MINUTES OF THE joint meeting of
SENATE Committee on Taxation
AND
ASSEMBLY COMMITTEE ON TAXATION
Seventy-First Session
February 13, 2001
The joint meeting of the Senate Committee on Taxation and the Assembly Committee on Taxation was called to order by Chairman Mike McGinness, at 1:40 p.m., on Tuesday, February 13, 2001, in Room 4100 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.
SENATE COMMITTEE MEMBERS PRESENT:
Senator Mike McGinness, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Randolph J. Townsend
Senator Ann O’Connell
Senator Joseph M. Neal, Jr.
Senator Bob Coffin
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mr. David E. Goldwater, Chairman
Mr. Bernard (Bernie) Anderson
Mr. Morse Arberry, Jr.
Ms. Vivian L. Freeman
Mr. Harry Mortenson
Mr. Robert (Bob) E. Price
Mr. David Brown
Mr. John W. Marvel
Ms. Sandra Tiffany
SENATE COMMITTEE MEMBERS ABSENT:
Senator Michael A. Schneider (Excused)
ASSEMBLY COMMITTEE MEMBERS ABSENT:
Mr. P.M. “Roy” Neighbors, Vice Chairman (Excused)
Mr. Greg Brower (Excused)
Mr. David R. Parks (Excused)
STAFF MEMBERS PRESENT:
Brenda J. Erdoes, Legislative Counsel
Ted A. Zuend, Deputy Fiscal Analyst
Russell J. Guindon, Deputy Fiscal Analyst
Kevin D. Welsh, Deputy Fiscal Analyst
Kate Ely, Assembly Committee Secretary
Nykki Kinsley, Assembly Committee Manager
Mavis Scarff, Senate Committee Manager
Rochelle Trotts, Senate Committee Secretary
Senate Chairman Mike McGinness:
As usual, during the first part of the session, as noted last week, we had a joint meeting to get background for the committee members. Today we will have Brenda Erdoes, Legislative Counsel, present the overview of taxation bill draft requests (BDRs). Ted Zuend (Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau) will review the Economic Forum, and Russell Guindon, Deputy Fiscal Analyst will go over the Task Force For Long-Term Financial Analysis and Planning.
Brenda J. Erdoes, Legislative Counsel, Legal Division, Legislative Counsel Bureau:
(Presented a brief overview of Taxation BDRs [Exhibit C]). The information in this list is as of last Friday, February 09, 2001, which does not include the request we received yesterday. A total of about 107 did not get correlated into this list and we will also receive up to another 100 additional ones, 50 from each house and the committee requests, and all could potentially be related to taxation. The report is broken down by taxes to make it easier to look at with full range this session. You have four of the business tax areas, one of those is to repeal it and the rest are basically adjusting it in one fashion or another. You have four in the fuel tax bills; those are all over the board, from jet fuel to regular fuel and motor vehicle fuel. Three gaming tax measures that all deal with the rate of the tax and all increase it. An advisory question that you might not have seen that kind of bill here before, one on net proceeds; it is a procedural issue about how they are presented. There are 17 on property taxes, which is pretty normal and usually the biggest category for this committee.
Ms. Erdoes:
Two of them are constitutional amendments, the rest are all bills, mostly amending chapter 361 of Nevada Revised Statutes (NRS). There is one on real property transfer tax and others coming. There are seven sales-and-use tax amendments that are proposed, one concerning Internet sales and the remainder are all exemptions of different things: propane, funeral materials, renewable energy products, farm machinery, medical devices and durable medical equipment. There are a couple of bills on tobacco taxes with adjustments of the statutes on collection or competition between wholesalers. There are three bills that relate to different transient lodging and room taxes. You also have four on vehicle privilege tax all over the board from renaming it to repealing it, eventually just making changes or exemptions. Under the miscellaneous category, I have grouped a number of things from constitutional amendments to different bills requested by the Department of Taxation on procedural things. At the end of this document are two joint resolutions that came back from the Seventieth Legislative Session that will likely come to taxation. The Initiative Petition will also need to be dealt with in the first 40 days of this session.
Senate Chairman McGinness:
Has there been a bill to repeal the business activity tax every session since it has been instituted?
Ms. Erdoes:
I believe there has been. This one is different because it repeals it only if an income tax on businesses, other than sales tax, is enacted this session.
Assemblyman Mortenson:
Are their any taxation bills which are designed to mitigate the effects of the teachers’ union bill?
Ms. Erdoes:
You are asking whether there have been any alternative proposals presented, we have not seen any at this time.
Assembly Chairman Goldwater:
When dealing with the sales tax so often we deal solely with exemptions. The proposal of the BDR that I requested is regarding streamlining the sales tax collection process, the fact that there is probably going to be legislation as well as an interstate agreement regarding the sales tax, and the fact that we have the 2 percent that is in the state constitution. How will that proposal and the 2 percent relate to each other? Is anything we do regarding the sales tax go on the ballot?
Ms. Erdoes:
No. You can repeal all of the others, not the 2 percent. The 374 local school support tax (chapter 374 of NRS) and those that go with that, you can do anything you want to those. If I understand the Internet proposal, the 2 percent you have already, you cannot change without a vote of the people, is probably in compliance with what they are looking for, in other words it is across the state. It probably will not be a problem unless there is a problem with the exemptions. The ones you can change without a vote of the people are local option, for example, that is what causes the problem with the Internet and you can amend those with no vote.
Assembly Chairman Goldwater:
That is a little bit of the problem. First of all we are not calling it an Internet tax anymore, we are streamlining the collection of sales tax from now on and making sure everyone pays the fair amount of tax. We will be mindful, as we address that, of constitutional issues. Anything you would like to advise us, moving forward, to be mindful of as we address the collection of sales tax in the constitution.
Ms. Erdoes:
I think sales tax is mostly just the legal problems we usually have, as you know that it is a referred measure, that base, that most of the provisions are in chapter 372 of NRS, other than administrative provisions. Constitutional issues are not really there.
Ted Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau:
(Presented an overview of the Economic Forum by reading [Exhibit D].)
The Economic Forum Forecast was made December 01, 2000. The reason for the difference in the General Fund revenues is the growth in revenue was much better than expected for the 1991-2001 biennium. Now, for a couple of resources, we only have one-quarters’ worth of data because taxes are paid quarterly and we will not get the second quarter until the end of this month. The Venetian and Paris Casinos opened last fiscal year and made 5 months of double payments on their percentage fees a year ago over a 3-month period. Actual tax collection is down 1.1 percent this year related to the oddities of how fees are collected.
Senator O’Connell:
When looking at the hotel figures, is the gaming up, but things associated with the rooms and retailing in the hotels down?
Mr. Zuend:
No, the figures I am referring to are actual taxes collected as opposed to the business activities that are going on inside the casinos. Activity is up by a 3.5 to 4.5 percent range. Right now the revenue collections are down by 1.1 percent and due to anomalies and how taxes are collected. It has to do with credit play, estimated fee adjustment, because casinos pay 3 months in advance and it is always trued up at the end of those 3 months. The third factor is the one-time payments by the Paris and Venetian (casinos) that occurred 1 year ago, which were in the base but obviously not going to be repeated.
Senator O’ Connell:
The retail sales and the room rates are holding their own, as well as gaming itself?
Mr. Zuend:
Based on the latest statistics from Las Vegas, the activity was all right. It was not booming like when the new casinos were opening and were getting the large visitor-volume increases. My last recollection is they have been holding their own. There has not been a dip in visitor volume.
Assembly Chairman Goldwater:
How is the Economic Forum done? Have you ever done a deviation analysis on how their projections are relative to how they come in actual? Are their margin of errors good?
Mr. Zuend:
Overall, the estimates have been off by several percentage points since 1995. We are completing the third estimation cycle. They underestimated 1995-97 by several percentage points and we ended up with a large surplus. In 1997-99 they overestimated by a couple percentage points in total over the biennium, mostly in the first year of the biennium, as it turned out toward the end of fiscal year 1999 things picked up. Our tax system is contingent on visitor volume and is much less predictable.
Assembly Chairman Goldwater:
Do you know if the Economic Forum is using the loss of sales taxes collection from Internet sales in their modeling?
Mr. Zuend:
We have recognized all of the contributors to the Economic Forum process and have recognized there is a potential loss of revenue because of the potential for expanded Internet sales. This course has two components of Internet sales; one being “B to B,” which is business to business, which at least in theory if the Department of Taxation has the adequate resources, they should be able to recapture those sales through the use tax, which is the largest amount of sale that goes through the Internet. The second component is the business to consumer, the problem is much like catalog sales, it is very difficult to secure revenue from those consumers. They are not using it in their modeling yet.
Senator Neal:
The figures in the report that relate to the gaming forecast, is that from the Economic Forum?
Mr. Zuend:
The figures in the first part of my report (Exhibit D), the 6.6 percent increase and the tables in the back of the report, are all gaming revenues not just the percentage fees. The figures that are in the tables are the Economic Forum forecast. The information toward the end of the presentation was my speculation on where we could end up if we continued our current pace. It is almost certain we will not reach the forum’s estimate for gaming revenues this fiscal year.
Senator Neal:
Is the 6.6 percent collected for fiscal 1999-2000 actually reported by the gaming commission?
Mr. Zuend:
The 6.6 percent is for fiscal year 2000-2001, which is the forecast for all the gaming components other than the casino entertainment tax. Last fiscal year the increase was 10.8 percent.
Senator Neal:
The forecast means the information comes from the Economic Forum. What was the date of the Economic Forum’s report?
Mr. Zuend:
December 01, 2000.
Senator Neal:
The purpose of my question is, the Las Vegas Sun reported yesterday, that these figures were about 9 percent, for the total gaming portion for the year 2000.
Mr. Zuend:
That information from the Las Vegas Sun was for the calendar year. We operate on a fiscal year basis. Gaming does put out a calendar year report for those interested in annual data.
Senator Neal:
When you talk about fiscal year data, this figure of 6.6 percent ended June 30, 2000.
Mr. Zuend:
The table (Exhibit D) on the next to the last page shows the figure as of June 30, for fiscal year ending, it was actually registered at 10.8 percent increase. The 6.6 percent I am referring to is the forecast by the Economic Forum for the current fiscal year. It will likely be substantially below that number when we close the year. It is the third line in the table, which says total gaming tax. The forecast for this year is 6.6 percent. When the forum made these numbers, the take on the percentage fees was much better than they are. We have had two declines in the percentage fee collections, nearly double digits for the last 2 months.
Senator Neal:
How much percentage increase did gaming take in for the year 2000? Is it the 10.8?
Mr. Zuend:
No, that would be how much increase in the taxes they paid. Gaming for the last calendar year was a 6.4 percent increase, which is their business activity, how much is taken in from the players. That is the best measure of their activity at the table.
Senator Neal:
Actual tax increase is 10.8 percent?
Mr. Zuend:
Yes. That was during the prior fiscal year, fiscal year 2000 that ended June 30, 2000, 10.8 percent is largely due to a large increase in percentage fees. I would suspect that the win for that fiscal year, the matching months of that fiscal year was probably double digits as well.
Senator Neal:
Whatever they took in was up over the year before?
Mr. Zuend:
Yes.
Russell J. Guindon, Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau:
(Presented a brief overview of the Task Force For Long-Term Financial Analysis and Planning. The duties and business they conducted from the end of 1999 through September of 2000, along with the recommendations of this task force [Exhibit E].) The Task Force For Long-Term Financial Analysis and Planning was created and passed by Assembly Bill (A.B.) 525 of the Seventieth Session.
ASSEMBLY BILL 525 OF THE SEVENTIETH SESSION: Creates task force for long-term financial analysis and planning. (BDR 17-1205)
The task force was primarily directed to develop a permanent nonpartisan process for the preparation and periodic update of long-term forecasts of the state’s revenues and expenditures for use in the state’s budget planning and appropriation process. The late Assemblywoman Jan Evans introduced Assembly Bill A.B. 525 of the Seventieth Session. From my understanding, one of the factors motivating Assemblywoman Evans’ desire to develop a long-range forecast and planning process for the state of Nevada was a report published in 1998 by the National Education Association authored by Hal Hovey titled, The Outlook For State and Local Finances: The Dangers of Structural Deficits for the Future of Public Education. What this study did, it attempted to look at all 50 states that developed a methodology for taking the current services budget, extending that out 8 years, taking the current tax structure in each state and using common economic and demographic assumptions projecting that out. Based on the methodology used in this report, the State of Nevada had the dubious distinction of placing last in the table or first depending on which way you want to rank it, that would have an 18.3 percent gap between the required expenditures to fund the current-services expenditure path and the expected revenues as a percent of the baseline revenue projections in the eighth year of the forecast horizon for which its report did its study.
Similar results that were consistent with this report, with regard to the difficulty of the state’s tax structure to provide enough revenues to support the state’s expenditure programs, were presented by the Governor at his fiscal forum on May 3 – 4, 2000, in Las Vegas. These results presented by the Governor are included in his recently released report from the Governor’s office on the Governor’s steering committee to conduct a fundamental review of state government. The final report to the Governor, as my understanding, was released in January of 2001. The National Education Association report also discussed the importance of long-range financial planning to state governments. The benefits provided from a program relating the ability to fund state programs of revenues generated by the state’s tax structures over a longer horizon. The main conclusion was that long-term financial planning allows one to examine the consequences of changes in expenditure programs and/or revenue sources, not only in the current budgeting period but the consequences over the longer-term horizon.
Mr. Guindon:
By statute the task force consisted of 13 members, 5 members were appointed, 3 by the Governor, 1 by the speaker of the Assembly and 1 by the Senate majority leader. The remaining 8 members were designated in statute. These remaining 8 members were representatives from selected executive state agencies, university research centers, and county and city government. The chairman of the task force is John Restrepo; he was a Governor’s appointment and has a private economic analysis research-consulting firm in Las Vegas. By statute, the task force was required to prepare a written report on or before September 15, 2000, for the legislative counsel to be distributed to the members of the Legislature. It is my understanding that the task force report has been delivered to the members of the Legislature. The handout (Exhibit E) that has been provided for your convenience includes the introduction, background, and summary of recommendations section of this report bulletin. The handout also includes Appendix C, which I will be referring to later in the presentation.
For your reference the introduction section of the handout I have given you does include a list of the appointed designated members to the task force. Appendix B in the actual bulletin, if you have interest, provides a brief description of each of the members who is serving on the task force, and can be obtained. The report that the task force put together was required by statute to include recommendations on three main elements: a long-term forecast process, a long-term forecast committee, and recommendations regarding the office of financial analysis and planning. The report was to include a discussion of the process developed for the preparation and use of long-term forecasts of revenues and expenditures, budgets, and a planning process. It was also to include recommendations for legislation regarding the composition and duties of a permanent committee responsible for preparing and adopting long-term forecasts of future state revenues and expenditures. These recommendations were required to specifically address the number, qualifications, and terms of the members of the permanent committee. The task force was also required to consider recommendations, if necessary, for legislation concerning the composition and duties of the office of the financial analysis and planning. Assembly Bill (A.B.) 525 of the Seventieth Session created the office of financial analysis and planning within the Fiscal Analysis Division of the Legislative Counsel Bureau. The office of financial analysis and planning was created primarily to assist the Legislature in long-term financial analysis and planning especially in the area of long-term planning and forecasting of future state revenues. Also the office of financial analysis and planning was the principal staff responsibility for providing the technical administrative support to the task force while it conducted business.
Mr. Guindon:
The task force held the first meeting on November 2, 1999, where the chairman was elected and a plan was developed to complete the tasks designated to this task force. A total of seven meetings were held to complete the task force business with the last occurring on September 6, 2000. At the initial meetings the task force’s primary goal was to gather information necessary to determine the critical issues to be considered and addressed in developing a process to produce long-term forecasts and the use of those long-term forecasts by the Governor and Legislature in the state’s budget and planning process. To accomplish this goal, several presentation key areas of the state’s budget and financial system were provided at these initial meetings, such as an overview of the state’s revenue and expenditure system, the state’s budget and appropriation process, and the structure and function of the Economic Forum. The Governor’s fundamental review process and also at the request of the task force, a presentation was made on the processes used by other states to produce long-term revenue and/or expenditure forecasts and the use made of those forecasts in the selected states budget and planning processes. To more effectively and efficiently accomplish the goals of the task force, at the first meeting, they decided to create two subcommittees. The first subcommittee was to delve into the preparation of long-term forecasts, that is the structure of the process, then who should serve on the committees, their qualifications and other business. The other subcommittee was to look into what use would be made of the long-term forecasts with regard to the state’s budget and planning process, when the forecasts had to be produced by, who would be required to use those, and other matters. The task force adopted 33 recommendations considered necessary to create a permanent nonpartisan structure to produce long-term, that is 10-year forecast and the use of these forecast in the state’s budget planning and appropriation process. As the task force did not have statutory authority to request BDRs, the task force asked for two BDRs through the Interim Finance Committee. At the June 14, 2000, meeting, the Interim Finance Committee approved the agenda item requesting two BDRs to be drafted regarding the task force recommendations for legislation. One of the BDRs was for the task force recommendations to create the proposed long-term forecast, this is Assembly Bill (A.B.) 19, which has been referred to the concurrent committees on Government Affairs and Ways and Means.
ASSEMBLY BILL 19: Creates forecast council and related technical advisory committees to produce long-term forecasts of state revenues and expenditures and estimates of impacts of proposed programs.
(BDR 31-203)
Mr. Guindon:
My understanding, they are tentatively scheduling the hearing for that bill before the Government affairs on February 28, 2001. The second BDR was for the task force recommendations to amend the state’s current fiscal note statutes; this is Assembly Bill (A.B.) 18, which has been referred to the Committee on Elections, Procedures, and Ethics.
ASSEMBLY BILL 18: Requires fiscal note for legislative measure to contain estimate of certain fiscal impacts for two biennia. (BDR 17-204)
Mr. Guindon:
On the last page of the handout (Exhibit E) is a flowchart of the structure of the proposed long-term forecast process. Some of the highlights of the task force recommendations, as you can see, one of the first matters of the task force had to address and resolve, “how do you structure a long-term task force with the Economic Forum already in existence?” They considered the possibility of making the Economic Forum responsible for long-term forecasts as well as short-term, the other consideration was to create a long-term forecast and include the Economic Forum into that process. After much discussion and debate, the task force decided that it was best to leave the Economic Forum as is, they felt it was created for the explicit purpose of creating short-term, that is biennial General Fund revenues for the state’s budget and planning process and did not want to tamper with its relationship that has been established between the Economic Forum, the Governor, and the Legislature. It is proposed that the Economic Forum will remain as specified in statute and is supported by the technical advisory committee. The task force recommended that a single body called the forecast council will consist of seven members and this body shall be responsible for reviewing and approving long-term revenue and expenditure forecasts. These forecasts will cover a period of 10 years, as you can see from the box on the flowchart (Exhibit E), two members will be from the Legislature, that is a Senate majority leader and/or his designee from the Senate and the speaker from the Assembly and/or his designee from the Assembly, two members from the Governor’s office, the Governor or his designee and another member from the executive administration or agency, finally three members from the private sector appointed by the Governor. The task force decided their recommendation was only private sector appointees are eligible to serve as chairman of the task force and each appointee will serve a term of 4 years. The task force decided there would be two separate technical advisory committees to produce forecasts that would be presented to the forecast council.
Assembly Chairman Goldwater:
I have to take personal responsibility for this one because when Assemblywoman Jan Evans got sick last year I handled that bill through the process. I am almost positive that her intent to create the Task Force For Long-Term Financial Analysis and Planning was not for the task force to recommend another council or another task force. I think her intent in that bill was to create an empirical modeling, patterned after the way late Mr. Hovey built his model for analysis at the National Education Association (NEA) as well as the “famous Price Waterhouse study.” I think what Ms. Evans was trying to do is bring that to the state agency level and have an agency be looking at those things at an empirical basis. What I am missing from this is why another task force? I think exactly what you asked this task force to do and your recommendation is exactly what I think we were asking you to do in Assembly Bill (A.B.) 525 of the Seventieth Session.
Mr. Guindon:
It seemed to me from the language of Assembly Bill (A.B.) 525 of the Seventieth Session, was one of the things they were supposed to do is come back and recommend legislation regarding a permanent committee that would be producing long-term forecasts? I believe the task force did this and is bringing forward recommendations for a process that will produce long-term forecasts. They will not actually be doing the modeling or producing the forecast, they will be reviewing and approving the forecast. The staff of the Fiscal Analysis Division, the various agencies, the Governor’s office, the Department of Administration will actually be involved in producing forecasts. In theory it will actually function like the Economic Forum that have the different people who necessarily have the human capital and experience to produce those forecasts. You also need a body that has an oversight to review and approve those forecasts.
Assembly Chairman Goldwater:
If we are simply going to attempt to project what revenues may be 10 years from now rather than over the biennium, which is what the Economic Forum does, I do not think that is what Assemblywoman Evans had in mind. She wanted to find a way to bring the state’s attention to our tax structure similar to the way Mr. Hovey and Price Waterhouse did. Is it because you rely on these sources of revenue and because of the way you are spending money, someplace along the line your expenditures are going to exceed your revenues? Because of that, here are your options for changing those patterns or trends. That is what I think Assemblywoman Evans was hoping the state would do rather than trying to predict 10 years.
Mr. Guindon:
The staff would be producing the forecast, the first pass would be, developing a system given the state’s current tax system. The state’s expenditure servicesprogram would be able to develop forecasts that would go out 10 years. I do not think it is a stretch that all of us know that yes we have these structural deficit problems. The second phase would be for the staff involved in producing the forecast, to look at those issues. My position was hired for the office of financial analysis and planning when created within the Fiscal Analysis Division of the Legislative Counsel Bureau and that would be one of the things I would look at, in terms of making recommendations for what the state should be doing with regard to a tax system. It is not clear to me that was the intent of the Assembly Bill (A.B.) 525 of the Seventieth Session.
Assemblywoman Freeman:
A question for Assemblyman Goldwater, was this bill heard only in Ways and Means in the Assembly, which came the last part of the session?
Assembly Chairman Goldwater:
Yes. We introduced and heard it in Taxation, than it went to Ways and Means.
Assemblywoman Freeman:
I share some of the confusion that Assemblyman Goldwater has in discussing it with Assemblywoman Evans and tend to agree with his assessment with Ms. Evans’ intent. On the other hand, not being that familiar with the language, maybe you are doing what was in the statutes.
Mr. Zuend:
When the bill was drafted we basically wanted to redo, on a contingent basis, the process Mr. Hovey went through in his analysis. His analysis does not make recommendations, as far as how you fix the things. Mr. Hovey was dealing with 50 states and about three-fourths of those states, at least according to his analysis, had what you would call structural deficits. My understanding of the bill is similar to Mr. Guindon’s as it was written, we would redo Mr. Hovey’s analysis on a continuous basis to demonstrate the long-term problems. How to fix those problems, then, has to be done through both the legislative and executive side. Of course we do have that Mr. Guindon’s position would not be making recommendations how to fix it, but he certainly could review the alternatives that the state has that would fix part of the structural problem. Without a personal income tax it would be virtually impossible to fix the problem forever in this state. You can raise a sales tax, you can impose a business tax, and you can find a single business tax, which is a value-added tax of sorts. None of those will necessarily grow with the overall growth in the economy. The only thing that does, as the federal government is demonstrating everyday, is an income tax because it got certain built-in things that tend to increase revenues even faster than the growth in the economy. It would be up to the analysts in both the Legislature and executive side to come up with a fix. This economic council will be approving the type of Hovey information just for Nevada that would demonstrate on paper the problems associated with the long-term expenditure growth relative to long-term revenue growth.
Assembly Chairman Goldwater:
(Read from Assembly Bill [A.B.] 525 of the Seventieth Session [Exhibit F] as enrolled.)
(a) Economic and demographic trends and forecasts at the national, regional, state and local levels; (b) The sources of revenue in this state including, without limitation, an analysis of elements of this state’s revenue structure that may be vulnerable or unreliable in the long-term; (c) Forecasts (of course, which, we mentioned we are doing) and projections of the needs of state and local agencies that provide human services and services relating to public education, criminal justice and infrastructure; (d) An analysis of revenue and expenditures to determine whether long-term growth in revenue may reasonably be expected to meet the demands of expenditures; and (e) An analysis of the feasibility and desirability of using alternative procedures for the review and approval of budgets and expenditures of departments, institutions and agencies of the state government, including, without limitation, the feasibility and desirability of adopting a system of performance-based budgets. It is more than long-term forecasting.
Mr. Guindon:
What you have here is the structure of the process that would recommend and approve long-term forecasts. One of the other recommendations of the task force, which I had not gotten to, is on or before March 1 of every even-numbered year, they are required to prepare a forecast report that will be delivered to the Governor, the Legislature, and other staff, as required, to look at and discuss those issues. That is one of the elements of the report, to look at those elements of the state’s revenue structure that may be vulnerable or unreliable in the long run. Those revenue sources that are responsible for causing the state’s structural deficit as we go out on a 10-year horizon. The language that you have read, you can separate paragraphs (c) and (d), if you are going to produce forecasts of revenues and expenditures. To be able to produce forecasts of expenditures, you have to go in and start looking at the forecasts and projections of the needs of state and local agencies that provide human services and services relating to public education, criminal justice, and infrastructure. It is impossible to generate forecasts of expenditures without understanding what is driving those forecasts or service programs. That is one of the elements the forecasts produce, you will have to examine those issues and the forecast report that will be prepared by this forecast council and delivered to the selected bodies responsible for addressing those issues in the forecast report.
Assembly Chairman Goldwater:
Assemblywoman Evans just wanted this task force, if approved, to really ask the tough questions of ourselves, “what do we need to spend our money on and how are we spending it, and where are we getting the money?” I really hope this moves in the direction of asking the tough questions of ourselves instead of attempting to cast a number out there that we all try and aim for 10 years from now.
Senator O’Connell:
I had requested a similar bill and the way the bill was explained to me at the time of my request was what Assemblyman Goldwater has stated for the record. The asking of the hard questions, about where did the money come from originally, and is it getting to the source that it was intended for, and what are we doing to really ask ourselves those questions about, if not, why not, and what direction it is. For whatever it is worth, I know that was the understanding of a bill draft when the bill draft request was made.
Mr. Guindon:
I think the way you see the structure set up that we have tried to have the proper levels of involvement in terms of those people who are serving and are appointed and by having the senate majority leader and the speaker of the assembly serving on the forecast council as well as the Governor and some of the other executives. There is nothing wrong with the way this process is currently specified or structured in terms of the recommendations of the task force. Those people can ask the staff of the respective technical advisory committees or the other staff available to look at the answers to those hard questions and to provide information back. If desired, it can be included in the forecast report that the forecast council produces every other year.
Assemblyman Mortenson:
I do not understand why we are insisting, as we progress through the years, our income is going to drop relative to the time. This is totally contrary to our past experience since 1982, for 15 years, until about 1995. The Nevada Taxpayers Association reported that as the population grew, the income grew at a much faster rate, so at about 1995 after the tax revolution, we were 40 percent ahead of the game corrected for growth and even corrected for CPI (Consumer Price Index).
Mr. Zuend:
We had fairly sizeable tax increases in 1987, 1989, and 1991. After the 1991 increase the economy was in a recession and the government had to really tighten its belt. Then-Governor Bob Miller threw a hiring freeze and other actions and tightened its belt. As soon as that recession ended, the state’s revenue base started climbing again in conjunction with the overall growth. Sales tax grows roughly in sync with population and inflation. Gaming does not, however, grow as fast, which is a big part of our budget. We also have taxes such as the business license tax, which is a head tax on employment, that only component is the growth component; there is no inflation component in that tax. We have taxes like excise, cigarette, and liquor as part of our base; all grow far slower than income growth in the state. The taxpayers association report did not back out the tax increase that occurred. Had you taken the tax increase, the magnitude of the tax increases over that period that they demonstrated, there would have been a shortfall between the expenditures. Of course, it is a little hard after that fact to judge that because revenues often drive expenditures. Taking those out and adjusting for population and inflation, the revenue base would not have kept pace with that nominal growth.
Assemblyman Mortenson:
Are you saying in those few years, the tax increased 40 percent, because that is how much the income grew? What were the three tax increases?
Mr. Zuend:
In 1987, there were increases in the insurance premium tax and gross gaming tax by two, one-quarter percent increases, one was triggered in 1989. There was an increase in the state that started taking a share of the net proceeds tax where it never had before. The state raised the sales tax for schools, which, offsets state support by three-quarters of a percent, which is not included in the state figures. The business license tax was instituted in 1991. There was a tax on car rentals instituted in 1991. If you add up those taxes they, probably with adjustments, come to a 25 percent increase in the tax base of the state over that period.
Assemblyman Mortenson:
You did a 2¼ percent increase in gaming tax, that is a small fraction of the tax base, which is only a half percent increase. You increased the sales tax three-quarters of a percent, which is a percentage of sales tax.
Mr. Zuend:
Assuming the sales tax is $6 million today, that is 2 percent. A three-quarter percent increase would be in the neighborhood of $250 million of our budget. That again does not show up in the General Fund budget. That offsets the expenditure side of the equation, because it goes into school budgets; nevertheless, that is a substantial tax increase.
Assemblyman Mortenson:
It is only a three-quarters of a percent of a fraction of your income.
Mr. Zuend:
The state budget right now, even if you add back the local school support tax, it is roughly $2 billion a year.
Assemblyman Mortenson:
Let us say you are correct and that could have resulted in a 25 percent increase. We had 40 percent in the growth rate of money coming in and still wonder why we have such a dismal forward projection when history tells us money comes in faster than growth, even corrected for inflation.
Mr. Zuend:
Money comes in faster if you are constantly increasing taxes under our existing tax base. That is the truism, if you back out those tax increases, it would not have come in faster than a combination of population growth in inflation over that 15-year period. I will put some numbers together for you.
Senate Chairman McGinness:
For members of the committee, those two bills that are coming through the process regarding this office of fiscal analysis and planning, we can take a close look at those and if there are some changes necessary to get back to the original intent of the bill we probably should make those. I think Senator O’Connell and Assemblyman Goldwater have a good handle on that and they will be able to take a look at those. No further business for the joint meeting, but Assembly Chairman Goldwater has some BDRs to introduce.
Assembly Chairman Goldwater:
For the Assembly side, I have been requested to have a BDR introduced. (Based on Senate Bill 468 of the Seventieth Session. He distributed material based on Senate Bill 468 of the Seventieth Session. [Exhibit G])
SENATE BILL 468 OF THE SEVENTIETH SESSION: Changes provisions for certain taxes on sale of motorboat and for movement of vehicles and motorboats. (BDR 32-1027)
ASSEMBLYMAN ANDERSON MOVED FOR A BILL DRAFT REQUEST FOR REINTRODUCTION OF S.B. 468 OF THE SEVENTIETH SESSION.
ASSEMBLYMAN ARBERRY SECONDED THE MOTION.
THE MOTION CARRIED. (ASSEMBLYMEN BROWER, NEIGHBORS, AND PARKS WERE ABSENT FOR THE VOTE.)
*****
Senate Chairman McGinness:
The meeting is adjourned at 2:50 p.m.
RESPECTFULLY SUBMITTED:
Rochelle Trotts,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE:
Assemblyman David E. Goldwater, Chairman
DATE: