MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
April 3, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 1:30 p.m., on Thursday, April 3, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 555 East Washington Avenue, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Mike McGinness, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Randolph J. Townsend
Senator Ann O'Connell
Senator Sandra J. Tiffany
Senator Joseph Neal
Senator Bob Coffin
STAFF MEMBERS PRESENT:
Rick Combs, Deputy Fiscal Analyst
Barbara Moss, Committee Secretary
OTHERS PRESENT:
Dorothy L. (Dotty) Merrill, Lobbyist, Washoe County School District
Anne K. Loring, Lobbyist, Washoe County School District
Thomas B. Ciesynski, CPA, Chief Accountant, Washoe County School District
Lori Williams, General Manager, Truckee Meadows Water Authority
Linda Ritter, City Manager, City of Elko
John Sherman, Finance Director, Washoe County
Nicole J. Lamboley, Lobbyist, City of Reno
Terri Thomas, Finance Director, City of Sparks
Cash A. Minor, Lobbyist, Comptroller/Financial Officer, Elko County
Keith L. Lee, Attorney, Lobbyist, Southwest Airlines
Mary C. Walker, Lobbyist, North Lake Tahoe Fire Protection District
Madelyn Shipman, Lobbyist, Washoe County
Paul D. Urban, P.E., Flood Control Manager, Department of Water Resources, Washoe County
Neil C. Krutz, P.C., Deputy Director, Community Development, City of Sparks
Chairman McGinness:
The hearing is open on Senate Bill (S.B.) 442.
SENATE BILL 442: Requires local governments that acquire certain public utilities or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. (BDR 32-576)
Dorothy L. (Dotty) Merrill, Lobbyist, Washoe County School District:
We are presenting S.B. 442 which requires local governments that acquire certain public utilities, or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. Ann Loring, one of the members of the Board of Trustees for the Washoe County School District, is present on behalf of Dr. Jim Hager, superintendent of the Washoe County School District, who was unable to attend the meeting. Also present is Tom Ciesynski, chief accountant, Washoe County School District.
Ms. Loring, on behalf of Dr. Hager, will focus upon the background of S.B. 442 and establish a context explaining the reasons it was brought forward by the Washoe County School District. Mr. Ciesynski will then walk through the bill section by section and answer technical questions.
Anne K. Loring, Lobbyist, Washoe County School District:
I will read the written testimony of Dr. James L. Hager, superintendent of the Washoe County School District (Exhibit C).
Senator Townsend:
The committee is sympathetic to the loss of revenue as a result of this transaction. The bill specifically goes back to recapture what was lost from the inception. I have multiple questions; the first is, was the district active in the negotiations when the local governments were working with Sierra Pacific Power Company to try to figure out a sale, and the cost of that sale?
Thomas B. Ciesynski, CPA, Chief Accountant, Washoe County School District:
No, we were not part of that negotiation.
Senator Townsend:
Was there any concern at the time regarding the potential loss of revenue? How was it expressed? Do you feel it was ignored? What is the reason for the gap?
Mr. Ciesynski:
When the agreement began to take place we expressed concerns. Although I was not active in the dialog, I know certain concerns were expressed because property taxes are a large part of school district revenue.
Senator Townsend:
I want to make sure you obtain whatever funding you need to provide for the job you do. I am concerned when it is made retroactive, rates were set for purposes of acquiring this, and all the bonds that were required, which was a very sophisticated negotiation. Had fees in lieu of taxes been part of it, I am unsure whether or not the deal would have ever come together. I am just being honest with you.
Having said that, since rates are established over time, to go back and recapture that revenue, I do not know the total, $1.5 million is a number that was related to me, they have not in their rates accounted for or acquired it. That means it would come out of the revenue picture and go into the rate base for the future, which means rate shock for water customers.
Were we to go forward with a fee in lieu of taxes to accommodate the district for purposes of replenishing the lost revenue, it could be accommodated in the rate schedule. I have a problem with the retroactivity because Senators O’Connell, Neal, and I have a couple of bills sitting in front of our committees that do exactly the same thing with the same type of impact. As we work through this we need to be aware the problem is not just your loss of revenue, although we respect that and will find a way to get it back to you. It is the rather large complex nature of figuring out how you would recapture it from water customers. Nobody is at fault, we are just trying to put the pieces together.
Ms. Loring:
Unless I misunderstand the agreement, it is retroactive in the sense if there was an acquisition back to 2001, but the revenue replacement is not retroactive under the way it is written.
Senator Townsend:
I did not read it that way, which explains my concern.
Mr. Ciesynski:
I will summarize S.B. 442 as it affects chapter 360 of Nevada Revised Statutes (Exhibit D).
Senator O'Connell:
I cannot think of any other situation where something like this was retroactive. I would like Rick Combs, Fiscal Analyst, to address it.
Rick Combs, Deputy Fiscal Analyst:
I do not know whether there has been another instance where it has been retroactive in this manner. I reiterate what was said earlier, the retroactivity is the transfer that happened, not the payments that would happen, but it obviously has an impact on future payments required, or whatever is worked out in the interlocal agreement.
Senator O'Connell:
I guess you felt it necessary to have it retroactive at the beginning of the agreement.
Mr. Ciesynski:
Yes, we believe in order to make the transaction effective for ourselves, we need it to go back to the time period the transaction took place. If not, we would not be able to enter into the interlocal agreement currently being negotiated.
Senator Neal:
What public utility are we speaking about?
Mr. Ciesynski:
It is the Truckee Meadows Water Authority (TMWA), previously Sierra Pacific Resource’s water division, that was acquired by the Reno, Sparks, and Washoe County conglomerate.
Senator Neal:
Why is S.B. 422 necessary if you already purchased the utility?
Mr. Ciesynski:
The school district did not purchase the utility, it is impacted by the transaction.
Senator Neal:
What are you trying to do with this measure?
Mr. Ciesynski:
Working with TMWA, we are attempting to enter into an interlocal agreement in order to mitigate some of the lost revenue that resulted from the transaction, basically making TMWA a government water authority.
Senator Neal:
How would it work? Would you get water for a certain period of time without cost?
Mr. Ciesynski:
I defer to Ms. Merrill.
Ms. Merrill:
It might be a reduction in water rates or other kinds of services that would mitigate the expenses of the lost revenue the district would not receive as a result of this transaction.
Senator Neal:
What will it be? I assume the Washoe County School District has discussed this in some way.
Ms. Merrill:
It could be using ditch water for landscape watering, or zero landscaping some of the campuses. There are various things that could occur.
Senator Neal:
Would that include a mill tax?
Mr. Ciesynski:
We have had discussions and are working with TMWA on water conservation measures, such as using ditch water to irrigate ball fields at high schools, as well as digging wells on district properties to provide water for which we would not have to pay. Basically, mitigating lost revenue through cooperative arrangements.
Senator Neal:
What is the reason existing law will not allow you to do the things you desire?
Ms. Merrill:
There is no process in place in the law that provides a procedure, or a next step, in cases wherein local governments cannot reach agreement on such issues. The heart of our proposal is contained in section 9 of S.B. 442, which indicates what is next when agreement cannot be reached. We believe it is important, not just in our case, but for future situations of this nature.
Senator Neal:
Are you currently at that point in negotiations, or is this anticipatory legislation?
Ms. Merrill:
We have not reached an impasse and are still conducting productive negotiation. In the event agreement is not reached, a next step is not available.
Senator Neal:
Is that what existing law would require?
Ms. Merrill:
Existing law does not cover such a contingency.
Senator Neal:
If it does not cover such a contingency, it seems to me it would be incumbent upon the parties as to whether or not an agreement is reached. Could they come back at some future date? Are you saying section 9 of S.B. 442 would require action should an impasse be reached?
Ms. Merrill:
Page 4, line 18, section 9, subsection 1 of S.B. 442 says:
If a local government and an affected local government cannot reach agreement pursuant to section 8 of this act, either party may submit to the Executive Director its proposal for the terms of an interlocal agreement, together with any information … Within 30 days …
Then, page 4, line 43, section 9, subsection 3 of S.B. 442 says:
The Nevada Tax Commission shall schedule a public hearing within 30 days after the Committee on Local Government Finance submits its recommendations pursuant to subsection 2. The Nevada Tax Commission shall provide public notice of the hearing at least 10 days before …
Senator Neal:
Is this supposed to provide a resolution to the impasse?
Ms. Merrill:
Yes.
Senator Neal:
Where is it mandated?
Ms. Merrill:
Page 5, line 9, section 9, subsection 4 of S.B. 422 says:
Within 30 days after the parties receive notification of the determination of the Nevada Tax Commission … the parties shall enter into an interlocal agreement in accordance with that determination.
Senator Neal:
Is that the determination of the tax commission?
Chairman McGinness:
Page 5, line 5, section 9, subsection 3 of S.B. 422 says, “After the hearing, the Nevada Tax Commission shall notify the parties of its determination of the terms of a fair and equitable interlocal agreement.”
Senator Neal:
Shall notify?
Ms. Merrill:
Page 5, lines 11 and 12, section 9, subsection 4 of S.B. 422 says, “… the parties shall enter into an interlocal agreement in accordance with that determination,” which was just described and read by Chairman McGinness. Therefore, the parties must adhere to that determination.
Senator Neal:
Why would the tax commission be a fair arbiter in this situation?
Ms. Merrill:
That was the advice proposed by the Legal Division of the Legislative Counsel Bureau (LCB) when the concept of S.B. 422 was brought forward. When considering an appropriate forum for such determination to be made, we were advised it was the forum.
Senator Neal:
Has anyone talked to the tax commission?
Ms. Merrill:
I have not.
Chairman McGinness:
Are you aware of Assembly Bill (A.B.) 361 that was passed out today?
ASSEMBLY BILL 361: Requires local governments that acquire certain public utilities or expand certain facilities for utility service to make certain payments or provide certain compensation in lieu of taxes and franchise fees. (BDR 32-627)
Mr. Combs:
I am unaware whether or not A.B. 361 was passed out. It is at least imminent.
Senator Neal:
How does it relate to S.B. 422?
Mr. Combs:
Assembly Bill 361 is one of the recommendations from the interim study of the Legislative Committee for Local Government Taxes and Finance. It differs from S.B. 422 primarily in that S.B. 422 uses the date of January 2, 2001, for the types of acquisitions and expansions subject to the provisions of the bill. According to testimony, there is also some indication school districts are specifically mentioned in this version and not the other. I believe the intent in A.B. 361 was to cover school districts as well, and I think it does. Other than that, the bills have the same recommendation.
In answer to your question regarding the tax commission, it is basically the decision the S.B. No. 557 of the 71st Session committee came to when looking for an uninterested party who would be able to handle the tax issue and determine what would be fair and equitable from a tax standpoint. There was already a procedure in place for the severe financial emergency provisions in chapter 354 of NRS with which it would match.
Chairman McGinness:
According to your testimony you are here because you need to reach a final interlocal agreement with TMWA on these issues. Since S.B. 422 has been brought forward there have been active and ongoing discussions that have resulted in significant progress toward an interlocal agreement. Do you think the hearing today will advance the progress? Are we a bigger hammer in this case?
Ms. Merrill:
I never thought of any Legislator as a hammer, therefore, I would not want to take that position. The crux is the issue of what happens if agreement cannot be reached. Under the current situation there is no place to go next. Therefore, that is a significant part of the process. I am not saying we do not anticipate reaching an agreement, nor are we looking for legislative authority to coerce an agreement, the process itself is flawed in that regard.
Ms. Loring:
When the bill was drafted in August 2001, we were unaware of the local government’s proposal that was coming forward. Obviously, we were all headed in the same direction. There is a significant impact in a case like this and we had just experienced it as a district. We were looking at it specifically as a process issue at that time. Since then we worked with TMWA which has been productive to this date.
Senator O'Connell:
There was a lot of discussion during the interim about S.B. No. 425 of the 71st Session, the purpose of which was to look at the impact on tax revenues if, indeed, a municipality were to buy a private sector utility. During the interim the committee attempted to evaluate it, which created A.B. 361 insofar as the school districts are concerned.
Lori Williams, General Manager, Truckee Meadows Water Authority:
I am opposed to S.B. 442 and will read my prepared written testimony (Exhibit E).
Senator Neal:
How much has the water bill for the school district increased since you became a public entity?
Ms. Williams:
When TMWA was formed the owners basically committed to the community that rates would be frozen at Sierra Pacific rates for the first 2 years of TMWA’s life cycle. We are currently embarking on a rate increase process with our board. We anticipate the first rate increase under TMWA’s jurisdiction will happen some time late next fall. There have been no rate increases to date.
I also want to point out the rates TMWA’s board adopted were the rates set for Sierra Pacific that went into effect in 1998. Therefore, the rates have basically been stable for the last 5 years with no increase.
Linda Ritter, City Manager, City of Elko:
I serve on the technical committee of the Nevada Legislative Committee for Local Government Taxes and Finance and headed up the work group that looked at the issue of a utility being acquired by a local government. At the time we were directed to examine the real impact and we used the purchase of Sierra Pacific Resources water company as an example of the impacts faced by local governments. As we worked through the process we never considered going retroactive. We always looked at it as going forward because we recognized the fact any of the purchases that happened in the past, and the business deals that were structured, have already been done. Rates have been set, and to go back could cause issues with rate structure, bonding, and so forth.
Senate Bill 442 is an exact replica of A.B. 361, however, as Mr. Combs pointed out, A.B. 361 included school districts. We certainly anticipated school districts would be one of the local governments served by A.B. 361. The only other change is the retroactive date, which is not in A.B. 361.
It was a long process with quite a bit of discussion. The entire issue of Nevada Power Company was discussed. You will notice in S.B. 442, interlocal agreements are for water and sewer acquisitions due to issues of public health and safety. We felt an interlocal agreement was the vehicle to take care of those issues.
Senator O'Connell:
What will the increase be?
Ms. Williams:
I can bracket the increase. We have difficulty at this date narrowing in on an exact number because TMWA did not have good billing and usage information from the time it began until August 2001. We started our own billing system and up to that time Sierra Pacific Power Company continued doing our billing for us. Therefore, we are not going to hone in on an exact amount until such time as we have good numbers, which will be a whole year’s data in August 2003. At the present time, looking at expenses and upcoming principle payment on the bond, and all increases and costs seen from chemical and power vendors, and so forth, we anticipate the proposed rate increase to be 6 to 8 percent.
Senator Neal:
How did TMWA acquire the water system from Sierra Pacific Power Company?
John Sherman, Finance Director, Washoe County:
Sierra Pacific Power Company announced in the summer of 2000 they were going to sell their water business. Three local governments got together and formed a joint‑powers agency. We submitted a preliminary bid December 2000. After sifting through the bids, three finalists were selected. We were on the finalist list and submitted a final bid January 2001. A month after that Sierra Pacific informed us we would go into final negotiations with them to close the deal, which took about 30 days, and then we put together the financing package, sold the bonds, and closed the acquisition June 2001.
Senator Neal:
Did Sierra Pacific actually initiate the sale?
Mr. Sherman:
That is correct. It was a competitive bidding process. We competed with other agencies and corporations.
Senator Neal:
Why did Sierra Pacific do it?
Mr. Sherman:
Sierra Pacific wanted to focus on their core business, which is electricity and gas. Also at the time there were fairly significant financial considerations of needing to sell assets for cash purposes.
Nicole J. Lamboley, Lobbyist, City of Reno:
Our council has not adopted a formal position and is currently neutral on S.B. 442. We are an affected local government and worked with TMWA. We are satisfied with the arrangements made with TMWA in meeting the concerns mitigated in the losses. We are listed as an affected party, but do not feel discriminately disaffected.
Terri Thomas, Finance Director, City of Sparks:
I am representing myself as a technical advisory committee member to the TMWA board, and also as a member of the financing and acquisition committee that helped purchase TMWA. I oppose S.B. 442 on the grounds neither the bond issue nor the current rate structure was formulated so TMWA would be able to pay property taxes.
Chairman McGinness:
The committee will not proceed with S.B. 442 at this time; however, A.B. 361 will be coming over from the Assembly. I hope by the time it arrives, TMWA and the school district will have the interlocal agreement worked out so we do not have to be the hammer.
The hearing is closed on S.B. 442 and opened on S.B. 465.
SENATE BILL 465: Makes certain changes concerning calculation of amount of basic governmental services tax distributed to county school district. (BDR 43-623)
Ms. Ritter:
I am a member of the technical advisory committee for the Nevada Legislative Committee for Local Government Taxes and Finance. I am present to address S.B. 465 which is the result of our work through that committee. I will read my prepared written testimony (Exhibit F).
Senate Bill 465 reverses S.B. No. 501 of the 71st Session, which was unanimously passed by the Nevada Legislative Committee for Local Government Taxes and Finance. My statement (Exhibit F) was also signed by the Elko County School District who sent their apologies for not attending the meeting, but are in concurrence and support S.B. 465.
Cash A. Minor, Lobbyist, Comptroller/Financial Officer, Elko County:
I submitted my written prepared testimony (Exhibit G). I point out the Elko County taxpayers have supported this pay-as-you-go tax since fiscal year 1986/87. They have taken care of the infrastructure made to the school district and there was probably no need to do this shift because the intention was purely for capital projects. We support passage of S.B. 465.
Senator O'Connell:
I would like to inform Ms. Ritter and Mr. Minor the bill, concerning their school district and prevailing wage they requested of me, passed on the Senate Floor today. They might follow it in the Assembly.
Ms. Ritter:
Thank you very much. It is help we can use.
Chairman McGinness:
The hearing is closed on S.B. 465 and opened on S.B. 470.
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)
Ms. Ritter:
I will read my prepared written testimony (Exhibit H). I ask for your support on S.B. 470.
Keith L. Lee, Attorney, Lobbyist, Southwest Airlines:
I represent Southwest Airlines. By virtue of the fact that Southwest Airlines is the largest single carrier in the State, we also represent the Air Transport Association whose members include: America West Airlines, American Airlines, Delta, FedEx, United Parcel Service, and all other major air carriers. We have no objection with respect to the proposition that whatever entity operates the airport should have the ability to levy the tax. However, section 4 of S.B. 470 creates an additional taxing scheme that would allow the city, in this case, to impose an additional 4-cent tax on jet aviation fuel, which is the only piece that affects the airlines and the Air Transport Association.
As you know, the scheme now allows the county to assess up to 4 cents per gallon of aviation fuel sold in Clark and Washoe Counties, Clark County has imposed 2 cents of the 4-cent cap, and Washoe County has yet to impose any tax. It is my understanding section 4 of S.B. 470 allows an additional 4 cents to be levied, for a total of 8 cents. In other words, the county could assess 4 cents, and the city of Reno could assess 4 cents, for a total of an 8-cent jet aviation tax against the airlines.
These are troubled times for the airlines. We are paying twice as much this year for aviation fuel than we paid a year ago. A year ago we were paying 60 cents a gallon, this year we are up to $1.30 a gallon. Every penny increase in the cost of jet aviation fuel costs the industry $11 million per year. We simply cannot bear any more taxation. We have no problem with the governing entity that operates the airport receiving the benefit of the taxes, but strongly oppose any additional taxing authority to impose additional taxes on jet aviation fuel.
Mr. Combs:
A new subsection 1 was added to section 4 of S.B. 470 which authorizes the city to impose the same 4 cents and 8 cents that the counties previously could impose. Page 2, lines 36 and 37, section 4, subsection 2, paragraph (b) of S.B. 470 address subsection 2 only and says the 4 cents and 8 cents in the county is on fuel sold, distributed or used in the county, except at an airport where a tax is imposed pursuant to subsection 1, which is the tax imposed at the city airport. Hence, there would be no instance where this tax could be imposed twice at the same airport.
Mr. Lee:
I appreciate that explanation, Mr. Combs, and with that understanding we have no objection. Our concern is the potential of an additional 4 cents imposed on jet aviation fuel.
Chairman McGinness:
Ms. Ritter, let us put it on record to clarify we are all talking about 8 cents.
Ms. Ritter:
It was never our intent to increase our ability to levy the taxes. It was just a shift of the responsibility for levying the tax to the local government entity that may operate the airport. There never was an intention to increase the rate.
Mr. Lee:
I am comfortable with the clarification.
Chairman McGinness:
Seeing no more testimony, the hearing is closed on S.B. 470 and opened 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 C. Walker, Lobbyist, North Lake Tahoe Fire Protection District:
Senate Bill 467 came about when Truckee Meadows Fire Protection District wanted to do some general obligation (GO) bonds based upon the 15 percent pledge of revenues in the bill. However, they were unable to do so. In talking with Jennifer Stern, Swendseid and Stern, the special districts originally were supposed to be included. Ms. Stern worked with the LCB and it was determined there was an error in the law. It came down to the definition of local government and this section of the law did not include special districts.
Many of the special districts are actually fire districts, therefore, this would benefit the smaller fire districts in place in Nevada. Due to a lack of financing mechanisms, many times they go to a more expensive type of financing or leasing. Senate Bill 467 would allow fire districts and other special districts to do GO bonds, which is a cheaper method of financing. It would therefore save them money and put them on an even keel with all other local governments in Nevada.
Chairman McGinness:
The hearing is closed on S.B. 467 and opened on S.B. 469.
SENATE BILL 469: Revises formula for distribution of certain revenues among local governments. (BDR 32-624)
Mr. Sherman:
I am a member of the technical advisory committee to the Nevada Legislative Committee for Local Government Taxes and Finance. Without reciting chapter and verse on this particular bill, it is a technical fix bill to the consolidated tax distribution to solve three particular issues that address areas where entities are declining. A bill passed in the last Legislative Session dealt with driving more revenue toward faster growing entities. This particular technical amendment deals with entities that are declining in some form or other. I will go through Attachment A entitled, “Possible Technical Amendments to the Second Tier Consolidated Tax Distribution Formula” (Exhibit I).
Senator O'Connell:
Do we currently allow a percentage of revenue from special districts to go to bonding?
Mr. Sherman:
Yes, but S.B. 469 is not designed to deal with bonding. The consolidated taxes can be pledged for bonding, but S.B. 469 does not address any bonding issues. It addresses technical issues relative to the decline of entities and the allocation of this revenue.
Senator O'Connell:
So this will not affect bonding at all?
Mr. Sherman:
It should not.
Chairman McGinness:
The hearing is closed on S.B. 469 and opened on S.B. 490.
SENATE BILL 490: Authorizes use of money in infrastructure fund for operation and maintenance of flood control projects in certain counties. (BDR 32‑579)
Madelyn Shipman, Lobbyist, Washoe County:
Senate Bill 490 was brought forth by Washoe County with a proposed amendment (Exhibit J) that addresses some questions. In 1997, the year of the big flood in Washoe County, the Legislature enacted a series of bills which allowed for a one-quarter cent sales tax in varying degrees to different entities across the State. The portion allotted to Washoe County was divided into one‑eighth cent. The one-eighth had a special law attached to it. Senate Bill 490 addresses NRS 377B for certain specific projects, in this case a flood control project, which we would like to name the Truckee River Flood Control Project.
We are almost to the point where we will be moving forward. Paul Urban, the flood control project manager for the county, has accompanied me. This is a collaborative effort that has taken a tremendous amount of community involvement. We are about to enter into an agreement with the Army Corps of Engineers who want to know from whence the operation and maintenance money will come. We have no dedicated revenue source or any source of funding for the operation and maintenance of this project.
Senator O'Connell:
At the time you came to the Legislature for that money, it seems to me you contemplated paying for the operation and maintenance through an assessment district, or some kind of general county fund, and it would be the No. 1 priority.
Ms. Shipman:
I was not the involved lobbyist on this particular bill at the time. I know the commission intends to create a district for a portion of the operation and maintenance. It has been on the list as a method of providing some funding. Mr. Urban will talk about the nature of what is coming forward. It will require more in terms of maintenance of walls along the river than what was originally anticipated.
Therefore, S.B. 490 is intended to provide the little opening for a very limited use of sales tax money which Mr. Sherman indicated would be available through some kind of processing. In that event, we can go to the Army Corps of Engineers and tell them there is a funding source and we can enter into the agreement.
The amendment (Exhibit J) will narrow it down further. I did not think we could say the Truckee River Flood Control Project because it would make it a special law, therefore, I made it clear it only applies to the single project, and no other flood control project that may come forward in the future.
Paul D. Urban, P.E., Flood Control Manager, Department of Water Resources, Washoe County:
I am the project manager for the Truckee River Flood Control Project. We are almost finished identifying alternatives and the Army Corps of Engineers is conducting feasibility, environmental, and economic studies. We are planning to take this project to Congress in 2004 to authorize it. Normally, after a project is authorized, the Army Corps of Engineers negotiates with the sponsors, which in this case are the cities of Reno and Sparks and Washoe County. This is called a project cooperative agreement, basically a cost-share agreement. At that time we need to show a source of funds to both construct the project, or pay for our cost share of the project, as well as operation and maintenance.
Sales taxes are already being collected on the regional project on a regional scale, therefore, the people benefiting from the flood project are basically the same population of people paying the sales tax. It is a large project of approximately $2 million that does not have a source of funding for operation and maintenance. It does not make sense to build a project of this nature without operation and maintenance. More importantly, we are trying very hard to provide flood protection and we need the Army Corps of Engineers cost share. We want to be able to assure the Corps that we can, and do, have a source of funding for operation and maintenance.
Senator O'Connell:
Did you do the special assessment on the one-eighth of a cent for the flood project operation and maintenance as was testified?
Ms. Shipman:
The assessment district has not been established at this point in time. The assessment district was never intended, based upon conversations with the commission, to cover the full cost of operation and maintenance. We are talking about huge areas that have varying degrees of benefit from the project, especially as we assume it will go forward. They would be establishing a district when there is a project to maintain.
I understand from the original agreement with the Army Corps of Engineers on going forward with the project, we had to show we had General Fund and match money to do the design. A lot of acquisition of property, for instance, is county-cities money and is outside the agreement. I was not present when those statements were made, however, I have heard the commissioners say a component is going to be district.
Senator O'Connell:
Have you been collecting the one-eighth of a cent?
Ms. Shipman:
Yes, one-eighth of a cent has been collected and distributed in the county between three different projects. I believe three projects were identified through the process. We went through the regional planning commission and received prioritization and a project list. One was the flood control project and the others were a training center and an emergency operating center (EOC) dispatch, which was a public safety facility that fell under the same section, but a different subsection.
Senator O'Connell:
I do not remember the three projects in earlier testimony. I thought all that was needed was the flood project. Was it used for three different purposes?
Ms. Shipman:
Page 2, line 17, section 1, subsection 2, paragraph (a), subparagraph (2) of S.B. 490 says, “Facilities relating to public safety … .” Prior to completing the process at the Legislature there had been numerous meetings between all the entities, Reno, Sparks, and Washoe County, and through the regional planning process to look at the priorities for projects within Washoe County. The flood control project is obviously the largest, most important, and more critical project; and then there were the projects for the training center and EOC dispatch.
Senator O'Connell:
Is the operating and maintenance cost taken out of that same money? How are you doing it with the training center?
Ms. Shipman:
The training center and EOC dispatch will be operated either through user fees or a partnership with the university system that will use it when it is not otherwise scheduled for classes. The university system will manage the actual operation from the point of view of scheduling. The EOC dispatch is, or is about to be, completed and will be funded through the county general fund. Senate Bill 490 will not provide operation and maintenance money for those facilities, just for the flood control project.
Senator O'Connell:
Why have you waited this long to negotiate with the Army Corps of Engineers?
Mr. Urban:
We are just now approaching the period in the Army Corps of Engineers’ process where we begin negotiating for cost share. At that time we will be asked whether or not operation and maintenance funding is available.
Chairman McGinness:
When was the flood?
Ms. Shipman:
January 2, 1997.
Chairman McGinness:
I remember a couple of downtown areas and Sparks flooded. Senate Bill 490 indicates projects for the management of flood plains. What projects have been accomplished?
Ms. Shipman:
There is only one project. Mr. Urban has pictures of the project. It is a $216 million project.
Chairman McGinness:
Mr. Sherman, how much money has the one-eighth of a cent brought in to date?
Mr. Sherman:
One-eighth of a cent generates approximately $3 million and it was imposed 3 years ago. As Ms. Shipman indicated, the particular tax revenue was designed to fund three projects, which were the EOC dispatch and a consolidated public safety training center for police and fire, which are done.
Chairman McGinness:
When people saw this happen, was there a reasonable expectation something would be built to keep the water in the river?
Mr. Sherman:
Mr. Urban can speak to the mechanics and design of the flood control project and there is an evolving plan to deal with it. The region compiled a list of infrastructure projects that potentially could be funded out of the one-eighth of a cent tax. Pursuant to the legislation, through the regional planning commission and then the board of county commissioners, the top three projects were identified that could be supported by the funding capacity from the one-eighth cent sales tax. That was how the projects got on the list.
The funding model under which we are operating at the present time indicates the funding stream is exhausted for the three projects. In essence, we would have to wait until bonds are paid off, or some such thing, before additional capacity of this revenue could generate or support additional projects.
Neil C. Krutz, P.C., Deputy Director, Community Development, City of Sparks:
I am here today to express the City of Sparks’ support for S.B. 490 as amended by Washoe County. There was in excess of $50 million worth of damages in the Truckee Meadows from the flood of 1997, and over half occurred in the City of Sparks. The entire industrial area was under some depth of water and out of business for a number of weeks while it dried, was cleaned up, and restored. Having the ability to use some of the one-eighth cent tax money for operation and maintenance puts us in a much better position with the Army Corps of Engineers and the United States Senate when it comes to funding this project. We can look to a source of funds that says not only do we have the capital to build the project, we have the money to operate and maintain it. This puts us in a much better position down the road for federal funds. Based on that approach, and the responsibility of cities and county to protect residences and business community as a whole, we ask you to support S.B. 409.
Chairman McGinness:
According to the Army Corps of Engineers’ time line, when would the money flow West?
Mr. Urban:
Under the current plan we are scheduled to go to Congress in 2004 to obtain authorization which would open the door for appropriations in 2005; therefore, some time before the end of 2005 the money would be flowing this way. However, before obtaining the money we must have a signed project cooperative agreement and that happens after authorization. It would happen in 2004.
Ms. Lamboley:
March 26, 2003, I presented this piece of legislation to our city council. They asked for clarification and took no position. We have been working with both the city of Sparks and county in recent weeks to address the concerns of the city council which relate to the fact this should impact only the Truckee River Flood Control Project. I believe the amendment presented by Ms. Shipman will address the concern of the city council. It will be our staff recommendation in working with our city attorney’s office to clarify it does relate to the Truckee River Flood Control Project. We will be taking it forward to our council for their final authorization later this week, if not before the committee makes a determination on this bill. We do not have a formal council position at this time. I believe the county and city of Sparks has worked to address the concerns of the council.
Senator Neal:
Are you asking the interest from this fund be expended?
Ms. Shipman:
We are asking for some of the sales taxes collected for these projects, as they are available, for the operation and maintenance of the Truckee River Flood Control Project. It is not the interest, it is current revenue from the one‑eighth cent sales tax.
Senator Tiffany:
This is a question for the staff. Is it unusual to use taxes levied for bonding purposes for operations and maintenance on a construction project?
Mr. Combs:
It is my understanding the plan does not intend to use bond proceeds.
Senator Tiffany:
I am referring to the one-eighth cent sales tax.
Mr. Combs:
In reading the current statute, it seems to me using the proceeds from the one‑eighth cent sales tax for operations and maintenance was not envisioned at the time. We called it an infrastructure fund which would also lead to an argument it was not what was intended at the time. This is clearly a policy decision you are asked to make regarding whether or not you want to change the use of those funds.
Senator Tiffany:
If we do it in this circumstance, who else will come back and ask? I know operations and maintenance in the Executive Budget is always questioned.
Chairman McGinness:
The hearing is closed on S.B. 490.
The committee will now take action on S.B. 314, S.B. 465, S.B. 467, and S.B. 469.
SENATE BILL 314: Requires Department of Taxation to collect and report data concerning electronic commerce that is conducted in this state. (BDR 32‑36)
Chairman McGinness:
Senate Bill 314 is Senator Raggio’s bill regarding collecting data on electronic commerce. The only concern was fiscal impact. I suggest re-referring it to the Senate Committee on Finance.
SENATOR NEAL MOVED TO DO PASS AND RE-REFER TO THE SENATE COMMITTEE ON FINANCE S.B. 314.
SENATOR TOWNSEND SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
SENATE BILL 465: Makes certain changes concerning calculation of amount of basic governmental services tax distributed to county school district. (BDR 43-623)
SENATOR RHOADS MOVED TO DO PASS S.B. 465.
SENATOR TIFFANY SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
SENATE BILL 467: Authorizes special district to pledge revenue received from supplemental city-county relief tax for payment of certain bonds. (BDR 32-630)
SENATOR TOWNSEND MOVED TO DO PASS S.B. 467.
SENATOR RHOADS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
SENATE BILL 469: Revises formula for distribution of certain revenues among local governments. (BDR 32-624)
SENATOR TOWNSEND MOVED TO DO PASS S.B. 469.
SENATOR NEAL SECONDED THE MOTION.
Senator Tiffany:
In regard to concern about declining districts, would money be taken from the growth cities should the existing pod of money be redistributed?
Mr. Sherman:
In the sense one provision of the bill was mitigating the decline by indexing of the consumer price index (CPI), that has been a feature of the distribution formula throughout the history of this particular array of taxes. However, I believe there was oversight in an amendment in the last section which deleted that particular feature in a unique set of circumstances. The technical committee revisited it and understood and agreed we should actually restore the indexing feature. It would be a small change because faster-growing entities will still get the lion’s share of the increase, but the declining or slower-growing entities might receive some marginal benefit by the indexing of the consumer price index. In the other two cases, we are talking about all entities in a series of declines.
Senator Tiffany:
So, you have the base, the CPI on top of that, and extra revenue on top of that, therefore, you are taking a bigger piece of the CPI which reduces the top part a little bit.
Mr. Sherman:
You are just indexing the base forward by the CPI.
Senator Tiffany:
So the whole pie shifts.
Mr. Sherman:
It is a very marginal change. I conferred with the Department of Taxation regarding the effective dates of various sections of S.B. 469. I believe section 1 of S.B. 469 has an effective date of July 1, 2004, and actually it should be July 1, 2003. We can confer with the LCB to make sure that is the case.
Mr. Combs:
I checked with the bill drafter on effective dates and was assured, given the change made in section 2 of S.B. 469, the change in the first section did not need to become effective until 2004 because the change would not kick in until that time anyway.
Mr. Sherman:
This is a fairly complex bill and I do not recall the conversation with Mr. Combs. I just wanted to make sure somebody had thought it through.
Chairman McGinness:
We will double check it before S.B. 469 goes to the floor.
THE MOTION CARRIED UNANIMOUSLY.
*****
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)
SENATOR O’CONNELL MOVED TO DO PASS S.B. 470.
SENATOR RHOADS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman McGinness:
There being no further business to come before the committee, the meeting is adjourned at 4:16 p.m.
RESPECTFULLY SUBMITTED:
Barbara Moss,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: