructed, fully equipped facility with all expenses for operation, maintenance, and marketing paid.  This may also help justify Newco’s ownership, management, and personal use of the tax-funded facility. 

 

I also appreciate Mr. Carano’s comments this facility would be available to all parties, which has been an issue for us.  The issues left to negotiation should be left in negotiations between the city, this committee, and Newco.  We are not suggesting what ought to be done on the board membership.  We are just saying they should have some of their money in the game the way Mr. Ascuaga and his family do and the way others do.  The $20-million equity investment would eliminate the need for Newco’s debt payment stream in the formula to be paid, and would free up cash to be properly applied to reducing the amount of money of tax dollars drawn on to pay down and operate this facility.  The $20‑million equity investment could be recovered by Newco properties the same way the Ascuagas pay off their convention center debt and operation cost.  In the end, Newco may not earn their $20 million back and they would be at risk, and they are at risk in this plan, but the bulk of this deal is still fully funded by tax dollars.  The risk is minimal, for the property is nestled in among their resorts.  Who is really at risk?  The Ascuagas are really at risk because they put up 100 percent of their own money and pay 100 percent of all the operations, maintenance, marketing, et cetera.  Now, by an act of the state legislature, that operation which continues on will compete, if unaltered, with a 100 percent government-funded competitor.  That is risk.  Remember John Ascuaga’s face when you vote on this.  That is where it hits home.

 

Senator Coffin:

If the project fails, how much of the fallout falls on your plan financially from tax burdens, et cetera?

 

Mr. Craigie:

I actually cannot answer what will happen if the downtown facility fails; because Newco has made a statement they will stand good for any losses.  Actually, everybody on the team is an honorable person, and I do not know the terms of the agreement, I do not know if it is in the contract.  But, the obvious concern is if California gaming is hugely successful, and room taxes tank across the city, and if the city, in that memo, is properly representing their position where they say none of their revenues will be at risk at any time, then it is possible this debt falls back on the general community at some level.  Again, I think the city should be here at some point to answer some basic fundamental questions.  They need to give you some assurance.  You are being asked to hand them a huge taxing authority.  I cannot imagine, as a department head or a cabinet officer, if I had brought that loosely defined, loosely budgeted proposal to the Senate finance and the Assembly ways and means committees, I cannot imagine the reception I would have gotten.  I really do believe it is unconscionable for the city, which is ultimately responsible for the management, budgeting, and operation of this program, to hang this committee out and not have their recommendations here.

 

Senator Coffin:

I wanted to try and separate out Mr. Craigie’s analysis of what might happen to Reno and the taxing authority there versus someone who is a resident in the city of Sparks.  I am trying to separate that issue from the competitive issue.

 

 

 

Mr. Craigie:

Everybody is at risk if this goes under.  Everybody is at risk if the town goes under regardless of this program, and I do believe this downtown center gives us a better, fighting chance, and all I am suggesting is let us build it under the right terms.

 

Senator Townsend:

After having your people analyze the numbers, when were you convinced these were the final numbers you thought were important for your client’s position?

 

Mr. Craigie:

I was not certain on my first run through whether the 1.5 percent could come out.  Having the airport supported and having the room tax max out were important issues, but it was not until I went through and discovered they had jumped to $3 million when they did not have to, I actually went to an expert and had somebody look at it.  I probably should have done it sooner.  The person was very uncomfortable doing this because of conflicts she felt she had, and we hired another individual who has only looked at this for a few days. 

 

Senator Townsend:

When did you become aware you were comfortable enough to bring this issue to the committee?  Was it this morning at 10 a.m., was it 2 days ago?

 

Mr. Craigie:

The first time I was really comfortable with the numbers myself was not until late yesterday afternoon when the second person we hired to do a review of this walked me through the numbers, but he will not let me bring the exhibits he created because he said it is not appropriate for me to put them out, since I do not have the backup data points.  That is why I suggested having somebody get them and do an evaluation themselves. 

 

Senator Townsend:

I will go back and ask again, was late yesterday when you were comfortable enough to start to put this together?

 

Mr. Craigie:

Yes.

 

 

Senator Townsend:

Did you contact the other parties to let them know you felt there was a financial inconsistency?

 

Mr. Craigie:

I contacted them for the first time a week ago and indicated I thought they should reevaluate their numbers because I had discovered this piece and I was concerned about it.  I asked them in your office to please go back and look at their numbers.  I said I believed they are wrong and believe this can be done without the 1.5 cents and I still do.  I was not sure enough to bring it here until I had someone actually sign off on the issue.  I asked the other parties to come because I knew I had something I really believed was wrong and wanted us to be able to work it out.

 

Senator Townsend:

You indicated today the package is far too loose and the Legislature should not allow the city to do this without appropriate controls.  Could you point out in the bill anywhere that requires the city to raise any part of the room tax?

 

Mr. Craigie:

There is no two-thirds vote on the front, no, this is enabling legislation.

 

Senator Townsend:

If the city, on their own or due to your persuasive articulation, found it not to be as tight a package, then they would have the right to do multiple things: not increase the tax at all, increase it a certain percent, put certain restrictions on it, or, in turn, require Newco to take their subordinated debt and turn it into equity.

 

Mr. Craigie:

That would be fair too.  It would be inconsistent with the philosophy I believe this Legislature has established and carried forward since 1981.

 

Senator Townsend:

The statement has been made there is no doubt the city of Reno needs a facility.  Since we have drawings and location, then the facility would be accepted by your clients were it not to be financed in this manner.  Is that fair?

 

 

 

Mr. Craigie

I believe it is.

 

Senator Townsend:

And, somehow it is a surprise everyone is going to have access to this facility.  Was there ever any indication people could not use the facility?

 

Mr. Craigie:

There was uncertainty, and for an example, there is no parking.  One of the concerns my clients raised is if the satellite team wanted to do a major entertainment program on a weekend, as part of either some special set of nights like Hot August Nights or something else, would the downtown properties be in a position to let them use the facility and the parking required.  Obviously, the parking is in the parking garages of those facilities, so, the satellite team is dependent not just on the ability to access the facility but to access other support facilities in the area.  In the discussions I have had with my clients, there was concern about all of the language that is replete throughout all of the plans and in the statute.  This statute adds, for the first time, the opportunity, as we see it, for them to own the property and all of the equipment in it.

 

Senator Townsend:

At the end of the 30-year period, the bill states the equipment, the property, and the building reverts to the agency.  Is that your understanding of the bill?

 

Mr. Craigie:

It is.

 

Senator Townsend:

The CEO of the RSCVA sits on the Newco board or the Newco group.

 

Mr. Craigie:

That is an added position put on the table today.  We believe it is a reasonable step forward, but it truly does not begin to touch the issues we have raised of public dollars for ownership of a competitor, and the fact the financial side of this is so loose.  My clients truly believe, and so do I, there should be some very clearly defined fiscal management system put before this Legislature, some commitments made, before this huge set of revenues is allowed to go forward.  Just to put it in context and if you look at the last page (Exhibit E), and you look at the $1.5 million revenue stream, and the $1.7 million revenue stream, we look at those revenue streams in the bonding-capacity numbers and we say $30 million, $15 million or $34 million.  The room tax line for S.B. 477 of the Seventieth Session is $75 million on total collected revenues.  We look at these sanitized numbers on a little chart showing the bonding capacity.  The new tax, if assessed at the full 1.5 percent as projected by the city budget director, is $85 million in revenue stream.  This is a lot of money in public dollars.  That is our concern.

 

Pete Cladianos, Jr., Vice Chairman, Sands Regency Casino and Hotel:

I am also here on behalf of the Northern Nevada Motel Association and “The Committee for No Taxation Without Benefits.”  Our committee is composed mostly of facilities having 20 to 50 units.  We learned our room tax was going to be higher than the rest of the county if the Newco proposal was adopted.  We also learned we were going to pay a property tax on assessment of property higher than we were already paying, to help support this facility.  We formed this committee and we have, depending on the size of the assessment district, at least 50 to 60 property owners who have signed affidavits saying they do not wish to be taxed for this project because they do not feel it will be of benefit to them. 

 

I appeared in opposition, contrary to what has been testified here today, at the stakeholders meeting in November with the Reno Redevelopment Agency, and expressed my opposition to the financing of this project.  We are in favor of the project.  We are against the idea the smaller properties further away from this facility should be taxed to pay for it, because we do not see we will receive any benefit.  To my knowledge there has been no agreement signed with anyone we are aware of.  Certainly there have been discussions but nothing signed as yet. 

 

This morning I attended a RSCVA meeting where the RSCVA decided to study this matter to decide whether they wish to recommend their approval of the facility, whether they wish to be neutral, or whether they wish to decide not to support the project.  That is another reason why S.B. 221 should not be acted upon.  I support Mr. Craigie’s recommendations and let me just repeat his words, “Let’s build it, but let’s build it under the proper financing terms.”

 

Senator Coffin:

Where are you located downtown?

 

Mr. Cladianos:

We are located four blocks west of Virginia Street, so we would probably be six blocks away from the project.  There are two reasons why we feel we get very little or no benefit from this project.  It is well known in the tourist industry people will not walk more than three blocks.  If they have to walk more than three blocks to go somewhere, either they do not go or they take their car.  This facility is five to six blocks away from us.  We have had the same experience with the bowling stadium, which is approximately the same distance from us.  Some huge number, 80 percent maybe 85 percent, of the business coming from the bowling center goes to the Newco properties or other properties around Newco.  We get very little of the bowling business.

 

Senator Coffin:

You do not have a casino, what fills your rooms?

 

Mr. Cladianos:

We do have a casino.  We have 840 rooms and have approximately 700 to 800 slot machines.

 

Senator Coffin:

I am trying to figure how you lose if you have a convention facility which is only six blocks away because people move by buses in Las Vegas to and from these conventions on a real rapid basis.  I am wondering how you would really lose?  I notice the other motel owners are across the street from the proposed location.

 

Mr. Cladianos:

We are basing our estimates on what happens with the bowling stadium, and the bowling is adjoining this proposed facility.  Most of these people wind up in Newco’s facilities or other facilities around there, because they are adjacent to them.  Newco put this facility there because that is where they want it, and it does them the most good.  The argument was they are going to put up $20 million of their own money, and as Mr. Craigie pointed out, essentially we all believed that.  They said they did not make this statement that it was going to be an equity investment.  It turned out in September 2000, it was a loan, and that is why I said we support Mr. Craigie’s recommendations because in his recommendations it is equity, just like the rest of us have put in equity into our properties.

 

Chairman McGinness:

I have been asked by a couple of committee members if, while the arguments are fresh in our minds, Mr. Sande would address some of the concerns of Mr. Craigie and the group.

 

Mr. Sande:

Regarding the room tax increase of $1.5 million, bonding capacity equity contribution is $30 million, which for a 30-year bond I believe it is over 5 percent.  You can double check the figure because interest rates have gone down.  If you take 5 percent of $30 million that is $1.5 million, so if you were just going to pay interest only on a 5 percent municipal bond, $30 million issued and outstanding, you would be paying $1.5 million.  So, on its face it does not make sense because cash flow of $1.5 million would only cover the interest on the bond.  It would not have any principal payment over the 30-year period, and furthermore, as I understand it, our expert told us when you go out and offer bonds you have to show a coverage, the same thing if you lend at a bank.  You come into a bank and they say, how much can you afford? and you say, I can afford today $100 a month.  Since the interest and principal on the loan is $100 a month, they are not going to make the loan because you have no coverage.  The coverage on these bonds, as I recollect on the first tier, is something like $1.51.  In other words, you have over 50 percent more revenues from your tax than the actual bond payments.  But you can see just from this, on its face, it is not sensible.  You cannot cover with $1.5 million, bonds of $30 million because, even at 5 percent, you are talking about just being able to pay the interest on those bonds if they are 5 percent bonds without any principal payments, and also without any contingency that any kind of a bond purchaser would want to have. 

 

What the stakeholders group did was get experts involved and they came forward and we had Dave Houston, Salomon Smith Barney, put all the numbers together, and we continually run these numbers.  You have to make assumptions.  If you subordinate the $20 million, that means you have made certain assumptions.  You make assumptions as to how much your loss is going to be.  You get assumptions as to what kind of expenses you are going to have.  So, Mr. Houston is the expert and he is the one who told us what we needed to have.  If it turns out we do not need 1.5 percent for the room tax, is great. 

 

Who is paying this?  The downtown people are paying this.  Who is paying the property tax?  It was mentioned somehow this is a free ride.  The residents of downtown Reno, who benefit from this property, are going to be paying the special assessments, and $700,000 out of $900,000 is going to be paid by Newco members.  Why would we want to pay more tax?  We do not.  We only want to pay the minimum amount, but we use experts and we do not come up with numbers which just on the face are nonsensical.  Now I do not know where these numbers came from, all I know is we went through a very long process over a number of months, coming to these numbers and using experts, and they tell us this is what we need, and we are perfectly willing to share the information with you.

 

Chairman McGinness:

You have addressed the financing and the 1.5 percent.  Could you touch on the equity loan?

 

Mr. Sande:

The equity loan, first of all, there was never any commitment of any type of equity contribution.  Mr. Satre may want to speak to the issue of equity from a public-company standpoint.

 

Mr. Satre:

This has been a difficult part for us to look at.  The one thing I want to point out is my company and the people I represent in my company, 15,000 employees in the state of Nevada, are not afraid to make equity investments in this state.  What I am concerned with is the process.  As a public company, we are used to investing in projects we do not own, but this is owned by a public agency.  If I want to color this as an equity investment, I am kidding myself.  If I put $5 million into this, I do not own anything, so it is a gift.  If I want to do that, I will go through a different committee in our company, which is the committee on charitable contributions.  That is the committee we used when we donated 200 cars of Harrah’s automobile collection in downtown Reno.  I look at this as something we are creating as a value and we ought to have some opportunity, at some point in time, to get a return on investment.  It is going to be very subordinated, but at least as a public company, I can book that loan as an asset.  According to our calculations, the first payment we were going to get on the loan was in 2014.  Now, you all know what it costs to put $5 million aside and have it sit there and not have any return on it for about 14 years.  It is very costly.  It is a major contribution facilitating the accomplishment of a very important project.  But, when we do that, we get to at least book it as an asset.  That is the thinking I had, as one of the members of Newco, in trying to reach a conclusion on how to set up that $20 million contribution.

 

Mr. Frankovich:

I am responding to the question with respect to Mr. Craigie’s numbers.  His presentation was quite impressive, and perhaps the most important thing he said was “do not accept my numbers.”  Mr. Craigie has picked and chosen numbers in a fashion which has not given a complete picture here.  While I understand and follow the logic of his presentation, I think Mr. Sande’s comment demonstrates the basic flaw, which I would like to expand upon.  I am not an expert in these numbers and neither is Mr. Craigie.  We will bring in Mr. Houston if you really want to hear an expert.  What we are saying is here is $65 million in construction cost, plus an operating deficit of $750,000 annually.  To carry Mr. Sande’s example one step further, interest only at 6 percent, which is the bonding rate assumed for this offering, for $65 million is $3.9 million per year, that is 6 percent of $65 million.  Mr. Craigie would suggest we could fund $3.9 million with a $1.5-million source we have from S.B. 477 of the Seventieth Session and the assessment district, which is now $900,000.  Those add up to $2.4 million which makes us $1.5 million short, which coincidentally corresponds to the approximate amount the new room tax would raise.  Contrary to what Mr. Cladianos testified to, we have a committed agreement with the committee and it is being circulated for signature.  It has been signed by two of the six parties. 

 

Mr. Frankovich:

The downtown properties have agreed to the spread of the assessment district, and have agreed to support the room tax as a method of financing.  These numbers you have been presented by Mr. Craigie do not paint the picture accurately when you are dealing with bond financing, and the simple interest calculations demonstrates that.  There is no problem with having some independent expert, if this committee has one, review the Salomon Smith Barney financing numbers.  This group has no incentive to impose more tax on ourselves than is absolutely, positively required.  Mr. Greg Ferraro (Lobbyist, Nevada Resort Association), called me 2 days ago and said Mr. Craigie has a proposal he would like to discuss with you.  I came down here and in Senator Townsend’s office Tuesday afternoon and said to Mr. Craigie, “What is your proposal?” and he said, “I cannot tell you.”  I have not seen these numbers before today at this hearing and it is difficult to respond, but the simple math would suggest the numbers have been misapplied somehow.

Mr. Sande:

Since we were here last time, the talk of somehow this is using public funds to fund something other parties did not get, three of the four proponents of S.B. 477 of the Seventieth Session who pushed hardest for funding the $105 million expansion of the convention facility are sitting here today.  The downtown folks were not that interested in raising their room tax, but negotiations took place and they took place not in a public arena like this but they took place in privacy and eventually something was worked out.  Senate Bill 477 of the Seventieth Session provided $1.5 million of public funds for a tourist-related facility in downtown Reno.  You have, in tab 2 (Exhibit C), the legislative history replete with references to facilities in downtown Reno including the convention facility in downtown Reno.  The mayor and Mr. Whittemore talked about what was going to go in downtown, even the mayor of Sparks was upset with the possibility the room tax would be used for a convention facility and testified against the bill.  But, he was not successful because the downtown and outlying properties agreed there be something.  All we are talking about here is an incremental need for taxes to make a project work, and that was because we went through the stakeholder process as we were told to do by the legislature.  That is where we arrived at the need for additional funding.

 

Samuel P. McMullen, Lobbyist, representing the Eldorado Hotel and Casino:

I want to clear up a couple of statements made about the process in terms of the opponents’ testimony.  First, this is exactly the kind of financial home rule the legislature has advocated and imposed on local governments.  You use existing revenues and you make sure it works, but if you do not have them then you do not get to do it by yourself.  You have to put together a case and you have to come to the legislature who will give you the authorization, if you make the case, to utilize those funds.  So, the reference that somehow this is some end around on the structure of the strategy put in place by the 1981 tax shift and other expanding things, is exactly what we have talked about. 

 

Second, having been in front of other committees, chaired by Senator O’Connell, which spoke to issues of development and development funding in downtown Reno, there are very strong and very effective safeguards put in place on the spending of district money.  That process in and of itself will validate these numbers and it will also, through a special assessment district, validate only those necessary funds are raised.  So there are safeguards through the whole public process the City of Reno will have to go through which answers all of these questions.  So, I think you can rely on that to make sure those processes work and only appropriate public tax monies are raised and spent.

 

Mr. Frankovich:

Mr. Craigie made a presentation about a surplus accrued under an analysis done by the Reno budget director which shed over 30 years, I think, there was $12 million accrued.  I want to make sure it is clear, if those projections prove to be correct and I would hope they do, the money does not belong to the City of Reno, and the money does not belong to any members of Newco, the money is dedicated for the repayment of those bonds, and the result would be the bonds would be paid off earlier.

 

Mr. Craigie:

On the second page of the letter at the front of Exhibit E, is the nonsensical number they do not recognize.  I took their number toward the bottom of the page, where it says, ”It is anticipated the full capital cost for the project,” and lists the original room tax from S.B. 477 of the Seventieth Session, at $30 million.  That is where the number came from, and the room tax for the first year was capped at this amount.

 

Chairman McGinness:

We will close the hearing on S.B. 221.  I have a bill draft request (BDR) to introduce.

 

BILL DRAFT REQUEST 43-137:  Establishes certain benefits, exemptions and programs related to certain motor vehicles that use clean-burning fuel.  (Later introduced as Senate Bill 478.)

 

            SENATOR TOWNSEND MOVED FOR INTRODUCTION OF BDR 43-137.

 

            SENATOR RHOADS SECONDED THE MOTION.

 

MOTION CARRIED.  (SENATORS NEAL AND SCHNEIDER WERE ABSENT FOR THE VOTE.)

 

*****

Chairman Mcginness:

I adjourn the meeting at 4:51 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Rochelle Trotts,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Mike McGinness, Chairman

 

 

DATE: