MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session February 22, 1995 The Committee on Government Affairs was called to order at 8:00 a.m., on Wednesday, February 22, 1995, Chairman Lambert presiding in Room 330 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Douglas A. Bache, Chairman Mrs. Joan A. Lambert, Chairman Mrs. Deanna Braunlin, Vice Chairman Mr. P.M. Roy Neighbors, Vice Chairman Mr. Max Bennett Mrs. Marcia de Braga Mr. Pete Ernaut Mr. William Z. (Bill) Harrington Mr. Dennis Nolan Mrs. Gene Wines Segerblom Mrs. Patricia A. Tripple COMMITTEE MEMBERS ABSENT: Mrs. Vivian L. Freeman Mrs. Saundra (Sandi) Krenzer, excused Mr. Wendell P. Williams GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Denice Miller, Senior Research Analyst Paul Mouritsen, Senior Research Analyst OTHERS PRESENT: Bob Seale, State Treasurer; Brian Krolicki, State Treasurer's Office; Ms. Ande Engleman, Nevada Press Association ASSEMBLY BILL 54 - Revises provisions relating to distribution of uncommitted balance in fund for municipal bond bank. (BDR 30-408) Paul Mouritsen, Research Analyst for the Legislative Counsel Bureau, introduced A.B. 54. He refreshed everyone's memory on the bill which was first heard in Las Vegas. This bill deals with the municipal bond bank. The bank is operated by the Treasurer's Office and is a method by which the local governments who do not borrow regularly or are not rated can issue debt in an economical manner. The bill provides for any uncommitted balance in the bank to revert to the local government who issued the debt resulting in that balance, rather than reverting to the general fund as it does now. Mr. Bob Seale, Nevada State Treasurer, opposed the bill. The bond bank accepts debt from municipalities and other local issuers and the Treasurer's office in turn goes to the market under their AA rating resulting in a substantial savings for the unrated entity. The state takes on the risk involved in the transaction. In the recent past, 7« million dollars had accumulated in the bond bank fund which then reverted to the state's general fund for other uses. The state took on the expense, effort and risk of those underlying securities and deemed it fair for the funds to be reverted to the state. This was a unique asset sale which is no longer allowed by IRS code because it was viewed as an abusive behavior. The state would not have been able to pass that money on to the municipalities due to that same IRS code. In that same time frame, a lot of refunding of debt to the municipalities was done. The benefit of those refundings, the lower interest rates, was passed on to those local entities where the refundings occurred. Basically, he did not foresee any large uncommitted balances collecting in the bond bank again. The benefits from using the bond bank and the necessary activity to provide for a lower interest rate supply the local governments with the lowest possible money costs. He simply did not see any purpose or wisdom in allowing the uncommitted balance to revert to the municipalities rather than the state general fund. Assemblyman Bennett wanted to get a few things straight. He questioned whether the municipality incurred any of the Treasurer's operating costs on the bond bank. Mr. Seale said you bet. The municipality has to incur all of the costs of the municipal bond bank. Two years ago, an LCB audit cautioned that because this bank is a benefit to the municipality, all costs of issuance are passed on to the issuer. They would not come to the bond bank and assume those costs if it were not economically sound for them to do so. If they were unrated or had a very low rating in the municipality, having the advantage of the state's AA rating would have to exceed those costs or they would not use the bond bank. The municipal bond bank is not political, it is there for the benefit of the municipalities and should not cost the state any money. The amount of money it takes to run the bond bank seems to be proportionate with the amount of fees collected back on each issuance of bonds. Mr. Bennett queried if a loss was taken on any bond issued by a municipality, was there a mechanism for recovery of the funds. Mr. Seale replied there has never been a default on a municipal bond the entire time the bond bank has been in existence. If there were a default, there is no mechanism other than what surplus might be in the bank to cover that default. Assemblyman Nolan asked if there was a fee for using the municipal bond bank. Mr. Seale said yes, there was. There are debt service payments on the bonds that have to be made periodically. Those are made by the Treasurer's office on those bonds issued out of the state. They require the municipality to pay them that debt service payment fifteen days early. The Treasurer takes that money, invests it for fifteen days and uses the interest income from that to operate the municipal bond bank. They are not in this to make a profit. They want to provide an opportunity for the municipalities to issue their debt at a rate that is equal with the state's. Assemblyman Harrington inquired how long the bond bank had been in existence. Mr. Seale responded that it began in 1981. There have been 46 different issuances since then and there have been no defaults. Mr. Harrington wondered if the applicants were screened for risk evaluation. Mr. Seale indicated they were carefully looked at and their ability to repay was examined to eliminate as much risk as possible. There have been some who have not gone all the way through the process due to weak financial status. Assemblyman Segerblom questioned whether the municipal bond funds were kept separate from the general funds. Mr. Seale answered the monies from the municipal bond bank are kept co-mingled but are accounted for separately. The accounting procedures are adequate to track all funds. Mrs. Segerblom wondered how much money was currently in the general fund. Mr. Seale said the amount varies but it was approximately 900 million dollars, a lot of it being reserve. Chairman Lambert wanted to clarify some of Mr. Seale's testimony regarding subsection three of the bill where it indicates funds may not be reverted to a municipality if such a transfer would cause the interest on securities to lose its federal tax exemption. Mr. Seale pointed out he was not referring to that section of the bill when he mentioned the IRS code. He had been talking about the 7« million dollars generated in the asset sale and remarked that the profit from the sale would not have been allowed to revert to the municipalities. If they had attempted to do that, the deal would have been lost. Mrs. Lambert closed the hearing on A.B. 54. ASSEMBLY BILL 50 - Authorizes medium-term financing for municipalities in lieu of short-term financing. (BDR 30-404) Paul Mouritsen briefed the committee on the bill. A.B. 50 would move certain provisions regarding short-term financing from chapter 354 to chapter 350 in the Nevada Revised Statutes. It would also change the terminology short-term financing to medium-term financing. After his testimony in Las Vegas, there was a request to expand the history of the short-term financing provisions. The infrastructure study committee was of the opinion that it would be easier for people to find these statutes if they were put in with the other municipal obligations statutes. It was also believed the nature of short-term financing had changed sufficiently over the past few years to necessitate a change of terminology. What are now short-term financing provisions were placed in the statutes in 1953 and were known as emergency financing provisions. The term of this financing was limited to 21/2 years and required a unanimous vote of the governing body who was using it. In 1971, the name was changed to short-term financing and was to be issued when public interest required rather than for emergencies. In 1954, the financing term was extended to three years, in 1969 to five years and in 1989 to ten years. In 1985, the vote required to issue this was changed from unanimous to two-thirds. Due to the changes this has gone through and because it is no longer a budgetary instrument as it used to be, it is more suited to appearing with the other municipal financing statutes and the name should be changed to medium- term financing. Mr. Harrington questioned lines 24 and 25 on page one and line one on page two and asked if that had ever been abused. Mr. Mouritsen was not aware of any misuse of this portion of the law. Ande Engleman, Nevada Press Association, was concerned about some old language in lines 16-22. It mentions public notification by posting in three public places which is no longer effective. She felt the posting process should be updated and better alternatives were available. Assemblyman Neighbors agreed with Ms. Engleman as he has received calls on the same subject. Public notice published in the newspaper would be a definite improvement. Assemblyman de Braga had received a request to define those posting areas. Ms. Engleman felt that would be nearly impossible as locations are so diverse. The problem could be corrected by requiring public service announcements or by publishing in the newspaper. Assemblyman Ernaut wanted to call this the Gateway Gazette exemption because he said the only county with less than 100 people was Esmeralda County. Ms. Engleman indicated the Gateway Gazette was out of Nye County and indeed, Esmeralda County probably was the only county with less than 100 people. Mr. Nolan observed that the bill provides for notification in school districts of less than 100 pupils but not more than 100 pupils and wondered why. Mr. Harrington pointed out the answer in section two. Mrs. de Braga noted on page three, line 21, there are conservancy districts which have the ability to tax that are not included in this section, unless they are referred to as special districts. In paragraph three, section six, farm bureaus are included and should not be. Mrs. de Braga remarked the only agency she knew of that collected money and put it in the state fund was the beef council which also distributed those funds and therefore should be included. Mrs. Lambert also noted some fire districts and other details were not included in the section in question and mentioned Mr. Mouritsen would do some research on it. Mr. Ernaut put in a plug for the sheep commission. The commission charges 20 cents a head for predatory animal control and 10 cents a head for disease control, resulting in approximately $11,000.00 per year. Carole Vilardo, Nevada Taxpayers Association, reemphasized the need to change the language and move all municipal financing issues into the same chapter of NRS. Mr. Bennett reiterated this was simply a housekeeping measure to make it easier to use the statutes and clarify the language to reflect the financing time period. Ms. Vilardo confirmed there were no other changes. Mrs. Lambert closed the hearing on A.B. 50. ASSEMBLY BILL 53 - Authorizes municipalities to issue refunding bonds for improvement districts under certain circumstances. (BDR 21-407) Paul Mouritsen gave a brief background on the bill. He stated the bill made certain changes regarding special or local improvement districts. These districts are used when capital improvements are made which benefit those residents of a particular portion of a municipality rather than the municipality as a whole. For example, if curbs and gutters are placed in a certain neighborhood, it would not be appropriate to fund the project with general revenues. It would be financed by a special assessment through a local improvement district. This bill would do two things, both intended to save the assessment payers money. The first one is that it would allow local governments to refund local improvement district bonds. When a local improvement district is set up, quite often bonds are issued to finance that capital improvement and those are repaid over a period of years by the assessments paid by the property holders in that area. Often during the period those bonds are outstanding, the interest rate will drop considerably. This presents the possibility to refund those bonds, that is to issue new bonds at a lower rate and repay the bonds that are outstanding. This can save the assessment payers a lot of money. This is what section one will accomplish. Section two deals with financing simultaneous projects in several local improvement districts. At the present time, they all have to be funded individually which is rather uneconomical. This provision would give these local governments explicit authorization to combine those projects for the purpose of financing and issue all the bonds together. Again, this would save the taxpayers money. Mrs. Lambert closed the hearing on A.B. 53. She mentioned A.B. 50 needs more research. She had a couple of amendments of bills that had already been voted on which she passed out to the committee for perusal before the second reading on the floor. A.J.R. 7 was assigned to Mr. Nolan and A.J.R. 9 was assigned to Mr. Ernaut. The meeting was adjourned at 8:45 a.m. RESPECTFULLY SUBMITTED: Denise Sins, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs February 22, 1995 Page