MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session January 19, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 2:00 p.m., on Thursday, January 19, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Sue Lowden, Chairman Senator Kathy Augustine, Vice Chairman Senator Ann O'Connell Senator Dean Rhoads Senator Randolph Townsend Senator Jack Regan Senator Ernie Adler STAFF MEMBERS PRESENT: Lisa Clearwater, Senate Attache Teri Spraggins, Temporary Committee Secretary Kevin Welsh, Fiscal Analyst OTHERS PRESENT: Mary Matheus, Fiscal Analysis Division, Legislative Counsel Bureau Janice Wright, Executive Director, Department of Taxation Mary Matheus, local government budget analyst for the Fiscal Analysis Division, provided the committee with a synopsis of the Local Financial Reporting Statewide Total Summary Report, (Counties, Cities, Towns, Special Districts and School Districts Revenue and Expenditures Fiscal Years 1983-84 through 1994-95), a 375 page document which was compiled by the Nevada State Legislative Counsel Bureau, Fiscal Analysis Division. (Exhibit C. Original is on file in the Research Library.) Ms. Matheus gave a brief history of the report. She stated the format of the document changed in 1988 when General Fund information was added to make the report more complete. She said the report furnished summary totals for the different local government entities. She stated each individual entity basically has the same set of reports as each group entity. She informed the committee the report was divided into six separate sections: state total resources, county, city, town, special districts and school districts. She continued by saying the Fiscal Analysis Division has a database which maintains in detail every fund from every one of these entities. She added some of the entities have 100 different funds which makes the detail more extensive than what is provided in the report. She stated the report contained 10 years of data, an estimate for 1993-1994, and budget amounts for 1994-1995. She stated the database has information as far back as 1976-1977. Ms. Matheus continued her presentation with an explanation of the breakdown sections for each entity. She stated the report showed an increase or decrease by percentage for expenditures in the various funds for the prior year to provide a more complete history. She informed the committee that Nevada is 1 of 15 states to compile a report such as this. She defined the report as one of a kind, the only source for this extensive information. She added the report is used by students and college students from other states. Mr. Kevin Welsh, Financial Analyst, distributed copies of the Senate Committee on Taxation Revenue Reference Manual. (Exhibit D. Original is on file in the Research Library.) He informed the staff the Fiscal Analysis Division of the Legislative Counsel Bureau instituted this reference manual at the request of the Senate Committee on Taxation in 1985. He explained the manual is an overview of appropriations and revenue charts, revenue summaries, tax legislation history, taxation information, local government finance issues, education funding information, and fiscal note information. He stated this manual would be a handy reference when fielding phone calls from constituents. He discussed the separate sections of the reference manual. Mr. Welsh further explained education in Nevada is facilitated through the Nevada Plan and the Senate Committee on Finance approves appropriations for education. He stated the Senate Committee on Taxation does have jurisdiction over two elements of education funding: property tax and a portion of sales tax. He added an overview of Nevada education is included in the manual. Senator Rhoads inquired how the Senate Committee on Taxation could find out how much federal money would be available in the budget for the next 2 years. Mr. Welsh replied that the committee would need to review the executive budget to determine the amount. Senator Sue Lowden called a temporary recess at 2:20 p.m. The committee reconvened at 2:25 p.m. Senator Rhoads gave a brief overview of the Executive Budget in Brief. (Exhibit E. Original is on file in the Research Library.) Senator Rhoads covered the Executive Budget in Brief, noting questions and concerns from the committee. He suggested the committee plan a work session to do an in-depth review of the Executive Budget in Brief. Senator O'Connell stated her review of the budget indicated areas where additional staff would be required for state agencies. She inquired why numbers of staff were not indicated and where could these numbers be found. Senator Rhoads replied the budget was pretty broad and each agency would be dealing with numbers and figures when it went before the Senate Committee on Finance. Senator Rhoads stated the budget was a fairly forward document, however, in the Senate Committee on Finance meeting which he attended that morning, the committee felt the areas of prisons and honor camps were clouded. He stated it sounded like honor camps were being de-emphasized and there was more emphasis on the prisons. Senator Lowden questioned the enhancements for education in both the 1995- 1996 and 1996-1997 budgets. She felt it was quite a substantial jump and questioned if it was due to the third grade class size reduction. Senator Rhoads replied the third grade class size reduction would cost about $27 million for a 1- year period. The second year, because of population growth in the state, would be approximately $50 million and would be that amount for future budget approximations. He added school districts will need to build more school buildings to meet the increased population. Senator Adler asked if Senator Rhoads knew the amount which Governor Miller had indicated for technology and science growth in education. Senator Rhoads stated he thought it was about $29 million. Senator Augustine asked why the welfare figure dropped to a negative $1.5 million. She asked what kind of cuts were they looking at for that kind of decrease. Senator Rhoads stated welfare will be going to a managed care system like the State Industrial Insurance System (SIIS), who has proven this is a workable system to eliminate excessive costs. Senator Rhoads reminded the committee of Governor Miller's proposed 4 percent increase the first year of the biennium for state workers, and 3 percent increase the second year. He stated this alone would be a $154 million increase per year. He added this is in addition to a 2.5 percent merit increase for university staff. Regarding additional staff, he covered which agencies had requested additional staff and, if known, he included the number of staff and the cost for offices, furniture, supplies and other start-up expenditures. Senator Rhoads indicated which cities would be receiving new offices and staff. Senator Rhoads drew attention to the increase in the Supreme Court staff. Senator Regan asked if the panel was going from five members to seven members. Senator O'Connell asked if there was approval for this increase. Senator Adler said this was discussed last session. He stated the idea behind this was the increase of caseloads for the seated judges. He continued by saying additional staffing would allow three panel judges, one in the north, and one in the south to process cases. Senator Regan asked if this was a constitutional amendment. Senator Adler stated Nevada can have additional judges without constitutional amendment and that several states already have a seven panel Supreme Court. Senator O'Connell queried why $4.1 million was estimated for two additional justices and their support staff. Senator Adler iterated if the Supreme Court could speed up the hearing of cases, since they are about 25 percent behind right now, he felt there should be cost savings to the state. However, he added he could not understand the $4.1 million either and felt this cost needed to be examined. Senator Rhoads continued his review of the budget. Senator O'Connell questioned the one-time $29 million expense, and then the operating expenses in the Education budget. Senator O'Connell queried how there could be a one-time cost which includes operating expenses. Senator Rhoads stated he would question this at an appropriate Senate Committee on Finance meeting. Senator Rhoads called the committee's attention once again to the line item for third grade class size reduction. Senator Rhoads pointed out the $4 million expense of implementing the Nevada Business Plan for education. He requested the committee to look at the line item for the 2.5 merit increase for university staff, requested for both years, totaling 5 percent which would be on top of the total 7 percent increase for state workers, making the university system staff receive a total of 12 percent merit pay. Senator Adler asked if the university system was going to have different merit pay systems. He stated the last time there was university merit pay, it was calculated at differing rates for classifications of positions. Senator Rhoads stated this was not discussed, but needs to be clarified. Senator O'Connell reviewed the university requests which included an estimate of 360 additional staff to cover a total of 2,655 full-time equivalent students over the course of the biennium. She questioned whether the $32.1 million was for the 360 additional professional staff. Senator Rhoads replied yes, it is in the budget. Senator O'Connell asked if this was in the budget and Senator Rhoads stated this was the budget which Governor Miller indicated that he would support. Senator O'Connell clarified her question, "Is this in the budget, but we have not acted on it yet?" Senator Rhoads replied, "Yes." Senator Rhoads continued his review of the budget by focusing on the welfare budget. He felt he did not have a complete overview of the proposed budget for welfare but understood the managed care system was slated to begin working in January, 1996. Referring to the Department of Administration, Senator O'Connell asked if anyone was familiar with the work of Danelle Hahn in Las Vegas. Regarding the $401,000 in Budget and Planning, Senator O'Connell stated there was a company which has offered to do an assessment of this for 20 percent of the grant monies they can raise. She wanted to know why the committee would not be taking that approach instead of budgeting an amount to do the same task. Senator O'Connell felt the committee should request Ms. Hahn to come testify regarding her services and fees. She felt this would be a more viable expenditure than the $401,000. Senator Rhoads continued the discussion on the welfare budget. Senator Rhoads inquired if Senator Townsend was seeing reform in SIIS by using managed care systems. Senator Townsend replied in the affirmative. Senator O'Connell asked the committee to look at all of the welfare budget. She specifically asked the committee to look at the anticipated expenditure for the job coaching program, she asked if anyone had looked at Carol Jackson's employment-rehabilitation center. Senator O'Connell pondered if the budget was establishing new programs for this. Senator Rhoads stated virtually no detail was furnished on the budget during the 3-hour meeting in the morning. He stated he would welcome all questions and comments from the committee to take at the appropriate time to the agencies. Senator Rhoads regained the committee attention with a discussion of the boot camp opening for juvenile offenders similar to the one in Southern Nevada. He stated it was his understanding the boot camp would be in Elko, although there has been criticism regarding the location. He discussed the Lovelock prison scheduled to open in October, 1995. He stated this includes a $10 million appropriation to begin work on Phase II which will increase the prison from a population of 500 to 1000 with an ultimate population of 1200 to 1500 depending on how "tough on crime" this session becomes. The next item Senator Rhoads pointed out was the increase of 34 positions in the Registration Division at the Department of Motor Vehicles and Public Safety (DMV). The Registration Division is backlogged and the additional positions would allow them to catch up on the backlog. Senator O'Connell asked if it would not be more cost effective to contract this work rather than hire 34 additional positions. She asked if once the backlog was caught up, would those 34 positions become permanent members of the payroll. The committee felt this was a good point to bring up at the budget meeting for DMV. Senator Adler stated he had visited DMV questioned staff regarding their duties. He commended the staff for all of their hard work and dedication, but stated he felt it was time to upgrade the technology at the DMV. He stated that Oregon is using an optical scanning system, which costs about $350,000 but it takes less staff to complete more work. He continued by saying it is not an inexpensive system, but felt this automated system would continue to save costs overall. He continued by saying California does electronic filing of the titles from the dealerships to their DMV. He stated the Nevada DMV has employees typing paper titles when an automated system might better serve the needs of the public. Senator Adler continued the committee might plan a visit to the DMV to view how antiquated the equipment is. Senator O'Connell asked Senator Rhoads to challenge the one-time appropriation for a backhoe for Veterans' Affairs. She questioned why the backhoe was needed, how the work was currently done, and why not contract the backhoe on an "as needed" basis. Senator Adler stated Veteran's Affairs currently uses inmate crews for most of the manual labor, and their services are less than contract prices, but the backhoe was needed to dig graves in a more timely manner. He added graves are currently dug with shovels. Discussion of the budget continued with an overview of the appropriations budget for the Division of Forestry. Senator O'Connell asked if the $538,000 for the non- game wildlife programs, including the desert tortoise habitat, came from the General Fund or from park use fees. Senator Rhoads stated he believed it was General Fund monies. Senator O'Connell asked if all the appropriations in the budget were from General Fund monies. Senator Rhoads stated they were all General Fund monies. Senator O'Connell asked if Wildlife was not supposed to be self-supporting. Senator Rhoads said when the Wildlife Board was revitalized several sessions ago, it was no longer a strictly self-funded program. Senator Adler mentioned the concerns of hunters who had to pay for non-game animals out of their hunting fees. Questions were raised regarding the permit fees for carrying firearms. Senator O'Connell asked who would be developing the mission statement for the Division of Environmental Protection and who would be funding it, what is the make up of the commission, and why it is needed. Senator Rhoads stated this was not covered at the budget meeting that he attended. He requested Senator O'Connell submit notes to him regarding items she was concerned about and he would bring these questions up during each agency's budget presentation. Senator Rhoads provided an overview of the appropriations for the Division of State Parks. There was no discussion or questions regarding the budget for Division of State Parks. Senator Rhoads covered the request for the 68 new positions for the Department of Transportation by stating most of the monies for this appropriation would come from state highway funds. Senator Rhoads concluded his presentation with an overview of SIIS elimination of positions. Senator Rhoads reminded the committee that this booklet covers the base budget and enhancements. He stated each agency begins with the budget which was in effect last session and then add the enhancements and mandates. Senator Lowden asked Senator Rhoads if he knew whether the Sales and Use tax was part of the budget. Senator Rhoads stated he did not think it was included. Janice Wright from the Department of Taxation testified exempt entities had never reported before and there was no feel for how much income this would generate. She stated at this point no one had registered, however, they felt there would be funds coming in, but could not project figures at this time. She felt the normal growth occurring in the State of Nevada would be more material in impact than the amount collected from religious and charitable organizations. She mentioned appeals and possible court injunctions regarding this law. She reiterated this amount of collected tax would not be as material as the amount of tax received from general growth throughout the state. Senator Lowden asked if some of the "extra" money in the funding came from this act. Ms. Wright stated amount was a projection of more than they were receiving and more than the normal growth. She stated something else must have been put in there. Senator Lowden asked Senator Rhoads to verify the funds. Ms. Wright stated she would find the answer to Senator Lowden's question and would provide it to both Senators Lowden and Rhoads. Senator Augustine asked Ms. Wright if there was something unconstitutional about purchasing something and paying sales tax on it, then turning around and selling it and charging sales tax again. Ms. Wright stated this is not unconstitutional, the transaction according to the statutes is viewed as taxable. She commented people stated to her this was double and triple taxation. She explained transaction was defined in the statue as transfer of possession of an item of tangible personal property to another party for personal compensation. She stated it is written this way in every other state. The taxes are tied to the gross receipts of the retailer and the retailer charges taxes on the sale every time he transfers title or possession of personal property. Senator O'Connell clarified this for the committee with an example of the tax paid on furniture which is rented. She stated that tax is paid on furniture on a monthly basis. Ms. Wright stated Senator O'Connell is correct, the retailer has the option of choosing to pay tax on the acquisition of a product, or on his gross receipts. She further clarified it is an election by the business person. She stated if a person is in the rental business, he may not want to pay the tax up-front (which may be a sizable amount not financially feasible for the business), but may prefer to pay tax on the gross receipts, in which case, the charge is passed on to the consumer. She stated ultimately the state receives more tax money when tax is charged in this fashion, than if the tax is paid up-front by the retailer. Senator Lowden thanked everyone for their reports. BILL DRAFT REQUEST 57-611 Eliminate prepayment of insurance premium tax. Senator Lowden introduced BDR 57-611 to the committee. SENATOR LOWDEN MOVED FOR A HEARING OF BDR 57-611 . SENATOR TOWNSEND SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** The committee adjourned at 2:55 p.m. RESPECTFULLY SUBMITTED: Teri J. Spraggins, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation January 19, 1995 Page