MINUTES OF THE ASSEMBLY COMMITTEE ON TAXATION Sixty-eighth Session June 15, 1995 The Committee on Taxation was called to order at 1:15 p.m., on Thursday, June 15, 1995, with alternating Chairmen Price and 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: 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 STAFF MEMBERS PRESENT: Mr. Ted Zuend, Deputy Fiscal Analyst OTHERS PRESENT: Mr. Pat Coward, Economic Development of Western Nevada Mr. Peter Thomas, Nevada Development Authority Mr. Fred Boyd, Nevada Development Authority Ms. Lynn Atchison, past Chairman of EDAWN and member of Nevada Commission on Economic Development. Mr. Bob Shriver, EDAWN and NEDA Mr. Ken Lynn, President EDAWN Mr. Dennis Stein, President/ Nevada Development Authority Mr. John Heimlich, R.R. Donnelly and Son Mr. Ray Bacon, Nevada Manufacturer's Association Mr. Michael Pitlock, Executive Director, Department of Taxation Mr. Verlin Miller, Vice Chairman/ Commission on Economic Development Chairman Price opened the meeting of the Assembly Taxation Committee at 2:30 p.m., and asked the secretary to call the roll; a quorum was present. Chairman Price announced there was a great number of people in the audience who are on a tight flight schedule, therefore, we would begin taking their testimony first. He opened the hearing on S. B. 520. SENATE BILL NUMBER 520: Provides abatement from certain sales and use taxes for eligible machinery and equipment used by certain businesses in Nevada. Prior to hearing testimony, a bill explanation prepared by Mr. Ted Zuend, Fiscal Analyst was distributed to all members and included herein as (Exhibit C), Also included are numerous exhibits (Exhibit D, No.1 thru 6) prepared by the EDAWN group and submitted as one total package. Testifying first was Mr. Pat Coward, representing the Economic Development Authority of Western Nevada. It was his intention to give the members a brief run- down of who would be testifying today and their background. He introduced the first speaker who will be addressing the background and rationale, Mr. Fred Boyd, current chairman of EDAWN, with him is Mr. Peter Thomas, Chairman of Nevada Development Authority from Las Vegas. Doing the introduction and review of the bill is Mr. Bob Shriver, Vice President of EDAWN Marketing along with Mr. Lynn Atchison who will be talking about what it takes to qualify through the Economic Development Commission. Mr. Atchison is currently a commissioner within CED. Part of their presentation as well, are Messrs. Ken Lynn and Dennis Stein the two presidents of Nevada Development Authority and EDAWN, representing both the northern and southern parts of the state who will be giving an example of some modeling that has been done pertaining to this abatement program. Also, testifying in support of the bill will be a representative of the R.R. Donnelly and Sons, Beeline Inc., International Gaming Technology, the Nevada Manufacturing Association and some of the rural development authorities. Mr. Coward then turned the floor over to Messrs. Fred Boyd and Peter Thomas for their presentations. Speaking first was Mr. Fred Boyd, Chairman of the Economic Development Authority-Western Nevada. He pointed out economic diversification proves to them to be very critical to Nevada's future. No state can, nor should, depend on any single industry even if that industry is solidly planted. Texas with its oil, midwest with agriculture, California with the defense industry are examples of how states must diversify. The Economic Development Authorities across our state are searching for quality companies that offer higher paying jobs, benefits, community involvement and the potential for expansion so we can continue our diversification. Other states are competing for these same high caliber companies. Nevada no longer has the broader, competitive tax benefits particularly for technology oriented companies. Our SIIS premiums and unemployment rates are higher and we are the only state in the west and only one of three states in the nation that did not offer a select sales and use tax abatement. During the current 1995 legislative sessions in Washington and Utah, those states passed such bills. The tax on capital equipment for these kinds of companies can be a big one-time hit and have already caused Micron, Sony and other high tech companies to drop Nevada from their consideration. You will also hear today that there are some manufacturing companies here in Nevada that are pursuing expansion of their companies elsewhere across the United States instead of Nevada because those states have a sales and use tax abatement. These are quality jobs that could be affected as well. Through this legislation, they are trying not to gain a competitive edge but to establish some parity as if we are to diversify our economy, we must remain competitive. We also must insure that the abatement program does not negatively impact local governments or school districts. He pointed out the members would see by their models that the cash flow to these government entities is positive and the pay back is accomplished in months rather than years. In behalf of the EDAWN trustees, he urged favorable consideration. Speaking next was Mr. Peter Thomas, Chairman of the Nevada Development Authority. Enlarging upon what has been said this morning, he echoed the speakers' testimony 100% and added he would like to give a couple of current examples where the lack of a tax abatement has resulted in southern Nevada losing some business presence that we, otherwise, would possibly have had. He proceeded through several examples including the label makers for Ocean spray Corporation which is a company they were successful in getting into Nevada. The label makers ultimately settled in Arizona. Their reasons for that decision was shown in their analysis of plant location as to why they made that decision. The difference came down to $450,000 in machine sales tax that they were going to have to pay in Nevada versus zero in Arizona. He proceeded through several additional examples, all proving the need for this type of legislation. He emphasized what we are talking about here are dollars that are not presently in the state budget and that is really the reason they are looking at this in an attempt to get another form of `bait' to attract companies. As Mr. Boyd stated earlier, all the states pretty much are going after these types of companies. The companies that have high paying jobs, the companies that are clean industry, the companies that are going to expand the local economy once they are present. Other states realize this and have come up with advantages that we are now having to compete with and are losing out to. Despite the many advantages we have, we are now seeing companies making decisions not to come to Nevada because of this aspect. One other factor is the training dollars available in other states. Something like that would be money in our budget so they decided to take this route. This is something that, in their view, if we do not get the company here in the first place, we are not going to realize the tax money anyway. This bill would at least give his group the chance to realize the increased property taxes and the increased productivity that comes with having these businesses relocate to Nevada. He urged the committee, on behalf of NDA to pass this bill which they feel is very good legislation. Speaking next in support of the bill was Ms. Lynn Atchison, past chairman of EDAWN and a member of the Nevada Commission on Economic Development. She stated she was not here in an official capacity representing NCED today although her remarks will address some of the work of the commission. She is speaking in favor of S.B. 520 as a member of EDAWN and she will be addressing how businesses will qualify for this abatement. Over the past five years the members of NCED spent a lot of time and careful thought relative to the issue of incentives and they were concerned because they see the job growth in our state, jobs growing, but the growth is in the service sector and in more of the low paying jobs. They want to address the issue of attracting the higher wage, higher skill jobs. Their strong feeling, among the staff of the commission, was to emphasize the attraction and/or expansion of quality businesses. Those with the high wage, high skill composition and those that would add value to our communities. They have been very mindful of the concern of job creation which negatively impacts the social and human service infrastructure. To that end, the Commission established guidelines relative to the few incentives we do have, that is, the business tax abatement, quick start and sales and use tax deferral. The qualifiers for this legislation are more stringent than those guidelines and incentives just mentioned and she proceeded to address several of those. (List is provided within the exhibits submitted and included herewith). She urged the committee's favorable action on this valued piece of legislation which targets business for expansion or relocation which meet their goals in terms of giving incentives to those which definitely add value to our local communities thereby enhancing the qualify of life we still continue to enjoy. She thanked the committee members for hearing their testimony. Next in succession was Mr. Bob Shriver, Vice president of EDAWN and also past chairman of the Nevada Economic Development Association who explained, in drafting this legislation, they looked at the parameters outlined by Commissioner Atchison as well as other testimony heard today. This was an attempt to narrow the bill to insure that the well being of local governments and school districts which will be directly affected by this legislation, will be protected. In going through the legislation he feels this narrows the focus and provides the Commission on Economic Development and the Tax Commission the ability to qualify these companies prior to certifying them for the abatement. He volunteered to answer any questions. Mr. Spitler first wished to disclose he is an employee of Sprint Telephone Company in Las Vegas but his question goes to page 2, section 9 where they are excluding public utilities. His question would be directly related to the fact that since competition is now among telecommunication industries and even power development, why would they be excluded from this. These are clean industries such as telecommunications and it seemed to him that as people come in to compete with the local telephone company or new long distance carriers, the consumer would benefit and yet they are excluded from participating. Mr. Shriver, in responding to Mr. Spitler's question, replied his understanding is that the group adopted this from similar statutes currently in Nevada law dealing with sales and use tax and that is the primary reason. Mr. Spitler interjected his guess would be those laws were probably written at a time when competition did not exist with those industries. Mr. Shriver emphasized they had no objection to including utilities. Their focus was toward the capital creation and they did not want any stumbling blocks if they included public utilities if that would cause another area that they are not as familiar with as he is and others in that industry. They felt they needed to focus on trying to attract high technology, high-wage industry which the telecommunications and many other public utilities are. There were no further questions for this witness. Next witness to present testimony was Mr. Ken Lynn, President of Economic Development Authority, stating he wanted to focus his remarks on one of the handouts included in the exhibit, entitled: "Executive Summary/ Sales and Use Tax Abatement". He pointed out his group had sent a shortened version of this to all members over the weekend. He wished to expand on the reason this was developed and related that when their group previously met with Co-speakers Dini and Hettrick early in May, they had some concerns about this legislation. They asked if the proponents would do some modeling and look at what the impact might be to local and state governments through a sales and use tax abatement. What they did is generate some numbers, which are included in this paper. He went over the figures and statements provided. He wanted to emphasize for the committee, Nevada is one of only three states in the country and one state on the west coast that does not have a sales and use tax abatement. Workers' comp rates in Nevada are among the highest on the west coast; unemployment insurance is one of the highest on the west coast. We are one of only two states to have a business tax, therefore, we cannot sit back and rest on our successes of the past. Other states have become very aggressive in trying to target businesses, in particular, the high paying manufacturing jobs we are looking at. We need to remain competitive and, at least, try to get back to parity with other states that have been given these abatements. Mr. Lynn continued through the remainder of the exhibits and volunteered to answer any questions. Mr. Dennis Stein, President of Nevada Development Authority, spoke next echoing the comments made by previous speakers. He added he feels it is critical for us to have this bill passed to give us, not an advantage, but to `level the playing field'. For Nevada to be at an advantage in attracting high tech companies with high paying jobs with capital intensive equipment and for us to be at a disadvantage is a disservice to the state. He pointed out they are not suggesting abating the entire amount of the 2% in Sales and Use Tax that will be received by the state, they would be abating only the 5%. This is only a one time tax versus an ongoing tax and is good fiscal policy to have an ongoing tax more than offset a one time tax abatement. Supporting testimony was next offered by Mr. John Heimlich, representing R.R. Donnelly and Sons Company. He wished to provide some brief information about his company and its interest in this bill. His Reno manufacturing plant opened for business in 1987, they employ approximately 400 employees and their facility is about 500,000 square feet. Their primary business is in printing retail inserts so they print for west coast distribution for customers such as Target, Mervyn's, K- Mart, J. C. Penney and the Los Angeles Times Sunday Magazine. They are a capital intensive industry and in their facility they have approaching $150-million in terms of equipment and plant invested. They also invest in their employees and their people, as well, relative to the training that is required and their wage rates reflect that. Their average annual wage rates are approaching $33-thousand for employee population base. He specified for the committee members an incident that was under consideration recently relative to placement of a plant in either Nevada or Arizona and the decision-making process involved to a certain degree, the sales and use tax. He explained we were fortunate in getting the plant here but he mentioned this as it points out the necessity of passing this legislation. Mr. Bob Bricca, a member of EDAWN and General Manager of B-Line Systems, Inc., pointed out a little over two years ago, they came to Nevada and built a 175,000 square foot facility in Reno-Stead where they presently employ 210 people. They pay above average wages and benefits and they do not use or produce any hazardous material. They are a steel fabricator and are currently planning on adding a 150,000 square foot addition to their existing plant on land they already own. B-line is part of a Fortune 500 Company so they have other facilities around the United States and the world. Although Reno is the primary candidate for this expansion, like R.R. Donnelly Corp., they have to compete with other facilities for capital. They have plants in Texas and Georgia with the same product lines where this expansion could be accomplished and they plan to invest a minimum of $1-million in new equipment for this expansion. If they do so in Texas or Georgia there would be no sales tax as they presently have an abatement and in Nevada they pay 7% under the current law. This is of concern to his company and, although it is not the only criteria they are looking at, it will certainly impact the board of director's decision later this year as to where to locate this facility. He pointed out additional benefits to the state if they build their expansion plans here in the way of additional taxes through spending by added employees, etc., which he feels would more than offset the abatement of this sales and use tax and he strongly supports passage of this bill. He concluded his testimony by volunteering to answer any questions. Although members of the proponents group had further representatives in the audience that would be willing to testify, in consideration of time constraints on the committee members, it was determined that we would stipulate to their testimony being in support of S.B. 520. Mr. Manendo opined he feels this will help attract and retain businesses in our state. He feels they are a responsible group who will be bringing in, as far as average wages, and dedicating their operations in Nevada for at least five years, and he sees this as a real positive business bill. Something that is going to help generate more revenue in the long run. He liked the word "investment" which rings a bell to him and is prepared to make a motion. MR. MANENDO MOVED A `DO PASS' ON SENATE BILL NUMBER 520; SECONDED BY MS. BROWER. Prior to the vote, Mr. Spitler called attention to page 2, line 33 regarding public utilities and wondered whether they were going to exempt them. Responding was Mr. Ray Bacon, Nevada Manufacturer's Association, who advised he has discussed this issue with various individuals and apparently the definition of "public utilities" in this state is broad enough that if another enterprise came in that was going to directly compete, they would still have some regulation under the Public Service Commission and as such they would fall under exactly the same requirements as anyone, so you would still have a level playing field as far as anything that is classified as a public utility. Pursuing his line of questioning, Mr. Spitler asked why anyone competing would not be eligible for these exemptions and was advised, again by Mr. Bacon, that was a public policy issue made at some point in time and is something that could be revisited but it was one of those things, clearly, when the abatement program was put in place, it was a public policy issue. Since the utilities are a major tax collector, we did not want to be on both sides of the matter. Wishing to clarify some of the points raised today, Mr. Michael Pitlock, Executive Director of the Department of Taxation and former member of the Public Service Commission, took the witness stand. He addressed, specifically, the question of public utilities. From his viewpoint, the definition of public utilities is not all that broad. If you look at the administration of the current deferment program you will notice that many of the major recipients of that deferment were cogeneration facilities and power-generation facilities in Clark County that do not meet the definition of public utility but clearly compete and provide services to the public utilities in the state. He did not agree with the previously mentioned definition that we have a very broad definition and that there would be a `level playing field' relative to public utilities. Mrs. Lambert explained, as she remembers, the definition of public utility is someone who has a service area who services more than 25 customers and asked Mr. Pitlock if that is correct. He responded those are small water companies but the definition does hinge around having a service area. He added many of the competitors in both the electric industry and telecommunication industry do not necessarily command and have a particular certificated area and directly compete with another company who has a monopoly. They normally come into areas where the monopoly concept has been discarded through alternative regulation and the definition of public utilities has changed dramatically over the last few years. There are a lot of companies who come in and provide services that are identical to public utilities who are not covered within the definition and therefore, would be able to take advantage of this program whereas the traditional public utilities, i.e., Sierra Pacific, Nevada Power, etc., would not. Mrs. Lambert asked if we would need to specifically cite a definition of a public utility and was advised by Mr. Pitlock that would probably be helpful inasmuch as there are several different definitions depending upon the kind of utility it is and the kind of utility you would be in. Joining the discussion was Mr. Verlin Miller, Vice Chairman of the Commission on Economic Development, stating to the best of his recollection, the utility exemption was originally put into the law because of concern for the applications coming in for geothermal and cogeneration projects where companies were coming in and spending hundreds and millions of dollars in new equipment and creating very few jobs. It was the feeling of his commission, that was not the legislative intent under the sales tax deferment and that is why this was put into this bill. Mrs. Brower stated she is prepared to make a motion as follows: MRS. BROWER MOVED TO AMEND THE PREVIOUS MOTION TO INCLUDE UTILITIES IN THE ABATEMENT. MOTION SECONDED BY MR. SANDOVAL. Mrs. Lambert notified those present her husband works for a utility company therefore, she has a conflict and will not be voting on the amendment. She mentioned, as well, in talking about the geothermal plants, we are being a little hasty this late in the session, and perhaps we should hold action and possibly revisit it next session as far as the utilities are concerned. Mr. Spitler stated he, too, has a conflict due to his employment with Sprint Telecommunications, however, he likes the way the bill is worded. As he understands it, the wording of the bill includes the provision, in order to qualify for the abatement, you must have a minimum of 10 full-time employees, the wage has to be $11.77 and you must offer the benefits. He is assuming you have to go before a panel to approve this and any panel could, in fact, exclude a utility or anyone. He feels the competition is here, it is going to be very aggressive and if we want people based here, either through telephone operator centers, etc., that makes an attractive environment also. He repeated the necessity of his abstaining from the vote. Speaking on the bill next was Mr. Ernaut who pointed out he feels the most prudent course of action, since we are on the eve of an interim committee on retail wheeling, which could be a catalyst for many of the utilities coming in to compete, it may be the best course of action for this committee to hold off on that amendment. He emphasized he is not comfortable deciding this as a major topic in a couple of minutes. He feels it is a major public policy statement and one that was carefully thought out before it was brought to the table and one he is not prepared to haphazardly get rid of. He suggested he would like the opportunity to have the chairmen of the Commerce Committee and the chairmen of Government Affairs have the opportunity to vote on the bill. He asked the committee's indulgence to not take out the exemption for utilities until we have an opportunity to fully study it in the interim committee on retail wheeling which would be the most pertinent subject matter for this. Speaking once again was Mr. Ken Lynn, president of EDAWN, who pointed out just as a matter of clarification, on line 3l of the bill it refers to 26 USC, paragraph 179 which is, essentially, the U.S. Code of the Internal Revenue Service. Paragraph 179 has to do with depreciation allowances for equipment used for manufacturing companies. The code essentially does not cover things such as public utilities so what is delineated as exemptions under A, B, C, D and E are basically those items that are contained within the U.S. Code of the Internal Revenue Service. That is why it is delineated in lines 32 thru 36 and he pointed this out to the committee in the event it helps in making their decision. Chairman Price suggested we proceed with the vote inasmuch as we have all heard a considerable amount of discussion. VOTE ON THE PREVIOUS MOTION TO AMEND, FAILED WITH ABSTENTIONS FROM MRS. LAMBERT AND MR. SPITLER. Prior to the vote on the motion on the bill itself, Mr. Ernaut pointed out S.B. 520 is a tool for economic diversification and economic development and is exactly the type of innovative thinking we should be processing in the legislature. With all the worn out ideas we deal with it is nice to have a breath of fresh air in trying to get new high tech businesses into Nevada to create high-paying, better jobs for people who live here. He emphasized he would be supporting the motion. VOTE ON THE MOTION FOR DO PASS, CARRIED UNANIMOUSLY. Mr. Ernaut then asked for the committee's indulgence and opened the subject matter of Assembly Bill #490. ASSEMBLY BILL NUMBER 490: Gradually reduces and prospectively repeals business tax. His understanding is there is a pending motion from Mr. Sandoval to "amend and do pass" with the amendments provided by Mr. Carpenter. The original motion was seconded by Mr. Spitler and was made at a prior meeting. During discussion on this matter, Mr. Michael Pitlock, Executive Director of the Department of Taxation, pointed out he has seen two different amendments that were drafted and depending upon which one of the two you anticipate taking action on, he has a comment he would like to make. The attention of the committee was directed to an exhibit (Exhibit E) attached as part of a memorandum from Ted Zuend, Fiscal Analyst which included two amendments, (A) and (B). Mr. Pitlock stated the amendment he just received makes reference to calculating the number of full-time equivalent employees by geographically specific location. That particular phrase being in the amendment causes a great deal of concern for the Department. First of all, in the fiscal note they have talked about, the approximate $10-million was not calculated on the basis of a specific geographic location. To give the members an illustration of the impact of those few words, you would be voting to provide, as an example, the Bank of America a $50,000 exemption because they have about 100 locations within the state and if you gave them five employees per location, you would be giving them a 500 employee exemption. He does not believe that was the intent. Given those circumstances, Mr. Ernaut made the following motion: MOTION MADE TO AMEND THE MOTION WE ARE CURRENTLY DECIDING, BY STRIKING SUBSECTION B OF SUBSECTION 2 OF SECTION 2. THAT IS, STRIKING, "TOTALING THE TAXABLE NUMBER OF EQUIVALENT FULL-TIME EMPLOYEES FOR ALL GEOGRAPHICALLY SEPARATE LOCATIONS OF THE BUSINESS." WHICH IS INCLUDED IN BOTH AMENDMENTS "A" AND "B". Mr. Zuend commented there is a difference between the two amendments and two parts; one is the part alluded to by Mr. Pitlock. In the first one what you have is the provision of "by location" which is the problem, not the number of equivalent full-time employees. Doing it by location, would give the tax break to Bank of America, banks and any other multiple office, multiple location business resulting in a multiple tax break. That was not included in the fiscal note. The second difference is the original amendment "A" makes the effective date July 1, l995. In the revised amendment he made it effective October 1, 1995, which would be a policy decision on the committee's part. The problem with the trigger on July 1, is that the Board of Examiners would have to project revenues from sales taxes both for the Local School Support Tax and the Sales and Use Tax with three months data not in, as well as two months data with gaming taxes. The October 1st date would allow the Board of Examiners to use actual data to see if, in fact, the state were to receive the surplus included in this bill. Amendment "B" limits the exemption to only five equivalent full-time employees for a business, as defined under current statute which is essentially the "corporation" or the "sole proprietorship" or whatever. Both of those issues have to be decided upon. Considerable discussion followed centering, basically, on the confusion of the two proposed amendments and the principle difference in results therefrom. At the conclusion of much conversation, Mr. Ernaut pointed out, if it is the intention of this body to get rid of the business tax being as least detrimental to the budget process as possible, you would start an incremental phase out beginning with the next biennium so you would not affect this biennium. The phase out would start from this session forward and you would know that money was not going to be there. If we have already built the budget, based on the money we have now, to pass this bill that is effective within this budget cycle is poor legislation. Mr. Price interrupted the debate by calling the members' attention to the fact that this bill was not scheduled for this meeting and we holding a great number of people up who have come with the idea of discussing their bills. He asked that we defer action on A.B. 490 and continue with the agenda items. MR. ERNAUT AGREED AND POSTPONED HIS MOTION AT THIS TIME. The next item on the agenda was A. B. 682. ASSEMBLY BILL NUMBER 682: Increases tax on transfer of real property and allocation from proceeds to account for low-income housing. Speaking first in support of this bill was Mr. Ernest Nielsen with Washoe Legal Services who introduced several additional supporters to testify as well. Mr. Nielsen submitted his testimony in writing (Exhibit F) and at the conclusion of his statement, he offered to answer any questions the committee may have. Introduced next was Ms. Cheryl Bloomstrom who explained she is the Executive Director for a non-profit housing development corporation in Carson City and serves Carson City and the west central Nevada rural counties. She develops and builds self-help home ownership for low-income families. She is the recipient of low-income housing trust funds from this allocation for a project she is currently working on in Dayton. The project is a $1,200,000 project and of that, $82,500 comes from the trust fund. The balance of the money comes from the home fund and nearly $1,000,000 in private financing. The families they will be serving are between 50% and 60% of median income. To be able to put those families into a home ownership situation is a marvelous thing to do. It allows them to raise their children in a home owned by their parents and gives them a sample of the American dream that they can go out and look to acquire themselves. The trust funds help her by making it possible for her to leverage the private financing and without that type of equity built into it, she could not serve the clients she is now able to serve. She is putting together a project with houses that will come on the market at about $74,000 with a mortgage of $62,000 to these families. She and her board of directors fully support passage of A.B. 682. Speaking next was Ms. Ann Harrington, with the Affordable Housing Resource Council who explained her organization is a non-profit organization that assists developers to produce affordable housing in northwest Nevada. They work with Citizens for Affordable Homes and other developers. She wanted to illustrate the examples of how these trust funds get used, particularly in Washoe County. In this county, in the last year, approximately $600,000 of low income housing trust funds were allocated to the county for distribution to individual projects. That $600,000 is producing 117 units of affordable housing. They range anywhere from single-room occupancy-type units to large family units and include units for senior citizens. The average amount spent per unit is a little under $5,200.00 and they were able to leverage with that $600,000, well over a million dollars in home funds which is one of the original purposes of the trust fund and over five million dollars in private financing through banks. She elaborated on the make up of various ad hoc committees and other interested parties all working very hard in this field and all very supportive of A.B. 682. Introduced next to the committee was Mr. Robert Nielsen, President of Shelter Properties, Inc., and an affordable multi-family home builder from Reno, NV. He also serves as Chairman of the Low-income Trust Fund Advisory Committee. He explained these functions give him a unique perspective to look at some of the problems we face as a state when it comes to affordable housing. He concurs there is a desperate need for affordable housing in Nevada and in light of the new policies of the federal government where they are removing more and more federal funding for affordable housing and, that funding they do have, is going to come in the form of block grants as opposed to subsidies for tenants. The funds his group are addressing serves not only to leverage private funds, it also allows them to match federal funds which are going to become more and more important as we go forward. He strongly encourages this legislature to support and pass this bill. Testifying next was Mr. Charles L. Horsey, Administrator for the Nevada Housing Division, who introduced his Deputy Administrator Charles Eldridge. He explained Mr. Eldridge has supervisory responsibilities over the trust fund. The Housing Division has not taken a position on A.B. 682 but they did want to make themselves available in the event the committee has any questions as to where the distribution of the trust fund has gone and the type of projects that have been funded with that revenue source. They submitted an exhibit (Exhibit G) entitled, "Account for Low-Income Housing (Trust Fund) Activity". Mr. Horsey Eldridge went over the memo, and was prepared to respond to any questions the members may have. Mr. Pat Coward spoke next explaining he was present today in behalf of the Nevada Association of Realtors. He gave a brief history of the support of his Association during the last increase in the transfer fees and his understanding was that it was going to be geared to affordable housing - that is, the one-time home buyer down payment assistance. But, he pointed out, once you look at this, this is a charge against the seller and buyer of property and it is a cost being incurred by these individuals. They were very disappointed that a lot of that money has not gone to that individual home buyer for the down payment assistance program, in fact only 7% has occurred in that one category. At this time, the legislative committee has not taken a position in this area but are meeting tomorrow pertaining to it, but that is their real concern. Is this money really going into the group that really needs it in the affordable housing program. Mr. Schneider asked Mr. Coward where the money is going and was advised 15% goes to welfare right off the top and when you deal with the remaining 85% with acquisition rehab 38%, new construction 40%, down payment assistance 7%, homeowner rehab is 13% which comes to 100% of the 85%. Mr. Schneider pursued his line of questioning on several points covered. Mr. Ernest Nielsen volunteered to respond to some of the concerns expressed and explained 15% was originally going to welfare but because they lost the E.A. Program to the Division of Children and Family Services, that money now is being administered by the Division of Housing and allocated to the local governments. Those funds are strictly being used for emergency rental assistance in terms of getting people who could not otherwise afford it, into apartments, and the second program is to keep people from becoming homeless by making sure that one month emergency cost is avoided. The money is being used now for emergency housing purposes, basically working with people who have jobs and can sustain their rental payments but for one month of illness or emergency. In response to an additional question by Mr. Schneider, Mr. Nielsen explained this assistance includes renters and owners. Representing the Southern Nevada Home Builders Association was Irene Porter, Executive Director, who spoke next giving the committee a brief history on this bill as she was very involved at the inception of it. During the last two weeks of the session a few years ago, she was approached by Mr. Jon Sasser from Nevada Legal Services, explaining they had been denied appropriations for low income housing trusts and had not been able to find other funding. They were very concerned that the new federal funding programs would require matched funds in order to build projects and get housing money from HUD. They asked her group, in desperation, if they would agree to $.05 on the Real Property Transfer Tax to help them get the low income housing trust fund started so we would not lose funding for the various kinds of housing programs for those in the 80% and under of the median income area. After talking with the presidents of the local associations of the homebuilders, with the understanding the legal services people would continue to work to acquire other appropriations and other methods of funding the low income housing trust, she presented it over the phone very quickly and worked out an agreement whereby they would do this. It eventually ended up with a $0.10 figure on the transfer tax even though that was not the original agreement. Since that time, they have seen little effort to get funding for the low income housing trust fund in any other manner until they see this bill today to raise it again. She went over various concerns expressed by people working within the confines of these programs and concluded by emphasizing the feelings of her group in opposing any more increases in Real Property Transfer Tax until we address the total issue. They feel this is not fair to people who are buying their first home and is not good tax policy. Mr. Schneider reiterated his understanding of Ms. Porter's statement that she would prefer that the Transfer Tax, the money that is paid in on this goes strictly to first time home buyers that qualify, low income home buyers and, possibly to home builders who build those units and nothing else. She responded she felt there could be some percentages spread out even in the current 10% with a little more distribution than there is today. At the time it was presented to the homebuilders, there was no presentation made that 15% of the money would come off the top, even though the program is now changed, going back to local governments. She added each of the local governments have affordable housing committees and illustrated for the committee members how various alternatives have been proposed to accomplish pretty much what is being requested by this piece of legislation. She subscribes to the idea there are other ways other than saying every time we need more money, we will come back to the Real Property Transfer Tax. We have to be judicious in how we use it; we should be getting the best "bang for the buck" when we do use it. Perhaps it should be included as part of an interim study. Chairman Price asked for all witnesses to be prepared to be brief as we are running short of time whereupon Ms. Michelle Gamble, representing the Association of Counties, testified they do support low-income housing but they see this bill as another means of encroaching on what has historically been a local government revenue source. As all of the members know, all local governments are having much difficulty funding the programs they have and when these revenue sources are taken away, it puts them in the position of, when they need to get revenue, trying to find funding sources, this preempts them from getting any more revenue. She then introduced Ms. Nancy Carr, Lyon County Recorder who, basically, echoed the comments of the past several witnesses as being against the bill. Submitted in combination with her testimony, was a letter confirming the opposition to A.B. 682. Several additional letters from various public officials are enclosed within these minutes and identified as (Exhibit H). A bill explanation prepared by Mr.Ted Zuend is submitted as well under (Exhibit I). The hearing on A.B. 682 was closed with no action being taken on the bill. Chairman Price then asked if there was anyone in the audience to testify either for or against S. B. 68, with negative findings, that bill was not heard. Next measure on the agenda was A. B. 702 with the following action: ASSEMBLY BILL NUMBER 702: Provides for state licensing and imposes fee upon sexually oriented businesses. Mr. Ted Zuend distributed a bill explanation to committee members included herein and identified as (Exhibit J). Testifying first on this bill was the prime sponsor, Assemblywoman Jeannine Stroth. She explained she understands this is a major policy change and it probably is not realistic to seek passage in this particular form this session. She wanted to bring the bill forward so we could hear the background of the bill and why she feels some change is needed. Initially, when she first came to the legislature there was a bill for an additional excise tax to fund drug and alcohol abuse programs; she saw that as an additional `sin' tax and every time we turn around see taxes increased on alcohol to fund some kind of social rehabilitation program. The history of sin taxes is an attempt to recover the social cost associated with the indulgence of our citizens in behaviors that are legal but sometimes destructive. That is the reason she began looking for a new sin tax and realizing that in the sexually-oriented businesses, she feels we do have consequences that society reaps. She submitted several exhibits for the committee's perusal which information, she feels, will show these types of behavior do contribute to some kinds of crime. All exhibits identified under (Exhibit K). Included in the exhibits she presented are: Copy of article from "Texas Beverage News" publication; Copy of interview with serial killer Theodore Bundy; Copy of newspaper "Best Bets" from Reno, NV (see in Research Library). She elaborated her findings when she began doing research on this proposed measure and found the businesses that are advertising in the yellow pages of the telephone book, for example, are paying upward to $4,000 for an ad. She feels they should be able to pay more tax than they are currently being assessed. After touring with the Clark County Vice Squad she was doubly concerned with what these activities are responsible for and feels the revenue from the increased taxes would be beneficial in solving some of the problems they are causing. She submitted a list of potential amendments and reviewed each for the members (Exhibit L). She is proposing we look at the problem and attempt to address them during the interim prior to the next session in a staff study, or task force with members of the taxation committee, consumer affairs, etc. Mr. Neighbors wanted to clarify his understanding of Ms. Stroth's bill is that, rather than pursuing the bill right now, she is interested in setting up the mechanics for putting together some type of interim study, staff level or legislative study. Ms. Stroth concurred, adding this may not be the right vehicle to address the problem but she wanted to go on record at this time. A statement from Mr. Manendo was heard whereby he feels a little more comfortable with this subject by doing a study, as the way he is looking at this is, we just talked about our attempt to reduce business tax yet what he is looking at is we are attempting to impose another type of business tax by pointing fingers at specific businesses without much thought or input. Ms. Stroth interrupted with the comment that the gaming and liquor industries have been taxed and taxed over the history so this is just adding the burden of the social consequences to one of the industries that may contribute to the problem. Mr. Manendo added, that if they sell alcohol, the sin tax would already have been imposed on them; they pay a business tax, they pay a sales tax, if they sell alcohol they already have an alcohol tax on them, etc. His question is, where do we draw the line? A few years ago it was contemplated putting a user tax on users of the Laundromats, etc. He feels he is contradicting his own statements that he has been arguing about the business tax and how he feels it hurts businesses. He feels we are sending a mixed signal but commends Ms. Stroth for asking for a staff study or whatever to take a longer look at it and feels much more comfortable with that approach. Mr. Schneider asked what the revenue from the taxes would be used for and was advised by Ms. Stroth that they would be used for regulation and the way the bill would be structured, it would be put into the General Fund to be used for a one- shot use for whatever the state needed it for. In response to a further question from Mr. Schneider whereby he pointed out she had mentioned it would "make a lot of money", Ms. Stroth replied she had been told that from an official from the Attorney General's office in Clark County. Mr. Schneider pursued his line of questioning by asking if it was her intent for the book purchaser to pay not only a sales tax on books but an additional tax above the sales tax and was advised in the affirmative. That is her intention. First witness wishing to testify in support of this bill was Ms. Gina Crown, testifying as a private citizen. She submitted her testimony as (Exhibit L) and accompanying news articles. After a considerable amount of time, Chairman Price suggested to Ms. Crown, while her testimony was interesting, it did not relate to the subject at hand and perhaps she could reserve the remainder of her information in the event the study committee was established. Her information, rather than being related to the proposed tax increase, lent itself primarily to the affects of pornography. Next speaker on the list was Lieutenant Bill Cavagnaro, Las Vegas Metro Police Department, who spoke in favor of the bill. He stated he has met with Co- Chairman Stroth and they have discussed the idea of doing something in the interim inasmuch as it is such a broad program. He concurs we need to get more control on some businesses, at least in Clark County, and encouraged the committee to process the request for a study. Speaking next was Ms. Rose McKinney-James, Director of the Department of Business and Industry who stated she has had the opportunity to speak with the sponsor of this bill, Jeannine Stroth. She pointed out some provisions of this bill identify the Division of Consumer Affairs and as the Division which would accept the responsibility for enforcement and licensure. She indicated her support conceptually for what the sponsor is attempting to achieve through this bill. We do have a fiscal note with respect to the impact that the current structure would have on the division and she concurs with the testimony that has been offered that, in order to effectively determine the best way to structure the oversight is a task force or some other interim measure be used. They would like to be part of any study so their resources could be adequately considered. There being no further testimony to be taken in support of the bill, Chairman Price opened the hearing to those in opposition. Speaking first was Mr. George Flint, representing the Nevada Brothel Association and accompanied by Economics Professor Larry Petty a former staff member of the Legislative Counsel Bureau. Mr. Flint expressed his greatest respect for Jeannine Stroth, the sponsor of this bill, and he knows her intentions are to do good things for needy people and to address problems. He pointed out he felt she has made a good case for brothels inasmuch as we look at this bill, there is not one single business in it that is a privileged and regulated business. The brothels are a privileged and regulated business. He is really not certain whether the bill addresses that business, but as their representative he cannot take any chances and feels he must come forward at this time. He discussed the history of the brothel business through several sessions of the legislature and various attempts to regulate it and, although he has no problem with this bill, he concurs with the suggestion of providing a staff study, with the exception of the brothel businesses. He has discussed the possibility of an amendment to eliminate the brothels but does not see one included in this measure. He then distributed to the members (Exhibit M) a letter from Mr. Henry Bland, Commissioner of Storey County, in which he states they collect over $100,000 annually from the Mustang and Old Bridge Ranches in licenses and other fees. This amounts to nearly 12% of their Storey County operating budget. He strongly urged defeating A. B. 702 unless an amendment is included exempting brothels. Attached to his exhibit is a letter from an additional brothel seeking the same action. Additionally, Mr. Flint has submitted, as part of the exhibit, a list of the number of employees of the Mustang Ranch for the committee's consideration. He strongly encouraged the committee to take a long, hard look at this measure prior to taking any action. He then turned the microphone over to Mr. Larry Petty who subsequently distributed a letter he had written to Mr. Flint, and included herein as (Exhibit N), Mr. Petty pointed out he looked at the bill with the intention of trying to determine what this bill did and, until he walked in today and heard the author's remarks, he was not sure. When he went through it, he took into consideration several aspects, does it prohibit any conduct? No; does it prohibit anything? No. He heard the testimony from Ms. Crown but understands if the type of activity she was referring to is going to go on, this bill is not going to stop it. Does it raise money for the state? Yes, but does it also accomplish another purpose that he sees does it, potentially, legitimize certain activities that are now prohibited by the counties. By the state saying, "this is a prohibited activity but we are going to tax you" and the individual who is now being taxed saying, "I am being licensed by the state to do this activity - here's my license from state, the state has now legitimized me". Could you argue that one of these prohibited activities that you cannot do in Washoe or Clark Counties can now be done because the state has somehow legitimized that activity by making you a licensee. Going through his testimony further, he pointed out several flaws in the proposal and concluded the best thing this committee could do with this bill is kill it and perhaps put the intent of the measure into a study committee. Ms. Stroth thanked those who testified today. Speaking next was Attorney Jeff Silver, with the law firm of Gordon, Silver and Beasley, who advised his firm represents a wide range of clients who originally had some concerns over the bill from hotels which feature shows that are topless and motels that have services that allow for x-rated films and other types of movies to be shown in the rooms. They also have another client who has a bar that has gaming that features a topless show, etc. The essence of the concern they have about the bill has been addressed by the co-chairman in having an interim study committee inasmuch as they feel if there are privileged licenses already those individual companies will have undergone the same kind of scrutiny which the state now envisions with this bill. This bill does contain some unfunded mandates and he noticed some of the language was a direct take from the gaming statutes. If the committee really want to do a job on these people, you need a staff and the ability to conduct those kinds of investigations. As a former chairman of the Board of the Chamber of Commerce in Las Vegas he definitely would support any type of activity that would be eliminating some of these news racks and fronts for prostitution. Although he is speaking in opposition to the bill, there are many aspects of the bill he finds desirable and he supports anything the committee can do in studying this matter further. Ms. Lucille Lusk, representing Nevada Concerned Citizens, spoke next saying her groups agree wholeheartedly with what has been said about the crimes that proliferate around the sleazy types of places addressed in this bill. There is no question any more that porno is a factor in child molestation. They support prosecuting porno houses, they support zoning sexually-oriented businesses away from neighborhoods and away from children, they support anything the legislature can do to get rid of the illegal activities. But, the approach that is suggested in this bill legitimizes this type of operation. Nevada history compels her to ask one question, will the state become dependent upon the revenue from these sleazy establishments and ultimately create a situation where they can never be gotten rid of. That is what has happened. The brothels are here to stay and they are here to stay because they are a large revenue producer. Mr. Flint has given some statistics on that and she does not dispute those statistics but she would hate to see the state in a position where it becomes dependent upon this type of trash defined in this bill. Last to testify was Mr. Michael Pitlock, Executive Director of the Department of Taxation, who stated the Department did put some effort into attempting to quantify the amount of revenue that may be generated if A.B. 702 was passed. They were able to identify only a small portion of the kinds of businesses that we might see taxed under this bill and attempted to quantify that. It by no means represents a complete study of what revenue might be generated but by simply looking at two segments of the industry, and only a portion of those two segments, they identified approximately 15 adult book stores and 9 topless night clubs and between those 24 businesses, based on the rates contained in the bill as drafted, you would generate approximately $1,000,000 per year. Obviously, that is only a fraction of what the total revenue would be based on the way the bill is drafted. Based on the testimony given so far and the other comments, he pointed out the Department is ready to participate and provide assistance in any study that might be looked at over the next couple of years. One other item, there has been discussion about taxing something that is illegal, somehow makes it legal and he wanted to remind the committee that we already have taxes on some things such as controlled substances that are illegal and taxes have not changed that in any way. There was no action taken on A.B. 702 at this time and the hearing was closed. There being no further business, the meeting was adjourned at 5:15 p.m. RESPECTFULLY SUBMITTED: Carolyn Grabski, Committee Secretary Assembly Committee on Taxation June 15, 1995 Page