MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session May 18, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Thursday, May 18, 1995, Chairman 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 ABSENT/EXCUSED: Mr. Bob Price, Chairman GUEST LEGISLATORS PRESENT: Senator Mark James STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Warren Hardy, City of North Las Vegas Ms. Janice Wright, Deputy Executive Director/ Dept. Of Taxation Ms. Carole Vilardo, President/ Nevada Taxpayers' Association Mr. Al Kramer, County Treasurer/ Carson City/County Mr. Kit Weaver, Carson City Assessor Ms. Byington, Douglas County Assessor Chairman Stroth called the meeting to order and asked the secretary to call the roll. There being a quorum present, the Chairman opened the hearing on Senate Joint Resolution # 14 which amends Article 10, Section 1 of the Nevada Constitution and asked Senator Mark James, as prime sponsor of the resolution to begin. SENATE JOINT RESOLUTION NO. 14: Proposes to amend Nevada constitution to authorize legislature to provide for abatement of taxes on property used in manner that conserves water. Senator James thanked the committee for scheduling his resolution for hearing and explained he is here advocating a very simple bill which would be a minor change in our constitution but a necessary one. This allows the legislature to consider, what he believes, would be some very far thinking ideas allowing people to change to turf grass and from less water efficient landscaping over to "zero landscaping". And, additionally, to consider other options available for both residential and commercial construction throughout our state. In Clark County, almost 60% or more of watering, on an average, goes to outdoor irrigation. That includes irrigation of yards, turf grass and other inefficient landscaping using all kinds of water, especially during the summer months. In Clark County they are in a unique situation which makes it detrimental from a standpoint of conservation. This is due to the fact that all the water they use outside is lost to the system. About three quarters of Clark County water comes from the Colorado River and everything we put back into our drains, which then goes to the water treatment plant and back into the river, gets us a return flow credit from the river. It is important to be efficient and conservative for water used indoors but we do get credit for the water because it is treated and sent back to the river. When we use water outside to water grass, yards, golf courses, etc., it goes into the aquifer and while some of it gets to the deep water aquifer, most of it gets to the shallow aquifer and winds up in either the low part of the valley or goes back into the wash and out to Lake Mead unaccounted for. We do not get credit for that. It is important to keep in mind if we are going to have efficient conservation of water, particularly in Clark County, we must do something about the way we use water outdoors. What this bill would do is allow the legislature to adopt property tax credits or other abatements for people who switch their landscaping over to "zero landscaping" or other forms of water efficient landscaping. This resolution must pass this legislature, the next one and be approved by the voters to become part of our constitution. One of our constitutional requirements states we cannot create an unequal tax. For this to be an abatement to the property tax, we would have to approve it constitutionally. We have done this before for other kinds of things we want to encourage. He thinks this is good tax policy and he encourages passage of the bill. Mr. Schneider reminded the Senator that two years ago, three houses were built for the National Association of Homebuilders Convention for a party and the builders won an Acquavision Award due to the use of desert style landscaping. They then sold them and one of the buyers tore out all the landscaping and put in Kentucky Blue grass. He pointed out people moving to Las Vegas are coming from California, or the east coast where they are used to the green grass and he questioned whether the Senator would consider some sort of penalty if the new homeowners reversed the landscaping. Senator James replied it is very important for us to do whatever we can to encourage people to put in "zero landscaping" and also to discourage them from doing what Mr. Schneider related. He does not feel that would be part of this measure as all they are doing with this bill is constitutionally authorizing a tax policy to encourage water conservation. Dealing with families who reverse water efficient landscaping would be primarily a function of local government in their water resource planning to encourage people to become involved with water conservation. Hopefully, they can in the future, adopt incentives to accomplish this. SJR 14 allows the State Legislature to set statewide policy which he feels is an important measure for the entire state as every part of Nevada has water conservation problems. Water is a scarce and valuable resource and this bill would offer benefits to all areas of the state not just Clark County. There was no one present wishing to testify on SJR 14, therefore, the hearing was closed and Chairman Stroth opened the hearing on S.B. 104. SENATE BILL NO. 104 - Revises provisions governing financial administration of municipal library district of City of North Las Vegas. A bill explanation on SJR 14, has been prepared, distributed as (Exhibit C) and made part of the permanent record. Testifying in support of this measure was Mr. Warren Hardy, representing the City of North Las Vegas who explained during the 1993 Legislative Session, the City of North Las Vegas came to the legislature and created the North Las Vegas Library District. It was hastily put together and there were no provisions in that legislation to allow the municipal library district to go to the vote of the people for bonding authority. In addition to that, it tied the North Las Vegas Municipal Library District operating rate to that of the Las Vegas-Clark County Library District. The City felt that it needed the opportunity to go to a vote of the people and have the same powers and privilege of every other library district in the state. This bill is an attempt to do that. During this legislative session the City has dealt with most of the changes in the bill on the Senate side and then passed the bill on to their bond counsel who has sent back some amendments which he volunteered to explain. (Exhibit D) He went over the amendment as proposed by the bond counsel. He reminded the members the biggest problem with the bill, after it came out of the Senate, was it did not give the City the right to go to the vote of the people, which was essentially what they were after in this legislation. He volunteered to answer any questions on this proposal. Mr. Neighbors wondered why this was not picked up on the Senate side and was advised the committee raised these very concerns; these were turned over to staff and assumed it was done properly. He admitted he did not pick up on the problems so he is taking responsibility for that. He has spoken with Senator Lowden, Chairman of the Taxation Committee, regarding these changes as well as Senator O'CONNELL who was the person in the Senate who raised the concerns initially and she is reviewing those now. Mrs. Lambert reiterated her understanding is that this measure will allow the district to go to the voters with General Obligation Bonds but will also allow the District to use the G.O. Bonds for purchasing books, chairs and equipment for libraries in addition to buildings. She questioned what was the normal life of a library book. Mr. Hardy stated he is not able to answer that, but the reason the language was included in the bill is an attempt to remain consistent with other library districts. He volunteered to obtain the answer to Mrs. Lambert's question, however, Mrs. Lambert stated she has a problem with bonding something for a longer period of time than its life expectancy. She pointed out with this bill, and the accompanying amendments, the City will be able to go for a voter override for an operating rate. In Washoe County, they pay an additional $.02 cents to buy books which makes sense to her, but this does not. Mr. Hardy agreed this issue should be addressed and promised to get with their bond counsel to determine what would be the best way to handle it. He wanted to emphasize their intent is to come into line and be consistent with what is done in other library districts throughout the state. Ms. Janice Wright, with the Department of Taxation, addressed the committee and expressed her concern has to do with the amendments. She has not seen them prior to today but, after listening to his testimony, she wanted to caution the committee the amendments sound like something is not consistent with what other library districts are doing. In other words, what is happening, according to Mr. Hardy's testimony, is they are going to go back and get the same base of the consolidated library district for Las Vegas and Clark County which is $0.1282. They have an assessed valuation in that district of $14.7-billion dollars; the same library district which is much smaller in North Las Vegas was originally expending $0.574. There is a large amount of difference. The way they have recommended changing it will not put them into compliance with NRS Chapter 354. Every other library district gets whatever the rate is plus the 6% increase in the normal calculation of the formula. They have been outside the restrictions of NRS Chapter 354, basically since they came on line getting whatever the big district's rate was and just applied to the smaller assessed valuation. So this is a considerably larger amount of money. It is generated in a different way and the same restrictions that apply to other library districts would not apply under this provision, as amended. Mr. Hardy interjected that the original bills that came forward would have done exactly what was indicated in terms of tying their operating rate to the base rate of the City of Las Vegas/Clark County which was $0.1284 which was not their intent. They are willing to do whatever is expedient to get this accomplished properly. He was under the impression this had been taken care of under S.B. 104 without the amendments but their intent is not to be tied to the general rate of Las Vegas. They are simply looking at a base year of 1994-95 with a rate of $0.58. It is their intent to use that as a base year and recalculate it each year as provided for in NRS 354. Ms. Wright pointed out she has a copy of the page containing the tentative budget for North Las Vegas and they have placed only $0.574 in it. Her reading of the amendment is it would allow for the $0.1208 rate and she does not think that is what they are trying to do. She cautioned Mr. Hardy and the committee members that this may not do what they are trying to accomplish. Mr. Hardy emphasized they are more than willing to work with the Department to clean this bill up to meet their intent and nothing further. Chairman Stroth invited them to come back when they have some language that is agreeable and meets their intent. A bill explanation prepared by the Fiscal Division was distributed as (Exhibit E). The hearing on SB104 was closed. The hearing on SJR 18 was opened with testimony as follows: SENATE JOINT RESOLUTION NO. 18: Proposes to amend Nevada Constitution to authorize abatement of property tax for certain owners of single- family residences. Prior to beginning testimony on this resolution, a bill explanation was distributed identified as (Exhibit F) and made part of the record. Testifying first in support of SJR 18 was Ms. Carol Vilardo, Nevada Taxpayers Association, who explained this measure came out of the interim committee on tax and revenue and interestingly enough, originally went through the Senate in the 1991 session. It was late in session when it came over to the Assembly and was heard by Assembly Taxation with no action taken. It was originally introduced in 1991 and then the issue was raised again before the interim committee. It was raised because there was discussion that there could come a time when it may be necessary to use property tax as it is a stable revenue source and, at that time, property taxes may have to be increased. Politically it is very unpalatable to say we need a .20-cent increase in property tax, particularly without going to the vote of the people and could be a major problem, particularly, for legislators living in districts with older neighborhoods. This was designed to put generic language into the constitution that would give future legislators the opportunity, if necessary, to look at raising property taxes while also providing an abatement, exemption, a credit or whatever, if the level of property tax they are raising would cause severe economic hardship on that person. This is nothing more than setting into the constitution the enabling ability for the future if the legislature should decide to use the property tax. It would allow you to raise property taxes but take into consideration there might be a level of people that could not afford the increase being put through. She pointed out a quick example, which she explained exists in the older part of Reno and we have it in one area of Las Vegas which everyone knows as Huntridge. The number of people who live there, and even where their children have their houses, those houses are 40 to 50 years old. They were purchased at $2, 3 or 4,000. Most of those people were working at that time and are now retired. They are living on fixed incomes of Social Security; the houses are now valued at $100,000 up to $130,000. If you were to need a revenue source and chose property tax and raised it to even $.20 per $100, you will be severely impacting those people to the point where they may not be able to afford to stay in that house. That is the kind of situation this bill envisions and what it is doing is giving the legislators the authority to do it. It does not say you have to do it, but she pointed out if she is around with the Taxpayers Association, they would be looking seriously at the criteria you would be establishing. We need this in the constitution, because of the uniform and equal rate and it takes five years to adopt such a provision. This is simply allowing the legislature to look at this for the future, which is exactly the same as the water abatement legislation. That is the reason it was put forth by the interim committee on tax and revenue which was not a committee to raise revenue. They came forth with no revenue generation measures. It was a committee designed to look at the taxes we have in place and see where we needed flexibility or where we needed clean up. She pointed out there will be additional bills coming through to do things such as that. Mr. Sandoval stated he represents a significant amount of households similar to what Ms. Vilardo described with senior citizens and one of the major complaints is the fact the assessed value goes up dramatically every year. They ask how the assessor can come in year after year and keep raising the value. He understands they have the opportunity to rebut that through an appellate process but he asked Ms. Vilardo if she was aware of any kind of limitation on the amount the property value can be increased each year. She replied there are a number of safe guards. She asked if most of the complaints come in around December and January and was advised yes. She stated because that is the time the notice of assessed value goes out. Generally, the property owners tend to take their last year's tax bill and automatically assume it will be the same. Some times that is the case and the tax rate will remain the same and in other instances that is not true because you are allowed to receive 106% of revenue over the prior year. If you have had a lot of growth, your actual tax rate can go down but that is not a function you know when you receive that notice. She pointed out her Association gets a number of those calls also and when that happens they have to call their assessor. She stated there are two assessors present today who may want to address that question. She stated there are some safeguards but, unfortunately, in the high-growth areas you look at what houses sell for and now only have the depreciation that is put in, but you also have a plus factor on land value and that is definitely one of the problems they have had but that is the result of when we did the tax shift and the assessors have worked very hard to try to get information out to the public as to what they can do. Again, one of the problems is in the high-growth area. The rate may actually go down but people do not know that at the time and you do not know it until the tentative budgets are put through and they are setting rates. That can make a difference on the total tax bill. Just because your assessed value went up does not necessarily mean that you are going to have an automatic increase in your property taxes. Her Association has prepared some information designed to help people with their questions which sometimes makes it a bit easier but she admitted her office gets the same amount of calls. Mr. Neighbors interjected there is no question if your assessed valuation goes up , even if the tax rate remains the same, you are going to have an increase in taxes. The concern he has with some of the seniors, if someone said, let`s increase the senior exemption" that would be okay, but with the ad valorem tax, meaning "according to value" there is no question it is going to be a problem. Some of these older homes have been depreciated off the books but when you go to sell them, they are worth a lot of money. He encouraged the committee to be consistent. If you pass this bill now, and next session, and if the voters approve it, however, they chose to treat it, whether as an abatement, a credit, an exemption or refund it would be subject to the exact dialogue we are having now on just the policy issue as to whether you want to let it go into the constitution. And those concerns will be expressed by people undoubtedly, about what constitutes a severe economic hardship and whether they should be doing a credit, an exemption or refund. She feels we now have the ability to say whether we want to do that in the future and that is what it comes down to. Mr. Neighbors reiterated he is not against an exemption for the seniors but historically every time you exempt someone, somebody else has to pick up the slack and that is his concern. Ms. Vilardo agreed emphatically with Mr. Neighbors' comments. She added this is not a senior exemption, this becomes a hardship exemption so if they passed this you would have to determine what a hardship was and the type of abatement you would allow against it. Chairman Stroth asked Ms. Vilardo if she had anything specific in mind when she mentioned "severe economic hardship" and was advised when it was originally discussed in the 1991 session, they use the renters rebate and they set up economic parameters that started at $19,100.00 and you allowed a 10% exemption against that. We already have some economic parameters in statute for example, the renter's rebate, the senior citizens' tax rebate on property and she assumes that would be what the legislature would be looking at. You might even be looking at a poverty level and saying," if you are at the current poverty level or 10% over that level, you would be entitled to a percentage". What we are looking at now in the first consideration, as with Senator James' bill, are policy considerations; they do not actually create the exemption, the abatement or the refund. They give you the ability to do whatever you want if you think the policy is worthwhile and the basis on this one is. Or, If you think you are going to need it and would want to use property tax in the future, however, everyone knows it is politically unpopular to do that. No further testimony on the resolution was to be heard, therefore, the hearing was closed. Chairman Stroth next opened the hearing on S.J.R. 17 with testimony being given as follows: SENATE JOINT RESOLUTION NO. 17: Proposes to amend Nevada constitution to allow legislature to exempt property from taxation if amount of tax to be collected would be less than cost to collect it. Prior to beginning testimony, Exhibit G was distributed to all members which is an explanation of this resolution by the Fiscal Division. Speaking first in support of this resolution was Ms. Carole Vilardo, representing the Nevada Taxpayers' Association. She pointed out there are several assessors present today who will be addressing this, but as a member of the Interim Committee on Revenue and Taxation she wanted to confirm this bill also came out of that committee at the request of the assessors and the committee supported the arguments that may come before us. Mr. Neighbors advised those present that one of the issues on the ballot last time had to do with taxing horses and there was testimony taken that said it cost more to collect the taxes on the horses than they received in revenue. How would this bill apply to the fact that the voters have already rejected it? Ms. Vilardo replied the sales tax on horses last year was just that - it was sales tax. The argument was, it was a tax that was not easy to collect inasmuch as there were so many private sales and you do not register horses making it almost impossible to record. In S.J.R. #17, we are talking about property tax. Ms. Barbara Byington, Douglas County Assessor, concurred with the statements made by Ms. Vilardo and expanded her comments adding she and the other assessors had requested this bill. The reason being that they often have small businesses, such as a cleaning business or maybe a lawn service business where they have a lawn mower and two rakes. They send in their declaration and after working through the schedule you come out with a tax bill of 15-cents and it is a little ridiculous to mail bills that cost more to mail than the amount of the tax assessment. Most people feel it is so ridiculous they do not pay it which means you must then send out a follow-up bill and spend more money. You may end up spending $40- 50.00 to collect a 15-cent bill. For that reason, they are asking for an avenue to deal with this problem, and the parameters on how you could set it up would be looked at after the constitutional change. Speaking next was Mr. Al Kramer, Carson City Treasurer, who stated his office is running across the same problem especially dealing with small parcels of agriculturally- zoned land. There have been many quarterly real estate tax bills of 7-cents, 15-cents or 23-cents. This is going one step forward in taking care of this. Another solution might be, if the tax on mobile homes, is less than $100 we could combine the bill into one annual statement. That is one solution to one area but it just does not make sense to keep sending out tax bills for less than a dollar. It creates a bad impression for the public and we are not even close to covering our costs. In his opinion, good government demands we make the process more realistic. Mr. Manendo asked if it were possible to project how much money we spend, what amount are we not going to be able to collect and what amount are we actually saving by exempting this type of tax revenue. He asked if there is anyway we can get those figures. Mr. Zuend interjected the legislature would need to have a bill that would determine what the parameters of the low amount would be. This resolution does not address what the minimis figure is so you could not figure a fiscal effect until you have that figure. Mr. Manendo persisted in wanting to have some indication on the amount of money we are talking about. Mr. Kit Weaver, Carson City Assessor, addressing Mr. Manendo's question, stated his office was in support of this bill several sessions ago and at that time they did a survey of assessor's offices in Nevada. At that time, they determined the average cost, per bill, is $7.50. Their biggest problem was collecting the tax on boats. There were literally thousands of boats purchased for $300 or $400 dollars and the tax bills were 35, 40, 50-cents., At that time, it was a trade-off for them which worked out very well by providing you pay your boat taxes when you register the boats. There is still a large number of small businesses whose tax bill does not amount to $5.00. He suggested any amount under $5.00 should not be billed. There was concern of a legal nature relating to the situation whereby someone did not pay these taxes. A lot of the legal questions deal with who pays the taxes on the property. Statewide there would probably be thousands of similar instances. If someone has a typewriter or a lawn mower they use in their business, usually the assessor's office does not find them but when they do, they have to assess them and send a tax bill for 35-cents or 50-cents. As Mr. Zuend pointed out, we would have to research this and at that time, find out how many businesses might qualify for this which would show what the savings might be. There were no further questions nor testimony on SJR 17 and no further business to come before the committee, therefore the hearing was closed and the meeting was adjourned. RESPECTFULLY SUBMITTED: Nykki Kinsley, Committee Secretary APPROVED BY: Assemblyman Bob Price, Chairman Assemblyman Jeannine Stroth, Chairman Assembly Committee on Taxation May 18, 1995 Page