MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session April 20, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Thursday, April 20, 1995, Chairman Price presiding in Room 119 of the Legislative Building, Carson City, Nevada. This meeting was placed on teleconference to the Sawyer State Building in Las Vegas, NV. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Bob Price, Chairman Ms. Jeannine Stroth, Chairman Mr. Pete Ernaut, Vice Chairman Mr. Michael A. (Mike) Schneider, Vice Chairman Mr. Morse Arberry, Jr. Mrs. Maureen E. Brower Mrs. Joan A. Lambert Mr. Mark Manendo Mr. John W. Marvel Mr. P.M. Roy Neighbors Mr. Brian Sandoval Mr. Larry L. Spitler GUEST LEGISLATORS PRESENT: Assemblyman Dennis Allard, Assembly District #20 STAFF MEMBERS PRESENT: Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr.Keith Rheult, Department of Education Mr. Michael Pitlock, Department of Taxation Ms. Kathy Scattini, Dir. Occupational Educ. Clark County School Dist. Mr. Gary Milliten, Associated General Contractors Mr. John Madole, Associated General Contractors Miss Shea Vick, Carson Valley FFA Mr. Joe Apple, Carson Valley FFA Mr. Douglas Burris, Director of Community College Affairs Ms. Carole Vilardo, Nevada Taxpayer's Association Ms. Mary Santino, Nevada Retailers Association Mr. Gary Betts, Nevada Rural School Districts Mr. Ray Bacon, Nevada Manufacturers Association Miss Tomika Brown, Eldorado High School Miss Elena Sanchez, Las Vegas High School Ms. Charlotte Conger, Teacher/ Las Vegas High School Ms. Jeanne R. Jones, President, Council on Occupational Education Mr. Ted Finneran, Council on Occup. Education ASSEMBLY BILL NO. 69 - Provides partial exemption from business tax for businesses that employ certain pupils. Chairman Price called the meeting to order and explained arrangements have been made for teleconference communication between theGrant Sawyer State Office Building and the Legislative Building to provide an opportunity to discuss this bill with some high school students, their instructors and employers. He then introduced Assemblyman Dennis Allard, sponsor of A.B. 69 and asked him to begin. Mr. Allard stated he had provided for each member a copy of his testimony identified as (Exhibit C), a copy of the NRS this legislation will affect (Exhibit D) and a copy of the fiscal note (Exhibit E). He read his written testimony into the record and upon conclusion he offered to answer any questions any of the committee members may have. There being none, he advised those present there are several members from the Department of Education that would like to make a statement. Speaking first was Mr. Keith W. Rheault, Deputy Superintendent/ Department of Education speaking in support of the bill. His statement was read into the record, identified as Exhibit F and elaborated on critical points within the document. At the conclusion of his testimony, Mr. Marvel asked if they had the capability of tracking these students as they go into the work force to determine the success ratio. Mr. Rheault stated they do have a follow-up system in place for school districts and community colleges on occupational graduates for all students that complete the program. The system does need to be improved over what is currently being offered. They have a formal agreement they enter into between a supervisor at the school district, parents, students and the business where they outline the specific skills the student will learn, how much time they will spend on the job and when they would work. It spells out the whole work experience so if people are worried that students are going to be sweeping floors for twenty hours a week, that is not going to happen. It is an agreement that will benefit business but it is also spelled out so the students will become involved as part of the learning experience. The program is also tied into the educational studies the students are getting at the high school. Mr. Marvel asked if there was any information on the fiscal impact on local schools and was advised there could be a fiscal impact, depending on the number of participants. They have, within the districts that offer supervised work experience, individuals already in place that supervise the students and they have worked out a pretty active program. Mr. Marvel asked Mr. Rheault if he could work out some figures for the committee on the fiscal impact this measure would involve. Mr. Rheault stated he could provide those figures. Mr. Allard reponded to one of Mr. Marvel's inquiries by explaining they wanted more students involved and the employers that would take them. The way the program is set up now, they would handle the students and employers they have. If the interest in the program increases, and he believes that would happen, the staffing could not handle the demand. They would have to increase staffing but he does not see that happening at the outset. Mr. Manendo asked if there is a cap to the number of students a business can employ and was advised the only cap would be the fact that it is school supervised so they would set up the perimeters on how many they can handle. The school supervisors would want to make certain they have the right type of employment placement for them. Mr. Manendo pursued his line of questioning stating his main concern is, for example, a fast food chain who also employs senior citizens to subsidize their income. Is there is a possibility the food chain would cut those employees and hire high school kids so they could get the business tax exemption. He assured Mr. Allard he is all for helping the students but does not want to impact the senior citizens ability to earn additional money as well. Mr. Allard explained the proposed tax exemption is very nominal. Using his business as an example, in order for him to hire a high school student and put them to work, he has to take time away from his foreman, which costs him money, to train the student. For that reason, businesses will be reluctant to take these students on. He feels that is one of the obstacles the Department of Education is having. He suggested we have to address the problem here in America whereby we are not providing for a qualified, educated work force. The road we are heading down has to be changed in some fashion or we are going to be in real trouble. Under this measure, the financial incentive is so nominal there is not enough incentive for a business to fire an experienced employee and hire a student to save a couple hundred dollars per year. He does not see that as a factor that will be detrimental. In addressing Mr. Manendo's concerns, Mr. Rheault explained that most of the students will be placed in a business or industry where they will be receiving their occupational training or have some career aspirations. They have had some problems coming up with enough businesses interested in participating. He suggested some of the school district representatives could address their views . Mr. Neighbor expressed the belief this proposal sounds like a good concept, however, looking at the fiscal impact that has occured to the business tax, it is something we should be a little cautious about. He pointed out starting in l995- 96, the exemptions would run about a quarter of a million dollars,and up to $265,000 for l996-97. He elaborated on the legislative intent of the business tax stating that tax was in lieu of the original corporate tax. At one point the legislature was trying to establish a corporate tax then the teachers objected so the legislature changed it to the business tax. With the passage of this bill, it could mean a quarter of a million dollar loss to the schools not counting any other out-of-pocket expenses for training or supervisors. Mrs. Brower directed her question to the plight of the businessman, when they hire a student, what type of paperwork will be required for reporting purposes for example, workinig out an agreement between the businessman and the taxation department, what would be required to ensure the businessman can make that deduction, etc. Mr. Rheault advised those present Mr. Allard wanted to keep the paperwork down to a minimum yet make certain it was an accountable system. It could be either just a certificate provided by the school authenticating that the student is in the work experience program. The school district can keep this on file, however, once this legislation is in place, it will be a simple matter to provide the appropriate mechanism for handling records, hopefully, without a lot of paperwork. Ms. Stroth asked how many students would be available for this program and was advised by Mr. Rheault he did not have an accurate number at this time, but estimated there are currently about 2500 students statewide in a supervised work experience program of some type. Ms. Stroth interjected, after reading the statistics and comparing those with the fiscal note, she feels the fiscal note is out of order. Mr. Rheault volunteered the information that he did not compute in all the variables on the fiscal note but he was figuring on 2490 people which is $100 per year. There followed lengthy discussion on the method of computing fiscal impact, ways of handling the reporting documentation etc., but the general consensus was the fiscal note needs some extensive review and revision prior to its being useable. Speaking next was Mr. Michael Pitlock, Executive Director of the Department of Taxation. He distributed his written testimony, accompanied by a revised fiscal note (Exhibit G) and explained it did not significantly change the numbers previously distributed but the first page of the attachment explains the calculation made by the Department of Taxation. He elaborated on that statement by explaining they had surveyed all 17 school districts to determine the number of students currently involved in these programs. That number, based on the information from the school district was 2,062 students; they also received from the school district, an estimate of hours worked. Those were the estimates used to calculate the first phase of the exemption which was the number of hours to be exempted based on what the students were working. In addition to the exemption for hours worked, there is an additional exemption for one full-time employee included in the calculations. The total fiscal impact is $245,000 for the first fiscal year and $254,000 for the second fiscal year, based on the projected increases from the Economic Forum. There is also an additional cost in the first fiscal year for notification from the Department of Taxation to the employers notifying them of the existence of this exemption. In response to a question from Mrs. Lambert, Mr. Pitlock advised those present, if the bill was amended to where the second half of the exemption for the current employee was made, based on the number of hours the student worked, you would have a total fiscal impact of somewhere in the neighborhood of $150,000 on an on-going basis. If you doubled the impact for just the student exemption, which is approximately $76,000 on an annual basis, the fiscal impact of the notification would remain the same. Mr. Allard interjected he would not be opposed to am amendment. The original intent was one hour for one hour and he perceives the way the bill is worded it could be construed as taking away an entire employee which was not his intent. The amendment would not be a problem with him at all. As far as the fiscal impact, we have a wealth of facilities in the private sector to train students. He feels we have to train them, get them involved in the work place and teach them a skill. If we do not, we are not addressing that 70% of students who need help. Chairman Price explained to those present that he would like to begin the conference call from the students at the Sawyer Building in Las Vegas through the teleconferencing program and asked for the first person wishing to testify. Speaking first was Ms. Kathleen Frasini, Director of Occupational Education for Clark County School District who stated she was speaking in support of A.B. 69 and wanted to commend Mr. Allard for introduction of this measure. She explained she felt it was very straight- forward and definitely an asset that will support our state-school work initiative by encouraging a stronger commitment from business to hire students. In the Clark County School District alone they have some 705 students that worked at least twenty hours per week the first semester of the school year. Several committee members had expressed an interest in whether the school district follows the students progress, therefore, she explained that in Clark County all their schools are networked with the job bank so employers can call and place job advertisements on the job bank. The school district keeps a database on all students participating, how many actually earn credits, how much they earn etc. Some of the figures on the first semester shows the wages of those students to be $739,145.00. In addressing the concern regarding the fiscal impact, you should remember these students pay taxes as well. She urges favorable action on this bill. Due to telephonic transmission difficulties causing reception to be distorted, the students and faculty members from the Sawyer Office Building are being listed by name and school only. Everyone testifying was involved with the student- employer program and was enthusiastically supportive of the program and this legislative measure. Testifying were: Mr. Chris Arnold, Clark County School District Tamika Brown, Eldorado High School Jessica Huffman, Eldorado High School Elena Sanchez, Las Vegas High Charlotte Conger, Marketing Instructor, Las Vegas High School Jeanne Jones, Council on Occupational Education Mr. Ted Finneran, Exec. Director of the Laughlin Chamber of Commerce and also the 2nd Vice President of the Nevada Counsel on Education. Messrs. Gary Milliken and John Madole both representing the Associated General Contractors spoke in support of A.B. 69 and confirmed their clients are currently involved with this program, and advocate continuation of the opportunity for the students and employers. Mr. Douglas Burris, Director of Community College Affairs for the State and also representing the Nevada State Council on Occupational Education, stated he wanted to speak in strong support of the concept this bill proposes. Interning or apprenticeships, on the job training is of tremendous value in the contribution to the student's ability to succeed on the job, once the formal education process is completed. Much less what takes place during that formal education process. He informed the members there is currently a national movement underway to do precisely what we are doing here, that is, develop incentives to engender much more business support directly into the educational process. He estimated it has been proven time and time again, with this kind of experience, the true impact this type of program will have in the quality of the workforce at the end of the educational experience will be immeasurable. He strongly supported passage of this bill, based on the progress he has personally observed in Nevada. He then introduced two local students who spoke to the committee on their participation and experience with the program. They are Miss Shea Vick, Carson Valley FFA and Mr. Joe Apple, Carson Valley FFA. Both students expressed their appreciation for the program and, enthusiastically, supported passage of the bill. Speaking next was Ms. Carole Villardo, Nevada Taxpayer's Association who addressed this bill, not on the policy question of whether or not you provide an incentive, but on the policy question of an exemption. She pointed out this is, according to her recollection, the third bill this committee has before it that deals with an exemption on the business license tax. This is in addition to a bill that deals with a five year phase out and a bill still to come from the Senate to reduce the business license tax. Incentives are an accepted way of life in the United States against taxes. We find most of them in many states have been created because of the income tax. While she thinks this is a good bill with what it intends to do, mechanically, there are some problems that need to be worked out. For example, she feels we should look at this bill in context with the other bills the committee has on the business tax. She feels it necessary for the committee to see what the total erosion is going to be of the base if these are all passed. She pointed out we have a case in point where the taxes have been levied to provide for programs and various services of the state. Of all the exemption bills she has seen, this measure is the most palatable as it has a beginning and an end to it; it is not an on-going type of program. Iif the legislature approves this bill, and all the others providing tax exemptions, you will have taken these exemptions, eroded a tax base which is to provide for general government programs. You will then need to increase that revenue from some other source , which means another tax, or you are going to have to raise the level of the rate of the tax to give the state the revenue it needs to take care of other state services. She feels we have some serious policy questions relative to how much we can exempt and what we shoould we be exempting before you put the burden on the few people who do not qualify `for these various exemptions. She asked, if this is the bill they chose to process, if they would eliminate the part of the incentive in this bill that goes to the regular employee of the business and leave the exemption just for the students. The reason being that employee is there, whether you hire a student, or you hire someone in response to an ad who is a non-student, there is an element of training that must go on. There is an employee that is involved with training, either full-time or part-time so why should that employee be eligible for the exemption. She feels the committee should define what the liability of the business is to prove they are entitled to the exemption so the business is not caught off guard. It is not clearly defined as to whether it is the Department of Taxation or the Department of Education that will be responsible for monitoring the program. She reiterated, of all the exemption bills she has looked at, this measure is the one she can accept, personally, because of what it intends to do but she urged the committee to not act on the bill until you have an opportunity to look at this in conjunction with all the other exemption bills under consideration this session. Representing the Retail Association of Nevada and testifying next was Mary Santina. She stated originally they had a position opposing this bill because, like the Nevada Taxpayers Association, they do not like to see the erosion of tax base. However, after talking to Assemblyman Allard, and their activities in the "school to work" program, they are supporting this legislation. She clarified policies in other states on this same program and the need for skilled employees. She urges the committee members to keep it simple; enormous amounts of paperwork and red tape is really not necessary. Speaking on behalf of the 15 rural school district was Mr. Gregg Betts. He advised those present he was speaking in support of passage of this bill. He pointed out this is a very important piece of legislation, in particular to the rural districts that do not have the scope of businesses to approach to accommodate these students. He feels it will be an incentive to increase more receptivity on the part of the business sector. Mr. Ray Bacon, representing the Nevada Manufacturers Association, rose in support of the concept of this bill, however, they do have some concerns. He distributed a prepared statement (Exhibit H) in which his association has defined their six areas of concern. He went through the handout explaining their questions and suggestions they would like to see included in the bill. Chairman Price advised those present the committee will take this bill, with all of the suggestions, combine it with the other bills coming out on the business tax and consider them at a work shop. There being no further testimony to be taken, the hearing on A.B. 69 was closed. A request has been made to ask for a BDR creating a tax exemption status for the veterans of the Desert Storm similar to those of the Vietnam War, Korean War, etc. Chairman Price asked for a motion to that affect; a motion was made by Mr. Manendo, seconded by Mrs. Brower and carried unanimously. Mrs. Stroth advised she had been requested by Clark County Airport Authority for a BDR dealing with airport property. Their request concerns certain parts of the airport property not accessible to the public on which they are paying taxes. They have already taken care of an identical issue at the Reno Airport. Clark County advises it is a nightmare trying to figure out what portions they are supposed to be paying the tax. Under the circumstances, the County is willing to give up whatever portion of the property tax they receive just to get from the paperwork. Additionally, this will make them consistent with Washoe County. A motion was made by Mr.Neighbors, seconded by Mrs. Brower and carried unanimously to request a BDR for that purpose. Mr. Allard returned to the witness table with a few comments on his previously- discussed bill, A.B. 69. He explained the reason he had asked for this bill in addition to the exemption of the student is to have an exemption for an existing employee. The reason for that was they did not feel there was enough incentive for just exempting the student. Additionally, he proposed a suggested amendment on line 6 of the bill where it says, "the total number of hours worked by one full- time employee" - pull out the "total" and replace it with "equal". It would then read,"an equal number of hours worked by one full-time employee". That was what the intent was and he would like that amendment placed on the bill. With that, he feels the bill is pretty straightforward and, he added, there will be a smaller fiscal note with this amendment. He cautioned if we do not give enough incentive, we are spinning our wheels; if we just say you hire a student and he is exempted, they are already spending money to train that student. That is not an incentive; that is a losing proposition from a businessman's point of view. With this bill it may be a break even for everyone. There being no further business, the meeting was adjourned at 3:15 p.m. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation April 20, 1995 Page