MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session February 21, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:10 a.m., on Tuesday, February 21, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator William R. O'Donnell Senator Dean A. Rhoads Senator Bernice Mathews COMMITTEE MEMBERS ABSENT: Senator Bob Coffin (Excused) STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Mary A. Matheus, Local Government Budget Analyst Cristin Buchanan, Committee Secretary OTHERS PRESENT: Lonnie L. Hammargren, Lieutenant Governor, Chairman, Commission on Economic Development Tim Carlson, Director, Commission on Economic Development Karen G. Baggett, Deputy Director, Commission on Economic Development Jere Schultz, Budget Analyst, Budget Division, Department of Administration Thomas G. Tait, Executive Director, Commission on Tourism Clara Fitz, Business Manager, Division of Economic Development and Department of Tourism Richard Moreno, Publisher, Division of Publications, Commission on Tourism Senator Raggio solicited committee introduction of a bill draft request (BDR). BILL DRAFT REQUEST 17-458: Creates legislative budget office within legislative counsel bureau. SENATOR RHOADS MOVED TO INTRODUCE BDR 17-458. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) ***** Economic Development - Page 955 Lonnie L. Hammargren, Lieutenant Governor, Chairman, Commission on Economic Development, introduced himself and provided an overview of his duties as the chairman of the Commission on Economic Development (CED) and the successes of the commission. Senator Raggio asked if the Commission on Economic Development and the Commission on Tourism have taken a position on the Governor's proposal of consolidation. Senator Raggio emphasized to Mr. Hammargren the budget hearings are 80 percent complete and stated the commissions will need to reach a determination before completion of the budget hearings. Mr. Hammargren answered the two commissions have not yet made a determination on the Governor's proposed consolidation, but stated they will immediately address the issue and report back to the committee. Tim Carlson, Director, Commission on Economic Development, provided the committee with a handout (Nevada Commission on Economic Development Legislative Presentation, Exhibit C), and reviewed the information contained therein. Senator Raggio questioned why, with Nevada's Tax Incentives, some companies are reluctant to move their businesses to the state. Mr. Carlson stated some companies, such as Micron, decided against locating in the State of Nevada due to sales tax they would pay when purchasing large amounts of equipment. Mr. Carlson expanded, "We are one of five states in the union today that actually taxes that equipment. The remaining 45 states have a reprieve on that particular tax." Senator Raggio asked if Nevada's Constitution permits the state to give businesses a tax reprieve on equipment purchases. Mr. Carlson answered a BDR is currently being drafted that will allow the state to reduce the tax from 7 percent to 2 percent. Senator Raggio stated it will be necessary to examine how the BDR will interact with existing companies, which also purchase equipment. Additionally, Senator Raggio requested Mr. Carlson to provide the committee with a survey of incentives pertaining to sales and use tax and how they affect new and existing companies. Mr. Carlson stated he will provide the committee with the requested information. He continued his testimony, informing the committee of the beneficial industries the commission brings to the state. When those industries request a tax deferral or tax abatement, he explained, they must meet a certain wage amount and benefits. Senator Raggio asked if Mr. Carlson has a report on the abatement and deferral procedures, how they are applied and what companies have utilized them. In response, Mr. Carlson stated he can produce a report as to who has received an abatement or deferral. Senator Raggio requested an explanation of the difference between a tax abatement and a tax deferral. Mr. Carlson explained a tax abatement is a release from business tax and a tax deferral is a postponement of paying sales tax for a period of 5 years. Karen G. Baggett, Deputy Director, Commission on Economic Development, stated for the sales tax deferral program, companies are allowed to defer the tax, up to a certain amount, on the purchase of equipment. The company must meet certain criteria to qualify for a tax deferral: it must be a part of the industrial sector that helps diversify the economy; it has to create a minimum of 10 primary jobs; and it must meet the average hourly wage, set by the Employment Security Department (ESD). If the company meets the criteria for the deferral and meets 80 percent of the state hourly wage, then they are approved for a deferral. The commission then turns the approval over to the Department of Taxation. The business tax abatement program has the same requirements as the sales tax deferral program, except companies must meet 100 percent of the State ESD wage. Senator Raggio inquired if the companies, which have taken advantage of the abatement and deferral programs, have been satisfied. Ms. Baggett answered in the affirmative. Mr. Carlson continued his testimony, referring the committee's attention to Exhibit C. Senator Raggio questioned if there are any statistics on what percentage of the 9,940 new jobs created in Fiscal Year (FY) 1993-1994, are minimum wage positions and what percentage are above minimum wage. Mr. Carlson indicated statistics are available and he will provide them to the committee. In addition, Mr. Carlson reminded the committee a Biennial Report has been produced (Exhibit D, Original on file with the Research Library.), which outlines the success of the CED. Referring to the chart on page 10 of Exhibit C, Senator Raggio asked why more new and expanding companies are locating in Northern Nevada rather than in Southern Nevada. Mr. Carlson stated the figures are not inclusive of all new and expanding companies in the State of Nevada. The figures the CED uses are based on companies that the commission brought into the state. Senator Raggio inquired what kind of relationship the CED has with the Economic Development Authority of Western Nevada (EDAWN) and the Nevada Development Authority (NDA). Mr. Carlson stated the relationship the CED has with EDAWN and NDA is extremely positive. Continuing with his review of Exhibit C, Mr. Carlson provided a review of the Matching Grant category in the Base module of budget account 1526. Senator Raggio asked how the $30,000 budgeted under the Rural Nevada Programs category in the Base module will be utilized. Ms. Baggett stated those funds are to assist small businesses in rural Nevada. Senator Raggio requested a further explanation of the Matching Grants category. Ms. Baggett stated the $725,000 budgeted for the Matching Grants is distributed to 12 development authorities throughout the state. Senator Raggio questioned what kind of match is required. Mr. Carlson stated the urban development authorities match on a dollar-per-dollar basis, and the smaller counties match a smaller amount. Senator Raggio inquired about the $25,000 budgeted for the Match Grants - Special category. Ms. Baggett stated that is a pass-through grant that goes to the University of Nevada College of Business to assist businesses in North Las Vegas and provide counseling for people in the North Las Vegas area. Senator Raggio asked if the Grant goes to North Las Vegas because it is a Special Impact Zone. Ms. Baggett answered in the affirmative. The chairman questioned how North Las Vegas is determined to be a Special Impact Zone. Mr. Carlson stated he does not know the answer to Senator Raggio's question, but he will investigate and make a report to the committee at a later date. Senator Raggio requested a brief summary of the Quick Start Job Training category. Mr. Carlson responded the Quick Start Job Training Office is used in conjunction with the State Job Training Office. It provides funds to a new company for job training, $1,000 per employee, if the company meets the same criteria used to determine eligibility for tax deferrals. Senator Raggio asked how the funds in the program were utilized in the previous biennium. Mr. Carlson reflected: In the past, those dollars were not used as frequently because theprogram was not...made known...Also because the requirements were fairly high.... Senator Raggio inquired if the Quick Start Job Training program is an important incentive for new businesses. Mr. Carlson reflected the State of Nevada has one of the smallest budgeted amounts for a job training program due to the stringent requirements. He added, the past 2 years have been more successful than previous bienniums. Senator Mathews commented that more private industries seem to provide job training on their own. Mr. Carlson indicated private industry has found that employees need training programs. He stated: What we are talking about is an industry that manufactures...Ocean Spray...has been awarded some of these dollars for training...It is requested that the company also put in training dollars...We are not matching it in...a grant type program...but we are trying to encourage the companies to put more towards their training...Training their employees, and the citizens of this state, is a very good investment that the state can make towards increasing the value of that person. This program, in particular, helps do that. Senator Raggio queried why Mr. Carlson stated the amount budgeted for the job training program is a small amount, by comparison, for the program. Mr. Carlson responded surveys conducted indicate Nevada has a lower amount budgeted in relation to other states. Senator Raggio questioned why the CED did not request higher funding for the Quick Start Job Training Program. In reply, Mr. Carlson stated while that is a good point, the state's tax incentives (no personal income tax and no business income tax), offset the low amount budgeted for the job training program. Senator Raggio moved the discussion to the Enhancement 325 Business and Government Environment (E-325), and questioned what the duties will be for a Contract Loan Packager. Ms. Baggett stated the position is a contract position for in-house finance expertise, and will help put loan packages together for the CED and the Community Development Block Grant Program. Senator Raggio questioned who is currently performing that function. Ms. Baggett answered Audrey Allen, Director of the Community Development Block Grant Program and Sue Moderelli, Grants Project Analyst. Senator O'Donnell commented on E-325, stating: I see that the agency has requested under that particular line-item... $321,000 and requested five full-time employees (FTEs)...the Governor recommends $27,000...I assume that the $275,000 (in the 999 Unfunded Decision Unit) is to fund these five FTEs, and wondered what the story is with that. Mr. Carlson responded the $275,000 is to enhance the Grant Program to the Development Authority, not to fund the additional staff. Referring to E-125, Senator O'Donnell asked why the CED requested the additional staff. Mr. Carlson stated the CED requested the 5 positions to reestablish the agency back to the 1990 funding and activity level. He added: ...We did not, at the time of preparation of this budget, realize...that the two commissions would possibly come in a unified scenario...If that be the case...I had to assume that maybe they [the Budget Office] would like to see this newly organized group come together for at least the next 2 years to determine whether or not those jobs really need to be created...do not add to an agency, combine it, then hope it works. Jere Schultz, Budget Analyst, Budget Division, Department of Administration, stated Mr. Carlson's assumptions are correct. Senator Raggio asked in what programs, with respect to foreign countries, the CED is involved. Mr. Carlson responded the CED has a small international trade budget. Seven trips to Mexico, during the past biennium, generated several million dollars for companies the CED accompanied to Mexico. A large part of the success, Mr. Carlson added, is due to the CED's ability to raise funds to provide services to businesses. He commented: ...You granted us that ability...and we have used that extensively in our international program and assessed the businesses that we aided in this particular venture to pay for our way, as well as their own way, and...the expense of setting up a booth in a particular trade show in that particular country...We would not have been able to go on those seven different trips without that ability, to charge for our services...We have a consultant down there that is paid for by these businesses, to develop the relationship in the business program. Senator Raggio inquired if the budget affords sufficient funds for the international program. Mr. Carlson answered the budget does not increase funds for the international program. Senator Raggio asked how the CED coordinates with the Commission on Tourism with respect to the international program. Mr. Carlson responded the Governor, CED and Commission on Tourism traveled to Mexico in a joint effort to combine the two commissions. He reported: That was only one time, and we have not done anything since. But it does not mean that...it would not be a good idea to plan...to do more of those types of operations.... Senator Raggio queried the expense item under the Tourism Administration and Accounting category in the base budget. Mr. Schultz stated the CED and the Commission on Tourism share a business office and the funds in the Tourism Administration and Accounting category is CED's portion of the expense. Senator Raggio questioned what percent, of the expense for the Tourism Administration and Accounting expense, is CED's. Ms. Baggett replied the CED pays 25 percent of the total expense of the Tourism Administration and Accounting category. Senator Jacobsen asked what benefits the CED receives from the Washington D.C. office. Mr. Carlson replied: We work very closely with...Washington. This last year, we have taken three different trips to the Washington area...we have taken business leaders from the community and have developed various programs from that particular effort. Mr. Penne is very able and comes to the service of our commission on a frequent basis...He has been able to produce and provide...service which we would not otherwise be able to have if we did not have a Washington Office. He does it on a fairly small budget and I think provides the state with a tremendous asset. We are willing to pay our fair share of that particular activity. Tourism - Page 961 Thomas G. Tait, Executive Director, Commission on Tourism, provided testimony from prepared text (Exhibit E). Senator Raggio asked if a reduction in contract payments has been made in the budget to offset the request for two new full-time positions in the place of two contract positions. Clara Fitz, Business Manager, Division of Economic Development and Department of Tourism, stated the contract positions were previously funded under the Promotion and Advertising category in the base budget, but a reduction has been made to accommodate the deletion of the two contract positions. Senator Raggio asked Ms. Fitz to confirm with the budget office that the proper adjustments have been made. Ms. Fitz stated she will do so. Senator Raggio questioned the justification why the contract positions should be replaced by full-time employees. Mr. Tait responded: We don't have the ability to control the time of the contractors as much as we would like...There are times when you require a tremendous amount of effort and other times when it is..less hectic. But, in those times, when it seems that there is a tremendous amount of work load...we get tremendous numbers of requests from other agencies...We are just not in a position where we can require both of those positions to be available at a time where we need their services the most, as contractors. Senator Raggio inquired if the two full-time positions will be filled by the individuals currently under contract. Mr. Tait stated the positions will be put out to bid. Senator Raggio asked if the positions will be paid for out of reserves. Ms. Fitz answered in the affirmative. Senator Raggio questioned if there is a concern that the reserve will be drawn down from funding the two new positions. Mr. Tait affirmed he has no real concerns of depleting the reserves and stated the new positions will aid in bringing new business. Continuing with his testimony, Mr. Tait read from page 7 of Exhibit E. Senator Raggio questioned the reason for increasing the transfer of funds to the Division of Museums. Mr. Schultz answered the increases are due to salary increases. Senator Raggio asked if a portion of the increased transfer amount is to accommodate the decrease in revenue from admission fees to museums. Mr. Schultz stated it is not. Mr. Tait resumed his testimony, reading from page 16 of Exhibit E. Senator Raggio questioned if the Rural Matching Grants are used primarily for advertising. Mr. Tait stated a portion of the grant goes towards advertising, however, the majority of the grant assists in the production and promotion of events. Senator Raggio asked if the Commission on Tourism subsidizes events. Mr. Tait answered the commission assists in subsidizing the marketing and promotion of some events. Senator Raggio commented some Rural programs need large grants. He questioned if a plan has been proposed for utilization of such large funding. Mr. Tait responded a plan is in existence. He stated the plan is a portion of the universal strategy for the Commission on Tourism to promote cultural, scenic, recreational and historic attractions in the state. He added, "If the events meet within those guidelines and they seem to be satisfactory to the commission, and the marketing professionals to the state, then they would agree to funding the project." Senator Raggio asked in what manner will the funds be used for the Rural Advertising and Marketing Contingency. Mr. Tait explained the funding is for emergency advertising and marketing situations, only. He explained: The only time those funds would come into play, senator, is in the event of an emergency such as fire, drought, or some other natural cause or fear of public safety in rural communities, that would necessitate the commissioners to award funds for a specific marketing blitz to assist that area during the emergency. Senator Raggio requested specifics as to when and how the emergency advertising and marketing fund will be used. Mr. Tait agreed to provide the committee with the requested information, then proceeded with his testimony (Exhibit E, page 17). Senator O'Donnell inquired on the status of the London Tourism office. Mr. Tait stated the London office is doing well, aggressively promoting events for the state. He added the number of visitors to Nevada from the United Kingdom has increased 15 percent over the last biennium. Senator O'Donnell questioned if there are direct flights from major cities outside the United States where the Commission on Tourism does not have an office. Mr. Tait stated there are direct flights from Cologne, Germany as a result of the Las Vegas Convention and Visitors Authority (LVCVA) offices in Munich and Frankfurt, Germany. He added efforts are being made to arrange direct flights from Osaka, Japan; Vancouver, British Columbia; Calgary, Alberta; and Toronto, Ontario. Senator O'Donnell asked where the Commission on Tourism would like to establish an additional office. Mr. Tait stated Mexico is the next country the commission is considering to establish an office. He added: The economy in Mexico, right now, is not stable enough for us...at this time. If the devaluation of the peso did not happen, I would be before you today, asking for an international office in Mexico. Senator Raggio inquired about the Capital Improvements Remodeling of the old federal building. Mr. Tait stated the State Public Works Board has not made a decision on how the facility will be used. Mr. Tait distributed Exhibit F (Original is on file at the Research Library.), Informational Packet describing Tourism Facts concerning Nevada, to the committee. Motion Pictures - Page 969 Senator Raggio asked why the division is currently fully funded from room tax revenues, transferred from the tourism budget. Mr. Schultz stated his belief that room tax revenue funding is more suitable in light of the anticipated merger of the Commission on Economic Development and the Commission on Tourism and it will relieve pressure from the General Fund. Mr. Carlson initiated his testimony on the budget and gave an overview of the functions of the division. He addressed the Enhancement 325 Business and Government Environment (E-325) category and provided an explanation of the request for additional clerical support. Senator Rawson questioned if Nevada has competition from other states with similar divisions. Mr. Carlson said most states have Motion Pictures divisions, which provide fierce competition, but confirmed Nevada is the third largest movie producing state, behind California and New York. Mr. Hammargren interjected that filming companies no longer wish to do business in California because of extensive regulations. He contended the potential revenue from the filming industry will enhance tourism and gaming in Nevada. Rural Community Development - Page 975 Mr. Carlson provided an overview of the program and advised the committee the program is primarily a federally-funded project. He continued, giving examples of accomplishments attained due to the success of the Small Cities Community Development Block Grant Program (CDBG). Senator Raggio asked, "What kind of a match is required from the local entity?" Mr. Carlson stated in most cases, no match is required when a CDBG grant is awarded. He continued: ...We allocate certain dollars through all the communities and they... choose where they want to spend the money...They are changing their philosophy to use this money to encourage industry to come to their town...to use it as an incentive to pull in those companies. Senator Raggio asked if Mr. Carlson can give examples of incentives used to attract the companies to the smaller cities. Mr. Carlson recalled a company by the name of Witlock Packaging is establishing a plant in Wabuska, Nevada, due to a water system that was built from Yerington to Wabuska, to accommodate the plant. Mr. Carlson provided more examples of incentives given to companies, before continuing his testimony. Senator Raggio questioned the purpose of the Revolving Loan category in the base budget. Mr. Carlson stated, "It was a pre-paid loan agreement where a company would come in and borrow a dollar amount to put under a normal payment schedule and pay that money back into the revolving loan program, which could then be lent out again." Senator Raggio asked who receives the loans. Mr. Carlson stated that because the Revolving Loans category is a small fund, small businesses primarily apply. Senator Raggio inquired as to the default rate. Mr. Carlson stated two defaults, out of 60 loans, have occurred since the program was initiated. Senator Raggio asked what recourse the division has in the event of a default. Mr. Carlson responded the division has the same recovery resources as a bank, namely seizing personal property or collateral. Senator Raggio requested a list of the projects Mr. Carlson referred to in his testimony and Mr. Carlson acknowledged the chairman's request, promising to submit the information. Procurement Outreach Program - Page 979 Mr. Carlson began testimony on the budget and provided a review of the functions of the program. Senator Raggio asked what is provided by the Small Business Revitalization Program, under category Enhancement 326 Business and Government Environment (E-326), that is not provided by other small business programs. Mr. Carlson responded the Small Business Revitalization Program helps the individual who wants to get into business to obtain information on requirements, permits and regulations in order to begin their business. Mr. Carlson admitted the University System provides that same service, however, he stated, "The small business person in the state deserves to have a state contact that has the information that can be provided to them." Senator Raggio inquired if the Small Business Revitalization Program assists businesses in applying for federal grants. Mr. Carlson asserted the Small Business Revitalization Program provides help to an individual who has never been in business and wants to find out how to proceed. Mr. Carlson clarified that the Procurement Outreach Program deals with grant funds from the Department of Defense, for businesses which have already been established, whereas the Small Business Revitalization Program assists individuals in opening a business. Nevada Magazine - Page 983 Richard Moreno, Publisher, Division of Publications, Commission on Tourism, furnished a brief review of programs the division participated in during the last biennium. While testifying, Mr. Moreno distributed and referred to Exhibit G (Original is on file with the Research Library.). Senator Raggio asked how many issues of Nevada Magazine are published each year and Mr. Moreno answered six. He added, occasionally a special annual edition may be published with a specific theme, such as the special issue published for the magazine's 125th Anniversary in 1987. Senator Raggio questioned how much the magazine has received in paid subscriptions. Mr. Moreno confirmed the magazine has approximately $77,000 to $78,000 in paid subscriptions. He informed the committee the actual amount in circulation is close to $100,000. He stated: ...We make several hundred copies available to various hotel properties around the state to put in the high- roller suites. We do that because it is advantageous to us when we talk to advertisers to say, yes, we have magazines in the suites at Caesars or the Rio or wherever...we are negotiating with Reno Air...where we may make 10,000 copies available to them that would be available on the jet ways so that people can pick them up when they get on and off the plane.... Senator Jacobsen requested that a display be provided in the entry way of the Legislative Building and Mr. Moreno stated he will comply with Senator Jacobsen's request. Senator Raggio complimented Mr. Moreno and his staff on the effort taken in producing the Nevada Magazine. Senator Raggio adjourned the meeting at 10:15 a.m. RESPECTFULLY SUBMITTED: Cristin Buchanan, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance February 21, 1995 Page