THE SECOND DAY

Carson City (Wednesday), June 4, 2003

Senate called to order at 9:48 a.m.

President Hunt presiding.

Roll called.

All present.

Prayer by the Chaplain, Pastor Albert Tilstra.

Our Father, I pray for these Senators today. May they see the larger picture of the work that they have to accomplish in the next three days. Help them to understand that it is better to fail in a cause that will ultimately succeed than to succeed in a cause that will ultimately fail. Guide them in their work, and then teach them to listen.

Amen.

Pledge of allegiance to the Flag.

Senator Raggio moved that further reading of the Journal be dispensed with, and the President and Secretary be authorized to make the necessary corrections and additions.

Motion carried.

MOTIONS, RESOLUTIONS AND NOTICES

Senator Raggio moved that the Senate resolve itself into a Committee of the Whole for the purpose of considering various revenue plans and the unresolved issues of the Seventy-second Legislative Session with Senator Raggio as Chairman and Senator McGinness as Vice Chairman of the Committee of the Whole.

Motion carried.

IN COMMITTEE OF THE WHOLE

At 9:53 a.m.

Senator Raggio presiding.

Various revenue plans and the unresolved issues of the Seventy-second Legislative Session considered.

The Committee of the Whole was addressed by Senator Raggio; Gary L. Ghiggeri, Senate Fiscal Analyst; Senator Washington; Ted A. Zuend, Deputy Fiscal Analyst; Senator Coffin; Senator Neal; Russell J. Guindon, Deputy Fiscal Analyst; Senator Nolan; Senator Townsend; Senator Care; Senator O'Connell; Richard S. Combs, Deputy Fiscal Analyst; Senator Rhoads; Senator Cegavske; Senator Amodei; Senator Titus; Senator Rawson; Bob Atkinson, Fiscal Program Analyst; Mindy M. Braun, Fiscal Education Program Analyst; Senator McGinness; Senator Schneider; Senator Mathews; Jim Hager, Superintendent, Washoe County School District and Chairperson, Nevada Association of School Superintendents; Carlos Garcia, Superintendent, Clark County School District; Mary Pierczynski, Superintendent, Carson City School District; Senator Carlton; Keith Rheault, Deputy Superintendent, Department of Education; Pepper Sturm, Chief Principal Research Analyst; Senator Hardy; Senator Tiffany and Senator Shaffer.

Senator Raggio:

Senate Resolution No. 1 provides for the adoption of the Senate Rules for the 19th Special Session of the Legislature. Because of the limited time available to consider the issues presented in the Governor’s Proclamation, these rules have been drafted to accommodate the special circumstances of this session and have been based on the rules that the Senate adopted for the 18th Special Session. The rules provide that the Senate will meet as a Committee of the Whole to hear all testimony on the legislation to be considered. This ensures that all members of the Senate can have input into the process and avoids the duplication of testimony. A bill or resolution may not be introduced unless it is first approved by the Committee. Exceptions have been provided for bills that are necessary to carry out the business of the Senate so that the Senate may begin to conduct its business as soon as possible. The Committee of the Whole must also approve any amendment to legislation being considered. An amendment that is not proposed by the Committee of the Whole or by a conference committee may not be considered.

In order to complete our business in an expedient manner, there are certain limitations on the period of time a member of the Committee of the Whole and members of Senate, when the Senate is in session, may speak on a question. Members of the Committee may speak on an item on the Committee’s agenda for no more than 10 minutes. A member of the Senate may speak on a question for a period of not more than 10 minutes. However, it is understood that a certain amount of flexibility is required to allow a proper understanding of the issues before us. Therefore, the rules allow the Chairman of the Committee or the President of the Senate to extend the amount of time for discussion if required for a full understanding of an issue being addressed.

Finally, it may be necessary to shorten the length of time required to process bills. To ensure that there is no unnecessary delay in completing the Special Session, the rules of the Senate may be suspended by a majority vote unless a two-thirds vote is required by the State Constitution. For this same purpose, a motion to reconsider a vote will not be in order.

If you have any questions, I will be glad to answer them at this time.

This is the Committee of the Whole of the Nevada State Senate. We will consider various revenue plans for the purpose of funding the budget, which has been approved by the Legislature, and any other unresolved issues of the 72nd Legislative Session as specified by the Governor’s Proclamation in calling this Special Session. The record should indicate all Senators comprising the Committee of the Whole are present, with the exception of Senator Titus, who is excused at this time but will attend later this morning.

I will review the rules of the Committee of the Whole. A member of the Committee may speak only once on an agenda item. We have limited time under the Governor’s Proclamation. Therefore, to expedite the process, both Houses must complete their business by 5 p.m. Friday. The limit on speaking is not more than 10 minutes unless granted leave of the Chair to speak longer or more than once. We will be as flexible as possible on each component of the revenue plan and other discussions such as the Distributive School Account (DSA), class-size reduction or S.B. No. 191 of the 72nd Session. If any member of the Committee of the Whole is granted leave to speak for a longer period, the Chair may limit the length of additional time the member may speak. We want to be accommodating, but we need to be mindful that we must move ahead.

The Chair may require any vote of the Committee to be recorded in the manner designated by the Chair. All amendments proposed by the Committee must be approved by the Committee and reported by the Chair to the Senate as a whole. The rules of parliamentary practice and rules of the Senate apply to the Committee of the Whole, except the previous question shall not be ordered. Are there any questions on the rules?

I apologize for getting a late start. We have been working with staff to provide you with basic information and orient the agenda as expeditiously as possible. We spent 120 days on these issues and had lengthy exposure to most everything that will be considered by this Committee. The intent of the Committee is to go through the various components of a potential revenue plan to determine the amount of support for either the component or any increase in the tax. This is a work session of the Committee of the Whole. To the extent it is necessary, anybody representing a particular sector or concern may present testimony. Should there be erroneous information on the part of a testifier, please let the Chair know and the testimony will be revisited. If there is an impact of which the Committee is unaware or something is overlooked, it will be accommodated. Please indicate such in a timely manner.

Some of these rules may seem elementary to some members of the Committee of the Whole as well as those in the audience. The members of the Senate Committee on Taxation have heard it; however, two-thirds of the Senate have not. Therefore, we need your understanding so the rest of us can be oriented and have complete understanding of what is being done. Likewise, only seven Senators worked with the budget; therefore, we need General Fund orientation of the balance as projected under the proposed budget.

Gary L. Ghiggeri (Senate Fiscal Analyst):

The projected ending-fund balance at the end of fiscal year 2005 based on actions taken by the 2003 Legislature on the Governor’s budget assumes existing revenue sources and known changes to revenues that have taken place thus far in the Legislative Session. The reason a negative amount is appearing in the new revenues in both 2004 and 2005 fiscal years is that the revenue previously deposited for the financial institution budget is now envisioned to be deposited into the financial institution budget instead of the General Fund. At the end of fiscal year 2005, based on actions that had been taken, the cumulative shortfall is approximately $858.6 million. This number may change because we are still ascertaining what legislation was approved and what legislation was not approved that had appropriations in them.

In the first year of the biennium, the shortfall is approximately $349.5 million. The legislation that has not been approved by the full Legislature is the DSA and class-size reduction account. In fiscal year 2004, the DSA and class-size reduction total approximately $752.7 million, and in fiscal year 2005, the DSA and class-size reduction totals approximately $890.5 million. Without those two pieces of legislation, the budget as approved by the Legislature with existing funding is balanced. However, once those two pieces of legislation are processed, we will be faced with an unbalanced budget.

Senator Raggio:

In addition to Mr. Ghiggeri’s comments, the Committee should note the 5-percent minimum‑fund balance is the minimum amount required under State law to have as an ending‑fund balance. It is 5 percent which is considered the absolute lowest level for a balance and accommodates one month of State operation.

Mr. Ghiggeri:

It covers a few days of State operations and is basically cash flow.

Senator Raggio:

For both legal and prudent reasons, the ending-fund balance in constructing a budget cannot fall below those numbers; therefore, in fiscal year 2004, we are required to have at least $115.6 million as an ending-fund balance. Please understand, that is the portion of the State budget that is General Fund appropriation. In fiscal year 2005, the amount required is $127.4 million. Again, because so many numbers are being tossed around when funding a budget or developing a revenue plan, there are things that may have to be considered that go beyond the current year or the next biennium. We would hope to have a revenue plan that would not only fund the State’s requirements for the next biennium, but would also have some long range potential to fund budgets in the ensuing bienniums. When looking at revenues for 2003, please note, $135 million is plugged in as revenues which was usage of the stabilization fund, commonly known as the rainy-day fund. That money is not there because it has been used, and the fund is down to, essentially, nothing.

When you say we do not have to raise much more revenue than this, you must remember it is $135 million in revenue that we no longer have. Parenthetically, it is a matter of concern to those of us who prepare budgets. Hopefully, within the next four years, our revenue plan will accommodate, as well as fund other needs, a method by which to restore the rainy-day fund over at least that period. The budget that was passed and approved did fund, at least, $30 million in the second year of the biennium and put in a trigger in the event revenues came in stronger than projected to add an additional $20 million in the second year.

There is another area of concern in doing that. This budget also was based on utilization of what we call the “pick-up-tax” in this State. It is the estate-tax revenue that comes from federal estate-tax allowance to states, and we have what is called the pick-up of that tax. It will be phased out by federal action, Congressional action, and signed by the President. Therefore, that is another area where there will not be continuing revenue from other sources. When developing a revenue plan, we must be mindful of that.

Are there any questions on the General Fund balance sheet or the budget? We do not have the Governor’s authority within the proclamation to deal with the budget and, as some people are saying publicly, to make budget cuts. However, if there are any issues or comments by anyone, this is the time to ask them.

Senator Washington:

What was the number for the proposed DSA?

Mr. Ghiggeri:

The number for the proposed DSA in fiscal year 2005 is $773.4 million, class-size reduction is $117.1 million. In fiscal year 2004, DSA is $643.8 million, which has been reduced based on anticipated receipt of the federal flexible-spending funding of approximately $67.9 million. So, the need in 2004 has been reduced by that amount. Had that federal funding not been available the amount in fiscal year 2004 would have been higher.

Senator Raggio:

Would you repeat those numbers again?

Mr. Ghiggeri:

The DSA for 2004 is approximately $643.8 million and has been reduced by approximately $67.9 million in anticipation of receiving federal flexible-spending funding that recently became available. Class-size reduction funding in fiscal year 2004 is $108.9 million, and in 2005 it is $117.4 million, and the DSA is $773.4 million.

Senator Raggio:

We will look at the DSA and class-size reduction this afternoon. This morning we will attempt to get a full understanding of the existing taxes, current taxes, rates and then go through any consideration of various components of any revenue plan.

Senator Washington:

What does class-size reduction comprise?

Mr. Ghiggeri:

Class-size reduction is maintained at the current level in the State's two largest school districts. In the rural school districts, there is language in the class-size reduction bill that provides flexibility for the rural districts to go, I believe, to a teacher to student ratio of 1:22 in grades 1, 2, 3, 4 and 5, and in grade 6, it is 1:25. There is also language in the class-size reduction bill that asks or requests the two largest school districts to study the class-size reduction program and provide a report to the next session of the Legislature.

Senator Raggio:

This continues full funding for the class-size reduction portion of the budget. It accommodates the full funding contained in the Governor’s budget. We will talk about this when we get to the DSA. To clarify, there was hope we could make some funding cuts, but it was impossible in the large school districts, Clark and Washoe Counties, because they were not capable of dealing with it due to the lack of facilities to accommodate mandated higher pupil to teacher ratios. It was agreed flexibility would be given to the 15 other school districts, similar to the Elko plan in operation, which would allow flexibility in those 15 other districts, up to a maximum pupil, teacher ratio of 22:1 in grades 1 through 3, and 25:1 in grades 4 through 6. That flexibility is in the proposed DSA plan.

Ted A. Zuend (Deputy Fiscal Analyst):

S.B. No. 509 of the 72nd Session considered changes to the collection allowances available to wholesalers and retailers for either paying or collecting a tax. The cigarette allowance is based on stamping a cigarette stamp on packages of cigarettes. Those are, in some sense, moving targets when talking about revenue. The current stamp fee is 3 percent of actual collections per services rendered in affixing stamps to packages. The other tobacco collection allowance provides for a 2-percent collection allowance for collecting and remitting the tax. The liquor tax allowance is 3 percent and is, in part, due for collecting and remitting the tax but applies only if there is timely payment of the tax. Finally, the biggest item of the first four is the commission or allowance for a retailer collecting a 2-percent state sales tax and a 2.25-percent local school support sales tax. The collection allowance for services rendered in collecting and remitting the tax to the State is 1.25 percent of collections. S.B. No. 509 of the 72nd Session proposed to eliminate the collection allowances for cigarettes, liquor and state sales taxes and reduce the cigarette stamp fee from 3 percent to 0.5 percent because there is a direct cost of affixing the stamps.

If the Legislature were to adopt increases in either the cigarette or liquor taxes, the amount of collection allowances will change based on the percentage of the increase. By eliminating or reducing those allowances, the numbers would change depending on the increase of the percentage of tax that was set by the Legislature. The maximum revenues generated by the proposed changes in collection allowances in S.B. No. 509 of the 72nd Session plan would have raised approximately $24 million per year.

Next is the business license fee. Currently, a business is required to pay a one-time fee of $25 to the State when it first registers to obtain a business license. There have been proposals in several different bills, including S.B. No. 509 of the 72nd Session, that would increase the fee as well as make it an annual fee. That would generate a considerable amount of revenue depending on how it would be applied.

Next is the live entertainment tax. We currently have a casino entertainment tax which is applicable to certain entertainment venues within casino properties. However, that statute does not cover all the live entertainment that goes on in a casino. For example, there is a threshold for how many seats are in an auditorium. If the auditorium exceeds that level, the casino entertainment tax does not apply. The live entertainment tax would become a new tax. Under the provisions in S.B. No. 509 of the 72nd Session, the expansion of the tax within the casino environment would occur July 1, 2003, because the Gaming Control Board has the mechanism in place to handle the expansion. However, the imposition of the tax elsewhere would occur January 1, 2004, because it would be up to the Department of Taxation to collect the tax. The rate of the existing tax is 10 percent. The proposal would continue the 10-percent rate. The tax is on admissions, food, beverage and merchandise sold within the live entertainment environment. The current casino entertainment tax, I believe, raises approximately $70 million per year. Because this expansion is substantial, at least as proposed in S.B. No. 509 of the 72nd Session, the revenue numbers are fairly significant.

The cigarette tax is 35 cents per pack of 20 cigarettes. The State currently receives 25 cents of the 35 cents with the other 10 cents going to local governments through their consolidated tax distribution formula. The actual collections for the State were almost $42 million in fiscal year 2002.

The liquor tax has four separate rates depending upon the type of liquor subject to the tax. They are all based on a per-gallon basis. Beer is called malt beverages in the statutes.

Senator Coffin:

We need to clarify gallon does not mean a gallon of beer, wine or whiskey; it means the actual equivalent of 100-percent alcohol that might be contained in any one of those beverages.

Mr. Zuend:

I apologize for contradicting Senator Coffin, but it is based on volume of alcohol. For example, the tax is 75 cents per gallon on liquor containing 14-percent to 22-percent alcohol; while it is 40 cents per gallon on liquor containing up to 14-percent alcohol, other than beer. The tax is based on the volume of the product, but rates are established depending on how much alcohol is in each of the products. Obviously, beer is at the lowest rate because beer and ale are typically in the 4-percent to 6-percent alcohol range.

The rates on beer or any type of malt beverage are 9 cents per gallon. Liquor of up to 14‑percent alcohol range, which is generally wine, would be 40 cents per gallon. It is 75 cents per gallon on liquor over 14 percent to 22 percent, which includes such things as schnapps and fortified wines, like port wine. Finally, it is $2.05 per gallon over 22-percent volume, which includes tequila, vodka—those types of items. Most of the revenue goes to the State General Fund. Of the $2.05 rate per gallon on alcohol over 22 percent, $1.40 per gallon goes to the State General Fund. Of the remaining funds, 50 cents per gallon goes to local governments and is distributed through their consolidated tax distribution fund; 15 cents per gallon is earmarked in the State budget for alcohol and drug abuse programs. The liquor tax raised approximately $16 million for the State in fiscal year 2002.

The next item is the gross gaming percentage fee tax. It has three rates. The first rate is 3 percent on the first $50,000 that a casino generates per month.

Senator Raggio:

What is the definition of gross gaming revenue?

Mr. Zuend:

The definition can be described as the casino win except it is based on cash basis. Outstanding credit markers are not subject to the tax until they are actually received. Collections on a particular month from outstanding credit issued prior to that would be subject to the tax. Gaming win is the difference between how much players lose at tables and slot machines over the course of a month. Casinos can write off bad checks or anything they do not physically collect.

Senator Raggio:

What is deducted to determine the casino win?

Mr. Zuend:

The casino win is the gross number the players, in total, actually lose to a casino in a month.

Senator Raggio:

It is not the handle. It is the win.

Mr. Zuend:

Yes, it is the win. The taxable gaming revenue is net of cash flow. How much is collected from outstanding markers is taxable, but how much is issued during the month that has not been collected would not be taxed until a subsequent month. There are also other deductions for such things as counterfeit money, chips, etc. Anything the casino does not actually realize in revenue is not subject to the tax, such as bad checks. There are no other deductions for personnel costs or things of that nature.

Senator Neal:

What was the total gross for fiscal year 2002 in terms of gaming?

Senator Raggio:

Are you asking for the total gross gaming revenue?

Senator Neal:

Yes. There are two figures, the one that comes from other revenue streams, and one from gaming. What is the total?

Mr. Zuend:

Are you including non-gaming activity, or just gaming activity?

Senator Neal:

Just gaming activity.

Mr. Zuend:

Are you asking the amount that was subject to the tax?

Senator Neal:

Yes.

Mr. Zuend:

It is approximately $9 billion. In a typical year, the gross gaming revenue represents about 96 percent to 97 percent of the win, which occurs because of the credits. There are those few write-offs as well.

Senator Neal:

Are the credits and the write-offs taken before the $9 billion?

Mr. Zuend:

If the win is $9.4 billion in a year, the taxable revenue may be $9.1 billion in a typical year. That is not a precise number but typically what happens. Therefore, the taxable revenue is generally less than the win, in part, because we are always growing so the win is always at a higher level. In a period of decline, the number will get closer. That is what happened during fiscal year 2002 after the events of September 11, 2001, when the taxable revenue was approximately 98.5 percent of the total, rather than the typical 96 percent of the win.

Senator Neal:

Have you any figures indicating the amount deducted before the net? You mentioned the write-off for the markers, lucky bucks and other things of that nature.

Russell J. Guindon (Deputy Fiscal Analyst):

The Gaming Control Board does not actually report the amount deducted for the credit or the promotional play to which Senator Neal referred. They report the gross each month, which is the total gaming win, and then they report a taxable number, which is the number that is net of the interaction of the credit play every month. On average, over a fiscal-year period, the ratio is about 96 percent or 97 percent because it has to do with the interaction of the credit play. The answer is no. Basically, the net would be 3 percent of the $9 million and would basically be the amount deducted for all the elements under discussion.

Senator Neal:

Would I be correct in assuming about $2 million is taken off the top of the $9.2 billion for deductions that give the net figure?

Mr. Zuend:

No, it would be more like $200 million or $300 million. Part of it is due to cash flow, not necessarily write-offs.

The next item is the restricted slot tax. The restricted slot license is a licensee that has 15 or fewer slot machines in an area in a location. There are no table games or any other type of games. Currently, the tax is $61 per machine for each of the first five machines and $106 for each additional machine up to and including the 15th machine. The restricted slot tax is a quarterly tax. The restricted slot tax raises approximately $6.7 million per year for the General Fund.

There is also an additional annual slot tax, but it is not a General Fund revenue source. The annual slot tax is $250 per year for each slot machine. It applies not only to restricted licensees but also to non-restricted licensees. Therefore, it is applicable to all gaming.

Senator Raggio:

Where does that go?

Mr. Zuend:

The annual slot tax goes to higher education capital construction funds. The bulk of the revenue goes directly into the DSA. Five million dollars of the revenue per year is kicked back into the General Fund, and then it is re-appropriated, specifically, for university capital‑construction needs.

Senator Raggio:

Although it does not impact the State’s General Fund collection, is this tax also available to local governments?

Mr. Zuend:

A provision in statute allows counties to collect a per-slot tax and sets those rates. Prior to the early 1980s, the State restricted local governments from going any further insofar as taxing gaming revenue. However, in Clark County, for example, there is a percentage fee on non‑restricted gaming. In addition, other counties have had different fees on both restricted and non-restricted slots that were set either by the county or because of the State authority granted in chapter 463 of NRS.

Senator Washington:

What does the annual slot tax raise annually?

Mr. Zuend:

It raises approximately $50 million per year.

Senator Nolan:

I would like to ask Mr. Zuend to indicate any additional local tax hit to the other line items in order to get a better idea of the hit to the end user.

Senator Raggio:

We will do that.

Mr. Zuend:

The next item is Secretary of State fees. There was a proposal in S.B. No. 509 of the 72nd Session to increase certain Secretary of State fees, generally, based on a recommendation made by resident agents. It is complicated to describe because the Secretary of State collects numerous fees. It would have actually been outlined in A.B. No. 536 of the 72nd Session, which I believe was not approved by the Legislature. I am unsure whether it was drafted correctly. It would have raised over, approximately, $30 million if it had been drafted correctly. The final intent would have been to raise approximately $32 million over the biennium and would have included higher securities fees, higher fees on notaries and a variety of higher fees on commercial filings, usually, by lowering some of the initial filing fees and raising subsequent annual fees.

Senator Townsend:

It is our understanding there were actually two proposals—one that came over in the Governor’s plan and one, an industry plan. They were different in concept, but one raised more than the other. I believe the industry plan raised more because you lowered it in the beginning but the renewals were more expensive. That is what we heard at one time in our committee.

Mr. Zuend:

I am not sure I can give you a definitive answer; however, the two proposals were different. The basic Governor’s plan had 50-percent increases in across-the-board rates. At the end of the 2001 Legislative Session, a number of those fees were increased substantially. Therefore, the proposal in the Governor’s budget did not look at the impact on any particular fee or on what a business may or may not do because of the higher fee.

The second proposal was based on resident agents’ suggestions based on their belief it would not have much impact on actual corporate sign-ups. There were some changes in that proposal as well.

The final proposal, considered on the last day of session, adjusted it even further because another part of the proposal was to raise the business license fee, collected by the Department of Taxation, to $100. The final proposal would have reduced the annual fee by $40, had A.B. No. 536 of the 72nd Session been approved, so corporations would not be subject to a double hit; although, they would be paying more. Corporations would also be subject to the $100 business license fee, which would have added considerable revenue as well. The plan evolved over time. It was difficult to get the pieces correct by the end of session.

Senator Care:

S.B. No. 298 of the 72nd Session, to some degree, was predicated upon Nevada recognizing the entity known as a limited-liability partnership. The theory was, if we did that, there would be increased filing with the Secretary of State. It apparently was going to be a popular entity recognized in a handful of states and from that offering would stem additional filings.

Mr. Zuend:

Next, the business license tax was imposed in 1991 when the State was having a somewhat similar budgetary crisis.

Senator Raggio:

Is this referred to as the "BAT" tax?

Mr. Zuend:

Some people call it the BAT tax.

Senator Raggio:

It was the business activity tax (BAT), and now it is called the business license tax.

Mr. Zuend:

Governor Miller’s original plan was called the BAT. Then the Legislature changed it and changed the name as well. It is the current tax paid per full-time-equivalent employee of $25 per quarter. In fiscal year 2002, it raised approximately $78 million. That is currently the most broadly-based business tax in the State.

The next items are new tax proposals. The first one is a bank franchise tax, which was included in S.B. No. 509 of the 72nd Session as an alternative tax for banks separate from the unified business tax proposal. Banks would pay the franchise tax in lieu of the unified business tax because the nature of banks is somewhat different than many other businesses. Nevertheless, the franchise tax would have been imposed on the net income of the financial institutions derived from business conducted by the institution within the State for the preceding quarter. It would be based on that income and is similar to a net income tax except it would only apply to banks. Under the proposal in S.B. No. 509 of the 72nd Session, credit unions would be exempt.

Senator Raggio:

Is that because they were nonprofit?

Mr. Zuend:

Yes, that is the principal reason. They are considered nonprofit under several sections of the U.S. Code. Because the franchise tax is a new tax, that proposal would have imposed a tax beginning July 1, 2003, but also allow the Department of Taxation to not begin collecting it until after January 1, 2004, in order to give them time to collect it. They would then collect two or three quarters of it during the first collection period, and quarterly thereafter.

The next item was discussed in detail during hearings in the Assembly, and probably in the Senate as well. The real estate transfer tax is a tax on the deed of real property when a transaction closes. There are currently a number of exemptions in the law, for example, when property is transferred from one spouse to another or from parent to child. It would impose a tax on the value of the transfer of real property, either on the total value of the transfer or exempting a portion of the transfer from the tax. The specific proposal in S.B. No. 509 of the 72nd Session would allow for a $100,000 exemption, meaning the tax would only be assessed on the amount above $100,000. Any transaction less than $100,000 would not be subject to the initial tax. There are two alternatives proposed. If there were no exemptions, a rate of $1.10 for every $500 of value would be needed to raise the amount of money that was estimated by S.B. No. 509 of the 72nd Session plan. If the $100,000 exemption were granted, the rate would have to rise to $1.88 per $500 of value, or approximately three-eighths of 1 percent.

The current tax is mostly a local revenue source. All counties now impose a 55-cent real estate transfer tax. By State law, that is part of their consolidated tax distribution formula. There is a 10-cent tax all counties are required to impose to be used for low-income housing. The State actually gets the benefit of it, but it is used to supplement the low-income housing budget of the State. Also, there are certain optional taxes. Both Washoe County and Churchill County have a 10 cent per $500 of value tax due to the 1991 fair-share legislation that reduced the supplemental city-county relief tax. Those are the only two that have the additional 10-cent tax. In Clark County, there is an additional 60 cent per $500 tax that is used for school capital projects. I believe it was instituted in 1997. The highest tax rate in the State is in Clark County at $1.25 per $500 of value.

Senator O'Connell:

The Senate Committee on Taxation experienced a problem with the recorders deciding how to collect this tax or, indeed, whether there was a tax to be charged. I believe one of their bills deleted some of the exemptions. Have you discussed deleting exemptions in this bill with the Chairman of the Senate Committee on Taxation? Has the Committee any information on it?

Rick Combs, (Deputy Fiscal Analyst):

S.B. No. 509 of the 72nd Session removed the exemptions from the real estate transfer tax. The Senate Committee on Taxation agreed with the recorders to eliminate the exemptions in its final tax package. There was a slight adjustment to the Senate Committee on Taxation’s proposal on how to appropriately reimburse the recorders for the cost of collecting the tax for the State. Rather than going with the idea of increasing the per-page recording fees, S.B. No. 509 of the 72nd Session had a graduated rate of a certain percentage of the taxes collected in the county. I believe it was 0.01 percent for counties with populations under 100,000 and 0.02 percent for Washoe County and Clark County. There was also a provision allowing counties with populations of less than 30,000 to obtain assistance from the Department of Taxation in terms of administering and collecting the tax if they request help.

Senator O'Connell:

Would staff explain the differences between credit unions and banks in regard to the services performed if, indeed, there are any differences?

Senator Raggio:

Is that information available?

On the matter of exemptions and refinements to the real estate transfer tax, if after our discussions, it remains on the list as one that could be supported by a two-thirds vote, we will delve into those kinds of refinements.

Senator Care:

In regard to the mechanics of the real estate transfer tax, was there any discussion in the Senate Taxation Committee about a case in which a corporation owns a building, the corporation does not sell the building, but another corporation buys all the shares of the corporation that owns the building. The building does not change hands but, in essence, there is a new owner of the building. Does that implicate the real estate transfer tax?

Mr. Combs:

There were significant discussions on that issue. Alan Glover, representing all the recorders across the State, indicated at the final hearing of the Senate Committee on Taxation, the committee felt it was an issue they could not address given time constraints on this particular legislative session. At one point, the committee voted to include a provision in a bill that would have had the Legislative Committee for Local Government Taxes and Finance study the issue of whether or not a tax could be placed on stock transfers in that type of scenario to cover that situation. One of the exemptions currently in statute has to do with transfers to show true ownership. There were discussions as to whether it might apply in some cases if they want to correct the name on the deed being recorded to reflect the appropriate name of the new entity that owns the property. That might have something to do with it, but the recorders did not feel it would totally solve the issue of stock transfers, and it needed more study.

Mr. Zuend:

The next item is a payroll tax. Under this proposal, there are three different scenarios that have been considered and could be implemented on the wages reported to the Department of Employment, Training and Rehabilitation (DETR), which are also subject to the unemployment insurance (UI) tax. Under the UI tax law, employers are taxed on wages paid to employees, up to the taxable limit, in effect, during the calendar year. The tax base, or capped level of wages, is calculated annually and is equal to 67 percent of the annual wage for Nevada employees. The capped wage level for calendar year 2000 is $21,000.

The first scenario would impose a flat-rate tax on gross wages reported quarterly on the UI tax form, which is simply all wages. The second scenario would impose a flat rate on the wages reported up to the capped-level wages and then have an additional higher rate on wages over that amount. The third scenario imposes a tax on the capped-level wages at some rate. All three scenarios have different effects. This is not a tax directly on the employee; it is a tax on the employer. The employer would be liable for the tax.

Senator Care:

It would be helpful for staff to provide various hypothetical scenarios on how the three options might apply. The objections I heard in regard to the payroll tax were that it would encourage employers not to give raises and it might encourage employers not to hire when they otherwise might. I am sure there are arguments, depending on the number of employees and the type of business involved, that any one of the three scenarios could have a different impact. Therefore, if it is possible to prepare those types of scenarios, the members of the Committee could examine them while discussions ensue.

Senator Washington:

Within those scenarios, it would be helpful to address labor intense industries versus those that are not, such as construction versus high-tech industries.

Mr. Zuend:

Those are comparable figures that can be developed from DETR's website. It shows payroll amounts by different industries. I am not sure the construction industry could be fully described as labor intensive because it does have to purchase materials and other things in its operations. For example, non-gaming portions of casinos are very labor intensive, but the gaming portion is not. Usually, labor-intensive businesses pay lesser wages than less labor-intensive businesses because they are capital intensive and tend to pay higher wages on a per employee basis.

Senator Neal:

Is the name “payroll tax” a misnomer? We are not talking about a situation in which the employer pays the wages and then reports it on the form to UI. It is not a tax on payroll as such; it seems to be a tax after payroll has been paid.

Mr. Zuend:

The current tax under the UI system is paid by the employer on behalf of a nameless employee, so to speak, based on the wages paid that employee. It is capped at $22,100, so if an employee works full time and makes $40,000 a year, after that level of tax reaches the capped amount it is no longer subject to the tax under the UI system. The theory is, it is identified to a particular social security number. Employers with a lot of turnover are taxed more heavily to help fund the system because the more turnover, the more likely UI benefits must be paid. Therefore, it tends to hurt more turnover-intensive industries than others. There are high-wage industries that are also more turnover intensive, such as construction because construction jobs come and go, and there is an experience rating for the application of the UI tax. There are different rates depending on the industry and experience. In any of these scenarios, the payroll tax would be a straight rate depending on how it is structured. It would not get into the social policy issue that is involved in the UI tax system.

Senator Coffin:

Sometimes we get definitions and names of taxes that through custom and tradition seem to hang on even though they might not be relevant. For example, the old definition of a motor vehicle privilege tax, which we no longer have, we now call it what it is, a tax that supports government and education. I wonder whether the payroll tax is one that should be called an employer tax because that is who pays it. Was that discussed in the Senate Committee on Taxation?

Mr. Zuend:

This, in its broadest form, is the tax proposed by Governor Miller in 1991, which was ultimately replaced by the business license tax. It was originally dubbed the business activity tax (BAT).

The next item is the service tax. A flat tax rate could be imposed on services provided by businesses in the State. Taxable-services' base is estimated to be $65 billion in fiscal year 2005 which suggests a tax rate of 0.05 percent that could generate approximately $325 million. There was considerable discussion in the Senate of various exemptions from such a tax. This is a problem with most of the new taxes because the current available technology to the Department of Taxation is causing considerable delay in implementing many of the taxes. The service tax would be implemented in January, 2005. On the previous item, the employer tax—dubbed by Senator Coffin—could be implemented right away because it would actually be done by DETR through some type of contractual relationship. The State could reimburse the cost of collecting the tax to DETR because they are, generally, federally funded because it is typically a federal program.

The final item is the tax on the net profits of a business. You are, probably, looking at perhaps July 1, 2004, before any implementation, and even if it was done then, the Department may not be able to collect it until some time after January 1, 2005, because it is creating a new system.

I believe the Legislature has approved, or will approve, money to pay for a new tax collection system. The Department of Taxation’s technology is over 20 years old and does not have the capability to handle new things well.

If the Legislature were to seriously consider a net profits tax, it should devise a way to prevent against the possible fluctuations in that tax. It is probably the single most volatile tax source there is. For example, Utah, in 1999, had a 5-percent corporate income tax rate. Utah is roughly the size of Nevada and collected $184 million in 1999. By 2002, they were collecting only $118 million. Nevada has had no experience with the fluctuation in the percentage difference of revenue collections. When a tax drops two or three percentage points, it affects the budget, as is evidenced when both gaming and sales have been over-projected by a few percentage points. This one can easily be over-projected by large amounts. Perhaps, the Legislature would choose, for example, to limit the Governor’s proposed budget to only spend a share of the amount of revenue projected by the Economic Forum, who, I presume, would be responsible for projecting the revenue from this tax. Revenues over the limit could be set aside, not so much in a rainy-day fund but in a business-profits-tax stabilization account that could be built up to some level. At that point, the Legislature could decide to either change the percentage or do something else that could be set aside as a rainy-day fund only for that particular tax. The money could then be used to accommodate any shortfalls due to incorrect projections on what the tax would produce in a given year.

Senator Raggio:

You are suggesting structuring a budget in which the Executive Branch and the Legislative Branch would be limited to 85 percent of the revenue collected from the net profits tax. The remaining 15 percent would be collected, if it comes in, and held in a reserve account to meet a future downturn or when collecting less than what would be collected from that source.

Mr. Zuend:

That is my suggestion, and I do not know whether it is perfect. This happens when the economy goes into a downturn. Consequently, there is not only a problem with sliding sales taxes or gaming revenue, it is somewhat magnified by a tax such as this. This has occurred in almost every state that has had a budget problem, and a substantial piece of the problem has been due to sliding corporate profits tax revenues. I believe the net profits taxes envisioned here would actually be applied to all forms of business, not just corporations, because we do not have a personal income tax. You would be encouraging people to move away from the standard C‑corporation and become an S-corporation, a partnership or some other form of business in order to avoid the tax. You would have to apply a business profits tax to all forms of business activity and not to just C-corporations.

Senator O'Connell:

As we go through these, is it possible for staff to provide a matrix or chart that would allow us to ascertain whether we are pyramiding taxes on certain businesses?

Senator Raggio:

In other words, if implemented, would they be hitting business from two sources of revenue? It is important to have that information.

Mr. Zuend:

The staff can do that. Obviously, a business pays virtually every tax there is in the State. A business pays sales tax on purchases and equipment. It pays property tax on its property. If there is a transfer and it is taxable, there is real-estate property-transfer tax already in place. A net profits tax would hit businesses that happen to make a profit.

Certainly, on just the corporate level, the net profits tax tends to impact companies with publicly traded corporations as opposed to all corporations because there is no other business entity that needs to show a profit. If a family owns a corporation, no matter how big, they can simply avoid making what are deemed profits under any type of accounting method to avoid this type of tax. It is evident in much of the literature available that the tax is paid by a relatively small number of businesses when it is imposed in other states.

Senator Rhoads:

Could staff include an increase in sales tax as one of the components of a tax plan in the future?

Mr. Zuend:

How would you like us to approach it?

Senator Raggio:

We obviously need to look at it.

Senator Nolan:

In regard to the net profits tax, despite the information we received on the volatility of the tax, it seemed to have some degree of wide acceptance in the various caucuses. I like the idea of the stabilization associated with it. I suggested in one of the taxes to include an emergency trigger if this was a consideration. If a net profits tax was imposed and sustained a long deficit, generated below projected revenues for a period of time, perhaps the room tax could be triggered to offset that deficit. The room tax, which is not paid by residents but paid by visitors, generates a considerable amount of revenue even at a 50 cent per room charge. I would like the Committee to look at that as well as the room tax as part of our considerations.

Senator Raggio:

We will soon find out which have individual acceptance by at least two-thirds of the Senate Committee of the Whole.

Senator Cegavske:

Pursuant to the net profits' comments by Mr. Zuend, with regard to Utah, do we know the circumstances that caused the Utah net profits to decline?

Mr. Zuend:

It declined in reported profits, particularly to the IRS, because almost every state that has a corporate profits tax uses the Internal Revenue Service tax form. Businesses that lose money are generally allowed loss carry-forwards, which also add to the downturn. The decline in Utah was fairly similar to the decline for all corporate profits tax throughout the country. The only state with a tax similar to what is contemplated here is New Hampshire. New Hampshire has neither personal income tax nor sales tax. Therefore, the state has had to struggle more than Nevada to collect enough revenue and try to tax all net profits of businesses. New Hampshire has a de minimis on gross receipts of a business. If it does not have at least $25,000 of gross receipts, it does not even have to file a tax return. Anyone else must file a tax return and, in essence, if they show any profits, pay the appropriate amount of tax. It is not the most productive business tax in New Hampshire; however, they have what is called the business enterprise tax which is a combination of tax on compensation, interest paid and dividend paid. It is sort of a value-added tax and much more productive than the net profits tax. In any event, this is a Nevada legislative decision that will be limited to corporations, and all business entities will be involved.

Senator Washington:

Please provide some history on the reason the business activity tax was replaced with the business license tax.

Mr. Zuend:

There was one proposal that would have attempted to tax personal income, which was deemed unconstitutional. A bifurcated rate was also proposed that would have applied a 1‑percent tax on all businesses except gaming, and the tax on gaming would have been only 0.33 percent, which also ran into opposition. Some of the issues had an impact on labor, and a $100-per-head tax was substituted. A higher tax is not charged if wages are raised under the head tax because a person is still taxed at $100. Therefore, it makes no difference in terms of the tax if the salary is doubled. More employees can be added, and all that is paid is $100, which is not a large portion of the cost of employing a person.

Senator Neal:

In regard to the three-tiered gaming tax, what is the maximum amount we can tax by 3 percent? You said the first $50,000 a month. Are we talking about 12 times $50,000? Is the maximum $600,000?

Mr. Zuend:

Yes, at the 3-percent rate. The first $50,000 every casino earns is taxed at that rate. If a non‑restricted licensee earns less than that, all it would pay is 3 percent.

Senator Neal:

The maximum annual amount would be $1.8 million on the next tier of $84,000?

Mr. Zuend:

The annual threshold would be $1,608,000.

Senator Neal:

Is that the maximum amount on which 4 percent could be taxed?

Mr. Zuend:

Yes, over the course of a year. Each month is discrete. Therefore, if it is below that number for one month and above it the next, there is no benefit.

Senator Neal:

I understand. I am talking about what the maximum could be. Is it conceivable when adding the two together you get $1,608,000 which is when the 6.25 percent could kick in?

Mr. Zuend:

If you are looking at it on any other basis, it is correct.

Senator Neal:

Is there an offset of the gaming tax insofar as federal obligation?

Mr. Zuend:

It is deductible just as any other piece of overhead.

Senator Raggio:

We will now look at the effective rates, and what each unit brings to the table.

Mr. Zuend:

We will start with the gaming percentage fee, which represents the different thresholds for different levels of tax. If it were increased at 0.25 percent across the board, effective July 1, 2003, it would raise an estimated $22.5 million the first year and $25.6 million the second year. The reason it jumps relatively high in the second year is because during the first year there would only be 11 months of collections because the tax is not accrued, it is on a cash basis, except at the end of a fiscal year.

Senator Raggio:

As we go through this, is it possible to understand the implementation of the taxes?

Mr. Zuend:

That is implicit in some of the dates, but the gaming percentage fee, assuming it was done in advance of July 1, could be instituted on July 1.

The next tax is the local school support tax, which is money that goes directly into school budgets. It is a sales tax. The reason there is no increase proposed for a state general fund sales tax is because it would require a vote of the people to implement a tax increase on the state portion of the tax. If the local school support tax were a part of the tax package, it would require an adjustment to the appropriations in the DSA to reflect it as additional revenue directly into the school budgets. Raising the LSST 0.25 percent would raise, effective July 1, 2003, $87.5 million in 2004 and $92.4 million in 2005. There is some question whether it would be wise to implement it on July 1, 2003, because of the lead time needed by the Department in order to notify all the various retail establishments about the provisions and get them in place. Therefore, it is more likely to be implemented on October 1, 2003. The reason you would not want to implement the tax for a month in between is because it would put a burden on quarterly payers to figure out the rate for the first month and a different rate the second or third month.

Senator Raggio:

As a practical matter, the effective date would probably be something like October 1, 2003, which would reduce it by approximately one-fourth making it about $60 million.

Mr. Zuend:

It would be $60-some million. It is a productive tax.

The next tax is the business license tax. There is a 10-percent increase in the tax raised which would be $10 per full-time-equivalent employee per quarter and would raise $8.1 million and $8.4 million in the respective fiscal years. It could easily be implemented on July 1, 2003, because it is not paid until the end of the quarter and would not be due until October, 2003.

Senator Raggio:

This is presently the $100 per year tax. Should it be raised, for example, to $110 per year, it would raise an additional amount. It raises essentially $8 million for every 10-percent increment increase. Therefore, $120 assessment per year would raise $16 million. Is that correct?

Mr. Zuend:

That is correct.

The business license fee would raise approximately $5.9 million in one year and $6.1 million in the second year, which would convert the existing annual fee from a one-time fee to an initial fee and then to a continuing annual fee as long as the business remained in place. It would be applied broadly, at least under the concepts broached in S.B. No. 509 of the 72nd Session, to all entities so the Department of Taxation, in effect, could establish a database to know all the businesses in the State of Nevada, or those businesses who could potentially operate in the State of Nevada. The exclusion would only be for direct sellers—those who sell Avon, Pampered Chef or one of those kinds of products. It was the only exemption proposed in S.B. No. 509 of the 72nd Session.

Senator Raggio:

Is the effective date realistic, or is there a notification issue here as well?

Mr. Zuend:

We originally put the effective date at January 1, 2004, but the Department of Taxation thought it could handle the collection of the fee increase because it would be on an annual renewal basis effective July 1, 2003, and as long as they were not allowed to penalize an employer or business that was unaware the tax had been imposed. Therefore, the Department would catch up with those businesses as they identified who should pay the tax, which was included in S.B. No. 509 of the 72nd Session. There would be no penalty for failure to pay the annual fee during the first year due to ignorance of the law being put into effect.

Senator Coffin:

I am uncomfortable when an exemption is made from the start on something called a direct seller. People in many different occupations are considered direct sellers. How do we really know the number of so-called direct sellers?

Mr. Zuend:

The revenue estimate was never predicated on taxing direct sellers. It was predicated on an estimate of how many people are registered with the Office of the Secretary of State, which includes all forms of business proprietorships, and then an estimate based on Department of Taxation records of the amount of sole proprietorships. Over 200,000 businesses would be subject to this tax. The estimates were not designed to hit the direct seller because existing UI laws make them exempt from that tax. Basically, the provision that would have been incorporated into S.B. 509 of the 72nd Session would have referred to that language.

Senator Coffin:

I am a direct seller of insurance. Would I be exempt under some vague term called “direct seller”?

Mr. Zuend:

That is a good question. Are you subject to UI tax now? If not, then I assume you would be exempt.

Senator Coffin:

That is where we get into the sticky slime of exemptions. I do not care what Avon ladies think. They do not have to come by our house. We must be very careful with exemptions. We are in a cesspool of exemptions now with all our sales tax and other fees. It is very important.

Senator Amodei:

First, in keeping with implementation, in the hearing on S.B. No. 382 of the 72nd Session, the Department of Taxation produced a handout concerning the cost to administer proposals. The cost to convert the one-time business license fee to an annual fee was within $1 million of what the gross collection would be. The Chairman had talked about implementation and collections costs of the proposals we are considering. I wonder whether or not the information is still accurate.

Second, we talked about S.B. No. 298 of the 72nd Session with regard to resident agents and projected income. People indicated the business license tax would have a potential impact on S.B. No. 298 of the 72nd Session in terms of keeping the assumptions that are contained in that bill. Would you check with Charles Chinnock to ascertain whether it is within $1 million of what was generated to collect the fee and, also, whether there is any impact on S.B. No. 298 of the 72nd Session matrix?

Mr. Zuend:

S.B. No. 298 of the 72nd Session included the business license fee as part of its revenue. It was annual and, I believe, was $50. S.B. No. 509 of the 72nd Session, which the Senate Committee on Finance processed the other night, contained a $100 fee. One of the reasons there was a rollback in the annual Secretary of State fee by $40 is to prevent it from being a double whammy. More of the tax would have been collected by the Department of Taxation and less by the Secretary of State. There is somewhat of an offset there.

Regarding the first part of your question, I would have to ask Charles Chinnock; although, it could have been predicated on a $25 fee on the collection cost compared to the revenue generated. It would still be fairly expensive if we are talking about $4 million per year, but it may be more of a one-time charge to make sure everybody is signed up. Then it would be a matter of mailing out an annual renewal and so forth.

Senator Amodei:

The Department of Taxation handed out an analysis on S.B. No. 382 of the 72nd Session. The context of that proposal indicates it would cost approximately $6 million a year to administer this fee, which under that proposal would have generated $7 million. Perhaps, we should double check it.

Senator O'Connell:

I think it is also important for the Committee to note Nevada has three counties and approximately nine cities and towns that do not require a business license.

Mr. Combs:

In response to Senator Amodei’s question, S.B. No. 382 of the 72nd Session was a $50 fee; therefore, the $1 million figure you said would be generated above and beyond the cost is accurate for that fee, at least, at that time. The $100 fee would obviously generate a bit more. We indicated to the Senate Taxation Committee we were not sure it made sense to implement it if there was only a $25 fee because it would cost much more to collect the tax than would actually be collected.

Mr. Zuend:

The next item is the cigarette tax, and it is calculated at a 25-cent increase for a pack of 20 cigarettes. Our estimates were $39.8 million in each year of the biennium. Staff has always calculated revenue estimates based upon some reduction in consumption as the price increases due to a higher tax. It is not a linear function. For example, at 50 cents, it would not double the revenue. It would be relatively close. We assume an attrition rate of 4 percent in the number of smokers for each 10-percent increase in the price of cigarettes, which is based on a lot of national data that was provided. Therefore, you really would not receive twice $39.8 million. I do not want to confuse you. We can always crunch a number at any rate based on our own estimates.

Senator Raggio:

Would it be fair to say, should the 25-cent increase be doubled to 50 cents, the number would not necessarily double because there might be some resistance to purchasing cigarettes?

Mr. Zuend:

That is correct. There are a couple of things involved. One, at some point smokers become fed up with paying high prices and will quit smoking; and two, interstate competition and Internet sales may have an impact as the higher rate goes into effect. We tended to focus only on the consumption part because there is a lot of documented literature on how much a higher cigarette tax reduces consumption. We have not focused on what we think might occur in interstate-border areas and so on, but it is an issue of which we must be aware when trying to use it to balance a budget. The higher the tax, the more exposure you have to those effects.

Senator Cegavske:

Having not sat on the Senate Committee on Taxation, one of the thoughts that comes to mind is tobacco products. Was there an appetite for, or any discussion about, taxing all tobacco products, including rolling papers, pipes and so forth. Do any other states tax those things and was this considered in the committee?

Senator Raggio:

What is the tax rate, if any, on other tobacco products?

Mr. Zuend:

Senator Cegavske talked about rolling paper and such. The only tax on those types of products would be sales tax. There is a 30-percent excise tax on the wholesale price of tobacco products other than cigarettes, such as cigars, pipe tobacco, etc.

Senator Cegavske:

What does the State get from the excise tax?

Mr. Zuend:

The State gets all of it. It raises about $6 million per year. It has been a dynamic tax. Particularly, when cigars and such were the craze. It was going up pretty rapidly. Because it is a 30-percent tax, which is a percentage of the value, when the prices goes up, we also capture some benefit.

Senator Cegavske:

Is it steady or declining?

Mr. Zuend:

It declined for a period of time but began getting double-digit rate increases.

Senator Cegavske:

Did the Senate Committee on Taxation discuss it?

Senator Raggio:

Is there any way to tax illegal Cuban cigars because the golf courses are full of them?

Mr. Zuend:

The liquor tax is somewhat complicated because of the four different rates. This would apply to each 10-percent increment increase in the tax per gallon to each rate. For example, 9 cents on beer at a 10-percent increase would be an extra penny. It raises approximately $2 million per year during the first year and $2.1 million per year during the second year. The tax on cigarettes or liquor would not be a problem for the Department of Taxation to impose July 1, 2003. S.B. No. 509 of the 72nd Session had a 50-percent increase in the liquor tax which would generate approximately $10 million in additional tax revenue per year.

Senator Washington:

Would the alcohol tax be subject to the same 4-percent attrition rate as well?

Mr. Zuend:

I do not believe so, primarily, because the tax is so small in proportion to the price of the product. You actually pay far more on sales tax than on this kind of excise-wholesale tax. For example, the 50 percent proposed in S.B. No. 509 of the 72nd Session would be a 2-cent increase on a six-pack of beer. A person could always purchase a cheaper product since the tax is not based on a percentage of the product's value.

Senator Raggio:

I think Senator Washington is referring to interstate-border sales, which are rather extensive. At what point would they be impacted if, for example, people came from California, purchased wine or alcohol, and left the State?

Mr. Zuend:

That is an issue, and it is not accounted for here. California, for example, already has a substantially lower wine tax than Nevada. Of course, there are a few Nevadans who cross over to California to purchase wine from time to time.

Senator Raggio:

I resemble that remark.

Mr. Zuend:

The quarterly restricted slot tax are those slot machine rates which are now $61 for the first 5 machines and $106 for the next 10. A 10-percent increase would raise the rate for the first 5 slots approximately $6 and raise the rate roughly $10 for the next 10 slots. It could be adopted July 1, 2003.

The statewide room tax is proposed to be increased by 0.25 percent. Currently, there is a state imposed room tax which is a productive tax. It is 2 percent in Clark County and 1 percent in every other county, most of which goes to fair and recreation boards, except in Clark County, where the entire 2-percent tax is devoted to school capital construction projects. In the other 16 counties, three-eighths of the 1-percent room tax is used to fund the State Department of Tourism, and five-eighths is retained by the counties' fair and recreation boards

Senator Raggio:

Did we process a bill that accommodated the vote in both Clark and Washoe Counties on the transportation issue? Was there a component therein for sales tax? I know there was a fuel tax.

Mr. Zuend:

There was a bill for Sparks that would have raised the room tax.

Senator Raggio:

I said sales tax, and I meant room tax. Thank you.

Mr. Zuend:

The room tax's effective date might have to be delayed a month because of notification to local governments. The statewide property tax of 5 cents per $100 of assessed value is an annual tax and would be imposed July 1, 2003. The Department of Taxation and the Tax Commission have not certified tax rates yet and are waiting for the Legislature to make its decisions. The revenue generated from this tax is about $31.1 million, the first year and $33.4 million, the second year.

The real property transfer tax at 0.25 percent, which is $1.25 for each $500 of value, would generate $27.4 million, the first year and double that amount, the second year. The State's County Recorders suggested implementation of this tax would take six months because of other changes considered, such as the removal of some exemptions and the potential to have an exemption of a portion of the total value. For example, if you exempt the first $100,000 of the value of the real property, the amount of the revenue generated is reduced.

Senator Raggio:

Did the proposal specify that the counties would collect the tax and remit it to the State?

Mr. Zuend:

That is correct. In fact, S.B. No. 509 of the 72nd Session provided for the counties to have some reimbursement for collecting the tax on behalf of the State, and also gave small counties the opportunity to ask for help from the Department of Taxation if needed. Although, if a $100,000 exemption is enacted, some of the rural counties will not generate much revenue for the State from this tax because many home sales are less than that amount.

The live entertainment tax broadens the existing casino entertainment tax, both within and without a casino. It would be a productive tax based on the best estimates we can generate which were, somewhat, predicated on the proposals derived by the Task Force on an admissions and amusement tax. It is a bit narrower in some respects, but if the 10-percent rate, now in effect for the casino entertainment tax, were imposed upon all similar types of activity, it would generate $47.9 million, the first year because of a 6-month delay in collecting part of the tax, and $81.1 million, the second year.

Senator Raggio:

This would not contemplate raising the existing casino entertainment tax, but extending it to other live entertainment?

Mr. Zuend:

This tax would begin to cover live entertainment within casinos that is now not taxable; plus, it would cover similar entertainments provided in other venues outside casino properties. The collection would be bifurcated because the Gaming Control Board already collects the tax and administers things in relationship to casinos. They would continue to collect a tax from casinos, which is one of the reasons the expansion of the tax could be implemented for the casinos on July 1, 2003. However, the Department of Taxation would need some time before they could collect it for other venues. The effective date would be January 1, 2004, for other entertainment. It also exempts boxing.

Senator Raggio:

I would like to go back to our earlier discussion about live entertainment. The definition of live entertainment is: any activity provided for pleasure, enjoyment, recreation, relaxation, diversion or other similar purpose, by a person or persons who are physically present when providing that activity to a patron or group of patrons who are physically present. We need to understand what that means. We understand what it means with regard to casino entertainment. Perhaps, the members of the Senate Committee on Taxation could explain what we are talking about here. Obviously, we are not talking about movies.

Senator Townsend:

As we discussed in the Senate Committee on Taxation, in the original goal of broadening this tax, it was understood that if it went outside the jurisdiction of the Gaming Control Board, it would then be collected by the Department of Taxation. If you take entertainer “A” and they appear in a small venue on a gaming property, a large venue on a gaming property, a venue outside on a gaming property, a venue off property or at a place such as Thomas Mack or Lawler Events Center, that is live entertainment; and the tax would be applicable. Using the standards currently in the casino entertainment tax statute, the tax would be applied to all food, beverage and merchandise purchased that accompanied the live entertainment activity. It is my understanding these figures do not include boxing. There was no debate about gentlemen’s clubs because that is live entertainment. The one thing on which we received no testimony was its impact on the brothel industry in rural Nevada.

Senator Raggio:

Would an accordion player or a singer entertaining in a restaurant bring revenue within collection?

Senator Titus:

I see the live entertainment tax in two ways: One, we get rid of most of the exemptions on property, stadiums and so forth, and the tax will be kept at the same rate which is currently 10 percent. Two, we expand the tax to include strip clubs. I originally brought this forward as a way to subsidize obstetricians and gynecologists, but they were not too thankful. Now, I say subsidize the General Fund with it. This is a growing business, as demonstrated by “60 Minutes” that recently did a story on the strip clubs in Las Vegas. They pay very little because all the people who work in them are independent contractors as opposed to employees. Consequently, they do not even pay the BAT. There should be some way they can make a contribution because they are taking advantage of our tourist economy and should be included in the tax.

Senator Cegavske:

Did the Senate Committee on Taxation have any recommendations about removing exemptions? Senator Townsend mentioned boxing is exempt. It has to be an incredible business that would produce quite an income. Should they be taxed? Why would we not include them?

Senator Townsend:

The exceedingly brief testimony on the issue of boxing was due to the competitive nature in which we find ourselves. Two of the largest boxing events that occurred in the last 24 months were held in Memphis and Los Angeles. That became a competitive issue.

The issue of the brothels was not discussed. Although there was some sympathy for including them, it was an issue of tax collection purposes. Again, they are independent contractors, and yet, we know millions of dollars go through those establishments on a regular basis. I do not believe the original concept of this tax excluded brothels; although, when the bill was drafted, I am not sure what happened.

Mr. Combs:

The taxes being discussed are included in sections 65 through 97 of S.B. No. 509 of the 72nd Session. The definition of business entity in that provision includes a house of prostitution. Even if you took that particular phrase out of the definition of business entity, it might be covered under the definition of entertainment or some of the other things, such as admission. It might be covered under the tax even without it, but it would specifically indicate to me the provision in that bill was to cover houses of prostitution. It was also to cover merchandise, food and drink sold in connection with the entertainment activity. The only exemptions were merchandise sold outside the premises for entertainments provided, unless you were required to purchase that as a condition of actually getting into the event, and any boxing contests. Those are the two exemptions.

Senator O'Connell:

Something that was not discussed in the Senate Committee on Taxation that would fall under this category would be tradeshows at convention centers. I do not know what the committee’s feeling would have been, but because there is a competitive issue involved here, it might be something we would want to consider.

Senator Townsend:

My recollection, which could easily be fogged due to the length of time spent on this issue, is that we went down the list in the entertainment tax statute and one thing we did not remove as an exemption was tradeshows. I believe I made reference to a show I attended for the automobile industry in which one of our entertainers put on quite an extravaganza. To invite conventioneers from all over the country and tax them inside their own event, for which they have already paid for the entertainer, was one of the reasons it was in the current exemption. We had that discussion, but I do not know how it was written.

Senator Coffin:

There are a limited number of events that are unique but very competitive with other states. For example, one in Las Vegas is the National Finals Rodeo. There is only one, and yet, it is the target of a number of other states that want to take it away. The tickets are expensive, and a 10‑percent tax on them could be a large number. We are constantly fighting to keep it here. Even though they sign long leases, they also can sign with somebody years in advance and, ultimately, move it. We must consider that to be just as important as any boxing match, which is not basically a scheduled event. It happens to be one of those things that is competitive with other states in terms of the price.

Mr. Zuend:

The service tax is broad and is assessed at a 0.5-percent rate, effective July 1, 2004. Based on the time lines for implementation, it would raise $324.5 million per year.

Senator Raggio:

Is that based on taxing on all services without any exemptions?

Mr. Zuend:

That is correct.

Senator Raggio:

Did the tax committee have a breakdown on eliminating different services or categories from the tax? Is it available?

Mr. Zuend:

I believe the Senate Committee on Taxation actually approved a measure, earlier, that would have imposed a 1-percent tax on services with several exemptions, but not a lot of them.

Senator Raggio:

In the event it makes the qualifying list, we will get the information.

Mr. Zuend:

The tax under discussion is a tax on commercial leases. By most accounts, it would be a fairly productive tax at just 1 percent because of all the rental activity that goes on in the commercial, industrial and retail sector. Implementation would start July 1, 2004, and would generate $21 million.

Senator Raggio:

Is that a proposal to impose the tax on the lease rental?

Mr. Zuend:

Yes, it would be on the value of the lease and collected by the lessor.

Senator Raggio:

Based on the amount of rental the lessor received?

Mr. Zuend:

Yes.

Senator Raggio:

The next tax is the net profits tax.

Mr. Zuend:

Each 1-percent tax on the net income of businesses would generate $37.4 million per year. The tax could be legally imposed July 1, 2004, but not collected until 2005 when the Department of Taxation system is in place. We estimated it would raise $37.4 million, which is a gross figure and does not include a holdback. With a 15-percent holdback, as discussed earlier, it would reduce the amount budgeted by roughly $5 million.

The limited income tax on bank franchises is a 1-percent tax on the net income of financial institutions attributable to Nevada. It is estimated to generate approximately $4 million each fiscal year. Because this tax is much narrower than trying to impose a net profits tax on all corporations or businesses in Nevada, the Department of Taxation believed it could take effect July 1, 2003. Although, they would need at least six months to begin to receive revenues from it. Therefore, the first collection could be two or three quarters of revenue before being collected.

Finally, the payroll tax, which Senator Coffin preferred to name the “employer tax,” is a 1‑percent tax on gross wages covered by unemployment compensation. This is the broadest proposal if applied to all wages reported under the UI system. One percent would generate $163.1 million, the first year because it would only be a half-year collection; then, it would generate $142.4 million, the second full year.

Senator Raggio:

Is that based on the total of all wages? There were three scenarios to which we referred, but would this be the maximum gross payroll?

Mr. Zuend:

That is the total of all wages.

Senator Raggio:

What about mining tax?

Mr. Zuend:

Mining is not on the list.

Senator Raggio:

Under the Constitution, the mines are limited to taxing for these purposes. Net proceeds of mines—what is the rate on that?

Mr. Zuend:

It is 5 percent for any major mine. Of that 5 percent, the State receives a share, which varies by county because the net of the tax rate imposed on the mine actually goes back to the local governments and the remainder goes to the State. For example, if the mine were located in an area where the combined property tax rate was $3 for $100 of assessed valuation, which is 3 percent, the State would get the additional 2 percent. The State also gets 15 cents from the debt rate, which, I believe, was raised to 17 cents on property tax through the CIP bill. While the net proceeds tax on mining is constitutionally limited, the State does decide on the definition of net proceeds.

Senator Raggio:

Is there any other new tax proposal the committee wants to add for consideration or information as to estimated revenue or what any particular rate would produce?

Senator Rhoads:

I assume the sales tax will be considered.

Senator Raggio:

It is called the local school support tax, but it goes through to the guarantee under the DSA.

Mr. Zuend:

It goes directly into the school district budgets and then becomes an offset against the guarantee under the DSA plan. Therefore, it replaces General Fund support dollar for dollar.

Senator Raggio:

We have, by reason of the initiative or referendum, the 2-percent base that cannot be altered. We added various components: local school support tax, city and county relief tax, local uses tax, and the supplemental city and county tax. I think the number we are considering is a statewide result if you added 0.25 percent to any sales tax rate that would go directly to the State. Is that correct?

Mr. Zuend:

This would go directly to the school districts, and there would have to be an adjustment in the appropriation to the DSA to account for the additional revenue that would be generated by this tax.

Senator Raggio:

Perhaps, I am splitting hairs here, but the State could add to it, or are we limited to 2 percent which goes directly to the State.

Mr. Zuend:

We are not limited, but it would require a vote or approval to increase the 2-percent tax which would require a vote in the 2004 election.

Senator Raggio:

Any direct sales tax to the State would be subject to a vote of the people because it would be for the State. If it went to the other component, for example, to fund the DSA or school districts, it would lessen the obligation.

Senator Rhoads:

I am suggesting we raise the current 7.25-percent sales tax.

Senator Raggio:

Due to the State’s right to collect the sales tax, it is limited to 2 percent because of the manner in which it was created. It is my understanding the State cannot impose an additional sales tax rate to go directly to the State. The only way the State can benefit would be through the local school support tax because, to the extent it was collected and put there, it would minimize the guarantee the State has to come up with to address any shortfall. Am I wrong, or even half right on that?

Mr. Zuend:

You are exactly right.

Senator Neal:

Does the question include any additional change to the list, or did you just want to add something to be looked at here?

Senator Raggio:

At this point, we want any other new taxes to be looked at or any topics we left off that currently exist so we can have everything before us.

Senator Neal:

Would this be the time to make a proposal for any particular change?

Senator Raggio:

No, we are going to get to that.

Senator Neal:

I suggest we take a look at the art tax exemption.

Senator Raggio:

I guess that is not a new tax.

Senator Neal:

I am talking about an exemption. It would become a new tax, but we exempted it.

Senator Raggio:

Would that be from the sales tax?

Senator Neal:

Yes.

Senator Raggio:

When we take that up, we will look at the art tax exemption.

Senator Townsend:

One other thing the committee discussed that is not on the list is the satellite franchise tax, which under the federal rules requires the State to impose a franchise fee, not the local governments, which is the opposite of what goes on in the cable industry.

Senator Raggio:

A satellite franchise tax should go on the first list as a new tax. Are there any others? Has the staff anything that has not been brought to our attention? The next step will be a discussion of the various taxes as a potential component of a revenue plan.

Senator Coffin:

I just want to be sure you are not closing any options?

Senator Raggio:

What options?

Senator Coffin:

The options of what will be on the list. Are we trying to define the whole universe at this moment?

Senator Raggio:

Yes, are there some others?

Senator Coffin:

A lot of concepts were discussed.

Senator Raggio:

Obviously, one we have considered is the gross receipts tax. That is a new tax.

Senator Coffin:

I was not proposing adding that to the list. We heard in the Senate Committee on Taxation several concepts in total, which were well thought out. This would be the Senators Care-Amodei proposal. Also, since gross receipts is off the table now, the Chamber of Commerce plan on creating a service tax and reducing the sales tax by about 40 percent might be considered. There are other concepts that had hearings and were discussed but were not on this list.

Senator Raggio:

We should discuss, when we look at each tax, whether there is two-thirds support in any form for the tax. We are not going to make a final decision, we are just going to see which ones we can put on a list to narrow it down to those we feel can pass that basic test. Senators Care and Amodei did have their own plan. If any taxes are not listed here, we will put them on the list for discussion.

Senator Care:

There is not, Mr. Chairman. In one form or another, everything we discussed, today, fell into S.B. No. 382 of the 72nd Session at some point.

Senator Raggio:

At this point, the Chair’s suggestion is to go through the list and decide which taxes should remain under consideration, or alternatively, which should not. The definition of that is, in some form or another, whether there is two-thirds support. We can go down the list and talk about refinements, exemptions, potential rates and things of that kind. Once we get a qualifying list, we need to tailor whatever we come up with to see if there is a two-thirds consensus on what is sufficient to fund the budget. If there is a better way to do it, I will yield to that.

Senator Neal:

When you talk about two-thirds, are you talking about two-thirds of the people voting here, not including what will happen in the Assembly?

Senator Raggio:

We must be mindful of what is going on in the Assembly. I am attempting to be as logical as the Chair can be. We must first know what kind of a plan, including the components, on which we can expect to get two-thirds support. I do not think anyone is pinned down to it, but we need a consensus. For example, if any one of these taxes does not get two-thirds support, it will be nonproductive to sit here and talk about it. I will certainly yield to other suggestions.

Senator Neal:

So, we are talking about two-thirds in the Senate.

Senator Raggio:

Yes, a two-thirds vote in this House. We all understand any plan must have a two-thirds vote of the Legislature. If we cannot get it here, then we will have to find out whether or not they can get it in the Assembly. We have a limited time to determine it. I still suggest, at some time, there will have to be some merger of thought and compromise between the two Houses.

Senator Rawson:

We are going to lose some of our staff. There are four taxes on which, at some point, I would like their opinion or their predictions regarding stability and broadness of the base.

Senator Raggio:

We can ask them now. We, also, need to know what the cost in the Department of Taxation is with respect to whatever we decide should be considered.

Senator Rawson:

I think is easy to look at a lot of these taxes, but I would be curious about the sales tax, local school support tax, property tax, net profits tax and payroll tax in regard to their stability.

Senator Raggio:

Would someone address those?

Mr. Zuend:

There was some criticism regarding the sales tax on a relatively narrow base because there has been more and more movement to services in the economy. To some extent that is true, there has been a movement away from tangible goods to services. However, when looking at the history of sales tax, it has generally kept up with the State’s growth over the years. It pretty much mirrors what you could come out with, for example, population growth and the inflation component. You have to factor out some swings in it in order not to compare the high point of the tax to a low point because of an economic recession. It has pretty much mirrored the growth in the State’s economy.

I assume the reason the services tax is on the table is due to the vision of a separate services tax. There are ways to do this. However, it would require a vote of the people to expand the existing sales tax to services, which many states have done. They do not broadly cover all services, but many states cover a number of services that Nevada does not. From the standpoint of stability, it is subject to cyclical fluctuations in the economy. In general, it is a fairly productive tax for a state and continues to be, based on all the information we have.

Everyone would agree property tax is the most stable and predictable tax. It mirrors the growth of the economy over time. The difference between sales tax and property tax is that sales tax is subject to more surges and property tax is more predictable and will go up 8 percent or 9 percent each year. The sales tax, on the other hand, might go up 10-percent or 11-percent one year when a casino is built, and then the next year there may only be a 5-percent growth.

Payroll increases as wages go up. It functions on inflation and expansion in the overall economy because it has both components. It has the same components as our current head tax. As you add more employees, payrolls expand, and as inflation and productivity generates wage increases, it adds that component as well. It would be very productive over time. If the State stopped growing, it would be slower. If the State continued to grow at 6 percent per year, it would be faster. It would also be subject to cyclical fluctuations similar to the sales tax because of things that happen in the economy. Every 5, 7 or 8 years there is a recession; payroll does not grow, and wage increases slow down. Over time, it would be inherently a dynamic tax.

The net profits tax is the narrowest tax of them all. It is subject to cyclical fluctuations. It will grow by leaps and bounds at certain periods of time as business profitability increases rapidly. It will also take substantial downturns, as I suggested earlier today, from year to year. Should this tax be imposed, staff recommended a mechanism be developed that will allow it to be more stable so the Legislature does not face significant decreases requiring it to either cut spending or to raise taxes to accommodate downturns in the revenue. The net profits tax is also subject to what is done by the federal government in terms of income taxes. For example, the federal tax bill just passed lowers the top rate for personal income to 35 percent, which now means it is once again below the corporate tax rate. What that tends to do is, allow wealthy people to realize more income under the personal income tax system than under the corporate income tax system. You will see a higher increase in S-corporations. When taxes were originally cut in the 1980s, there was a surge in S-corporations from about 4 percent of all businesses to about 15 percent. When President Clinton raised the personal tax rate above the corporate tax rate, that trend in S‑corporation filings stopped. That is another reason that makes the net profits tax somewhat unpredictable. Therefore, should the Legislature choose to impose the tax, a mechanism should be found to make it more stable.

Senator Raggio:

As we go through these things later, there are different scenarios within each of these suggested taxes, either current or new. You mentioned the stability of the State property tax. The information we had was on a statewide tax on all assessed value. There is another scenario in which the State would share only in the appreciation or increase in assessed value or baseline. That was also discussed and will be part of the consideration as well.

This afternoon we will ask staff to participate in the discussion of the DSA and the class-size reduction bills in anticipation of the Governor adding funding for the No Child Left Behind program. I think our time will be used effectively that way.

Senator Neal:

Regarding the 5-cent property tax, is there 1 cent, somewhere, we are not talking about?

Senator Raggio:

The Governor’s Executive Budget and the Task Force recommended an additional property tax for the State, pegged at 15 cents, which would have been outside the cap, which is the $3.64 cap. In addition, under the budget we passed, the State has historically utilized 15 cents of the capped rate to fund capital improvement projects. The proposal by the Governor, which is included in the budget, results in 1-percent addition, so the State is now utilizing 16 cents to fund capital improvement projects. That has been approved in the budget. It adds 1 cent to the property tax rate, and it is outside the cap. It does not compress the tax rate for the local governments. By virtue of the public vote on Question 1, which I will call park projects and other related activities, it resulted, not by legislative action, though, we had to approve it, an additional 1 cent that is outside the cap. Does that clarify it?

Senator Neal:

Yes.

Senator Raggio:

Let us look at the DSA, which was closed by the joint money committees. Then we will go to class-size reduction and the concept ascertained in S.B. No. 191 of the 72nd Session. First, we will review the action taken by the Senate Committee on Finance as reported on the DSA.

Bob Atkinson (Fiscal Program Analyst):

We will initially talk about a new section that will be added to chapter 387 of NRS which implements the desire of the committee to fence off the textbooks, instructional supplies and instructional hardware. In order to do that, the Department of Education will develop a formula to determine how much each district would be required to spend on textbooks, instructional supplies and instructional hardware each year. The formula would be determined in conjunction with the Department of Administration and the Fiscal Analysis Division of the LCB. Once determined, the amount would be provided to the districts, and they would be told, at the first of every year, how much they would be required to spend in that year. After the year is closed, we would review it, and if the district had not spent that amount of money provided, a deduction would be taken from the next year’s monies provided to the district. It is an effort to ensure those monies are spent only on textbooks, instructional supplies and instructional hardware.

Senator Raggio:

It was agreed the money provided for textbooks, instructional supplies and instructional hardware, something in excess of $60 million a year, would be specified to be used only for those purposes and would be, as we call it, fenced in so it is not something that is available in the bargaining process. The language in the bill draft accommodates that as well as indicating the dollar amount.

Senator O'Connell:

Is that included in the $1.4 billion for education?

Senator Raggio:

Yes, it is.

Mr. Atkinson:

It is included and does not alter the amount included in education nor the amount any of the districts will get. The formula only determines the amount that will have to be spent on textbooks, instructional supplies and instructional hardware.

Senator Raggio:

In the interest of time, unless the Committee wants it, you do not have to explain each section of the draft bill. An overview of what was agreed to and is provided on the DSA will be more helpful.

Mindy M. Braun (Fiscal Education Program Analyst):

Section 4 of the proposed draft bill provides a one-fifth retirement credit for teachers in at‑risk schools. It would include "at risk" as defined under Title I which is over a 65-percent poverty level and would also include all designated schools. Teachers who had over 5 years of service, met satisfactory evaluations and had been at an at-risk school for at least 2 years, would be eligible for a one-fifth retirement credit.

Section 5, provides a one-fifth retirement credit for high-impact positions in the second year of the biennium. High-impact positions are math teachers, science teachers, special education teachers, English-as-a-second-language teachers and school psychologists. The criteria for eligibility is one year of service, one year in a school being a math teacher, science teacher, etc. Those teachers would be eligible for a one-fifth retirement credit.

Senator Raggio:

In the Governor’s proposal and the Senate’s initial proposal, there was a stipend. First of all, there is still $2,000 in the budget per new teacher recruitment, but that is not what we are talking about here. There were additional stipends recommended to be funded for teachers who served in at-risk schools or schools in need of improvement. There was also a $2,000 stipend proposed in the high-impact area as an incentive for teachers to obtain credentials in the areas of math, science, English as a second language, and for school psychologists in an attempt to increase the number of qualified teachers in those areas or to address burnout situations. The compromise was, for the same amount of money, maybe even less, we could offer an incentive even more preferable to teachers involved in those situations by giving them a one-fifth retirement credit. In each case, they must meet certain requirements. There is a retention requirement of 1 or 2 years in certain areas and in the high-impact areas such as math and science, they have to attain credentials and be licensed in that particular field. In those cases, they would get a one-fifth retirement credit and, in some instances, they have to work two years before a retirement credit kicks in. What that means is, a teacher would get 1 1/5 years credit on his/her retirement for serving one year. If I misspoke or it needs clarification, please let me know.

Senator Washington:

The proposed draft bill says, “The teacher has been employed as a licensed teacher for two school years at a school within the school district which, during his employment at the school.” If a teacher is employed in Washoe County in an at-risk school, to be eligible, must he or she stay there two years or can he or she move to another district at another at-risk school?

Ms. Braun:

It is not at the same school, and it does not have to be consecutive years. It is any two years at any at-risk school to be qualified. It is within a school district. I can obtain clarification from the Legal Division on whether or not they can switch school districts.

Mr. Atkinson:

Section 6 lists the basic support guarantee amounts for each county. The average, basic support statewide is $4,295 per student as compared to the Governor’s recommendation for fiscal year 2004 of $4,259. The Department of Education determines the average, basic support amount through a formula in the DSA. The average, basic support guarantee is adjusted for wealth, demographics, etc., in determining an amount for each county.

Senator Raggio:

For those who might not be entirely familiar with the plan, why does each district get a different amount than the weighted average of $4,295 per pupil? What factors change it?

Mr. Atkinson:

Briefly, it has to do with the amount of local revenue collected and a number of other adjustments, such as transportation adjustments. The Department of Education looks at the various kinds of districts because of the variance between districts, such as Clark County where there are a large number of students in a relatively small area when compared with one of the other counties where students are spread across many miles—they may be small schools, but 70 miles away from one another. They adjust the weighted average to accommodate those things, the biggest of which is the amount of local revenue collected in the county for the school district.

Senator Raggio:

It is in some ways based on the wealth factor in the counties.

Mr. Atkinson:

Right.

Senator Raggio:

Section 7 of the draft bill lists the same thing for fiscal year 2005?

Mr. Atkinson:

That is correct. The basic support amount is $4,424 for fiscal year 2005 as compared with $4,291 recommended by the Governor. You will see two other columns added when we break the basic support amount down for the individual school districts in the draft bill. At this point in time, we do not know what the ad valorem tax will be in each one of the counties. We put an amount in to estimate the amount of basic support in each county. There is a requirement that says, April, next year, the Department, based on estimates from the Department of Taxation, will recalculate the basic support amounts, incorporating the new ad valorem amounts. The amounts will be adjusted a little, but the guidance is provided in statute.

Senator Washington:

What is the net increase per pupil from the last biennium compared to this one?

Mr. Atkinson:

There is a basic support number from fiscal year 2002 of $3,902; fiscal year 2003, $3,987; fiscal year 2004, $4,295; and fiscal year 2005, $4,424.

Senator McGinness:

Were any cuts contemplated in these amounts? Are these numbers higher than those requested by the Governor?

Mr. Atkinson:

The first year most of the increase relates to the 0.75-percent increase in salaries approved during the first fiscal year and a 2-percent increase in salaries approved in the second fiscal year.

Senator Raggio:

The reason for the difference here is not changing the numbers, but the fact that we added an additional salary increase the second year, not only for teachers, but for State workers as well, and an additional 0.75 percent which is the amount necessary to fund the increased cost of the retirement rate imposed as a result of the retirement situation. Those factors alter the number that was plugged into the Executive Budget. Is that correct?

Mr. Atkinson:

That is correct.

Section 8 lists the distribution of the special education units and the funding provided to the districts on a per-unit basis. In accordance with past practice, 40 of those units are assigned to the Department of Education for the State Board of Education to allocate to the districts with additional needs. The districts make application to the Board for those additional units. Subsection 4 authorizes the Board to allocate approximately $180,000, the first fiscal year and $190,000, the second fiscal year for special education units, which remained the same as past years, and for the program for gifted and talented pupils.

Section 9 actually makes the appropriation to the DSA from the General Fund of $643 million, the first year, and $773 million in the second year. In subsection 4, because the amount is guaranteed in the DSA and we cannot always calculate the exact amount, we allow the appropriation in the DSA to be moved from one year of the biennium to the next. It is the same situation in the current year, wherein, there is three months of sales tax yet to collect and two months of estate tax. Not knowing how much that will bring in, the provision in subsection 4 states that a portion of the fiscal year 2004 appropriation can be moved back into fiscal year 2003 in order to make fiscal year 2003 whole should it become necessary.

Section 10 is the authorized revenue. There are a number of revenue sources that come into the DSA budget that are not in the General Fund—the Federal Flexible Funding, slot tax income, permanent school fund income, federal mineral land lease income, the out-of-state LSST income and the portion of the estate tax that is contributed to the Fund for School Improvement and then is transferred to the DSA.

Section 12 appropriates $16 million in the first year and $18 million in the second year for the adult education program high school diploma.

Section 13 continues to gives each district $50,000 for counseling for elementary school students at risk of failure. It continues at a cost of $850,000 a year.

Senator Raggio:

Is that a change from the existing allocation?

Mr. Atkinson:

That is no change from the existing allocation.

Ms. Braun:

Section 15 provides the appropriation to continue the regional professional development programs, as well as the Nevada Early Literacy Intervention Program. The appropriations are $8.8 million in the first year and $8.9 million in the second year. The money committees approved bringing the Nevada Early Literacy Intervention Program, also called the NELIP, under the umbrella of the regional professional development programs. By combining them, there was about a $3-million savings over the biennium.

Senator Raggio:

These are the four regions in the State for the development of teachers and administrative personnel to deal with the enhanced requirements of the higher standards as well as the literacy program. The four regional training centers have been extremely effective in training teachers to meet those requirements. Additionally, the required No Child Left Behind training is all incorporated within the four regional development centers.

Ms. Braun:

Section 16 appropriates $100,000 in each year of the biennium for the evaluation of the Regional Professional Development Programs and the Nevada Early Literacy Intervention Program to ascertain whether or not they are doing what they should be doing.

Section 17 moves $80,000 in each year of the biennium that was in Budget Account No. 2699, Other State Education Programs, for Project LEAD, under the umbrella of the Regional Professional Development Programs, to keep all professional development together. There is a requirement that the Regional Professional Development Programs do continue Project LEAD in the same light that it has in the past.

Section 18 provides the appropriation for remediation funding. This is remediation funding for low performing schools. These are schools designated as demonstrating need for improvement, having failed to meet adequate yearly progress or having over 40 percent of their pupils score in the bottom quarter on all four subject areas of reading, writing, math and science. All those schools are eligible for state remediation funds and are able to select from a list of remedial programs to implement a program to assist their pupils in increasing achievement. The appropriations are approximately $5.2 million in the first year and $5 million in the second year.

Senator Raggio:

The Legislature, in coordination with other agencies, has an established list of remedial programs available, and the various school districts may opt to use them. This is the funding for those remedial programs. These are carefully screened and determined to be eligible. One that may be added is the Jason Project, about which we heard a great deal. These programs help in reading and understanding for those students who are having that type of difficulty. We have observed a very good response, and the remedial programs have proven to be effective.

Senator Schneider:

Regarding the Jason Project, or any other similar project, the schools can apply for this money for that project?

Senator Raggio:

As soon as the projects are officially on the list and, I am told, the Jason project has made an appropriate application.

Senator Washington:

I heard someone say section 18 appropriates $5.1 or $5.2 million for fiscal year 2003-2004 and $5 million for fiscal year 2004-2005. There seems to be a difference on the matrix where it says $6.5 million and then $6.5 in fiscal year 2005. What is the difference?

Ms. Braun:

You are absolutely correct. When the Governor submitted his budget he combined both the low-performing school funding of $5.2 million and $5 million in the first year, with the before‑and-after-school remediation funding for at-risk pupils found in section 19, and that is $1 million in the first year and $1.5 million in the second year. I believe, the 1999 Legislature allocated $1 million in each year for before-and-after-school summer-school programs, specifically targeted for at-risk pupils. Therefore, it is combined.

Senator O'Connell:

Do we have any information, perhaps from the State office, on the training centers with regard to the number of students who recently failed the proficiency and reading test? Is there any nexus insofar as following the accountability with the teachers who have gone through the training, the amount of money spent in that fund and the students who failed?

Ms. Braun:

The Regional Professional Development Programs (RPDP) take all information from testing results and make a plan for the upcoming biennium. The statewide coordinating council is looking specifically at math as a focus, particularly, in the Clark County School District where the Iowa Test Basic Skills scores were decreased over the current fiscal year. One of the requirements of the Regional Professional Development Programs is once they receive training, it is supposed to be ongoing, and they are to make sure if the teachers were taught one way, they actually perform that way in the classroom. I know the southern RPDP coordinator is specifically looking at that to make sure it occurs because their primary focus is on math at this point.

Senator O'Connell:

Mr. Chairman, does the information come to you or the interim education committee on this nexus if, indeed, there is any?

Senator Raggio:

I know the interim committee receives it. Is that correct?

Ms. Braun:

Yes, there is an interim and final report that goes to a legislative committee on education so they can look at the focus areas as well.

Senator O'Connell:

I am very interested in that area. Thank you.

Ms. Braun:

Section 19 contains the other portion of the remediation funding. It is $1 million in the first year and $1.5 million in the second year. This money has traditionally been used for the before‑and-after-school intercession summer-school programs for at-risk pupils because, under No Child Left Behind, non-Title I schools do not have access to remediation plans as do Title I schools for at-risk pupils. The money committees, in approving this amount of money, indicated it would be for the pupils in non-Title I schools designated as demonstrating a need for improvement. This money could be provided for supplemental services defined under No Child Left Behind and/or tutoring for these particular pupils. This would cover the pupils who do not have access as do the Title I pupils.

Senator Raggio:

Title I schools are schools that, for various reasons or qualifications, receive federal funding.

Ms. Braun:

The definition, under Title I, is a school with a 65-percent poverty rate or higher.

This morning the Assembly committee approved removing this funding of $2.5 million and shifting it to reduce class size in kindergartens to 22:1.

Senator Raggio:

That decision has caused serious distress, which is the reason we are late. The DSA was approved by the joint money committees and was not to be changed. The information provided to the Chair during the recess was the Assembly, notwithstanding, had agreed, as determined in their deliberations this morning, to take out all of the $2.5 million earmarked for this and begin a program that was not agreed to, which is to commence class-size reduction of a pupil to teacher ratio of 22:1 in kindergarten. That is a serious problem for this special session because we do not need anything more to distract us from our main goal, which is to fund the budget. This opens it up to anyone who wants the opportunity to start revisiting budgets, and it is a serious error that I hope can be corrected. In addition, it is the Chair’s understanding the change was requested by the superintendents. I visited with the superintendents who indicated they made no such request. They were asked their preference between this type of funding and starting a new program of class-size reduction in kindergarten. They did say, yes, that would be their preference. They did not, however, institute this. I am alerting the committee that with all the major concerns, making changes that were otherwise agreed to and offering an opportunity to many who want to reopen budgets is a problem.

Ms. Braun:

That was not actually voted on; it was only being discussed.

Senator Raggio:

I want to temper my comments as much as I can; therefore, let us move on to something else.

Ms. Braun:

Section 20 provides $2.9 million in each year of the biennium to continue early childhood programs. These were approved for the first time during the 2001 Legislative Session. This time, there is $301,000 included in the total amount for the Classroom on Wheels Program. Previous to this approval, the Classroom on Wheels Program was funded separately in Budget Account No. 2699. However, the money committees felt all early childhood programs should be in the same place. Therefore, they have all been put into the DSA bill. For this particular year, Classroom on Wheels would receive the full $301,000 under this legislation but would need to meet all the other requirements the same as all other early childhood programs including providing a longitudinal evaluation of the program. The funding may not be used to purchase such things as playground equipment or other non-instructional related equipment.

Senator Washington:

Is the $301,000 in the Governor’s recommendation of $2.5 million?

Ms. Braun:

Yes, the Governor recommended $2.5 million in the DSA, but also recommended $301,000 in a different budget account; therefore, it is what the Governor recommended, but we put it all in one place.

Section 21 provides the appropriation of $2.7 million in the first year and $7 million in the second year for a one-fifth retirement credit for teachers provided in section 4.

Section 22 provides the appropriation for the high impact one-fifth retirement credit positions, which is $5.7 million only in the second year.

Mr. Atkinson:

Finally, section 23 contains the amounts needed to be spent on text books, instructional supplies and instructional hardware at approximately $64 million in the first year and $67 million in the second year.

Senator Raggio:

Section 23, of course, was referenced when we spoke about section 1. This is the total amount that is put into the DSA for the purchase of textbooks, instructional supplies and instructional hardware. This accommodates the $50 per pupil amount in the Governor’s budget, identified as additional funding for textbooks. The committees were concerned about some of the misinformation that appears publicly, intentional or not, on which you may hear from constituents that somehow the Legislature does not provide sufficient funding to provide children text books and supplies. We want to make a sincere effort to point this out. Sufficient money is provided in the DSA for that purpose to allay those concerns. We should not hear, whether from a parent, teacher or campaign ad, that the Legislature did not provide enough money for books or supplies. This also incorporates the funding for instructional hardware.

I think it needs to be made clear this is a sincere effort on the part of the Legislature for funding the DSA. Although we do not fence it off, we provide what we think are amounts, with inflation provided, for the cost of different things and for components of the DSA. In the past, there has been a line item for textbooks. Over a 10-year period, the districts did not use up that amount for textbooks, so obviously the money became available for other purposes, including bargaining. In recent years, some of the districts, or a totality of the districts, have used more than the amount that was allocated. We wanted to make certain this specific use would be provided. If that is not a fair statement, you may enlarge upon it or modify it.

Senator Neal:

Somewhere I read that we are at 28 percent in state support for schools. Where does this put us in terms of state support?

Senator Raggio:

Let me try to answer that, and then Mr. Atkinson may go a little further. The figure you are talking about is where we are on a list of 50 states as to state support. Then there is a list of 50 states as to where we are with reference to teacher’s salaries. Maybe Mr. Atkinson has that information. I can tell you a bit, but it depends upon what list you look at to compare us, and what is included in the term "state support."

Ms. Braun:

It makes a difference. The current information is from the National Center of Education Statistics for per-pupil revenue. We were ranked 37th in fiscal year 2001-2002.

Senator Neal:

Is that 37 going up to 50?

Ms. Braun:

We are 37, and 50 is the lowest. We were ranked 44 for expenditures. For average teacher’s salaries, there are big differences. The American Federation of Teachers in 2001 ranked us 15, and the National Education Association in 2001 ranked us 22.

Senator Raggio:

In one case, they do not add in the 9.5-percent retirement we pay on which teachers do not pay income tax.

Senator Neal:

What percentage of the budget approved in the Senate Committee on Finance is for education?

Senator Raggio:

Are you referring to the DSA?

Senator Neal:

Yes. What percentage of the total budget is the DSA? When I first came to the Senate in 1973, education was 52 percent of the State’s budget. Where are we now?

Senator Rawson:

I think we heard the figure of 55 percent.

Senator Raggio:

Does that include higher education?

Senator Rawson:

It includes higher education, which dropped to 18.1 percent of the total.

Senator Neal:

You are saying the DSA is 55 percent of the total budget?

Senator Raggio:

Is there any other information on that? If we find something else, we will come back to it.

Senator Nolan:

I felt your comments were appropriate. Having two sons in the Clark County School District, I feel some of the students have been unfairly subject to different campaigns in this process. Perhaps, my sons might have been identified because their father is a Legislator. In any case, the superintendents from the school district are present, and it would be nice to have them on record, following our presentation to tell us whether or not passage of this proposal will provide them the funding needed to adequately support current programs, including the GATE and band programs. We have received letters about the Legislature cutting budgets; when we all know we do not cut the budgets, the school districts cut the budgets. We would like to have the superintendents on record telling us whether this funds the needs.

Senator Raggio:

We will finish this, and as I indicated at the outset of this committee, should there be those who need to come forth and inform us of any misinformation or who need to address the further impact of any of our actions, we invite their testimony.

Mr. Atkinson:

Section 24 carries out the Governor’s recommendation and the committee’s approval to transfer any balance remaining in the estate tax in the fund for school improvement into the DSA at the end of the year. That reduced the amount of supplemental appropriation provided in this bill and that may be needed to make the account whole at the end of the year.

Section 26 is a small amount of $47,000 a year for special transportation. I believe Lyon County is the only county that falls into that category.

Section 28 appropriates an additional $3,152,559 as a supplemental appropriation into the DSA for fiscal year 2003.

Senator Raggio:

That is required for the current year.

Mr. Atkinson:

That is the current year based on all of the information we had through last Sunday and what we anticipate it will take to make the account whole. It includes two months of estate tax we have not yet collected and do not yet know the amount and three months of LSST. There could still be an adjustment.

Senator Raggio:

Are there any further questions in reference to the DSA?

Senator Neal:

Did I understand you to say in section 24, any funds left in the estate tax would be transferred?

Mr. Atkinson:

That is correct. The funds for school improvement are where the estate tax is distributed.

Senator Neal:

I thought all the money in the estate tax had been spent.

Senator Raggio:

There will be no money coming in on the estate tax after this biennium because it has been phased out at the federal level. We were getting what we call the “pick-up tax.” That portion was 15 percent, and the State was allowed to receive it. This affects both this account and the University and Community College System budget. Are there any other questions on this?

Senator Cegavske:

Regarding section 28, the Senate Committee on Finance discussed the money set aside for materials and supplies. I thought it was worded differently, or we had instructed it to be worded differently. Here it says it is "subject to negotiation by employers with recognized employee organizations."

Senator Raggio:

As most of this Committee knows, chapter 288 of NRS contains the list of items on which there may be collective bargaining. On the list are materials and supplies. There was some discussion during negotiations to open it up to include textbooks. That is not agreeable. We are not going to get into a discussion regarding opening up, or removing from, items that can be subject to negotiation. They wanted this clarification in here, which I think is appropriate, because our action in fencing in those funds does not affect their ability to negotiate otherwise on the items already in the chapter 288 of NRS list, and that is materials and supplies.

Senator Cegavske:

That is what I wanted to clarify because we had talked about it, and I wanted to make certain this wording was the intent of our committee.

Senator Raggio:

They wanted to add textbooks, and we did not agree to it.

A lot of discussion and negotiation went into final closure between the joint money committees on what should go into the DSA. I now ask whether there is anything additional the Committee wants to discuss or bring up on the DSA. I was prepared to ask for a motion to recommend a do pass to the full Senate; however, I am going to suggest we defer it until we are certain the Assembly’s action in their select committee comports to ours. With everything else we have to do, I do not think we want a conference committee on these collateral issues.

Senator Mathews:

When the time comes for the motion, are we planning to bundle the DSA with the tax proposal?

Senator Raggio:

That is up to the Committee as a whole. I do not think that is my directive.

Senator O'Connell:

Does this also include the funding for the implementation of the Federal No Child Left Behind Act?

Senator Raggio:

The part that deals with the one-fifth credits does.

Ms. Braun:

This includes money for remediation programs with regard to the Federal No Child Left Behind Act.

Senator Schneider:

In section 18 where it says the $5.2 million is applied for remedial education programs, how would the Jason Program qualify under that?

Ms. Braun:

Any program that could possibly assist pupils having problems in school is eligible to be considered for inclusion on the list. Therefore, the Jason Program has submitted an application and provided information. Essentially, it would be approved for science-related information on the list. It would be reviewed for the upcoming list.

Senator Washington:

I thought there was a proposal dealing with accountability concerning the DSA. I wonder whether or not it is part of this, or is it a separate proposal outside of the DSA?

Ms. Braun:

Are you asking about the accountability for education? S.B. No. 191 of the 72nd Session dealt heavily with accountability, but I do not believe any funding is directly tied to it.

Senator Washington:

So, it is actually S.B. No. 191 of the 72nd Session?

Ms. Braun:

If that is what you are looking for, I think that would be where it is.

Senator Raggio:

In further response to Senator Neal’s earlier question, I will ask Mr. Ghiggeri to comment.

Mr. Ghiggeri:

The percentage funded from the General Fund into the DSA and class-size reduction in fiscal year 2005 is approximately 35 percent of the General Fund for ongoing appropriations.

Senator Raggio:

That is K-12.

Mr. Ghiggeri:

In fiscal year 2004, it is approximately 32.5 percent. It is less in 2004 because we are using about $68 million of the Federal Flexible Spending dollars in fiscal year 2004. If you add that to what is provided by the Legislature in 2004, the funding in 2004 would also be about 35 percent of the total General Fund.

Senator Raggio:

What is higher education?

Mr. Ghiggeri:

Higher education is approximately 18 percent.

Senator Raggio:

Adding 18 percent to 35 percent is 53 percent, which is the total portion of the General Fund that is used for education, K-12 and higher education.

I indicated at the beginning of the meeting we would take testimony for the purpose of correcting any misinformation or defining any impact of the proposed action. Also, Senator Nolan had a question, and I would invite anyone representing the school districts to respond to it.

Jim Hager (Superintendent, Washoe County School District; Chairperson, Nevada Association of School Superintendents):

In response to Senator Nolan’s comment or question, I think it is important to note that nowhere in our proceedings throughout this year have we talked about Legislators cutting budgets. When looking at our fiduciary responsibilities, in the timing by statute when we must have balanced budgets and public reports, there was no known way in which the Legislature was giving the dollars to support education, whether it was at the status quo, Governor’s budget or some of the other iterations.

As a fiscal manager, all 17 school districts presented, basically, what we thought the situation may be, and we informed our public all the way through, just like the democratic process here. Last night, the Washoe County School Board passed a balanced budget that, at this point, is a status quo budget, which means, based on our needs plus what we think we will get in revenue, we are looking at a $16 million budget reduction. We were not trying to scare anyone or do anything dishonest. We were simply saying this is the situation. We also cited to the public, last night, based on the laws, since the Legislature was unable to come to closure on the DSA and its funding, that as soon as you adjourn we have 30 days to amend our budgets. Based on what you do, that is how we will amend our budgets accordingly. Therefore, I want to make certain that does occur.

I will answer Senator Nolan’s question in regard to the Washoe County School Board. Twenty-four months ago, a group of superintendents put together, at the request of the Governor, an invest proposal. In that proposal, we identified those things we believe would make a high‑quality education system in Nevada. That amount came to approximately $900 million. We knew it probably would not be accepted but we thought it was a negotiation and discussion point. I had personal conversations with the Legislature. The Governor put much of the invest concepts into his State of the State address.

When you started looking at the Governor’s budget and what this budget does, we think it is well on the road, and we thank you for your considerations. Will it completely take care of all the needs? I do not think so; however, it is significantly greater than what it was. We have changed some positions within the proposals and recommendations before you.

I want to cite one specific item. Senator Raggio was very clear on the $50 per pupil for textbooks and fencing those funds off. Let me not leave any doubts, $50 per student is a lot of money when you take it times 300,000 students in our State. It generates a lot of money. Let me share with you, one textbook at a high school, today, costs about $60 a student. Take that times six classes, and that is a significant amount. While this is a great stride forward, it is not going to address the entire textbook issue.

Senator Raggio:

This budget does not contemplate only $50 per pupil will be used for books. That is an enhancement over and above what is already in the budget for books.

Mr. Hager:

I stand corrected. That is true, and we understand it. Even with that and what we have been putting in, an audit of a year ago showed the districts are spending significant dollars and meeting the intention of the Legislature. Those books are very expensive. Hopefully, that answered a couple of the questions.

Senator Raggio:

I think to be more responsive to Senator Nolan’s question, if the schools are funded in the manner in which this DSA is funded, together with the funding that goes into the class-size budget, and this is just General Fund, together with the authorized funding, will you have to make the kind of cuts that have been feared by the public?

Mr. Hager:

We will have to make some reductions and do not know how it will work. In our case, it is probably $5 million, at most, that we will have to adjust. Most of that because we are opening new schools.

Senator Raggio:

Will you have to go to a 4-day school week?

Mr. Hager:

No.

Senator Raggio:

Are you going to have to cut all athletic activities?

Mr. Hager:

No.

Senator Raggio:

Are you going to cut all the music programs?

Mr. Hager:

No.

Senator Raggio:

Are you going to cut all the arts programs?

Mr. Hager:

No.

Senator Raggio:

What else? I am just going down the list.

Mr. Hager:

The gifted and talented program, ROTC—I have heard them all. We have a balance on revenues that we have to address, plus expenditures, but we would not be doing that.

Carlos Garcia (Superintendent, Clark County School District):

We want to commend everyone here today. I know it has been a lot of work, and it is hard to reach compromise. We really want to thank you for putting education at the forefront. It is exciting to come to a session where we really are talking about education. In terms of our cuts, what you are looking at approving in Clark County will just about maintain our programs as they are. We are excited about that because we were looking at cuts. Down to the last moment, we were going over budgets as we read the paper to find out what is going on and see what we could do to stay on top of it. We had a worse-case scenario and were asked to put it together by the Governor, and we worked on those things.

Senator Raggio:

We do not blame you for that. We do some of that during campaigning. I think, in fairness, the question was asked, when you compare what we are doing here with what the Governor proposed, the major change is we did not choose to fund a full-day kindergarten program, which, as you know, has astronomical costs, although, worthy. What we did, however, was add a salary increase for teachers in the first year and an additional increase in the second year. In fairness, I think that is really the major difference.

Mr. Garcia:

Absolutely, and we thank you for that.

Mary Pierczynski (Superintendent, Carson City School District):

I would also like to thank the Legislature for the emphasis placed on education this session. If the DSA is approved, as you have outlined, I know Carson City would not be anticipating cutting programs. We are most appreciative of that.

Senator Raggio:

We do not want Senator Amodei having apoplexy because you cut out the Carson Senator’s football team. He was a star there in his youth.

Ms. Pierczynski:

He, sometimes, lives in the past, but we will try to keep it there.

Senator Nolan:

Senator Amodei might not have apoplexy; however, on my visits home on the weekend, I became apoplectic. I appreciate your coming here and putting on record there was no concerted effort or campaign by any of the school districts to somehow imply or promote that the Legislature was cutting your budgets. Also, for the record, the GATE programs will not be cut, as well as bands, sports, ROTC, and no 4-day school week. However, we were subject to a massive campaign, while some people would say it was an effective campaign, that if it got under our skin, we were going to do the right thing anyway. That leads me to wonder who motivated this campaign. It would be wonderful to have a complete biopsy on this if we had our friends from the teachers' union come in and let us know how they are dealing with the funding package as well. I thank all of you for coming here, today.

Senator Washington:

What percent of your budget encompasses employees’ salaries, benefits and compensation packages?

Mr. Hager:

In Washoe County, we run between 85 percent and 89 percent of our General Fund budget for salaries and benefits.

Mr. Garcia:

We are about the same in Clark County.

Ms. Pierczynski:

In Carson City, we are at 85.7 percent.

Senator Washington:

When do your actual employer-employee negotiations start?

Mr. Hager:

They are actually in process. We typically start negotiations in February and move them forward. At this point, it is delayed because we do not know our funding source.

Senator Raggio:

Is there anyone who takes a different position and does not like this? Is there anyone from the teachers’ association who wants to address it? If not, we will assume they are satisfied. Perhaps, that is a rebuttable presumption.

Senator Carlton:

Last January, there was an item in the news about the 17 school superintendents saying, depending upon what the Legislature did this session, they were speculating upon going to court. I wonder whether they are still looking at that or have decided to withdraw that position.

Senator Raggio:

Do any of you or your districts feel litigious at this point? Frankly, we are bankrupt if you sue us.

Mr. Hager:

I guess, it would be slim pickings. Since this Legislative session began, everyone has been asking us those questions, largely because there have been cases like that across the country. Obviously, we keep up to date with all those cases to make certain we are adequately funded. We researched it, but feel as long as we work together as we have, and continue working toward investing in good education, there will be no litigation. We did not receive all our $890 million, but I think we are taking the right steps. I think the tax issue you have to resolve will take quantum leaps forward. Therefore, it is our hope we never have to go in that direction. We are working together to make something good for the children in this State.

Senator Raggio:

Do we take that as a no? I would indicate to you from some of my experience, when you get into that kind of litigation the only winners are the lawyers.

I have a motion by Senator Townsend, seconded by Senator Amodei, for do pass on the DSA account in its form as presented.

Are there any questions?

Senator Coffin:

Why is it you want to hold on to it before sending it to the Assembly. I think the strongest message to move this body forward is to send our strong statement to the Assembly as soon as possible.

Senator Raggio:

We want to work with our colleagues over there because that is the only way we are going to complete this. I think our remarks deserve to be heeded.

Are there any objections to the motion?

The motion carried unanimously.

I would now like to take up S.B. No. 508 of the 72nd Session, the bill that covered our agreements on class-size reduction. If I recall, we approved this bill. It passed the Senate then went to the Assembly where it did not get processed. Let us go through what we approved in the Senate.

Ms. Braun:

Section 1 of S.B. No. 508 of the 72nd Session provides the appropriation in the first fiscal year of $108.9 million, which covers the salaries and benefits of 1,887 teachers. This was approved as the Governor recommended and would continue the class-size reduction program at a ration of 16:1 in grades 1 and 2, and 19:1 in grade 3.

Section 2 of S.B. No. 508 of the 72nd Session provides the appropriation for the second fiscal year of the biennium of $117.1 million for 1,953 teachers.

Section 3, S.B. No. 508 of the 72nd Session, provides that school districts may continue to utilize the class-size reduction funds for grade 3 to carry out alternative programs for reducing the ratio of pupils per teacher to carry out programs of remediation. This went back to 1997 where the rural school districts utilized the funding from grade 3 to implement reading recovery, which is a remediation program.

Subsection 2, section 3 of S.B. No. 508 of the 72nd Session is new. The money committees agreed, in lieu of complying with either the 16:1 in grades 1 and 2 and 19:1 in grade 3 or utilizing the funding for remediation programs, such as reading recovery, the rural school districts could utilize the money for flexibility in grades 1 through 6 with regard to limits in class size.

Senator Raggio:

When we say rural counties, I think in all fairness, some counties, other than Clark and Washoe, may not consider themselves to be rural. Does this cover all other counties except Clark and Washoe?

Ms. Braun:

That is correct. The limits would be 22:1 in grades 1, 2 and 3 and 25:1 in grades 4, 5 and 6, should a school district decide to do class-size reduction across grades 1 through 6. Should they choose to do class-size reduction, they must complete an evaluation and look, specifically, at how the alternative class sizes would impact team teaching. Would it eliminate or reduce team teaching in grades 1 and 2? Would it reduce pupil discipline issues in the classroom? Would it increase academic achievement of pupils?

Section 4 of S.B. No. 508 of the 72nd Session refers to the Clark and Washoe County school districts. Due to the expense of implementing alternative class sizes at this time, which would require additional classrooms and more teachers, the school districts are required to conduct a study to look at class sizes and what would work to improve pupil achievement, reduce team teaching and decrease pupil discipline. The final report, submitted to the next Legislature by the school districts, would look at the number of additional classrooms, teachers and costs needed to implement any alternative class sizes.

Section 5 of S.B. No. 508 of the 72nd Session provides the authority to utilize the funds, first, for pupils considered at risk of failure.

Section 6 of S.B. No. 508 of the 72nd Session provides a sunset clause for this increased flexibility that cannot go beyond the upcoming biennium without the approval of the Legislature.

Senator Raggio:

Are there any questions? We have processed this before. Would anyone in the audience like to provide any information not brought to the attention of the Committee?

Senator Cegavske:

The Elko school district studied and brought us what they believe were improvements for class-size reduction. My question is to the State Department of Education as to whether we have a way to accurately account for the numbers in regard to class-size reduction to make certain we can see progress and have some sort of record on how we are doing. The districts are all doing something different. Now that we have something more systematic, is there anything in here that will require each district to provide the Legislature with some kind of accountability in two years, telling us how it grew, how it did and are the dollars paying off. We need that information.

Senator Raggio:

All the school districts requested flexibility. It was a controversial matter in our discussions with the Assembly, and we reached an agreement. There are differences of opinion as to the effectiveness of class-size reduction. Some studies show it does not make a difference, and others claim it does. S.B. No. 508 of the 72nd Session points out various things we want to have reported. Therefore, to that extent, the bill specifies those things. I ask Dr. Rheault to enlarge on that or correct it.

Keith Rheault (Deputy Superintendent, Department of Education):

As I read S.B. No. 508 of the 72nd Session, should a district choose to go to an alternate plan, it will require an evaluation and a report. The alternate plan is using the 22:1 or 25:1. If they choose to stay with the 1:16 in grades 1, 2 and 3, we have never had funding to support an evaluation. I think the proof will be when we test in third grade as to how students are achieving. We have had anecdotal testing results where we followed students that were in class-size reduction for first, second and third grades, versus students who moved into the district. It showed, in most cases, some improvement in the achievement scores of students who had been there for three years versus those who had not. However, that was as far as we would go with a formal evaluation of the standard first, second and third grade class-size reduction.

Senator Raggio:

One of the items that requires a report on the effectiveness of the alternative program, or flexibility, is the issue of not only pupil discipline but, certainly, team teaching on which I think everyone agrees the ultimate goal is to try to do without. Hopefully, we can obtain some information that was otherwise not available, nor would it be available, unless we allowed this kind of flexibility.

Mr. Rheault:

We collect and keep track of team-taught classrooms versus non team-taught classrooms, and we can provide longitudinal studies in how it has progressed. We will be able to keep track as to whether it helped reduce team teaching from previous records. There is also some other data we can put together for you.

Senator Cegavske:

Mr. Rheault, would you be amenable to talking with the superintendents and asking them to give you information and material for some type of back up and a plan on what they are doing to provide the State the information to compile so in two years we would have something that would show what is going on with class-size reduction.

Mr. Rheault:

We would be open to discussing what they could provide that would be of interest to the Legislature in showing that class size is assisting students in the State. I think the question is, what criteria will show this? We would need to have some discussions that could readily be provided in a consistent manner by all the districts. We are open to it.

Senator O'Connell:

Mr. Rheault, has it been about six years since we put class-size reduction into effect? Do we have an indication whether a child has gone from the third grade all the way through to high school? Can we identify those students who have not moved in and out of the district, but continued all the way through in the school district?

Mr. Rheault:

Senator O'Connell, we have not done a study in the State on that issue. I think the first class started in 1989, and those students graduated. I know the Clark County School District did a study in 2001, and probably before that, looking at high school students who had gone through class size versus those who moved in. As I recall that report, there were significant differences between students who had been in the State for 8 to 12 years versus those who had been here less than that. We could probably request a report, but I know there was a significant difference in the results of student achievement in that group. It is the only study of which I am aware.

Senator O'Connell:

Would you supply that study to the interim study on education?

Mr. Rheault:

Hopefully, we have a copy. I will check with Clark County.

Senator Washington:

Is it my understanding in section 6 of S.B. No. 508 of the 72nd Session, after the 2005 biennium, unless approved by the 73rd Legislative body, this will sunset?

Senator Raggio:

That was part of the agreement. In order to get the other House to agree to allow flexibility, we agreed it would sunset at that time. They were afraid if it were put in permanently, it might not be something they would want to continue. The studies and reports should give us the kind of information that will determine whether or not it should be reestablished.

Senator Washington:

I agree the studies and reports are going to be very important.

Senator Neal:

Section 5, page 5, of S.B. No. 508 of the 72nd Session says, “The money appropriated for class-size reduction pursuant to section 1 and 2 of this act: may be applied, first, to pupils considered most at risk of failure.” Does that mean you would not do it?

Mr. Rheault:

I think that might be referring to the kindergarten class-size positions, and there are only a limited number. I think it is 23.5 FTEs that are funded for kindergarten. That money was intended for those 23.5 FTEs and allocated to the most at-risk schools. We must clean up a few things. There were a couple of FTEs supplied this year that did not necessarily go to high at-risk schools.

Senator Neal:

Are we talking about grades 1, 2 and 3?

Mr. Rheault:

No, because grades 1, 2 and 3 should have class-size reduction; therefore, we are not talking about those.

Senator Neal:

Does anything in here apply to at-risk schools?

Mr. Rheault:

It is my understanding the 23.5 kindergarten positions funded through class-size reduction may go to at-risk schools as a priority. That is how I read it. It was really for those limited number of kindergarten positions. Legislative intent is to put those 23.5 positions in at-risk schools to reduce class sizes in kindergartens.

Senator Neal:

Do we have any at-risk schools?

Mr. Rheault:

Yes sir. There are approximately 100 schools out of 530 schools in the State recognized as Title I, at-risk.

Senator Neal:

Does anything here address the situation in terms of funding?

Mr. Rheault:

There was a lot of funding for at-risk schools in S.B. No. 191 of the 72nd Session, which is the No Child Left Behind Act. We receive $78 million a year over the biennium specifically to support Title I schools. It is federal money, but State DSA funding is also provided.

Senator Neal:

Do we have State funding for that?

Ms. Braun:

State funding for class-size reduction applies to all schools whether or not they are Title I. However, Title I schools receive State funding as well.

Senator O'Connell:

Mr. Rheault, must the Edison schools adhere to the same qualifications for the class-size reduction?

Mr. Rheault:

The Edison schools, contracted by the Clark County School District, are still Clark County School District schools; therefore, they must adhere to it.

Senator Raggio:

Does anyone wish to provide any additional information? If not, I would accept a motion to do pass the Distributive School Account as discussed on this basis dealing with class-size reduction.

I have a motion by Senator Cegavske, seconded by Senator Schneider, to pass the DSA dealing with class-size reduction as discussed.

Are there any questions?

Are there any objections to the motion?

The motion carried.

Senators Carlton and Neal voted no.

Senator Carlton:

I voted no because I oppose the flexibility portion; however, I support class-size reduction.

Senator Raggio:

Although it is not in the Governor’s Proclamation, I assume it will be and our time can be used effectively if we have an overview of this issue. The Senate heard S.B. No. 191 of the 72nd Session, and we passed it out of the Senate. However, on the Assembly side, there were many amendments added at the last moment, some serious and some acceptable. Our Chief Principal Research Analyst will tell us what it covers, the need for it, the requirement in federal law and any acceptable amendments to the bill. This requires major funding.

H. Pepper Sturm (Chief Principal Research Analyst):

Ultimately, S.B. No. 191 of the 72nd Session came from the interim study committee. Senators O'Connell and Washington, who are not on the Senate Committee on Finance, received extensive briefings about this bill. Basically, the measure revises the State’s public school accountability provisions contained in the Nevada Education Reform Act and related sections of the law to conform to requirements of the federal No Child Left Behind Act of 2001. The bill, as amended, requires the State Board of Education to define the measurement for determining whether this State, each school district and each public school, has made adequate yearly progress in accordance with the federal law. The primary method of measuring adequate yearly progress will be standards-based test scores in grades 3 through 8, along with the high school proficiency exam. Secondary indicators will include graduation rates for high schools and attendance rates for other schools.

The bill also revises existing provisions concerning the accountability designations of public schools and, for the first time, requires the Department of Education to designate school districts based on the achievement of pupils enrolled within the school district as a whole, using categories and criteria similar to the school level accountability requirements. As required under federal law, all students must now be tested, including disabled students and English language learners. The Act sets consequences for public schools and school districts designated as demonstrating need for improvement. Schools and school districts must be designated in need of improvement based on two consecutive years of data. District level technical assistance partnerships provide technical assistance for schools in need of improvement for the first two years, and then the Nevada Department of Education must form state-level support teams for the third and subsequent years of needing improvement.

Under federal requirements, if schools receiving Title I funds continue to be classified in need of improvement for 5 or more years, certain consequences are imposed that can include specified corrective action and significant restructuring of the school. For non-Title I schools, these consequences are optional at the recommendation of the State School Support Teams. School districts that receive Title I funds and are also classified in need of improvement, and that is all 17 of our Title I school districts, can face similar sanctions.

S.B. No. 191 of the 72nd Session revises provisions governing accountability and reporting requirements in accordance with implementing spring testing for all statewide achievement tests in grades 3 through 8. Beginning in the 2005-2006 school year, grades 3 through 8 will utilize criterion reference tests, which are tests directly linked to our state academic standards and the existing norm reference tests, those are the Iowa Test to basic schools, will be permanently shifted to spring administration in grades 4, 7 and 10.

In addition, the measure revises provisions governing the qualifications required of certain teachers in core academic content areas and for paraprofessionals in Title I schools as required for compliance with the federal law. A new middle school license is authorized to comply with the federal law. Further, each school district must develop a plan to ensure students in schools receiving federal Title I funds are being taught by experienced teachers.

S.B. No. 191 of the 72nd Session also revises existing provisions governing regional professional development training programs for teachers and administrators and provides for additional duties for the statewide coordinating council for these regional training programs. In addition, the measure clarifies that no provisions of the Act will supersede, negate or limit collective bargaining agreements.

Finally, in the policy part of the bill, the Legislative Committee on Education is authorized to review the State Board of Education regulations that are adopted pursuant to this bill. School districts are required to develop plans by which parents will receive student test scores in a timely manner and the Nevada Department of Education is required to prepare information to help parents, educators and others understand the various provisions behind the No Child Left Behind Act.

With regard to appropriations, the measure contains two appropriations including an appropriation from the State General Fund to the IFC in the amount of $1.4 million in each fiscal year of the biennium to obtain contractual services of a consultant to provide brochures for reporting pupil test scores. Further, the bill contains $9,950,000 in state General Fund appropriations to the Department of Education for school district educational technology, which is mostly split between each year of the biennium. This appropriation also contains an appropriation for $500,000 to the State Library for the statewide databases. You may have been receiving e-mail questions in regard to that.

According to information submitted by the school districts and the Nevada Department of Education, this amended version of the bill, the original bill was much more extensive, reduces the original fiscal note significantly. In response to their requested changes in the testing program and changes from fall to spring testing for accountability, representatives of the Nevada School District Board of Trustees, the district superintendents and the Nevada Department of Education have assured the Legislature and the Senate Committee on Finance that all time lines contained within the bill will be met and these changes will not result in over testing of students.

Senator Raggio:

S.B. No. 191 of the 72nd Session took a lot more effort than anticipated. It received extensive hearings during the interim before the Legislative Committee on Education. When we first learned the federal law was being enacted, a great deal of time was spent by staff, not only here but across the country, in determining the impact and potential funding. There were a number of meetings on the bill in the Senate Committee on Finance that went late into the evening. It was a concerted effort that could not have been achieved without the diligent effort of staff and input from all sectors interested in the measure, including various school districts, the Department of Education, the State Board of Education and the Teachers’ Association. It went through many changes, accommodations and requirements. The bill sent out of the Senate was a result of all that input, concerted action and deliberation. It is my understanding, when it got to the Assembly on the last night, there were a number of amendments made in committee and appear in the bill before us. What amendments were made to the bill? What is the status of the bill at this time since it did not pass out of the Assembly?

Mr. Sturm:

I believe the Assembly Committee on Ways and Means took action to amend and do pass the bill. I am not certain whether the amendment was taken up on the floor of the Assembly.

Senator Raggio:

Can you tell us what amendments were considered and recommended?

Mr. Sturm:

The vote was to delete section 7 of S.B. No. 191 of the 72nd Session, which is the state improvement plan. Federal law requires the State do a report card but does not go the next step and indicate the data that must be used to do a student achievement plan.

Parts of section 6 of S.B. No. 191 of the 72nd Session were deleted. They included the list of data elements on the state accountability report card and some other accountability elements currently required under the Nevada Education Reform Act.

Proposed for deletion were sections 12 and 13 of S.B. No. 191 of the 72nd Session, which are requirements under current law for retesting pupils at schools if the number of pupils tested is not sufficient to meet the law. Under current law, it is 90 percent, but it was raised to 95 percent to comply with No Child Left Behind.

Also, proposed for deletion were sections 16, 17 and 18 of S.B. No. 191 of the 72nd Session concerning advisory and technical assistant partnerships. Those were created for the first two years of a school being classified as needing improvement. The first reprint of S.B. No. 191 of the 72nd Session contained a checklist of items to be reviewed by district personnel with the school to ascertain how the school was progressing and whether changes would be needed.

Also, eliminating the optional corrective action alternatives to which non-Title I schools needing improvement are subject. There was a motion to substitute the State Board of Education drafting regulations in this regard. There were some restrictions on what those restrictive actions could be.

I believe, there was a motion to remove the Legislative Counsel Bureau’s accountability unit from receiving a number of required reports and activities specified in S.B. No. 191 of the 72nd Session, including revisions to section 43 where the Bureau was to contract for an analysis of accountability.

Senator Raggio:

Those were all elements of the Nevada Education Reform Act that was passed several sessions ago.

Mr. Sturm:

With regard to section 55, subsection 1, of S.B. No. 191 of the 72nd Session, on which the Senate Committee on Finance spent a great deal of time looking at SMART or SANE, there were proposed deletions on paragraph (c), which is longitudinal comparisons; paragraph (d), longitudinal analysis; and paragraph (e), the ability to link individual teachers to individual pupils.

Another proposed change was to section 129 of S.B. No. 191 of the 72nd Session which was a $2.8 million appropriation to IFC to specify the contractual amount instead be appropriated directly to the school districts for this purpose rather than having a single contractor.

There was an additional proposal to the amendment to add what was contained in A.B. No. 179 of the 72nd Session which contained certain provisions about the audit of the high school proficiency test.

Senator Raggio:

To our understanding, everyone agreed to the bill and expressed assurance it accommodated their request, for example, testing from fall until spring. We received assurance the time lines required under federal law for school improvement, notification to parents, utilization of test results and those types of things, could and would be accommodated without additional cost, even though some of those things would have to be done in the summer. Having reviewed some of this, there were some amendments the Chair would deem acceptable that were outside the conferences and discussion. One was adding Child Haven to section 5 of S.B. No. 191 of the 72nd Session. Is that correct?

There was also a change for reporting dates, particularly with respect to Clark County, concerning regional accountability reports and restoring the language approved in the budgets about the purchase of retirement credit for certain teachers. Those would be acceptable. In section 129 of S.B. No. 191 of the 72nd Session, $2.8 million would go to IFC for student testing brochures, and that process would be used in a request for proposals. That would be acceptable as additions to the actions taken in hearing the bill and sending it out of the Senate. I alert you that we do not have a bill draft or bill before us. This gives the Committee an opportunity to question other amendments and changes in order to take appropriate action if, and when, the Governor adds this to the proclamation.

Senator Titus:

I know we worked on this and many accommodations were made as the process went along. Most of the things you mentioned were deleted on the Assembly side. Does deleting those things save money? Are those things required in the federal statute? Are they really needed now that we have the No Child Left Behind requirements and provisions? I know they were needed when the Nevada Education Reform Act was enacted, but that was several years ago. Are they, perhaps, redundant or superfluous now that we have No Child Left Behind? Please address those issues.

Mr. Sturm:

To answer your questions, in regard to No Child Left Behind, the amendments proposed by the Assembly would have met the No Child Left Behind requirements. A couple of them would have saved money.

Senator Titus:

How much money would it have saved?

Mr. Sturm:

I think, Ms. Braun knows what was in the fiscal note; however, it was reduced considerably from the original.

While she is looking for the fiscal note, I will talk about the need for them. Since those provisions were adopted by the Legislature, you would have to determine the need for them. Many of them were informational, such as a progressive discipline plan and how many children were subject to it. Were reports linked to specific pieces of legislation? The No Child Left Behind had a similar list of required elements, and also a list of optional elements. Some things required to be reported at the school level are the same at the district level, but not necessarily at the state level. One of the deleted sections requires all the things reported at the school and district levels to be sent to the State. The State has a limited list under No Child Left Behind Act, and this just took those and abrogated it to the State. It is the Legislature's call as to whether you need or want that information.

Ms. Braun:

At this point, the fiscal effect of S.B. No. 191 of the 72nd Session, after all the revisions, is $84,000 statewide in the first year and $147,000 statewide in the second year. That is directly related to implementing plans for improvement based upon the technical assistance partnerships and whatever they would recommend to the school. The school districts felt there would be a cost associated with it.

Senator Raggio:

The first version of S.B. No. 191 of the 72nd Session brought forth a fiscal note. I might have the numbers transposed, but it was either $74 million or $47 million. Ms. Braun took much abuse working to get a more realistic fiscal note. I commend all of them because they sharpened their pencils. The fiscal note, as it left the Senate, was nominal. These people are much abused. They try to be objective, and it is sometimes difficult. They worked very hard on this bill.

Unless there are other questions, we will defer action until the proclamation is changed

We will now discuss the list of components of a potential revenue plan to determine whether there would be two-thirds support on any of them. Support may be conditional on the rate or percentage of increase and whether or not other components would adversely affect those required to pay it. Nobody will be held to a final decision. Perhaps, other components might also be considered.

Senator O'Connell:

Although it is not necessary by our rules, I feel I must tell you I am registered with the Director’s Office that my husband is the chairman of a bank. His income does not come from that, and he only receives money to attend board meetings. I will not be voting on the bank franchise tax.

Senator Raggio:

Are there any other disclosures?

Senator Mathews:

I also sit on a bank board, but I do not think my vote on this tax will make any difference one way or another. However, I will be voting.

Senator Townsend:

I also sit on the board of a bank and am a shareholder in the same bank. Since the proposal treats our bank the same as any other, I want it on record, but I will be voting.

Senator Hardy:

I work in the construction industry. Members of the construction trade association have lobbied against the real estate transfer and commercial lease taxes, which would not impact my members any more than anyone else.

Senator Coffin:

I am a group insurance broker with a client in the gaming industry and one client not in the gaming industry. My wife is an instructor at the University, but we have already voted on the General Fund so that has been disclosed. My wife, who is worth a lot more money than I, has stock in the same bank as Senator O'Connell, and she is a director. This is a special session, and I have not filed a new letter with the Director. I think I have it covered. I am going to vote for whatever I feel like, because whatever I do will be affecting everyone the same. I do not think I missed anything that is important to disclose at this time. If I think of anything new, I will let you know.

Senator Raggio:

I am on the board of Archon Corporation, a company that operates gaming. I am also on the board of Sierra Health Services that has insurance and coverage. I think everybody understands we are going through a process of trying to see what votes would be available for any proposal that requires a two-thirds vote, so these disclosures are appropriate in the event they preclude anyone from voting. The rule is, any kind of association or acting on something that would have a pecuniary interest affected, if it does not, in effect, apply evenly to everyone that might be in a similar position should be disclosed. I probably did not state it accurately, but that is pretty much it.

Senator Coffin:

I am troubled by some e-mails coming in this morning directed at Senator O'Connell because she is a bank shareholder as am I. I am not mentioned in the letters; although, my wife is on the same board as her husband. The e-mails are unfair because they accuse her of being in favor of taxing federal or state-chartered thrifts and nonprofit credit unions. I do not like the appearance of them. I know you received them. I forwarded them to her office because she was not getting them. I do not think they are right to question the motives of individuals based on some of the holdings they have if they disclosed them, and Senator O'Connell always discloses it. I fit in the same classification as Senator O'Connell since we are both in the same situation.

Senator Nolan:

Many of us have had the opportunity to look at matrixes with many tax proposals, and many taxes had a common theme in every single proposal that came from the Democratic caucus on the Assembly side and the Republican caucus on the Senate side. I was hoping to make a motion regarding four general taxes, including gaming, business license fee, cigarette and liquor taxes, which seem to be non controversial. Would you accept a motion to approve those four taxes as common themes to be included in the proposal package?

Senator Raggio:

I think we ought to find out whether there is a two-thirds vote in the Senate for support of each of the components. No one is bound by it. It may be conditional approval because you may, at some point, object to a proposed increase or rate of increase. It may be conditional because should it be included in the plan with something else, it may affect the decision. We need to find out which ones do not deserve consideration. I agree with Senator Nolan, the non controversial ones should not take up our time.

We will compile a list of components to be considered and then talk about rates or changes.

The first is the cigarette stamp fee allowance provided to cigarette dealers for their services in affixing stamps. This is a 3-percent collection allowance, and we must consider whether to reduce the allowance but not talk about the amount of the discount at this point. Is there any discussion before I ask for a vote as to how many would support the cigarette stamp fee allowance as an element of a revenue plan?

I will then ask how many would not support, as a component, the cigarette stamp fee allowance reducing that discount. It seems everyone could support it so we will put it on the list.

The next item is the tobacco collection allowance. The current statute provides a 2-percent collection allowance for discounts to tobacco dealers for rendering services and collecting and remitting this tax. Is there any discussion? How many would support the tobacco collection allowance as an element of a revenue plan? It appears unanimous so we will put it on the list.

In spite of those who have a conflict, next is the liquor tax collection allowance. This is currently a 3-percent collection allowance, if the taxes are paid on time, on the 15th of each month, for those who collect and remit the tax. Are there any objections to the liquor tax collection allowance being an element of the plan? There are no objections so it will be added to the list.

Fourth on the list is the portion of the sales tax, the LSST, the local school support tax. As you recall, it is not a direct state receipt, but it goes to the school districts. The current statute allows 1.25-percent collection allowance to the retailer. Is anyone opposed to having it on the list? Apparently not, so it will be included. The collection allowance is also on the State portion.

Mr. Combs:

I believe it would be eliminated for all portions of the sales and use tax. The only reason the State and LSST portions are indicated is because that is the only part from which the State would receive revenue. Therefore, the collection would be eliminated for all sales and use tax.

Senator Mathews:

Is that true on the liquor tax collection as well? Will they all be eliminated?

Senator Raggio:

No, these are going to be part of a revenue plan. We are not deciding how much the allowance would be changed at this time, but it would be a component.

Mr. Combs:

I said eliminated, but I misspoke. They would all be reduced or eliminated.

Senator Raggio:

The collection allowance is on the table, and obviously, it goes from being eliminated entirely to reducing the collection allowance. Those are the issues to be discussed.

Next is the business license fee. It presently is a one-time fee for filing for a business license, and the proposal would be to increase it or make it an annual fee. We are not deciding that. We are just deciding whether or not the business license fee should be a component of a revenue plan. Are there any questions or discussion?

Senator Tiffany:

I remember the business license tax was a fairly small number. We were looking at this to start collecting a database to capture all people. Is this still in line with that theory, or are we leaving out sole proprietors?

Mr. Combs:

The business license fee proposal in the bill at the end of session was a $100 annual fee, which generates approximately $23.5 million the first year and $24.5 million the second year.

Senator Tiffany:

That is not the small one then.

Mr. Combs:

There was a proposal to lower it to $50, which obviously would be about half the two amounts generated for each year. If you went below $50, the costs would probably approach the collections.

Senator Tiffany:

Does it include sole proprietors?

Mr. Combs:

The proposal has always included sole proprietors. The latest proposal in S.B. No. 509 of the 72nd Session excluded direct sellers as defined in chapter 612 of the NRS.

Senator Tiffany:

This does not include that.

Mr. Combs:

I do not think we are talking about the specifics of the proposal.

Senator Raggio:

The question is, should it be an element? Should it make the list, we can consider the amount to which it should apply and things of that kind.

Senator Tiffany:

Thank you.

Senator Hardy:

To further clarify, by saying we are all right with this as an element does not mean, if something else is decided, we will not want to see it phased out or eliminated. Therefore, we are looking at everything as a stand-alone proposal.

Senator Raggio:

I am trying to take this a baby step at a time.

Senator Hardy:

I just want to make that clear. Thank you.

Mr. Combs:

I want to retract my statement that lowering it below $50 may not make it worthwhile. At one point in the session, we thought a smaller number of people would be subject to the fee than what is currently considered. I will meet with the Department of Taxation before the meeting tomorrow to clarify how much money it will cost to implement the program.

Senator Raggio:

How many would not support the business license fee as an element of a revenue plan? Apparently everyone would support it, so we will put it on the list.

The next item is the live entertainment tax (LET) as a new tax proposal. The issue is the live entertainment tax as differentiated from the present casino entertainment tax. Is there any discussion on it? Would anyone oppose the live entertainment tax being a potential element of a revenue plan?

Senator Shaffer:

I am looking for clarification on authorization by regulation for a detailed definition of live entertainment. Would the Las Vegas Speedway qualify as live entertainment?

Senator Raggio:

There have been concerns whether or not the live entertainment tax applies to boxing, racetracks, national rodeos, the Reno Rodeo or other similar entities. If we put it on the list as a potential element, we can get into those kinds of things. If it does not make the list, there is no use worrying about it. Is there any other discussion?

Senator Rawson:

I was going to make the distinction between an entertainment tax and a competitive event tax. Yes, it is entertaining to attend a competitive event, but a competition is different than the actors’ guild or the entertainment field.

Senator Raggio:

You have a good point. I do not think a brothel comes under a competitive event. This would be the consideration of a live entertainment tax other than the present tax on casino entertainment. I suppose it would also include any enhancement of the existing casino entertainment tax. Again, we are only asking whether two-thirds could consider it a potential component. Are there any who would not consider the live entertainment tax a potential component?

Senator Cegavske:

It would take a year for the establishments to give the Department of Taxation an opportunity to establish a collection process. Could it be debated when it comes up?

Senator Raggio:

Yes, when considering these components, the issues will be: (1) how they mesh with other components, (2) when they can be implemented, and (3) the cost of administration or implementation. No one is bound to what they are voting upon at the present time.

Senator Neal:

Could we consider the change of a name as recommended by Senator Rawson?

Senator Raggio:

I think we can do that. Should it be more palatable or appropriate, the name can be changed. We will put LET on the list.

The next item is a cigarette tax. Presently it is a 35-cent per pack tax, and we are only looking at the part that goes to the state General Fund. However, I recall testimony to the fact that 10 cents goes to local government. Is there any discussion on this? Would anyone object to an increase in the cigarette tax as a potential component of a revenue plan? Apparently not, so it will go on the list.

Next is the liquor tax. There are varying rates on different types of liquor, and beer as well. Does anyone object to an increase in the liquor tax being considered as a potential component of a revenue plan? We will add the liquor tax to the list.

The next item is the gross gaming percentage fee tax, which we have identified as a tax on the monthly gross gaming revenue. We went through a definition of it, which is presently 3 percent up to $50,000, and then it graduates to 4 percent over $50,000 up to $134,000, and 6.25 percent for all gross gaming revenue over $134,000. Is there any discussion?

Senator Neal:

It is conceivable the 6.25 percent would not kick in until the first two tiers made $1,608,000.

Senator Raggio:

Those are various scenarios. Let us just get to the generic question. Would anyone not support the gross gaming percentage fee tax as a potential element of a revenue plan? Apparently not, so it will be put on the list.

The next item is a restricted slot tax. Insofar as the State is concerned, this is presently $61 per machine up to 5 machines, and from 6 up to 15 machines, it is $106. Does the money collected on the restricted slot tax go to the higher education construction account?

Mr. Combs:

No, that is the annual slot fee charged on every slot machine regardless of whether it is a restricted or non-restricted location.

Senator Raggio:

Is there any discussion? Would any member of the committee not support the restricted slot tax as a potential component of a revenue plan?

Senator Cegavske:

Is the current status, what is happening right now, going to remain, or can we talk about how many machines, and so forth?

Senator Raggio:

Again, those are discussions that can ensue after we decide whether or not the restricted slot tax gets a two-thirds vote.

Senator Cegavske:

I will leave it for discussion; however, I have a concern about it.

Senator Raggio:

If that was part of the plan and there was an increase in it, would two-thirds of the Committee support it? Is there anyone who would not support it? It will be added to the list.

Should any of these items become part of the plan, the issue will be how much and when?

A number of Secretary of State fees were considered, both in and outside the Senate Committee on Taxation. For example, we mentioned A.B. No. 536 of the 72nd Session that included resident agent fees, notary fees and some commercial filings. Would anyone object to including those fees?

Next is the business license tax, formerly known as the BAT. The present tax is $25 each quarter on the number of full-time-equivalent employees, which is an annual tax of $100 per full‑time-equivalent employee. Does anyone object to the business license tax being part of a component of a revenue plan?

Senators O'Connell, Cegavske, Neal and Nolan indicated their objection.

Senator Hardy:

I could support it as a stand-alone tax, but if any other tax is acceptable, I would want it phased out.

Senator Raggio:

It is understood some Senators would not want it included if another tax impacted it. How many would be amenable to considering the business license tax as a potential element? Senator Tiffany is absent; therefore, the vote is 4 out of 20, or 16 amenable.

Senator Hardy:

Senator Tiffany indicated the only tax she would not support is the net profits tax.

Senator Raggio:

We will not assume her vote, therefore, it is 4 out of 20, so there are 16 who would be willing to have the business license tax considered as a potential component. The business license tax will be added to the list. Again, we understand these are conditional votes.

The next item is the bank franchise tax, which will be a new proposed tax. The percentage would be a new tax on the net income of financial institutions, other than nonprofits, for business conducted within the State. Is there any discussion?

Senator O'Connell:

I will be abstaining from the vote on this.

Senator Raggio:

How many would not support the bank franchise tax as a potential component of a revenue plan? Senators McGinness and Washington will not consider it. Senator O'Connell is not voting. Senator Tiffany is absent. Therefore, 17 would consider it.

Senator Coffin:

When we get to the Senate floor we must worry about a two-thirds majority. In the percentages under the Gibbon’s rule, how are the percentages calculated? Are abstentions counted?

Senator Raggio:

I understand it requires 14 affirmative votes in the Senate for any of these bills to pass.

Senator Coffin:

I would vote for a version of the bank franchise tax. Among all the taxes considered, this one is actually the most complex. I read the PriceWaterhouse report thoroughly. We must give careful thought, tonight, on the correct language and method of choosing if we are going to address it tomorrow.

Senator Raggio:

That is understood.

The next item is the real estate transfer tax for transfer of real property at the State level, which is collected in some counties in different amounts. Is there any discussion? Are there any who would not support a real estate transfer tax as a potential component of a revenue plan? Apparently not, so it will be put on the list. At this point in time, I am only counting 20 as present.

The next item is a payroll tax, which is what some are calling an employer tax. Different scenarios would be considered should it be an element two-thirds of the Committee would be willing to consider. Is there any discussion? How many are opposed to having the payroll tax considered as a potential element?

Senators Wiener, O'Connell, Titus, Hardy and Carlton are opposed; therefore, it will be on the list because 15 are willing to consider it.

The next item is a satellite franchise tax, on which I have no information, but some things were added for consideration. What is the story on this?

Senator Townsend:

Under the Federal Communications Act, the satellite industry is only allowed to be taxed by the State, not by local government. Local government is authorized to tax cable companies to a maximum of 5 percent of the bill. This proposed tax levels the playing field at 5 percent which comes directly to the State and is approximately $5 million a year statewide.

Senator Raggio:

Are cable companies taxed?

Senator Townsend:

Cable companies pay a local franchise fee. In Clark County, it is broken up and all local jurisdictions receive a portion thereof, plus the unincorporated area of Clark County.

Senator Rhoads:

I am opposed to this because most of the satellites are in my district; therefore, it would be a negative thing in the rural areas.

Senator Raggio:

Is there any other discussion?

Senator Neal:

This was considered and voted down in the Senate Committee on Taxation. I would be opposed to it because as soon as I get home I am going to get a satellite dish.

Senator Raggio:

That sounds like as good a reason as any. How many would not be willing to consider the imposition of a satellite franchise tax? Would anyone be willing to consider it? I think we can assume it will not be on the list to be considered.

The next item is a service tax to be imposed on services provided by businesses in the State. There was some discussion as to whether or not it would be applied broadly or limited on types of services and what services might be exempt.

Senator McGinness:

The service tax was considered with a laundry list of exemptions. After we heard the payroll tax, I felt it was a much easier way to go. I will support it in case the payroll tax is not accepted because, in my estimation, this is the next best thing. We should keep it in the mix just to have something to look at.

Senator Raggio:

These are all conditional depending upon the composition and rate of a plan.

Senator Coffin:

Many variations of the service tax were discussed. Where was a presentation from the chamber in which there would be a significant reduction in sales tax should the service tax be adopted. A service tax of some kind was presented in the Care-Amodei proposal with significant exceptions, which might have been a principal business kind of tax. The point is, we have seen three or four variations on this. I cannot support this one as it is now.

Senator Raggio:

Do we want it on the list of potential components? Should it be on the list we would discuss whether or not it meshed with other components, whether or not it ought to be full bore or on a limited number of services. If nobody has an appetite to even look at it, let us find out. Does anybody object to looking at a service tax? It will be on the list.

The net profits tax could not be implemented until fiscal year 2005, and there was a discussion about it. Is there any discussion?

Senator Nolan:

I will support the net profits tax as a component. I understand there is some volatility in it. I do not consider it a major part of the tax component; however, over 40 states have it. With a stabilization or trigger process, it could be a viable tax for us.

Senator Raggio:

How many would not be willing to have the net profits tax as a potential component of a revenue plan?

Senators Hardy, Amodei, McGinness, O'Connell, Cegavske, Washington and Tiffany; therefore, 7 would be unwilling, and 14 would be willing to consider it. It will be put on the list.

The next item is the mining tax, which is now collected on net proceeds. There is an issue as to whether or not there should be a redefinition of net proceeds or some cap on the items considered for offset in the net profits tax.

Senator Rhoads:

I would be opposed to this because it will ultimately hurt rural Nevada. I know the money would not be taken away from the county, but money would be taken away from the mines, which would reduce exploration and, perhaps, close down some marginal mines. The Legal Division of the LCB and lawyers who work for the mining companies feel it is unconstitutional.

Senator Raggio:

Obviously, we would not consider anything considered unconstitutional by the Legal Division.

Senator Rhoads:

I would be opposed to it.

Senator Raggio:

Is there any more discussion? Who would be opposed to consideration of anything on the mining tax?

Senators Carlton, Care, Rawson, McGinness, O'Connell, Rhoads, Washington and Shaffer are opposed, 8 out of 21; therefore, it will not be included on the list.

Senator Coffin:

I am puzzled why it was on the list. The Senate Committee on Taxation never discussed it. I do not believe we can tax them.

Senator Raggio:

I understand the Assembly select committee is looking at a gross receipts tax in some form. I want to be as fair as possible. Is there any discussion on any form of gross receipts tax, or as it is called, the UBT? Who would object to it being considered as a potential element? It will be taken off the list.

Let us consider estimated revenue generated from increase in taxes. We only looked at the collection allowance on sales tax. Legally, what can the State impose on sales tax?

Mr. Combs:

Currently, you cannot touch the 2-percent portion, so there could be no separate State levy added to the 2-percent portion without a vote of the people. You could, however, increase the local school support tax. I cannot imagine an increase level that would not result in a direct offset to the amount of General Fund support required for the DSA. Therefore, the increased money would be going to the school districts rather than the general fund money that is currently being allocated to the school districts.

Senator Raggio:

Another potential element would be to increase the portion of the sales tax known as the local school support tax. Is there any discussion? How many would be opposed to it being considered as a potential element? How many would object to any increase in the sales tax indirectly for State purposes?

Senators Titus, Carlton, Care, Coffin, Neal, Wiener and Schneider object; therefore, 7 are opposed, and 14 would be willing to have it considered. It will be on the list.

The next item is a state room tax. Is there any discussion? How many would object to a state room tax being included as a potential element of a revenue plan? Senator Rhoads objects. It will be put on the list.

The next item is a state property tax increase. The Executive Budget proposed up to 15 cents as an additional property tax for State purposes. The issue would not be the 15 cents but whether any property tax increase should be considered a component of a potential revenue plan. How many would oppose any real property tax for State purposes?

Thirteen were opposed. It will not be on the list.

Senator Coffin:

We have in existence a 15-cent property tax.

Senator Raggio:

We are talking about anything over and above what the State presently realizes, or will realize, from property tax.

Senator Coffin:

We have already voted on a 15-cent property tax.

Senator Raggio:

We are talking apples and oranges. Presently, the State utilizes a 15-cent rate for capital improvement projects which will go up to 17 cents, albeit the additional 2 cents will not be included in the cap. That is because of the additional 1 cent for capital improvement projects as well as the additional 1 cent which was created as a result of the public vote on Question 1. The 2 cents, which is in the budget, will be outside the $3.64 cap. However, what we are talking about here is any additional property tax that might be levied for State purposes in any amount. It is my understanding the Governor and the Task Force recommended an additional 15 cents outside the cap for state General Fund purpose.

Senator Coffin:

The Senate Committee on Taxation took up the issue of additional property tax over and above 17 cents.

Senator Raggio:

We are talking about whether there would be any support for an additional property tax for State purposes. I think everyone understood that, and it seems to me it was overwhelmingly unsupported.

Next is a commercial lease tax, which would have been a proposed tax on the lessor of leased commercial, industrial and retail space as I understand it. Is there any discussion? How many would object to consideration of a commercial lease tax? It is not too popular and is not on the list. That is all I have on any list compiled here.

Senator O'Connell:

I do not believe we voted on a resident agents tax.

Senator Raggio:

I think we discussed it in another bill. Was it the one with notary fees?

Mr. Combs:

I interpreted your action on Secretary of State fees to include the possibility of approving the resident agent proposal.

Senator Raggio:

Those items were on the list of Secretary of State fees. When we get to that we can talk about all the components. Are there any other potential taxes or revenue sources that might be considered?

Senator Neal:

Are we considering the art tax exemption repeal?

Senator Raggio:

It can be considered with sales tax.

Mr. Combs:

In regard to the art exemption, there is an exemption in the property tax for art items and also an exemption to the local school support tax portion of the sales tax. Through your action in supporting A.B. No. 514 of the 72nd Session, which was the streamlined sales tax act, there will be a ballot question on the local school support tax exemption, and basically, the vote of the people will either add the exemption to the 2 percent state portion of the tax, or it will eliminate the exemption from both portions of the tax to make them uniform depending on how the vote comes out.

Senator Raggio:

Which tax are you talking about?

Mr. Combs:

I am talking about the art exemption. Obviously, that does not prevent you from amending A.B. No. 514 of the 72nd Session that you passed. Should you decide to do that, it would come out of the ballot question.

Senator Care:

There are other exemptions relating to racing car parts, boats and aircraft parts. Rather than getting into all those details now, perhaps, it would be better to have a category for exemptions on the list.

Senator Raggio:

I think that would be appropriate because it would create revenue.

Senator McGinness:

Racing cars, farm machinery, art tax, aircraft components and used vehicles will all be in the ballot issue on the streamlined sales tax. The issue of exemptions was so big we asked the interim tax study committee to look at them.

Senator Neal:

The art tax exemption was passed in this House in this Legislature; therefore, I see nothing wrong with repealing that portion of it. We would not be able to repeal the portion of the tax the voters voted upon, but that which we voted upon, we could repeal in this House. Then it would not go forward as a ballot question.

Mr. Combs:

The exemption is currently only to the LSST portion. Should it be removed from the LSST portion, it would not need to be on the ballot anymore because the two taxes would be uniform.

Senator Titus:

We should also look at the exemption from the property tax for art. I agree with Senators Care and Neal with regard to looking at exemptions. It is fine to give it to the interim study committee, but they just did a big report on exemptions a couple of interims ago. I know fall-out shelters are still an exemption. We ought to have an agenda item on exemptions and take a look at them.

Senator Raggio:

Does anyone object to adding exemptions as an item?

Senator McGinness:

When we took a look at such things as fall-out shelters, we could not put a value of $4 million or $400,000 on it. We agree things like fall-out shelters and hospices that receive an exemption, and some other things, should probably be removed. We are not going to be able to add an identifiable piece of money to this.

Senator Raggio:

However, to the extent we are looking at them, most are exemptions to property tax. That does not help the State. We are looking at a way to fund the State. We must be mindful of that.

Senator Coffin:

As much as I would like to get into the exemption fight, again, we did it in committee and made some moves; however, we did not get to it in the regular session. There are so many exemptions, and I am worried we are spending more time on this than on the big revenue stuff. The exemptions will not yield much money and time would be better spent trying to figure out what we are going to do with the big numbers. I oppose our tax exemptions and would like to let the voters decide it.

Senator Raggio:

I think you are right, and it is appropriate to consider exemptions that could affect any of the components on the list.

Senator Coffin:

The only one that yields any money is the exemption on food. Are we going to tackle that?

Senator Raggio:

Let us move along. Are there any other potential components of a revenue plan that have not been brought forward? I will ask staff to make a clean list of the items the Committee is willing to consider.

I suggest we meet here tomorrow at 8 a.m.

On the motion of Senator Rawson, the Committee did rise and return to the Senate Chamber

SENATE IN SESSION

At 6:23 p.m.

President Hunt presiding.

Quorum present.

Senator Raggio moved that the Senate adjourn until Thursday, June 5, 2003, at 8 a.m.

Motion carried.

Senate adjourned at 6:25 p.m.

Approved: Lorraine T. Hunt

President of the Senate

Attest: Claire J. Clift

Secretary of the Senate