MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session March 6, 1995 The Committee on Government Affairs was called to order at 9:37 a.m., on Monday, March 6, 1995, Vice-Chairman Braunlin 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. Deanna Braunlin, Vice Chairman Mr. P.M. Roy Neighbors, Vice Chairman Mr. Max Bennett Mrs. Marcia de Braga Mr. Pete Ernaut Mrs. Vivian L. Freeman Mr. William Z. (Bill) Harrington Mr. Dennis Nolan Mrs. Gene Wines Segerblom Mrs. Patricia A. Tripple Mr. Wendell P. Williams COMMITTEE MEMBERS ABSENT: Mrs. Joan A. Lambert, excused Mrs. Saundra Krenzer GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Denice Miller, Senior Research Analyst OTHERS PRESENT: Marvin Leavitt, City of Las Vegas; Brian Krolicki, State Treasurer's Office; Stephanie Tyler, City of Sparks; Barbara McKenzie, City of Reno; Pierre Hascheff, City of Reno; Mike Halley, City of Reno. Agenda items heard out of order to accommodate State Treasurer. ASSEMBLY BILL 163 - Authorizes community redevelopment agencies to issue bonds at discount. Marvin Leavitt spoke first on behalf of the City of Las Vegas who requested the bill. He pointed out the bill would allow bonds issued by redevelopment agencies to be issued at discount. He explained the process of buying bonds at a premium and at a discount. A bond purchased one year ago at a certain interest rate would be sold at a substantial discount today due to the fact that interest rates have risen considerably in the past 12 months. One would not receive the face value of the bond, it would be less. If interest rates had dropped the bond could be sold for more than face value. If the bond were held to maturity, it could be sold at face value. Currently, bonds are able to be issued by redevelopment agencies at a premium but not at a discount. Essentially all other bonds issued by the state can be issued either at a premium or at a discount. Mr. Leavitt went on to relate bonds now issued are normally sold to an underwriter. The underwriter makes a public or private bid and sells them on the open market. His profit is the difference between what he paid for the bonds and what he sells them for on the open market. He prices those bonds according to the current market rate of interest. For instance, if the bonds are currently $1,000.00 face value, he could sell the bonds for $1,020.00 and that would be the premium and represent his profit. He could sell the bonds for $1,000.00 and pay $980.00 and still make $20.00 profit. Therefore at premium or discount, the underwriter clears the same profit. The interest rate will be adjusted to make up the difference between premium and discount. This bill is simply asking for the flexibility to purchase at either premium or discount, depending on the rate of interest fluctuation, to obtain the best price. Chapter 350 of the Nevada Revised Statutes states bonds cannot be issued at a discount greater than 9% which guarantees the necessary proceeds from the sale of the bonds. Assemblyman Ernaut questioned if there were any bonds to be affected between now and October 1, facilitating the need for an amendment to effect upon passage of approval. Mr. Leavitt did not know of any but could not speak for all entities involved. He thought perhaps it would be a good idea anyway and would probably save some money. Assemblyman Segerblom queried the reason for selling to an underwriter. Mr. Leavitt indicated they did not have the connections with the market an underwriter does. Often underwriters will form a coalition or partnership to market bonds. Mrs. Segerblom inquired about the interest rate fluctuation. Mr. Leavitt said when the interest rate falls, the price of the bonds goes up. When the interest rate rises, the price of the bonds goes down. He mentioned the yield curve which is based on the interest rate and relates to the timing of the maturity of the bonds. Assemblyman Bache wondered if there was anything different about redevelopment bonds that made them more difficult to sell as opposed to other types of bonds. Mr. Leavitt remarked the redevelopment bonds were normally paid from the increment which are the taxes that come from the increase in the assessed value within the redevelopment district. They are not general obligation bonds and are not backed by full faith and credit of the government which makes them more difficult to sell. Quite often they are sold in a negotiated sale rather than in a public sale. Assemblyman Nolan questioned if the terms "gross spread" and underwriter's discount" were synonymous. Mr. Leavitt said yes. Mr. Nolan was curious if, in a negotiated bid, did the municipality ever negotiate a percentage of that as part of the structuring of the bill. Mr. Leavitt pointed out in a negotiated sale, any terms could be worked out as part of the sale. All details of the bond are worked out ahead of time; insurance, payment structure, other bonds to be issued and the underwriter's fee. Assemblyman Tripple thought there must have been a reason for putting the statement " ..not less than..." in line 17, section 2 at the time of the original bill draft. Mr. Leavitt indicated there might have been a fear that if bonds were sold at too deep a discount, there would not be enough money left for the project at hand. Currently, this statement is to be deleted and there is a provision in place specifying how large the discount can be in accordance with NRS chapter 350. Brian Krolicki, Chief Deputy Treasurer, concurred with everything Mr. Leavitt presented in his testimony. He mentioned negotiated sales can be more expensive to arrange than competitive ones, but that is not necessarily true all the time. In the case of a negotiated sale, all fees are known in advance. In a competitive sale, that is not known until the sale is done. Mr. Bache asked if the state was involved in any bonds that were derivative. Mr. Krolicki said the state has issued some bonds that had derivative aspects, but were not actually derivative bonds. Mr. Ernaut answered Ms. Tripple's earlier question about the origin of "not less than " indicating it was put into NRS in 1959. Mr. Krolicki returned to Mr. Bache's question and mentioned some types of financing are more appropriate to have derivatives on them, for example airports issue bonds at variable interest rates which forces a derivative product. Derivatives can be dangerous but are not necessarily bad. They must be used judiciously. Mrs. Braunlin closed the hearing on A.B. 163. Mr. Ernaut requested an amendment for passage upon approval to be ready for the forthcoming work session. ASSEMBLY BILL 141 - Revises provisions governing expenditure of certain money distributed to redevelopment agency. (BDR 22-731) Barbara McKenzie, representing the city of Reno, appeared at their request to encourage the passage of A.B. 141. She introduced the Assistant Mayor of Reno, Pierre Hascheff who spoke first. Mr. Hascheff pointed out this legislation was drafted to correct a perceived inequity. Tax increments from approved voter overrides specifically for police and fire services have been delegated to redevelopment agencies and are then not available for those specific purposes. This earmarked money is no different than a special revenue account. It is supposed to be used for a specific purpose. Non-traditional sources such as room tax revenues have been explored for funding police and fire services in Reno as well as in other major cities. This proposed legislation is optional and prospective and can have a population cap put on it if necessary. This would assist the City of Reno in correcting this deficiency. It would be a discretionary fund, limiting the money used to the excess derived from tax increment overrides. Mr. Nolan understood the need for this bill. The redevelopment area needs police and fire protection to preserve the agency's investment and serve the public there. He would want to make sure the voters were aware those services would be included in that redevelopment area. He felt some amended language may be needed. Mr. Harrington referred to an accompanying handout (Exhibit C). In the last paragraph, it requests the money allocated would be able to be used either within or outside of the redevelopment agency. The bill on line 20 indicates the money would only be able to be spent within the agency. He wanted some clarification. Mrs. McKenzie explained right now money generated outside the agency is the only source currently used for police and fire services. Money generated within the agency cannot be used. She wanted to emphasize this point. She felt perhaps it was confusing. Pierre Hascheff mentioned one of the difficulties encountered in setting up a special assessment district is that police who are assigned are designated specifically to the downtown area. However, in case of an emergency, those police would be used outside the downtown area. They have to be mobile. He indicated line 20 of the bill would need to be reviewed and amended. Mike Halley, Assistant City Attorney in Reno, clarified any bond issues already set aside would not be affected by this legislation. Stephanie Tyler, representing the city of Sparks, concurred with her Reno colleagues and wanted to be involved in any proposed amendments. Doug Dickerson, representing the city of Las Vegas, spoke against A.B. 141. The city of Las Vegas felt that this bill would help Reno but not Las Vegas. He suggested an amendment to put a population cap on the bill that would eliminate them from the bill's requirements. Mr. Harrington asked why it would not be good for Las Vegas. Mr. Dickerson remarked he was not an expert in this area. He mentioned the purpose for redevelopment was to create that increment for redevelopment use. Currently, each bond issue coming up would not affect the city of Las Vegas although the future cannot be ascertained. Mr. Harrington questioned if there was a concern for various lobbying groups attempting to use some of that redevelopment money for other purposes. Mr. Dickerson said it was a possibility. Marvin Leavitt mentioned a determined effort had been made to concentrate redevelopment money for capital purposes rather than for general and operating purposes and operating monies have been restricted to the general fund. He said the problem with approaching the voters for a tax override for a specific purpose is that it benefits the redevelopment agency because the tax rate for the redevelopment agency's revenue is derived by multiplying the total tax rate by the assessed valuation of the increment of the redevelopment agency. The higher the tax rate, the more money comes to the redevelopment agency. Las Vegas does not intend to use redevelopment agency funds for police and fire services. They intend to use it for operational purposes. Mr. Bache questioned if the amendment desired was a population cap. Mr. Leavitt said yes. Mr. Bache asked if the language might affect the sale of redevelopment bonds. Mr. Leavitt stated the specific concept of isolating additional tax rates for specific purposes and not having them available for general purposes or repayment of bonds could probably be used by the bond holder to assess future tax rates. Mr. Bennett pointed out in line 18 it says "may be"... And why was this not seen as enabling. Mr. Leavitt indicated even though it says may be, there is always the possibility some of the rate could be used for something else in the future. That is why Las Vegas would prefer to be exempt at this time. Mr. Bennett wondered if there were any gentleman's agreements or clauses in place to assure the bond holder that this would not happen in the future. Mr. Leavitt said covenants could be put in place for any one particular issue of bonds that would cover almost anything. He said bond holders and the people who represent them are a nervous group. They look upon anything to cause a loss of revenue as negative. Doug Dickerson referred to Mr. Harrington's comment regarding lobbyists from other entities. For example, if the Las Vegas redevelopment agency had a bond issue for additional policemen, there would be tremendous lobbying put on the city council and the redevelopment agency to spend that money. Even though the language says "may", the lobbyists would say that money had been set aside for hiring policemen so it had to used for that purpose. The agency would want to use that money for capital projects. Mr. Harrington surmised the bond buyers would be at risk by leaving this door open. The city would thereby incur some additional debt and Mr. Harrington wondered just how much. Mr. Leavitt confirmed it would cost some extra money, but not an exorbitant amount. Mr. Ernaut stated this bill was a clash of public policy. There is the accountability of the intent of the voter clashing with the confidence in municipal bond issues. In the public eye, the redevelopment agency is peripheral to the safety issue presented by the need for additional police and fire services in the area. He felt this was a foreshadowing of something that would reoccur. Mr. Leavitt pointed out the redevelopment agency is funded by applying the total tax rate against the increased assessed valuation within the redevelopment agency after its creation. The redevelopment agency takes money from the city that would otherwise be available to the county, the school district and the police if there are tax overrides. The creation of a redevelopment agency is of such importance that these monies are devoted to that purpose for a specific length of time. Any portion of the redevelopment tax could be argued for funding in any particular area. Mr. Leavitt stressed the establishment of the redevelopment agency gives the message to the public of the primary importance of the bureau. Ms. Tripple questioned if the bill was not desirable for Las Vegas, why was it desirable for Reno. Marvin Leavitt thought the difference was a matter of perception on the part of each city's council. Both cities have individual needs. Ms. Tripple could see the difference in priorities between the cities, but questioned if this would affect bond issues. Barbara McKenzie reiterated Mr. Halley's findings from earlier ascertaining that this would be a discretionary fund and would have no effect on the city's bonding capacity either presently or in the future. Pierre Hascheff elaborated on Mr. Leavitt's testimony. He said it would do no good to put all the development dollars into capital improvement projects if the police are not on patrol to protect the assets. There are other issues to deal with downtown in order to have a comprehensive redevelopment program. With respect to the bonding issue, by setting up bond reserves and using the collateral to back bonds, there are ways to get around problems. He felt it was critical to pass this legislation to save money and meet redevelopment objectives. Mr. Nolan mentioned that to supply two police officers for 24 hours in any given district, six officers actually have to be hired. If four are required, then 12 must be dedicated to man that area for 24 hours round the clock. Las Vegas already has the resources in their downtown area; Reno does not. Mr. Nolan asked about the period of time to be covered by the bond issue. Barbara McKenzie indicated the tax overrides were permanent revenue sources not bonds. The bill allows for tax overrides which are a permanent source of revenue to be used for the intended purpose which the voters approved. Pierre Hascheff said Mr. Nolan did have a point because even with overrides there will be salary increases, perhaps six to eight percent. There might be some CPI adjustments needed to address the increased cost for delivery of services. Mr. Ernaut readdressed the question of a clash of public policies. He queried if any assurances were given that this was not the beginning of an erosion of the redevelopment agency policy. Pierre Hascheff viewed the tax override as an honest obligation to the public to deliver promised services. Mr. Bennett asked if A.B. 141 had been discussed among themselves prior to the hearing. Mrs. McKenzie said yes. Mr. Bennett also wondered if some compromise language could be drawn up before the work session. Mrs. McKenzie indicated the population cap would be addressed as well as any other pertinent issues. Mrs. Freeman questioned when this was put on the ballot for the voters, was there a recognition at that time that the Legislature would have to be approached to ask for a bill to permit the use of these funds for police and fire services. Mr. Hascheff was not aware at that time of the override provision. Mrs. McKenzie recalled at that time the message was the revenue needed was to be generated within the redevelopment agency and was not calculated in terms of positions needed. It was calculated on revenue generated outside the agency only. Last spring, the city council discussed another tax override during their deliberations and decided the voters had to be assured of the appropriate expenditure of the funds. Mrs. Freeman asked if Mr. Hascheff was being encouraged by downtown facility owners. Mr. Hascheff indicated no one had contacted him respecting downtown properties. This problem has been looked at in terms of the inequity of the situation. Mrs. Freeman wanted to achieve proper perspective on the issue and be able to help the City of Reno. She wanted to know if Clark County was giving support or active opposition to the bill. Mr. Leavitt mentioned Las Vegas had no objection to what Reno did with their redevelopment agency. The bill causes a problem for Las Vegas as it currently reads and needs to be amended with a population cap to eliminate Las Vegas from its requirements. Mrs. Freeman questioned if it was possible to use the population threshold to apply the bill to Washoe County only. Denice Miller, Senior Research Analyst for the Legislative Counsel Bureau, indicated she would confirm that later but it was her understanding that it could be done. Mrs. Braunlin closed the hearing on A.B. 141. The meeting was adjourned at 10:43 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 March 6, 1995 Page