MINUTES OF THE

SENATE Committee on Taxation

 

Seventy-second Session

February 25, 2003

 

 

The Senate Committee on Taxationwas called to order by Chairman Mike McGinness, at 2:07 p.m., on Tuesday, February 25, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Mike McGinness, Chairman

Senator Dean A. Rhoads, Vice Chairman

Senator Bob Coffin

Senator Ann O'Connell

Senator Joseph Neal

Senator Sandra Tiffany

Senator Randolph J. Townsend

 

GUEST LEGISLATORS PRESENT:

 

Senator Mark Amodei, Capital Senatorial District

Senator Terry Care, Clark County Senatorial District No. 7

Assemblyman Chad Christensen, Assembly District No. 13

Assemblyman Marcus L. Conklin, Assembly District No. 37

Assemblyman William C. Horne, Assembly District No. 34

Assemblyman David Parks, Assembly District No. 41

Senator Raymond Shaffer, Clark County Senatorial District No. 1

Senator Maurice Washington, Washoe County Senatorial District No. 2

 

STAFF MEMBERS PRESENT:

 

Rick Combs, Fiscal Analyst

Ardyss Johns, Committee Secretary

Mavis Scarff, Committee Manager

Gale Maynard, Committee Secretary

 

 

OTHERS PRESENT:

 

Andrew L. Barbano, Lobbyist, Silver State Casinos Out of Politics (COP)

Benjamin J. Blinn, Lobbyist

Lorenzo Fertitta, President, Station Casinos, and Chairman, Nevada Resort Association

William Bible, Lobbyist, Nevada Resort Association

William Vassiliadis, Lobbyist, Nevada Resort Association

Glen Arnodo, Lobbyist, Political Director, Culinary Workers Union Local 226, HEREIU (Hotel Employees and Restaurant Employees International Union)

Danny L. Thompson, Lobbyist, Executive Secretary-Treasurer, Nevada State AFL-CIO (American Federation of Labor-Congress of Industrial Organizations)

Carole Vilardo, Lobbyist, Nevada Taxpayers Association

 

Chairman McGinness:

We will open this meeting of Senate taxation with S.B. 21.

 

SENATE BILL 21: Increases monthly fee for state gaming license. (BDR 41-192)

 

Senator Joseph Neal, Clark County Senatorial District No. 4:

I wanted to state this for the record so no one can accuse me of being opposed to this particular industry. The only thing I want is for this industry to pay its fair share for growth in this State. I would also like to state I am not here to oppose gaming, per se. My record in support of the gaming establishment has been quite beneficial to this industry over the years. I have attached a letter from Thomas J. Huddleston (Exhibit C), who was the Nevada Fire Marshal back in 1987. He makes reference to a bill I sponsored in 1981 to create a retrofit program for the hotels throughout the State. In this particular letter, he took the opportunity to convey his heartfelt thanks to me during this particular time. He stated my courage, by pushing the retrofit program, has benefited the hotels through low insurance premiums and the lack of deaths and loss of property in the industry since that particular time.

 

The present tax structure in this State is a three-tier structure for gaming. The first $50,000 in gross revenue per month is taxed at 3 percent, $84,000 at 4 percent, and over $134,000 gross revenue per month is taxed at 6.25 percent. It is my position that the 6.25 percent is not sufficient to take care of the problems created by this particular industry. I might also point out to the committee this 6.25 percent has not been raised since 1987, 16 years since we have had an increase in taxes.

 

Why do we think the 6.25 percent tax rate is not sufficient? If you look at the last couple of years, the gaming industry brought in the problems of approximately 40 million tourists. While these tourists are here, they are temporary residents utilizing all of our resources, such as water, health care, police protection, and roads. If we do not tax for those particular costs, then these costs fall upon the permanent population of approximately 2 million residents in this State. As you can see, for the last 16 years, the gaming industry has had a free ride in shifting those particular costs to the permanent population.

 

I will acknowledge, in my statement, gaming pays a substantial amount of taxes in this State, as it should be. Gaming creates more problems than any other industry in this State in terms of costs. For each 8,000 employees employed by the hotel and gaming industry, there is a cost to the State of approximately $4.3 million per year. You can find that on “Does Economic Development Pay For Itself In Nevada?” (Exhibit D. Original is on file in the Research Library.) in which we talk about the gaming taxes. Does gaming pay for itself? You can look at page 15 of this report. Joe Neal did not produce this report. It was produced by the Governor and his economic development staff and somehow got lost in terms of public awareness. This report was a result of a report appearing the year before, by gaming, indicating it was paying its fair share of these taxes. As you read this report, we want you to see the report, as it was produced, along with the charts. It points out gaming is a low-wage industry and what gaming has attempted to do, is to shift the costs of doing business in this State to other businesses.

 

One of the reasons why we have the gross receipts tax (GRT) being proposed by the Governor’s office is essentially the tax being proposed by the gaming industry itself. The other significant problem we see with this industry, is addiction. I have spoken about this in years past to some of you in this committee. I had estimated the cost, at one time, to be between $700 and $900 billion dollars to the State. We have a report from southern Nevada released February 1, 2003. If you would look on page 18 of “Beyond the Limits of Recreation: Social Costs of Gambling in Southern Nevada” (Exhibit E. Original is on file in the Research Library.), this report indicates between $300 million and $469 million per year is the social cost of gaming. This is a hidden cost you do not see, and usually falls to the public through family disputes and arrests.

 

Do you recall the incident of the policeman who robbed the coin folks to take care of his gaming addiction? He is now in prison and we have to pay for this cost; gaming does not. The hidden costs of addiction and the costs of tourists utilizing our resources are why we need to increase taxes on gaming. If we do not, we will be back here in years to come talking about the lack of resources.

 

There will be some arguments made today that Indian gaming has an effect upon gaming in this State. But Indian gaming, with the exception of a few major casinos back east, are operated by individuals who operate gaming establishments in this State. The Indian casinos, across the border in the north, are operated by the Station Casinos out of Las Vegas. They will tell you because they have gaming nationally, they should not be taxed. Well, because they have gaming nationally, I think they should be taxed.

 

At the present time, it is the lowest taxed industry in the world at 6.25 percent. Many jurisdictions, which look at gaming tax, have it at a far greater rate than what we do. The state of Louisiana taxes up to 22 percent. The state of Illinois increased its taxes 50 percent when the gaming establishment reached $200 million. The state of Mississippi is raising its taxes now. We have not had an increase for this industry in the last 16 years. Something has to be done. I say to you, the same industry which operates in those jurisdictions also operates in this State. We are not competing against other casinos, but they are competing against themselves.

 

Some of you might recall a few sessions back, we passed a bill allowing industries operating outside this jurisdiction to apply some of their taxes to this State as a write-off. I submit that some of the decreases we now see are probably due to this particular law on the books. Mr. Harvey Whittemore knows this because he was the one pushing this particular piece of legislation and got it passed.

 

When we look at the State of Nevada in comparison to the dominance of gaming as an industry, there are no other jurisdictions in the world except Monaco that allow gaming to operate to such an extent. Monaco, a small country, owns gaming. Here, it is a private concern. Why is it necessary to point this out? If you allow gaming to become the dominant industry, you run into a problem where gaming begins to take money from your general population, and not necessarily the tourists. We find ourselves in this position today.

 

The Station Casinos have about five or six casinos in the Las Vegas area. They draw from the permanent population based there. In fact, the portfolio submitted to the stock exchange talks about the individuals who live as residents. You cannot and we cannot allow this to continue. The end results will make your community and your State poor. Gaming is different from any other industry and should be taxed differently. Gaming does not produce a product. The only product gaming produces is an empty pocket. This is what they go after, the buck to empty the pocket. It is money-intensive and you cannot compare gaming with Wal-Mart or any other entity. I have pointed out the fact in one of these reports, gaming is an industry that costs the public money to operate. For every 8000 hotel-casino employees, the government has to put up $4.3 million, according to the Governor’s report. This is not what Joe Neal is saying, but is according to the Governor’s report, which was not released to the public. I guess it was too much against the gaming. We picked up the report and put it on our Web site for people to read over the last 3 or 4 years.

 

Mr. Chairman, I have left certain exhibits in relationship with this particular issue, produced by people in this State. We have “Does Economic Development Pay for Itself in Nevada?” (Exhibit D), “Beyond the Limits of Recreation: The Social Costs of Gambling in Southern Nevada” (Exhibit E), and “Fiscal Impact of Senate Bill 21” (Exhibit F). This particular document (Exhibit F) analyzes the bill before you and the amount of money it would bring in. It purports, according to the gaming control board, by adding a fourth tier after the 6.25 percent “gross gaming revenue over $1 million per month would be taxed at 10.25 percent.” We put statements down here according to the Economic Forum and utilized some of their figures so we could compare their figures along with what the Legislative Counsel Bureau (LCB) had developed in this document for me.

 

If we look at “Property Tax Increase” (Exhibit G), it is kind of strange and might look out of order, but it is very much in order and deals with tax rates. The Research Division indicated what a 15-cent increase per $100 of assessed value would represent in terms of the percentage increase in property tax. You notice this might be a conservative figure because we used the 15 cents rather than the 16 cents by which the Governor is now saying he wants to increase the property tax. The percent of increase, percentage-wise on the property taxes in this State if you pass the Governor’s budget, would indicate 4.9 percent in Clark County and represent 4.8 percent in Nevada as a whole. We wanted to just give you that as a comparison, so you could look at it and see what is being proposed for the taxpayers of the State and what the gaming industry is proposing, which is a 0.25 percent increase on their gross, which would bring in the piddling amount of about $22 million, but when you offset that with the Business Activity Tax (BAT), it comes out to be probably about $6 million a year for the gaming establishments in this State. The other costs I spoke about, the hidden costs of addictions, the costs of tourists, are not included.

 

Mr. Chairman, I submit if nothing is done to increase these taxes on gaming, we will be back here next session and the session after trying to find funds to run this particular operation. We do not and have not taxed gaming sufficiently to take care of the problems gaming generates in this State. Because it is a dominant industry, we must tax gaming or it will soak our community to death.

 

Gaming can pay the money. Why do I say this? Gaming is different from any other industry. If they do not make the money, they do not have to pay the taxes. It is not like property taxes that are being proposed on the public. If you do not make money, you still pay the property taxes; but in gaming, tax is on the gross, if they do not make the money, they don’t have to pay. This is an article from the Reno Gazette-Journal, “Washoe County cuts value of casinos.”Here, the value of the casinos was based upon their income revenue stream. They did not make the money. The people in Washoe County, they cut the taxes. Not so for the public. We do not enjoy that privilege. We do not enjoy the privilege of having our taxes based upon our revenue streams and the amounts of money we make. I submit to you again, it is time for us to have the courage to do the right thing for the public and this is, Mr. Chairman, to tax gaming sufficient to the problems gaming causes this State. We would not have the problems we are having now in terms of revenue shortage.

 

Chairman McGinness:

In 1987, did you look at any research? Were any of the casinos grossing over $1 million per month at that time? Do you know how many?

 

Senator Neal:

Yes. At that particular time, most of the casinos operating on The Strip were grossing over $1 million per month and you had about 3 or 4 in Washoe County. This included the Nugget, the Hilton, and 1 or 2 hotels downtown as well as hotels at Lake Tahoe. The rest, outside of that, no. The casinos you represent in your area, you probably would have had just 1 and it would be in Elko. They bring in a lot of people outside of the borders. They are close to the Utah and Idaho borders. That is all, with the exception of Laughlin, which are owned by many of the operators of The Strip.

 

Chairman McGinness:

You mentioned a Web site. Are you going to give us an address?

 

Senator Neal:

The Web site is joeneal.org.

 

Andrew L. Barbano, Lobbyist, Representative, Silver State Casinos Out of Politics (COP):

I am a 34-year resident of Nevada. I have lived in Las Vegas and now live in Reno. I am the editor of nevadalabor.com and the editor of joeneal.org. Four years ago I started a grassroots citizens organization to support Senator Neal and the gaming tax increase called, Silver State Casinos Out of Politics, or Silver State COP. I am proud to report that the latter-day edition of Silver State COP now lists over 200 members. A good number have the courage to let me list them at the Silver State COP Web site. I will be publishing those at the Silver State COP Web site later this week.

 

When Senator Neal circulated his initiative petition in 2000, I had to stand there at the Nevada State Fair at our booth and listen to casino workers tell me “we would be glad to sign your petition, but you have to guarantee that our names will never be revealed because our supervisors at the casino we work for have told us we will be fired if they find our names on that petition.” This happened time after time after time. This happens to be slightly unconstitutional and a civil rights violation, but these things happen all the time when you are essentially working in a company town. I wanted to call this to the committee’s attention because there are several dozen members of Silver State COP who will allow their names to be published and I will be publishing them later this week. They are concentrated in Washoe County, Carson City, Las Vegas, Clark County, and a surprising number from Henderson.

We got a lot of response out of my guest editorial in the Las Vegas Review‑Journal on February 7, 2003, and a lot of folks in Henderson responded. I have some notes I will read from and then I will answer your questions. You have my column, from September 19, 1999, discussing the Nevada Commission on Economic Development study, which is not only before you today, but I presented to this committee in support of S.B No. 105 of the 71st Session. This is a quote, and comes from a State official whom you would recognize, but who has asked me not to place his name on the record, saying: “The No. 1 Nevada export today is capital to build casinos in other jurisdictions.”

 

This committee has before it all the research it needs to substantially increase the gross gaming tax. The 1999 Commission on Economic Development study, I first submitted 2 years ago, notes the root problems facing this Legislature lie in the creation of low-wage casino jobs. This is not my study and it is not Senator Neal’s study. Lt. Governor Hunt ordered this study after Mike Sloan of Mandalay Resorts was given a joint hearing of both judiciary committees in March of 1999. Mr. Sloan began to point the finger at everyone but the gambling industry saying, raise their taxes. The gambling industry saw the wheels coming off and decided to conduct a preemptive strike.

 

Lt. Governor Hunt, as I understand the story, was rather irritated Mr. Sloan pointed the finger at economic diversification. Economic diversification was what saved Reno from the slump Las Vegas went through after September 11, 2001. Lt. Governor Hunt asked her staff, at the Commission on Economic Development, to test the hypothesis. Is it all of those companies we are importing, or is it somebody else? The evidence is before you. I talked last week to the gentleman who conducted that survey, Timothy Rubald. If this committee wants to hear from him in a future hearing, I strongly recommend it. He told me the economic model upon which they based this study was quite expensive and cost the State a chunk of dollars to buy the software to put this study together. It is a highly respected, well-used set of economic models this study was based on and he expressed to me this study would stand up under strict scrutiny. I recommend it to you highly because it constitutes a smoking gun for why we are here today in the condition we are in.

 

Further, Senator Neal referred to the University of Nevada, Las Vegas (UNLV), study by Dr. Keith Schwer, Director of the UNLV Center for Business and Economic Research and several others who conservatively estimated the cost of gambling addiction, and the problem of gambling in Clark County alone, at up to $450 million per year. There are other estimates posted at joeneal.org estimating the cost of problem gambling in the State of Nevada at as much as $1 billion per year.

 

The costs of addiction and problem gambling alone pretty much wipe out what the gambling industry pays in taxes on an annual basis. If you factor in the various sources of corporate welfare the gambling industry receives, any benefit from the industry to the State treasury evaporates. I include corporate welfare items, such as the “Steve Wynn art tax,” the redefining of a “lucky buck” as a money wager, tax increment districts which shunt property taxes away from schools to redevelopment projects benefiting casinos, large market convention and visitors authorities which skim the room tax toward promotion which the industry should pay for itself, and the wonderful potential of applying for property tax reductions whenever business slides. This is another exemption the Legislature should look toward repealing.

 

The gambling industry is not a benevolent industry. I think Sally Denton and Roger Morris put it right in their book The Money and The Power, when they called it the $1 billion parasite in our midst. Nowadays, it is an $18 billion dollar parasite, so you have to factor in inflation. It really does take more from us than it gives to us, and they are not nice guys. The gambling industry has very little regard for its employees. Major Las Vegas properties used the terrorist attacks of September 11, 2001, as a pretext to fire 15,000 mostly union members, I submit, as a way to soften up labor for upcoming contract negotiations. Some of those workers still have not been rehired as of last year. They did not have to go into panic mode. They targeted union workers. I am a union member, edit a union Web site, am a former member of the culinary union, and former organizer for the culinary union. What they did was shameful. They made it a point to try and make the union look bad. They made it a point to say nonunion casinos are not firing that many workers, so it is the union’s fault. This was the culinary union’s reward for running interference all across this nation in front of the National Gambling Impact Study Commission, which was looking seriously at recommending a federal tax on gambling. The culinary union and its members, my brothers and sisters, made presentations all over the country talking about the benefits of the industry. Those union members saved the gambling industry from the feds and the reward was 15,000 union members got the axe right after September 11, 2001, when it did not have to happen.

 

Chairman McGinness:

Mr. Barbano, let us talk about raising gaming taxes and how we can fill our fiscal hole.

 

Mr. Barbano:

For many years polls have consistently shown two of every three Nevada citizens favored a gaming tax increase. The gambling-industrial complex got so tired of it the Alan Bible Research Center at the University of Nevada, Reno got its polling cut out so they would stop publishing embarrassing data. The recent reports Senator Neal referred to show the industry losing money. I have to remind you this is a cooking of the books. My friends in the press have apparently forgotten the books were being cooked starting in 2000, just at the time Senator Neal was starting his initiative petition to raise the gross gaming tax. Before that time, expenses from other jurisdictions were not charged against profits in the annual gaming abstract. If you will recall, the annual gambling abstract from the gaming control board was delayed for the first time in January of 2000, because the gambling industry was busy doing some creative accounting to understate its profits by, for the first time, rolling in expenses from other jurisdictions.

 

I called Mr. Streshley, senior research specialist at the gaming control board, last week and asked if he could break out the component of expenses from foreign jurisdictions charged against Nevada operations in order to get a true picture of what the gambling industry is doing in Nevada, instead of the $31 million loss they publicized. He said, “They don’t break that out for us in their reports, they are not required to, and I could not give that number to you anyway on an individual casino basis.” If this committee wants to see a true picture of what the gambling industry is doing in Nevada and what it is making as a whole, you are going to have to subpoena that information from the State Gaming Control Board, because this poor citizen was not qualified to get the information to find out how those books are being cooked.

 

The industry terms non-Nevada gambling a problem, but it is one of their own manufacture. Then they use its existence as a way to understate profits just in time for this bill’s hearing. It is a very anti-union casino company that is going to be managing the Thunder Mountain Casino, up over the hill in Auburn, trying to decimate northern Nevada’s gambling industry. You have all the evidence you need on the record. Gambling is the problem, it costs more than it pays, and it is high time to do something about it because we are at the end of the chain letter. There is no one else to send the chain letter to and this Legislature has to substantially increase taxes before you do anything else. You have got to increase the taxes on the gambling industry before you raise taxes on anybody else. There are other industries that certainly need their taxes raised. Mining comes to mind, for instance, but you have got to start with the principal industry of the State and stop giving it the lowest-ball free ride in the country.

 

Benjamin J. Blinn, Lobbyist:

I have a copy of the United States Constitution and I would like to add to the solution of the problem and not name-calling anyone who pays any taxes in the State of Nevada, no matter how small. I think when we get off the issues, we miss something to solve them.

 

The gamblers came here after the miners and, based on the U.S. Constitution idea in Article 1, section 10, which says, “No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money, emit bills of credit, make anything but gold and silver coin a tender in payment of debts,” the payment of debts would include taxes. If we put the percentage of an ounce and a half of silver into a $100 coin, we would make about $90 on each coin used in our community, and the silver industry would be like when J. B. Hunt put the futures on the market. This would include taxes for everybody. Now, if we took a look at the ounce of silver as a future which will rise and flow, we would have the percentage across the board without touching anything at gaming other than ask them to use the coin.

 

Chairman McGinness:

Thank you, Mr. Blinn. I bet Mr. Whittemore would like to know how you can keep anybody from paying taxes.

 

Mr. Blinn:

We would need no new taxes if we would use silver according to the U.S. Constitution.

 

Chairman McGinness:

Who is leading the opposition?

 

Lorenzo Fertitta, President, Station Casinos, and Chairman, Nevada Resort Association:

I have with me today Bill Bible, President of the Nevada Resort Association (NRA) and Billy Vassiliadis, who also represents the NRA. I appreciate this opportunity to be able to speak about S.B. 21.

 

Since the inception of legalized gaming in our State more than 75 years ago, gaming has paid the lion’s share of tax for the State. The fact that the gaming industry generates over 50 percent of all taxes collected in the State of Nevada demonstrates the fact we are willing to do our part and we commit to you again today we will continue to be part of the solution as you search for ways to meet Nevada’s increasing revenue needs. As we have said many times during the tax debate that has taken place over the last couple of years, we will pay our fair share of higher taxes, but one industry can no longer support the needs of our State.

 

When Nevada’s population was relatively small and the State had a monopoly on gaming, the gaming industry could be relied on to pay for almost all the State’s needs. Now, however, with the population boom of the last decade, and the fact gaming has spread to nearly every state in the Union, this tax structure no longer works. The changes taking place in our country and in our State require fundamental changes to our tax structure. To continue to rely on only one industry to pay for the vital needs of this State is bad tax policy and irresponsible. This defect in our tax structure is not news. During the 2001 Legislative Session, you recognized these inherent problems and unanimously voted to bring together a group of experts to examine Nevada’s tax structure and to make recommendations on how to best stabilize and broaden our tax revenues. At the time, you recognized relying on one industry for the majority of the State’s revenues is dangerous. The aftermath of the tragic events of September 11, 2001, proved how dangerous when the weakness of relying on our gaming and tourism to fund the State’s needs became very clear.

 

For a year, the task force gathered information, held hearings, considered different alternatives to stabilize our tax base. They made recommendations regarding new tax revenue and we support the task force’s findings. We support those findings because they are consistent with the principles the Nevada resort industry has consistently endorsed.

 

First, any new tax proposal must be broad-based and equitably distributed throughout the business community. Any new tax proposals must not be derived from a single source. Gaming will participate equally with other businesses, and last, there must be protection for small businesses and individual taxpayers. Those principles have led to our support of the task force findings, including the gross receipts tax. We support this tax even though it results in members of the gaming industry paying an additional 0.25 percent on gross gaming revenues as well as 0.25 percent on all non-gaming revenues. We are willing to pay these increased taxes even though it would mean we would pay 25 times the GRT paid by other, non-gaming, businesses.

 

Senator Neal:

Twenty-five times?

 

Mr. Fertitta:

We would also be willing to pay the GRT even though we will be paying the majority of the other taxes that will be proposed by the Governor, including the business activity tax, alcohol and cigarette tax increases, and property taxes. Why do we support a gross receipts tax? Because it will finally broaden the tax base so national banks, retailers, car dealers, and other businesses and industries will finally be paying for some of the services their employees and customers use here in Nevada instead of continuing to have a free ride. In other words, it will broaden our tax base and help fix the glaring debt defect in our tax structure.

 

We have heard some people argue we should not increase taxes, and we should just cut services. As I said before, I was born and raised here in Nevada. I have seen the quality of life that can be found here. However, more recently I have seen threats to the quality of life. At Station Casinos, we have a program called “Caring for Our Community,” in which we make significant contributions to the Clark County School District and to other needy, charitable organizations. This program also gives our team members the opportunity to volunteer their time and help the community where they can. As part of this program, I have personally been to the Clark County School District, toured the schools, seen the facilities, and talked to the teachers. I have been there when the classes start and have seen the overcrowding. I have seen the teachers come out of their own pockets to pay for certain items they needed to run their classes. The need for additional taxes is very real. It is affecting the education of our children, the future of our State, and we have stepped up to help. But the fact is, no single company or industry can solve the problems.

 

Finally, as we have heard today and in the past, many people question why Nevada’s gaming tax is much lower than in other jurisdictions’. There is a very simple reason for this. Other states allowing casino gaming have very large population bases and only grant a small number, or limited number, of licenses to casino operators. Casinos in these States pay a premium to operate in a monopoly-type situation. I can tell you, if Station Casinos could have one of only three casinos in a population base the size of Las Vegas, I would sign up for higher taxes. Unfortunately, this is not the case. We operate in the most competitive casino environment in the world. It is also this comparatively low tax rate which allows our industry to continue to reinvest, so we can build the types of facilities that make someone drive past any Indian casino in California and come to Nevada. We reinvest so we can make someone drive past a riverboat in Chicago and get on an airline and fly to Las Vegas or Reno. If the gaming tax is increased, then this reinvestment, or reinvention of our facilities, which has been the lifeblood of this State for many years, will be slowed or stopped.

 

Members of the committee, I commend you for your actions during the last Legislative Session, when you recognized there was a significant problem with our State’s tax policy. I urge you to recognize the significant needs of our State and to thoughtfully consider recommendations made by the Governor’s tax force on tax policy and help broaden our revenue structure in a responsible way. I reiterate, the gaming industry is willing to continue to do its part to help fill our State’s short-term and long-term funding needs. We can no longer rely primarily on the gaming industry’s luck against a particular baccarat player and its ability to increase tourism to ensure adequate funding for our education, public health, and public safety needs, particularly in these challenging times. We request that you vote against S.B. 21, and vote in favor of a broad-based business tax to correct our tax structure for many years to come.

 

Senator Rhoads:

Could you go over that 25 times issue again? What do you mean by that?

 

William Bible, Lobbyist, Nevada Resort Association:

Right now the gaming industry pays 6.25 percent on its gross revenues and the proposal the task force made, and the Governor has recommended in his asking budget, is 0.25 percent. One quarter of 1 percent, in relationship to the 6.25 percent, is 25 times larger than the recommended 1 quarter percent.

 

Senator Neal:

If you add 0.25 percent to the 6.25 percent, you bring it up to 6.5 percent. How much money would that be?

 

Mr. Bible:

I think that increment is somewhere in the range of $20 million. I do not have the exact figure with me.

 

Senator Neal:

What about $21.7 million?

 

Mr. Bible:

Well, off the top of my head, the figure is fairly close.

 

Senator Neal:

So we are not talking about great deals of money are we?

 

Mr. Bible:

The proposal also applies to a casino’s non-gaming revenues, which are increasingly becoming important and I will talk about that a little later.

 

Senator Neal:

Well, we count them all. Count about $140 offset per employee. So if you are looking at the Station Casinos, what do you have, about 20,000 employees?

 

Mr. Fertitta:

We employ just over 10,000.

 

Senator Neal:

So, if you got an offset of $140 for those 10,000 employees against that GRT increase, you wind up paying about $6 million dollars?

 

Mr. Bible:

The $140 figure would not be the applicable figure. There would be a $40 increase in the BAT on all employees, and then there would be a credit available against the GRT of $100 per employee.

Senator Neal:

You seem to know a little bit more about it than I thought you did.

 

Mr. Bible:

Senator, I watch these hearings on the Internet.

 

William Vassiliadis, Lobbyist, Nevada Resort Association:

I think what is very important, not only for this committee, but for this Legislature at this time, is to have some context. The Senator eluded and dismissed fairly readily the competition and what is going on with Indian gaming. Unless I misunderstood, you said our properties owned most of the California casinos or most of the gaming sites or managed most of the gaming sites in California.

 

Senator Neal:

No. I said the Station Casinos own the gaming establishments across Nevada. People who operate in this State own most of the casinos owned outside of this jurisdiction.

 

Mr. Vassiliadis:

That is not true.

 

Senator Neal:

Well, we can show you the numbers.

 

Mr. Vassiliadis:

I would like to see those numbers. The fact is before September 11, 2001, with tribal gaming, and clearly, after September 11, 2001, the threat to the competitive advantage Nevada has had for many years has loomed very large. If you look at what is going on today, for example, there are 17 gaming sites within 250 miles of Las Vegas. There is a casino within a 4-hour drive of every major city in the U.S. Right now, Florida is looking at an expansion of gaming, as are Illinois, Ohio, Maryland, Pennsylvania, Rhode Island and Texas. By the way, some of those, for example, Chicago, Houston, and Dallas are major markets of Las Vegas. Not to mention our greatest threat right now is California. In California there were 49,000 slots at the end of the year 2002. Governor Davis has announced that one of the ways to try to balance California’s budget and deal with their big issue is by expanding the California compacts. Last year, California was only second to Nevada in gaming revenue.

I think within 5 to 10 years we are going to be neck and neck. The scariest thing is our largest market base is in California and it will soon be our largest competitor.

 

This is a depiction of what is going on just around Las Vegas, and does not include our major fly markets like Chicago, Dallas, Houston, Denver and New York. This is in our own backyard. In Arizona, 19 Indian gaming properties now operate around Phoenix and Scottsdale. This is all going on at a time when we know, between the hassle factor and the fear, we have seen significant drops in air travel. Our customers have to come a long way and through a lot of options to get to Las Vegas and to Reno. For the foreseeable future, we have a lot of research which says it is going to be a long time before there will be any sense of security and comfort to flying again.

 

Senator Neal:

Mr. Vassiliadis, those marks, those little triangles on the chart, they represent what, casinos?

 

Mr. Vassiliadis:

Tribal sites.

 

Senator Neal:

This is the case, mostly in California, Arizona, and New Mexico?

 

Mr. Vassiliadis:

Yes.

 

Senator Neal:

Are you familiar with the report done on tribal gaming by Time Magazine? The two-part report?

 

Mr. Vassiliadis:

Yes.

 

Senator Neal:

Are you also familiar with the number of tribal casinos they reported in that report? Or the number of tribal casinos they reported were successful?

Mr. Vassiliadis:

I do not remember it offhand.

 

Senator Neal:

Would this be a report you would be interested in?

 

Mr. Vassiliadis:

I have a copy of it in my office.

 

Senator Neal:

Would it be fair to say out of the 114 tribal casinos, they only reported about 2 that were successful?

 

Mr. Bible:

Are you saying two of the tribal casinos are successful and the rest are not? You are severely mistaken. Foxwoods Resort Casino is the largest casino in the world and Mohegan Sun Resort Casino joins it. These are two just in Connecticut itself. If you look across the breadth of the United States, you are going to find that most of the tribal casinos are doing fairly well. Some are not because they are fairly small due to situational problems, but in California a number of those casinos are very profitable.

 

Senator Neal:

The point is, over two-thirds of those casinos you are speaking about are not successful. They pose no problem, no threat to Nevada, according to the Time Magazine report.

 

Mr. Fertitta:

I can tell you first hand, I have toured a number of the facilities and fairly well understand what is going on.

 

Senator Neal:

You are one of the operators who operate one of the tribal casinos.

 

Mr. Fertitta:

Not yet, but we are in the process of building to manage a casino for an Indian tribe. There are very few companies who have committed themselves to the State of Nevada as all 10 of our properties we have currently operating are in the State of Nevada, and we have invested close to $2 billion in the State. I will tell you the money generated from the management of a casino in California will be reinvested in the form of a $300 to $400 million facility on Charleston and the 215 beltway. This will continue to provide jobs and spur construction growth.

 

Speaking specifically to the success of casinos in California, I can name off the top of my head, Pechanga Resort and Casino is one of the most profitable casinos in the country. In my estimation, it makes more money than the No. 1 most profitable casino in Nevada, Bellagio. Included in that area is the Pala Casino, which is not too far behind, the Pauma Band Luiseno Mission Indians in addition to this. You have Harrah’s Rincon Casino and Resort, which is right in that San Diego area as well. You have the San Pascual Diegueno Mission Indians in the Los Angeles area, you have a number of tribes in Palm Springs that are unbelievably profitable. You have the Cache Creek tribe in the Sacramento area which is very profitable and to further state, they are raising capital in the form of $200, $400, $600 million facilities and are not very much different from what you see in Las Vegas today. They are very successful. It is a very serious threat.

 

Senator Neal:

Mr. Fertitta, just say I bought the particular argument you just made. Could you tell me, sir, why is it we have not had an increase in the gaming tax in the last 16 years in this State. Is it because of Indian gaming?

 

Mr. Fertitta:

I am not sure the question is relevant, Senator.

 

Senator Neal:

Oh yes, it is relevant.

 

Mr. Fertitta:

In my opinion, the reason we have not is Nevada has continued to prosper economically for a number of years. You have seen billions upon billions of dollars invested in this State, creating construction jobs, permanent jobs, and providing benefit to the overall State and to the community, in addition to paying a few tax dollars along the way.

 

Senator NeaL:

I was here in 1987, serving on this very committee in the Senate, when we had the tax increase. At that time, the lobbyist was the late Jim Joyce, he made a deal with the Legislature to raise the gross gaming tax from 5.25 percent to 5.75 percent, to 6.0 percent, then to 6.25 percent. He was speaking for the casinos, and said they would come back after they started to do well to raise the taxes, and we have not seen you guys. I have been here for 16 years.

 

Mr. Bible:

I was also here in 1987, as State budget director, and remember when the tax was increased. I have no independent recollection of representations being made the casino industry was going to come back and increase taxes at some future date. I have heard this assertion a number of times. There are a number of Nevada myths and I believe this to be one of them. The other was Nevada legalized gambling in 1931 and a deal was struck that gambling will always support the State. I have submitted to you a variety of materials recently on legalization decisions, and could not find anything indicating a deal was struck. In fact, in 1931, when gaming was legalized, it was a local tax, not a State tax, and if this is a matter of public record, you should point this out.

 

Senator Neal:

Mr. Bible, I was here on the committee when Don Mello threatened to go with an initiative petition to get the quarter and a quarter percent because gaming did not want to pay anything then. The deal was struck, “Don’t go with the petition, we will go with the quarter and a quarter and we will come back and look at this. If the casinos are doing fine, we will come back and raise those taxes.” We have not seen you.

 

Mr. Bible:

You see us virtually every session. I was in here last year on a similar bill to this year’s bill.

 

Senator Neal:

But you didn’t come here to raise the gaming taxes.

 

Mr. Bible:

No, we came here to oppose your bill.

 

Mr. Vassiliadis:

Senator, you seem to be very focused on one tax. What about the fact we were here in 1991 and 1993 on the SAT, now called the BAT? What about the fact we were back here again with a room tax increase to pay for school construction in Clark County? It seems as if you do not feel somehow accomplished unless you specifically tax gross receipts. Yet, I will tell you in those sessions we were here supporting and worked very hard with members of this Legislature, both to get the activity tax passed and the school construction tax passed. Those things don’t seem to matter because you are so focused on one revenue source for some reason.

 

Senator, you and I have been friends for a long time, but you refuse to acknowledge the increasing competition being a threat today and in years to come. Whether those properties are successful or not, the fact is, by 2005, Bear Stearns is saying there are going to be 46 million gaming visits in the Los Angeles area alone. This will be 6 million more visitors than we currently have in Nevada. This is a reality; they are going there to gamble. The fact is, session after session, both in working with the schools and in working with you, we have contributed in many ways. You talk about the property tax; we are the largest property and sales tax payers. Who risks, and invests, billions of dollars that generate the sales tax, that generate the tourism tax, that generate the gaming tax? All of those taxes are brought to you courtesy of risks taken by Mr. Fertitta and the other companies in this industry. Yet, it seems like you ignore those because you are focused on this one tax. What we are hoping to do, Senator, is to work with you and this Legislature, especially this committee.

 

There will be months of discussions, not just this one single tax you have been proposing for three sessions. Instead of taking us out of this pot of discussion, you are going to be having, you pick one industry, and the one source of this industry, and continue to be up on the fact that we have not contributed more to the State when the fact is we have contributed more to the State, local government, and to the schools since 1987 and 1989. Now Mr. Joyce is not here to defend himself, I was not here, I do not know if that commitment was made, and if Mr. Joyce said we would be back, then he’s kept his word. We have been back every single session and we have supported many of the programs you and this Legislature have wanted to fund.

 

Senator Neal:

I want you to know, Mr. Vassiliadis, why, as you say, I am beating up on this one industry and why I think it should pay more. It is simple. Your industry refuses to allow this State to diversify. You oppose diversification and that is one of the reasons you have put forth the GRT. I look at this report (Exhibit E). Let me read a sentence from here. “They further,” meaning the gaming industry, “conclude the equitable remedy is to diversify the tax structure, rather than the tax base.” Meaning, shift taxes away from the gaming industry. So this is what you are doing and this is what I am opposed to. You will not allow us to diversify and bring in other industries in this State to compete with you. This is the problem.

 

Mr.Vassiliadis:

It is preposterous to say we have obstructed diversification. Senator, with all due respect, you served and received these reports and maybe not from big accounting firms, but we have had Price Waterhouse, and Arthur Anderson and others come forward. These are companies this Legislature has retained, previous Governors have retained, not the gaming industry. Every one of them has said the same thing. Too much dependence on one or two sources of revenue is a big mistake for the future of the State.

 

If you will indulge us for a moment, Mr. Bible does have some facts I think answer your question to what we have talked about.

 

Senator O’Connell:

When you talk about the competition to Nevada and gaming, are we talking about the complete package that Nevada has to offer in their gaming facilities? In these other Indian gaming facilities, do they have the entertainment and complete package like Nevada?

 

Mr. Vassiliadis:

Today, there is no one who has the whole package like we do. But as Mr. Fertitta indicated earlier, they are raising huge sums of capital every year. We recently had the opportunity to talk with the current gaming commission in California. There are plans to start building properties like we have here.

 

Senator O’Connell:

Do we know how far in the future this is?

 

Mr. Bible:

After proposition 1-A, which was the proposition legalizing tribal gaming in the State of California, the tribes had access to capital markets the same way Nevada companies do. They could issue debt and rely on conventional bank financing and started to increase their infrastructure. If you look at California as a whole, you will find that Southern California is more developed than Northern California as far as tribal gaming development. You are seeing resorts much like the ones we have in Nevada. There are golf courses, showrooms, and ones who have fights and gaming.

 

There are some restrictions in terms of the mix of games offered in California, but this is going to be one of the issues on the table for March, when they renegotiate the compact. You have some of the same games available in the state of Arizona as you do in Nevada. They do not have as large of a game mix across the board. For instance, they do not have sports wagering. Nevada has a provision in federal law that protects sports wagering. Generally speaking, you are going to find the same type of gambling opportunities available in all of these tribal casinos and the development is ongoing. They are building casinos, rooms, golf courses, showrooms, and the whole entertainment mix.

 

Mr. Vassiliadis put his finger on it and what we do have in Nevada, that you do not have there, is critical mass. We have 10 or 11 properties all together and it is really the mecca of gambling and on a must-see list. People want to go to a variety of properties to experience the things that have been built to attract them. You do not have this in California, yet, but I believe after the next round of negotiations, you may see some of the tribal markets developing into what you see in Primm. All of those particular properties are owned by one company and marketed by different brand names. You may start seeing developments in California where you have casinos across the interstate from each other which may be branded differently, but are, in effect, owned by the same tribe.

 

Senator O’Connell:

Can you tell us if any states have agreements with the Indian tribes to contribute to the tax base?

 

Mr. Bible:

Yes. Foxwoods Resort Casino gives 25 percent of the slot machine revenues to the state of Connecticut and in exchange the state gave them an exclusive right to it, and somehow the Mohegan Sun Resort Casino got into that agreement also. In the state of California there are some monies that flowed to the state to defer the nominal cost of regulatory structure and for a redistribution to tribes who do not have gaming opportunities because of their geographical locations. What will be on the table in California, starting next month, will be the Governor’s proposal to bring in $1.5 billion dollars of revenue from tribal gaming to support his budget and this will be a contention during the course of negotiations. The tribes will have to accede to this in terms of the compacting process.

 

Senator O’Connell:

This is all on a voluntary basis. They are not forced in any way to do this.

 

Mr. Bible:

No. They have to do this by mutual agreement. Of course, in some states, such as New Mexico, they have litigated on whether if they were forced or coerced into it, by virtue of the compact process. As you look at those operations in other states you have to recognize they do not have much of a tax environment, if any. They do not contribute to state or local government. They are really governmental gaming and the tribes are a government operation having certain sovereign rights according to the constitution, but they use those funds to support the tribe and a variety of other purposes.

 

Senator McGinness:

Mr. Fertitta, you had some figures about the profitability of some properties. I am not sure if it was in Time or Newsweek the article appeared, and we will ask research to get us this. But if you have additional information, I would like for you to share it with us.

 

Mr. Fertitta:

If we can provide this information and if it is public, we will be glad to give this to you.

 

Mr. Bible:

You have a packet, “A Glimpse of Gaming in Nevada” (Exhibit H), which responds to the question of diversification of the job base and shows jobs by sector in 1977, and compares it to 2001. If you look under Hotels, Gaming and Recreation, it includes casino hotels and some other items such as “Wet ‘n’ Wild” and ski resorts. In 1977, the market share of this particular category was 32.3 percent and in 2001, it has dropped almost 10 percentage points to 23.1 percent. There is a column showing absolute change in the various segments of the Nevada economy and then there is a compound annual growth rate. Therefore, if you take a look at this, you will see a number of other sectors illustrated on the next page have grown in excess of gaming in Nevada since 1977, indicating the economy has diversified.

 

Senator Neal:

What is the source of this information?

 

Mr. Bible:

This was taken from the data maintained by the Department of Employment, Training and Rehabilitation.

 

Senator Neal:

But you will provide the source for this information and to all of the charts you mention here.

 

Mr. Bible:

Yes. There is a pie chart (Exhibit H) showing the contributions to the State General Fund made by various taxes. Gaming and the casino entertainment tax bring in 37 percent, which is about the same as sales tax, insurance premium tax, business license fees, and a number of other taxes. I have a couple of points to make on this chart. First, the gaming industry pays a specific industry tax, bringing in 4 points less than the 37 percent on casino entertainment tax, only because the activity takes place in the casinos. With the insurance premium tax, the casino industry pays this percentage like every other business in the State of Nevada, and the same goes for the business license fee.

 

The data shown to you earlier indicates 25 percent of total employment is related to the casino industry and therefore, it will pay about 25 percent of the head tax and the sales and use tax. You will find gaming both as a collector through its facilities and a payer as it goes about procuring goods in the community.

 

Speaking on a couple of comments made earlier: No. 1, if casinos do not make money, they do not pay taxes. This is not correct. The tax is applied at the gross level, not the net level, therefore it does not reflect profitability and you are going to find casinos pay taxes regardless of their profitability. A number of casinos are in bankruptcy to make the point they are not making money, but are still paying the State’s share of taxes.

 

Senator Neal:

Let us take, for instance, the 6.25 percent on $134,000 gross revenue per month. If you do not make $134,000 per month, do you pay the 6.25 percent?

 

Mr. Bible:

It’s a bracket in tax. You pay 3 percent on that level, then you pay whatever the next level is, then 6.25 percent.

 

Senator Neal:

But, if you do not make $134,000, then you do not pay 6.25 percent. Is this correct?

 

Mr. Bible:

You pay on your revenues. I do not know of any casinos that do not have revenue and are operating.

 

Senator Neal:

No, I am suggesting what the law states. The law states you pay on the gross revenue of $134,000 per month, 6.25 percent. My question is, if you do not make $134,000, do you pay the 6.25?

 

Mr. Bible:

You pay at the lower bracket, but you are still paying taxes.

 

Senator Neal:

So, if you do not make $50,000, you do not pay 3 percent.

 

Mr. Bible:

You pay on dollar one of gross revenue at the 3 percent rate. The next chart is a quote occurring when the State, in January, reported its gaming win. In this particular month, November 2002, reported in January, the statewide win was 1.5 percent; The Strip win was 6 percent, but the gaming control board analyst, Mr. Streshley, indicated what drove the number positive was baccarat. In this case, it was a higher than normal whole percentage, and if this had changed and been normal, The Strip revenue would have been down 1.5 percent and, in turn, would have driven down the entire State’s win for this collection period. This highlights the precarious nature of the State revenue system where you have a game like baccarat, played by a relatively small number of individuals, and is highly volatile. Typically, these individuals are not from Nevada. If the baccarat win is good, the State will have a good month and the reverse is true, especially if the players do not come, or if the house did not win the expected percentage from them, the State will have a negative collection. You have a small number of people who are driving your revenue system to some extent and I think it might have some public policy you need to consider.

 

Senator Neal:

Are you suggesting to this committee the gaming establishment makes all its money from baccarat?

 

Mr. Bible:

We make and lose money from baccarat.

 

Senator Neal:

Let me ask you this. Taking the gaming revenue, where does most of the money come from in terms of what is won or lost?

 

Mr. Bible:

I have another chart.

 

Senator Neal:

I do not want to go with your chart, but is it not a fact most of your revenue comes from coin-operated machines? I am talking about the gross gaming revenue.

 

Mr. Bible:

We have been through this a number of times and what your argument will be is because 70 percent of the win comes from slot gaming machines, and gaming slot machines do not require a lot of labor, therefore gaming can pay more taxes.

 

Senator Neal:

For example, in the last year, what was the gross revenue for gaming? Was it $9.2 billion?

 

Mr. Bible:

This sounds familiar to me.

 

Senator Neal:

And out of this $9.2 billion, how much of this came from coin-operated machines?

 

Mr. Bible:

I would say about 70 percent.

 

Senator Neal:

About $6.3 billion, and therefore it would be true to say most of your gross revenue comes from coin-operated machines?

 

Mr. Bible:

I think this would be true.

 

Senator Neal:

So, is this labor intensive?

 

Mr. Bible:

Let us look at where these slot machines sit. They sit in a hotel or a casino where your typical cost of entry in a marketplace is $2 billion. Mr. Wynn is talking numbers like this for his new property. They are talking about a hotel having 4000 rooms and have full services to those rooms. Does it require less manpower to handle a machine versus a table game? Probably not.

 

Let me talk about this one chart I think the committee needs to consider, which shows the changing mix in gaming revenue from 1975 through 2002. In 1975, gaming constituted 70.1 percent of direct gaming activity of total hotel-casino revenues. Beverages and other portions made up the difference. In 2002, the mix is almost even with gaming at 51 percent in non-hotel. The tax we are talking about today, in terms of the casino environment, has less generating ability than it did in 1975. Of course the other 50 percent is not currently subject to a State tax, but would be under the proposals being considered by the Legislature.

 

Chairman McGinness:

On this chart, it says statewide casinos with gaming revenue of $1 million and over. How many casinos are in this category?

 

Mr. Bible:

It is 249 locations. The number I had is probably the number of nonrestrictive licenses because there are a number of sports books not qualified in this category and a couple of supermarkets in Clark County which have nonrestrictive licenses. One thing indicated in testimony today was Senator Neal speaking about there being 40 million tourists the last couple of years in Nevada, with 2 million residents. If you take the tourist number, and divide it by 365, you get a number of 100,000 to 150,000 individuals on a daily basis.

 

Senator Neal:

For the rest of the committee, your example might work, but it will not work with me. We are talking about a total number of 40 million tourists and you cannot suppose by dividing this into 365 days, and applying it to the permanent population, claiming the cost would be less. The cost will not be less.

 

Mr. Bible:

Mr. Senator, if this is the case, we are 36 million hotel rooms short.

 

Senator Neal:

No. You look at it in terms of what today is and it averages out to about 300,000 people a day. The 150,000 you are talking about stay for more than 1 or 2 days in the market. This is where you got the figure. Brian Greenspun, Las Vegas Sun, brought up this figure at the hearing and he was totally incorrect when he tried to use this particular math. This does not cut the cost of the tourists being here utilizing our water, resources, police protection, and health care.

 

Mr. Bible:

We have talked about this issue before and tourists do need additional services. Very few tourists enroll in Medicaid or register in public school, K through 12, or the university system for 1 or 2 days, and this is where 50 percent of your State expenditures are. I will not deny there is some impact from tourism, but if you look at the State expenditure breakdown, you are not going to find it equally distributed among your expense categories.

 

Senator Neal:

I would submit, what you are saying is correct, but what we are talking about here are those services which have to be put forth to take care of the tourists, services to take care of the problem of gaming, and services to take care of the 8000 employees costing the government $4.3 million. Then when we try to balance out our budget at this particular level, we have to take money from other sources to take care of those other needs you just talked about. I understand what you are saying, but I am not backing off on this particular argument of casinos paying more.

 

Mr. Bible:

The only other point is somehow the State Gaming Control Board chose to abstract out of State activities, and I believe if you ask the State Gaming Control Board, they will tell you of their attempt to allocate those expenses attributed to Nevada operations and exclude those non-Nevada operations from those figures.

 

What happened in the 1990s is a number of corporations were not licensed entities, but were registered holding companies, a parent company, and may have had one or two gaming properties, and subsidiary operations below them. They started migrating their expenses to the corporate level in order to gain additional advantages in terms of financing and corporate activities, such as lawyers, accountants, purchasing activities, and things like this. Those expenses that are attributable to Nevada are, in effect, allocated back to the various properties.

 

Senator Neal:

I would like to ask Mr. Fertitta a question. As one of the owners of one of the largest casino operations in the State, would you be willing to have your industry give more money for the diversification of this State?

 

Mr. Fertitta:

What we have said all along is we are willing to pay our fair share. We are saying we are willing to pay an additional quarter percent of gross gaming revenue; a quarter percent.

 

Senator Neal:

I take your answer to be no, then, sir.

 

Mr. Fertitta:

What you do with the revenue we generate, I do not have an opinion on this. You will have to decide for yourselves.

 

Senator Neal:

Do you have an opinion as to the diversification of the State?

 

Mr. Fertitta:

I want the State to continue to diversify, it helps the entire valley, it helps the State of Nevada, and is something that should happen, yes.

 

Senator Neal:

Are you willing to contribute more, to see this come about?

 

Mr. Fertitta:

I am willing to contribute another quarter percent of gross gaming revenue and a quarter percent on non-gaming revenues.

 

Mr. Bible:

We would certainly like to see the tax base and structure diversified.

 

Mr. Fertitta:

I would like to say that we are coming forward as trying to be part of the solution. The gaming industry has never shied away from its responsibility; we are here to help. Second of all, times have changed. Certainly gaming revenues on a gross basis are not growing at as rapid a pace as they did at one time and clearly as a result of competition and a number of other things going on in the environment with additional casinos and the overall state of the economy.

 

One of the things I would like to point out, and speaking more specifically for southern Nevada, rather than northern Nevada, when I refer to some of these numbers. The fact is, services for the State of Nevada are going to continue to increase. Since 1995, the population in southern Nevada has grown at a compounded annual rate of about 6.6 percent. Even more important is the senior population is growing at 11.5 percent. In fact, within the last 2 to 3 years this population base has grown more at 14 percent on a compounded annual basis.

 

Forty percent of the people who move to southern Nevada come from California. In 1990 there were 4 million people in the retirement bubble, aged 45 to 65, getting ready to make retirement decisions. In the year 2000, this has increased 50 percent to 6 million persons. I can tell you with the problems in the state of California and the governor in that state proposing to increase personal income tax rates from the 8 percent range up to the 11 percent range, no matter what happens, there will be a tremendous influx of population into this State, namely seniors, trying to get out of the environment from a tax standpoint.

 

The fact is, this will continue to put pressure on our State, from a service position, and it is not smart, it is not good business to put all your eggs in one basket, looking at one industry to fund the needs. The revenue generated is not going to grow at the same rate as the needs for services. We need to diversify the tax base and all the businesses who have done very well in the State of Nevada and have made millions and billions of dollars are not native Nevada companies. They take their profits and take them home to other states, back to their corporate headquarters. The fact is, these companies need to contribute because their employees also use State services. Thank you.

 

Chairman McGinness:

Are there any other questions for these gentlemen? Thank you. Mr. Arnodo, Mr. Thomas.

 

Glen Arnodo, Lobbyist, Political Director, Culinary Workers Union Local 226 Hotel Employees and Restaurant Employees International Union (HEREIU):

I am here to express our union’s opposition to S.B. 21. As many of you know, our union represents about 50,000 casino workers in Nevada. Our members have the kind of jobs that are beneficial to the State and to the community. These are stable jobs with the best health insurance plan in Nevada in addition to providing a pension, respectable wages, and a guaranteed workweek. In Las Vegas, we are privileged to say, someone working as a maid can afford to own a home and maybe send her children to college because of the quality of gaming jobs.

 

I want to focus, particularly, on the quality of health care our members enjoy through their casino employment. Health insurance premiums for our members and their dependents are paid for entirely by the casinos under contract with our union. We know of no other health plan in Nevada or any other employers in Nevada, which provide full family coverage without deducting premiums from workers’ paychecks. The coverage is excellent, and our members have many doctors and facilities to choose from.

 

The culinary health fund includes coverage for dental and vision care, preventative care as well as catastrophic care with very low deductibles and copays. Our members’ health insurance is the single most important factor in maintaining their standard of living. It means their wages are protected from the financial havoc health problems can wreak on anyone’s family. It is also important to Nevada, as the State’s largest industry bears its own burden on health care costs. We are all painfully aware of the escalating costs of health care to our community. In fact, our members gave up wage increases to maintain their free family health care coverage.

 

The cost of health care is skyrocketing. Our State has a chronically high rate of uninsured residents, and health services are requiring substantial resources from the State budget. The same is true for Clark County, which is trying to resolve an acute crisis at the University Medical Center (UMC). As you seek to solve the State’s budget crisis, and we believe it will take a substantial restructuring of the State’s tax policies to do this, we urge you to look at companies who do not bear their own burden of health care for their workers.

 

Wal-Mart is one example, and Senator Neal you mentioned it. In 2000, the Clark County commission did a study showing the percentage of uncompensated care at UMC used by working families was disproportional, caused by the retail industry and other industries that do not provide family health care coverage at an affordable price. At the end of the day, taxpayers end up bearing the burden. I do not think it matters what political persuasion you are or what political party you represent. I think we will all agree taxpayers should not have to bear the cost for health care coverage for giant multi-billion-dollar companies. Wal-Mart last year, I believe, made $7 billion in profits, and national studies have shown about 62 percent of their employees do not have health care coverage. We, the taxpayers, end up bearing this burden.

 

In addition, these companies do not pay taxes to the State of Nevada and none on the money they make in Nevada, and minimal taxes otherwise. But, they contribute to the rising cost of services. To approve S.B. 21, you will be telling companies like Wal-Mart, Bank of America, Wells Fargo, and others in Nevada you do not have to pay taxes and you do not have to provide affordable health insurance for working people and their families. And to the casinos, you would be telling them it would pay to be more like Wal-Mart. We think it is bad for the State, bad for our citizens, bad for our members’ livelihood, and especially at the end of the day, disastrous for the education of our children. Thank you.

 

Danny L. Thompson, Lobbyist, Executive Secretary-Treasurer, Nevada State AFL-CIO (American Federation of Labor-Congress of Industrial Organizations):

We debated this issue 2 years ago and came to the conclusion we do not support an increase in the gaming tax. There are a lot of reasons for this. There was a lot of talk of what happened on September 11, 2001. On this date, 15,000 people did lose their jobs, not because they were fired, but they lost their jobs because tourists did not come to the State any more. We felt to increase the dependency on an industry that is the single largest employer in Nevada, the single largest payer in taxes in Nevada, did not make any sense.

 

The culinary workers union represents 50,000 workers. I represent 165,000 workers. I represent the flight attendants who work on the airplanes and bring people here, the airline pilots who fly their planes here, the nurses who take care of people, the teamsters who make deliveries to the hotels, the operating engineers who do maintenance in the hotels, the Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) who take care of the telephones in the hotels. I could go on and on. All of these people, and this list is long, depend on the gaming industry for their livelihood.

 

It is not just the culinary workers and the hotels; it is all of those other businesses who depend on the casino industry to be strong. The hotel industries build their hotels, so all of my building and construction trades workers have jobs to construct them. Most of the hotels built on the Las Vegas Strip were built under the terms of a project and labor agreement because they want the hotels open so they can open slot machines and start making revenue. In addition, all of these people have health insurance. I would submit to you, if these companies and those hotels did not pay health insurance for their employees, the Medicaid budget you are now considering would not be payable, and we would be in a big mess.

 

I can tell you I am a native Nevadan, and I have been here my entire life. I have served in this Legislature and in the past, when we needed money, we went to the gamers. We were a small State, we had a small budget, there were one million people, and you could go to them and say “How much are you going to give?” and they would give the money. That was then, and this is now, and today with the proliferation of gaming, it is not just Indian gaming, it is gaming everywhere. We cannot afford to tie our horse to one place; this is not a good deal. When you depend on one industry for all the money, 40-something percent of the State budget, it makes no sense to us to increase the dependency so if there is another September 11, 2001, you get to close down the Department of Motor Vehicles, or close down schools, this makes no sense.

 

With all respect to Senator Joe Neal, with whom I have worked for many years, I disagree with this bill. As far as Mr. Barbano: representing some labor interests, I can tell you at our convention, we unanimously passed a resolution stating we want a broad-based solution to this problem. I do not think the gaming industry sat here and said, “We are not willing to pay more, we are willing to do our fair share, but it just cannot be us, alone, anymore. If we solve this problem, it has to be everybody.” I will not pretend to know what that is, this is your job to come up with the policy. I can tell you the gaming industry provides good jobs, with good benefits, and not just in the hotels. I represent all the cab drivers, the limo drivers, police, fire fighters, and nurses who do work in those places and for those people. It would have far-reaching effects to kill the goose that laid the golden egg. We are opposed to this bill and again, with respect to Senator Neal, we believe there should be a broad-based solution to this problem.

 

Senator Neal:

Mr. Arnodo, how long does the insurance you spoke of remain in effect after a person is laid off?

 

Mr. Arnodo:

Four months, and I do not know of any other health plan in Nevada that does this. Typically, virtually in every sector of employment, your insurance is tied to your job and in the gaming industry, when members lose their jobs they retain their insurance for 4 months afterwards.

 

Senator Neal:

How many revenue streams do you have in hotel and casino operations in Las Vegas?

 

Mr. Arnodo:

I do not run hotels and I cannot answer the question.

 

Senator Neal:

Would you believe you have five?

 

Mr. Arnodo:

Again, Senator Neal, we represent the workers in the industry, we do not run hotels. I cannot speak for the business.

 

Senator Neal:

Okay, let me tell you what you have. You have the beverages, food, rooms, gambling in the gaming area, and you have others, such as shops, which are each a source of revenue stream. Out of these five, tell me which ones I just named you represent.

 

Mr. Arnodo:

Beverage, rooms, some gaming employees and food.

 

Senator Neal:

Some gaming employees?

 

Mr. Arnodo:

Slot workers, yes.

 

Senator Neal:

How many slot workers do you represent?

 

Mr. Arnodo:

I do not know, Senator Neal. I do not know the number.

 

Senator Neal:

You do not represent the blackjack dealers, do you?

 

Mr. Arnodo:

No, we do not and never have.

 

Senator Neal:

What hotels do you represent in terms of slot workers?

 

Mr. Arnodo:

If you look up and down the Las Vegas Strip and downtown, we represent slot workers at almost every property with an exception of a few. Over the last few years, the number of slot workers is declining due to automation, therefore I cannot give you numbers, but, this is a classification under our contract to the extent they exist, we represent the slot workers.

 

Senator Neal:

Through automation, they are declining?

 

Mr. Arnodo:

Yes.

 

Senator Neal:

So you do not have the change girls anymore with the change.

 

Mr. Arnodo:

We still do, there just are not as many of them as there were in the past.

 

Senator Neal:

In most of the automation, you have machines in the hotels that take the $100 and $20 bills, which give you change.

 

Mr. Arnodo:

Automation is changing this facet of the industry. I should add even at its peak, the number of workers employed as slot change attendants, was quite small, relative to the number of workers in food, beverages, and housekeeping.

 

Senator Neal:

Are you aware you make more money in the gaming end of this than you do in the other areas such as rooms, food, and beverages?

 

Mr. Arnodo:

I think some of our food service and cocktail waitresses might dispute how much money is made in gaming, relative to other jobs in a hotel and casino.

 

Senator Neal:

As a representative of your union, are you not privileged to see the gaming abstracts as they come out?

 

Mr. Arnodo:

I thought you were referring to the amount of money workers make.

 

Senator Neal:

No, no.

 

Mr. Arnodo:

I follow this, but I could not recite chapter and verse, no.

 

Senator Neal:

Let me submit to you, the gaming industry makes more money in the gaming area than they do in the other four areas, the beverages, food, rooms, and others. I believe Mr. Bible made the fact very clear that the coin-operated machines make a considerably higher amount of money than the other areas I have mentioned. You are here pleading a case, but you do not have many people to represent in these particular areas?

 

Mr. Arnodo:

Senator Neal, I believe you have been in hotels on the Las Vegas Strip as much as I have, and it takes virtually an army of workers to create the kind of properties where people want to come and use those machines. We have 50,000 members, who cook food, clean rooms, and do everything necessary so visitors do come and play slot machines, table games, go to the shops and do everything else. I am not sure I see the point.

 

Senator Neal:

Tell me this, if there was a downturn in your rooms causing a layoff, would those individuals go over and work in the gaming area?

 

Mr. Arnodo:

No, they would not.

 

Senator Neal:

If you had a downturn in the food, or beverage areas, which you represent, would those individuals go and work in the gaming area?

 

Mr. Arnodo:

No, by and large, not. Except, I do not understand the point of the question.

Senator Neal:

The point is, you are here to represent an industry in which you are hardly affected at all. We are not talking about raising the money or taxing the area of beverage, food, rooms, or in the others. We are only taking about gaming. One portion of this, and this is gaming. This is where we are talking about raising the taxes. Not the food, not the beverages, not the rooms, not the shops. This is what the bill does, and you are saying you are opposed to this. Let me just show you something we picked up and you are probably familiar with this. Metro-Goldwyn-Mayer Mirage (MGM Mirage) is one of the larger properties you represent, is this correct?

 

Mr. Arnodo:

This is correct.

 

Senator Neal:

I have an article from the Las Vegas Review-Journal, “Execs rewarded amid layoffs” (Exhibit I), saying 6000 MGM employees were laid off relating to the September 11, 2001, thing, but at the same time, the top executives were rewarded $5.2 million and this was in 2001, and believe it or not, in 2002 this same company gave their executives over 100 percent increases in salaries, “MGM Mirage rewards executives with raises, stock” (Exhibit J). I did not hear anything from the labor unions about this. Is this something the labor union would be concerned about?

 

Mr. Arnodo:

Senator Neal, September 11, 2001, was the most horrendous experience any of us have ever gone through in our lives. The loss of life was horrible enough, but the economic devastation following this event, not only in Las Vegas but everywhere else, and we hope we never have to go through it again.

 

Senator Neal:

Executives were rewarded, rewarded.

 

Mr. Arnodo:

Senator Neal, we lost approximately 7000 of our members following September 11, 2001, and I believe about 15,000 gaming employees were laid off altogether. Most of them we know came through our union hall for relief efforts. But even under these economic circumstances, we negotiated a new collective bargaining agreement in the worst economy any of us has seen in our lifetimes in Las Vegas. This new agreement maintains free family health care coverage for the next 5 years. As long as this is the case, I do not think our members really care how much an executive makes. What they care about is they can take their children to the doctor and have this kind of security. To our members, this is the important thing, not what an executive makes.

 

Senator Neal:

I submit you are correct, but I think you should also be fair to your members and tell them this particular bill does not affect them as you think it does, and you know this. We are not talking about food, beverages, room, and others. We are only talking about gaming and this bill does not affect you. I think you have done a disservice to your people by telling them they are affected by legislation such as this.

 

Mr. Thompson:

If I may respond because I do represent gaming employees and I represent dealers at more than one hotel. As stated before, I represent taxi drivers, airport workers, and building trades people who build these hotels.

 

Senator Neal:

What hotels do you have a deal of contract with?

 

Mr. Thompson:

I believe it is the Tropicana Resort and Casino and the Stratosphere Hotel and Casino. With this aside, these other employee groups came to our convention and their concern was this: if we take more of the profit away from these hotels, it will impact the quality of gaming we currently enjoy in this State. The quality of gaming, given the fact the diversification of gaming in the last 10 years, has just been of nuclear proportions, they will not have the money to build the kinds of hotels and the kinds of attractions which make Las Vegas what it is. I was born in Las Vegas and remember when there were only 5 hotels on The Strip and it was dusty and everyone knew everyone else. It is not this way anymore.

 

Las Vegas is a special place and it has to stay a special place. If the gaming people, if the Steven Wynns of the world, are not willing to take their money and take a chance and build the kind of properties to make people get on airplanes to come here with spendable cash, it is not only impacting people who are directly dealing the cards, or gathering the money. It is going to be the steel worker who drives the cab, the airline pilot who flies the plane, and all kinds of people will be impacted, because their jobs will be at risk and Las Vegas will not be what it is.

 

As far as people being displaced by technology, I submit to you I represent telephone operators who do not exist anymore, because computers have replaced them. AT&T shut down last year and laid off the last 116 telephone operators and replaced them with a computer which can respond to ‘huh’ and connect you. Letter carriers are being decimated by E-mail and it will not be too long into the future until they will not exist, except for package carriers. Therefore the gaming industry will evolve in ways to change their industry, just like every other industry. This will impact more than just those people dealing the cards.

 

Senator Neal:

Since you brought up Mr. Wynn, I gather from your remarks it is all right for Mr. Wynn to make his money here, and then take it and invest it in a Macau casino, in China? Is this what I am hearing you say?

 

Mr. Thompson:

Certainly, other companies do this. I represent the workers.

 

Senator Neal:

Do you represent the workers in Macau?

 

Mr. Thompson:

I do not represent any of those workers, but I do represent workers in virtually every industry in the State, including mining. If this premise were true, foreign corporations own all mining in Nevada, and yet mining provides good jobs with health insurance. I can tell you this. There is a lack of health insurance for an employer who can pay. There are plenty of small employers who cannot pay, and you need to look at ways of making this easier for them to pay.

 

I personally believe if employers provide health insurance to their employees, they should get a tax break. They should get a break from whatever you come up with and if you do not provide health insurance, then you should pay more, and this will be an incentive to find a way to provide it to your employees.

 

If you look in Clark County and look at the problems the UMC is having, $32 million upside down, and you look at the increase in the Medicaid rate being experienced, you can draw a direct line to those people who are working who do not have health insurance. Speaking of Wal-Mart, the largest employer in the world can afford to pay health insurance costs, but it does not, it relies on the community to pay those costs and provide the services for them. It is not fair for Safeway, Albertson’s, and Raley’s, who just went out of business in Las Vegas, 1600 workers lost their employment. Just look at it from a pure numbers standpoint. I can make a case where 1600 workers, who had health insurance, were replaced with 62 percent of 1600 who do not. Guess who is going to pay this bill? We are. I do not pretend to have the answer, but I can tell you to increase a dependency beyond 45 percent on an industry who is paying the bill now, who has never been afraid to pay the bill, and is not opposed to paying more, it just cannot be them alone anymore. We do not think it is prudent to increase the dependency to 50 or 60 percent, then there is some bad slot tournament somewhere and you must lay off the Department of Motor Vehicles, and it does not make sense to us.

 

Senator Neal:

Did I understand you to say, if we did pass this bill together with increased taxes on Wal-Mart and others, you would support this bill Mr. Thompson?

 

Mr. Thompson:

No, sir, you did not. I do not support increasing the gaming tax. I do support a broad-based tax, and I think the gaming industry is willing to pay as long as it is everyone else.

 

Chairman McGinness:

Is there anyone else to testify in opposition to S.B. 21?

 

Carole Vilardo, Lobbyist, Nevada Taxpayers Association:

I will be very brief, as you have heard a lot of discussions about what should and should not be done. I would like to speak to the bill and what Senator Neal has proposed. The arguments made relative to the fragility of the industry due to the expansion of Indian gaming and because of the proliferation of other states receiving voter, legislative, or Governor approval to create gaming establishments in direct competition with us has put a different complexion on the industry concerning taxes than when these taxes were imposed.

 

We have made a broad-based statement and have filed with the task force committee and many of you have received our paper. Maybe you can raise the gaming tax, and I do not know what the level is, but I do believe gaming taxes, like every other tax being discussed, need to be reviewed in light of the way they do business today, and in light of what the economy is. I do not believe, structurally, taxes established today fit the economy or the way business is done. Maybe we can tax, but it is a tax not based on the ability to pay, which is difficult for any business to absorb. You cannot budget for something like this. If we are to keep some structure with the gaming tax as it exists today, maybe the structure needs to be modified. We need to look more at a modified gross than what we have now.

 

In order to keep the casinos healthy and competitive instead of raising rates, maybe we should be looking at a version of how we do the net proceeds tax. You are allowed deductions for direct employment to the gaming industry, and you are allowed deductions for equipment purchased. We need to broaden the tax base, we need to stabilize out the tax base. I do not know if I agree with some of the comments made for the best way to achieve this.

 

From the board’s perspective, and we have been saying this for some time, every tax needs to be looked at so it is reflective of the way a business does business and reflective of the State’s economy. Our entire structure is in need of an overhaul, and we will continue to argue for this.

 

Senator Neal:

Are you privy to any study done on the impact of Indian gaming?

 

Ms. Vilardo:

No, not at this point, but I have a study at my office I have not read due to lack of time. If I may, let me make clear I am opposed to the bill as it is written with the rate increase. I think the first thing we need to do, not only with gaming tax but with every tax we have including sales tax, is to thoroughly look at it to see how well it is currently performing in today’s economy before we do anything with it.

 

Senator Neal:

I am not talking about a study done by the industry, but one that might have been done outside the industry by a person who might have looked at this and concluded Nevada would be impacted greatly. What I do hear, and I heard this about 3 months ago on a Microsoft National Broadcast Company (MSNBC) report talk about the security of gaming and how they catch crooks. In this report, they mentioned the gaming industry in Las Vegas alone turned over $12 billion a month. I kept listening and finally we got the written report to see if I had heard correctly, and it was $12 billion per month. I continued watching months after this to see if gaming in the Las Vegas area was going to make a statement these figures were incorrect, and nothing was ever said. I would have to say what was reported, and the $12 billion being made in this industry, is an inordinate amount the State is losing; about $1.5 billion in taxes a year, if this report is correct. I have to assume it is correct because we have not seen any large casinos challenging this.

 

Ms. Vilardo:

I am not familiar with MSNBC, and cannot comment one way or the other.

 

chairman McGinness:

If there is no one else to speak in opposition of S.B. 21, we will close the hearing on S.B. 21. This meeting is adjourned at 4:21 p.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Gale Maynard,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Mike McGinness, Chairman

 

 

DATE: