MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-Eighth Session May 4, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Thursday, May 4, 1995, Chairman Jeannine Stroth presiding in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: 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 COMMITTEE MEMBERS EXCUSED: Mr. Bob Price, Chairman GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Ms. Carole Vilardo, President, Nevada Taxpayers Association OTHERS PRESENT, CONT. Mr. Henry Etchemendy, Executive Director, Nevada Association of School Boards Mr. Greg Betts, representing Nevada Rural School Districts Ms. Linda L. Loding, Tahoe-Douglas Fire District Mr. Bob Loding, R.H.A.I.D. Chairman Jeannine Stroth called the meeting to order, requested a roll call from the Committee Secretary, and proceeded to address the first bill on the agenda. ASSEMBLY BILL 414 - Requires school districts to cover excess of tax rate to repay school bonds. First to speak was Ms. Carole Vilardo, President of the Nevada Taxpayers Association. She explained the basis for the bill was a situation that was created when a tax shift occurred in 1981. School districts were held harmless within the scheme of funding. If there was a problem with tax rates and if there were adjustments required, the only provisions in statutes to handle the adjustments were between the local governments, i.e., cities, counties, special improvement districts, etc. If there was further dispute, the Tax Commission would figure out which within those entities would adjust rates and could create the "buy-down situations." The White Pine situation occurred last year. They went over the tax rate. In part, this was caused by bonds that had been issued. It was also caused by accessed values that were incorrect. Another contributing factor was "pay-as-you-go" financing used for short-term bonds. Thus, there was some feeling that what was done relative to the bonding site at the school district had, in fact, caused part of the problem of the tax rate. So a special bill was run through to create a buy-down by the school district for all the cities in White Pine county. Ms. Vilardo explained that A.B. 414 made it part of general law that, if this situation ever occurred again, the mechanism would be in statute to direct the negotiation amongst all parties that shared in the property tax rate at the local government level. That way, there would be the ability to bring the school districts into the conversations and, if necessary, the mechanism would already be in statute whereby they could possibly be the ones to be involved with the buy-down. Therefore, Nevada Taxpayers Association supported A.B. 414. Ms. Vilardo stressed that she hoped it was something that would not be needed, but the special language had been created last year and it strictly applied to White Pine County. A.B. 414 made it part of the general law. Assemblyman Roy Neighbors cited a situation in Nye county similar to the one Ms. Vilardo described. It happened several years ago. A $30 million school bond was passed. In this case, it involved two entities: an unincorporated town named Armogosa and the city of Gabbs. When the budget was done, they were over the $3.64 limit, so they did not go to the school district who got the money and the bond issue. They turned around to the local government and said, "You have got to buy them down." You had to make up the difference forevermore. Basically, as Mr. Neighbors saw A.B. 414, what was being said was, "If you are going to pass a bond issue, and you are going to make some entities exceed the $3.64 limit, then it is your responsibility to buy them down." Ms. Vilardo responded to Mr. Neighbors. Since the time of the example Mr. Neighbors cited, a number of elements had been put into place to not allow that to occur again. There was a debt management bill that required greater scrutiny to look at the tax rates. Also, there were some bills to come that would further define and set parameters to avoid governments getting into trouble after the fact. Because local governments were involved as part of the process of making recommendations, the changes in law were things those governments recognized as necessary to preserve their ratings and ability to have flexibility within the tax caps. With some law in place, they were not constantly competing with each other. It was Ms. Vilardo's hope the White Pine situation would not occur again because of the changes being made by the current session. It was Ms. Vilardo's feeling that A.B. 414 "leveled the playing field if, God forbid (sic), this happens again." Speaking next was Assemblyman Joan Lambert. She had served on the tax district interim study, as did Messrs. Ernaut and Price. The intent was that when a school bond drove the rate over the $3.64 limit, a school district would buy down. Ms. Lambert asked Mr. Ted Zuend if the language in A.B. 414 did that. Mr. Zuend confirmed that it did, and commented that Ms. Vilardo's description of the intent of the legislation was correct. The way Mr. Zuend read A.B. 414 was that, if the rate ever went over $3.64, one first went to the school district to buy down the rate. But that was not the intent of the interim committee. The intent was, if the school district caused the rate to go over the limit, they would be involved in the negotiation. Because of that, A.B. 414 would have to be revised. For example, the current debt rate for Washoe county school district was about 36.5 cents. If tomorrow, the city of Reno passed the bond issue or Washoe county did, and the result was their assessed valuation did not come in as expected, the way A.B. 414 was written, it would be the school district's fault. Mr. Zuend continued to elaborate the point. No one had any comments or questions regarding Mr. Zuend's statements. Speaking against A.B. 414 was Mr. Henry Etchemendy, Executive Director of the Nevada Association of School Boards. First, he informed the Committee that the School Board Association had no disagreement whatsoever with the concept of buying down the tax rate when certain circumstances occurred. It was the method in which it was done that the Association had some grief with. It was Mr. Etchemendy's opinion that A.B. 414 was flawed. It focused on only one entity that had anything to do with the tax rate. He provided some hypothetical examples. A city or a county or any other taxing district could just as well, by issuance of bonds or establishing a rate for certain purposes, cause that rate to go over $3.64. Yet the way A.B. 414 was written, the school district would have to buy it down. Mr. Etchemendy said he could offer an amendment to the bill which he thought would resolve the problem. Mr. Etchemendy referred to Chapter 354.598, which allowed a county, without a vote of the people, to levy a tax rate of 5 cents. That 5 cents would be distributed in relationship to the collection from the county relief tax that various entities had within that county for purposes of going into a capital project fund they had. Likewise, the next section (354.598-17) contained another provision. That provision was voter approved. When voter approved, they could go 15 cents on the rate to go into a capital project fund. If either of those instances happened and the rate went over $3.64 and the school bond had actually passed, the way A.B. 414 was written, the school would have to buy this down. Hence, the rate would not be their total responsibility; the actual approximate cause of the rate going over would be either the 5 cents or the 15 cents. But the school district would have to buy that down. Another instance that could happen under the current law, as Mr. Etchemendy understood it, if there was a decreased property valuation within the county, there was authority to increase tax rates (tax revenue of 6 percent over the prior year). The only way this could be done was by increasing the tax rates. If that happened, the district would have to buy the difference down. Mr. Etchemendy then referred to page 2 of A.B. 414, lines 8 - 47. He began quoting from the bill. He discussed various detailed scenarios and procedures. He pointed out the school districts were held harmless, not only in NRS 354, but in the distributing school funds where the 75 cent rate was levied. Their debt service was held harmless, too, because everyone's debt service was held harmless: you had to repay those bonds. That was the principal obligation. Mr. Etchemendy believed the language of A.B. 414 should be rewritten. He proceeded to quote from lines 42 - 47 of A.B. 414. He suggested a statement be added there, and again on page 1 of A.B. 414, stating: "The Nevada tax commission shall establish to whom the buy down will be charged and the amount of that buy down." He believed the same language could be placed on page 1 by deleting most of the language contained in lines 10 - 18 and keeping the language about voters approving the issuance of the debt. The resolution would be the Nevada tax Commission would determine who was going to buy down and at what amount. Assemblyman Larry Spitler addressed the fiscal note; specifically, the letter Clark County School District had sent. But Mr. Etchemendy was unaware of the letter. Mr. Spitler quoted from the letter the following paragraph: "In the event the school district was required to transfer monies to other local governments because the overlapping tax rates exceeded the statutory limits, the district bond ratings and future borrowing ability would be negatively effected since tax revenues intended to satisfy outstanding debt would be diverted to other local governments. This could cost the district millions of dollars in higher future interest costs." Mr. Spitler questioned if that was considered when Mr. Etchemendy was looking at A.B. 414. Mr. Etchemendy said, "No, I was not aware of that. But it is a valid point." Mr. Spitler then suggested Mr. Ted Zuend enlighten the Committee on the issue. Mr. Zuend said the debt rate would not change under the intent of A.B. 414 and proceeded to clarify his statement by explaining that the debt rate would still be set; the intent of the bill was for the school district to find some operating funds. Typically, it was a very small entity in the county that was being talked about. The White Pine situation was an excessive example. Usually the cost of the school district would not be that great under a normal circumstance. The rate might be over a penny or two. Assemblyman Roy Neighbors commented that, in the case of the two entities in Nye County (Armogosa Valley and Gabbs) that were bumped over the rate, the county paid each one of them about $10,000. That was the override. That meant the tax rate necessary for that entity was then "freed-up," because one cent of county tax rate might raise $200,000, but one cent of Gabbs might raise $2,000. Mr. Neighbors agreed with Mr. Zuend: it would be mostly very small entities that might be up near the rate. In response to Mr. Neighbors' statements, Mr. Etchemendy was in agreement. For years, there had been examples in Nevada where many special districts were formed that had to have a tax rate to operate. Their rate would run it over the limit, even in the days when it was a $5.00 limit! The other entities would then buy that rate down. It would not cost very much money, but those pennies they bought down would bring in quite a lot of money to their own treasuries. It was a way of operating that still existed. But Mr. Neighbors believed that A.B. 414 had great possibility and had an easy means of amending it to establish the purposes for which it was intended. Next to speak was Mr. Greg Betts, who represented the Nevada Rural School Districts in Nevada. They were not at odds with the intent of A.B. 414. He thought Mr. Etchemendy's suggestions could accomplish the intent; the language was just a bit flawed. But when it was cleaned up, he felt everyone would be pleased with it. Chairman Stroth asked if anyone else wished to speak for or against A.B. 414; seeing none, she closed the hearing on A.B. 414, leaving the bill pending. She then opened the hearing on Assembly Bill 418. ASSEMBLY BILL 418 - Revises provisions governing distribution of supplemental city-county relief tax to exclude certain districts. Ms. Linda Loding, representing the Tahoe-Douglas Fire District, came forward to testify. She had signed up to speak against A.B. 418, but announced she had no comment. The other person who signed to speak against A.B. 418 was Mr. Bob Loding. He withdrew his request to testify, as well. ASSEMBLYMAN MARVEL MOVED TO INDEFINITELY POSTPONE A.B. 418. ASSEMBLYMAN LAMBERT SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT. ******** Chairman Stroth had a request for a bill draft that was related to personal property tax. She had discussed it with Ms. Carole Vilardo, President of Nevada Taxpayers Association, who had been working with the assessors from Clark county. Ms. Stroth explained that on personal property tax, the current statute required paying the tax on consumable supplies. That could be anything from office supplies to cleaning equipment. It required people to inventory all those items. But it was not being done in many counties; therefore, Clark county requested that consumable supplies be added to inventories in this particular statute. And they would be exempt. In other words, consumable supplies would be considered as inventory so one was not counting pencils, staples, etc. Ms. Stroth requested a move for a bill draft request to exclude consumable supplies from personal property tax. ASSEMBLYMAN ERNAUT MOVED TO REQUEST A BILL DRAFT REQUEST. ASSEMBLYMAN MARVEL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY ALL THOSE PRESENT. Assemblyman Neighbors readdressed A.B. 414. He stated he had reviewed the concept before and volunteered to get together with Ms. Vilardo and Mr. Etchemendy, and then approach Ms. Brenda Erdoes to "get some language to bring back." Ms. Stroth said she appreciated Mr. Neighbors' very cooperative voluntarism to work out the details of the language, and added that Mr. Zuend should also be consulted. There being no further business, Chairman Stroth adjourned the meeting at 2:30 p.m. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation May 4, 1995 Page