MINUTES OF THE MEETING OF THE
ADVISORY COMMITTEE
TO THE LEGISLATIVE COMMITTEE FOR
LOCAL GOVERNMENT
TAXES AND FINANCE
March 20, 2002
The meeting of the Advisory Committee to the Legislative Committee for Local Government Taxes and Finance, (NRS 218.5388 to NRS 218.53886, inclusive) was called to order by Guy Hobbs, Chairman, at 11:20 a.m. on March 20, 2002, at the Legislative Building, 401 South Carson Street, Room 1214, Carson City, Nevada, and via simultaneous video conference at the Grant Sawyer Office Building, 555 East Washington Avenue, Room 4412, Las Vegas, Nevada. Exhibit A is the Meeting Notice and Agenda; Exhibit B contains the Attendance Record.
Mike Alastuey
Marvin Leavitt
David Pursell
Linda Ritter
Janet Murphy
John Sherman
Terri Thomas
ADVISORY COMMITTEE MEMBERS
PRESENT IN LAS VEGAS:
Guy Hobbs, Chairman
Philip Stoeckinger
ADVISORY COMMITTEE MEMBERS
ABSENT:
Bruce Brooks
Rick Kester
LEGISLATORS PRESENT:
Assemblyman David Parks
LEGISLATIVE COUNSEL BUREAU
STAFF PRESENT:
Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division
Richard Combs, Deputy Fiscal Analyst, Fiscal Analysis Division
Kim Guinasso, Principal Deputy Legislative Counsel, Legal Division
William L. Keane, Principal Deputy Legislative Counsel, Legal Division
Carol
Thomsen, Interim Secretary, Fiscal Analysis Division
EXHIBITS:
Exhibit A: Meeting Notice and Agenda Packet.
Exhibit B: Attendance Rosters.
Exhibit C: “Property Tax: Effective Tax Rates,” presented by Mr. Stoeckinger.
Exhibit D: Packet of information provided by the Department of Taxation regarding centrally assessed property.
Exhibit E: Legal Opinion dated March 19, 2002, regarding subsection 5 of NRS 361.320, presented by Wil Keane, Principal Deputy Legislative Counsel, LCB.
Exhibit F: Legal Opinion dated March 19, 2002, regarding NRS 361.320, presented by Kim Marsh Guinasso, Principal Deputy Legislative Counsel, LCB.
Exhibit G: Letter of March 19, 2002, from Mickey Yarbro, Chair, Lander County Board of Commissioners.
Exhibit H: Spreadsheet presented by Janet Murphy regarding tax revenues.
Chairman Hobbs called the committee to order and after discussion, indicated that he would chair the meeting from Las Vegas, however, should that prove problematic, Mr. Leavitt would assume chairmanship from the Carson City location. It was also noted that information was in the process of being faxed to Las Vegas regarding the various legal opinions that would be presented to the committee.
Chairman Hobbs called for approval of the minutes of the January meeting. Ms. Thomas pointed out that a sentence on page 15 of the minutes under the heading, “Item III (K): State Fuel Tax Policy,” which read as follows, “…insofar as the state did not currently enjoy revenue from alternative and diesel fuels,” should be corrected to read, “…insofar as the cities and counties did not currently enjoy revenue from alternative and diesel fuels.” Ms. Thomas clarified that her statement was to point out that cities and counties, as local governments, did not enjoy participation in those revenues.
Chairman Hobbs inquired whether there were further corrections and/or comments concerning the January 10, 2002, meeting minutes, and hearing none, called for a motion.
MR. LEAVITT MOVED TO APPROVE THE MINUTES OF THE JANUARY 10, 2002, MEETING OF THE ADVISORY COMMITTEE TO THE LEGISLATIVE COMMITTEE FOR LOCAL GOVERNMENT TAXES AND FINANCE, CONTINGENT UPON THE REQUESTED CORRECTION.
MR. STOECKINGER SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Discussion and Possible Action Regarding Reports of Work in Progress, Further Direction, and Possible Recommendations for each of the Following Study Areas:
Chairman Hobbs noted that the committee would review all study areas with status reports provided by coordinators of each area, along with possible suggestions regarding recommendations to the Legislative Committee. He opened discussion of Agenda Item III (A).
Item III (A): Intra-county Distribution of the Revenues from Certain Taxes on Motor Fuel – Marvin Leavitt:
Chairman Hobbs pointed
out that the item had been covered in great detail during the earlier meeting
of the Subcommittee to Study the Cost of Maintaining Highways, Roads and
Streets (Road Subcommittee), and unless there was additional information to
impart, the committee would move to Item III (B), with Mr. Leavitt’s
concurrence.
Item III (B): Local Government Tax Distribution Fund – John Sherman:
Mr. Sherman stated that regarding the issue of A.B. 501 and the “pay as you go” component, should it be the consensus of the committee to recommend that the language be repealed, the request should be relatively straightforward. Mr. Sherman noted that in recent conversation with Ms. Ritter, it was agreed that she would address that particular item, since the language in question only created an impact on Elko County.
Regarding the effect on the distribution fund under a deficit scenario relative to changes in A.B. 10, Mr. Sherman advised that he had been in contact with the Department of Taxation, and analysis would be coordinated regarding different methodologies for committee review. Chairman Hobbs agreed that it would be sensible for Ms. Ritter to coordinate the “pay as you go” language exclusion issue in A.B. 501 in the future.
According to Chairman Hobbs, there were additional issues that the committee should begin to consider somewhat aggressively. In review of the issues facing the Governor’s Task Force on Tax Policy in Nevada, created by A.C.R. 1 of the 17th Special Session, Chairman Hobbs noted an overlap with the Advisory Committee under Item III (B), and also under Item III (C). The discussions undertaken by the Task Force thus far had focused on assessing the level of potential deficit or imbalance that might exist in the future between revenues and expenditures under status quo assumptions. In other words, if the state were buying the same level of services in the future, given the expected increase in costs caused by inflation, would there be enough revenue, based on the revenue projections currently under consideration, to sustain that existing level of service in the future. Chairman Hobbs pointed out that the aspect of revenue projection had been somewhat misunderstood by both the public and members of the Task Force, by presuming that the projected number would be inclusive of what some of the needs might be beyond what was currently being funded today. That would enter into a whole different realm of discussion beyond whether or not the state could sustain the existing level of services, and Chairman Hobbs indicated that he wanted to be certain that members of the Advisory Committee and the Legislative Committee, in dealing with those tax matters, absolutely understood the difference.
Chairman Hobbs commented that there would appear to be, as previously discussed by the committee, some imbalance 10 years forward, and that level of imbalance would likely fall in the $200 million to $250 million range, with a large variance surrounding that particular estimate. Per Chairman Hobbs, the estimate was considered to be flexible at the present time, given the fact that a concentrated analysis had yet to be completed in the area of future federal funds, which he felt could cause significant downward movement of that number, along with other areas that would require further research in order to lock that number down. Comments had been made at the last meeting by members of the Advisory Committee that a problem of that magnitude forecast 10 years forward on a budget the size of the state’s General Fund, could likely be dealt with via modification or “tweaking” of some of the existing systems.
According to Chairman Hobbs, in review of the state’s participation in sales tax, property tax, the formula that dealt with education, and various other components of the state budget, it was quite conceivable that 10 years forward, a problem of the magnitude that had been discussed thus far could be dealt with via those types of mechanisms, i.e., changes within existing systems. That was the relevance between state and local government tax distribution funds, which was also heavily dominated by sales tax, and would be at the core of the discussions to level off the status quo budget for the state into the future. Per Chairman Hobbs, committee members should maintain an awareness of that fact, and he indicated the Advisory and Legislative Committees had the capability to become much more active participants in that portion of the dialogue, given the fact that the Advisory Committee was undoubtedly capable of much more sophisticated technical work than the Task Force, not to cast any demeaning comments toward the Task Force. Chairman Hobbs stated that ideas and thoughts, particularly in the area of administration of sales tax as state and local government revenues, would very well warrant the Advisory Committee’s deep involvement in review of those type of opportunities, the computation of assorted values, and actually becoming a “feeder” of that type of information to the Governor’s Task Force.
The issues that Chairman Hobbs felt would be subject to discussion would include the sales tax base itself. The areas of trade concentrated upon by the state, given the sales tax structure, created a very narrow sales tax and as additional explicit exemptions were applied, it would be further narrowed. That narrowing caused the state to be susceptible to certain areas of trade, along with relying on the healthy performance of certain areas of trade, to maintain the level of performance it had enjoyed in the past. Chairman Hobbs noted that if it could be predicted that certain areas of trade would undergo some type of economic leveling off in the future, the prediction could also be made that the state would suffer a leveling off of the flow of revenues from sales tax. On the property tax side, the same issues that caused an effect on the yields of property tax to local governments would also cause an effect on the yields of property tax to state government. Chairman Hobbs pointed out that the committee should be careful about seeming to position local government interests against those of the state, or vice versa. He noted that both entities shared in those revenues and held a common interest in how they performed and in making them more stable in the future, along with a common interest, whenever possible, of increasing the yields and performance in any of those revenue sources, by increasing efficiencies or reducing inefficiencies in the methods of collection
Chairman Hobbs felt there was a strong relevance between the type of issues he was discussing and Item III (B), which dealt with the tax distribution fund. It seemed to him that as the committee moved forward, it would be somewhat shortsighted to worry about the distribution between local governments, and not consider what issues might occur at the state level which could impact the distribution of revenue to local governments more dramatically than differences that might occur between the counties or entities within a county. In that respect, Chairman Hobbs stated it was quite clear to him that all local governments had a common interest in that area. Most members were aware of the issues being considered by the Task Force along those lines, which were the type of issues that the committee needed to take very seriously, but at the same time, the Task Force was attempting to deal with the solving of the problem at the state level. Chairman Hobbs did not think those interests were mutually exclusive, and believed that if the Advisory Committee became more proactive in making suggestions that would assist in dealing with the identified shortfalls thus far, those would be very well received by the Task Force, and would make a significant impact on both processes.
Chairman Hobbs stated he definitely wanted to present the facts to the Advisory Committee, and felt that discussion should be centered on a refinement of focus within some areas in order to pursue the role of information provider to the Governor’s Task Force. To be quite candid, Chairman Hobbs stated, that was a much better position for the Advisory Committee, rather than one of reaction to information that otherwise might come by way of the Governor’s Task Force. He reiterated that the opportunity to provide information to the Task Force certainly existed, and through discussion with Assemblyman David Parks, Chairman of the Legislative Committee, that would seem to be one of his goals as well. Chairman Hobbs noted that in his role as Chair of the Governor’s Task Force, he would also state that as his goal.
According to Chairman Hobbs, he wanted to present the idea to the Advisory Committee for discussion, as he believed that the opportunity existed now, and might not exist two months from now, given the timeline that existed for the Governor’s Task Force; there were issues that the Advisory Committee should discuss that involved strengthening of the sales tax base, along with the issue of property tax.
Mr. Sherman noted that Advisory Committee members had been discussing those issues prior to the start of the meeting, and felt that members recognized, both on the property tax side and to a certain extent on the sales tax side, that there was always upward pressure on rates. Part of the equation included the base, which was the fruitful or beneficial area of review for those two taxes, in order to ascertain whether there were areas that could be changed to alleviate that upward pressure on rates. Mr. Sherman stated that the committee should keep in mind when discussing the economic activities that occurred in the community and were excluded from the base by exemptions, that those activities continued to drive needs for government services. Mr. Sherman indicated he would be willing to add that into the component, and if any adjustments were proposed regarding how the base was defined, the committee should also consider what would be an appropriate adjustment on the current rate side. Such action would guarantee that in going forward, there would not be an abrupt change, and the performance of those revenues would be more in line with the demands for services.
Mr. Alastuey wondered whether, as the committee reviewed the remaining working group reports, and seeing as how the committee had an opportunity and an obligation to provide reports from the study areas to the Legislative Committee, there was a way to include some of the subject matter suggested by Chairman Hobbs along with those reports, so that the Legislative Committee could be cognizant of those subject areas. Perhaps the Advisory Committee could solicit some recognition or dialogue regarding those issues from the Legislative Committee, and Mr. Alastuey felt that Assemblyman Parks, as Chair of the Legislative Committee, would openly accept the opportunity to transmit information to the Task Force. Mr. Alastuey reiterated that perhaps the Advisory Committee should elevate some of the more important issues to the appropriate level. In addition to the broader definition of the tax distribution fund, the activities of the Governor’s Task Force, and the relationship between state and local revenues, were three items under which Mr. Alastuey felt that at least semantically, some information could be transmitted. According to Mr. Alastuey, some aspects of the property tax rates had come under analysis in his jurisdiction along with at least a cursory analysis of the state budget, complimented further by the information from the estimates provided by school finance officers.
According to Mr. Alastuey, it was quite easy to look at the state budget with approximately $1.8 billion in annual appropriations and then realize that from that budget, and closely intertwined with it, was well over $1 billion in sales and property taxes that were state-levied, state-directed, and direct offsets to state appropriations. Perhaps the Advisory Committee could initiate such a discussion as early as the scheduled meeting of the Legislative Committee on March 21, 2002.
Mr. Leavitt concurred with Mr. Alastuey’s recommendation, particularly related to discussion of the areas that could be reviewed, recognizing that no final solutions would be presented to the Legislative Committee, but rather for identification of the areas that would effect what the Task Force perceived as structural deficits built into the system. Mr. Leavitt felt that the issues of property and sales tax almost alone would suffice for resolution of the $250 million imbalance predicted to occur in the state budget in 10 years. The solution could be something as simple as depreciation, exemptions, or slightly changing the base on the sales tax side, et cetera. Mr. Leavitt felt those issues could be discussed with the Legislative Committee at its hearing on March 21, 2002, by indicating of some of the proposed areas without inclusion of firm definition regarding precisely what action should be taken.
Chairman Hobbs believed that would be a very opportune discussion, and very much on point. It would be tremendously wise to proceed in that manner. He concurred with Mr. Alastuey’s suggestion to review the study areas before the Advisory Committee for presentation to the Legislative Committee on their own merits, and after review, discuss additional points relative to those areas that should be highlighted to the Legislative Committee and undertake by way of additional focus analysis.
Mr. Stoeckinger stated that from a macroeconomic standpoint, what would cause an effect on the state, as well as local governments, was e-commerce. During the modeling process that had been discussed, and he was curious as to the delegation over the course of the next six to ten years the state would experience as a result of e-commerce, if the moratorium remained in place, absent a streamlined sales tax.
Carole Vilardo, Nevada Taxpayers Association, opined that the Advisory Committee absolutely must be involved with the Task Force, because, not to cast dispersions on the level of any particular member’s knowledge, one of her concerns from listening to dialogue was that there appeared to be no understanding on the part of most of the committee members of the Task Force regarding the relationship between state and local government. Ms. Vilardo noted that one thing the Advisory Committee had the opportunity to accomplish was to show those relationships and perhaps identify possible trade-offs; she reiterated that she felt it was critical that the Advisory Committee interact with the Task Force.
Chairman Hobbs concurred with Ms. Vilardo’s comments regarding the level of sensitivity that might exist regarding the relationship between state and local revenues, but also felt that when the makeup of the committee was reviewed, the level of sensitivity about southern versus northern issues, or rural versus urban issues, could also be called into question.
Chairman Hobbs then opened discussion regarding item III (C)
Item III (C): Property Tax – Philip Stoeckinger:
Mr. Stoeckinger advised
that he had prepared a packet of information, which was included in Exhibit
A, under tab “Legislative III-C,” along with an additional page entitled,
“Property Tax: Effective Tax Rates,” Exhibit C, for the committee’s
review. Mr. Stoeckinger explained
that the page included in Exhibit A entitled, “Legislative Committee for
Local Government Taxes and Finance - Summary of Issues Relating to $3.64
Property Tax Cap & $.15 State Property Tax Cap,” essentially explained what
type of action could be undertaken within the structure of the $3.64 cap to
change the elements that would potentially provide additional room under that
cap. It also explained the different
type of action that could be undertaken, such as legislation to raise the
amount.
Continuing, Mr.
Stoeckinger explained that the page included in Exhibit A entitled,
“Overlapping Property Tax Rate Breakdown,” included a pie chart relative to the
City of Henderson, which essentially provided a breakdown or idea of what was involved
with an overlapping rate. The chart
depicted that the state’s portion of the property tax was only 5 percent of the
total pie, with the school district realizing approximately 45 percent of the
total, which would be a similar percentage for most cities and/or counties
throughout the state. According to Mr.
Stoeckinger, the pie chart was basically for informational purposes only, to
further the understanding of overlapping tax rates.
Exhibit C contained information provided from the Nevada Taxpayers
Association newsletter of December 2001, and Mr. Stoeckinger felt it was
perhaps the best available information that depicted what had occurred over the
course of a number of years regarding property tax rates. Information contained in the exhibit depicted
actual rate figures from 1978-79 through 2001-02, and provided an idea of what
had occurred, not only in one specific area, but also in a variety of cities
and/or areas. Along those lines, Mr.
Stoeckinger noted that the same information had been included in terms of
assessed valuation, which provided a greater understanding of different aspects
for different areas of the state over a time span of 20 years.
Mr. Stoeckinger further
explained that effective tax rates, when measured, showed what was actually
paid in comparison to the value of the property over a course of time; that
information was also provided for the period from 1978-79 through 2001-02. Those figures depicted what had occurred
historically, and what trends were going forward.
According to Mr.
Stoeckinger, Exhibit C also contained the page entitled, “50-state
Comparison of Effective Tax Rates for Year 2000,” the source of which was the
Minnesota Taxpayers Association. That
document rated Nevada in comparison to other states, based on residential for
both urban and rural, also commercial for rural versus urban, and explained
where Nevada rated in comparison to the national average.
Mr. Stoeckinger explained
that a meeting to discuss property tax issues was held on March 19, 2002, which
he attended along with Ms. Vilardo, Mr. Leavitt, Carson City Assessor Kit
Weaver, representatives from the Department of Taxation, as well as other
interested parties. During that
meeting, it was determined that analysis run by the Department of Taxation
would not be undertaken until an idea was formed by the group regarding the
content of that analysis. Mr.
Stoeckinger stated that one issue discussed was the elimination of depreciation
fully for a home that was 50 years old, with a depreciation factor of 1.5
percent per year up to 50 years, or essentially 75 percent of the replacement
value of the actual structure.
Depreciation completely eliminated for new home valued at $150,000
versus a home that was valued at $150,000 and was 50 years old, would result in
a vastly different outcome. Mr.
Stoeckinger explained that total elimination of depreciation for a home that
was 50 years old would result in the tax bill doubling within a one-year
period. In reality, from an equity
standpoint, that would make no sense, and the study area group would like to
open that issue to discussion by both the Advisory and Legislative Committees,
in order to determine what type of scenarios should be contemplated in the
analysis provided by the Department of Taxation.
Ms. Thomas indicated
that, as a representative of the jurisdiction which had asked Assemblyman
Bernie Anderson to request an opinion from the Legislative Counsel Bureau (LCB)
regarding depreciation, a copy of which was contained in Exhibit A,
under tab “Legislative Item III-G,” it was never the intent to maintain the
same tax rate. One of the attractive
things about the proposal to remove depreciation was that it would restore
equity to the taxing system, and would also provide more capacity toward the
$3.64 rate, which jurisdictions in Washoe County were quickly approaching. Ms. Thomas explained the idea was that the
tax rate would be downward adjusted to create a tax‑neutral position for
the taxpayer prior to the removal of depreciation, which would entail a great
deal of work to accomplish. The
computation typically completed for the maximum operating rate would have to be
recomputed based on values with the removal of depreciation. Ms. Thomas emphasized that the
intention had never been to maintain the same rate.
Mr. Alastuey asked
whether it appeared from the averages contained in the table depicted in Exhibit
C entitled, “50-State Comparison of Effective Tax Rates for Year 2000,”
that many states utilized a split tax roll.
Mr. Stoeckinger stated that, from available information, 23 states
utilized a split roll, which was basically a 50‑50 split. To further clarify the aspect of eliminating
depreciation “cold turkey,” Mr. Stoeckinger did not feel that any member
would entertain that idea, and he had basically used that as an example of what
could happen. When resources from the
Department of Taxation were utilized, hopefully the scope of requested
information could be narrowed down.
Mr. Leavitt felt that one
of the difficulties involved with depreciation and rates was the fact that not
every taxpayer was similarly situated.
For instance, consider a taxpayer at the 25 percent residual versus a
taxpayer with a newly purchased house, and if a change in the rate of 10
percent would produce the same amount of revenue, it would still create a
substantial effect on the taxpayer who owned the house that was fully
depreciated, while amounting to a windfall for the taxpayer who had recently
purchased a home. Mr. Leavitt
indicated that was where the “rub” came, i.e., how to arrive at a degree of
averaging. In a community where the
property was almost fully depreciated, or in a situation such as that in Clark
County where certain parts of the total area consisted of older homes, but the
majority consisted of new housing, the effect of the total assessed value and
revenue derived on a fully‑depreciated community would be minor. Initiating depreciation over a period of
time would help to alleviate some of the impact, but Mr. Leavitt noted it
was a complicated procedure, simply because of the way the rate was
determined. Parts of that were
determined strictly by the Legislature, part was based on debt rates, and the
remaining was determined by the current formula. It was extremely complicated, and any change would affect debt
limits, with great practical impact to the state.
Chairman Hobbs suggested
that the committee migrate into further discussion on depreciation in Item III
(G), since the study areas were closely related. In the future, the Agenda order should place the study areas of
“Property Tax,” and “Real Property Depreciation,” one after the other. Chairman Hobbs asked whether, other than the
depreciation issue, the Advisory Committee should be refocusing itself as to
what the goals or objectives were with a review of property tax related issues,
i.e., was the committee looking at the $3.64 cap. According to Chairman Hobbs, at the Governor’s Task Force level,
one member had requested information from the technical working group regarding
what type of revenue could be generated by elimination of the statutory cap and
taking property taxes to the constitutional cap. Another member had requested information regarding how the state
might better provide for revenue for itself through the utilization of the
split roll. Questioning of the method
of splitting the roll, whether done via the assessment side or the rate side,
resulted in no determination or suggestion being offered by the individuals who
had raised the split roll as a possibility, nor were any specifics provided
regarding the tilting of residential to non-residential property under a split
roll, or whether there should be multiple categories of non-residential types
of properties under some type of split roll scenario.
Chairman Hobbs explained
that the Advisory Committee had the opportunity to evaluate issues and
establish certain parameters surrounding what would be logical to consider and
what would not be as logical. The
frontier was pretty wide open for those type of discussions, and it would make
total sense for the Advisory Committee to feed information to the Task Force
regarding the issues that might make sense under the various categories of
discussion.
Mr. Stoeckinger stated
that depreciation and its effect, and review of vehicles which would
essentially lower the existing limits was one facet of the discussion that took
place at the aforementioned meeting on March 19, 2002, and another issue
reviewed were those vehicles that would provide additional cap room. S.B. 476 had also been discussed,
which was only applicable in counties with a population of 40,000 or less. Mr. Stoeckinger indicated there had
been a very good dialogue in the discussion group, and many of those persons participating
in the meeting were reviewing any and all portions of the current rate, which
included the 15¢ piece, along with the 25¢ piece currently under the Nevada
Plan; it was also determined that any voter tax override would be subject to
review. Another issue under discussion
was the potential of elimination of personal property from the actual cap. Mr. Stoeckinger felt those issues should
also be considered by the Advisory Committee.
Chairman Hobbs stated
those issues had been under discussion for quite some time, and inquired
whether Mr. Stoeckinger felt there was a need to further declare the focus of
the Advisory Committee study areas, and were there other issues that should
also be considered. Mr. Leavitt stated
that since the Advisory Committee was reviewing issues that affected property tax,
he felt the 35 percent should be included, as that would be a fairly easy way
to affect the total statewide without revising any of the other
components. For instance, if the
committee wanted to provide additional money to the state without creating an
effect on any other rates, that could essentially be done via a simple
computation which changed the relationship between taxable value and assessed
value. Mr. Leavitt felt that might
result in far-reaching implications, however, would be possible and would
create a more equal effect than depreciation.
One other thing that was discussed at the meeting of March 19 was the
effect caused by an attempt to eliminate depreciation over a period of time. The current rate was 1.5 percent, and if the
rate of 1.3 percent were applied the next year to all property, with
incremental decreases each year thereafter, depreciation would be completely
eliminated over a period of eight to ten years. Mr. Leavitt noted that discussion had also been held regarding
the Department of Taxation compiling a simple schedule that would depict the
aforementioned decrease.
Mr. Sherman indicated
that such a schedule should not only include the incremental addition from
year-to-year, but should also consider the accumulated depreciation already in
effect. Mr. Leavitt stated the legal
opinion advised that the accumulated percentage could not be maintained while
going forward using a different percentage, so the same percentage would have
to be applied overall. The question surrounded
what the effect would be for each year the same percent was used. Currently, the percentage was 0.2 and if a
property was depreciated for a full 50 years at 0.2 percent per year, it would
amount to approximately 10 percent. If
the replacement cost increased approximately 3 percent, that would impact a
certain group of persons who owned homes that were fully depreciated, which
would be the most severe case scenario, with taxes potentially increasing
approximately 13 percent per year every year for 9 years to eliminate
depreciation. Mr. Leavitt stated that
aspect had been discussed during the aforementioned meeting of March 19, for
presentation to the Legislative Committee in order to ascertain whether it was
felt that the Legislature would be willing to assume some political risk to
accomplish depreciation. Obviously, the
procedure could be extended over a longer period of time or it could be done so
that some depreciation remained; there were many alternatives available and Mr.
Leavitt noted that the outcome would be very different, depending on the age of
the home.
Mr. Alastuey referenced
the opinion contained in Exhibit A under the tab “Legislative Item
III-G,” which made reference to case law that outlined the permissibility of a
conversion period if the eventual goal was some sort of equity or fairness,
which was the latter of the two scenarios that were considered in the
opinion. Mr. Alastuey asked how long a
period might be permissible, i.e., achievement of the eventual goal in five
years, ten years, et cetera, and was there any guidance in the case law that
would stipulate that time frame.
Electing to respond was
William Keane, Principle Deputy Legislative Counsel, LCB, who stated that as he
understood the question, Mr. Alastuey was asking whether there was a set period
of time for the phase-out or phase period for change, and the answer was that
the length of time did not matter, but rather what would matter was how people
were treated during that time.
Mr. Leavitt stated that
essentially the committee could consider 0.1 percent per year over a period of
15 years, which was the amount of time it would require, and while that would
reduce the effect, it would also reduce the potential benefit in the early
years. Perhaps something like that
would be the only way to approach the issue in a way that would not place such
a huge burden on individual taxpayers.
Chairman Hobbs noted that
the issues addressed during the proceeding discussion surrounded Item III (G),
and he felt Ms. Thomas should proceed with her presentation regarding that
study area as the next order of business.
The committee could then return and bring some focus to the property tax
study area, coordinated by Mr. Stoeckinger, and provide the appropriate
guidance as to the specific types of analytical work that should be undertaken
toward recommendations for presentation to the Legislative Committee.
Item III (G): Real Property Depreciation – Terri Thomas:
*Legal
Opinion – Wil Keane, Principal Deputy Legislative Counsel
Ms. Thomas stated that she understood the complexity of the issue and recognized that it would be a very difficult problem. As previously noted, Ms. Thomas explained that Reno, Sparks, and Washoe County had currently retained a consultant and it was hoped that analysis would be underway shortly within the respective jurisdictions to ascertain just what type of profile existed in the communities in terms of depreciation and how those impacts were being felt. Mr. Thomas indicated she would like the Advisory Committee to discuss the process that would be used to select various jurisdictions around the state that had differing age characteristics. The committee should also discuss how direction might be developed for the Department of Taxation, Division of Assessment, to work with the various county treasurers in the selected areas in an effort to commence gathering data and create a methodology regarding how that information would be prepared and presented. Ms. Thomas felt the data that would be compiled by the aforementioned consultant would be very valid, but also felt that one of the keys to the problem would be selecting the appropriate communities for review; she invited the committee to make suggestions along those lines.
Ms. Ritter suggested contact with the Division of Assessment Standards to determine which assessors in the rural communities had the ability and the technical wherewithal to split the depreciation out, because the assessors were at different levels of technology. That fact might limit the selection of model communities based on the capabilities. Chairman Hobbs concurred with that concept, and thought the study area should look for specific characteristics for a broad overview of the situation, and perhaps at least a description of those characteristics could be provided to the division. Ms. Thomas indicated that the Advisory Committee was in the position to select communities that should be representative of the type of data it sought, so perhaps if a list were created, the committee could request that the Division of Assessment Standards check with the county assessors to ensure that the potential for available data existed before the committee delved into an analysis.
Chairman Hobbs indicated that the depreciation issue could be considered as a part of a package of potential remedies for the state’s long-term imbalance between revenues and expenditures, and felt that would be a very strong forum for augmenting whatever discussions took place within the Governor’s Task Force and the Legislative Committee. Chairman Hobbs explained that given the comparatively short timeline placed on the Task Force, if information was available for discussion during the month of May, it would place the Task Force a reasonably good position. He indicated it had been his suggested approach with the Governor’s Task Force to initially identify a baseline imbalance and then identify baseline solutions for those imbalances. Beyond that, the Task Force would be hearing from and identifying other areas of perceived shortfall that the state might suffer 10 years into the future in the areas of K-12 education, higher education, and long-term care most specifically, which would drive the numbers upward from the current standing. Chairman Hobbs noted that the Task Force was attempting to match baseline problems and baseline solutions, and he believed that depreciation could play at least a partial role in a solution at the state level.
Mr. Leavitt remarked that he could envision a couple of different scenarios surrounding the issue of depreciation. Should the Task Force review depreciation as a method of raising revenue, on a practical basis, that would involve three or four counties raising the majority of the revenue for the state. Depreciation as a factor relative to rural health would include all the counties in the state. Initially, for the purpose of the Task Force, the larger counties, which were more efficient in the accumulation of data, should be reviewed, in order to determine the percentage of revenue available to the state. Mr. Leavitt opined that the state should pick up 75 to 80 percent or more of the total revenue available to it. In essence, a review of depreciation on a statewide basis would differ from a review for the purpose of rural health. Also, Mr. Leavitt felt that relative to rural health, the committee should keep in mind that the counties were very different, and included rural counties where centrally assessed property made up a substantial portion of the total assessed value. The effect of eliminating depreciation in those counties could be significantly different than the effect felt in other counties.
Mr. Leavitt stated the committee should pick counties that, (1) had a high percentage of centrally assessed property; (2) had a heavy percentage of mining property, which had a rapid depreciation on personal property, as well as the net proceeds of mines, which figured into the whole property tax picture; (3) had a combination of other factors, i.e., slow growth counties; and, (4) comprised the four larger counties in the state. Perhaps that mix would work for examination by the committee, recognizing that it needed to conduct some preliminary work with the larger counties first.
Chairman Hobbs concurred with Mr. Leavitt’s remarks, and asked whether analytical capacity existed at the present time, given budget preparation, and limitations on time for the Department of Taxation, et cetera, to conduct that selection and analysis in a timely manner, in order to utilize the information in conjunction with the Governor’s Task Force at the most opportune time.
Mr. Leavitt supposed that a substantial amount of the work regarding depreciation would revolve around the county assessors in those counties selected. According to Mr. Leavitt, the Clark County Assessor had advised that his office had the ability to run the numbers and determine the level of depreciation, and hopefully, that would be the case in the four larger counties. For the smaller counties, however, it was unsure whether they could comply with such a request. Chairman Hobbs suggested that since there was a great deal of overlap between the areas, perhaps Mr. Stoeckinger could provide assistance to Ms. Thomas in an attempt to discover what type of data might already exist and the turnaround time involved in securing that data in order to make the most use of the timing issues.
Mr. Leavitt advised that Chuck Chinnock, Deputy Director, Department of Taxation, would like to address the committee. Mr. Chinnock explained that the various counties were spring-loaded to provide information and, in fact, the department was already in possession of a fair amount of information. The department was waiting for specific guidance regarding the options; he noted it would be just as easy for the counties to provide information regarding several options as opposed one option with a request at a later date for additional information. Mr. Chinnock indicated the department would approach the county assessors and over a period time collect the information needed by the committee. As for timing, he felt 60 days might be a fair period of time for compilation of the data, and explained that a shorter time frame might result in difficulties in the smaller counties where some computations might be completed by hand. Issues other than the effect of depreciation might include a review of the effect of market value, being the upper limit of value, in the smaller counties.
Chairman Hobbs noted that 60 days would be sufficient to make the best use of the timing opportunities. He felt it would make sense to appoint a subcommittee that would include Mr. Stoeckinger, Ms. Thomas, and other interested members of the Advisory Committee, to develop those alternatives. Chairman Hobbs agreed that it would be better for the counties to make one pass with different sets of assumptions in running the data.
Mr. Leavitt stated that another issue discussed at the aforementioned meeting on March 19, 2002, which fit into the present discussion, was the fact that at the current time there was a provision in the law which stated that when taxable value was determined, it could not exceed the full cash value of the property. The kicker was that because of the current method of determining depreciation, there were very few cases where an older residence would see its full cash value, because it would be depreciated out. However, if depreciation were mostly eliminated, and the replacement cost of an older home was computed without subtracting depreciation, Mr. Leavitt felt it would exceed full cash value. Should that be the case, then that would provide an additional burden to the assessors, as they would be required to determine whether there was an excess, or to let it run through the equalization process, which would incur a huge equalization burden. Mr. Leavitt stated the committee should also solicit the opinion of the assessors regarding the amount of depreciation that could be eliminated before full cash value was exceeded on older residences.
Chairman Hobbs noted that the same concern had been voiced by the Clark County Assessor, along with the quantifications to back it up, however, he wondered whether that should dissuade the committee from moving forward with the evaluation. It was simply another limit the committee would have to consider as it moved toward an eventual recommendation in the area of depreciation. With that in mind, Chairman Hobbs asked if there were other members who would like to participate in the subcommittee that would define some of the parameters for the analysis. Mr. Leavitt volunteered to be a member. Mr. Pursell stated the department would also be involved in that subcommittee; Chairman Hobbs concurred.
Chairman Hobbs indicated that the committee would consider Item III (D) as its next order of business.
Item III (D): Tax Impacts of Deregulation and Centrally Assessed Property – Linda Ritter:
*Legal Opinion - Wil Keane, Principal Deputy Legislative Counsel and Kim Guinasso, Principal Deputy Legislative Counsel
Ms. Ritter indicated that a legal opinion had been issued regarding the way utilities might be assessed if pieces of that utility were owned by different parties. She pointed out that the Department of Taxation had provided additional information regarding central assessments, along with what was included in those central assessments, Exhibit D. Centrally assessed properties were not all electric utility, and could be split into airlines, electric, gas and pipeline, railroad, telecommunications, and in some cases, water. By way of example, Ms. Ritter explained that 45 percent of the total assessed valuation for Lincoln County was centrally assessed, with 10 percent of the total assessed value based on electric utility. The impact of any changes might be smaller when reviewed by centrally assessed properties, which Ms. Ritter felt the committee should keep in mind. According to Ms. Ritter, the information contained in Exhibit D would also be available on the Department of Taxation’s website, and would be located in the same area as the other reports produced for the committee.
Mr. Keane conveyed that at the January 11, 2002, meeting of the Legislative Committee, Chairman Parks asked the Legal Division of the LCB to review subsection 5 of NRS 361.320. Chairman Parks asked two questions, the first regarding whether it was constitutional, and the second regarding how that subsection operated with regard to power brokers. Mr. Keane explained that regarding the constitutionality issue, NRS 361.320 provided for the central assessment and mile-unit apportionment of various listed industries and that companies within those industries would be centrally assessed and have mile-unit apportionment if they were of a multi-county or multi-state nature. Some of the industries listed were the railroad industry, the natural gas transmission industry and, significantly, the electric power companies.
Per Mr. Keane, subsection 5 modified the operation of NRS 361.320 with regard to electric companies only. It provided that an electric company that was located wholly within one county, and otherwise would not be centrally assessed under the general rule of NRS 361.320, would actually be centrally assessed if it were part of an inter-county or inter-state system. That whole system would then be centrally assessed and its value mile-unit apportioned for taxation purposes. Mr. Keane stated review of legislative history indicated that the subsection was enacted with a view toward deregulation, and the intent was to maintain the current tax distribution if the major utilities, which were multi-county for the most part, were broken up into many smaller companies.
The Nevada Supreme Court had not addressed subsection 5 of NRS 361.320 specifically, however, Mr. Keane indicated that the Legal Division concluded that it would likely find subsection 5 to be constitutional. Two issues were addressed in the opinion of March 19, 2002, Exhibit E. First, it was noted that, quite obviously on its face, subsection 5 provided different methods of assessment for different companies, not only between electric companies versus other kinds of centrally assessed companies, but also as represented by the last sentence of subsection 5, it treated companies that had qualified facilities differently than other electric companies.
In the end, explained Mr. Keane, it was determined that such action was acceptable, because the Nevada Supreme Court had specifically approved central assessment, had specifically approved the mile-unit apportionment method, and the court approved it in context where it was applied to some companies and not others. As stated by the Supreme Court, the method of assessing did not have to be the same; the key, of course, was the requirement for uniform rates.
The second issue addressed was the “gut” notion that it seemed odd for an entity to potentially pay tax in a county where it did not maintain physically located property. Mr. Keane stated that in review of the power of the Legislature to assign the tax situs for all property, the Legal Division felt it was likely that the Nevada Supreme Court would find that the Legislature had the power to assign the tax situs that was not identical to the actual physical situs of the property. According to Mr. Keane, after addressing those two issues, it was determined likely that the Nevada Supreme Court would find subsection 5 to be constitutional.
Kim Marsh Guinasso, Principal Deputy Legislative Counsel, Legal Division, LCB, explained that the second part of the question surrounded the affect subsection 5 would have under a broken up scenario, where brokers of electricity were conducting activities. The opinion of March 19, 2002, Exhibit F, contained a simple, hypothetical situation where a former inter-county electric utility subject to central assessment was broken up into basically three components where one person owned the generating facility, one person owning the transmission lines, and a third person owning the distribution facility. Ms. Guinasso explained that added to the scenario were the activities of electricity brokers, who owned none of the physical property, but were, nevertheless, possibly purchasing a certain quantity of electricity from the generating facility, after reaching an agreement with the owner of the transmission lines and the distribution facility, for distribution to the final customer.
Essentially, stated Ms. Guinasso, the problem was that the power broker in that scenario did not own any of the physical property that was part of the electric utility. Subsection 2 of NRS 361.320, which set forth the process by which property was centrally assessed, stated, “…the commission shall establish and fix the valuation of all physical property used directly in the operation of any such business of any such company in this state, as a collective unit.” With that in mind, Ms. Guinasso stated, obviously there would be a problem in a situation where the broker did not own any of the physical property. Specifically, what was reviewed in the opinion (Exhibit F) was whether the state was in a situation where the income approach was being utilized in the assessment of property. Ms. Guinasso noted that the opinion explained that concept in some detail, however, she was unsure whether that would make any difference in terms of what approach would be used in valuing the system.
Per Ms. Guinasso, the broker ultimately would not own any of the physical property of the system, so even though there was a situation where one company owned the entire system in the past, the potential existed where three different entities could own the properties of the utility in question. Ms. Guinasso stated the only way that could be included in the evaluation of such a system under the income approach, would be via the activities of the broker, in that the broker would pay a certain amount to the generating facility for the quantity of electricity, or the broker would pay a fee to the owner of the transmission line. Obviously, that would be included in the determination of the income of the utility; the broker’s income, received as a result of brokering the deals, could not be included.
Mr. Leavitt stated if there was a situation involving two companies, one that owned the plant and the other that owned the distribution lines, but the same company marketed to the ultimate consumer, in determining the valuation of the total electrical plant, would the profit on the ultimate sale to the consumer be attributed as income in determination of the value of the plant, as opposed to a situation where a broker that did not own any property was involved in the ultimate sale. Ms. Guinasso commented that it should be kept in mind that the taxable value, pursuant to subsection 4 of NRS 361.320, might never exceed the cost of replacement, less depreciation, and conceivably that could be the case. The concern was that should consideration be given to not exceeding the cost of replacement less depreciation, the problem of the broker who did not own property would remain, where there could be no replacement cost less depreciation factor involved. But, the owner of the transmission lines or distribution facility who was marketing to the final user would have physical property on which replacement cost less depreciation could be applied. Ms. Guinasso explained that in terms of “possible lost revenue” because of the activities of electricity brokers, there was no constitutional prohibition against an income tax on businesses or corporations. In the opinion of the Legal Division, it would be conceivable that there could be a tax on the gross revenue from those types of activities.
Mr. Leavitt assumed that, given the possibility of the ultimate electricity being sold by the person who owned the plant or sold by a broker, a fee could be charged on electricity sold, and not just limited to that sold by a broker. If the plant owner could be charged property tax based on his income from sales that would encourage him to utilize the services of a broker, which would be cheaper. Visa versa, if the broker were charged an income tax rather than the utility, it would put the utility at the advantage. Mr. Leavitt felt the process should be consistent on a practical basis, along with the legal basis, or by the very tax structure, would encourage one or the other to do both.
Ms. Ritter indicated since the legal opinion had been received regarding the issue, she would work with the Department of Taxation to provide information to the committee regarding the potential impact on centrally assessed properties, and would further study the broker issue. Ms. Ritter concurred with the aforementioned remarks regarding a possible tax on gross income from sales levied against brokers, as that would create an unleveled playing field.
Chairman Hobbs thanked Mr. Keane and Ms. Guinasso for the tremendous amount of work conducted in the area of depreciation, which would assist the committee in a better understanding of the issues. With no further comments on Item III (D), Chairman Hobbs opened discussion on Item III (E).
Item III (E): Impacts of the 9-11-01 (World Trade Center) attacks – Guy Hobbs:
Chairman Hobbs explained that Item III (E) was an ongoing informational item. Obviously, as time progressed, the impact of the attacks would continue to be felt, and the amount of information available that specifically focused on those attacks, other than those reports available from the Department of Taxation and from the state relative to gaming and the flow of other tax revenues, was somewhat limited. Chairman Hobbs stated that, given the fact that the aforementioned reports were available on a monthly basis, he questioned whether the item should continue to be placed on the agenda, unless there was specific information beyond the normal revenue reports that would be of interest to the committee. That information could be shared without a specific agenda item as well because, in all likelihood, the committee would not take action on the item, but simply use it as information to season its views on other matters it was dealing with.
Chairman Hobbs opened discussion on Item III (F).
Item III (F): Fiscal Health of School Districts – Rick Kester:
Mr. Leavitt advised the committee that because of the press of other duties, Mr. Kester had resigned his membership from the committee, and it would no longer enjoy the benefit of his services. According to Mr. Leavitt, Kevin Welsh, Deputy Fiscal Analyst, LCB, had written a letter requesting that the School Board Association appoint another representative in place of Mr. Kester.
Chairman Hobbs indicated that he was aware of Mr. Kester’s resignation, and noted that all members understood what it was like to have other pressing responsibilities. He stated the committee, as a group, would like to express its sincere appreciation to Mr. Kester for his participation, and hoped that at some point in time, his duties would be such that he could rejoin the committee and continue his valuable contributions. The committee would await action by the School Board Association in assignment of a replacement, who would act as coordinator of Item III (F).
The next item for consideration was Item III (H).
Item III (H): Tax Increment Financing – Guy Hobbs:
According to Chairman Hobbs, he would converse with Ms. Ritter relative to the components of tax increment financing that dealt with economic development, in addition to components that initially prompted the item, i.e., to provide an alternative financing vehicle under certain circumstances. In addition to that, if it met with the Advisory Committee’s approval, Chairman Hobbs would bring Ms. Vilardo of the Nevada Taxpayers Association, into the discussions for any dovetailing that was needed concerning existing redevelopment law. Chairman Hobbs reported that he had conducted some research in an attempt to determine the problematic areas of the BDR submitted to the 2001 Legislature. Discussions had been undertaken on the day the BDR was heard during the 2001 session, to actually identify the problem areas, and also identify remedies to those technical problems. Chairman Hobbs did not feel it would take much time, following discussion with Ms. Ritter and Ms. Vilardo, to create a BDR for the committee’s review in advance of the next meeting, hopefully within the next two weeks.
With no further questions forthcoming, Chairman Hobbs opened Item III (I)
Item III (I): Fiscal Health of Rural Local Governments – Bruce Brooks:
Mr. Leavitt reported that Mr. Brooks was not present at the hearing, and noted that the committee had held past discussion regarding the possibility of a visit to rural areas. Mr. Welsh had been in consultation with the Nevada Association of Counties (NACO) and the League of Cities, and suggested that he present information to the committee.
Chairman Hobbs concurred and indicated that the committee would discuss information regarding the possible fiscal tour of rural Nevada in context with Item III (I).
Mr. Welsh explained at the time the former interim committee was dealing with changes to the first tier formula of the motor vehicle fuel tax, there was much dissention and misinformation received regarding the rural areas. That prompted the committee to take a trip to several rural areas, to visit with local government officials and residents of those areas. The trip resulted in:
1. A chance for legislators and advisory members that were not familiar with rural Nevada to “put a face” on the problem.
2. Dialogue with rural residents which clarified much of the misinformation and the problems in communication.
3. A chance for rural residents to express concerns and discuss them with the committee.
According to Mr. Welsh, the comfort level with rural elected officials and residents rose significantly in terms of the role the committee would play. Consequently, several members of the current committee had expressed an interest in a tour of rural Nevada. Mr. Welsh stated he had contacted representatives of NACO and the Nevada League of Cities to ascertain which areas would be most beneficial to visit, and the following were selected:
§ Winnemucca, Humboldt County;
§ Pioche, Lincoln County;
§ Hawthorne, Mineral County; and,
§ Lovelock, Pershing County.
Mr. Welsh further advised that he was in receipt of a letter dated March 19, 2002, from the Lander County Board of Commissioners, expressing a desire that the committee include Lander County in its rural tour (Exhibit G). The committee first needed to decide if there was enough interest to undertake a rural tour, and Mr. Welsh indicated once he was aware of the number of members that would like to be included in the tour, the dates for that tour would then be selected. He felt the trip to rural areas in northern Nevada would require two days, with a one-day trip required for rural areas in southern Nevada. Mr. Welsh advised that he would first solicit input from members regarding interest in participation in the tour, whereupon he would coordinate the dates and transportation.
Chairman Hobbs inquired whether the tour would be largely driven by the schedules of the Legislative Committee members. Mr. Welsh acknowledged that only one legislator had expressed interest in participating in the tour, however, he would address the members of the Legislative Committee at the hearing on March 21, 2002. Chairman Hobbs stated he was under the assumption that the origin of the request had been at the Legislative Committee level. Mr. Welsh concurred, and should other Legislators express an interest, the dates for the tour would be driven by their schedules. Chairman Hobbs suggested that members of the Advisory Committee contact Mr. Welsh regarding their interest and availability, and inquired whether there was a particular time frame under consideration. Mr. Welsh replied that he would have a better idea of the time frame for the tour after discussion with the Legislative Committee on March 21, 2002. Chairman Hobbs noted that it would be an extraordinarily valuable trip, no matter what the timing, and advised that he was familiar with some of the entities and the problems they were experiencing. He felt it really would make a difference to see the situation firsthand rather than hearing about problems occasionally during meetings.
Chairman Hobbs opened discussion on Item III (J).
Item III (J): Relationship Between State and Local Revenue Sources – Janet Murphy:
Ms. Murphy presented a
spreadsheet to the committee, which depicted state tax revenues and city/county
tax revenues, Exhibit H. At the
January 10, 2002, meeting of the Advisory Committee, Mr. Leavitt requested the
following information:
§
How rapidly the mix
grew in each entity between the state and local revenue sources;
§
How it grew in
relation to economic activity;
§
What happened when a
slowdown occurred in the economy:
§
The stability of the
mix;
§
Was the mix equal
between state and local governments; and,
§
The effect of the
school district situation on the mix of revenues.
According to Ms. Murphy,
Chairman Hobbs had also requested information regarding the resource dependency
of the different entities. The pie
chart on the first page of the exhibit depicted the state revenues and
appropriations, and the second page depicted the participating counties and
cities within those counties. The percentages
on the second page were depicted in columns entitled: (1) “property tax,” which
was a local tax; (2) “licenses & permits,” which was a local tax; (3)
“CTX,” which was a state tax; (4) “other,” which was a state revenue and
could include grants, gaming revenues, et cetera; (5) “charges for
services,” such as clerk recorders; (6) “fines and forfeits;” (7) “misc.,”
which depicted interest; and, (8) “other financing sources,” which depicted
loans and fixed assets.
Ms. Murphy further
explained that school revenues were depicted on the first page of Exhibit H,
with the following columns: (1) “Local %,” which included the 25¢ property tax
and the local school support tax (LSST); (2) “State %,” which included the
Distributive School Account (DSA) and per cost of student; (3) “Federal %,”
which included grants; (4) “Transfers %,” which was the transfer from one fund
to another; (5) “Other %;” and, (6) “Population count,” which depicted
enrollment. Ms. Murphy noted that
population had not been computed for counties and cities. In comparison, she felt the breakdown was
fifty-fifty as far as dependency on local and state revenues, and for counties
and cities, the dependency appeared to be on the CTX
Per Ms. Murphy, the
exhibit covered a period of four years, 1997 through 2000, in order to
determine whether there had been an increase or decrease, and resources
received by most entities appeared to be quite stable. There had been a consistent increase, albeit
not a large increase, however, it had been quite stable and accurate. Ms. Murphy indicated that the same
information had apparently been compiled for the Governor’s Task Force. Information regarding expenditures was available,
however, not in the spreadsheet format; Ms. Murphy felt that expenditures should
also be reviewed.
Chairman Hobbs stated
that the committee needed to make a determination regarding the direction for
that study area, and he felt the relevance could be attributed to earlier
comments surrounding the relationship of state revenue to local revenue and
vice versa. The task might require
redefinition or perhaps it could be folded into a broader issue, i.e., the
relationship of the Advisory Committee to the Governor’s Task Force and the
direction in which it was heading in terms of dealing with state issues that
could have a consequential impact on local issues, if done in a myopic
fashion. Chairman Hobbs solicited
comments from members regarding the direction of the study area beyond the
informational phase. He did believe it
was a study area that could ultimately be melded into a broader perspective as
far as the direction in which the state’s tax policy might be headed in the
future, and the resultant impacts on local tax policy.
Mr. Alastuey indicated
that as the committee prepared to discuss study area subject matter with the
Legislative Committee on March 21, 2002, it should attempt to articulate what
the nature of that presentation might entail.
On one hand, Exhibit H enabled persons to see at a glance the
percentage of revenues by source, and one thing that Mr. Alastuey felt had
to play into the presentation to the Legislative Committee as far as tax
policy, was that in addition to the source, perhaps the authority for the
source should also be addressed. For
example, local school support sales tax appeared in the exhibit as local
revenue within the school system, but was actually levied by the state in a
direct offset to state expenditures.
Mr. Alastuey commented that there were at least a couple of dimensions
that the Advisory Committee might share with the Legislative Committee, and he
wondered about the format in which to present that information. One method would be to take the state
revenues and compliment them with the school property and school sales tax,
since the school system was a state responsibility, i.e., if the latter two
named taxes did not materialize, it would create a state responsibility, and
should the taxes materialize over expectations, it would create a state
windfall. Those taxes could be included
in a different pie chart, one that would reflect the entirety of the state
responsibility and the entirety of the state revenues that were available to
the Legislature in its effort to balance the budget. Mr. Alastuey explained that he threw that out as a fodder for
discussion.
Chairman Hobbs agreed
that was a point which continued to be emphasized by the Advisory Committee,
and he felt a recasting of the pie chart to take into account the locally
generated revenues that offset the state responsibilities would be an
appropriate demonstration to provide to the Legislative Committee. The exhibit included some very interesting
statistics regarding the split of state and local funding sources for school
revenue. Chairman Hobbs felt that
recasting the pie chart would be very honest and very revealing, because
certain revenue sources were oftentimes miscast regarding the role played in
the overall funding of certain areas, and recasting the chart would help bring
that back into perspective. Mr.
Alastuey volunteered to assist Ms. Murphy in preparation of information to be
presented to the Legislative Committee.
The next item for
committee discussion was Item III (K).
Item III (K): State Fuel Tax Policy – Terri Thomas:
Ms. Thomas stated that in
the intervening time frame since the January 10, 2002, meeting of the Advisory
Committee, there had not been a great deal of activity regarding the study
area, partly because of the lack of data available regarding the type of
alternatively-fueled vehicles that were currently operational. The lack of that information certainly
stunted efforts to address that avenue.
According to Ms. Thomas,
her local Regional Transportation Commission (RTC) had weighed in with some new
initiatives that it planned to proceed with.
One of those was the indexing issue, which all members agreed should be
reviewed, and another included the notion that alternative taxes needed to be
reviewed as well. Ms. Thomas indicated
that aside from that, she did not have much more to offer, and advised that she
had been in contact with other individuals in the state who had expressed an
interest in the state fuel tax policy study area. Ms. Thomas reiterated that she still suffered some degree of
“heartburn” regarding whether the issue was appropriate for consideration by a
committee of local government finance technical advisors, given that local
governments did not participate in a goodly portion of the fuel tax revenue.
Chairman Hobbs concurred
that it seemed one of the issues receiving a fair amount of discussion because
of initiatives in Clark and Washoe Counties was the indexing issue, which had
also been raised at the Task Force level, notwithstanding the fact that it was
not a state General Fund issue.
Chairman Hobbs opened
discussion on Item III (L).
Item III (L): Governor’s Task Force (ACR 1) – Linda Ritter:
Ms. Ritter indicated she
would recap some issues she viewed as overlapping between the Task Force and
the Advisory and Legislative Committees, which included the sales tax issue and
review of exemptions currently in existence, as well as the base for sales tax,
i.e., what was taxed. Property tax
depreciation was another issue Ms. Ritter felt was an important factor and was
clearly an overlapping issue. The split
roll had been discussed, and Ms. Ritter was unsure whether the Advisory
Committee wanted to delve into that issue, but it would certainly have
application; the Task Force was reviewing the split roll. Continuing, Mr. Ritter noted that the tax
cap would create somewhat of an effect, should the Task Force decide to
consider property taxes by placing some entities outside that cap, which would
usually be the entity at the lowest level that would be required to cut back,
i.e., towns and cities.
According to Ms. Ritter,
the relationship between state and local taxes and the authority to levy taxes,
as well as the result of that levy, definitely would be an overlapping issue,
along with the fuel tax policy and indexing.
She noted that indexing was becoming a keen issue as budgets were
completed by local government entities, and it was found that the gas tax
dollars purchased less and less each year.
Ms. Ritter felt that was a very important issue to local government
entities, as well as the state.
Ms. Ritter indicated that
the technical working group met on March 7, 2002, and discussed creation of a
profile of existing taxes. The Task
Force had before it a laundry list of different taxes for possible
consideration, and it was suggested that a profile for those taxes be created. That profile would delineate the amount that
could be generated, the responsiveness of those taxes to growth, and would also
define which entity would bear the burdens for those taxes, so that when the
Task Force began review of the mix of possible revenues to address the
projected deficits, the information would be readily available. Ms. Ritter explained that the volumes of
data and information which had been generated by the technical working group of
the Task Force were available on the Internet, and she would encourage persons
to review that information.
Chairman Hobbs stated
that he would recap where the Task Force was at the present time, and where it
might be headed regarding some specific areas of discussion. The first two or three meetings of the Task
Force focused on problem assessment around a baseline level, as previously
discussed, and it had entered into a phase beyond the baseline level, where it
was gathering information from the Department of Education, school districts,
the Nevada State Education Association (NSEA), and other interested parties
regarding the appropriate level of education spending in the future. Chairman Hobbs noted that review of A.C.R.
1 indicated that was basically the information the Task Force had been directed
to solicit from various groups, i.e., what the recommended levels of public
spending should be in the education area, as well as in the area of long‑term
care.
Per Chairman Hobbs, to
give the Advisory Committee a sense of what those numbers could look like, if
it was accepted that Nevada spent $1,000 less per pupil than the national
average, and if a simple multiplication of the number of enrolled students in
the state was conducted, the result in current dollars would be an additional
appropriation of approximately $340 million to $350 million to bring Nevada up
to the national average. Chairman Hobbs
explained that there was much dialogue surrounding the appropriateness of the
use of the $1,000 figure in aspiring toward the average, along with exactly how
the additional appropriations would be expended. There was also some concern regarding whether that amount would
cover all of the needs that were identified by interested parties. For example, the NSEA might see fit to spend
the $1,000 somewhat differently than the Department of Education or individual
school districts between programs, salaries, and other uses. Chairman Hobbs stated that would only serve
to drive the number up somewhat higher, and he did not believe that the $1,000
value should necessarily be the focus of the Task Force.
Per Chairman Hobbs, there
were programs throughout the state that should be reviewed, i.e., student
retention and dropout rates, to determine what should be done in those areas,
the cost, and what a realistic outcome might be over a determined period of
time. Chairman Hobbs explained that
information would be built incrementally in review of each program, for
example, if the state suffered low test scores in the eighth grade in one area
of proficiency, a determination would be made regarding the appropriate action
necessary to attain an acceptable level of improvement, along with an
appropriate time frame. In his
judgment, it would be too easy and too emotional to look at the
$1,000 value alone and presume it would accomplish all of the programmatic
needs that were expressed as concerns or shortfalls within current state
procedures. Chairman Hobbs indicated he
was hopeful that individual programs could be reviewed, with a view toward
building a solution from that aspect, rather than simply accepting that
$1,000 would get the state where it wanted to be for all time. That was part of the battle the Task Force
was experiencing in discussions regarding how to better focus and frame the
dialogue beyond the baseline values.
Chairman Hobbs explained
that the Task Force had also been utilizing the 10-year forward forecast,
notwithstanding the fact that it took a little “jabbing” from other members of
the Task Force regarding how reliable 10-year forecasts were, and it was noted
that those forecasts were extremely useful in predicting revenue levels. Part of the use of a 10-year projection was
to allow for other things to enter into the dialogue as a possible component of
solutions in the future, other than things that could simply be accomplished
via a single BDR submitted at the next session of the Legislature. As everyone would probably agree, the
point at which the state found itself, assuming it was laden with the type of
problems that were described, had taken many years to reach and, realistically,
it would take any number of years to unwind and change direction, with mindset
toward something other than currently available solutions.
Chairman Hobbs noted that
the previous discussion regarding depreciation suggested that it would be many
years in the making, and would only potentially attribute a small fraction of
the solution. The same discussion had
to occur regarding sales tax and, certainly, with the implementation of other
taxes as well.
According to Chairman
Hobbs, that explained the direction in which the Task Force was attempting to
move, and even though just about every revenue source was mentioned as a
possible area of study by the various members of the Task Force to deal with
the state’s problems, the ones that seemed to have the most momentum behind
them by virtue of a sponsor or advocate, would be a tax on gross receipts of
all businesses other than mining, gaming, and insurance, which arguably had
such a tax in place at the present time, or alternatively, a net profits
tax. Chairman Hobbs explained that he
was not endorsing either solution, and was only providing information to the
Advisory Committee.
Chairman Hobbs disclosed
that the concept of a lottery had arisen, and attracted a substantial amount of
attention, simply because of the interesting nature surrounding the discussions
that emanated from that concept.
Chairman Hobbs stated the idea was originally suggested by one of the
representatives from the gaming industry, which made it all the more intriguing
for discussion. Ad valorem taxes had
also been discussed, anything from split roll to raising the overall level of
taxation. One pro-higher education
group had contacted the Task Force, however, had not yet come before it, and suggested
a doubling of what that group termed the “state” tax rate, i.e., the 15¢
portion and, obviously, that portrayal met with some disagreement from
members. Chairman Hobbs noted that it
was not a great concern to the pro-higher education group whether that would
remain within the existing cap of other entities that currently levied part of
the tax, or whether it would be added to the cap.
Indexing of certain type
of taxes such as fuel tax and business tax had been discussed, however,
Chairman Hobbs indicated he had no idea what the revenue yield or the level of
indexing would consist of, and he continued to push the broadening of the sales
tax base as both a stabilizer of future revenue, and one that might offer some
revenue enhancement if, in fact, the narrow base could be broadened a bit to
include areas that were not arguably regressive in nature, thus dealing with a
couple of problems at the same time, i.e., diversifying the base and shielding
it from economic volatility, as well as reducing the overall regressive index;
comparatively in Nevada, the level of regression on sales tax was less that
most states.
Chairman Hobbs disclosed
that those were some issues currently being considered by the Task Force, and
the next meeting was scheduled for April 17, 2002. At that meeting, the issue of concentration would be discussion
of the long-term care contribution toward future imbalance, which should prove
of great interest to various county representatives. Chairman Hobbs felt it went without saying that numbers
surrounding long-term care had not been as well defined, or had not been given
the “legs” that numbers surrounding the education issue had. There was no defining numbers, such as a
certain amount per capita less than the national average, that were being used
to necessarily describe the projected future shortfalls in long-term care. Chairman Hobbs indicated that the Task Force
wanted to bring that area up to a level playing field for two reasons: (1) it
was the right thing to do; and, (2) it was spoken to in A.C.R. 1 as a
matter of equal concern to that of future education funding.
As pointed out by Ms.
Ritter, by May 2002 some of the revenue information would be specifically
discussed, as well as some criteria for making judgments regarding comparative
taxes and tax mixes, and how they might compliment or supplement the state’s
revenue mix. Chairman Hobbs stated that
one area of A.C.R. 1 that received a tremendous amount of focus from
certain members of the Task Force was the directive to review the diversity of
the economy within the state and attempt to mold the eventual tax structure to
better mirror the diversity of that economy.
In conclusion, Chairman Hobbs reiterated that the contribution of a
committee such as the Advisory Committee to certain work products of the Task
Force could not be under-emphasized, and the timing would be quite crucial in
taking advantage of that opportunity.
Chairman Hobbs opened
discussion on Agenda Item IV as the committee’s next order of business.
Discussion and Possible Action Regarding the Repeal of the Statutory Language Promulgated by AB 501 (2001 Session)
Ms. Ritter indicated that she had spoken with Mr. Sherman, as the issue had originally been included in the consolidated tax study area under Item III (B), and actually the issue fell somewhere between the first and second distribution formulas. A.B. 501 changed the amount of the governmental services tax that was “pealed” off the top for school districts for capital projects, before it went into the consolidated tax formula under NRS 482.181. Ms. Ritter explained that the legislation added the “pay as you go” amount into the formula for distribution, which only impacted Elko County, as it was the only county school district with a “pay as you go” rate, which had recently been passed by the county voters at 75¢. Since the legislation added that amount to the formula, all operating budgets suffered, including that of the school district. Ms. Ritter commented that the school district had been unaware of the impact that would be created by passage of A.B.501, and she emphasized that all entities in Elko County would request that the language be reversed and that a BDR be forwarded that would change the language back to its original format.
Chairman Hobbs noted that the issue had come before the Advisory Committee in the past, and he did not feel there would be any contrary feelings regarding the requested BDR, however, if there were concerns, he would ask members to come forward. If not, he felt it would be appropriate to request a motion.
MS. THOMAS MOVED TO RECOMMEND THE DRAFTING OF A BDR THAT WOULD REPEAL THE STATUTORY LANGUAGE PROMULGATED BY A.B. 501 (NRS 482.181).
MS. MURPHY SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Chairman Hobbs opened discussion of Agenda Item V.
Discussion and Possible Action Regarding the Direct Apportionment of the 1-cent Optional Motor Vehicle Fuel Tax (NRS 365.196) by Department of Taxation
Ms. Ritter advised that the issue was quite minor in nature. It had come to her attention that a minor change had been made during the 2001 Legislative Session, which would allow the Department of Taxation to send fuel taxes directly to the entities rather than funneling through the county treasurers, however, NRS 365.196, which included the 1¢ county option tax, had not been included in that request. Interestingly enough, Ms. Ritter explained, current law stipulated that the county treasurer would apportion the taxes based upon population, but it also required that the county treasurer hold a hearing to adopt regulations regarding the apportionment twice every year. To her knowledge, the Elko County Treasurer had never held those hearings, and it was suggested that the Advisory Committee propose a BDR to the Legislative Committee to treat the 1¢ county option tax contained in NRS 365.196 the same as the others, and allow the Department of Taxation to make a direct allocation to the entities.
Chairman Hobbs inquired whether there was any opposition to the requested BDR, and hearing none, called for a motion.
MS. THOMAS MOVED TO PROPOSE A BDR WHICH WOULD AMEND NRS 365.196 TO ALLOW DIRECT APPORTIONMENT OF THE 1¢ COUNTY OPTION TAX FROM THE DEPARTMENT OF TAXATION TO THOSE ENTITIES ENTITLED TO RECEIVE THE TAX.
MR. LEAVITT SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Chairman Hobbs opened discussion of Agenda Item VI.
Discussion and Possible Action Regarding the Addition of the Topic of “Development within the Boundaries of a Local Government that Causes Fiscal Impacts upon Surrounding or Adjacent Local Governments” to the Project List for the Advisory Committee
Chairman Hobbs stated he had placed the item on the Agenda, and advised the committee he would seek its concurrence that the topic was a meaningful enough issue to become an area of focus and study. He indicated that Ms. Ritter was quite familiar with the concept of development which occurred in one governmental entity causing a tremendous impact on another governmental entity, as was the case with the Elko/Eureka issue. Chairman Hobbs noted that other incidents were occurring that had yet reached the proportions of becoming a case study, thus, opportunities existed for the committee to potentially recognize the type of problems that might occur and suggest some remedies regarding how to deal with them.
Per Chairman Hobbs, one example of a potential situation was the Storey County area outside Washoe County, in dealing with the land use planning for a portion of the area along the I-80 corridor. Decisions made concerning that corridor had the potential of impacting not just Washoe County, but also other surrounding counties if, for example, decisions were made that centered on a heavy commercial concentration, and not necessarily focused on a residential mix. Chairman Hobbs indicated that the majority of the favorable assessed valuation could be located in one county, while the service‑intensive assessed valuations could fall to other areas that would not benefit from the tax revenue. When those type of cross-border impacts were reviewed, it occurred to Chairman Hobbs that the committee might want to suggest an alternative method of dealing with such issues, understanding that the ability currently existed to enter into agreements for alternative sharing of revenue between entities within a county, and also between counties, even though the necessary incentive to undertake those type of agreements did not always exist.
Chairman Hobbs acknowledged that a similar situation could potentially occur between Clark and Lincoln County surrounding the Coyote Springs Development, which straddled the two borders. Another area was the northern border of Douglas County and southern border of Carson City, where there was current development of fairly major commercial enterprises. That situation would deal with physical location on one side of the border with services provided by the other side, as well as creating an effect on the potential migration of tax revenues from one county to another, compounded by the fact that one was an exporting county and one was an importing county. Chairman Hobbs stated that created quite an interesting mix of issues to deal with, and entities in both Douglas County and Carson City had been attempting to deal with the situation in earnest. One idea that arose as a potential solution was the development of a special enterprise zone with an alternative method of capturing and distributing taxes that were generated from the activities within that zone. Chairman Hobbs felt certain that other ideas would also be forthcoming, and he felt the problem had become pervasive enough that it should be a study area with its own specific focus. He solicited thoughts and/or concurrence from committee members regarding that study area.
Ms. Ritter stated that she had been harping about the situation for the past 10 years, and would strongly concur that it was an area which needed review. She felt that perhaps some type of regionalizing of the revenues generated by a commercial enterprise, which could then be allocated to the areas of impact, would be extremely helpful, at least in the Elko County area, as well as others. Ms. Thomas concurred with the aforementioned remarks by Ms. Ritter.
Chairman Hobbs stated if there was agreement among the committee that it should focus some of its resources it that direction, he would certainly be happy to help coordinate in that study area. He indicated that a motion would be in order.
MR. LEAVITT MOVED THAT THE ADVISORY COMMITTEE RECOMMEND TO THE LEGISLATIVE COMMITTEE THAT THE TOPIC OF, “DEVELOPMENT WITHIN THE BOUNDARIES OF A LOCAL GOVERNMENT THAT CAUSES FISCAL IMPACTS UPON SURROUNDING OR ADJACENT LOCAL GOVERNMENTS,” BE ADDED TO ITS PROJECT LIST.
MR. SHERMAN SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Chairman Hobbs opened the Public Comment portion of the hearing
Carole Vilardo, Nevada Taxpayers Association, stated she would like to address her issues in a tax-specific manner, and noted that a question had arisen regarding what the committee was contemplating in the area of property tax, and whether it would remain an issue of rate relief. Ms. Vilardo indicated she would like to discuss the relationship between the Advisory Committee to the Legislative Committee for Local Government Taxes and Finance, and the technical working group to the Task Force, on which some Advisory Committee members sat. Ms. Vilardo hoped that she was not sensing a change of direction in what the Advisory Committee was undertaking relative to reports to the Legislative Committee, and to that end, she would use property tax as the explanation.
Continuing, Ms. Vilardo pointed out that, historically, both the Legislative Committee and the Advisory Committee had reviewed distributions and formulas in an effort to bring them up to date to reflect the way governments operated and conducted business today. As such, Ms. Vilardo indicated, the committees had attempted to be very deliberate in remaining tax-neutral without hurting any entity, which meant not only the government, but also the taxpayer. The Task Force was not headed in that direction by virtue of its membership, and its charge under A.C.R 1. Ms. Vilardo stated the Task Force, literally, per A.C.R. 1, had been directed to generate new revenue for the state. At one point, the committee had discussed rate relief via property tax, which Ms. Vilardo felt was important. She thanked Ms. Thomas for speaking to the fact regarding depreciation, that the rate would be reduced which, in effect, indicated that revenue neutrality would be maintained. If a similar discussion of the depreciation issue was entered into by certain members of the Task Force, information would not be solicited from a rate reduction aspect, because the Task Force was looking for additional state revenue. Ms. Vilardo asked the Advisory Committee to consider its recommendations to the full Legislative Committee versus the work it might undertake in providing information, either as members of, or to, the technical working group of the Task Force.
Regarding property tax, Ms. Vilardo indicated one of the issues under consideration by the Advisory Committee was relief under the cap, which from her perspective might take a slightly different direction, insofar as it might consider a few options rather than just one. As discussed during the aforementioned meeting of March 19, 2002, and referenced today by Mr. Stoeckinger, there was no panacea or, as pointed out to the Task Force by Chairman Hobbs, no “silver bullet,” that would suddenly solve the problem. Ms. Vilardo stated that since the state already allowed depreciation, she would like the Advisory Committee to consider not eliminating it, but rather reducing it. Part of depreciation involved other elements that should be included in the discussion of any changes, which were becoming more than minor formula changes that would only impact the Department of Taxation. One question surrounded the time frame that could logically be considered for the change, because some changes being discussed by both the Advisory Committee and the Task Force could not occur on July 1, 2003. It was a mechanical impossibility because either the mechanisms were not in place, or the law and/or regulations had to be changed.
Ms. Vilardo requested that every discussion held by the Advisory Committee, whether regarding fuel tax, property tax, or sales tax, also logically consider the potential time frame for initiation of such a change, if legislatively accepted, and what the cost of the change would be. The cost of the change was an interesting issue regarding depreciation, and Ms. Vilardo felt that input from the various county assessors was critical, because of the cost that might be incurred via appeals. Not all assessors actually had the necessary computer equipment to facilitate depreciation, and Ms. Vilardo indicated that currently there were ten counties operating on the same system. The last three years had been very slow for those counties, and the Taxpayers Association had worked with the assessors regarding uniformity and consistency of published information. Some counties did not have the finances to facilitate such changes, so the issue would become very interesting.
Continuing, Ms. Vilardo noted that assessment ratio was fair game, but there were many issues to that ratio, and the committee should consider just one rate change. There was also the issue of how to exceed the caps, and she noted that there might be some trade‑offs the committee could consider. Ms. Vilardo stated the committee could decide to recommend to the Legislative Committee that depreciation be totally eliminated, or it could recommend a change in the assessment ratio to 40 percent, which would literally amount to a 15 percent increase in property tax. Property tax and income tax were the two most hated taxes by the public, and varied from year to year depending upon what changes occurred. There were other options the committee might consider, and Ms. Vilardo felt the committee should not ignore related trade-offs, i.e., if entities received more revenue from the assessment formula, could the motor vehicle privilege tax then be reduced by 1 percent or 2 percent. Ms. Vilardo felt it would be unreasonable, should the committee find a solution that was efficient, effective, could easily and quickly be implemented, and was easy to understand, to ignore it if there was an acceptable trade-off.
The issue of centrally assessed concerned Ms. Vilardo because the committee discussed brokers, and even if a method of taxation were determined, the question would remain regarding the location of the brokers. The issue did not concern only electric generation, but also natural gas, and would not be the easiest issue to resolve. Earlier, the committee had discussed the issue using a relatively simple example, however, Ms. Vilardo noted that in the real world, the example was not that simple, and in states that had been attempting depreciation, the brokers for the most part, were not and did not have nexus, so she wondered how that would be acquired. An important part for the local governments was missed in the discussion of centrally assessed, and Ms. Vilardo indicated that was the franchise fee issue. If a broker operated from another county, and became the ultimate broker, the question would be how to determine the franchise fee. Ms. Vilardo stated that given the way the rates had increased, some counties would enjoy a windfall, because at the same time, the counties would conduct efficiency testing within their heating, ventilating and air conditioning (HAVC) systems. She did not feel the issue could be simply left within the discussion of property tax, and would require acknowledgement by the committee that there were franchise fee implications in centrally assessed.
Continuing, Ms. Vilardo reiterated that the centrally assessed committee had a charge greater than appeared in legislation, and in two years, the moratorium from governmental overtaking of a utility would end. While deregulation might not go fully forward during the next year, it was not inconceivable, given the 10-year span from the decision regarding telecommunications to what was occurring at the present time, that it would not be in place in 10 years. Ms. Vilardo indicated that some procedures had to be in place, because of the implications surrounding a major utility being bought out by a government, such as bonds already issued by school districts, which would then suffer a loss of 5 to 10 percent of assessed valuation because the utility would be owned by the government. Such action would change the entire planned payment schedule for the school districts. Ms. Vilardo felt that issue needed to come back to the “front burner,” and the issues identified in S.B. 425 had to be reviewed in priority when dealing with centrally assessed, i.e., the brokers and the franchise fees, along with the other requirements of S.B. 425.
Ms. Vilardo believed that review of the sales tax would be one of the most difficult areas for the Advisory Committee. It had to be done, however, would be difficult because any recommended action should include some uniformity across all rate components, which meant that voters would have to buy into the action, because of the 2 percent component. That was another reason to review the implementation time frame of recommended action, because it could not be considered by the voters before November 2003, which meant that implementation, in all probability, would not occur until July 2004.
Ms. Vilardo noted that the Advisory Committee faced a great deal of work yet to be undertaken, and it did not appear to be moving as rapidly as past committees, which prompted her to bring forth some issues so the committee would realize that those issues should reach the Legislature next session. It was important that language was submitted for BDRs in time to be returned for evaluation prior to the Legislative Session.
Chairman Hobbs concurred that the committee obviously did need to bring some finality to certain issues, and the timing of where the Task Force might be vis-à-vis the Advisory Committee was extremely sensitive. Obviously, the Advisory Committee was subject to direction from the Legislative Committee as reports were presented, and such direction would depend on whether that committee concurred with the recommendations. Chairman Hobbs agreed with Ms. Vilardo’s comments regarding the interplay between the Advisory Committee that dealt with the distribution of revenues between and among local governments within the state, and the Task Force, which was looking at issues from a different perspective; those entities had to be kept within their boundaries, and the work of the Advisory Committee should remain within its boundaries. Chairman Hobbs emphasized that the suggestion to share information by no means meant that the Advisory Committee should be taking up the cause of raising additional state revenue. Obviously, action that might be considered and recommended by the Task Force could have a profound impact upon local tax policy and the efficiency of local revenues, which was largely the reason the issue had been raised and, hopefully, it had been considered in that context. Chairman Hobbs remarked that Ms. Vilardo’s points were well taken, particularly those regarding centrally assessed; the Advisory Committee did have other responsibilities to discharge as well within those areas.
Mr. Leavitt advised that Mr. Welsh would like to address the committee. Mr. Welsh pointed out that the committee was under a statutory mandate for another component as contained in NRS 218.538835, which coincidentally echoed points brought forward by Ms. Vilardo. The statute mandated that the committee complete a study on the effects of revenue implications on state- and locally-imposed taxes when a local entity took over a utility. The statute primarily addressed generating facilities and telecommunications. Mr. Welsh noted that was an additional task for the committee, and would not require approval from the Legislative Committee, as it was provided in statute.
With no further business to come before the committee, Chairman Hobbs adjourned the hearing at 1:39 p.m.
Respectfully submitted,
_______________________________
Carol Thomsen, Interim Secretary
APPROVED:
_________________________________
Guy Hobbs, Chairman
DATE:___________________________