MINUTES OF THE meeting
of the
ASSEMBLY Committee on Judiciary
Seventy-Second Session
April 3, 2003
The Committee on Judiciarywas called to order at 7:38 a.m., on Thursday, April 3, 2003. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, 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.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. Bernie Anderson, Chairman
Mr. John Oceguera, Vice Chairman
Mrs. Sharron Angle
Mr. David Brown
Ms. Barbara Buckley
Mr. John C. Carpenter
Mr. Jerry D. Claborn
Mr. Marcus Conklin
Mr. Jason Geddes
Mr. Don Gustavson
Mr. William Horne
Mr. Garn Mabey
Mr. Harry Mortenson
Ms. Genie Ohrenschall
Mr. Rod Sherer
GUEST LEGISLATORS PRESENT:
Assemblyman Bob Beers, District No. 4, Clark County
STAFF MEMBERS PRESENT:
Allison Combs, Committee Policy Analyst
Risa B. Lang, Committee Counsel
Deborah Rengler, Committee Secretary
OTHERS PRESENT:
Ben Graham, Legislative Representative, Nevada District Attorneys Association
Renny Ashleman, representing Clark County and the Las Vegas Country Club Master Estates
Frank T. Beers III, PE Retired, resident of Sun City
Dr. Bernard Bronstein, resident of Sun City and member of the Board of Directors
Sheldon Factor, Senior Vice President of the Sun City Homeowners Association
Glenn Hayward, President of the Sun City Homeowners Association
Karen Dennison, Attorney, Hale Lane Peek Dennison and Howard, representing Lake Las Vegas Joint Venture
Pamela Scott, PCAM, Senior Property Manager, Community Association Management, The Howard Hughes Corporation, Summerlin
Sam McMullen, representing Phillip Morris U.S.A.
Jack Holleran, Vice President of Brand Integrity, Phillip Morris U.S.A.
Brian Sandoval, Attorney General, Office of the Attorney General
John Colledge, Resident Agent, Department of Homeland Security, Bureau of Immigration and Customs Enforcement
John Albrecht, Chief Tobacco Counsel, Office of the Attorney General
Paula Berkley, representing Reno-Sparks Indian Colony
Steven Moran, representing the Board of Directors of the Retail Association of Nevada
Mary F. Lau, Executive Director, Retail Association of Nevada
Peter D. Krueger, State Executive, Nevada Petroleum Marketers and Convenience Store Association
Charles Chinnock, Executive Director, Department of Taxation
Buffy Gail Martin, Government Relations Director-Nevada, American Cancer Society
Honorable Daniel P. Ward, Judge, New River Township Justice Court, and President of the Nevada Judges’ Association
Chairman Anderson:
[The Chair reminded the Committee members and those present in the audience of the Standing Rules and appropriate meeting etiquette.]
[Roll called.]
There are 13 members present; a quorum is present.
Let me try to explain what is going to happen. This morning we are going to try to take A.B. 319 and A.B. 376, and see if we can get both of those out of the way. The Attorney General is going to testify from Clark County, [at the] Grant Sawyer [State Office] Building. He was on a flight out of Reno this morning that left 30 minutes ago; we are trying to accommodate his schedule. And we have a work session.
Finally, please note the sign on the witness table concerning the legality of misrepresenting facts before the Legislature.
I am going to surrender the Chair to my able Vice Chairman.
Vice Chairman Oceguera:
Let’s open the hearing on A.B. 319.
Assembly Bill 319: Makes various changes concerning common-interest communities. (BDR 10-1177)
Assemblyman Bernie Anderson, District No. 31, Sparks:
I am here before you to discuss Assembly Bill 319. This is a piece of legislation that had a hearing during the last session. It was an issue that I thought needed to be reintroduced and readdressed; it got hung up in the closing hours of the last session and failed to meet the deadline in the Senate. It is a measure that goes to the very heart of the reason people choose to live in common-interest communities. People choose to live in these communities to enjoy the security of a controlled environment. They have invested in the community and have an interest in the long-term quality of life in their neighborhood. Assembly Bill 319 is requested to address a growing problem that dramatically affects the quality of life in certain communities in Clark County. As you will note, the measure only applies to counties with a population of 400,000 or more.
I am having distributed to you a copy of a news article (Exhibit C) describing the problems inevitably encountered by Las Vegas residents when short-term transient rentals are introduced into their communities. In some communities, units are being rented out to vacationing travelers to Las Vegas for tourism or convention purposes. These temporary or transient renters have no long-term interest in the home they are renting for their vacation. As a result, the community’s residents are subjected to the type of behavior that can be expected at hotels, not in one’s own neighborhood. Problems include late-night parties, alcohol use, and increased traffic at all hours of the day and night.
Assembly Bill 319 addresses these issues with a balance between the interests of neighbors and those involved in these types of rentals. The measure provides that a person who owns one or more units in a residential planned community may use the units for transient commercial use if:
The measure also provides a means for the association to establish needed fees to cover increases in services or other costs associated with the transient use of the units. I thank you for your time and favorable consideration of A.B. 319.
Assemblyman Gustavson:
I am trying to see the reasoning for this bill. If the homeowners association (HOA) already allows or would allow this, what are we changing in the law? Is there a need for A.B. 319?
Assemblyman Anderson:
The issue that came up in the last session indicated that individuals were buying pieces of property and then turning them into rentals on their own, away from the organization. While they owned that housing unit and were voting members of the HOA, they were able to sublet these for a short period of time, 30 days or less, as vacation property, when in reality that was never the intent of the HOA. Some of these HOAs were set up for people coming in and out of Las Vegas on a more regular basis, but in many cases they are full-time, permanent residents. The residents were surprised when the adjacent properties were being put to that use.
Assemblywoman Angle:
You are from Sparks, yet this bill only applies to Clark County. I was wondering why you didn’t make this apply to the whole state. Even though we may not have that problem in Washoe County, it’s not a quantum leap to think that we may have the same problem. Could you address that?
Assemblyman Anderson:
The question was asked last session, in fact, why it had not become a statewide issue. Part of it deals with the question of Clark County and Las Vegas’ unique attraction and the percent of these planned residential communities around golf courses and other types of temporary areas. The predominant problem has become more pronounced in Clark County than it has in the rest of the state. The reality is that no one complained about it outside of Clark County when we had the testimony two years ago. It seemed it was applicable to Clark County, so I was happy to carry the bill again.
Vice Chairman Oceguera:
Any questions for Mr. Anderson? There being none, we will let you get up, unless you have another plan of action. It looks like Mr. Graham has an amendment.
Assemblyman Anderson:
There are a couple of people who wish to testify. Renny Ashleman has some amendments, which he also wishes to propose, as does Mr. Graham. I think both of them have acceptable amendments to the bill.
Ben Graham, Legislative Representative, Nevada District Attorneys Association:
Thank you very much for bringing this bill on behalf of Clark County. I have just seen that my able colleague from Clark County has the amendment (Exhibit D) that I was going to discuss. This is a friendly amendment to help make sure there is no “wiggle room.” As more of us attend law school, get through the bar, and practice law, “wiggle room” is what we look for; this amendment will eliminate that.
Renny Ashleman, representing Clark County and the Las Vegas Country Club Master Estates:
We have proposed amendments (Exhibit E) which I believe you have in front of you or you are about to receive. In the presentation of this in the last session and in the other body (Senate), certain interests felt some amendments were needed before they could be satisfied with A.B. 319; they are fairly minor. I will cover them starting with the Clark County amendment (Exhibit D). If you will look at the proposed amendments that Ms. Dennison and I have prepared, Item C requires that if there is going to be this transient unit use, the unit must be properly zoned and any license required by the local government for transient commercial use is obtained. I think that is a fairly self-evident amendment because the acute problem area that originally caused this bill to be brought forward not only had the problem of the reasonable expectations of the inhabitants not being met, but also that they were not obeying the local laws involved as well. This is a kind of “belts-and-suspenders” addition.
The other amendments (Exhibit E) intend to accommodate those cases where it was clear to the people who bought into a particular area that there was a preexisting commercial transient use. Two of them come to mind; I will only use examples. In Summerlin, for instance, and all areas where there are Del Webb properties, their marketing principally involves renting transient units to people from out of town who want to try them out before they buy. They start the developments in that manner; anybody who bought there knew it was going to happen. It is a very limited number; they usually have six available out of thousands of units. Of course, they want to be able to continue that practice and they are properly zoned and licensed to do that.
We have a situation at Lake Las Vegas where we have a hotel that is, in fact, a part of the master association itself. Again, it would be apparent to people purchasing property that they were buying into an area with a hotel in it. Those are the two situations that we cover in these amendments. I would be happy to answer any questions you might have.
Vice Chairman Oceguera:
Any questions for Mr. Ashleman on the amendments? There are none. Apparently you made it crystal clear.
In favor of A.B. 319? I have Mr. Trudell of the Caughlin Ranch Homeowners Association; do you wish to speak? [No.] Also, I have Judge Nancy Saitta, no? Is there anyone in Las Vegas or Carson City wishing to speak on A.B. 319? Any questions on A.B. 319 from the Committee?
Assemblyman Claborn:
How would this be enforced? Can anyone answer that?
Renny Ashleman:
[There are] two ways. One, obviously, when you violate the local ordinances, the local authorities can enforce those. In addition, if necessary, the user-owner would be subject to the usual notice and fining provisions that exist in these associations. Those would be the two principal methods. There have been, in some cases, injunctions sought, if necessary. You have all the usual court remedies, plus the other two.
Vice Chairman Oceguera:
There being no more questions on A.B. 319, we will close the hearing on A.B. 319. If the Committee has a notion or an appetite to move this bill, I certainly think we could move it.
ASSEMBLYMAN HORNE MOVED TO AMEND AND DO PASS A.B. 319.
ASSEMBLYMAN CONKLIN SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Chairman Anderson:
Assemblyman Beers, I wish you a similar fate.
Assembly Bill 376: Makes various changes to provisions governing common-interest communities. (BDR 10-10)
Assemblyman Bob Beers, District No. 4, Clark County:
[Introduced himself] I am bringing you A.B. 376, which has the sponsorship of myself, Assemblyman Mabey, and Senators Nolan and Rawson; the four of us are the representatives for Sun City in northwest Las Vegas. Three or four years ago, Sun City became the first of Nevada’s large master planned communities to lose the developer; they sold the last lot, moved away, and turned the common area operation over to a 100 percent residential member board. In the wake of that several year process of recovery, the board came up with some changes they would like to see made in the law specifically for them. Understanding that the law was written for the developers when it was first written, and it has been massaged over the years, once the developer pulls out and it’s just the residents, the fundamental premise has changed and the current law does not accommodate their needs.
There are three things that this bill seeks to do. The impact is confined to what we are describing in new language pertaining to an association that consists of more than 7,000 units in which the declarant does not possess any development rights in that community any more. That’s trying to capture those large associations where the developer has left.
The first change that we are seeking to make is that in order for them [resident board] to change any of their founding documents, they need 66 percent of a 100 percent quorum in agreement; they have to have two-thirds of 100 percent of the residents in agreement. The best they have ever done is a turnout of just over 60 percent, 64 percent for their 2002 board election. Even if they were to have 100 percent of the people who turned out agree on the change, which is a highly unlikely scenario, they would not have been able to change any of their founding documents.
What we seek to do with this legislation is to make it illegal to require a quorum of more than 50 percent in the governing documents for organizations that are very large, where the developer is gone, and they are self-governing. The extreme nature of that quorum required to change those documents probably was a responsible thing when the developer was active in the community and selling lots. In that phase of the community, the association, in many respects, is nothing more than a marketing arm for the master plan developer.
The second thing that we seek to change is a similar requirement on ratification of the budget. There is language in NRS Chapter 116 stipulating how budgets can be ratified or not ratified.
The third requirement is that the Sun City board would like to see their issues regarding noticing their meetings made somewhat easier by not having to mail out agendas for “special meetings,” which are non-scheduled meetings of the board of directors.
That’s the basics. Now if I could draw your attention to the amendments (Exhibit F) which have been passed out. The first part is an amendment to Section 1. Again, the first goal is to make it illegal to have a greater than 50 percent quorum requirement on a vote for the HOA.
The second section deals with the budget issue. There is strong agreement on the concept but not in the execution. Currently, the Legislature meets for four months and we pass a budget. The voters do not get an opportunity to ratify or reject the budget. If the voters don’t like the budget that we prepare, they vote against us as individual legislators at the next election. What this second amendment attempts to do is, for very large associations in which the developer is gone, essentially remove the provision that allows for ratification or non-ratification of the budget.
As this section of law reads currently, they have to get over 5,000 of their members together in a room for a meeting in order to not ratify the budget. There is no room there capable of holding 5,000 people. In fact, what has actually happened is that the board has had to schedule and hold a sham meeting in order to comply with the current provisions. The proposed changes would eliminate the requirement that they hold this sham meeting. In my opinion, the section of the law leads residents of these master planned communities into thinking that “I can get these guys and not ratify their budget.” But, in fact, the standard laid out is thoroughly impractical; you can’t get that many people together in one place and make it happen. We will eliminate the sham meeting and the false promise of hope for residents of very large HOAs with the second amendment.
The third amendment changes the “and” to an “or” on page 4, line 6 [of the bill]. The HOAs have evolved to the point where they have three kinds of meetings, rather than the two kinds indicated in this section of the law: a board of directors’ meeting and occasionally emergency meetings. In fact, very large HOAs have a number of committees and subcommittees and the board has what they call regularly scheduled meetings. Those meetings are noticed in the monthly newspaper from the HOA that goes to all residents. And they have emergency meetings, which are described and contemplated in law. But they have a third category called “special” meetings. At this meeting of the board, they would like to be able to take action but it’s not scheduled far enough in advance to make the publication deadline for their newspaper and they don’t want to have to mail out the notice of the meetings to 8,000 units at 39 cents each.
So those are the amendments that the Sun City folks have proposed. Just as I sat down, I was notified that we would hear some opposition to this legislation from the Hughes Group. It may be that the amendments may resolve some of their difficulties.
Chairman Anderson:
The Chair only has one question. Some of these associations have people who are not in residence all the time; that’s one of the great opportunities of living in one of these common-interest communities. One of the protections that they anticipate is the stability and the difficulty of changing the rules. By lowering it [the quorum] to this relatively low level, are you not endangering what they consider to be one of the great advantages of having a stable government pertaining to the budget question and changing the rules of the association?
Assemblyman Beers:
The 20 percent quorum level, that’s low, but the Sun City group is currently proposing that we amend that up to 50 percent. This organization is larger than all but seven or eight cities in the state of Nevada. As a government entity, currently, they have an impossible threshold; they cannot change their governing documents. That [concept] runs counter to governments in America from our outset. We have always had a high threshold of difficulty to change our founding documents, but we have done that many times over the course of our country’s history. Making that comparison and in that context, I don’t think that this is unreasonable. Fifty percent quorum? If there were a 50 percent quorum requirement, none of us would be sitting here; I daresay not one member of this body saw 50 percent of eligible voters vote in their district last November.
Chairman Anderson:
Correct.
Assemblyman Beers:
It is still a high threshold. If it were up to me, because I do consider these cities, I would eliminate a quorum requirement altogether. Do I think that it’s unreasonable that a master-planned community could have a majority of the people at a noticed annual election? I don’t have a problem with that.
Chairman Anderson:
Of course, we are required to have a super majority in order to change or approve the budget here in the Legislature. That’s one of our protections, for that very reason, to require that higher number.
Assemblyman Beers:
And a quorum as well. Again, we are not addressing, in this section, the percentage that the governing documents require of those voting to make a decision. We are only addressing the percentage of eligible voters that must vote before a decision can be made. To put it in the parliamentary rules of our small body, we are talking about changing the quorum requirement, not the 50 percent versus two-thirds requirement.
Chairman Anderson:
Any other questions for Assemblyman Beers?
Assemblyman Carpenter:
How does this—or does it fit in with the situation of the Open Meeting Law? Are they subject to that or not?
Assemblyman Beers:
The only piece of this legislation that addresses the Open Meeting Law is on page 4 [of the bill], for which the proper legislative solution may be the definition of a third type of meeting and its special treatment. In the meantime, they are requesting that they can comply with the notice requirements of their non-regularly scheduled board meetings by posting the meeting notice on the bulletin board. That’s the only provision that addresses the Open Meeting Law concept. I don’t know, to tell you the truth, whether HOAs, as a matter of law, are subject to the Open Meeting Law requirements.
Chairman Anderson:
Did you have anybody else speaking in support of your legislation?
Assemblyman Beers:
We have some folks in Las Vegas who are interested in speaking to this legislation.
Frank T. Beers III, PE Retired, resident of Sun City:
[Introduced himself (father of Assemblyman Bob Beers) and submitted Exhibit G.] I want to support Bob’s legislation. I have a few numbers for you:
We will never get two-thirds of the Sun City registrants out at one time. Also 13 percent of them don’t live in Sun City; they either own the residence as a business venture or they use it as a part-time base camp in Las Vegas.
Chairman Anderson:
Let me observe that there is no community in the state of Nevada that wouldn’t envy having a 61 percent voter turnout. In fact, we jump for joy when we even see a precinct that has a 61 percent voter turnout. I think it is to be commended that Sun City has accomplished that.
Dr. Bernard Bronstein, resident of Sun City and member of the Board of Directors:
[Introduced himself.] I would like to make a few comments regarding NRS 116.2017, which is the quorum provision. First, we try to do everything we can to encourage as large a voter turnout as possible. We use self-addressed, prepaid envelopes to return all ballots on all major issues. They mark their ballot “no” if they don’t like something or “yes” if they do like it, put the ballot in the envelope, and put it into the mailbox for pickup. In spite of that, our history over the last six years since the developer left is a vote of 52 percent to 54 percent. The 60-odd percent that Assemblyman Beers just mentioned happened one year, but normally it is 52 to 54 percent. This makes it absolutely impossible for us to amend anything in our Covenants, Conditions, and Restrictions (CC&Rs), which were totally inherited from the developer and in which we, as an HOA, never had any input.
Although the purpose of NRS Chapter 116 is to enfranchise homeowners in these associations, in a large one like ours, we are actually being disenfranchised by the fact that 40 to 45 percent of people never vote. That means that apathetic non-votes get counted as “no” votes and nullify the majority will of those people in the community who are here all the time and are interested in what is going on in the community; it nullifies their “yes” votes, making the entire vote invalid because we can’t reach the requirement. A 50 percent quorum is very reasonable; it is a median between the 100 percent quorum, which is the current situation and is totally impossible, and no quorum, which would be the entire opposite extreme that is too loose.
For a community of 7,000 units or more, out of developer control, a 50 percent quorum is reasonable and the governing documents can establish any voter percentage once the quorum is met to change the CC&Rs. Currently our governing documents require two-thirds, so if we have two-thirds of the 50 percent quorum, that would be reasonable; two-thirds of a 100 percent quorum is totally impossible. We urge you to approve this amendment so that the 50 to 60 percent of people who do take the time to vote are not disenfranchised by those that are either apathetic, uninterested, or just not available to vote.
Sheldon Factor, Senior Vice President of the Sun City Homeowners Association:
[Introduced himself.] I have been on the board for five years. We have an untenable situation in reference to the budget. The board passes a budget every year and then submits it to the residents, but as was stated by Assemblyman Beers, it is a sham meeting. Two years ago, we had approximately 300 people at a meeting; we could not fit another person into the room, it was the maximum we could get in there. [The vote] was 297 against the budget and 3 in favor of the budget; the budget passed, because you can never get the required amount of people in any facility. Therefore, we would like to at least have some input. The board sits in front of hundreds of residents who believe they have input, but they don’t. We look like we have “egg on our faces” because we can’t do a darn thing. That’s why that section pertaining to the budget, in my opinion, is very important.
Glenn Hayward, President of the Sun City Homeowners Association:
[Introduced himself.] I would like to deal with the matter of notice for meetings. Nevada Revised Statutes 116 dictates that we have four meetings a year for an association. Our particular association has two regularly scheduled meetings every month. We also hold emergency meetings, which NRS Chapter 116 addresses. Then we have special meetings that are called to conduct the business of the association on an ongoing basis. These sometimes arrive at a point where it is impossible to give the required 10-day notice and to mail an agenda to all the residents would cost us $15,000 a month to give notice in that manner. We post all of our regularly scheduled meetings in our monthly newsletter well in advance of the meetings. We also place notices on the bulletin boards. There are four recreation buildings within Sun City; they are used extensively until 10 p.m. in the evening. The bulletin boards are there; they are well utilized. We propose to have the statute amended so that we can give notice of all of our meetings through our monthly newsletter and through posting on the bulletin boards. We also have a computer chat line where we post all our notices. In an association of our size, the cost of mailing is “out of the realm of possibility.” The change would allow us to post all of our meetings on the bulletin boards as legal notice to the residents.
Assemblyman Sherer:
I have a comment. Assembly Bill 409 proposes changes relating to public bodies authorizing use of electronic mail. That will help you out and save you money. It was just passed out of the Assembly Committee on Government Affairs.
Chairman Anderson:
Is there anyone else in Clark County who wishes to speak on A.B. 376 that has not had an opportunity to bring forth an issue relative to the question of the bill? Let me move to those people who have concerns, who are neutral or against.
Karen Dennison, Attorney, Hale Lane Peek Dennison and Howard, representing Lake Las Vegas Joint Venture:
[Introduced herself.] You have before you my amendment (Exhibit H), which I consider to be a friendly, technical amendment. Today, you have been addressing amendments to declarations. I am not here to speak for or against the proposal by Assemblyman Beers regarding quorums, but the problem that I see with the law is that we already have two statutes that govern amendments to maps; those are NRS Chapter 278 and NRS Chapter 117. Those statutes do not require a vote of owners to amend maps. If you keep the law the way it is, there could be a conflict by requiring a vote of owners to amend maps. The only people who have to sign map amendments are the owners of the properties themselves. For this reason I am proposing my amendment.
Chairman Anderson:
Your amendment is really to address a problem in the existing statute? [Ms. Dennison replied in the affirmative.] It is not to amend what Assemblyman Beers is proposing? Sort of a residual effect from when quorums were controlled? Questions from the Committee?
Pamela Scott, PCAM, Senior Property Manager, Community Association Management, The Howard Hughes Corporation, Summerlin:
[Introduced herself and submitted Exhibit I.] I am also here on behalf of myself, a resident of Sun City, Summerlin. I have some real concerns with the amendments that Assemblyman Beers has proposed, or with this bill. I have not actually seen the amendments that he handed out this morning, only heard his testimony. First, I will say that I do support Ms. Dennison’s amendment to the bill. I think that A.B. 376 could have a lot of repercussions on associations, large and small.
There is a lot of confusion when we talk about the different documents. Associations have declarations; it’s like our [United States] Constitution, that addresses land use plans, voting rights, and mortgagee rights. We also have bylaws that address quorum requirements, how your boards conduct their meetings, and whether they can make rules and regulations that don’t require the vote of homeowners, for boards do have that power. The declaration in Sun City was recorded in 1989. To my knowledge it has never been amended because I don’t think we have ever had a vote on that. I have lived in Sun City, Summerlin, for 12 years. The bylaws have been amended and I believe the bylaws require only about 200 affirmative votes of the membership in order to amend them. The bylaws address how the board meets as well as the rules and regulations of the board.
The CC&Rs declaration is a different document. Certainly, I am glad to hear that Assemblyman Beers wants to raise that number to a majority. I believe the law currently reads that declarants must put a majority into any documents that they write. A lot of declarants specify 67 percent and, in fact, the Sun City document currently says 67 percent. One of my confusions on this bill is whether or not, if this was passed, it is retroactive. If it’s not retroactive, it’s not going to help Sun City because there is 67 percent. It is in their declaration and it would take an amendment of the declaration, for example, a 67 percent vote to change that. As a year-round resident of Sun City, I am not a snowbird, I like the 67 percent, I rely on that 67 percent, and I bought into certain conditions when I bought into Summerlin. I am a third generation of my family to live in a Del Webb Sun City; I knew what I was buying. I like knowing that failing to vote is not a “yes” vote. If we change the percent of votes that is needed to amend the CC&Rs, a failure to vote does become a “yes” vote in many cases.
I will speak now from a developer’s standpoint. A lot of thought goes into these documents, as I know that you know. The Summerlin master-planned communities do not include Sun City Summerlin, which is on the border of Summerlin and has used that name, but is not a part of the Summerlin master associations, of which there are three. One of those Summerlin master associations is totally homeowner controlled now and two of them are still under declarant control.
The Howard Hughes Corporation has produced a product, so to speak; Summerlin is well-known throughout the whole United States and, as we keep telling people in our ads, is the best selling master-planned community in the United States. People have a certain perception. We require 67 percent to amend the documents, as well. As a developer, I would not like to think that the homeowners in Summerlin North could make major changes to the way the Summerlin North HOA operates to make it vastly different from Summerlin South or Summerlin West, where we are still developing and building. From a declarant’s standpoint, that is why the larger percentage goes in.
It comes down to homeowner rights. We like knowing it takes a super majority to amend. I can live with the majority rules; that’s one of the tenets of democracy—majority rules. It takes more than the majority to amend The Constitution of the State of Nevada or to amend The United States Constitution, but I certainly can live with that for an HOA constitution.
Again, the declaration is different than the bylaws. If you could amend the property that is subject to the declaration land classification, the easement rights, the age restrictions, use restrictions, voting rights, and assessment increases beyond what is allowed in the document, then certainly mortgagee rights could be changed. I would think that you would want to make sure you were in compliance with Fannie Mae, Freddie Mac, the VA, and all secondary lending markets as well. Those are my concerns about Section 1.
I don’t have as many concerns about Section 2. Basically, homeowners do not ratify their budgets; they reject them. Yes, it takes a very large percentage to reject a budget, but as one of the testifiers pointed out, when the state passes a budget, the only way we can reject it is next time to not vote for the persons who passed it. Homeowners do have that ability. I will point out that you don’t have to have everybody in the room except for the election of the board of directors. Elections of HOAs can also be held with a proxy vote, a piece of paper saying “yes” or “no” is also satisfactory.
Then we get to the meeting notice posting. I could have supported Section 3 prior to the amendment. I was confused by it because it was making it more restrictive, saying you had to post it on the bulletin board as well as mail it out. Right now, I think they gave a good representation of how we are noticed of our meetings in Sun City; it’s the same way in Summerlin. We are posting those meetings in our newsletters. There is a six-week turnaround to get that information in the newsletter; they are regularly scheduled so it’s not usually very difficult.
Emergency situations are different and the law already allows you to post an emergency meeting on a bulletin board. The law is quite clear as to what an emergency constitutes; I don’t have the wording in front of me but it is fairly restrictive. I think the intent, when those provisions were passed in the 1999 Legislative Session, was that you couldn’t just decide that you needed to hold a special meeting, put a note on a bulletin board, and expect almost 8,000 homes to know that you are going to hold a special meeting because you put it on a bulletin board. I have lived in Sun City for 12 years and the only times I was in a community center was to pick up my newsletter when it wasn’t mailed or delivered to the house. I am not retired and I still do work. I would consider that truly inadequate notice and not homeowner-friendly to post a special meeting notice that you could hold at any time.
Chairman Anderson:
Ms. Scott, would you be willing to work with Assemblyman Beers to find some common ground and review his amendments? [Ms. Scott replied in the affirmative.]
Anyone else speaking in opposition to A.B. 376? Let’s bring A.B. 376 back to the Committee and indicate to Assemblyman Beers that maybe you could spend a few minutes talking with Ms. Scott and reviewing Ms. Dennison’s suggestion, which doesn’t pose any great problems. Let’s see if we can find some common ground and put this into next week’s agenda.
The Chair had intended to move to the third bill, but I don’t see the Attorney General. Let’s take a two-minute break.
The Assembly Committee on Judiciary will come back to order. I have a document that I would like distributed (Exhibit J). This is an amendment on A.B. 336 that is about to be taken to the Assembly Floor that has been delivered to me by the Legal Division.
Assembly Bill 336: Revises provisions regarding notification of certain victims of crime if defendant is released before or during trial. (BDR 14-1186)
I had indicated to the Committee that I would have the bill distributed for review, before it was taken to the Assembly Floor, to see if it met our requirements. Ms. Lang has drafted this language to clarify the use of “by telephone through an automated or computerized system of notification, if such a system is available.” For A.B. 336, an Amend and Do Pass motion was made by Ms. Buckley and Mr. Conklin on Assemblyman Manendo’s bill regarding notification of certain victims of crime if the defendant is released before or during trial. There was some ambiguity as to how this amendment would fit in the Legislature. Questions from members of the Committee?
Risa Lang, Committee Counsel:
During the hearing, concerns were raised that if the request was made by telephone it had to be made to the automated system that would provide identification. This is saying that you can do it by telephone through an automated system if the automated system is available, meaning you would pick up the phone, make the request through the system, and the system would be responsible for reporting back and making notification.
Chairman Anderson:
Mr. Geddes liked the bill originally, he didn’t have the confusion that I had with the bill. Other questions from members of the Committee? With that, I will accept the amendment, sign it, and have it reported to the Assembly Floor.
We are waiting for the Attorney General. Let’s turn to the last bill of the day, Assembly Bill 460.
Assembly Bill 460: Makes various changes regarding manufacture, sale and use of tobacco products. (BDR 15-1283)
Being distributed to you this morning is some material; I don’t think it is yours to keep. We had requested this piece of legislation because of the problems relative to counterfeit cigarettes being sold throughout the nation. It is a growing area of concern raised by the Office of the Attorney General. I don’t want to spend a great deal of time with it other than we need to capture all the state revenues that we possibly can relative to tobacco. We appreciate the support to the Millennium Scholarship from tobacco money. Sometimes I think we forget that the settlement is an important element here in Nevada in terms of providing Millennium Scholarships and funding other health care problems, as well as the additional tax revenues that are received.
Sam McMullen, representing Philip Morris U.S.A.:
[Introduced himself and Jack Holleran.] Mr. Holleran has a strong track record of understanding the issues of counterfeiting, contraband, smuggling, and from your point of view, protecting the fiscal state of Nevada. I will turn it over to him to explain what we are seeing as part of the problem around the United States, and how Nevada is confronting that problem now and in the future.
Jack Holleran, Vice President of Brand Integrity, Philip Morris U.S.A.:
[Introduced himself and submitted Exhibit K, Exhibit L, Exhibit M, and Exhibit N.] Philip Morris U.S.A. is the nation’s largest tobacco company, based in Richmond, Virginia. Thank you for giving me the opportunity to come here today and present our views in support of Assembly Bill 460. I have come here today from Virginia because “contraband cigarettes,” which is an umbrella term that we use to describe various types of illegal activity related to cigarettes, is a growing problem in this country and a growing problem for our business that we take very seriously.
This legislation offers the state of Nevada an important opportunity to take a leadership role in helping to disrupt, reduce, and eventually eliminate illegal activities related to cigarette sales. In addition, this legislation would further enhance Nevada’s efforts to prevent youth smoking by imposing tough restrictions on Internet sales that are designed to keep kids from having access to cigarettes. My testimony is designed to provide you with some context as to why this bill is necessary, why we support it, and why we believe it is required now. So I am going to talk briefly about the contraband cigarette problem, who it impacts, and why this legislation is a critical part of the solution.
As to the contraband problem, several factors have converged to create an economic opportunity for criminals to get into the cigarette business in this country. Those factors include a weak economy, heightened consumer frugality, and dramatic increases across the country over the past 18 months in state cigarette excise taxes. That confluence of factors has caused smokers across the nation to seek avenues for buying cigarettes at a cheaper price. This purchasing behavior has led to a growing number of unintended consequences, including an increase in illegal contraband cigarette sales as well as an increase in Internet sales that often occur without the proper payment of excise taxes, without effective age verification, and in violation of trademark and other laws.
So, what is contraband? It is an umbrella term we use to describe several different categories of illegal activity:
Let me talk for a moment about each of these categories of illegal activity.
Counterfeit is a growing problem. If you look at publicly available United States Custom’s seizure numbers, comparing counterfeit seizures in 2001 to 2002, the 2001 counterfeit cigarettes were the fifth most seized counterfeit commodity by Customs behind media, apparel, and several others. In 2002, counterfeit cigarettes shot up to number one; it went from number five to number one. The value of counterfeit cigarettes seized in 2001 was $4.5 million; in 2002, it was almost ten times that amount—close to $40 million. Counterfeit cigarettes represented, in 2001, about 8 percent of all the counterfeit items that Customs seized; in 2002, it was almost 38 percent. The problem increased from the U.S. Customs seizure standpoint about tenfold.
We have been able to confirm the availability of counterfeit cigarettes over the Internet, which obviously represents the possibility of nationwide distribution. We have confirmed this in traditional retail outlets and non-traditional retail outlets. We have confirmed it in 8 states at retail and suspect the presence of counterfeit in 20 others. I think it is important to note that we have confirmed the presence of counterfeit at retail in several states that touch on Nevada including California, Arizona, and Oregon, as well as other close-by states including Washington and Texas.
What you have in front of you in the mysterious ziplock bags is a total of four packs of cigarettes, copied on Exhibit L. I would encourage you, if you were interested in taking a look at the packaging, to open the bags and take the packs out. You have two packs of Marlboro Reds and two packs of Marlboro Lights; these are the two most popularly counterfeited brands in this country. One of the packs of Reds is real; the other is fake. One of the packs of Lights is real; the other is fake. The packaging is very similar and it is difficult to the untrained, unaided eye to tell the difference between the two.
Some of the packs that you have may have tax stamps on the bottom of the pack; you might be inclined to look at the tax stamp and conclude that the tax stamp indicates that is the pack of real product. In every case you would be incorrect because more than 95 percent of the counterfeit cigarettes we have seen have counterfeit tax stamps on them as well. So you can start to see the revenue impact for states that have had their tax stamps counterfeited.
The packaging, as I said, is very similar to ours and it is difficult to tell the difference. If anyone wants to know the answer to the question before I even ask it, the packs that have the red dots on them are the genuine packs; the packs with the blue dots on them are the fake ones. But, in any event, I think you can quickly see the difficulty for a consumer, for a retailer, or for a wholesaler, to tell the difference between the two. Counterfeit is a growing problem for our business and in a moment I will talk about some of the other impacts it has.
“Illegal imports” is the second category of illegal activity that is under this contraband umbrella. We have seen a real reemergence of use of “gray market cigarettes” and cigarette sales over the Internet. There are currently over 500 Web sites that are selling cigarettes into the United States today. Last year, the federal government looked at Internet sales to see whether they were being done legally or illegally. The General Accounting Office (GAO), which is Congress’ investigative arm, looked at 147 Web sites that were selling cigarettes at the time; that number has now more than tripled. At that time, the GAO found, in a report distributed in August 2002, that nearly none of those Web sites had health warnings or adequate age verification controls in place to keep kids from getting access to cigarettes over the Internet. Nearly none of those Web sites complied with federal reporting laws about cigarette shipments into other states for revenue collection purposes. In fact, nearly three-quarters of those Web sites affirmatively told consumers that they would not report to the tax authority sales of cigarettes over the Internet. Thus, the Internet is being used largely as a tax-avoidance scheme by those who are selling cigarettes over the Internet. In some instances, it’s also being used to sell cigarettes to children, and without making payments to escrow payments required by all non-participating manufacturers. The Internet is a place where we have seen a reemergence of illegal imports and we have seen an emergence of counterfeit.
Third is smuggled cigarettes, which again is a growing problem. There has been an increase in law enforcement investigations into smuggling. The Bureau of Alcohol, Tobacco and Firearms has twice the investigations open now into smuggling than it did a year ago. There was a case last year where two men were convicted in federal court in Michigan of smuggling the genuine cigarettes from North Carolina, where the tax is a nickel a pack, into Michigan, where the tax is $1.25 a pack, and then diverting the proceeds back to the Hezbolla to fund terrorism. One of the men in that case was sentenced recently to 155 years in prison. There is obviously illegal activity related to smuggling.
That’s the contraband problem in a nutshell. Who does it affect? It is important to note that it’s an illegal activity and it affects more than just Philip Morris U.S.A. and the cigarette companies; it affects everyone, whether or not they are smokers and whether or not they are engaged in the tobacco trade. Like any illegal activity, contraband trafficking hurts society as a whole and certainly here in Nevada. It’s an illegal activity that also affects the federal and state governments from a revenue collection standpoint. The federal excise tax on the sale of a pack of cigarettes is 39 cents. For every pack of counterfeit that is sold that supplants a pack of genuine product, the federal government is not collecting its 39 cents. The state of Nevada, if there is counterfeit sold here, is not collecting its 35 cents. There are, according to government estimates, billions of dollars in tax revenue that are being lost because of counterfeit or contraband sales.
There is a further problem for the states related to the tobacco Master Settlement Agreement (MSA) that our company and your state signed in 1998. It has certain volume adjustments in it so that our payments can be adjusted downward if the volumes drop. Therefore, for every pack of counterfeit cigarettes, counterfeit Marlboro cigarettes, that is being sold, it results in a one-for-one pack reduction in the volume that we sell. Consequently, there is an obvious and potential impact on the MSA payments here in Nevada and elsewhere.
Contraband activity also affects law-abiding retailers and wholesalers who are suffering from lost sales and trying to compete against people who are breaking the law. It also affects and undermines the economic investment that they have made in the legitimate cigarette distribution network in this country. Contraband cigarettes affect smokers who are not getting the high quality product that they expect and are getting products that raise potential quality issues and health issues, as I alluded to [previously]. Clearly, contraband does affect Philip Morris U.S.A., but one of the points I wanted to leave you with is that it’s not a tobacco company problem; it’s a problem for society, governments, other law-abiding businesses like retailers and wholesalers, and for smokers.
It is an issue we take very seriously. What are we doing about it? It’s illegal activity, so we are working closely with law enforcement at the federal and state level to address it, and to support their efforts to enforce the laws that are already on the books. We are taking advantage of the laws that give us legal rights such as the trademark laws. We have filed lawsuits against 414 retailers whom we have found selling counterfeit nationwide. We are filing lawsuits against wholesalers and Internet operators. What we have found from a law enforcement perspective is that the existing laws that address contraband need to be toughened, need to be strengthened, need to give law enforcement greater tools to address contraband, and need to raise the penalties for trafficking in contraband in order to raise the risk profile for criminals who might be inclined to get into this cigarette business.
That is the long way of telling you that we are pleased to support A.B. 460. I would like to commend Chairman Anderson for his leadership on this bill. The bill, in my judgment, provides much better and very strong tools for law enforcement in Nevada to crack down on such illegal activity. It includes tough provisions to reduce the chance that kids are going to have access to cigarettes over the Internet. It contains tough provisions to make sure that the state of Nevada collects the 35 cents a pack that it’s rightfully entitled to collect on every pack of cigarettes sold to a consumer in Nevada. It is a very strong piece of legislation. I have been testifying in state houses from Virginia to North Dakota to New Hampshire and in other places as well. This is among the strongest, the toughest, and the most comprehensive piece of state legislation that we have seen so far. I am very pleased to support it and as time permits I would be glad to answer any questions.
Assemblyman Carpenter:
Would this proposed law tax Internet sales or not?
Jack Holleran:
What the proposed bill would require is that any sales of cigarettes made over the Internet must be tax paid. Mr. Albrecht from the Office of the Attorney General is prepared to go through the provisions of the bill in full detail; we also have a digest. But the answer is, yes, they would be taxed; they would be required to be tax paid so that Nevada collects all taxes on any sales into Nevada.
Chairman Anderson:
Let me respond to Mr. Carpenter also. You may not be aware of this, but Nevada is one of the states that has entered into the agreement relative to Internet sales taxing. Assemblyman Goldwater led that legislation in the last session and the Assembly Committee on Taxation has tried to update that piece [of legislation].
Assemblyman Horne:
I am not sure if I have a question. I am concerned about Section 5 of the bill.
Chairman Anderson:
We are going to go through the bill. I think Mr. Holleran is here to provide an overview.
Sam McMullen:
We are happy to stand by and answer questions, but the Attorney General is here.
Chairman Anderson:
Mr. Attorney General, good morning; it’s always a pleasure to see you back at the Committee.
Brian Sandoval, Attorney General, Office of the Attorney General:
It is a pleasure to see you and my sincere apologies; I flew 500 miles to testify before you this morning. If appropriate, I would be happy to lend my support and give my comments regarding the legislation today. First and foremost, I would like to congratulate you on this meritorious piece of legislation and the strength that you have put into this measure. On behalf of the Office of the Attorney General I would like to lend my strong support to Assembly Bill 460 with the clarifying amendments. Three reasons exist for passing this bill:
Testimony today will show that Nevada receives significant tax revenues from cigarettes. In addition, Nevada receives 58 cents per pack from cigarettes sold by manufacturers that have signed the tobacco Master Settlement Agreement (MSA). If a manufacturer declines to sign the MSA, it must pay 35 cents per pack into an escrow account, which Nevada may later sue for. These payments create an incentive for some individuals to counterfeit cigarettes, excise tax stamps, or both, and sell cheap cigarettes. Purchasers of these cheap cigarettes avoid these payments resulting in reduced revenues in Nevada.
Next, testimony will reveal that cheap cigarettes hurt our children and all Nevadans. You will hear from the testimony today that some people fabricate the cigarettes of well-known manufacturers and, again, sell them at a low price. Underage children find these cigarettes easier to purchase. As a result, they may start smoking when they otherwise would not smoke because of the high cost, or they may smoke more and are more likely to become regular smokers. Similarly, adult smokers may substitute cheap imitation cigarettes. Again, these adults would likely smoke less if the price of the pack incorporated all of the taxes and MSA payments.
Finally, testimony today will show that organized criminal and possibly terrorist groups are becoming involved in the trafficking of cigarettes. The profits are diverted to criminal uses, which are much worse than what we perceive as simply loss of revenue to the state.
For all these reasons I urge you to support and pass Assembly Bill 460 with the proposed amendments as stated by Mr. Holleran. Mr. John Albrecht from the Office of the Attorney General will be taking the Committee through the bill itself.
Chairman Anderson:
Any questions for Attorney General Sandoval?
Assemblyman Mabey:
This question may not deal directly with the bill, but I am curious about the problem in Illinois regarding the lawsuit over the tobacco settlement; how is that affecting Nevada?
Brian Sandoval:
Mr. Albrecht has informed me of the consequences of that. The Office of the Attorney General has taken a very serious approach to that because it does have a strong effect on the state of Nevada. We are going to be joining in an amicus brief to urge the court to provide benefits or relief to the state of Nevada. We are also sending a letter, joining all the Attorneys General from across the country, to Philip Morris regarding terms of the payment amount due on April 15, 2003. Mr. Albrecht will be able to provide details.
Chairman Anderson:
Mr. Holleran can answer some questions on that if necessary. We were attempting to get to the bill.
Assemblywoman Angle:
I have one question for the Attorney General on enforcement. The Internet does not seem like a real place to try to collect taxes or enforce anything. I was wondering how that is going to work or if it will work.
Brian Sandoval:
This is not a new issue; this has been accomplished, as Mr. Holleran stated, in other states. He may be the better person or in a better position to respond regarding how this has been accomplished in other states. We have set up a mechanism within the Office where investigators and specific additional Deputies Attorney General handle those issues.
Chairman Anderson:
Any questions for Mr. Holleran? Mr. McMullen?
John Colledge, Resident Agent, Department of Homeland Security, Bureau of Immigration and Customs Enforcement:
[Introduced himself.] I am honored to appear before you today. Prior to my assignment in Reno, I was the international program manager for international cigarette smuggling at the United States Customs headquarters in Washington, D.C. In that position, I coordinated international cigarette smuggling investigations that involved the United States. I would like to share some of the knowledge I acquired in that position and build upon Mr. Holleran’s testimony.
Contraband cigarette smuggling is almost as lucrative as narcotics smuggling with much lighter penalties. Cigarette smuggling involves highly sophisticated criminal organizations with procurement, transportation, distribution, and money laundering components. In the past 20 years, criminal organizations have reaped billions of dollars in profits from cigarette smuggling. Cigarette smuggling altered legitimate trade patterns and resulted in widespread public corruption at the highest levels in some countries.
In the past several years, an even more disturbing trend began to emerge. International terrorism recognized the potential profits of cigarette smuggling. In Ireland, the real Irish Republican Army (IRA) made millions of dollars from cigarette smuggling. Police and security officials in Ireland and the United Kingdom believed that the IRA profits exceeded their ability to spend that money to buy weapons and explosives.
Last year, as you heard Mr. Holleran address briefly, in North Carolina there was a case that involved interstate smuggling where some of the profits, although a small portion, moved to Lebanon to benefit the Hezbolla terrorist organization.
In the past month, special agents from our agency, working with Minnesota revenue agencies and other law enforcement agencies, served multiple search and arrest warrants in a counterfeit cigarette tax scheme. That scheme resulted in a $2.1 million loss of revenue to the state of Minnesota. The profits of that scheme were smuggled or otherwise transferred to Lebanon. The jury is still out as to whether that has a terrorist link.
Contraband cigarettes, including counterfeit cigarettes, counterfeit tax stamps, and other fraudulent schemes involving tax stamps, pose not only a threat to the lawful rights of this Legislature to levy taxes for the benefits of the citizens of Nevada, but also a potential security threat to the United States. Attorney General Sandoval launched a joint enforcement initiative between state and federal agencies that will protect this important revenue source and combat organized crime and potentially international terrorism.
Just to put this into perspective and bring it back to Nevada, approximately two years ago in Las Vegas, there was an armed robbery of the foreign trade zone in which one container of suspected counterfeit cigarettes was removed at gun point by several individuals. I am not sure of the status of that case; it was being handled by Las Vegas Metropolitan Police Department. But again, these things do occur, can occur, and will likely occur in the future. With that, I will gladly answer any questions that you might have.
Chairman Anderson:
It is always a pleasure to have someone from Virginia with your expertise and background testifying on this particular piece of legislation. Questions for Mr. Colledge?
John Albrecht, Chief Tobacco Counsel, Office of the Attorney General:
[Introduced himself.] I have had distributed a handout (Exhibit O) that summarizes my testimony. We will start with the reporting requirements in Section 10. Basically, the bill sets up a reporting structure. There are approximately 100-plus manufacturers that we would anticipate would be licensed with the Nevada Department of Taxation, and who would report all cigarette sales to wholesale dealers. Wholesale dealers, in turn, would report all cigarette sales to retailers. There would be no reporting by retailers.
On the next page, the idea I am trying to illustrate is that unlicensed entities, someone selling a counterfeit cigarette or real cigarette with a counterfeit stamp, could sell cigarettes into this train of commerce at different points.
On the third page is a summary of how a typical case would work. The idea is to observe the trends in the sales by brand and style that are reported to the Department of Taxation. If there were changes in the trends that were reported—I give you an example of a retail store that for six consecutive months purchased 30 cartons of a legitimate brand of cigarettes every month and then suddenly stopped buying those cigarettes—we would pick that up from this reporting system. That change in trend would be reported to the Office of the Attorney General by the Department of Taxation and then the Office of the Attorney General would have an investigator go to the store to investigate the inventory and records, because there is no reporting required by retailers required under Section 50. If an investigation results in evidence of counterfeit cigarettes being sold, or other violations of the law under this law, the Attorney General could bring criminal or civil action under Sections 34 through 36.
That’s basically the reporting and enforcement structure to try to reduce the number of counterfeit cigarettes, which is broadly defined to include legitimate cigarettes with a counterfeit stamp or, as Mr. Holleran described, an imitation or fabricated cigarette with no stamp or a counterfeit stamp. That’s the basic structure of the enforcement in Sections 10 through 56.
On the next page titled, “Counterfeit Cigarettes,” I summarize again the economic consequences to the state. Counterfeit cigarettes would avoid the state tax of 35 cents a pack or whatever the state Legislature determines that to be. They avoid the federal tax of 39 cents a pack. They avoid the MSA payments of 55 cents or 58 cents per pack. The Attorney General has estimated 40 cents a pack, resulting in from 40 to 55 cents that goes to the tobacco Master Settlement Agreement. That’s how we fund the Millennium Scholarships and other health-related programs such as the Senior Rx Program and the Assisted Living Program for Senior Citizens.
In the alternative to Number 4, a company that did not sign the settlement [agreement] but instead chooses to legitimately escrow payments would pay 35 cents a pack. That’s another economic incentive, to avoid paying either 35 cents or 55 cents a pack, by just trying to sell a counterfeit cigarette.
In addition, there is a possible reduction in the MSA payments through volume adjustment. For every counterfeit cigarette sold of a participating manufacturer, that shows as a volume reduction nationally, and will result in a reduction of the payment to the state of Nevada on a pack-for-pack basis. It is as if that person did not smoke a cigarette, however, they did.
I also want to point out there is another consequence. Under federal law, the manufacturers are required to make an ingredient list posting of their cigarettes. There are no such requirements for a counterfeit company.
Finally, many of you know me for my work on discouraging youth access to tobacco. Higher priced cigarettes will be purchased less often by underage children. If the cigarettes are cheaper, they will be purchased more often. If we allow the counterfeit cigarette problem to go on, we will be undercutting the efforts of not only the Office of the Attorney General that enforces the law to discourage underage smoking, but also all of the efforts of the Task Force for a Fund for Healthy Nevada that discourages underage smoking. All of those efforts will be undercut by less expensive cigarettes.
I can go on to other sections of the bill or we can work on this part of the bill, whichever you want to do. Should I go on to more? That’s really the reporting counterfeit section of the bill.
Chairman Anderson:
Questions on the reporting element of the bill? I don’t believe there is any ambiguity there. You may move ahead.
John Albrecht:
Sections 57 through 72 of A.B. 460 have nothing to do with reporting; let me explain that before I get myself in trouble. Nevada Revised Statutes 370A is the chapter of Nevada law required by the MSA in order for a state to avoid reduction in MSA payments. We have to have NRS Chapter 370A. It requires tobacco manufacturers that don’t sign the MSA to deposit 1.5 cents per cigarette into an escrow account for every cigarette they sell within the state. That’s all it does; it says you don’t have to sign the MSA, but you have to make this deposit. The escrow account may be used at a later time to pay health care related judgments or settlements if the state of Nevada brings a civil action against those companies.
The payment under the current NRS Chapter 370A is due on April 15 in the year after the sales occurred. The companies that sold cigarettes in Nevada in the year 2002 have yet to be required to make their escrow deposit; it’s due when our federal taxes are due. The whole idea of NRS Chapter 370A is to reduce the economic advantage of not signing the MSA. The companies that didn’t sign the MSA don’t make payments, but instead make escrow deposits.
Now I have set the stage for Sections 57 through 72, which strengthens our current NRS Chapter 370A. It requires, among other things:
· The NPMs (non-participating manufacturers) to certify all their brands and establish an escrow account for past sales.
· An NPM must appoint a registered agent for service of process in Nevada. For example, there is a Greek company called CCAP, that sold cigarettes in Nevada in 2001 and 2002. I can’t stop them because they say they will make their escrow payment at a later date, the year after the sales. CCAP has not set up any escrow accounts. I am suing them now, however, they are in Greece; it’s costing us $1,000 merely to serve them, not to win, not to litigate, but merely to hand them the papers. This law would require that manufacturers that sell cigarettes within Nevada must have a registered agent for service of process to save us the $1,000. I anticipate, we won’t get the $1,000 back. The best we are going to do is stop CCAP from ever selling in Nevada again.
· It prohibits placing cigarette stamps on any non-certified brand. A company must set up an escrow for past sales, set up an escrow for future sales, and disclose its list of brands. This allows the Department of Taxation to keep an Internet site, which would allow a wholesale dealer or any stamping agent to go to that Internet site and check if that brand may be stamped in Nevada.
· The statute also requires the Department of Taxation to require quarterly payments into the escrow account rather than one annual payment after the year is over.
These are just some of the ways A.B. 460 strengthens NRS Chapter 370A. Any questions on strengthening NRS Chapter 370A for Sections 57 through 72?
Assemblyman Horne:
On the quarterly escrow payments, is this a state or federal agreement? Can Nevada alter that to make it quarterly?
John Albrecht:
This has nothing to do with federal law; this is pure state law. The 46 states and 6 jurisdictions signed their own agreements with the [tobacco] companies. Nevada agreed that the participating manufacturers that signed the MSA would establish escrow accounts so that if they sell cigarettes within the state of Nevada, for the year 2003, the manufacturer would deposit 1.5 cents for every cigarette sold. The law was passed that required them to make that deposit; it’s not an agreement. We wouldn’t change the past agreements; based on the effective date of this law, it would be discretionary within the Department of Taxation’s authority as to whether quarterly escrow payments would be required. I would anticipate that quarterly escrow payments wouldn’t start until the end of this year, even if you passed this law. It would be prospective only, not retroactive.
Assemblyman Horne:
So those that are currently making yearly deposits, would they remain yearly if we pass this? Or would they change to quarterly deposits?
John Albrecht:
It would change to quarterly, but there would be nothing wrong with the past account. It would still sit as it is.
Assemblyman Carpenter:
Page 13, Section 34, says you can take all the fixtures, equipment, materials, and personal property on the premises; can you do that without a court order?
John Albrecht:
I believe we would have to have due process provided and there would have to be a civil action against the store. That is going back to Sections 10 through 56, which I am happy to do. A civil action would be required by the law enforcement authority, not just a seizure at the time. I also want to point out to the Committee, Section 34 was of concern to me as well. However, if you look at Section 34, it requires a standard of proof that the dealer did these acts “with intent to defraud the state.” That would be a high standard of proof. It would not just be somebody who purchased cigarettes “accidentally.” In any event, it is a high standard of proof with intent to defraud the state. That’s where the penalty provision comes in.
Assemblyman Carpenter:
We really have to have due process on something like this. If you say it’s in there, I don’t see it, but if it’s in there, I’ll take your word for it.
John Albrecht:
We would interpret that into the law. We also anticipate providing a great deal of public information to all retailers about this law. Retailers will have access to an Internet site where all licensed wholesale dealers will be listed, so they would be able to, if someone came to them with less expensive cigarettes, go on the Internet, check the site, verify if that person was a licensed wholesale dealer.
Assemblyman Carpenter:
Right now, as I understand it, the companies are going around and are offering cigarettes at a much cheaper price than they used to be and saying they are taking that price right off the invoice that we receive from the wholesaler. It always worries me when they do those things, whether they are legal or not. Before I used to tell them, “get lost,” because I did not want to be selling cheaper cigarettes. But if every store in town other than mine has cheap cigarettes, I lose my customers. I am wondering about those situations that are now going on and why they can reduce the price of those cigarettes substantially, half, maybe a third.
Sam McMullen:
If I am correct in understanding the question, there are programs where reductions in the price of cigarettes are given but they are done as a matter of contract between the store and the manufacturer through its distribution mechanisms. They relate to such things as premium shelving space, where you display the cigarettes; it’s all very correct and legitimate. This, for example, is a mechanism by which we as a company have “put money where our mouth is” in terms of giving a reduction in the per pack price to the store if they comply with the MSA, for example, taking on the burden of those issues, reducing signage, and/or complying with anti-teen provisions. Then for every pack they sell, they get additional discounts. So those discounts are offered to every store in the state of Nevada; there is no exclusivity, those should be entirely legal.
Assemblyman Carpenter:
I just want to make sure that what we are being enticed into is legal. As I understand it, you don’t have to have any certain display. I am a cowboy, not a smoker; I deal in hay, not cigarettes. We really need to be careful of how these things are handled.
Chairman Anderson:
Let me clarify that. In the bill at line 13-37 (Exhibit O), you will find a reference to NRS 179.1156 through NRS 179.119. I pulled the NRS, specifically NRS 179.1165, which says among those things:
1. Except as provided in subsection 2, property that is subject to forfeiture may only be seized by a law enforcement agency upon process issued by a magistrate having jurisdiction over the property.
2. A seizure of property may be made by a law enforcement agency without process if:
(a) The seizure is incident to:
(1) An arrest;
(2) A search pursuant to a search warrant; or
(3) An inspection pursuant to a warrant for an administrative inspection.
That section of the NRS outlines procedurally how those have to be done, and we have already covered that to ensure that due process does take place.
Sam McMullen:
That is the whole point of this bill; there is a very legitimate chain of distribution and if you stay within that there should be no problem. There are licenses for all the correct people. To the extent that there may be market-driven or promotional discounts, that would be different, but that would be handled through the right chain. If you stay within the chain, everything should be OK and this will give us the tool to go against those that go outside the chain or try to do things without the proper stamps or other indicia.
John Albrecht:
If there are no more questions on Sections 57 through 72, I am on the page titled “Amendment to NRS 370A” (Exhibit O). Generally, the states do not want to amend the Model Act, which is included in the text of the MSA. One of my proposals to Sections 56 through 72 is to create a new chapter of NRS at 370B. And, of course, every rule has an exception and that exception is that those who signed the MSA have agreed that you can amend NRS 370A.150 to eliminate what is called the “allocable share release.”
Going back to those escrow accounts I talked about and remembering a non-participating manufacturer company makes the deposit of 1.5 cents a cigarette under the current text of our Model Act, that same company can come back to Nevada after they have made the deposit and say, “If we had signed the MSA, we would have paid Nevada less than what we deposited into your escrow account. So what we want to do is withdraw the money above that.” This was an unintended consequence in the MSA. What they were trying to achieve was to have these NPM pay something similar [although less] to what the signatories to the MSA paid.
Companies that sell into a few states, and we have them here on the West Coast basically that sell into a few states, are getting an economic advantage because they are making the full deposit and then asking for a refund because they would have paid Nevada less. The problem with the current statute is that it allowed a deposit to be made based upon cigarettes sold within the state but a withdrawal to be made based upon a different factor. What we are trying to do is say that an NPM can’t withdraw from the escrow account unless the deposit would have been more than its total payment if the NPM had signed the MSA.
The signatories to the MSA, who are paying enormous amounts of money to all 46 states, support this. The next two pages there are letters from the Liggett Group Inc. and from King•Maker Marketing; they are both participating manufacturers under the MSA. I present them as illustrations.
I would like to go through the proposed amendments from the Office of the Attorney General, then I will take questions on the entire bill. The next two pages of the handout (Exhibit O) is a letter from me to the Committee outlining the amendments that are incorporated in the “big print” version of A.B. 460.
1. Children who participate in our compliance checks are not charged with, convicted of, or detained under Sections 4 and 5, which prohibit a child from fraudulently misrepresenting his or her age in order to purchase tobacco and authorizing a merchant to detain that child. We don’t have a position on that section of the bill. There are some people who argue that the provision would strengthen our anti-tobacco activities. Our main point is that we want our children who assist in our compliance checks to be exempted so we don’t have a problem with that when we are performing our enforcement activities.
2. The next is an amendment to Section 15, that clarifies which manufacturers need to be licensed.
3. The next amendment is Section 27, the heart and most important amendment. The reporting requirements by wholesale dealers were rather sketchy but it also seemed to require wholesale dealers to report all their sales to every wholesale dealer and every retailer in the country, not in the state but in the country. We are not asking for a report of every sale in the country, we are asking for reports of cigarettes within the state.
4. Section 37 gives the Attorney General authority to investigate these crimes and bring civil actions along with local law enforcement.
Chairman Anderson:
Questions?
Assemblyman Horne:
I have a problem with Section 5 of the bill. I know it’s permissive to detain the child who attempts to purchase cigarettes. Is this really an avenue where we want to go to start having storeowners detaining children, calling law enforcement because they caught a kid trying to buy a pack of cigarettes? We continue to provide limited liability for the merchants who do this, both criminally and civilly. Do we provide that type of immunity protection for shoplifters if a storeowner were to do the same type of detention? Are shoplifters provided immunity from criminal or civil liability?
John Albrecht:
I am not trying to “pass the buck,” but this isn’t my area. I want to emphasize that if any of this is passed, we want to exempt the children assisting in the tobacco compliance checks by law enforcement agencies from this whole thing. So I am empathetic to the position you are expressing because our children are out there, the youths that work for us are sometimes, I wouldn’t say detained, but they are discouraged from leaving and then we have to have our law enforcement officer go in to make sure that the child can come out again. We have problems with this.
As a practical matter, it’s permissive and I doubt if anybody would ever detain a child. We maintain data on how often our children are asked, “How old are you?” They are only asked, “How old are you,” 11 percent of the time. We tell people, we tell retailers, we tell storeowners; I send a letter out after every compliance check. If our youths are asked, “How old are you?” they have to tell the truth. Yet storeowners only ask 11 percent of the time. I’ve gone to trainings and I inform storeowners that they need to ask every child, “How old are you?” They look at me and say, “We’re afraid to ask that.” I anticipate that if they were afraid to ask how old they are, they would be even more afraid to try to detain the child, as a practical matter. That’s my experience in this matter. I am not speaking in favor of that section; I am just telling you that it will never be done. I hope that’s helpful; it may not be.
Assemblyman Horne:
If it will never be done, I have a problem with that.
Chairman Anderson:
We have been down the road before with this, but go ahead. Your point is well-taken. I really don’t think you want to put yourself or a storeowner in a position of detaining a child because of the other kinds of liability that could be associated with it. If the child alludes to other kinds of actions, we are going to have a problem. We currently have provisions in NRS 597.850 for shoplifting. Currently, when somebody shoplifts we do that, so that would be mirrored with that.
Assemblyman Horne:
Even in a shoplifting incident, we have individuals taking a garment and walking out of the store. Here we would have a child say, “Can I buy a pack of cigarettes?” The storeowner would ask, “Do you have ID?” The child would answer, “No.” The storeowner would say, “Hold on, I am calling the authorities.” It is different.
Chairman Anderson:
I guess that type of scenario could take place.
Mr. Carpenter, you and I have something we would like to see go into this bill, but it probably isn’t going to happen.
Assemblyman Carpenter:
I don’t know if you [John Albrecht] are the proper person to ask this question to, but where does the Native American smoke shops fit into the whole scheme of this in regard to state and federal taxes?
John Albrecht:
I am not the right person to ask about taxation.
Chairman Anderson:
There is a lady in the back who is the right person.
Paula Berkley, representing Reno-Sparks Indian Colony:
The Intertribal Agreements signed by the state and the tribes require that tribes pay equal or greater taxes than the state. So if, for example, you raise taxes this session, the tribes are required to raise the same amount. They pay both state and federal taxes; they retain the state amount for the tribal government and spend their taxes just like the state of Nevada for tribal services.
Chairman Anderson:
I don’t think that is the nature of Mr. Carpenter’s question, although it is in part. Would the counterfeiting of tobacco sales be applicable to you and are you still required to meet the same reporting requirements that other merchants are subject to through the Indian smoke shops.
Paula Berkley:
Yes, we apply stamps as well. They are a different color, but we buy them from the state as a tribal retailer. All the same rules would apply. We do the same thing that any other retailer would do.
Chairman Anderson:
Any other questions? Any observations?
Steve Moran, representing the Board of Directors of the Retail Association of Nevada:
The Retail Association of Nevada (RAN) has a great interest in preserving the integrity of cigarette shipments throughout the state. In order to prevent the sale of cigarettes to minors, to effectively enforce the collection of applicable state and tribal taxes, and maximize the payments due to Nevada under the MSA, we urge you to support A.B. 460.
· The bill’s provisions on delivery sales of cigarettes, including mail order and Internet sales, require out-of-state retailers to comply with statutes that in-state retailers comply with on a daily basis. Compliance is accomplished by requiring commercial delivery services to perform the task expected of all retailers. All retailers, whether in-state or out-of-state, should be required to card young people at the point-of-sale in order to prevent sales to minors.
· This bill requires the commercial delivery services to provide this service. All retailers should be required to verify the tax stamps attached to cigarettes sold to consumers. Currently, Nevada statutes require in-state retailers to do this on every sale at the point-of-sale.
· This bill requires commercial delivery services to check for stamps at the point-of-sale. If the stamps are not attached, they must return the cigarettes to the shipper.
· This bill requires all cigarette manufacturers, wholesalers, and retailers to be licensed by the Department, whether located in the state or out of the state, and subjects them all to the same Nevada statutes. When this is done, all licensees are on the radar screen of the Department who can better monitor shipments for compliance with the statutes.
· These proposed statutes mandate upgraded reporting requirements, upgraded records retention, and provide that Nevada licensees must only do business with other Nevada licensees. Detection of misdeeds becomes apparent with the Department audits of shipments going through the pipeline.
· Current Nevada law does not go far enough to identify which manufacturers are complying with the MSA. The proposed provisions require the Department to post information on their Internet site that will be helpful to retailers. The Department will now be required to post the names of all Nevada licensees so that we can avoid doing business with unscrupulous licensees. The Department will also be required to post a list of all brands of cigarettes eligible to be sold in Nevada. The list will be restricted to brands of manufacturers who are in compliance with the MSA and other Nevada statutes.
· Clear and enforceable provisions are introduced regarding contraband cigarettes and counterfeit cigarettes and counterfeit tax stamps.
· The Department is prohibited from issuing licenses to persons convicted of past tobacco offenses.
· Penalties for non-compliance are strengthened.
It is not apparent to RAN that Nevada currently has significant problems in contraband shipments of cigarettes throughout the state. However, we feel it is prudent to provide the Department with adequate tools to continue the good record. Retailers are well-versed on the adverse consequences of tax collection resulting from raising excise taxes to exorbitant levels. The Association feels confident this would not occur with up to an additional 35 cents per pack increase, but would begin to occur at somewhat higher levels. This bill goes a long way toward preventing such activity at those higher levels. We endorse A.B. 460 and urge you to do the same.
Assemblyman Carpenter:
Maybe you could shed some light on why cigarettes have suddenly gone down to half price or at least a third [the price].
Steven Moran:
The manufacturers and the federal government have had increases in recent years; the federal government has raised its excise tax, manufacturers have raised their cigarette prices considerably. Now because of the MSA, there has been an influx of small tobacco manufacturers who are able to compete price-wise with the major manufacturers by not having to pay the large amount due under the MSA. With this price competition, the larger manufacturers have reacted by cutting manufacturers’ list prices by $6.50 and $7.50. In some cases, they don’t cut their manufacturers’ list prices, but provide promotional money to the retailers so that retailers can pass that promotion on to the consumers. The net effect of it is that the price of a major brand on discount could be $10 less than it was yesterday. It is a very rapid activity where overnight it could be another $10 or $12. The manufacturer is reacting to a decline in their market share or decline in the local market share. They go up and down; it’s like the stock market.
Mary F. Lau, Executive Director, Retail Association of Nevada:
I have nothing to add. If you had specific questions regarding the conversation on shoplifting or the question of “how old are you,” I am prepared to answer those. Otherwise, I will keep my comments to “Me, too.”
Chairman Anderson:
The concern was about detaining children who might approach the counter with the desire to purchase a pack of cigarettes. Are you of the opinion that they are going to hold these kids?
Mary Lau:
It is my definite opinion that they are not going to be holding the children. We have not testified; there is a similar bill on the other side, which we did not participate in at all. It is not our intention to detain children. We do appreciate this legislative body continually grappling with these issues and what we do to make the child responsible because, while it is illegal to sell, it is not illegal to possess. However, that is a public policy decision.
The reason we have the shoplifting statutes the way we do is that shoplifting is organized crime in most areas. This Committee has responded to those requests. The reason we do not ask the question, “How old are you” too often, and we do appreciate that Mr. Albrecht trains our people and does provide that question, however, that just identifies a sting as opposed to age. We want our clerks to very carefully identify age; we do not want our clerks to detain the children. In actuality, in our smaller stores, their loss prevention people do not want them to detain at all or chase them in the parking lots. If that provision is important to “not” be in this bill, this bill is extremely important to the state of Nevada, but that is up to this Committee.
Peter D. Krueger, State Executive, Nevada Petroleum Marketers and Convenience Store Association:
[Introduced himself and submitted Exhibit P.] I would like to be able to say, “Me, too.” However, in addressing Assemblyman Horne’s question, I have an amendment coming up from Senator Cegavske that we offered, as referred to in Senate Bill 339, which has identical language as Sections 4 through 9 in this bill. It would delete Section 5 from this bill (A.B. 460), which is the retention portion. It simply says it would be against state statute to misrepresent yourself on age. We would like to go much further than that, however, we will take what we can get. As long as I have the support of the Lung Association and others, it makes my whole session, I can declare victory and go home. Other than that, we support all the other provisions of A.B. 460 and we would like to put on the record that we understand the licensure provisions in this bill are no different than current statute. We do understand that there are some different penalties; we are in favor of penalties for retailers that knowingly violate the law. With those provisions, we are in full support of this bill.
Chairman Anderson:
Questions for Mr. Krueger?
Charles Chinnock, Executive Director, Department of Taxation:
I will say, “Me, too,” but I did want to note that we did have a fiscal note attached to this. The fiscal note covered two areas:
Chairman Anderson:
If we move this on a policy basis, it gets to go to the Assembly Committee on Ways and Means to review the staffing question. How much additional revenue might the state of Nevada gain if we were to close this hole?
Charles Chinnock:
I did not have that and I do not know. That’s something that we will estimate.
Chairman Anderson:
Questions? Thank you for raising the concern of the green book (fiscal notes) with us.
Anybody else who feels that they are in support and need to get themselves on the record? Mr. Alonso, you have signed in and I recognize you are in support. Anybody else?
Buffy Gail Martin, Government Relations Director-Nevada, American Cancer Society:
[Introduced herself and submitted Exhibit Q.] Originally I signed in not to speak but I was asked to present a letter on behalf of Ronald Dreher, who is the President of Peace Officers Research Association of Nevada (PORAN). We have been working with PORAN regarding Section 5 of A.B. 460, so I will just read his letter.
As the President of the Peace Officers Research Association of Nevada and as a representative of the professional peace officers of Nevada, we ask that the Committee oppose Section 5 from A.B. 460. Section 5 would place a citizen safety concern on the clerks of stores that detain those who falsely represent their age in purchasing cigarettes, et cetera. Currently in Reno, it takes approximately two hours to have an officer respond to a location where a citizen has detained an individual for trespassing, et cetera. Section 5, as written, would place the clerks in danger if they attempted to detain these individuals. It gives the discretion to the clerk to detain who he or she reasonably believes that the person is not of an age. The concept of the bill under Section 4, we agree with. Section 5, we oppose for the above listed reasons.
Respectfully submitted, Ronald P. Dreher, President, PORAN
Chairman Anderson:
We will make that part of the record. Any questions for Ms. Martin? Anybody who wishes to speak in opposition to the bill? Anybody else who wishes to bring information relative to the bill? Let me close the hearing on A.B. 460.
The Chair is of the opinion that we need to retain Section 4, “A child under the age of 18 years shall not falsely represent that he is 18 years of age . . . ” We also have the amendments as suggested by the Office of the Attorney General for the bill (Exhibit O), the removal of Section 5 (Exhibit P), and from Mr. McMullen, the addition in Section 12 and at Section 51 of the counterfeit stamp, in addition to those suggested by the Office of the Attorney General. Do you want to think about it [A.B. 460], hold it for a work session, or move it? Chair will entertain a motion.
ASSEMBLYMAN MORTENSON MOVED TO AMEND AND DO PASS A.B. 460 WITH THE AMENDMENTS SUGGESTED BY THE ATTORNEY GENERAL, MR. McMULLEN, AND THE DELETION OF SECTION 5.
ASSEMBLYMAN CONKLIN SECONDED THE MOTION.
Assemblywoman Buckley:
I support the bill. The only section I am concerned about is Section 4, and maybe it’s OK. I have some philosophical concerns about putting these children who do this into the juvenile justice system, which is, at least in Clark County and throughout the state, overcrowded and filled with some kids that are kind of bad. While I don’t condone underage smoking and purchases of tobacco or liquor, as a child who was a little rambunctious myself, I just don’t think it’s in the same category as some other serious juvenile offenses. This version is not as bad as the one we had two sessions ago. The penalty would still be a violation under NRS Chapter 62, which requires them to go to juvenile court and involvement with the juvenile justice system, which I don’t know, for this type of offense, whether it is really appropriate.
Chairman Anderson:
I guess from my particular point of view, I agree that we don’t want to over flood the juvenile justice system, but it seems to me that we are sending a double message when we tell kids, “No, you are not supposed to smoke,” but we don’t do anything when they are standing out on the corner with a cigarette in their hand. So I think that we should make an affirmative statement about that. Mr. Horne and I just finished a trip on Friday to the youth facility in Elko, Nevada. Surprisingly, 91 percent of the kids there, if I recall, said they used marijuana. In discussing that with them, many indicated that they were cigarette smokers in the third grade. I thought, “Give me a break, buddy.” I wish I could say that I never tried a cigarette, but I got sick. So we need to make a statement.
Assemblywoman Ohrenschall:
I wish to disclose for the record that because I am a Director of Sirani Inc., which is related to tobacco products, I will not be voting.
Assemblyman Conklin:
With all due respect, I have to agree with Ms. Buckley on this one and you at the same time. I do think we have to send a strong message, but I think that this is the wrong way to do it. With alcohol, I know that we run stings, we heard bills earlier in the year to run stings on those places that sell to minors. I think it might be better pursued if we make sure that retail outlets selling cigarettes check ID for cigarettes in the same manner as they do for alcohol. I don’t know what that might cost us as a state, if it cost us anything at all, but I think that is a better way to approach it, rather than put an otherwise good child in the juvenile justice system.
Assemblyman Carpenter:
I agree with you. To me it doesn’t make sense that we say, “You can’t buy cigarettes,” but they are on the street corner smoking them. I think we need to start to do something. There is nobody that is against kids smoking more than I am, but if they come into the store to purchase cigarettes, you check their ID and know they are not 18; they just “you know what to you” and walk out. You can’t do anything. We need to have at least a start here because now they just flaunt you. It is unreal how bad they treat you because you can’t do anything.
But on the other hand, if one of our clerks does somehow sell a cigarette on one of these stings, they’re open to all kinds of penalties. I think we need to start somewhere, or don’t have laws against them at all. The way it is now is just not fair. If there was some way we could stop these kids from smoking, I would do anything, but you can’t. I think 30 or 40 percent of them are starting to smoke now. I think maybe the reason they start to smoke, for some reason, they get the idea that it is rebelling against authority. It’s an ungodly problem out there. I think with Section 4 in there, at least we have some way, at least for those people like me that don’t want them to smoke, maybe we can tell them, “You can’t bring in these IDs that are false and buy cigarettes.”
Chairman Anderson:
I think we can go ahead and move the bill with the amendments we have suggested. If the motion fails, we can always take a subsequent motion. Madam Secretary, you are going to call roll on this.
We will restate the motion again. Mr. Conklin, did you wish to change your second? [Mr. Conklin replied in the affirmative.]
ASSEMBLYMAN MORTENSON MOVED TO AMEND AND DO PASS A.B. 460 WITH THE AMENDMENTS SUGGESTED BY MR. McMULLEN TO SECTION 12 AND SECTION 51, WITH THE AMENDMENTS AS SUGGESTED BY THE ATTORNEY GENERAL, AND THE DELETION OF SECTION 5.
ASSEMBLYMAN OCEGUERA SECONDED THE MOTION.
[Roll call vote taken.]
THE MOTION CARRIED WITH ASSEMBLYWOMAN BUCKLEY AND ASSEMBLYMAN CONKLIN VOTING NO. (Ms. Ohrenschall abstained.)
I will assign the bill to . . . it has to go to the Assembly Committee on Ways and Means.
I forgot to assign A.B. 319; I’ll assign it to myself since it’s my bill.
We have about 20 minutes remaining; if we could turn to the Work Session Document (Exhibit R). In particular I am concerned there are only two bills that we may be able to get to, but if we could possibly get to them it would cut down our workload.
I see Judge Daniel P. Ward is here on A.B. 29. Let’s see if we can get A.B. 29 out of the way and down the road. If you could take us through that, I am going to ask a couple of people to come forward in case there are some questions; I don’t anticipate any. We don’t take additional testimony, Judge, but I know that you are here and I want to make sure that you are comfortable with what’s going to be happening. Mr. Titus, you need to be up front also, and Mr. Graham, in case we need you.
Allison Combs, Committee Policy Analyst:
The first bill on the Work Session Document (Exhibit R) is Assembly Bill 29.
Assembly Bill 29: Makes various changes concerning administrative assessments and forfeiture of bail. (BDR 14-130)
Assembly Bill 29 provides for an additional administrative assessment for specialty courts. There are several amendments proposed starting on the first page of the Work Session Document (Exhibit R). All of these were compiled by the Administrative Office of the Courts (AOC), and there are several attachments that I will refer to on the pages as I go through these. They provided a mock-up of bills related.
The first amendment would be to decrease the new administrative assessment for the specialty courts from $15, as it is in the bill now, to $5.
The second amendment . . .
Chairman Anderson:
Let me draw your attention to the blue pages where you see the mock-up and Mr. Titus’ amendments have been notably agreed to by the district court judges, the Nevada Supreme Court justices, and the Justice of Peace Association.
Honorable Daniel P. Ward, Judge, New River Township Justice Court, and President of the Nevada Judges’ Association:
Yes, we are all in agreement.
Allison Combs:
At the top of page 2 is the second change to A.B. 29, which would revise the distribution of the money collected under the provisions of the bill and would revise subsections 6 and 7. Essentially, the revision would delete the majority of the language in those two sections but retain the fact the money is collected by the Municipal Court and sent to the city treasurer and collected by the Justice Court and sent to the county treasurer. In lieu of all that language under those two sections, as far as the distribution, there is a new method proposed at the top of page 2 in the Work Session Document. It would provide that the total amount distributed in the State General Fund would come from the respective local treasurers, and the State Controller shall distribute the money received to the AOC for allocation to general or limited jurisdiction courts to assist with the funding or establishment of specialty courts.
As expressed by the AOC, the intent would be to distribute the funds under the direction of the Judicial Council. There is a resolution that is attached, it’s on a green piece of paper right behind the blue pages, that indicates that the Judicial Council intends that the current specialty court programs be funded to ensure continued operation and that new programs be initiated and funded so that, to the extent practical, all citizens of Nevada have equal access to specialty court programs.
Chairman Anderson:
It would appear that it would be appropriate to make the green document part of the official records so that we have a point of reference in case it is ever needed.
Allison Combs:
The next change, under number 3, would revise the definition of specialty court programs as it is defined under the bill. It would remove the reference “district court,” as you can see there in the language, and reference a “general or limited jurisdiction court.”
The next change includes a couple of technical suggestions as well as an additional authorized use of the money collected. The proposed language is there at the bottom of page 2, it would refer to the AOC rather than the district court as the entity to whom the money goes, as well as referencing the addition of the general or limited jurisdiction court. At the top of page 3, it adds an additional authorized use to provide staff to oversee and staff the specialty court program.
The next change is number 5 and it would require the Court Administrator to submit a written report to the Director of the Legislative Counsel Bureau addressing the distribution of the specialty court funds, essentially to provide a reporting prior to each legislative session of the current status of the specialty courts, and, again, the distribution of the funds. The suggestion is to add that language to NRS 1.360.
Number 6 would incorporate provisions of A.B. 242 into A.B. 29. This Committee has already heard A.B. 242, which increases the administrative assessment for misdemeanors by $10, as you will see under 6(a).
The second provision from A.B. 242 to be incorporated into A.B. 29—there is a copy of A.B. 242 under the blue documents starting on page 10—would require the court to include the administrative assessment if a sentence for community service in lieu of fine is imposed. One change to that language, as it is currently written in the bill, is to delete the reference to “imprisonment”; you can see that on page 11 of the blue documents. There is a feeling that to delete the reference to “imprisonment” would be too difficult and time-consuming for the judges to calculate or assign a value to the jail time.
Of course, adding this language to other appropriate sections of NRS is also suggested, including the section authorizing cities and counties to impose an administrative assessment for the provision of court facilities and then to the new provisions under A.B 29, which include new administrative assessments.
In relation to A.B. 242, as well as A.B. 29, it was suggested to clarify that—this is at the top of page 4 of the Work Session Document—administrative assessments included in bail forfeitures must be disbursed as required by statute. The referenced statute, NRS 176.059, specifies that money collected from an administrative assessment must be stated separately on the court’s documents and included in the amounts posted for bail. When bail is forfeited, some courts distribute the assessment as provided under the current law, but others do not. It is requested to ensure uniform application. The language suggested is on the top of page 4, “If bail is forfeited, the administrative assessments included in the bail amount shall be distributed as described in subsections 5 and 6 of that existing law.” That same concept is proposed to be amended into A.B. 29; that’s reflected in the mock-up that the AOC provided.
Finally, number 7 on page 4, is to establish a procedure through the AOC to enforce forfeitures of bail and use a percent of that money generated from those actions to fund specialty courts. The attachment—on pink paper—illustrates the suggested language for the procedures with regard to setting up the authorization for the Court Administrator to be involved in that.
Chairman Anderson:
Basically, what is being presented here is a document that has been worked out by the judges to meet the needs of the administrative assessments of the various courts while at the same time addressing some of the problems that the individual judges’ associations have with the current assessment process. It’s probably not the best deal everybody could get, but it has each of them “pinched” just about as far as we can go.
Questions from the Committee?
ASSEMBLYWOMAN BUCKLEY MOVED TO AMEND AND DO PASS A.B. 29 WITH ALL THE AMENDMENTS DISCUSSED.
ASSEMBLYMAN CARPENTER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
We will take the conceptual amendments to bill drafting and allow them to work them all out.
Let’s take a look at Assembly Bill 100.
Assembly Bill 100: Increases monetary limit of jurisdiction of justices’ courts and provides for establishment of mandatory short trial program for civil cases in justices’ courts. (BDR 1-855)
Mr. Brown, this is your piece of legislation. You will recall there were several amendments that were suggested. It seems to me that if we are going to be able to move with this, we need to give the justice courts the opportunity to phase this in over some time, but with the sure certainty that it’s going to happen.
Allison Combs:
The proposed amendments in relation to this bill are on page 5 of the Work Session Document (Exhibit R). The proposal from the Nevada Judges’ Association was to require mediation for the new jurisdictional range, $7,500 to $10,000, for the next three years. Their proposed amendment is attached on the yellow page. In summary, it would provide that for those actions filed in a county whose population is 100,000 or more, the action must be stayed and the justice of the peace must order mediation. If it is filed in a county with a population of less than 100,000, the justice of the peace may stay the proceedings and order mediation. The use of neighborhood justice centers would be required if one has been established. As far as a time frame, the parties must meet with the mediator within 60 days after the stay of the proceedings, and the mediator is required to convene and conduct the mediation to attempt to resolve the case. If the parties are unsuccessful, then the court must set the case for trial. These amendatory provisions outlined above would expire by limitation on October 1, 2005.
There were some additional amendments that we proposed, some of which were conceptually raised by Judge James Bixler. He suggested, in order to reduce the financial and operational impact on the justice court, to facilitate the use of short trials in justice court to counteract the increase in the number of jury trials requested for civil cases. He also suggested providing the justice court with an increased filing fee for these types of cases that would fall within that range of $7,500 to $10,000. He suggested delaying the effective date, so that the courts could prepare for the filings; the date suggested was January 1, 2005. He also suggested lowering population triggers in NRS 4.020, so the justice courts could request additional judges as necessary to handle any increase in caseload. The last two amendments considered legislation to funnel more money to support the justice courts and/or consider incorporating a binding arbitration process.
Judge Daniel Ward:
Our Association does not see a problem with the bill as it stands right now with the amendments.
Chairman Anderson:
The second set of amendments from Judge Bixler, I am not sure that we have the time to work out all those.
Judge Daniel Ward:
I don’t think we have the time to work on those, but with the initial portion of it and the three-year implementation in Washoe and Clark Counties, I think it is a workable bill.
Chairman Anderson:
If we move forward with the suggested changes to mediation of $7,500 to $10,000 cases in Washoe and Clark Counties, as is outlined in the first part of our amendment in yellow, would that be an acceptable solution? I know that the rurals may find a little bump in the road there.
Judge Daniel Ward:
In the rurals, we are used to the bumps in the road; we can make it work.
Assemblywoman Buckley:
I don’t think it would be a good thing to add the mediation. In Clark County, we have a very good program where our small claims come in and try to take care of issues. We want to encourage that, but I don’t think we should mandate it because they may have to start slowly and build up so that they can get additional mediators. Since that is happening already, I think we just want to encourage that and not make it mandatory in the bill for Washoe and Clark Counties.
Chairman Anderson:
Then we were going to phase this in with a time frame, a trial, a sunset. Are we encouraging the use of neighborhood mediation centers?
Assemblywoman Buckley:
I think we want to encourage it and maybe write a letter to ask them to continue and eventually work this in too. I just don’t think we should put it in the statute. The statute already exists.
Judge Daniel Ward:
It does exist; permissive is a whole lot easier to swallow.
Chairman Anderson:
We’ll leave the option open to utilize justice mediation centers but we will not require them. If we do so, we will follow the suggested time frame and will sunset on October 1, 2005. What’s going to happen if we take out the mediation process?
Assemblywoman Buckley:
I was suggesting that we just take out that whole thing because mediation already exists in the law. They are already doing it and they are going to continue to do it. The only purpose of having this in here was if it was going to be mandatory. If it is permissive, we already have it, they are already doing it on every case, at least in Clark County.
Chairman Anderson:
I was under the impression that, at least from the justice in Washoe County who came forward with this, they were concerned that they needed some time to step it in. They were not going to be able to do that and that’s what they had hoped the mediation center would be able to accomplish.
Assemblyman Brown:
I wonder if it would be appropriate to give some discretion for directing mediation. Is there any situation where judges at this point have the ability to direct the parties, not mandatory by statute? Actually, that may be problematic. I, of course, like the permissive language more than the “must.” I do fully agree that the mediation is an excellent program, but I have some misgivings about mandating all cases to go that route, primarily, from a time and cost standpoint for the litigants, many of whom are having a tough time funding these small cases.
Chairman Anderson:
I guess if we are not going with the mediation process that we should put a time certain off to January 1, 2005, rather than upon passage.
Assemblyman Brown:
I don’t have a problem with that.
Chairman Anderson:
That would give them some time. Anybody else want to weigh in on this besides Mr. Brown, myself, and Ms. Buckley.
Assemblyman Brown:
Was that date October 2005? January 2005?
Judge Daniel Ward:
I believe the January date would probably serve all of our needs better because that would give us the opportunity to track and be prepared for the next session.
Chairman Anderson:
The district court judges would then be tracking these for you?
Judge Daniel Ward:
I believe the lower courts would be tracking themselves.
Chairman Anderson:
If we don’t make you do this until January 1, 2005 . . .
Judge Daniel Ward:
Maybe as an association we can mandate it to our members; they are the ones that wanted the changes.
Chairman Anderson:
Am I understanding that A.B. 100 would increase the monetary limit of the jurisdiction from $7,500 to $10,000 and put the effective date to January 1, 2005?
Assemblyman Carpenter:
Our lawyers need to give us their idea of this; they are the ones that are going to have to practice.
Chairman Anderson:
He is referring to Mr. Horne and Mr. Oceguera when he says that.
Assemblyman Horne:
I concur with the comments of Ms. Buckley that I like permissive. January 1, 2005, is fine with me.
Assemblyman Oceguera:
I have no intention of practicing soon.
Chairman Anderson:
Mr. Oceguera still likes putting out fires.
Judge Daniel Ward:
I have no further comments.
Chairman Anderson:
Chair will entertain a motion of amend and do pass on A.B. 100, the amendment being to change the effective date to January 1, 2005.
ASSEMBLYWOMAN OHRENSCHALL MOVED TO AMEND AND DO PASS A.B. 100 CHANGING THE EFFECTIVE DATE TO JANUARY 1, 2005.
ASSEMBLYMAN MABEY SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Finally we come to A.B. 397.
Assembly Bill 397: Makes various changes concerning proceedings in actions concerning eminent domain. (BDR 3-1082)
Mr. Horne, we can push this one, if we have time. It is kind of up to the Majority Leader. [Assemblywoman Buckley replied, “Sure.”]
Allison Combs:
Assembly Bill 397 makes various changes concerning the proceedings and actions concerning eminent domain. There are two proposed amendments to the bill on page 8 of the Work Session Document (Exhibit R). The sponsor of the bill has suggested reinstating or deleting the repealed section; in effect, keeping NRS 37.190 in the law, which deals with costs involved in the case. The bill would only apply prospectively to cases filed on or after the effective date of the bill, which is currently October 1, 2003.
Chairman Anderson:
We have a handout from a law firm in the south, Santoro, Driggs, Walch, Kearney, Johnson & Thompson (Exhibit S) that I want included in the record for today’s meeting, to clarify some of the statements that were made.
And Mr. James Jackson, we have a memorandum (Exhibit T) from you, on behalf of Mr. Jim Leavitt, that this bill should not apply retroactively, which we already took up.
What does this look like when we are finished here?
Allison Combs:
The repealed section will come out of the bill and then the language will be developed by the Legal Division as far as the application of the bill prospectively to cases.
Assemblyman Horne:
First, I would like to state for the record that the one letter just handed out (Exhibit S) is from Santoro, Driggs, Walch, Kearney, Johnson & Thompson, the firm that I left to serve in the Assembly. I am no longer employed there and I did not take part in the litigation mentioned. There is an outside chance that I may return to that firm after session. As for the bill amendment, I don’t have a problem with it. The section that had concerns for people was not my attempt to influence any type of ongoing litigation. If they went into the proceedings now with certain rules, I wouldn’t want to change the rules in the middle.
Assemblywoman Buckley:
Would you accept a motion?
Chairman Anderson:
Please.
ASSEMBLYWOMAN BUCKLEY MOVED TO AMEND AND DO PASS A.B. 397 WITH THE AMENDMENTS BEING THE DELETION OF THE REPEALED SECTION AND THE EFFECTIVE DATE OF THE BILL.
ASSEMBLYMAN CONKLIN SECONDED THE MOTION.
Assemblyman Brown:
I was absent the day testimony was taken. I just would like to sit down with Mr. Horne. For purposes of this particular vote, I will abstain.
[Roll call vote was taken.]
THE MOTION CARRIED. (Mr. Brown abstained from the vote.)
Chairman Anderson:
Let’s go to A.B. 151.
Assembly Bill 151: Authorizes public guardian to appoint deputies and revises provisions relating to term of office of appointed public guardian. (BDR 20-580)
Allison Combs:
Assembly Bill 151 starts on the bottom of page 6 of your Work Session Document (Exhibit R). It authorizes the public guardian to appoint deputies and revises the provisions relating to the term of office of the appointed public guardian. There are a couple of amendments proposed. The first one would be to revise the term of office. If you would like to look at the last page of the Work Session Document, the purple page, it would retain the existing statutory language defining that a public guardian serves for a term of four years, which is now deleted in the bill. Also, it would add new language specifying that the public guardian serves at the pleasure of the board.
The second proposed change would amend the body that designates an acting public guardian in cases in which a vacancy occurs. The proposal provides that the board of county commissioners, instead of the district court, is the body responsible for making the appointments of the acting public guardian.
ASSEMBLYMAN CARPENTER MOVED TO AMEND AND DO PASS A.B. 151 WITH THE TWO AMENDMENTS DISCUSSED.
ASSEMBLYWOMAN BUCKLEY SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
It’s a Committee bill and I am going to assign Mr. Sherer to present the bill on the Assembly Floor.
With that, we are adjourned [at 11:04 a.m.]
RESPECTFULLY SUBMITTED:
Deborah Rengler
Committee Secretary
APPROVED BY:
Assemblyman Bernie Anderson, Chairman
DATE: