Minutes of the Meeting of the Advisory Committee to the
Legislative Committee to Study the Distribution among Local Governments of
March 29, 2000
Las Vegas, Nevada
The meeting of the Advisory Committee to the Legislative Committee to Study the Distribution among Local Governments of Revenue from State and Local Taxes was called to order by Guy Hobbs, Chairman, on March 29, 2000, at 1 p.m. in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada.
COMMITTEE MEMBERS PRESENT:
Guy Hobbs, Chairman, Hobbs, Ong and Associates
Mike Alastuey, Committee on Local Government Finance
Gary Cordes, City of Fallon
Rick Kester, Committee on Local Government Finance
Marvin Leavitt, City of Las Vegas
Janet Murphy, Tahoe-Douglas District
Dave Pursell, Executive Director, Department of Taxation
Linda Ritter, City of Elko
John Sherman, Washoe County
COMMITTEE MEMBERS ABSENT:
Bruce Brooks, Humboldt County
Terri Thomas, City of Sparks
LEGISLATIVE COUNSEL BUREAU STAFF PRESENT:
Kevin Welsh, Deputy Fiscal Analyst, Fiscal Analysis Division
Ted Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division
Kim M. Guinasso, Principal Deputy Legislative Counsel, Legal Division
Jeanne Peyton, Secretary, Fiscal Analysis Division
Exhibit A is the Meeting Notice and Agenda.
Exhibit B is the Attendance Record.
Exhibit C is a report submitted by John Whitaker, Nevada Department of Transportation (NDOT), titled. ”Nevada Department of Transportation Field Audit in Support of the Jurisdictional Entity Street & Road Inventory.”
Exhibit D, submitted by Mary Walker, is titled “Issues Involving Ad Valorem Tax Depreciation Factor.”
Exhibit E, submitted by John Sherman is the results from the Business Personal Property Tax Questionnaire.
There were approximately 30 persons in the audience.
Call to Order -- Opening Remarks
Chairman Hobbs called the meeting to order and noted that the committee had a lot of material to cover today. The goal for today’s meeting is to bring closure to as many issues as possible and present recommendations to the Legislative Committee at tomorrow’s meeting.
MR. SHERMAN MOVED FOR APPROVAL OF THE MINUTES FROM THE JANUARY 20, 2000, MEETING. MR. LEAVITT SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
Presentation of Field Audit and Inventory of Streets and Roads Maintained by
John Whitaker, Roadway Systems Division Chief, NDOT, apologized for not being in attendance at yesterday’s subcommittee meeting. Referring to the “Nevada Department of Transportation Field Audit in Support of the Jurisdictional Entity Street & Road Inventory,” (Exhibit C) Mr. Whitaker said the report:
§ Shows that only one entity did not reply to NDOT’s request for an inventory of their roads and streets.
§ Clarifies the scope of work to performed by NDOT and includes:
1) An assessment of 10 percent of mileages reported under the S.B. 253 roadway inventory. This assessment was performed by doing a random sampling.
2) Photographs of various road types. NDOT staff visited each site to identify the roadways reported by the entities.
§ Includes a comparison of the inventories presented to NDOT by the entities and what was actually found by NDOT’s field audit.
According to Mr. Whitaker, NDOT has found that no city or county government has falsely claimed additional mileage. Although some discrepancies exist in the report, NDOT actually found more miles than were reported. He noted that this inventory has been needed for many years and suggested that it be done on a cyclic basis (i.e., every 5 years).
Summarizing the actions of the Subcommittee to Study the Cost of Maintaining Highways, Roads and Streets, at yesterday’s meeting, Mr. Leavitt said:
§ The subcommittee will meet again on April 12, 2000, at 2 p.m., in the Legislative Building in Carson City and again on April 27, 2000, at 9:30 a.m. in the Grant Sawyer State Office Building in Las Vegas.
§ The cities and counties will be asked to have a representative at the meeting on April 27th to discuss their position on the application of the road inventory and revision to the fuel tax distribution formula.
§ It has been decided to calculate the formula based on the miles of road and population for each entity, but the weight that will be given to each source must be determined after the calculations are reviewed. Therefore, NDOT has been directed to calculate several different scenarios for the subcommittee’s review.
§ Brief discussion took place regarding the “hold harmless” provision that was agreed should be part of the formula.
He explained that at the April 12, 2000, meeting, the Subcommittee would try to finalize the road inventory and review the calculations to the formula that NDOT will be preparing. At the April 27, 2000, meeting, the cities and counties will be invited to express their views on the suggestions of the subcommittee. He indicated that he hoped to come to a general agreement about the fairness of the application of the formula selected.
Continuing, Mr. Leavitt said that it was concluded some time ago to measure roads by length and to recognize the difference between heavily and lightly used roads by the population side of the formula. It is hoped that when the population side of the formula is weighted correctly, it will achieve the appropriate distribution to each entity. When the on-site visit of some roads was done (see photographs in Exhibit A), it was determined that one road could have several different types of pavement.
In closing, Mr. Leavitt said that further discussion will be necessary to decide if weather conditions should be considered as part of the formula. Lastly, NDOT’s inventory showed that road miles were reported by cities when the county was actually maintaining the road, which must be resolved.
Mr. Whitaker said that NDOT would be meeting with Michelle Gordon, Washoe County Regional Transportation Commission to discuss and rectify the duplicate reporting of roads.
Responding to Mr. Leavitt, Mr. Whitaker said that he would provide Russ Law of NDOT, the road inventory so that he can begin to prepare the various calculations to the formula. He further noted that there has been interest expressed by some of the cities and counties to see the entire inventory collected by NDOT. He explained that he would be happy to provide a copy to anyone requesting it, however, it must be understood that the total copy is very large (about 11 inches thick).
Mr. Leavitt suggested having a copy of this material available for viewing at the April 27th meeting of the Subcommittee. He asked Mr. Grady, Nevada League of Cities and Mr. Hadfield, Nevada Association of Counties (NACO) to notify each of their entities about the two meetings (April 12th and 27th) and inform the entities that the Subcommittee would like a representative from each community to attend the April 27th meeting.
Responding to Chairman Hobbs, Mr. Leavitt said:
§ The calculations NDOT would be preparing are for the first tier of the formula. No discussions have taken place on the 2nd tier as yet.
§ Possibly the “hold harmless” could be used for the first 4 years and in the 5th year, the new formula could be fully utilized.
Mr. Leavitt indicated that all these issues are still open for discussion if anyone has anything to add.
Mr. Leavitt asked that the Advisory Committee could take action by approving the work that has been done by NDOT on the road inventory with the stipulation that the problem of duplicate reporting be resolved.
MR. LEAVITT MOVED FOR THE ADVISORY COMMITTEE TO ACCEPT THE NEVADA DEPARTMENT OF TRANSPORTATION’S FIELD AUDIT IN SUPPORT OF THE JURISDICTIONAL ENTITY STREET AND ROAD INVENTORY WITH THE STIPULATION THAT THE DUPLICATE REPORTING OF ROADS BE CORRECTED AND THAT THE INFORMATION BE TRANSMITTED TO THE LEGISLATIVE COMMITTEE TO STUDY THE DISTRIBUTION OF AMONG LOCAL GOVERNMENTS OF REVENUE FROM STATE AND LOCAL TAXES AT ITS MEETING ON MARCH 30, 2000. MR. PURSELL SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
Presentation, Discussion and Possible Action Regarding Recommendations (including future activities) to Full Legislative Committee on the Following Study Areas
Modifications to Real Property Depreciation Formula – Mike Alastuey, Assistant County Manager, Clark County
Mr. Alastuey said that some meetings ago the subject of the real property depreciation formula was discussed. There were concerns at that time and may be some long-term underlying concerns whether or not the depreciation factor:
§ Is consistently applied across the state.
§ Creates some equity.
§ Is causing properties with similar market value to be charged tax at different levels because of the differences in age.
§ Adversely affects certain communities as opposed to others.
§ Undermines credit quality.
He noted that some of the testimony taken, suggested considering depreciation as far as the life of the property. Even if a property is more heavily taxed early, it becomes lesser taxed later in its total life. Mr. Alastuey noted that the general consensus of the committee was that this particular item should be included in the issues considered for deferral.
Responding to Mr. Cordes, Mr. Alastuey said that the conversion of recognition of real property to personal property, or the application of rapid depreciation in certain business circumstances was discussed. The item presently being discussed is reflective only of the 2½ percent depreciation factor that is applied to all real property (commercial and residential).
Chairman Hobbs indicated that the reason this issue was placed on today’s agenda was to determine whether or not it should continue to be deferred in lieu of some of the more significant topics.
Ms. Walker, representing Carson City, and Douglas and Lyon Counties said that depreciation should not be reviewed as a separate issue. Referring to Exhibit D, she noted that this was an old study prepared by the Department of Taxation regarding the depreciation issue that she had promised to provide to the committee. She explained that depreciation should be reviewed along with the “tax creep” issue, because depreciation is what is driving the tax up.
Lisa K. Sadow
Ms. Sadow, Finance Director, City of Reno, concurred with Ms. Walker’s comments. In her opinion, the financial problems that many of the entities are experiencing may be impacted by this component of the calculation.
In reply, Chairman Hobbs said she had a good point and agreed that depreciation is a part of a larger set of issues. In his opinion, there is no question that depreciation contributes to the “rate creep” issue; however, it is not solely responsible for the rate creep, nor would curing it completely eliminate all the components of “rate creep.” His opinion has been to view the depreciation issue in a different context. He requested comments from the committee along those lines.
Mr. Leavitt mentioned that later in the meeting today the determination of the formula for the computation of allowed ad valorem for operating purposes would be discussed. It appears that depreciation on real property is part of the problem, and perhaps depreciation and the manner in which personal property is handled is also driving growth. In his opinion, it is not necessary to have a separate study group to handle depreciation, but it should be discussed along with the other associated issues.
Western States Questionnaire on Property Tax Issues – John Sherman, Finance Director, Washoe County
Mr. Sherman thanked Lila Clark and Sue Martin of the Department of Taxation, who conducted the telephone survey. The survey consisted of 25 questions and included 11 states (see Exhibit E). Those questions are summarized in a matrix listed on pages 1-3 and elaboration of some of the questions are listed on pages 4-10 of Exhibit E. He pointed out that, the State of Idaho should read “not applicable” under question 23 and delete “property value.” Mr. Sherman summarized the outcome of the questions, as follows:
§ Question 3 (Personal Property Tax on Business or Personal) – Nine of the 11 states strictly tax business personal property, while two of the states tax business and some other types of personal property.
§ Question 4 (Value Type) – Six states use market less depreciation to determine value, two states use cost plus trend factor minus depreciation, and two use book value minus depreciation.
§ Question 5 (Agency Responsible for Administration) – Seven states use the county assessor for administration of the business personal property tax, three are mixed between the county assessor and the department of revenue, one state (Montana) uses only its department of revenue.
§ Question 7 (Are Exemptions Allowed) – The vast majority said yes and one (New Mexico) said no.
§ Question 8 (How Is Business Personal Property Tax Identified) – Nine states said the taxpayer provided the information and two said both the taxpayer and other methods are used.
§ Question 9 (Problems Identifying Business the Existence of Business Personal Property) – Eight states said yes and three states said no.
§ Question 10 (Is Business Personal Property Audited) – Six states said yes and three states said no and three used a limited audited function.
§ Question 11 (Who Conducts Audit) – Six states said the county assessor, three said the state, and two had no response.
§ Question 14 (Percent of Noncompliance) – Six states were unknown and the remaining five states range from 1 to 30 percent of noncompliance.
§ Question 15 (When are the Tax Payments Due) – Six states said annually, four were annually or semi-annually, and one is annually or in three installments.
§ Question 16 (Can Business Personal Property be Combined with Real Personal Property Tax) – Ten states said yes and one state said no.
§ Question 17 (Are there Problems Collecting Delinquent Taxes) – Five states said yes, three said no, and three were unknown.
§ Question 18 (Is Collection of Delinquent Taxes Enforced) – Ten states said yes and one state said unknown.
§ Question 19 (Who Reports Leased Equipment) – In nine states both the lessor and lessee report that equipment and two states only the lessor.
§ Question 20 (Is there Double Reporting of Leased Equipment) – Ten states indicated no and one state said yes.
§ Question 21 (Does Business Personal Property Have Ongoing Residual Value or does it Zero Out) – Ten states said there is an ongoing value and only one reported a zero-out value.
§ Question 22 (Does the State Allow a Dollar Exemption) – Seven said no and four said yes.
§ Question 23 (Is Exemption a Deduction from Personal Property Value or Amount of Tax Due) – Three states said property value and one state said tax due.
§ question 24 (Dollar Amount of Exemption) – Most of the states had a relatively small amount, ranging from $2,500 to $10,000 of tax due. Only one state reported $52,468, which is a deduction from personal property value.
Mr. Sherman suggested that the study group begin focusing on making some conclusions based on the survey prior to the next Advisory Committee meeting.
Chairman Hobbs thanked Mr. Sherman and the Department of Taxation for the work they did on the survey. He noted that according to the information collected, it would appear that Nevada’s practice for personal property tax is similar to many of the western states.
Chairman Hobbs suggested asking the Legislative Committee for further direction on this issue at tomorrow’s meeting as to what the Advisory Committee should be focusing on as this matter is brought to closure. He noted that the administrative issues to tax policy questions cover a broad area.
Review of List of Exemptions from Taxation – Dave Pursell, Executive Director, Nevada Department of Taxation
Mr. Pursell reminded the committee that a comparison of reports that were compiled by the Department of Taxation and by Hobbs, Ong and Associates, was done on this issue to identify both property tax exemptions and sales and use business tax exemptions. He said he had requested clarification from the Legislative Committee as to what direction should be taken with this issue and was told to delineate explaining which exemptions are being used and which ones can be tracked. For example: The Department of Taxation receives a report from each of the county assessors on property tax exemptions that is compiled into a statistical report. From that report, the Department can identify the exemptions that are being used by statute. The Department is also trying to distinguish the difference between exemption and exclusion. Once the Department has the statistics in a better format, the study group could meet to analyze and determine the exemptions that are not being used, and the exemptions that are being used, but the dollar amount cannot be quantified.
Consolidation and Modification of Transient Lodging (Room) Tax Issues – Linda Ritter, City/Airport Manager, Elko County
Ms. Ritter noted that Tab V-D of Exhibit A is draft of language changes for room tax that the Transient Lodging Tax Study Group has attempted to consolidate into one chapter. It also addresses issues previously discussed by the Legislative Committee. She noted that the draft language further provides for items that are not presently included in statute that the study group felt would be appropriate to have. These items include:
§ Application of transient lodging taxes of time-share properties, advance block purchases and promotional packages.
§ Exemptions from transient lodging taxes.
§ Provisions for penalties/interest on late payments.
§ Due dates, including a provision for alternative reporting periods.
§ Record requirements and allowance for audits.
§ Notification requirements for changes in transient lodging tax rates.
Ms. Ritter explained that the study group met before this meeting and made some minor changes to the language. She noted that the study group would need assistance from the Legislative Counsel Bureau (LCB) legal staff regarding some of the special acts and some of the administrative provisions. In her opinion, the draft language could be presented to the Legislative Committee tomorrow for its approval to move forward into bill draft stage.
Responding to Mr. Alastuey regarding whether the suggestions for changes to the room tax encompass reporting requirements, definitional consistency and clarification of administration of the tax, and are not intended to support or propose a change in the distribution of the tax, Ms. Ritter said he was correct.
Ms. Ritter said she would like a consensus from the Advisory Committee to request the Legislative Committee’s approval to move forward to the bill draft process.
Mr. Sherman asked if the length of time records are kept is a minimum of three years, but the local option is to extend retention to four or five years.
In reply, Ms. Ritter said that she is still awaiting more information from the local governments on this issue. She explained that the goal of the study group was to try not to impact any of the local governments in the way they handle the transient lodging tax and not to place any insurmountable challenge upon them.
MR. PURSELL MOVED TO REQUEST APPROVAL FROM THE LEGISLATIVE COMMITTEE TO PROCESS A BILL DRAFT FOR THE LANGUAGE PROPOSED BY MS. RITTER. MR. LEAVITT SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
Review of Formula for Distribution of Revenues from the Local Government Tax Distribution Fund – Guy Hobbs, Hobbs, Ong & Associates; and Marvin Leavitt, Director, Intergovernmental Relations and Policy Research, City of Las Vegas
Mr. Leavitt said that considerable amount of discussion has taken placed on this item. At the last meeting several scenario for changes to the formula were reviewed. It was a general feeling that the “one plus” brings an element of stability into the formula, even though it does not reward growth in any one year.
Further commenting, Mr. Leavitt said that another point that was discussed was the base year. At present, two years are being used as the base, but it was discussed whether or not that should be changed. He indicated that the committee agreed that any year could serve as the base year and changing the year will only benefit one government as opposed to another, but would not necessarily work better. He also noted that there has been some feeling for the committee to devote more time to review of the “one plus” language.
Chairman Hobbs said that Mr. Leavitt clearly summarized this issue and noted it is always necessary to continue to review the formula and watch for anomalies that may occur from time‑to-time. In his opinion, the issues of calculation of the base year and the “one plus” language could be brought before the Legislative Committee for further direction. He asked for comments from the committee.
Mr. Alastuey concurred that Mr. Leavitt’s examples that were provided to the Advisory Committee at its last meeting revealed that some entities may prefer one method, where other entities may prefer a different method, but the consensus was that the base would be on an average and several factors within the calculation of the base would be obtained by averaging prior years observations. Also, the affect of the “one plus” language is required as a stabilizer to the formula. Regardless of how responsive the formula should be to growth or exercising of options for annexation, it is necessary to have a stabilizer that protects all entities in the state in instances of decline.
Mr. Sherman concurred with Mr. Alastuey regarding the “one plus” language in the formula. He recommended that the committee focus on reviewing a fixed base.
The Chairman explained that there may be other viewpoints as to the workings of the formula and invited any additional comments that anyone may have.
Richard W. Wilkie
Mr. Wilkie, Management Analyst, Intergovernmental Relations, City of Henderson, said that the city has been working with Clark County and other local governments to identify a way to address some of their concerns, mainly the “one plus” language and the base year. He noted that over the past several months, the city’s mayor, Mayor James Gibson, Phil Speight, City Manager, and Betsy Fretwell, Director of Intergovernmental Relations, have been meeting with the other local governments in Clark County and hope to meet with all of them by the end of April 2000. Some of the comments that have been made relating to the “one plus” language and the base year have been ongoing concerns for the city since its inception. While the committee has heard and discussed the issue many times, the city continues to analyze the potential impacts it has to them, which have not been favorable. He further indicated that the City of Henderson does not agree with any of the language in the formula or the “one plus” from the beginning and still do not feel it would be in the city’s best interest to do so.
On behalf of the City of Henderson, he expressed its appreciation for their indulgence and said he would keep the committee updated on the city’s efforts.
The Chairman asked if the discussions that are taking place at the local level have included the option for local governments within a county to agree to an alternative method of sharing revenue at the second tier, as provided in Senate Bill 254 (Chapter 660, Statutes of Nevada 1997).
Responding, Mr. Wilke said that is one of the options the city is considering. He noted that the City of Henderson is working with the county and cities to try to identify any way to address their concerns.
Clarifying a previous statement to the Chairman, Mr. Wilke said the “one plus” language has never been favorable to the City of Henderson.
In reply to the Chairman, Mr. Wilke said he did not work for the city at the time the “one plus” language was passed, but it was his understanding that as soon as the city realized it was not in their best interest, it was made clear and those concerns were made to the Legislature.
Ms. Ritter said that she understood Henderson’s position and any formula that is not beneficial to the entity would be reviewed closely. However, in her opinion, a good job was done on the formula since only one city is unhappy with it. She suggested that the City of Henderson should try to handle the issue on a local level to address the problems they are experiencing instead of disrupting a statewide formula has been efficient for the remainder of the state.
Chairman Hobbs agreed and said if the option to work on the problem at the local level was available, that would be the direction to take, rather than change elements that are working for the majority of the state. He suggested that the Advisory Committee make a recommendation to the Legislative Committee regarding how the committee wishes to deal with the base and the “one plus” language.
Mr. Alastuey said that the term “base” has been used in a couple of contexts. In his opinion, it should be made clear that the calculations of the original base years shall remain the same, but the utilization of the base year as far as determining how much incremental revenue goes into the excess portion of the calculation should be a fixed amount going forward, providing more revenue to growth.
MR. SHERMAN MOVED TO MAKE A RECOMMENDATION TO THE LEGISLATIVE COMMITTEE REGARDING THE FORMULA FOR DISTRIBUTION FO REVENUES FROM THE TAX DISTRIBUTION FUND TO KEEP CALCULATIONS OF THE ORIGINAL BASE YEARS THE SAME AND THE UTILIZATION OF THE BASE YEAR AS FAR AS DETERMINING HOW MUCH INCREMENTAL REVENUE GOES INTO THE EXCESS PORTION OF THE CALCULATION SHOULD BE A FIXED AMOUNT. MS. RITTER SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
Consolidation and/or Modification of General Improvement Districts (GID) – Janet Murphy, District Administrator, Tahoe-Douglas GID
Ms. Murphy said that she did not request being placed on the agenda today, but as far as the consolidation and/or modification of General Improvement Districts (GIDs), she said the districts she represents have no desire to consolidate. She said she met with Carole Vilardo of the Nevada Taxpayers Association, and apparently there is a problem with the ad valorem. The districts have agreed to review an old survey and maybe generate a new survey. A review of when and why the districts were established, how much did they tax at the time they were established versus present will also be studied.
She asked if the Advisory Committee had any comments regarding this matter and whether or not they wanted her to continue to do further research on this issue.
The Chairman requested that she provide to the committee before the next meeting, a summary of the issues that have been raised and the current status of each issue.
Ms. Walker (identified earlier) testified on behalf of the financial viability of some of the smaller entities and their being able to perform the duties they were originally intended to do. Douglas County has expressed concern regarding one of its smaller entities that generates only about $50,000 each year in revenue and will require about $500,000 in roadwork. The county repaired a portion of the road, but not the entire area. There is concern that the road will erode to the point where an ambulance or fire truck will not be able to get through to the people who live on that road. In her opinion, consolidation must be left open for discussion because along with the smaller cities and counties, there may also be some smaller GIDs that are not financially viable.
Mr. Hobbs clarified that the view of the committee toward GIDs is no different than any other governmental entity. The reason that GIDs are listed as a separate agenda item is because of the genesis of the issue when the formula was being worked on and GIDs were segregated for discussion in that formula. He noted that an issue the committee may want to discuss in the future is whether or not on future agendas the topic should be changed to “discussion of the financial solvency of local governments” in general.
Ms. Vilardo, Executive Director, Nevada Taxpayers Association, indicated that one of the issues Ms. Murphy did not mention was to include special districts in these discussions (i.e., library and school districts). When mentioning consolidation of these entities, it does not always mean they should combine with a larger governmental unit, but that the entity should be made more efficient.
Mr. Leavitt requested that Ms. Murphy prepare an outline of all the overlapping GIDs and Special Districts and list the types of service each one provides.
Ms. Murphy clarified that when “overlapping” is stated, it does not mean that different entities are providing the same service. For example: one district may be a road district, another may be a sewer district, and another may be a treatment district. Many of the small districts consist of a five-member volunteer board and do not have any paid staff. She emphasized that these districts enjoy seeing their tax dollars spent “in their own backyards,” and are run efficiently and do not wish to consolidate. She noted that the road mentioned by Ms. Walker has been looked into by the Tahoe Regional Planning Agency and the buildings are relocating from there because they are built on a sensitive environment zoning area. The road has so many problems because it was originally built on a marsh and, therefore, it has been decided to do away with the road because it is not feasible to repair.
Mr. Sherman asked if Mr. Leavitt was requesting that Ms. Murphy review the overlapping GIDs and make a list of each entities services to see which services are combined for the districts.
Clarifying his request, Mr. Leavitt asked that Ms. Murphy choose an area and list how the services are provided for that particular area.
Mr. Cordes also recommended that a review of towns be done.
Chairman Hobbs said that even though there might be specific questions that come up regarding a particular city or county, or overlapping entities within the distribution of tax revenues, which led to the discussion of GIDs, the focus on consolidation is generally one of efficiency. He noted that much of the discussion regarding insolvency has focused on GIDs, whereas other entities should also be included in the same dialog. In his opinion, the approach on this particular issue needs to be broadened, while also addressing the individual questions that come up about a particular entity.
Ms. Murphy added that she was prepared to make a review of the distribution of taxes for her entities, which is the purpose of the committee.
Calculation of Ad Valorem Tax Rates for Operating Purposes of Local Governments – Marvin Leavitt, Director, Intergovernmental Relations and Policy Research, City of Las Vegas
Mr. Leavitt said that this item involves the determination as to how the rate for operating purposes is computed for local governments. The study group has been concentrating on the role of personal property in the determination of this rate. He explained that if a mining company locates in an entity and purchases a large amount of personal property – the entity would receive the revenue from that personal property for the first year and it becomes part of their base. When the revenue allowed for the second year is computed, the money received in the first year is multiplied by 1.06 percent and then it is divided to determine the rate by the assessed valuation. The problem begins because personal property depreciates rapidly. Because of the decrease in tax to the mining property, the other residents of the community receive an increase in subsequent years.
He further noted the computer programs used by most of the assessors were able to identify the breakdown between personal property and real property before the exempt property is computed, but they do not have the ability to do these calculations after the exempt property is computed.
Mr. Leavitt questioned if revenue from personal property received in any one year constitutes the right of a local government under a formula to receive that revenue indefinitely into the future?
Mr. Alastuey suggested that it would be a good idea to hear from some of the local governments that are profoundly affected by this problem. What is definitely needed in determining these calculations is a stabilizing factor or some delay in the reduction of revenue, rather than an abrupt reduction in revenue.
According to Ms. Ritter, Elko County does not know how much of the increase in the rate has come about as a result of personal property. She noted that depreciation of mining personal property does not mean a depreciation of the services demanded by the public. The formula allows a maximum allowed tax rate, but the local government could change that if necessary.
Mr. Sherman agreed with Ms. Ritter, and said that the volatility of the revenues behind these two components on real property versus personal property, which causes the rate swings. The underlying economic activity behind the personal property is the demand for services and in his opinion those two issues could not be bifurcated.
Mr. Schillinger, Budget Manager, City of Reno, said that Reno does not have the volatility in personal property since it is not a mining community and as a city can rely on the personal property remaining steady from year-to-year.
Mr. Leavitt indicated that there should be a solution to keep personal property stable.
Mr. Sherman asked if any information has been collected on the relative ratio of personal property and the total assessed valuation.
In reply, Mr. Leavitt said that there is information available and some of the problems have already been recognized. He noted that some entities actually have more personal property than real property, and some have a small percentage of personal property. The proposed treatment of personal property does not differ much from the way net proceeds of mines is handled. He explained that net proceeds of mines is not included in the formula because of its volatility. He questioned if the variations in personal property should be allowed to drive the rate.
Mr. Hadfield, Executive Director, NACO, said that most of the counties that have been affected the most by this problem are at the $3.64 cap and their assessed valuation is dropping. There are factors in the formula that are causing many problems, mainly in the rural communities. He indicated that Mineral County is trying to cut its budget by 20 percent and has been reducing its operating rate over the past several years as a result of a school bond. He further noted that mining in the county has ceased.
The mining industry is working with the Tax Commission to determine how they should be treated in terms of depreciation.
In Mr. Hadfield’s opinion, there may not be a solution to the personal property issue, because it may mean even less assessed value if it were eliminated from the formula. He emphasized the importance of the committee continuing to review rural Nevada and the dynamics of the changes taking place and what is driving down the assessed values. Before the revenue components of the formula can be changed, the dynamics of each entity must be known.
Ms. Walker also conveyed her concern about removing personal property from the operating tax formula. She explained that when personal property is coupled with real property, that is a guaranteed 6 percent increase in revenues. If it were removed, the 6 percent would fluctuate.
Ms. Vilardo (identified earlier) requested that the committee review this issue further. The benefit of the S.B. 253 Committee has always been to elevate to the broad based issue and not the absolute specifics. In her opinion, these discussions began because of the “rate creep” and reaching the tax cap, and that is the identified problem. She further noted that that potentially there were multiple elements that created the situation the state is presently experiencing.
She explained that net proceeds of mines was included in the formula before the tax shift and when it was removed, many problems the state was experiencing were corrected. The goal of the committee should be to decide whether or not a better formula could be created. She urged the committee to stop focusing only on the mining industry and review the numbers of the counties and the effect of the present formula.
Chairman Hobbs suggested conducting an analysis of personal property in the local governments. The purpose of doing this will be to try to bring more stability to those local governments throughout the state who have been experiencing financial difficulty over the past few years.
Mr. Leavitt said that carrying out an analysis of this type would be a considerable amount of work. The components that are causing the movement in the rate must be identified.
Mr. Welsh informed the committee that additional direction from the Legislative Committee was not necessary to pursue this issue.
Additional Subjects for Study
Guy Hobbs, Coordinator
Chairman Hobbs said that most of the additional subjects for study center on issues relating to the rural counties. He asked Ms. Ritter to summarize some of those issues.
Ms. Ritter said that tomorrow’s agenda of the Legislative Committee includes some items for further study, which include:
§ Rural fiscal affairs; and
§ Economic development in rural Nevada and what can be done to stimulate it. The need for ample and inexpensive energy in rural Nevada in order to encourage future development.
Mr. Hobbs indicated that the committee has been given direction to undertake a general analysis of the health of some of the rural local governments and the economies. One of the longer term issues that has been discussed briefly, and will be subject to further discussion is the overall revenue distribution and reexamining the 1st tier to determine whether or not using regional economies throughout the state as opposed to political boundaries might make more sense. He agreed that an analysis of this type would be a large undertaking and a time‑consuming project that would need the assistance of the entire Advisory Committee.
Creation of new capital financing opportunities other than those that now exist for special benefiting areas to which they might apply is another issue to be discussed, said the Chairman.
Mr. Leavitt added that one of the first things that should be done on the rural financial health issue is to begin to develop financial data to provide a basis for what the situation actually is. The committee needs to prepare a list of what will be required to do the analysis. He noted that most of the information would come from the Department of Taxation.
The Chairman mentioned that he had a preliminary discussion with Mr. Pursell about what some database elements that would be needed. These items included: 1) assessed valuation, 2) tax rates, 3) principal revenue components, 4) fund balance and 5) levels of expenditures and revenues. They discussed the inclusion of employment, both governmental and non-governmental, other demographic information, school enrollments, and any other items that might provide a clearer picture of the general economy. He said he would circulate the list of items he discussed with Mr. Pursell to the committee members and any other interested parties. The Department of Taxation could advise the committee about what information is readily available, and the committee members could put in some time to try to gather the information that is not available.
Mr. Alastuey asked if the employment information would include employment by category, (i.e., mining and agriculture, resorts and hospitality). This might provide a greater sense of which economies appear to be focused in one industry and are somewhat isolated from the balance of the state.
The Chairman also suggested requesting assistance in providing some of the information from the State Demographers office.
There was no further public testimony.
There being no further business before the Advisory Committee, Chairman Hobbs adjourned the meeting at 3:30 p.m.
Guy Hobbs, Chairman
Copies of the exhibits mentioned in these minutes are on file in the Research Library of the Legislative Counsel Bureau, Carson City, Nevada. You may contact the library at (775‑684‑6827).