MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session April 11, 1995 The Committee on Government Affairs was called to order at 8:00 a.m., on Tuesday, April 11, 1995, Chairman Douglas A. Bache 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 Mrs. Vivian L. Freeman Mr. William Z. (Bill) Harrington Ms. Saundra (Sandi) Krenzer Mr. Dennis Nolan Mrs. Gene Wines Segerblom Ms. Patricia A. Tripple Mr. Wendell P. Williams STAFF MEMBERS PRESENT: Denice Miller, Senior Research Analyst OTHERS PRESENT: Mr. Michael De Lee; Mr. Doug Busselman, Executive Vice President, Nevada Farm Bureau; Mr. R. Michael Turnipseed, State Engineer, Department of Conservation and Natural Resources, State of Nevada; Mr. Ralph McCracken; Mr. Ned Eyre; Mr. George Benesch (See also Exhibit B attached hereto). ASSEMBLY BILL NO 432 - Requires state engineer, under certain circumstances, to grant extension of time to avoid forfeiture of water right. Assemblyman Neighbors stated, if it met with the pleasure of the committee, he wished to withdraw A.B. 432. Hearing no objection, Chairman Bache said the committee would withdraw A.B. 432. ASSEMBLY BILL NO. 434 - Revises procedure regarding forfeiture of certain water rights. Assemblyman Neighbors stated, if it met with the pleasure of the committee, he wished to withdraw A.B. 434. Hearing no objection, Chairman Bache said the committee would withdraw A.B. 434. ASSEMBLY BILL NO. 435 - Revises provisions governing forfeiture of certain water rights. Assemblyman P. M. Roy Neighbors, District 36, testified. He advised Mr. Peter Morros, director of the Department of Conservation and Natural Resources, and Mr. Michael Turnipseed, the state engineer of Nevada, had met with him, Mr. Doug Busselman of the Nevada Farm Bureau and Mr. Michael De Lee and they had arrived at what they believed was a means to improve the statutes pertaining to forfeiture of water rights. Mr. Neighbors indicated A.B. 435 was a compromise between A.B. 432 and A.B. 434. He advised, in 1971, a bill nearly identical to A.B. 435 was introduced in the legislature. He praised the efforts of both Mr. Turnipseed and Mr. Morros in helping to create legislation which would improve the forfeiture statutes. Mr. Neighbors introduced Mr. Michael De Lee who, he said, had become very involved in water issues over the previous two years. Mr. Neighbors directed the committee's attention to page 2 of A.B. 435. He proposed the following amendments be made to page 2: on line 3, the word "holder" be deleted and the words "owner of record" be inserted in place thereof and, between the word "right" and the word "by," the words "in the state engineer's office" be inserted; on line 12, immediately following the word "request," the words "by the owner of record of the right" be inserted; on both line 14 and line 19, the word "holder" be deleted and the word "owner" be inserted in place thereof. Assemblyman Freeman asked what Mr. Neighbors hoped to accomplish through A.B. 435. Mr. Neighbors advised there was a history of forfeitures of water rights in his district, and it was hoped A.B. 435 would provide for proper notice to holders of water rights, who had not put those rights to use for a period of four years, that they would lose those rights if they did not put their water to beneficial use within one year. Mr. Michael De Lee testified. Mr. De Lee called attention to a copy of a vehicle registration renewal notice (Exhibit C) which he suggested was an example of what was being attempted through A.B. 435. He gave examples of various notices individuals might receive which provided them an opportunity to correct a problem before they lost an asset, right or privilege. He advised the laws governing water permits, as opposed to those governing water certificates, required warning notices be given to individuals to allow them an opportunity to correct problems but the laws governing forfeiture of water rights did not. Mr. De Lee advised bills similar to A.B. 435 were introduced in the legislature in 1971, 1977, 1981, 1983, 1987 and 1989. He said, each time such a bill was introduced, the legislature passed the bill, but, for one reason or another, usually because the bill was passed too close to the end of the legislative session, it never became law. Mr. De Lee suggested, if warning notices were given with respect to matters which did not involve real property rights, as were water rights, then such notices were warranted and justified when possible loss of a water right was involved. He contended the problem with the law governing forfeiture of water rights was it caught people by surprise. He indicated A.B. 435 would eliminate such surprise and streamline the forfeiture process. Assemblyman Ernaut asked Mr. De Lee to cite examples of reasons why the holder of a water right might choose not to utilize all or a part of his water right for a beneficial use for a period of five years. Mr. De Lee replied the most prevalent reason was one of economics. He indicated farmers might choose to allow land to lie fallow for one year or for several years in order to eliminate negative soil conditions, rather than farm the land to produce a "...non agriculturally productive crop." He advised the present forfeiture statutes contained provisions for an extension of time (in which to exercise water rights) but suggested people often were unaware of those provisions. Assemblyman de Braga asked how it was determined a water right was in danger of being lost. Mr. De Lee advised the determination would be made based upon the records of the state engineer's office, which inventoried water use annually. Mrs. de Braga asked whether, on his farm or ranch, Mr. De Lee could "... move your allotment around." Mr. De Lee replied a water right could be moved from one part of a ranch to another part or be moved to any location within a particular basin through "...a change of point of diversion in place of use." He explained this could be accomplished by filing form and obtaining what was, essentially, a new water right. He said it was also possible to obtain a temporary change in the location of a water right. He explained the present discussion pertained only to groundwater and not to surface water. Assemblyman Lambert asked if taxes were paid on water rights. Mr. De Lee replied he understood transfers of water rights were taxed but he did not believe there was a property tax on water rights. He advised a water right was not a property right in the same sense real property was but the Supreme Court had said it was to be treated as real property. Mrs. Lambert asked if there was a personal property tax on water rights. Mr. De Lee replied he did not believe there was. Assemblyman Tripple asked whether ownership of land was separate from ownership of the water on that land. Mr. De Lee replied affirmatively. Ms. Tripple suggested, in that case, an individual could sell the water rights for a piece of land and, by doing so, make what had been a valuable piece of land no longer valuable. Mr. De Lee concurred that could be done and sometimes was done. Ms. Tripple asked whether it always had been possible to do so. Mr. De Lee replied, to his knowledge, it had. Ms. Tripple asked whether the original underground water rights were dedicated to agriculture. Mr. De Lee replied it was his understanding that the first water rights in Nevada were "...directed towards mining." He indicated, with respect to original water rights, there might be issues concerning vested rights. He suggested original water rights were treated differently than most other water rights in Nevada, which he explained were certificated but were not recognized as vested rights. Mrs. de Braga asked whether, in his district, Mr. De Lee paid operation and maintenance charges. Mr. De Lee replied, with respect to water rights for underground water, maintenance costs were incurred to maintain a well but there were no maintenances charges which the holder of a water right must pay to someone else. Assemblyman Nolan asked whether there was a means by which a property owner could reclaim his water rights after they had been forfeited other than reapplying for such rights. Mr. De Lee replied there was not. He suggested if, having been given a one year advance notice of forfeiture of his water right, a property owner had done nothing during that year to prevent such forfeiture he would have no valid argument for allowing him to retain his water right. He indicated a senate bill had been proposed to prevent people from holding water rights for speculation. Mr. Nolan asked whether, prior to forfeiture of his water right, any notice would be given the holder of a water right, other than the one year advance notice. Mr. De Lee replied, it was proposed, when the records of the state engineer reflected a water right had not been used for four years, notice (of forfeiture) be given, after which the holder of the water right had one year in which to request an extension of time, file proof of beneficial use or contest the state engineer's records. Assemblyman Harrington pointed out there was a fiscal note on A.B. 435 and asked Mr. De Lee whether he knew the dollar amount of the fiscal effect of A.B. 435. Mr. De Lee replied he did not but indicated there was already a requirement that notice be given when forfeiture of a water right was to be processed. He contended the notice proposed by A.B. 435 would cost no more than the notice presently required, it, merely, would be given earlier. He suggested giving earlier notice of forfeitures and, thereby, eliminating surprise to holders of water rights would reduce the number of hearings held regarding forfeiture of water rights and, therefore, would allow the state to apply the money and staff time required to process those hearings to other, more productive matters. Mrs. Freeman asked Mr. De Lee to provide the number of the senate bill concerned with the holding of water rights for speculation. Mr. De Lee replied it was Senate Bill 98. Mrs. Freeman asked what Senate Bill 98 would do. Mr. De Lee replied Senate Bill 98 would allow the state engineer to determine whether or not an applicant for a water right had the financial capability "...to complete the works intended..." He explained this was intended to prevent someone from applying for a water right he was unable to perfect with the intent of acting as a realtor and selling that right to someone else for a fee. Mrs. Freeman referred to subsection 3 of Section 2 of A.B. 435 and asked Mr. De Lee to explain how "...deleting that and the new language covers the issues of the corners." Mr. De Lee replied "...the corners are still valid water rights..." and indicated leaving that subsection in would be "...duplicative..." He said, "Furthermore, it is a five year and then notice, whereas, what we're proposing is a four year -- as the records show four years -- then give a notice." He advised there had been much discussion, over a period of 24 years, as to the time parameters which should be involved in giving a notice of forfeiture. Assemblyman Bennett asked whether there was any provision in state law which allowed a water right to be transferred through inheritance and asked what would happen if such a water right was tied up in probate proceedings at the time a notice of forfeiture of that water right was given. Mr. De Lee replied he was aware of a situation in which a water right could not be used during the period in which it should have been used because it was tied up in probate. He advised other states, such as Oregon, had specific provisions in their water laws which provided the inability to utilize a water right because it was tied up in probate was a good rebuttal to the state's claim the water right had been forfeited. He stated Nevada had no such provision and, if A.B. 435 was passed, he did not believe such a provision would be necessary because, under subsection 2 of Section 2, the fact a water right was tied up in probate would constitute a legitimate reason for granting an extension of (time to exercise) that water right. Mr. Neighbors asked Mr. De Lee to discuss the provision contained on line 13 of page 1 of A.B. 435 and to advise which states provided for the giving of a notice of forfeiture such as that provided by A.B. 435. Mr. De Lee indicated he would reply to Mr. Neighbors' questions in reverse order. He said the notice provided for by A.B. 435 was modeled after that provided by New Mexico. He advised, in some western states, there was more local involvement in the status and development of water rights and people were more aware of what was happening with regard to those rights and the laws of those states contained many exceptions with regard to forfeiture of water rights. He stated the purpose of the provisions contained in lines 13, 14 "...and so forth..." on page 1 of A.B. 435 was to provide that certificates of water rights would set forth the statutory provisions governing forfeiture of water rights. Mr. Doug Busselman, Executive Vice President, Nevada Farm Bureau, testified by reading from prepared text (Exhibit D). He advised A.B. 435 represented the Nevada Farm Bureau's efforts to establish a system of notification which would alert owners of water rights to the fact they might be at risk of losing those rights. He expressed the Nevada Farm Bureau's appreciation for the assistance the state water engineer gave to those efforts. Mr. Busselman alluded to previous testimony that state agencies provided notices with respect to other matters. He contended certificated water rights were extremely valuable assets and said there should be a procedure for notification prior to institution of forfeiture proceedings. He declared the Nevada Farm Bureau urged the legislature to pass A.B. 435. Mr. R. Michael Turnipseed, State Engineer, Department of Conservation and Natural Resources, State of Nevada, testified. He explained A.B. 435 provided a method by which his office would notify holders of water rights (of possible forfeiture of their rights) in those groundwater basins for which his office maintained records. Mr. Turnipseed explained there were 350 groundwater basins in Nevada and his office maintained inventories of the amount of groundwater pumped for only a few of those basins. He indicated those inventories were not maintained specifically for forfeiture purposes but were maintained for use as a tool in water management. He advised inventories of the amount of water pumped were used together with water level measurements to correlate precipitation and water pumpage "...and the water level declines or water level rises to tell whether we're in balance in allocating the water and in the pumpage." He said, however, those inventories had been used to determine whether water rights had been forfeited. Mr. Turnipseed stated, as a result of a ruling made by the state engineer, in 1989, referred to as the "Eureka Decision," the supreme court of Nevada allowed a water right to be cured "...after the resumption of use of one year." He indicated the provisions of A.B. 435 would provide holders of water rights an opportunity to commence using water before their water rights were lost. Mr. Turnipseed referred to Mr. Ernaut's question regarding the reasons why a holder of a water right might choose not to utilize all or a part of his water right for a beneficial use for a period of five years. He indicated, frequently, holders of water rights held those rights only for purposes of speculation. He pointed out, under A.B. 435, such holders of water rights would have to either use their water or apply for an extension of time in which to do so in order to prevent forfeiture of their water rights. Mrs. Lambert asked Mr. Turnipseed whether, pursuant to the Eureka Decision, if a notice of forfeiture was sent to a holder of a water right, the holder then had one year in which to cure the forfeiture. Mr. Turnipseed replied the Eureka Decision did not mention notice. He said the supreme court of Nevada "...drew on some case law out of Idaho..." He explained the circumstances involved in the Idaho case and advised the Idaho supreme court decision indicated it was bad public policy to take water rights away from people. He said Senate Bill 191 attempted to make the Eureka Decision part of statute. Discussions were held between Mrs. Lambert and Mr. Turnipseed regarding the effect of the Eureka decision. Mrs. Lambert asked what liability the state might have if Mr. Turnipseed's office was required to give notice to the owner of record of a water right and his records did not reflect the true owner. Mr. Turnipseed replied, "That's why the suggested changes, because we have an owner on our file and we don't want to go searching through the county recorder's office to see if that property's been sold or whatever the case may be; but we'll send a notice to our owner of record after four years." Mrs. Lambert referred to notices regarding permits and said she had many constituents who believed the permit process was abused. She asked, "If you forget to mail that notice, does that mean the permit holder would probably have more time if they came to a hearing, because you didn't mail the notice." Mr. Turnipseed replied affirmatively. Mrs. Lambert asked, if A.B. 435 was passed by the legislature and if Mr. Turnipseed failed to give notice as required by its provisions, would that failure prevent him from initiating forfeiture proceedings. Mr. Turnipseed replied A.B. 435 contained no provisions establishing what should happen if he failed to give the required notice. Mrs. Lambert asked, if A.B. 435 became law and if, in a water basin for which no records were maintained, "...a third party files a forfeiture, are we clear what will happen." Mr. Turnipseed responded, if a third party initiated a forfeiture action, that third party had the burden to prove, by clear and convincing evidence, the water in question had not been used. He advised a hearing would have to be held to determine whether or not the water had been used and, if it was determined the water had not been used, the water right would be forfeited. Further discussions were held between Mrs. Lambert and Mr. Turnipseed regarding what effect failure to give the notice required by A.B. 435 would have on forfeiture of water rights. Mr. Turnipseed referred to language on page 2 of A.B. 435 which said, "If the records of the state engineer indicate 4 consecutive years of nonuse..." and said he assumed, if the state engineer had no records, that section of A.B. 435 would not be applicable. Mr. Ernaut asked whether it would be difficult for the state engineer to ascertain how the water under a water right was being allocated if he did not know who owned the water right or whether he could determine how the water was being used even if he had no knowledge of who owned the water right. Mr. Turnipseed indicated, typically, inventories of water pumped were made by going to a well site and the state engineer might not know whether the well being inventoried was still the property of the original owner or had been sold. Mr. Ernaut commented he thought Mr. Turnipseed had testified there were some water basins in which the state engineer had no knowledge of any owner of water rights. Mr. Turnipseed replied his office had records of the owners of "...every permit we have in the office." Mr. Ernaut asked if the state engineer had a record of the owner of record of every water permit issued in the state of Nevada. Mr. Turnipseed replied affirmatively. Mr. Turnipseed advised there were statues which required owners of water permits to file copies of their deeds with the state engineer when their water rights changed hands but indicated they did not always do so. Mr. Ernaut suggested the owner of a water right assumed some liability for the fact he received no notice regarding forfeiture of his water rights if he failed to file with the state engineer the appropriate documents regarding his ownership. Mr. Turnipseed concurred. Mr. Ernaut asked Mr. Turnipseed what he believed the fiscal impact of A.B. 435 would be. Mr. Turnipseed indicated the provisions of A.B. 435 would create some additional workload for the state engineer's office. Mr. Ernaut asked if that workload would be prohibitive. Mr. Turnipseed responded it would not. Mrs. Freeman asked in what year the Idaho supreme court decision to which Mr. Turnipseed had testified was rendered. Mr. Turnipseed replied the decision was sometime during the past six years. Mrs. Freeman asked if other states were struggling to deal with the same issues regarding water rights as Nevada was. Mr. Turnipseed replied affirmatively. Assemblyman Segerblom asked, if she were a property owner in Clark County and had a well on her property, would she receive the notice provided for by A.B. 435 if she was not using her well. Mr. Turnipseed replied, if a property owner had a domestic well which was connected to his house, no permit was required for such a well and the well could not be lost through forfeiture proceedings. He advised, if the well was used for irrigation, the property owner would be required to have a permit and, upon perfecting the conditions of the permit, would receive a certificate, after which, if he then failed to use the water from the well for five years, he could lose the right to do so. Mrs. de Braga asked whether it was the date of an application for water rights which was used to determine forfeiture of a water right or some other date. Mr. Turnipseed replied the date used to determine forfeiture was the date the certificate was issued. He explained the process involved in obtaining water rights. He said, first, an application was filed for permission to drill a well and put the water from that well to beneficial use. He indicated, next, a permit to obtain water and put it to beneficial use was issued and a time limit was set for the applicant to file proof of completion of work and of beneficial use. He said, if the water was not used during the time period provided, the applicant must file a request for an extension of time or his permit would be canceled. He stated, once the water right was perfected and proof of beneficial use was filed, a certificate was issued and, thereafter, five years of non-use would "...be called a forfeiture." Mrs. de Braga asked, "With this bill, will you still have -- above and beyond this one year--will you still have the ability to grant further extensions?" Mr. Turnipseed replied affirmatively. Mr. Neighbors indicated, toward the end of the period covered by the permit Mr. Turnipseed had discussed, a permit holder would receive a certified letter advising him he had 30 days in which to put the water from his well to beneficial use or in which to ask for a waiver. He advised the proponents of A.B. 435 were asking only that the same type of notice be given to the holder of a certificate as was given to the holder of a permit. He pointed out it was proposed, wherever A.B. 435 required notice be given to the last holder of a water right, it be amended to provide notice be given to the last owner of record and said he believed that amendment would address any possibility of liability on the part of the state. Mr. Neighbors said some mention was made of the legislature in the Eureka Decision and asked if Mr. Turnipseed recalled that mention. Mr. Turnipseed responded, "There was some direction out of the supreme court to have the legislature react to -- I don't remember if it was the cure provision or notice provision, but you're correct there. I just don't remember the exact language." Mr. Ralph McCracken testified. He advised he was a resident of Nye County. He referred to Mrs. Lambert's question regarding taxing of water rights and said, in Nye County, there was no direct tax on water rights, either in the form of personal tax or property tax. He indicated, however, property taxes were based on whether or not a property was green and, therefore, if a property owner was using his water and his property was green, his property would be taxed at a different rate (than if he was not using his water and his property was not green). Mr. McCracken referred to Mr. Ernaut's question regarding the reasons why the holder of a water right might choose not to utilize all or a part of his water right for a beneficial use for a period of five years. He said, sometimes, it was not economically feasible for a farmer to grow the crop he was "...set up for." He advised, because of flooding in the Midwest, it was anticipated it would be profitable to grow hay in Nevada. He said another reason the holder of a water right might choose not to exercise his water right was that his well was worn out or he had problems with his equipment and did not have sufficient money to proceed to irrigate his land. Mr. McCracken advised the word forfeiture did not occur in the legislature's interim report. Mr. McCracken indicated he wished to comment on how the law governing water rights worked with respect to the permit stage of obtaining those rights. He advised he had two permits and had found the permit procedure and the notification process involved in that procedure worked very well. He described his personal experience with the notification procedure. He encouraged the committee to ensure notices were given in the certificate stage of obtaining water rights. Mr. Ned Eyre testified. He said he had utilized water rights in Nevada for more than 30 years and stated he did not know how to urge strongly enough that the committee ensure A.B. 435 was passed by the legislature. He advised the provisions of A.B. 435 had been needed for a very long time and were extremely important to holders of water rights. He said, based on economic considerations, he had not utilized some of his water rights for a period of time. He contended it was extremely important for holders of water rights to know where they stood (with respect to their rights) and what their options were in order for them to be able to make decisions. Mr. Eyre advised he paid a premium for land which had water rights and, therefore, in actuality, was paying taxes on those water rights. He urged that the legislature pass A.B. 435. Mr. George Benesch testified. He advised he was counsel to the state engineer for approximately eight years and was familiar with Nevada's water laws. He said, under the present system governing water rights, the holder of a water right which was subject to forfeiture could apply for an extension of time (in which to put his water to beneficial use). He explained the dilemma in which many certificate holders found themselves was, if a certificate holder applied for an extension of time and his request was denied, he had, in effect, admitted he had not used his water and, thereby, had forfeited his opportunity to cure the situation. He contended A.B. 435 could do much to eliminate that dilemma. Mr. Benesch said, with respect to "...one of the paragraphs that was deleted...the one having to do with the corners on the center pivots. That came about as a result of center pivots going in in Diamond Valley and...I think the state engineer would agree with me that that has not been a significant burden on the state engineer's office to give that notice to those individuals... This I see as somewhat of an extension of that practice, or an expansion, probably, would be a better word." He urged the committee to pass A.B. 435. Chairman Bache closed the hearing on A.B. 435. B.D.R. 23-496 - Authorizes collective bargaining for certain employees in classified service of state. ASSEMBLYMAN NEIGHBORS MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 23-496. ASSEMBLYMAN KRENZER SECONDED THE MOTION. THE MOTION CARRIED. B.D.R. 23-795 - Authorizes collective bargaining for certain state employees. ASSEMBLYMAN DE BRAGA MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 23-795. ASSEMBLYMAN SEGERBLOM SECONDED THE MOTION. THE MOTION CARRIED. B.D.R. 23-936 - Authorizes collective bargaining for certain state employees. ASSEMBLYMAN DE BRAGA MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 23-936. ASSEMBLYMAN FREEMAN SECONDED THE MOTION. THE MOTION CARRIED. Mr. Ernaut announced the subcommittee on A.B. 332 would meet on April 26, 1995, at 4:00 p.m. He advised the meeting would be held at The Chateaux in Incline Village. He said the subcommittee would be transported by van and would depart from the legislative building at 2:00 p.m. He indicated he intended for the subcommittee to tour Incline Village and Mount Rose Highway prior to its meeting. Chairman Bache informed the committee he, personally, had requested a second amendment to Assembly Bill 171 and read the proposed amendment to the committee. Discussions were held between Mrs. Lambert and Chairman Bache. Ms. Krenzer commented Assembly Bill 39 had been placed on the Chief Clerk's desk and asked Chairman Bache if the problems regarding A.B. 39 had been resolved. Chairman Bache indicated he would discuss A.B. 39 with staff of the Legislative Counsel Bureau, prior to the morning's floor session, in order to obtain answers to questions raised about the bill. There being no further business to come before the committee, Chairman Bache adjourned the meeting at 9:25 a.m. RESPECTFULLY SUBMITTED: Sara Kaufman, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs April 11, 1995 Page