MINUTES OF THE meeting
of the
ASSEMBLY Committee on Taxation
Seventy-Second Session
April 17, 2003
The Committee on Taxationwas called to order at 1:45 p.m., on Thursday, April 17, 2003. Chairman David Parks presided in Room 3142 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
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. David Parks, Chairman
Mr. David Goldwater, Vice Chairman
Mr. Bernie Anderson
Mr. Morse Arberry Jr.
Mrs. Dawn Gibbons
Mr. Tom Grady
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. John Marvel
Ms. Kathy McClain
Mr. Harry Mortenson
Ms. Peggy Pierce
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Ted Zuend, Deputy Fiscal Analyst
June Rigsby, Committee Secretary
Mary Garcia, Committee Secretary
OTHERS PRESENT:
Linda Ritter, City Manager, Elko
Stephanie Licht, representing Elko County
Charles Chinnock, Executive Director, Nevada Department of Taxation
Keith Lee, representing Southwest Airlines
Mary Walker, representing North Lake Tahoe Fire Protection District
John Sherman, with Washoe County, representing the Legislative Committee on Local Government Taxes and Finance
Marvin Leavitt
[Prior to the start of the meeting, Ted Zuend distributed bill explanations for S.B. 465 and S.B. 467, which are included as Exhibit K and Exhibit L, respectively.]
Chairman Parks:
This meeting of the Assembly Committee on Taxation will come to order. [Attendance was taken.] This afternoon we have four bills in front of us. We will start with those. I will turn the gavel over to Mr. Anderson.
Chairman David Parks, Clark County Assembly District No. 41:
[Introduced himself.] I am here this afternoon to comment on the four bills that we have on our agenda. [Read from prepared remarks (Exhibit C).] As you know, I have served as Chairman of the Legislative Committee on Local Government Taxes and Finance during the 2001–2002 interim. That Committee made a number of recommendations to revise certain provisions and formulas that affect how various taxes are imposed, distributed, and used for the support of local governments. The Assembly Committee on Taxation has already processed two bills that were recommended by the Interim Committee. Today’s agenda consists of four bills recommended by the Committee on Local Government and Taxes, otherwise known as the 557 Committee, that were direct results of the hard work of a Technical Advisory Committee to the Legislative Committee that consists of 11 members, including the Executive Director of the Department of Taxation, and 10 other members appointed by groups representing local governments and various geographic areas of the state.
[Chairman Parks, continued] I will provide a brief overview of each of the four bills before the Taxation Committee considers them separately. They deal with four distinct subjects, and I will defer any of the technical details to the members of the Technical Advisory Committee who devoted significant effort over the last interim and should be commended for their efforts. They are, I believe, present here today at our meeting.
In numerical order, Senate Bill 465 repeals a provision adopted by the 2001 Legislature through Assembly Bill 501 of the 71st Legislative Session, which provides that a pay-as-you-go property tax rate for school capital projects is to be included as part of the school tax rate used to determine a school district’s share of government services tax (GST) revenue. This measure affects only the distribution of GST revenues in Elko County because that county is the only one with a school district that imposes a pay‑as-you-go tax. The provisions of A.B. 501 increased the money for capital projects for the Elko County School District at the expense of other local governments in Elko County. However, A.B. 501 also reduced the operating revenue of the Elko County School District. As a result, not only do local governments in Elko County support repeal of this provision, but the Elko County School District also supports repeal to restore the more than $400,000 in annual operating revenue.
The second bill is Senate Bill 467. It corrects the existing statutory language to allow a special district to pledge revenues received from the consolidated tax distribution formula for the payment of bonds issued by the district. The current statute allows a special district to use the revenue to repay debt issued by a local government. However, for purposes of this action, the definition of “local government” does not include a special district.
The third bill, Senate Bill 469, makes three minor technical corrections to the consolidated tax distribution formula to prevent certain unintended and inequitable distributional consequences from occurring in some atypical circumstances. These circumstances will be discussed in more detail when the bill is heard.
Finally, Senate Bill 470 allows a city that operates an airport to impose the optional jet fuel and aviation fuel taxes. Current law allows only a county to impose the tax, which results in the county commission having to impose the tax from which they receive no benefit. The bill also provides that the proceeds from the optional taxes are to be distributed to the entity that operates the airport.
[Chairman Parks, continued] That concludes my prepared remarks. Now I would like to leave it to the technical experts on the 557 Committee to discuss the bill in greater detail. Thank you very much.
Assemblyman Anderson:
Mr. Parks, thank you for representing the Tax Committee so ably on the service there.
Chairman Parks:
Okay, let us proceed to Senate Bill 465. Good afternoon.
Senate Bill 465: Makes certain changes concerning calculation of amount of basic governmental services tax distributed to county school district. (BDR 43-623)
Linda Ritter, City Manager, Elko:
[Introduced herself.] I also served on the Technical Advisory Committee for the Committee on Local Government Tax and Finance. I do have some prepared comments regarding Senate Bill 465, and I welcome your questions after I read those into the record (Exhibit D).
Assembly Bill 501 of the 71st Legislative Session changed the factors used in distributing motor vehicle privilege tax, what used to be called that and is now basic government services tax, to school districts, cities, and counties. Prior to this bill, property tax rates attributable to “pay-as-you-go” capital projects, as authorized by NRS 387, were not included in the formula. A.B. 501 of the 71st Legislative Session added that rate to the formula. This change added dollars to the school districts’ capital projects fund at the expense of their general fund. The general funds of the county and all other cities and towns were also negatively impacted. In Elko County, this change resulted in a reduction of what we estimate to be over $400,000 in the Elko County School District General Fund, a reduction of $238,000 for Elko County’s General Fund, and a reduction of $90,000 to the City of Elko’s General Fund, and smaller reductions in all other general funds of cities and towns in the county.
In light of the projected shortfalls in operating revenues at the state and local levels, the inclusion of pay-as-you-go property tax rates in the formula for distribution of basic governmental services tax to school districts is damaging. At the time the legislation was passed, the Elko County School District was unaware of the impact the change would have on their operating revenues, thus they did not oppose the change.
The Elko County School District is the only school district in the state that uses the pay-as-you-go property tax. Therefore, no other local government would be damaged by S.B. 465, which corrects the situation and removes the pay‑as-you-go tax from the calculation for distribution of the basic government services tax. This legislation has been endorsed by the City of Elko, the County of Elko, and the Elko County School District. We have a representative of Elko County here as well. Thank you.
Stephanie Licht, representing Elko County:
[Introduced herself.] Before you, you have Elko County’s explanation of how the debacle happened (Exhibit E). Mr. Minor has also provided you with a spreadsheet (Exhibit F) showing a little more graphic detail. I think that Ms. Ritter has explained it a lot more succinctly than I could. I will stand for any questions.
Chairman Parks:
I might note for the record that this bill was passed by the Senate with a vote of 20-0, with one person not voting.
Charles Chinnock, Executive Director, Nevada Department of Taxation:
[Introduced himself.] We echo what has already been said. Of course, the Department of Taxation worked closely with the 557 Committee, and we support this bill.
Chairman Parks:
Would anyone else like to speak on S.B. 465? If not, I will close the hearing on S.B. 465 and take these out of order. Let us jump to Senate Bill 470, which deals with the imposition of an aviation fuel tax for incorporated cities.
Senate Bill 470: Makes various changes concerning imposition, distribution and use of certain taxes on aviation fuel and fuel for jet or turbine-powered aircraft. (BDR 32-628)
Linda Ritter:
Thank you, Chairman Parks, for taking that out of order. I did serve on the Technical Advisory Committee, and I headed up this issue. I do have some prepared comments (Exhibit G), and I would welcome any questions upon conclusion.
Currently, NRS 365 provides that only a board of county commissioners can levy aviation fuel taxes. In some cases, another type of governmental entity may own and operate the airport. In Elko County, the City of Elko operates the Elko Regional Airport, while the County of Elko operates the Jackpot Municipal Airport and the City of Wells operates its own airport. Under current law, aviation fuel taxes are distributed in Elko County based upon assessed valuation, with Elko County being credited with all assessed valuation in the county, including all the cities. Thus, under this formula, the Jackpot Municipal Airport would receive the majority of all aviation fuel taxes. This method of distribution clearly does not reflect aviation activity.
S.B. 470 provides that the entity that operates an airport can levy the aviation fuel tax, and those taxes are returned to that entity for use on the airport. Thus, the entity that charges the tax is ultimately responsible for its use. This bill would not impact the operations of McCarran International Airport or Reno/Tahoe International Airport, and is intended to maintain the current limitations in the total tax amount or the levy amount. Thank you.
Assemblyman Grady:
Linda, this would then cover all cities who have city airports, not just Elko? [Ms. Ritter indicated that was correct.]
Chairman Parks:
By any chance do you have a listing of how many of those airports there might be outside Elko County?
Linda Ritter:
Mr. Chairman, during discussions I believe there were some in the Lyon County area. They are very limited, and are usually just airports connected with very small cities such as the city of Wells, usually general aviation. I think that the Elko Regional Airport is the only airport operated by a city that actually has commercial air service.
Chairman Parks:
That was what I was thinking, too. Are there any further questions for Ms. Ritter? No? Mr. Lee.
Keith Lee, representing Southwest Airlines:
[Introduced himself.] By virtue of the fact that Southwest is the largest carrier in the state, we also represent the Air Transport Association, whose members are, among others, American, Delta, United, UPS, and FedEx. Ms. Ritter and I have spoken about this. I did not oppose this on the Senate side with the understanding that this does not apply to Washoe and Clark Counties, which are the two political entities that have airports that are served by commercial aviation, other than the City of Elko, that is also served by Delta with small jets, so that jet aviation fuel would be a concern.
I understand exactly what Ms. Ritter wants to accomplish here, and we have no objection to that. I have offered two amendments (Exhibit H), one of which I think Ms. Ritter concurs with and the other which she disagrees with, at least a portion of. As you all know, there is a great deal of paranoia within the airline industry anytime anyone suggests anything about jet aviation fuel. I have, I think, provided the comfort to my clients that what we are doing here is simply correcting something so that the owner/operator of the City of Elko airport is the entity that can impose the tax rather than have to go to the county and deal with that. So, my clients understand that, but they have asked that I would prepare what I call a “belt and suspenders” amendment limiting it to a county whose population is less than 100,000 to take care of that.
Again, we are being paranoid. There is no airport in either Washoe County or Clark County that is owned or operated by anyone other than the Airport Authority in Washoe County and by Clark County. There is the Boulder City Airport, but it is run by Randy Walker and the Clark County Airport people. Our concern is that in the future something might happen, so we want to make it clear that it only applies to cities other than in Clark and Washoe Counties with respect to being able to assess this fuel tax.
The second amendment is one in which, as you may recall from last year, with the concurrence of the airline industry, paragraph C added a use for the jet aviation fuel tax, which is promoting an airport, including, without limitation, increasing the number and availability of flights at the airport. This was an amendment that was offered by the Reno/Tahoe International Airport; Clark County, Randy Walker and the airport, and McCarran International had no interest or concern in this. They told us that at the time. However, we allowed it to go ahead as it was. I can tell you that, and I have been empowered by Randy Walker and by Mr. Musgrove, the lobbyist for Clark County, to indicate to you that they have no objection as to this amendment that would exclude Clark County being able to use these funds. The purpose of this amendment is to allow only Washoe County to apply a portion of the gas tax to this particular use if they choose to do so. Ms. Bart has advised us that she does not intend to take advantage of that, at least in the near future. Mr. Walker has advised us he has no interest in ever taking advantage of it.
[Mr. Lee, continued] I thought this was an opportunity to include Ms. Ritter’s entity as well. I will tell you that we do not feel strongly about allowing the City of Elko to go ahead and use this as a promotional tool. I am certain that you all understand, and Ms. Ritter and the City of Elko understand, that it reaches the point, when you use these funds, not to bite the hand that feeds you. However, given that, we have no problem if you wish to exclude this particular use only as to Clark County. That was what the original intent was going to be with regard to this. I will try to answer any questions any of you may have.
Assemblyman Mortenson:
Section 1 in the explanation says “adds a new section to define governmental entity, to include an airport authority.” Are you not already a governmental entity in Clark County? Is McCarran Airport not a governmental entity? Do you have the power to bond, or does Clark County do it for you?
Keith Lee:
I do not represent Clark County. As I understand the way it is, Clark County is the issuer of the bonds, but they are issued as special purpose bonds for the airport. This section, [NRS] 365.545, was actually put into place in either 1991 or 1993, the primary purpose of which was to allow a certain amount of the jet aviation fuel to flow to Clark County to be used to finance the bonds that they did for the tunnel. The short answer is, Clark County has the bonding authority, and they do it for the benefit of the airport in this case.
Assemblyman Mortenson:
I appreciate that answer. Thank you.
Assemblyman Marvel:
Linda, what part of it do you not like?
Linda Ritter:
The only thing that I would ask is not to take our flexibility away in the future. If you were to take the amendment in which it is stated now, “in a county whose population is more than 100,000 and less than 400,000,” if you just said, “for a county less than 400,000,” that would give us the ability some day in the future to perhaps take advantage of these taxes to promote airline traffic into our community, which is really important to a rural community. Thank you.
Keith Lee:
I have discussed it with Ms. Ritter, and we have no problem if it were to be the Committee’s intent to change that so that it would read, “in a county whose population is less than 400,000.” You could delete the “more than 100,000.” That would be satisfactory to us.
Chairman Parks:
So that I am certain we are clear on this, the first part would be okay once changed to 400,000, and then we could delete the proposed amendment on page 3, line 23? Is that what I am hearing?
Keith Lee:
I think, Mr. Chairman, that we are in agreement that the first amendment, “in a county whose population is less than 100,000, the governing body of a city may by ordinance,” is okay. I think we have agreed with respect to the second amendment. I am proposing that it should read, “in a county whose population is less than 400,000.” Actually, it ought to read, “in counties whose population is less than 400,000.”
Chairman Parks:
Okay, I just wanted to make sure. I was not certain I was entirely on the right track there. I only had one other question. In Clark County, does the Department of Aviation now run the Boulder City Airport? [Mr. Lee replied in the affirmative.] I know that at one time it was municipally operated.
Is there anyone else who would like to speak on S.B. 470? Not seeing anyone, we will go ahead and close the hearing on S.B. 470 and open the hearing on S.B. 467.
Senate Bill 467: Authorizes special district to pledge revenue received from supplemental city-county relief tax for payment of certain bonds. (BDR 32-630)
Mary Walker, representing North Lake Tahoe Fire Protection District:
[Introduced herself.] This bill was presented to the Legislative Committee on Local Government Taxes and Finance for their approval on behalf of special districts, primarily fire districts, in the state. What we found is an error in the law that precludes special districts or fire districts from pledging 15 percent of their Supplemental City/County Relief Tax (SCCRT) for general obligation bonds or revenue bonds. We did work with Jennifer Stern, from Swendseid and Stern, who found that there was an error in the law. This corrects that. This, in a practical sense, lowers the interest rate that these smaller fire districts, in particular, would be able to bond for, so we would actually be saving some taxpayers’ dollars here by being able to pledge general obligation bonds through our SCCRT. Other jurisdictions, other local governments in the state of Nevada, are able to use this method. We just want to equalize the role here, if you would, and be able to allow this also to be used for special districts.
Charles Chinnock:
We support this bill, as we did the other bill. I believe that legislation since 1997 actually had this as an oversight for those special districts. This would allow those special districts to go ahead and use the consolidated tax (CTX) revenue for their debt, and we support that.
Chairman Parks:
Is there anyone else who would like to speak on S.B. 467? I guess not, so we will close the hearing on S.B. 467. Before I open the hearing on S.B. 469, I want to indicate to the members that there was a $77,000 fiscal note for the first year provided on S.B. 470 from the Department of Motor Vehicles regarding their collection and distribution of jet and aviation fuel to the Civil Air Patrol and eligible airports. They have done some analysis, and the document (Exhibit I) is there for our review. I would like to open the hearing on S.B. 469.
Senate Bill 469: Revises formula for distribution of certain revenues among local governments. (BDR 32-624)
John Sherman, with Washoe County, representing the Legislative Committee on Local Government Taxes and Finance:
[Introduced himself.] The Legislative Committee on Local Government Taxes and Finance is charged through the legislation to review the performance of the Consolidated Tax Pool distribution. We did that review. We concluded that, generally, the formula is performing pursuant to the requirements of the policy directives. We did, however, note three particular technical areas that we would recommend amendments to, and that is the purpose of S.B. 469. In essence, those three amendments deal not necessarily with growth issues, but with decline issues.
[Mr. Sherman, continued] The first distribution has to do with how one distributes when there is a deficit in that pool. Currently, that is done by using the prior year actual distribution. There is a feature in the distribution mechanics that indexes the base forward by the consumer price index (CPI), but when in a deficit mode, that does not happen. We believe that failed to have that stability objective by using the CPI, so, in that particular section of the bill, we are recommending that when there is a deficit allocation rate, the base be used that has the CPI built into it.
There is another, somewhat isolated, event going on where we actually have entities that have negative excess distribution growth factors, which is a combination of the change in population and change in assessed valuation, but you also have an increase in the tax pool. The mechanics are such that, ironically, the faster declining entity within that county would actually receive more of the taxes. We did not think that would be appropriate, so we provided a mechanism that will change it so the tax dollars still get to the right entities in proportion to their increase in size, population, and assessed valuation.
The growth factors for cities, counties, and towns are the same as I described them. The increase in assessed valuation and the increase in population are used for those entities, but for special districts like hospitals and general improvement districts, the excess growth factor only deals with assessed valuation. There are unique conditions wherein the assessed valuation is going up but the population is going down. Cities, counties, and towns in those isolated conditions actually have negative growth factors whereas the special district has positive. Where a hospital district covers the entire county, they actually get all of the excess of the Consolidated Tax Pool, and the county, which also encompasses the entire county, gets none. We felt that in those particular cases, the population growth factor should be added to the special district growth factor. That concludes my comments on this bill.
Chairman Parks:
I might add that during the interim study, there were tons and tons of documents and analysis that were generated and created in support of this. Thank you for your testimony. Mr. Leavitt, did you have some comments, having served on the Interim Committee?
Marvin Leavitt:
I would simply like to echo what Mr. Sherman has indicated to you, that, as with any of these complicated formulas, when certain conditions arise, it does not behave exactly like you had planned. This will, indeed, solve the problem when we have these entities that are generally experiencing negative growth. It makes the situation much fairer when you are experiencing negative growth because, as John indicated, it does not make sense that the entity that is losing the most population and losing the most assessed valuation gets more money than those that are moderately losing. It is just an aberration in the existing formula.
[Mr. Leavitt, continued] I agree that this is a good bill, and recommend that you pass it. We have had some concern expressed that we do not want to open up the general formula that deals with that, and this bill does not do that. We are not recommending that, but just to deal with these isolated circumstances.
Charles Chinnock:
I am passing out a copy of the bill (Exhibit J). We are making some recommendations for some friendly amendments for your consideration. We would like to have caught these a little earlier.
First of all, we support the bill. Our people are the ones who have to implement the provisions of the bill. We do that. Throughout the bill there are a few sections that discuss the averaging of the population and how that is accomplished, and also, when you average the assessed valuation over the years. For purposes of consistency, you will see we are recommending language that would make it consistent. That is all I have, unless there are some specific questions.
Assemblyman Marvel:
Chuck, have the people on the Technical Committee, like Marvin Leavitt, looked these over?
Charles Chinnock:
I showed it to them yesterday.
Assemblyman Marvel:
I would like to hear his comments.
Marvin Leavitt:
It is like so much of this legislation. We did not realize we had inconsistent language when we were originally putting together the bill. This is one of those things that arises when you are dealing with this huge amount of legislation. I think this improves it. It gives us a better consistency than we now have. I agree with the changes that Mr. Chinnock is proposing.
Ted Zuend, Deputy Fiscal Analyst:
I have reviewed these amendments and looked closely at the sections that the Department has asked to be amended. Indeed, the language in them is not consistent from one section to another. I understand, though I do not think Mr. Chinnock mentioned it, that it will conform to how they have been handling the situation now to deal with the inconsistencies. It will not change anyone’s distribution from what has been going on, how the Department has actually been attempting to administer it based on the inconsistencies in the section.
Chairman Parks:
Thank you very much. I appreciate your efforts. Is there anyone else in the audience who would like to speak on S.B. 469? If not, we will go ahead and close the hearing on S.B. 469.
That concludes the bills on our agenda for consideration today. I think we will wait to handle them. I know we are under a deadline to complete first House passage by next Tuesday, so I think, to keep things simple, we will hold onto these and take action after first House passage. Well, with that I would like to thank everybody today and we are adjourned [at 2:21 p.m.].
RESPECTFULLY SUBMITTED:
Mary Garcia
Committee Secretary
APPROVED BY:
Assemblyman David Parks, Chairman
DATE: