MINUTES OF THE meeting
of the
ASSEMBLY Committee on Constitutional Amendments
Seventy-Second Session
May 24, 2003
The Committee on Constitutional Amendmentswas called to order at 12:40 p.m., on Saturday, May 24, 2003. Chairman Harry Mortenson presided in Room 3161 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. Harry Mortenson, Chairman
Mr. Bob McCleary, Vice Chairman
Mr. Don Gustavson
Mr. William Horne
Mr. Rod Sherer
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
Mrs. Sharron Angle, Assemblywoman, District No. 26
STAFF MEMBERS PRESENT:
Donald Williams, Committee Policy Analyst
Sheila Sease, Recording Committee Secretary
OTHERS PRESENT:
David Schumann, Vice Chairman, The Nevada Committee for Full Statehood
Marvin Leavitt, Urban Consortium
Janine Hansen, Eagle Forum and the Independent American Party
Chuck Chinnock, Executive Director, Nevada Department of Taxation
John Wagner, Nevada Republican Assembly and President of the Burke Consortium of Carson City
Mike Alastuey, Clark County
Chairman Mortenson:
The Committee on Constitutional Amendments will come to order. Will the Committee Secretary please call the roll? [Roll was called, and all members were present.]
Remember to turn your microphone on before speaking. There has been some testimony missed in the past because this was not done.
We will open the hearing on A.J.R. 19.
Assembly Joint Resolution 19: Proposes amendment to Nevada Constitution to limit amount of property tax and provide for retention of taxable value on real property until transfer of ownership. (BDR C-234)
Assemblyman Don Gustavson, Assembly District 30:
[Introduced himself.] We would like to thank you for the opportunity to present A.J.R. 19 to the Committee. I know we are running short on time. We would appreciate any help we can obtain to move this bill along.
A.J.R. 19 is a homeowner’s protection policy. Every year our property values continue to rise. Our constituents work very hard all their lives to pay for their largest investment, their homes, so they can retire peacefully. However, too many times, they are forced to sell their American dream because they never anticipated property tax hikes would one day eat them out of house and home. This bill prevents the American dream from becoming a nightmare.
As we look at our neighbors to the west, there you will see a living testament. Twenty-five years ago, California voters proposed and passed Proposition 13, a law that has been a salvation to homeowners. Twenty-five years later, Prop 13 continues to be popular with California homeowners for this law has worked to the benefit of keeping the American dream a reality.
[Assemblyman Gustavson continues.] Since this change in our Constitution of the State of Nevada could not take effect until passing a vote in November 2004 and 2006, we are proposing an amendment to change the assessed value starting dates.
On page 1, line 14, and on page 2, line 4, we are changing the fiscal year [FY] dates from 2001-2002 to 2005-2006. I will explain why further on as we proceed.
This bill would set a cap of 1 percent of the taxable value of the property figured on the fiscal year of 2005 and 2006. A.J.R. 19 would limit the amount of any increase the county could make in each year to 2 percent or to the CPI (consumer price index), whichever is less. At the time of sale of the property, the property would then be reassessed and revalued. The reassessment could not apply to the sale between spouses, children, or grandchildren. The dates on the chart (Exhibit C) will not be accurate with the amendment, but the rest of the charts will be as accurate as possible.
We must keep in mind that these numbers are only projections and could change in either direction depending on the economy. The counties could start planning now for this change in their future budgets.
I draw your attention to the chart in Exhibit C labeled “Nevada Property Tax Scenarios Fiscal Year 2001-2002.” The left half of the table projects an amount of property tax for each county if the current system were to remain in place for fiscal years 2007-2008. The right half of the table shows the effect of implementation of A.J.R. 19 in FY2007-2008 with the rollback of the valuations to FY2005-2006. The information in the table ignores two elements that have opposite effects and will negate each other to some degree.
The first is that FY2002-2003 tax rates on the left side of the table are likely to increase between now and FY2007-2008, providing more money for local governments by FY2007-2008 than shown in the first revenue column. However, those rate increases cannot be predicted with any degree of accuracy. An opposite result occurs because of the taxable value projections on the right side of the table. These projections do not account for the new property that is likely to be added to the tax rolls between FY2005-2006 and FY2007-2008, and valued at FY2005-2006 levels. That amount, which increases potential revenue under A.J.R. 19, is also very difficult to estimate reliably on a county-by-county basis.
Homes in Nevada sell on the average of once every 4 years and therefore would be reassessed at current values at that time. When reviewing the table (Exhibit C), please do not be too concerned about the extra amount of revenue the counties would receive under the 1 percent rate. Keep in mind that these are simply potential amounts and the Legislature could still control the amount of revenue governments can generate under A.J.R. 19. In other words, governments such as Clark County will have room to increase taxes under the 1 percent cap, but they will still be subject to any additional limitations the Legislature chooses to impose, just as they are currently, because of the $3.64 combined maximum rate and the 6 percent cap on annual revenue increases. As you can see, most counties will not be losing any revenue, and, in fact, could generate more revenue if they choose to implement the full 1 percent cap.
[Assemblyman Gustavson continues.] We are not real happy with this option, but by using other rollback dates, the bill could harm smaller counties. We originally used the 2001-2002 rollback dates, but some of the smaller counties would be harmed too much under that proposal, so we have worked for some time to reach numbers the counties and property owners could all live with. That, of course, would be a policy decision to be made by this Committee.
I will defer to Assemblywoman Sharron Angle to provide a PowerPoint presentation (Exhibit D). After that, we would be prepared for questions.
Assemblywoman Sharron Angle, Washoe County Assembly District 26:
[Introduced herself.] A.J.R. 19 is a property tax initiative. I will quote from Paul Gann, one of founders of the Prop 13 initiative:
When I went down to the Capitol and looked around, I saw that every special interest was represented there. I saw the unions were represented. The corporations were represented. Local governments were represented. All the special interests had their lobbyists at the Capitol. So I thought — the people need their advocate, too.
The people of California who live with Proposition 13 and see how it works still support it in poll after poll. California voters say they would vote for Prop 13 again by about the same 2:1 margin it passed by in 1978.
Why pass A.J.R. 19? It will keep Nevada families from losing their homes to galloping property taxes. When a home is purchased, the buyer knows, under A.J.R. 19, the mortgage payment and the property tax amounts. The buyer can then calculate the affordability of the home based on these predictable costs.
How will it work? Suppose 5 years ago you bought a home for the average of $140,000.
Assemblyman Gustavson:
These figures were obtained from Irene Porter.
Assemblywoman Angle:
That $140,000 was the average price of a home 5 years ago in Clark County. Your home has increased in value and is now appraised at $201,000. The present tax system revalues your home at $3.64 of that $201,000. Your new property tax is $2,560.75. Consider this same home and apply A.J.R. 19 by multiplying the original purchase price — not the current value — by 1 percent. Your property tax is $1,783.60. Which property tax system allows you to keep your home the longest before the burden is unbearable?
Is it fair? It treats, equally, property owners who purchase property of similar value at the same time. The California Supreme Court recognized its inherent fairness. Justice Frank K. Richardson, speaking for a nearly unanimous court, concluded, “an acquisition value system may operate on a fairer basis than a current value approach.”
Owners of similar property may be paying different tax amounts. The response to this is that it should be of no concern whatsoever to a new resident what his neighbor’s tax is, as long as his or her own tax is reasonable. The absolute cap of 1 percent makes everyone’s tax reasonable.
It is fair. It is fair to existing property owners because it bases tax liability on acquisition value, not on the mercurial real estate market. It is fair to local governments because it allows for periodic reassessment of property when it changes ownership. Finally, it is fair to new property owners because it gives them two things they would not have otherwise: the benefit of a reasonable property tax increase of 1 percent and the absolute certainty as to what their tax bills will be in future years.
Owners of similar properties are paying different amounts for those same public services. However, now, owners of more valuable property pay more for the same services. The proportionality between tax liability and services has never been an attribute of property taxes so that shouldn’t even be considered in the argument.
Is there a downside? While it is true that the relative property tax burden shifts from commercial to residential property, since residential properties sell more often and are thus subject to more upward tax revisions. But, if commercial property is removed, skyrocketing business taxes will ultimately fall on the same families, those in the residences, in one of three ways: (1) As consumers through higher prices, (2) As employees through lower wages, or (3) As investors through lower earnings. Remember, most investments are not from the fat cats; they're the Mom and Dad’s retirement savings.
[Assemblywoman Angle continues.] I will provide you with some historical reminders about Prop 13 (California Proposition No. 13). California homeowners, from 1966 to 1978, were faced with skyrocketing property tax assessments. Passage of the Jarvis-Gann Tax Initiative, known as Prop 13, won strong approval with 65 percent of the vote. Prop 13 established the acquisition-value assessment system, which is an annual taxable property value, that cannot increase by more than the rate of inflation or 2 percent, whichever is less. The California Supreme Court, in 1978, and the U.S. Supreme Court in 1992, have both upheld Prop 13. California booms due to Prop 13.
I will quote from Stephen Moore, Director of Fiscal Policy Studies at the Cato Institute:
Proposition 13 was to become the envy of the nation. In the 10 years after the passage of Proposition 13, incomes in California grew 50 percent faster than in the nation as a whole; jobs grew at twice the national pace. Even supporters of Proposition 13 never envisioned that it would unleash the spectacular entrepreneurial and commercial explosion that it did over the next decade.
The California economy is better than ever. Total property tax revenues to local governments in California have increased at a rate exceeding inflation and virtually all other economic indicators.
The fears about Prop 13 have never been realized. Dire predictions of cutbacks in police and fire protection, always the leading horror, never happened. More importantly, California state and local governments continued to grow, and, as bad as it is now, one has to wonder what would have happened to the taxpayer had Prop 13 not been enacted.
A.J.R. 19 gives certainty to taxpayers. Adam Smith stated in his Wealth of Nations, “The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality is not near so great an evil as a very small degree of uncertainty.” Proposition 13 has captured Smith’s notion of certainty, and A.J.R. 19 will do the same thing.
The political realities of Prop 13 in California have been that many legislators, including Republicans who opposed this proposition, were defeated in the November 1978 General Election. Through the years, candidate opposition to Prop 13 was often a campaign litmus test, which could, and did, lead to defeat of many. California’s Prop 13 was a model for the nation, triggering taxpayer revolts in other states.
[Assemblywoman Angle continues.] Justice Richardson said to think of Prop 13, or A.J.R. 19, “as a hybrid between property tax and sales tax. If sales taxes can be based on acquisition value, why can’t property taxes?” He also said of Prop 13, ”It is roughly comparable to a sales tax.”
The benefits are: The 1 percent limit on property taxes is a boon to home ownership; more people will buy homes if they can predict this. The 2 percent annual increase limitation means that homeowners can predict their future maximum property burden. So, now, they can tell what they will be able to spend. Seniors, who have their backs to the wall facing escalating taxes, will be saved from losing their homes. I have people in my district at this time who have to contemplate selling their homes because they cannot afford the property taxes. A.J.R. 19’s limit on property taxes also means more young people can qualify for a loan.
A.J.R. 19 will remove much of the problem of subjective assessments protecting homeowners against out-of-control property tax increases during periods of rising values.
Assemblyman McCleary:
If property transfers from a parent to a child, it is still assessed at the original value at which it was sold. Is that correct?
Assemblyman Gustavson:
Yes, it is.
Assemblyman McCleary:
Did I also understand that the value is adjusted over time — or the tax? Or would it just remain at the value for which it was originally sold?
Assemblyman Gustavson:
If you were to purchase a home today, it would stay at that figure other than the 2 percent or the CPI, whichever is less, until the home is sold. If you have an existing home, the value would be reassessed. This would have to be voted on by the people twice in the next two general elections and, thus, would not go into effect until 2008. Whatever your assessed value was in FY2005-2006, the taxes would be based on that figure and would only go up 2 percent or the CPI, whichever is less, from that point on.
Assemblyman McCleary:
I am thinking of a family that owns a ranch that has been in the family for four generations, and I think they purchased the ranch for about $2500 in 1869 or whatever. They keep passing it on from generation to generation. How would this bill affect them, even though the property today is assessed at $10 million because it is now in the middle of the city?
Assemblyman Gustavson:
Their tax would be based on whatever the assessed value would be in FY2005‑2006. If it was $10 million today, it might be $12 million in that taxable year.
Assemblyman McCleary:
Thank you. I see now.
Assemblyman Horne:
Was the reason Prop 13 was raised in California because of escalating increases in property taxes?
Assemblywoman Angle:
Yes, that is correct.
Assemblyman Horne:
What is Nevada’s property tax in comparison to California’s? Is their assessed property tax value greater or less than in Nevada?
Assemblyman Gustavson:
It varies throughout the state depending on the county and area a person lives in. Obviously, Marin County is one of the highest in the state of California. Southern California, Orange County, and a few others down there have property assessed a lot higher than it is here in Nevada. Overall, I would say the average in California would be much higher than it is here in Nevada, but there may be some areas over there that may be less.
Assemblywoman Angle:
I think the only place where we could make that kind of comparison might be at Lake Tahoe, where we have the North and South Shores. We have California rules on one side and Nevada rules on the other, so we might be able to make a comparison there. I haven’t done that, but I would be glad to research that for the Committee.
Assemblyman Horne:
I would like to have that information. Part of the concern for me is the comparisons, if a comparison will not be relative to the Nevada property tax cap proposal. The reason why Prop 13 was proposed and passed in 1978 was because property taxes were growing out of control. Then you would ask yourself the question: In Nevada, are property taxes growing out of control? Also, are our property taxes the same or greater than our neighboring jurisdictions in California or Arizona? I have heard, and I am no tax expert by any stretch of the imagination, that Nevada’s property tax is actually not overly burdensome, as compared to other states.
The attitude in Nevada seems to be, when talking about tax increases, that property tax increases have not even been on the table with the exception of the transfer tax. That is why I would like a comparison done.
Finally, you mentioned the cutbacks in California. You said they were not realized in police, fire, and other services. But, if you have a reduction in revenue from a certain source, it seems that the reduction has to be made up somewhere. There is only so much “belt tightening” a state can do. From what I remember at that time in California, were there other increases elsewhere that made up the revenue for those services, income tax or sales tax?
Assemblywoman Angle:
I think that the analysis between the two sides of Lake Tahoe would be good for capturing a comparison because the assessed values of land that should be about the same. I hear complaints on both sides of my area in Incline Village that, yes, the property values have gone up exorbitantly and that is where the seniors in my district are being forced to sell their homes. I have heard the same complaint from southern Nevada, “Every year, someone next to me sells their house and now my property tax is so high I can’t afford to stay there.”
To the second part of your question about who paid for the services. When you look at the charts that have been prepared for us by the LCB (Legislative Counsel Bureau), you will see that, actually, there will be more money available for these services through property taxes. I don’t think that we will see any kind of a decline, and I think that was the experience California had. They didn’t see a decline in their property tax revenues. If you review the charts in Exhibit C, you will see that will be the Nevada experience also, especially in Clark County. If these projections are correct, they will experience an increase in revenue.
[Assemblywoman Angle continues.] I believe property tax increases are being considered. We saw mention of it in the newspaper two days ago. The county and the city were considering it because Washoe County has not yet reached the currently allowed cap.
Assemblyman Gustavson:
In California they did stay the same basically and helped out the homeowners. Many other taxes were raised to help cover any deficiency lost from that source. Since they did not have the raise in property taxes they were hoping for, they were allowed to, and did, raise other taxes to cover any other needs they had. They currently have a multibillion dollar need but I consider that to be because of other reasons.
Chairman Mortenson:
I am still a little confused. When you say there will be more property taxes for local governments, are you talking about in the initial year, and then it will grow at a lesser rate? Is that what you are saying, or are you saying they will experience greater property taxes consistently?
Assemblyman Gustavson:
According to the chart (Exhibit C) and projections we have from the LCB, the increase is in revenues, if the counties do implement the full 1 percent, and the bill states only that the maximum is a 1 percent cap. We are hoping they will adjust and not gouge the people. I don’t believe that they would. Our hopes would be that they would keep their property tax close in line with what it is today and increase it for their projected needs annually with regard to the 1 percent.
According to the chart in Exhibit C, Clark County would make an extra $178 million in revenue in the first year if they raised property taxes to the maximum 1 percent cap. These figures are estimates. The only county that would not show an increase, unless these figures are wrong, would have a loss of $27 million based on current tax rolls. That only amounts to 8.3 percent of their total revenue that they would generate otherwise. It would represent only a cut of about 1.75 percent in each year, so they could adjust the budget accordingly, if they needed to. This does not include projected new homes and other considerations.
Assemblyman McCleary:
Since the benefit to the citizens has the potential to be better, are there any local governments that are endorsing this plan?
Assemblyman Gustavson:
I have not had a chance to talk to any of them. We just received the projections last week. We have been crunching numbers since the beginning of the legislative session. Obviously, we don’t want to hurt the counties. Everyone needs his or her money, and we understand that. We tried to make it fair for everybody. Looking at these figures, I think the counties would be happy with them.
David Schumann, Vice Chairman, Nevada Committee for Full Statehood:
[Introduced himself.] I recently moved from California, and I did own property at Lake Tahoe from 1973 to 1999, and I moved here from Sunnyvale. Prop 13, as passed in 1978, rolled property values back to 1976. I could look for my taxes as a comparison for the Committee.
After 25 years of the protection, which caps the amount your assessment goes up, and in addition, caps the rate of the tax. The two together give you predictability that is mentioned in the testimony and is simply invaluable. After living under that for a number of years and then suddenly experiencing having a real estate appraiser in Nevada appraise property in the state every year, and it goes up by making comparisons, there is a difference. What do surrounding properties sell for? During the three years I have been here, the flood of folks coming over the Sierras is so great that the demand is greater than the supply, and it is pushing those prices up. I distinctly recall in 1978, one of the great cries was that they had illustrations of retirees down in the Los Angeles area that were pushed out of their homes strictly because of this increase in property values. “Now I are one.” So I am a little more sensitive to that than I was at that time.
The economic effects of A.J.R. 19 are good for the state because businesses and others coming to the state say, “Here is a scheme that gives predictability to taxes, which exist only in California to my knowledge at this time.” Police, fire, and those types of property-related values are paid from property taxes. School authorities, and everyone, were saying there would be cutbacks. They named specific firehouses that would be closed if Prop 13 passed. The advertisements that went out decrying that the world would fall apart if it happened were unreal. If one went back to June 1978 newspapers in the Bay Area and looked at the ads at the time, you will see the kinds of dire consequences that were predicted to happen if Prop 13 passed. In fact, none of those things happened. The police service wasn’t cut. The fire service wasn’t cut.
[Mr. Schumann continues.] The schools didn’t go downhill, although, even to this day, people in the unions say the quality of education is lower because of Prop 13, but that is pure bunk. They are still saying it because the quality of education in this entire country is lower than it is in countries such as Japan that spend far less money. There will be a lot of propaganda against this by various government interests, but the result was absolutely beneficial for the state of California, and particularly for the retirees, because they were kicking elderly people out of their homes with rate increases in appraisals.
It will happen in Douglas County, if nowhere else, and I am sure it is happening in Las Vegas as well. People keep coming over here from the Bay Area. My property here is two acres. We had a postage stamp-size lot in Sunnyvale and our house here is slightly larger than the one in California. Yet our cost was one-third of what we sold our house for in Sunnyvale. I feel I can state with great assurance that no bad things will happen to government in Nevada as a result of passing this bill.
Chairman Mortenson:
Are there any questions for Mr. Schumann? I plan to alternate testimony of those for and against A.J.R. 19. Testimony that is all one-sided is rather disconcerting.
Marvin Leavitt, Representing the Urban Consortium:
[Introduced himself.] This bill is similar to other bills we have seen over the years. I, personally, have a problem when we set valuation of property at something other than the actual commodity. Examples would be something based on the consumer price index or that the valuation of the property shouldn’t ever increase more than a certain percentage per year.
In other words, we attempt to determine value artificially without regard for what the actual value is. The current system is essentially based on replacement cost less depreciation for improvements to real property. It does that to a certain extent, but when we try to determine value based on the CPI or based on certain percentages, it seems to me that what we are saying is that the properties that are protected and the ones that are given preferential treatment are the ones that are actually increasing rapidly in real value. In other words, they are increasing to an extent that exceeds these artificial limitations we place on them. It seems to me, what we are really doing is protecting valuable property. We are protecting those properties whose actual value is increasing more rapidly.
[Marvin Leavitt continues.] I know we have heard horror stories over the years about someone’s taxes increasing to a specific extent. The reason they are increasing is that the property value is growing to that extent.
What we are doing in bills such as A.J.R. 19 is that we are no longer going to use actual value, but some artificial value that we have determined. It just seems to me that what we are doing when we do that is that we are shifting the burden away from property that is growing the fastest in value. When you do that, you transfer the burden to those properties whose values are growing the least. What we are really talking about is that we are transferring the burden away from the wealthiest people and placing it on those people whose properties are not growing very rapidly. When all this is said and done, what is happening is that the burden is being transferred because we have artificially set the value from the most rapidly growing properties under the current system to the other people.
I know there is a provision limiting the increase to 1 percent of value even after that is done. Still, in considering relative burden, it is being moved. I am personally opposed to it. I am not presenting that view for the others I represent. We are making a big mistake when we base our system on something other than ad valorem, which is based on a relationship to actual value. When we leave that and go to a system based on an artificial means, I, personally, feel we are making a big mistake. We would end up with a system that is less fair than the current system.
Chairman Mortenson:
Do you feel then that the California system is not a good system?
Marvin Leavitt:
I feel that any system you devise on which you leave actual value to some predetermined value, however it is set, whether it is based on a percentage of growth per year, by the CPI, or some other means, is not a good system. When an artificial system is set and annual growth is limited, we are saying that property that is actually growing in value the fastest will be assessed at something less than that. The effect of that is that the mix is now changed, and those that are not growing in value are paying a higher percent of the total property taxes paid.
Chairman Mortenson:
Recently passed legislation was meant to help exactly that situation. The example given was that in the Tahoe area there was an old family property with a very meager house on it. It had been in that family for simply ages and because of huge escalations in surrounding properties, these people’s taxes had escalated by a factor of approximately 10 in just a few years. They were going to have to sell that family heirloom property because they were being taxed out of existence for a very modest home. The Legislature had compassion for that and passed legislation to protect it.
Marvin Leavitt:
In that particular case, and in some others that have been presented in other bills, the Legislature is trying to use consideration for financial hardship. You try to determine some way to either defer the payment of the tax or to make it easier for them to pay in recognition of their hardship.
In general, taxes on property are a tax on wealth, or a portion thereof. What is attempted is a combination of wealth and income. When you discuss “ability to pay,” you are normally talking more about income than you are on wealth.
In Nevada, there are a number of taxes that are based on different things. When talking about sales tax, you are discussing a tax on something someone has purchased with current assets. Even though it is not called “a tax on income,” that is really what it is because the person is using current resources to purchase something.
In talking about business taxes, you are talking about revenues received by the business so it is still more of a tax on current receipts, revenue, and income, or current money.
When talking about property taxes, it is one of the few such taxes in Nevada where someone’s wealth is being taxed as determined by their ownership of real and personal property. For instance, we have no taxes on financial assets such as bank accounts, stocks, or bonds. We do tax wealth as determined by ownership of real property. Obviously, if we choose not to do that any longer and tie it to the ability to pay, it would become a combination of a wealth tax and an income tax. The Legislature can do that, and I suppose the example the Chair gave in stating his question, you have tried to do that based on ability to pay, at least to some extent, as it relates to the Lake Tahoe situation.
There is a difference between doing that in a few isolated cases that do not have the ability to pay, but basing the entire system on that would be changing a fundamental direction of the basic tax system and trying to no longer base taxation on value, but on a predetermined formula. It will become more related to income than to wealth. It seems to me that a mix is needed. Both methods, wealth and income, are worthy of taxation. If I have a billion dollars sitting in a bank, as long as I don’t spend it in the state or don’t own real property, I am essentially escaping taxation. If I have that amount of money invested in houses and real property, I pay a property tax, and I pay a sales tax, if I decide to spend something in the state. Otherwise, I can have a huge amount of wealth without paying taxes.
[Marvin Leavitt continues.] It seems to me, if we put artificial limits on determination of wealth as it relates to property taxes, we are saying to those people who own this kind of property, “We are going to benefit you even further than you currently are under the system of the state.”
Assemblyman Gustavson:
Do you have a copy of Exhibit C that shows the increase to the counties by this proposal?
Marvin Leavitt:
I have not seen that, but my testimony is not so much on the effect on government. I think you could probably design a system by which government would not even be hurt related to revenue. I would still disagree with the system, because I don’t think it is a fair way to tax.
Assemblyman Gustavson:
How do we, as government officials, justify forcing someone out of his home by raising property taxes? I know there are certain conditions that are protected, but only under limited conditions. How do we, as government officials, justify a tax system that forces someone to sell their home that they have worked for all their lives, regardless of its location?
Homes in Nevada, on an average, do sell approximately every 4 years so it is not really an artificial figure being considered. These homes will be reassessed and revalued every 4 years, thereby making up any difference realized.
Marvin Leavitt:
When you talk about averages, there are a certain number of homes that turn over, but there are many homes that are not turning over every 4 years. I don’t think the tax system is designed to try to force people out of their homes. But, if someone has a house worth $1 million, and it has been kept over a long period of time, and the owner is paying taxes based on a value of one-third of that, and the house next to you is worth $100,000 but his taxes are more than yours, I don’t think that system is fair. I recognize that a system can be designed relating to ability to pay and income, but when that is done, the Legislature abandons the taxation of wealth and substitutes for it with an income tax.
I recognize that you don’t agree with that, but I personally think there is a place for both types of taxation in a good tax system. There needs to be a balance.
Chairman Mortenson:
Seeing no further questions for Mr. Leavitt, thank you for your testimony.
Janine Hansen, Representing the Eagle Forum, and the Independent American Party:
[Introduced herself.] I am really pleased that you took the time to hear this bill. I have been a citizen lobbyist at this Legislature since 1971, and I have seen, over the years, one thing that is very certain. There are very few individual citizens — regular people who are not paid lobbyists of either the government’, who are paid to be here through our tax dollars, or paid by large special interest groups — who have the ability to appear before you as simply citizens.
They aren’t really represented, except by those of you who carry your feelings here to the Legislature. As you hear lobbyist after lobbyist, particularly those from state and local government, they always have more and more needs. I have never, in all my years, seen a single bureaucrat testify, whether their programs were succeeding or failing, that they didn’t need more money for it. I have never seen them come in here and suggest that they should have their budgets cut.
It is inevitable that government grows to the extent that money is available. I think the Legislative process is wonderful, and I really believe in it, but I feel that often the individual citizen’s concerns are left out.
I wish to tell you a personal story. My mother is 87 years old and has been retired for 25 years. That is half of my life that she has been in retirement. She is still living in the same home I was brought to when I was born. Yet, yesterday she told me she got her tax bill, and it has significantly increased. She has no ability at her age to increase her income. She has been on a fixed income for 25 years. Her mother lived to be 95, her uncle lived to be 99, one aunt lived to be 99, and another lived to be 101. She has the probability of living another 10 years, so she will have been retired for 35 years on a fixed income by then.
Yet, the home she is in, although it may be worth more, doesn’t bring her any income, and she still has increased property taxes and maintenance costs. Her cost of living is increasing but, unless she sells her home, none of the increased value of that home comes to her. Thus, she is in a position of being less and less able each year to maintain her costs. Those circumstances apply to a lot of people who would be helped through A.J.R. 19. Those people don’t have an option to go out and purchase a nicer home because they are earning a nicer income.
[Janine Hansen continues.] I have heard several bills during this legislative session to remove the cap from property taxes. While they may not have passed, they were heard. One of them was to take the state’s portion of the property tax out of the property tax cap and make it so the counties could all raise the cap by approximately 41 cents. There is continual discussion about raising property taxes, and that is a significant concern.
Many of you have not been around here as long as I have, but I remember when Proposition 13 passed in California; there was a response in Nevada. Shortly after that, Nevada posed a “Question 6” on the ballot, which was overwhelmingly passed, that was very similar to Prop 13 in California. In Nevada such questions must pass the voters twice so, when it was ready to appear on the ballot for the second time, a deal was made.
Everyone has probably heard about the tax shift that occurred in approximately 1981, which stopped Nevada from implementing Question 6. Legislation like Question 6 is very popular with the voters and you all, as individual representatives, should recognize that those senior citizens who are property owners, particularly, are the ones who vote. It is very important to them, because their economic survivability depends on it. Of course, a few measures have passed during this session that deal with some of the most extreme cases.
My mother wouldn’t be one of those helped by the bills that have already passed because she is not out on the street yet. She is certainly one of those being hurt by the current tax system.
We are not protecting the value of property by this measure; we are protecting people so that they can continue to take care of themselves. One of the things we have to realize is that the more we ask government to take care of us, the less capable we are of taking care of ourselves. The Constitution is about limiting the responsibilities of government so that individuals can take care of themselves. When individuals take care of themselves, we have freedom and liberty instead of being tax slaves.
Exhibit E is an excerpt from Reader’s Digest in 1996. Even then, if you were an average taxpayer, you were paying taxes 185 days of the year, which is more than one half the year on taxes. Fifty-six of those day’s earnings were used to pay local and state taxes. Currently it is even more. Fifty to sixty percent of an individual’s income is going to pay taxes. That is more than you pay for housing, healthcare, transportation, education, or food. The greatest burden and threat to the individual family today is the horrendous tax burden we face. Many families would not need to be on welfare and have other options if the tax burden weren’t so great.
[Janine Hansen continues.] There are many opportunities to review government spending and reduce it. The American Legislative Exchange Council distributed an excellent analysis of how some of the costs of government could be reduced. They also published some excellent information that showed, if you raised taxes in the time of a depression, that the state’s revenues went down. You have increased prosperity because of certainty of taxes. One of the things found was that, when businesses did not have certainty, they left. A.J.R. 19 provides a certainty in taxes and would provide an increase in prosperity and in the amount of revenue from taxes, because more people will move here.
This will be very popular with the voters. I encourage you to be sensitive to those, like my mother who has been retired for 25 years, on a fixed income and others like myself who are on a limited income. I have a “paid lobbyist badge, but I joke and say that is just barely.” I drive a 1977 vehicle, so you can see there are a lot of people in Nevada who do not have a lot of money, and they want to continue to take care of themselves. However, as the cost of government and taxes go up, they can’t. Then, further problems are created that were caused by government because government did not leave people enough money to take care of themselves. The social costs of high taxes are getting greater all the time.
Chuck Chinnock, Executive Director, Nevada Department of Taxation:
[Introduced himself.] I am not a paid lobbyist, and I am not here to talk about policy. All I want to do is provide the Committee with some information with respect to A.J.R. 19.
I have looked at the charts that are a part of Exhibit C. Before I comment on those, I wanted to be sure the Committee understands that when we compare Nevada’s valuation scheme with California’s, it needs to be clear that Nevada’s system of valuation also uses an artificial system for valuing property. That system it uses is called taxable value. Taxable value was created in the tax shift in 1981, and it is based on replacement costs for a new property less depreciation. Depreciation is an artificial concept that mandates 1.5 percent depreciation annually. An important part of taxable value is that the land must be valued according to the current use of the property. That means it is not market value, and property is not valued on a highest and best use concept. There is a substantial difference when the term taxable value is used.
[Chuck Chinnock continues.] Our Department prepared the fiscal note on the bill. The original total loss in revenue was $300 million and the primary reason was not so much in the change in the tax rate, but, rather, the difference in time and the cost of the CPI. By moving the date to some point in the future and moving it forward, there would be no loss in value or revenue unless you took into account what would happen had the system not changed.
Regarding Exhibit C, I am not able to make specific calculations at this hearing, but I will note that, under current Nevada law, when it talks about the tax rate, it talks about the average operating tax rate. This is not the total tax rate that exists in accounting. Under the proposal of A.J.R. 19, the proposal of 1 percent or $1 is indeed a maximum tax rate. If you were to include, under current Nevada law, the full tax rate, there is still a potential there for a loss in revenue as a result of the bill provisions. When I quickly read the bill, it was not talking only about the operating tax rate.
In quickly scanning the values that were proposed for taxable values in FY2005‑2006, I would note, for the counties of Esmeralda, Eureka, Lander, Mineral, Pershing, and perhaps White Pine, that we do show a positive growth there. I am not sure what the basis of the number is and whether it only looked at property tax value and did not include things such as net proceeds of mines and some other things.
John Wagner, Representing the Nevada Republican Assembly and President of the Burke Consortium of Carson City:
[Introduced himself.] I grew up in California and was there in 1978. I was one of the people who circulated the petition for signatures and submitted them; 1978 was a strange year in California. That was the year they threw incumbents out of office, including myself, who was an elected member of the Central Committee, because I was foolish enough to put the word “incumbent” in writing. The only incumbent who did not lose did not place the word, “incumbent” in writing. It was the “anti-tax” year.
My parents owned a home in the Alameda area of San Jose, probably the most prestigious region in the area. They bought the home for approximately $35,000. My mother passed away four years ago and had lived in that home until that time. When the house sold, it sold for $420,000. If she or my father would have had to pay taxes on that as the home value went up each year, they would have been living under a bridge unless I had taken them in, which I would have done, of course. They would have been taxed completely out of their home.
[John Wagner continues.] I am in a situation now where I am a retired person, and I have a nice home and have no intentions of selling my home. Prop 13 was a godsend to people who live on a fixed income. For example, if you own a home that is worth $300,000 and someone else had one for $100,000 — [used hand signals to indicate values of the homes going up unequally.] If the tax rate is fixed, the lower priced home may go up in value slower, but the higher priced one will not pay higher taxes to compensate for the other one, which is what I heard suggested before.
If someone buys the lower priced home, the tax valuation would go up initially and then stay at that rate except for incremental increases as proposed by A.J.R. 19. It is basically a matter of fairness.
The tax rate of 35 percent is currently being used. If the bill passes, that rate would go up to 100 percent, and there is nothing to say the 35 percent will not go up either. Property belongs to people, and if people can’t afford to live in their own homes, where are they going to go? Are you going to force them out onto the street? Yes, the home may be worth a lot of money, but it wasn’t worth that much when they bought it. If they have to pay taxes on what someone else says it is worth currently, they are gone. This is a fair way to do it, and since property does turn over quite rapidly, some will stay at the fixed rate but some will go up.
Regarding the effect on the counties, I see the overall effect as not being damaging.
Chairman Mortenson:
Seeing no questions for Mr. Wagner, we will turn to our last speaker, Mr. Alastuey.
Mike Alastuey, Representing Clark County:
[Introduced himself.] I am appearing in neither support nor opposition to the measure. I only have some questions and observations. I have been pleased to serve for several years on a number of government financial technical panels, both at the state and local levels.
I agree with the observation Mr. Leavitt made that the suppression of taxable value, in terms of its movement regarding the natural market having the tendency, over time, would suppress the rate of taxation as against the total value. Whenever you have that happening over time, you are taxing at a smaller and smaller percentage rate. That would be the scenario if you were to express property taxes as a percentage rate.
[Mike Alastuey continues.] One of the things I observed in the Proposition 13 and Question 6 days was that every economy adapts to its taxation system and vice versa. There is no question about it. Many times, these speculations people have of these horrific happenings don’t really materialize. One thing the Committee may wish to consider before passage of A.J.R. 19 is, if you would be, in effect, taxing youth and mobility at a differentially higher rate.
Currently, if there is an assessment and appraisal system that is roughly tied to market value, or at least taxable value, including appreciation of underlying land and improvements with that 1.5 percent depreciation as a partial offset. You have some relationship, except for the very oldest established properties, within a market. As Mr. Chinnock noted, the depreciation factor does tend to be sort of a circuit breaker there. I think that passage of a measure like this would probably accelerate that differentiation. The idea is that, if you have a home valued at $100,000 that has been recently acquired by a young family, it is subject to recent market conditions at $100,000. Whereas, a similar home next door, acquired many, many years ago and occupied and long-held by another family or household, might be paying a differentially lower rate for the same dwelling irrespective of the ability to pay than that of a younger, more recently occupied dwelling has. That differential does pose some fairness questions.
Secondly, you should also think in terms of some of the large interest groups. Large interest groups are often decried by some as always trying to take advantage of a taxation system. Frankly, if you were individuals of wealth, holding large tracts of land for speculative purposes and the market appreciation of that land were taking off at a profound rate, in effect, regardless of your wealth or ability to pay, you would be avoiding taxation.
There is nothing contained in A.J.R. 19, except perhaps by regulation through the Department of Taxation, that would provide for fair taxation of such property held by wealthy interests, even if it were subdivided, even if it were improved with infrastructure, that would increase its value for resale, and so forth. The scenario that we often paint of the individuals who have long ago bought and paid for their home at a lesser cost, and who are now less able to pay their taxes due to appreciation — that is not the only scenario we have here. We have utility companies, resort properties, and others that should also be considered.
I notice the resolution contains a provision that would allow individuals age 62 or older, to divest of a property that had been protected and not suffer any penalty for that particular divestiture. Even though it is different than the federal tax code, I believe the theory is the same; you ought to be able to, at a certain stage of life, divest the real property you have accumulated without a tax penalty. There the similarity ends. The system proposed in the bill, as I said, may tax youth and mobility; whereas, the federal taxation system of the Internal Revenue Code does not.
[Mike Alastuey continues.] Probably the most revealing question posed by the bill is found on page 3, and we have long espoused, even though our system of taxation is no more perfect necessarily than any other, that there are a variety of appraisal, assessment, and valuation mechanisms including the 1.5 percent depreciation, that break the relationship over time between taxable value and market value.
On lines 14 and 15, preceding the existing language, it says, “the Legislature shall provide by law, for a uniform and equal rate of assessment and taxation.” The language preceding that on pages 14 and 15 states “except as otherwise provided in Section 6 of the Article.” I think what this is saying is that it proposes to no longer have a uniform and equal system of taxation. There may be social purposes for that. There may be merits to discussing facets of this. But, certainly, this provides different economic incentives to individuals to either hold or divest themselves of property and it does present some long-term policy issues.
Chairman Mortenson:
Thank you very much. That was enlightening testimony. Are there any questions for Mr. Alastuey?
Assemblyman Gustavson:
You mentioned when a piece of property was sold, the fairness would not be present because someone was paying $100,000 for their home while someone else had purchased their home many years ago and would be paying higher taxes. Isn’t that basically the same as paying sales tax? If I buy a new automobile today, I am paying sales tax on $20,000 compared to an older vehicle I sold today, and the new owners had to pay sales tax on their purchase price of $5,000? We are talking about equal value, and, from what I see, you are paying tax on the value at that time.
Mike Alastuey:
I appreciate the question and, in effect, both statements are true. When you bought that house, you did pay sales tax on that house for the many materials that went into that house. Sales tax is determined at the time of the transfer of those tangible goods that are sold to you, but we also have a property tax. If we were to make a property tax like sales tax, then probably what we should do is simply increase the rate of sales tax to collect the same amount of money as property tax. That would be the first response.
[Mike Alastuey continues.] We learned our lesson back in the early 1980s during the tax shift, when we got away from a mix of property taxes and sales taxes, lowering the rates of property tax and substituting only volatile sales tax. That is why, in the early 1980s, 1990s, and currently, because of our heavy reliance on sales tax as our major source of revenue at both the state and local levels, that we, from time to time, face these cyclical budgetary deficits.
Even by the finding of the technical group that serves the Governor’s Task Force on Tax Policy, sales tax is eroding in terms of real per capita taxable sales per resident in the state of Nevada. That is because our pattern of visitation is changing.
I didn’t mean to run too far afield with the question, but we have both property and sales taxes, and the theory of property tax is generally based on the value at the time.
Assemblyman Gustavson:
I do understand that we pay sales tax. I was just trying to make a comparison as to a tax on the value of purchase. The homeowner would be paying the property tax on the value at that time compared to the neighbor who paid property tax based on the date of his purchase. That was my correlation.
David Schumann:
I will make this short, but I would like to respond to a couple of the misunderstandings that a few of the folks who work for the various tax agencies had.
The bottom line is that if you go to California this very year, you will find, across the board, from people aged 20 to 70 that they approve of that system 2:1. More importantly, the idea of taxing youth versus age is bogus. We heard that argument and the fact of the matter is, if someone bought a property 20 years ago at a much lower rate, they have been paying for the police and fire that the younger person has had advantage of as he grew up and enjoyed, or inherits as he moves into the neighborhood. The fact that they are paying at a lower rate was reviewed by the Supreme Court of California, and others, and found to be an absolutely fair way of doing this.
As one of the older folks now, I am not about to be thrown out of my home, because I do have adequate income, but I appreciate the fact that I come over to Nevada and purchase a home that is worth about one-third of what my house in California is, and the real estate taxes are about the same. I am not sure they are equivalent because my home here is in Douglas County and my California home was in Sunnyvale. They don’t have Prop 13 here, so that is the reason for this.
[David Schumann continues.] We are not out on the street. If you could get your staff to go through the newspapers in the first half of 1978, just the “San Francisco Examiner” or the “Los Angeles Times,” you will see these cases of little old ladies being put on the street because of someone’s theory that there would be a wealth tax that eats her up, similar to Ms. Hansen’s mother. I could earn a lot more money when I was 40 than I can now. I am still earning money, but my ability to do it has gone down, and that is just the way it is. There is nothing unjust about the folks in the 40-year old bracket paying at a slightly higher rate. I repeat: they are for Prop 13 in California 2:1.
Chairman Mortenson:
I think I, for one, have a great deal to review, including Exhibit C. I do not want to take action on A.J.R. 19 at this time. If the Committee chooses to take action, we can do so behind the Bar of the Assembly. We still have a little time left.
I hereby close the hearing on A.J.R. 19 and the meeting is adjourned [2:01 p.m.].
RESPECTFULLY SUBMITTED:
Cindy Clampitt
Committee Secretary
APPROVED BY:
Assemblyman Harry Mortenson, Chairman
DATE: