MINUTES OF THE SENATE COMMITTEE ON TAXATION Sixty-eighth Session March 7, 1995 The Senate Committee on Taxation was called to order by Chairman Sue Lowden, at 1:37 p.m., on Tuesday, March 7, 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 M. Augustine, Vice Chairman Senator Ann O'Connell Senator Dean A. Rhoads Senator Randolph J. Townsend Senator John B. (Jack) Regan Senator Ernest E. Adler GUEST LEGISLATORS PRESENT: Senator Mark A. James, Clark County, District 8 STAFF MEMBERS PRESENT: DeLynn Gillentine, Committee Secretary Kevin Welsh, Research Analyst, Fiscal Analysis Division OTHERS PRESENT: Carole Vilardo, Lobbyist, President, Nevada Taxpayers Association Gaylyn Spriggs, Lobbyist, Director Government Affairs, Rayrock Mines, Inc. Janice Wright, Deputy Executive Director, Nevada Department of Taxation Chairman Lowden opened the work session with a discussion on Senate Joint Resolution (S.J.R.) 14. SENATE JOINT RESOLUTION 14: Proposes to amend Nevada constitution to authorize legislature to exempt from property tax property used in manner that conserves water. (BDR C-377) First to testify was Senator Mark A. James, Clark County, District 8. Senator James testified: . . . I appreciate the committee's . . . consideration of this proposal . . . As many of you probably know, particularly in Clark County, one of the greatest areas of water use that we have is outdoor irrigation. . . Something over 60 percent of our water use is outdoor irrigation use, turf watering and other landscape watering. There are two reasons why it is so important that we address this issue: First of all, since the bulk of our water supply in southern Nevada comes from the Colorado River, you have to understand . . . that everything that goes down our drain . . . goes out to the treatment facility. [The water] receives 2 or 3 treatments and goes back into the river . . . [which] entitles us to a return flow credit. That ultimately augments the total diversions we can make from the river up to our 300,000 foot consumptive allocation. . . Our diversions and our use of the water can go well beyond that based upon . . . flow credits . . . [and] how much we put back into the river. Water that we use outdoors in our lawns goes through the plants and is either evapotransporated back into the atmosphere, evaporated during the watering process, or it goes down into the shallow aquifer. A lot of it will stay in the aquifer . . . It doesn't recharge the deep aquifer which is where our water supplies come from. Most of it stays in the shallow aquifer and hovers around the old railroad site or heads on out into Lake Mead and is returned into the Colorado River water system without any credit. . . There is no credit given to . . . Clark County by virtue of those unaccounted for returns . . . Secondly, we have for many years proceeded on the notion in southern Nevada, and this doesn't really count the last 5 to 7 years where we have become keenly aware of the limitations of our water supplies, but prior to that we have landscaped, we have imported plants, we have chosen how we landscape particularly in residential development without regard to the need to conserve water. We have some very thirsty landscapes that we have put in down there. Turf grass is probably one of the least efficient types of landscaping you can use . . . That is also true in other parts of the state in northern Nevada as well. I should mention . . . that 60 percent of use for outdoor irrigation [is mostly] . . . for residential. . . usage. Senator O'Connell asked about using potable water for outside watering and if the district has looked into that kind usage. Senator James explained that has been done but more could be done. Senator James continued: . . As we get to the point where we have used our consumptive supply from the river and we are . . . putting as much back in as we can get return flow credits for; then treating and using as grey water the balance of that so we reduce our treatment costs and are more efficient with that water is an option for the future. It is being studied, but the problem is our unique situation with return flows. Senator O'Connell questioned about the success of the flood district in capturing the water from a downpour and returning it to the Colorado River. Senator James responded, "I don't know the answer to that question as to as how successful that has been for return flow credits. It has, of course, two purposes and that is to put it in where the substantial wash areas are to prevent flooding downstream on the washes. One of the other rationales is that the water can then be returned to the system for return flow credits. . . " Senator O'Connell asked why there is no fiscal note attached to this bill. Senator James explained this kind of constitutional amendment does not have a fiscal note. The fiscal note would be attached to the enabling legislation. Senator James said he is asking the committee to approve the authorizing amendment to the constitution; which would allow the Legislature to devise whatever kind of tax credit rebate or other incentive the Legislature could formulate. Senator Regan queried, "Senator James . . . [I have] property on sunrise mountain. I have part of that in turf and part of it in desert landscaping which requires no sprinklers. Would I have the opportunity to apply for [a partial rebate, since]. . . « the acre is in desert and « the acre [is] in turf?" Senator James stated: The answer is that I don't know because this doesn't get that specific. The enabling legislation, if we pass this, could be tailored to allow someone to get a credit for partial landscaping or partial conversion to xeroscaping or it could require that a certain percentage would have to be converted to xeroscaping or that there could be a value attached to the amount of water that is saved. We began working on legislation this session to do this and it was through the research that we found out that the constitution wouldn't allow it. We have to take this initial step. . . I would submit to the committee that there is probably no resource that is more critical or valuable to Nevada than water. . .The amendment I would suggest to the committee [for this bill] is. . . on line 20 on page 2, I would suggest changing the words `exemption or a system of tax credits or deductions' to `the Legislature may provide by law for abatement of property taxes in whole or in part in a manner that conserves water.' The reason for that is the Legislative Counsel Bureau's lawyers tell me that if we use the word abatement, that gives the Legislature more leeway in the type of tax policy it can utilize . . .That is the language I suggest. Carole Vilardo, Lobbyist, President, Nevada Taxpayers Association, stated her support for Senator James change of the language to abatement. Ms. Vilardo said, "I think it might read a little cleaner if it said, `the Legislature by law may provide for an abatement of property taxes in whole or part in a manner that conserves water' . . ." Senator O'Connell questioned Ms. Vilardo in regard to the flood district. Senator O'Connell asked if Ms. Vilardo could tell her if there has been much success in the retention basins and getting water back? Ms. Vilardo responded they are not retention basins and they are not reservoirs they are detention basins. Only if the return flow meets the ground water standards will they receive credits for the returned water. Senator O'Connell asked if credits were used to sell the basins to the Legislature. Ms. Vilardo said credits were not used, but other senators agreed with Senator O'Connell. Senator James commented, "There are storm water quality requirements that are either part of the clean water act amendments or a separate federal legislation that deals with the quality of storm water that is discharged . . . back into a water body." Senator Regan explained to Senator O'Connell that the retention basin in the northwest quadrant slows the water down coming into the Sloane Canal. The monies being spent now are for cementing the Sloane Canal. All of the water from the Sloane Canal will be return water flow. Senator Rhoads asked how the bill would be measured and if there would be a massive hit on all of the counties throughout the state because of credit on property taxes? Senator James responded, "The constitutional amendment . . . is not linked to any particular way or level of conservation it just allows the Legislature to advise it. I suppose the Legislature, if it was concerned about any effect on local government, . . . could write provisions into the law to protect against that . . . What we are doing now is simply authorizing the Legislature to do it. We can't do anything with encouraging water conservation through tax policy now because we don't have this constitutional amendment." Senator O'Connell discussed systems of water conservation and the measurable difference they normally provide. Senator James said, "To answer your question Senator Rhoads, . . . what I said is what we are doing now doesn't require any measurement, but it is very simple to measure the amount of water that you save by changing your landscaping. . ." Senator James discussed the future of water in Nevada and the cost of purchasing additional water. Senator James said it is always cheaper to conserve water you already have rather than purchase it from someone else. SENATOR REGAN MOVED TO AMEND AND DO PASS AS AMENDED S.J.R. 14. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR TOWNSEND WAS ABSENT FOR THE VOTE.) Senator Adler asked why they cannot change the law statutorily, since current law allows an exemption for property used to control air and water pollution. Senator James replied he does not know, but assured the committee that the language for the bill had been throughly researched. Senator James continued, "Scott Wasserman did the research to determine whether or not we would need a constitutional change. I was . . . disappointed because I think we need to engage in this aggressive conservation right away. If you could come up with something somewhere that the Legislative Counsel Bureau attorneys missed, to say that we could enact legislation this session. . . I would be happy to withdraw this." Senator O'Connell asked if the committee could add conservation to the section of the current bill where it talks about pollution. Senator Adler questioned why as the law stands now, you can have an exemption for pollution but not for water conservation. Gaylyn Spriggs, Lobbyist, Director Government Affairs, Rayrock Mines, Inc. testified: The difference is that you are adding wealth or you are adding an improvement . . . for a specific purpose and they are allowed across the board to make an exemption for that added value to that improvement for the air quality . . . This is a different concept where you would be giving actual exemption from property tax for conservation of [water]. You are not adding value to an improvement. Senator O'Connell asked about the terminology of the current bill in relation to the proposed bill. Senator Adler commented, "Air pollution control talks about installation or excavation or modifying an existing structure, so why would that be different than what Senator James is trying to do . . ?" Senator James stated: Madam Chairman, I would suggest that . . . you might be able to squeeze this under the energy conservation provision . . . I would rather have us do something that is constitutionally authorized specifically than have us do something that is not. In the interim, if we can try to enact something under what Senator Adler has pointed out or elsewhere to allow this kind of system to come into place . . . then I would support that, but I would not support delaying this measure which specifically authorizes this. It is very clear statement by the Legislature. I think we should move forward with this as you have already done and then pursue that as a separate issue. Senator Lowden asked, "Senator Adler do you want to continue pursuing this?" Senator James said he would ask Scott Wasserman to comment on it. Senator Lowden continued, "We had another bill [for today] but we dropped it at the request of the maker . . . In the meantime, I have asked for an amendment to the North Las Vegas library bill . . . We also have an update from Janice Wright on the White Pine [County] situation and we have an update from Kevin [Welsh, Research Analyst] on our travel plans. . . to Elko and to Ely . . . " Janice Wright, Deputy Executive Director, Nevada Department of Taxation, testified: The Nevada Tax Commission will be meeting on March 22. On that agenda we have placed an item that discusses the White Pine School District financial situation and the 5- year plan. That item will be scheduled for 2:00 p.m. . . That will be video teleconferenced between the Grant Sawyer office building in Las Vegas and the Legislative building. Senator O'Connell added, "Government affairs will be listening to that . . . We . . . want to have as many people from the Assembly and from this taxation committee there [as possible]. . . " Ms. Wright explained: The Nevada Tax Commission is going to be holding a meeting all day. We have a number of items to address, but at 2:00 [p.m.] we are going to address the White Pine County situation. . . It has been discussed with the chairman . . . who will run that committee. He will be asking staff to provide a briefing as to what has happened . . . For your information, the Department of Taxation sent the local government budget analyst to White Pine last week. There have been a series of meetings since then. At this point. . . the Department of Taxation believes that there is a condition of financial difficulty. . . We do want to explain to them the circumstances under which we think they can continue to operate. The procedure for establishing a condition of financial difficulty is if they want a hearing, it would not be a tax commission hearing. They would ask us for the hearing, we would then appoint a hearing officer to sit down and go through both testimonies. From the department and from the independent school board trustees the school board superintendent, their auditors . . . So the hearing that is going to be held in front of the Nevada Tax Commission is an informational hearing . . . If at that time it is determined that we do need to proceed with another hearing that will be held separately and that will be before a hearing officer to review all of the evidence and documents that will be presented. The preliminary findings of the department, based on the financial records that were examined, do support this establishment of a condition of financial difficulty. . . Ms. Wright said everyone up there is affected by this. Senator Rhoads asked when the legislation passed last year will run out and if Ms. Wright could refresh his mind about what the Legislature did to make it work and if it worked. Ms. Wright responded: What the Legislature did was explain that you can't exceed $3.64 per hundred. In order to have everybody's rate below that, the school district is going to have to issue money to these other entities to buy down the rate. A 1-cent property tax levy county-wide generates a lot more money than a little tiny district like Ruth, or McGill or Lund could have for 50 cents. Everybody's rate was brought down so that there is nobody who is actually over $3.64, but it has been at the expense of the school district taking money out of their funds and that was the legislation that was passed. It was worded rather specifically just so the school district could do that for a period of time. At this point, it will no longer work. Even if the legislation were in place, it would not work. There is simply not the money to do that. . . We are facing a worse condition now than we were 2 years ago and we have got to address something else other than just forcing the rates back down. Senator O'Connell said she understands the school will not open on March 16. Ms. Wright said that is correct. Senator O'Connell asked if they will not be able to reopen the school. Ms. Wright stated, "We believe that they should not; however, please understand the Nevada Department of Taxation does not have the authority to run a local government . . . So we did the best we could in wording it so the message is . . . clear, but I cannot guarantee what their actions will be. . . " Senator Lowden stated: To answer Senator Rhoads question about when are we doing this; we are waiting until after this March 22nd meeting to see what happens there. Then we are on the way the following week or so. Senator Adler asked about previous plans to help White Pine County in regard to copper mines and assessed valuation. Senator Adler asked why these plans did not work. Ms. Wright answered: Madam Chairman, the assessed valuation is increasing. MAGMA has some new real property that is going on the assessment role; however, the tax rates were so far above $3.64 it has not made a measurable difference. The biggest problem that exists right now is with respect to the bonding that the school district got authorization from their voters to go ahead and issue and sell. If they issue this next batch of bonds, they definitely don't have the ability to pay anything on those bonds. They are borrowing money . . . to buy groceries. . . Senator O'Connell said, "Property has decreased in the assessed valuation this year as well and they have been betting on . . . MAGMA . . . coming in to save their necks again . . ." Kevin Welsh, Research Analyst, Fiscal Analysis Division, discussed plans to travel to Lovelock for the tour of the prison and presented Exhibit C. Senator Lowden adjourned the meeting at 4:00 p.m. RESPECTFULLY SUBMITTED: DeLynn Gillentine, Committee Secretary APPROVED BY: Senator Sue Lowden, Chairman DATE: Senate Committee on Taxation March 7, 1995 Page