MINUTES OF THE meeting
of the
ASSEMBLY Committee on Government Affairs
Seventy-Second Session
February 18, 2003
The Committee on Government Affairswas called to order at 8:10 a.m., on Tuesday, February 18, 2003. Chairman Mark Manendo presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Mark Manendo, Chairman
Mr. Wendell P. Williams, Vice Chairman
Mr. Kelvin Atkinson
Mr. Chad Christensen
Mr. Tom Collins
Mr. Pete Goicoechea
Mr. Tom Grady
Mr. Joe Hardy
Mr. Ron Knecht
Mrs. Ellen Koivisto
Mr. Bob McCleary
Ms. Peggy Pierce
Ms. Valerie Weber
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Susan Scholley, Committee Policy Analyst
Eileen O'Grady, Committee Counsel
Pat Hughey, Committee Secretary
OTHERS PRESENT:
Renee L. Parker, Esq., Chief Deputy of the Office of the Secretary of State
Bru Ethridge, Supervisor of the Notary Division of the Office of the Secretary of State
Doug Walther, Manager of the Office of Business, Finance and Planning for the Office of the Director of the Department of Business and Industry
Carl R. Dahlen, Director of Rural Community Economic Development, Nevada Commission on Economic Development
Nancy Howard, Assistant Director, Nevada League of Cities
Mary Walker, CPA, President, Walker and Associates, representing Carson City, Douglas County, and Lyon County
Chairman Manendo called the meeting to order at 8:10 a.m. At the request of Chairman Manendo, roll call was taken. Chairman Manendo reminded the members of the Assembly Committee on Government Affairs that they would each need to let him know whether or not they planned to attend the Carson City/Douglas County/Lyon County tour on March 15, 2003, at 9:00 a.m.
Chairman Manendo opened the hearing on Assembly Bill 87.
Assembly Bill 87: Makes various changes concerning notarial officers. (BDR 19‑230)
Renee L. Parker, Esq., Chief Deputy of the Office of the Secretary of State, introduced Bru Ethridge, Supervisor of the Notary Division of the Office of the Secretary of State. Ms. Parker indicated that Ms. Ethridge would be speaking in support of A.B. 87, and that the proposed changes would be, for the most part, “clean up changes,” as well as the consolidation of some statutes concerning notaries so that notaries would no longer have to go back and forth between statutes that contained provisions pertaining to them. Ms. Parker turned the presentation over to Ms. Ethridge, whose written testimony was attached (Exhibit C).
Ms. Ethridge indicated that she would be testifying in support of A.B. 87 and would be providing Committee members with a section-by-section explanation of the major provisions of the bill. Ms. Ethridge’s testimony reviewed the changes proposed in Sections 2 and 3 of A.B. 87, as well as Sections 5-18, and included an explanation of two new business entities that were developed called Notary Signing Agents and Mobile Notaries. She said that proposed changes included:
Ms. Ethridge thanked the Committee for their time and indicated that she would be willing to answer any questions.
Assemblyman Goicoechea disclosed that his wife was currently a notary.
Assemblyman Grady said that the portion of A.B. 87 that referred to mortgage companies made him nervous, and he asked if a mortgage company would need to have the prior approval of its client before it could send out that client’s paperwork. Ms. Ethridge answered that in many cases, a client would have contacted a mortgage company, sometimes via the Internet, would have worked out an arrangement with the mortgage company regarding the paperwork, and then the mortgage company would have sent the documents to the borrower for signature. She then added that the client and the mortgage company would have worked out the arrangements themselves.
Chairman Manendo asked if Committee members had more questions. There were none. Chairman Manendo then asked if anyone in the audience had wished to speak in favor of or in opposition to A.B. 87. There were none. Chairman Manendo then closed the hearing on A.B. 87.
Chairman Manendo opened the hearing on Assembly Bill 85.
Assembly Bill 85: Revises provisions governing revenue bonds for industrial development. (BDR 30-469)
Doug Walther, Manager of the Office of Business, Finance and Planning for the Office of the Director of the Department of Business and Industry (B&I) provided the members of the Assembly Committee on Government Affairs with a written copy of his testimony, herein attached as Exhibit D, as well as with a copy of a brochure entitled “Industrial Development Bonds” (Exhibit E). Mr. Walther said that before explaining the provisions of A.B. 85, he wanted to explain how his office assisted in the economic development of Nevada through the issuance of bonds for industrial development. Mr. Walther explained that industrial development bonds were low interest loans used to finance small manufacturing development, solid waste disposal projects, and the activities of some non-profit companies. He said that provisions of federal law allowed government entities such as B&I to issue bonds with the interest being exempt from federal income tax. He said that investors were willing to accept a lower rate of interest on a tax-free industrial development bond, and that borrowers paid approximately 2 percent less than on a comparable commercial loan. He said the program provided a strong financial incentive for manufacturers to relocate to Nevada or expand their operations in the state of Nevada, as well as for the development of other worthwhile projects, which had resulted in the creation of thousands of new jobs that paid above-average wages. He said that B&I had also financed projects to reduce air pollution at mining operations and to purchase cleaner burning trash collection vehicles. He said that in the future, B&I hoped to finance the purchase of needed medical equipment for qualified non-profit medical facilities. He stated that in the year 2000, B&I had issued $650 million in private activity revenue bonds to finance the Las Vegas Monorail, which was a major transportation project that would reduce traffic congestion in Clark County, improve air quality, and benefit the area’s tourist economy, all without spending a single tax dollar. Mr. Walther said he was happy to report that the project was on time and within budget, and was expected to open to the public in the first quarter of 2004.
Mr. Walter said that the Office of Business, Finance and Planning was supported entirely by revenue generated by the industrial development bond program and required no General Fund appropriation. He said that federal law required that industrial development bonds be issued by a government entity and that certain procedural steps had to be followed, such as conducting a public hearing on the project to be financed. He said that although industrial development bonds were issued by the state of Nevada, they did not represent a legal or moral obligation by the state. He said that private investors provided the money for the loan and that the beneficiary of the financing was obligated to make the payments on the bonds. Mr. Walther said his office was considered a “conduit” for the financing, the reviewing of the application for compliance with federal law, and for making certain findings before issuing the bonds.
Mr. Walther said that his office’s role in the financing of an industrial development bond was a critical but limited one. He said his office satisfied technical requirements, marketed the program to qualified companies, assisted applicants in understanding the requirements for industrial development bond financing, and helped them to assemble a team of professionals to complete the transaction. He noted that another important aspect to industrial development bond financing was the participation of bond professionals who would ensure that the bonds would be successfully marketed to the private investment community. He said that these professionals included banks and other financial institutions that would guarantee the payments, market the bonds, or purchase them directly for their own accounts. He said that no industrial development bond could be issued without a financial institution’s due diligence and review.
Mr. Walther said that although industrial development bonds were usually the least expensive means of financing eligible projects, they were also more complex transactions that required more procedural steps, required the involvement of more finance professionals and required the payment of higher upfront fees and costs than conventional financing. Mr. Walther said that because of the effort and cost involved, it previously had been uneconomical to finance projects that cost less than $2.5 million to $3 million. He said that in 1999, B&I proposed and the Legislature enacted what is now section 349.595 of the Nevada Revised Statutes (NRS) for equipment-only financing. He stated that the statute had been intended to simplify the process for the financing of smaller projects by allowing the State Board of Finance to adopt guidelines for the approval of such projects; however, the statute had not clearly exempted such projects from other statutory requirements and the program had never been implemented.
Mr. Walther said that, through B&I’s participation in the national Council of Development Finance Agencies, they had learned that many states were making the benefits of industrial development bond financing available to smaller projects by lowering costs and simplifying the approval process. He said that discussions with several financial institutions had indicated that much needed development capital could be made available if the approval process was simplified and the costs lowered. He said that his office had developed a mini bond program that permitted the financing of projects in the $500,000 to $3 million range. Mr. Walther said that they had lowered issuance costs by creating standardized transaction documents, placing caps on professional fees, and selling mini bonds only to sophisticated financial institutions, which had eliminated the need for, and the cost of, underwriters and trustees. He stated that to date, the Bank of America, Wells Fargo, GE Capital, and Key Municipal Finance had agreed to participate in the program and purchase mini bonds for their own account. He said that A.B. 85 was intended to further the process by exempting mini bonds from some of the more time-consuming and costly steps in the approval process that are required for traditional industrial development bonds.
Mr. Walther stated that A.B. 85 amended NRS 349.595 to clearly provide for the issuance of bonds pursuant to its provisions and as an alternative to issuing bonds pursuant to the provisions of NRS 349.380 and NRS 349.390. He said that, in effect, the statute would eliminate the requirement that local governments and the State Board of Finance approve the findings of the director of B&I, although the director, with two exceptions, would still be required to make the findings required by those statutes. He said that by authorizing the issuance of bonds based only on the Director’s findings, his office believed that they would shorten the time and associated expense required to approve and issue mini bonds.
Mr. Walther said that NRS 349.595 would limit the issuance of bonds to an amount not exceeding $3 million. He said that the bonds would have to be issued to institutional investors in denominations of at least $100,000 or receive an investment grade rating. Mr. Walther said that these were the circumstances under which NRS 349.590(2) would authorize the waiving of the requirement that an applicant provide a five-year operating history.
Mr. Walter stated that since all participating investors qualified as “institutional buyers” under Securities and Exchange Commission (SEC) rules, B&I felt that it would be unnecessary for the state to independently determine the feasibility of a project to be financed, as currently required by NRS 349.580(2)(c). He said that under current practices, B&I would charge each applicant a minimum of $5,000 to obtain a professional consultant’s review of the project and the obligor’s financial situation. He said that since financial institutions would be underwriting the debt and performing their own due diligence regarding the feasibility of a project and the obligor’s ability to meet debt service requirements, B&I wanted to eliminate this expense for small, qualifying projects. He stated that A.B. 85 would amend NRS 349.595 to eliminate the requirement that the Director of B&I make the findings that were set forth in NRS 349.580(2)(c). He said that, in effect, the Director would be able to rely on a participating financial institution’s decision to purchase the bonds as evidence of the feasibility of a project.
Mr. Walther then stated that his office wished to eliminate the requirement of NRS 349.580(2)(f) which stated that a mini bond project must be specifically related to economic development, tourism, or the generation of electricity. He said that although most projects would further the state’s general economic development goals, B&I did not want to disqualify a project whose public benefits were not so clearly tied to economic development, such as the purchase of needed medical equipment for a non-profit hospital.
Mr. Walther said he wanted to emphasize that, although A.B. 85 would remove the statutory requirement for the State Board of Finance to approve the Director’s findings relating to industrial development bonds, it would continue to play an important role in the approval of mini bonds. He said that under A.B. 85 and the current provisions of NRS 349.595(2), the State Board of Finance would have to establish guidelines for the issuance of mini bonds. He said that his office intended to request that the State Board of Finance, consisting of the Governor, the State Treasurer, the State Controller, and two public members, retain its current practice of reviewing and approving all industrial development bond transactions, including mini bonds. He said that if further experience with the program revealed a need to modify the procedures, the State Board of Finance would be able to do so without having to seek an amendment to the statute.
Mr. Walther said he also wished to emphasize that, although A.B. 85 would eliminate the statutory requirement that the local government in which a project would be located would have to formally approve the Director’s findings with regard to mini bonds, local governments would continue to play an important role in this process. He said that most projects involving construction or expansion required local government involvement in the permitting and zoning process and that B&I also intended to solicit local government participation in the required public hearing process which would always take place in the jurisdiction where the project would be located. He said that state volume cap, or bonding authority, was required for all manufacturing projects and that it was B&I’s practice to request that the affected local government commit a portion of its volume cap to such a project. This would have to be accomplished through the passage of a formal resolution and would provide another means by which to consider the views of local government. Mr. Walther said that a local government could express its views regarding a project either formally through the passage of a resolution, or informally through staff communication with his office. He said that his office would not issue mini bonds to finance projects that faced strong local opposition.
Mr. Walther summarized his testimony by stating that A.B. 85 would help open up a source of much needed, but previously unavailable development capital, and would allow the financing of many worthwhile but smaller projects that would create jobs and other benefits for the state, and that would not significantly increase the risk to the state of Nevada. He said he would be happy to answer questions.
Chairman Manendo thanked Mr. Walther for his presentation and indicated that Committee members appreciated the written copy of his testimony (Exhibit D).
Assemblyman Grady disclosed that he had served as a member of the State Board of Finance for approximately nine years. He indicated that there had been two representatives from local government on the Board, one who had represented cities and one who had represented counties, and questioned why it had been proposed that local government approval be eliminated. He said he preferred to have the local government involved in the process as a board rather than through staff communication.
Mr. Walther said that it would be the formal approval process by the local government that would be eliminated, not local government participation in the process. Mr. Walther said that he would notify the affected local government of any bond application his office received and that he would allow them to participate in any hearing regarding the bond application. For manufacturing projects, Mr. Walther said that he would request a formal resolution from the appropriate local government to support the project through the commitment of the local government’s volume cap for the project. He also said that he would do whatever he could to notify the affected staff in the local government of the pending project and that he would solicit their input. Mr. Walther said the reason that his office had requested that the formal process be eliminated was because the formal process could sometimes add an additional four to six weeks to the bond approval process. He noted that currently a proposed resolution and related paperwork for a bond application had to be submitted to the local government staff and that they sometimes would not be able to start their review of the bond application immediately, especially in the larger counties. He indicated that the local government would also have formal agenda deadlines that had to be met and that there had been instances where an agenda deadline had been missed, which meant that a resolution regarding a bond would have had to be placed on the next available local government meeting agenda, and that this missed deadline had slowed down the process by as much as six weeks. He also indicated that an applicant and/or his attorney would usually feel obligated to attend any hearings related to their bond application, which would have meant an added expense for the applicant. Mr. Walther indicated that the procedural change had not been proposed in order to eliminate local government views, but that it had been proposed in order to provide a faster and less formal way to solicit those views. Mr. Walther said that he would always be aware of any local government issues that arose during the bond process because the applicant would already have been working with local government officials on zoning and permitting processes. He said that there had been projects in the past that had zoning issues as well as local opposition to the project, but that there had never been a time that he had not been aware of the issues and/or opposition. He also said that his office would not issue a bond for a project if it raised that kind of local opposition.
Assemblyman Grady asked Mr. Walther if he had discussed the proposed amendments with the local governments and if they had agreed to the changes. Mr. Walther said that he had discussed the changes with the Nevada League of Cities (NLC) and the Nevada Association of Counties (NACO), who had in turn referred him to John Swendseid, who represented the major counties. Mr. Walther said that Mr. Swendseid had expressed some concerns, but after discussing the proposed amendments with Mr. Swendseid, Mr. Walther said that Mr. Swendseid had been satisfied.
In response to a question from Assemblyman Collins, Mr. Walther indicated that no staff had been added to his office during the previous four years.
Assemblyman Collins indicated that he had some concerns regarding zoning issues and leaving local governments out of the process. He said that having been a planning commissioner previously, he remembered that if industrial bonds were approved that they would sometimes be used as a “hammer” on local governments, and that he was unable to see how weakening the local government’s position would provide any benefit. Mr. Collins said that he had concerns regarding the area of banking and financing in the state and also with some of the industrial issues.
Assemblyman McCleary said that he was concerned about local government involvement and that he wanted to be assured that he had understood correctly that if a local government were opposed to a project that Mr. Walther’s office was working on, that the local government could affect it with zoning.
Mr. Walther said that the local government would participate in a project via zoning and permitting processes, and that if a project had zoning or permitting issues, the applicant would not get the required approvals, and that Mr. Walther would then not be able to issue findings. Mr. Walther indicated that he would not get that far in the process unless local requirements had been satisfied. Mr. Walther said that he would not get involved with construction and zoning issues. He said that the applicant would need to acquire necessary local government approvals in order to complete the project, and that this would be the process by which he would become aware of any issues relating to the location of a project or to related matters.
Assemblyman McCleary said he would be interested in hearing opinions of local governments on this subject.
Chairman Manendo stated that he had been sure that other members of the Assembly Committee on Government Affairs, including himself, would be interested in finding out the positions of the different counties and cities.
Carl R. Dahlen, Director of Rural Community Economic Development, Nevada Commission on Economic Development, said that he attended this hearing to read into the record a letter in support of A.B. 85 from Bob Shriver, Executive Director of the Nevada Commission on Economic Development (Exhibit F):
Please accept this letter as my support of A.B. 85 to reduce the cost of issuing Industrial Development Revenue Bonds in Nevada. The vast majority of businesses in our state are small businesses with less than 50 employees. By standardizing the process of issuing bonds and placing caps on cost, more of these Nevada‑based small businesses will be able to access affordable financing through the “Mini-Bond Direct Placement Program” in amounts ranging from $500,000 to $3 million.
The Industrial Development Revenue Bond (IDRB) program is a significant and vital component of Nevada’s economic development and diversification efforts. This special federal tax-exempt form of financing made available through the state of Nevada to finance qualified projects at interest rates substantially below comparable commercial rates offers flexible terms at variable and fixed interest rates for borrowers who are creditworthy and present financially feasible business plans. Since its inception, 53 bonds have been issued, representing financing of $810 million and the creation of nearly 4,000 new jobs in Nevada.
With the proposed changes in the IDRB program, businesses throughout the state will find potential benefit. However, the “Mini-Bond Direct Placement Program” will especially help businesses located in many of our rural areas in Nevada. These businesses have greater difficulty in securing traditional loans because of their perceived remoteness from the state’s urban areas. These same businesses most likely do not require funding in excess of $3 million.
For all the these reasons, I firmly support the changes to Nevada’s IDRB program as expressed in A.B. 85 of the 72nd Session.
Sincerely,
Bob Shriver
Executive Director
Mr. Dahlen then indicated that he would be happy to answer any questions.
Assemblyman Goicoechea asked Mr. Dahlen if he and Mr. Shriver had shared the same view as Mr. Walther regarding the involvement of local governments in the process and asked Mr. Dahlen if he endorsed the particular part of the statute that referred to that issue.
Mr. Goicoechea said he knew that Mr. Dahlen had been very familiar with rural Nevada and that, in many cases, it would be during the hearing process that would be the time when the local government would find out if anyone was opposed to or in favor of a project. Mr. Goicoechea reiterated that he disagreed with removing local government from the hearing process and asked Mr. Dahlen what his feeling was on that issue.
Mr. Dahlen said that his office strongly supported local government involvement in economic development decisions that would affect their respective communities. He said he thought that the concern had been more with timing, and that the real question would come out of whether and how the guidelines would be established to insure that local governments would continue to play a role in the process. Mr. Dahlen said, “I think in rural communities it’s a little easier because there are less hoops to jump through as opposed to the large communities and perhaps there could be some change in the language if this Committee and this Legislature are concerned with that; however, we would like to be able to see that these bonds can move forward in an expeditious manner.”
Nancy Howard, Assistant Director, Nevada League of Cities (NLC), said that she had attended the hearing to neither support nor oppose the proposal at that time, but to let the Committee members know that she had not had enough time to get comments back from the NLC membership regarding the issue. She said she wanted to ask for more time in order to bring any comments back to the Committee from the NLC membership.
Mary Walker, CPA, President, Walker and Associates, representing Carson City, Douglas County, and Lyon County, said that they appreciated the intent of A.B. 85. She said that bonding was very important to the communities she represented, but that she also had not received comments back from those that she represented. She suggested that one of the things that the Committee might consider would be the informal process that had been described by Mr. Walther. She said that the process which would have required B&I to notify the appropriate city or county managers when these bonds were applied for could be codified into law. She pointed out that when zoning issues were reviewed by local governments, those issues would usually be reviewed by the staffs of the local community development departments who would not be talking to their city or county managers in regard to the financing, because financing would have nothing to do with zoning. She said she thought that there had been good intentions associated with the proposal but that there might be a time when B&I would have a different department or division head, and if that requirement were not codified into law, it might slip through the cracks.
Chairman Manendo closed the hearing on A.B. 85. Chairman Manendo again reminded Committee members that they would need to let him know whether or not they planned to attend the tour on Saturday, March 15.
Chairman Manendo read the bill draft request number and description for BDR 31-509.
ASSEMBLYMAN WILLIAMS MOVED TO INTRODUCE BDR 31-509.
ASSEMBLYMAN COLLINS SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
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Chairman Manendo read the bill draft request number and summary for BDR 233-96.
ASSEMBLYMAN COLLINS MOVED TO INTRODUCE BDR 23-396.
ASSEMBLYMAN WILLIAMS SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
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There being no further business, Chairman Manendo adjourned the meeting at 8:52 a.m.
RESPECTFULLY SUBMITTED:
Pat Hughey
Committee Secretary
APPROVED BY:
Assemblyman Mark Manendo, Chairman
DATE: