MINUTES OF THE
SENATE Committee on Taxation
Seventy-second Session
May 13, 2003
The Senate Committee on Taxation was called to order by Chairman Mike McGinness, at 2:35 p.m., on Tuesday, May 13, 2003, in Room 2135 of the Legislative Building, Carson City, 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 Ann O'Connell
Senator Sandra J. Tiffany
Senator Joseph Neal
Senator Bob Coffin
COMMITTEE MEMBERS ABSENT:
Senator Randolph J. Townsend (Excused)
STAFF MEMBERS PRESENT:
Rick Combs, Fiscal Analyst
Mavis Scarff, Committee Secretary
Gale Maynard, Committee Secretary
OTHERS PRESENT:
John Berkich, Lobbyist, Washoe County
David Humke, Chairman, Board of Commissioners, Washoe County
John O. Swendseid, State Bond Counsel, Swendseid and Stern
Pat Coward, Lobbyist, Economic Development Authority of Western Nevada
Michael D. Pennington, Lobbyist, Reno-Sparks Chamber of Commerce
Charles Chinnock, Executive Director, Department of Taxation
Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association
Ray Bacon, Lobbyist, Nevada Manufacturers Association
We will open the hearing on Senate Bill (S.B.) 495.
SENATE BILL 495: Makes various changes to Consolidated Local Improvements Law. (BDR 21-1339)
John Berkich, Lobbyist, Washoe County:
I am here to speak in support of this legislation and have written testimony (Exhibit C).
David Humke, Chairman, Board of Commissioners, Washoe County:
This bill looks like a great financing tool. In 1985 I was the chairman of the economic development and tourism committee. The state of Kansas originated this legislation a few years ago and I walked a project where they used this financing technique. I saw a baseball stadium for an independent baseball team that was 6000 seats and financed in part through this type of legislation. I saw a major outdoor retailer with a couple hundred thousand square feet. I saw the site where a John Deere museum was going to be built and a Harley-Davidson museum was going to be located on the same site. I also saw two hotels on the same property and all to make this tourist commercial endeavor happen.
This is an issue before the Washoe County commission and we supported it by resolution, but I think this is an innovative, imaginative, and entrepreneurial approach to financing and can help us have additional sales tax revenue generated in all parts of Nevada.
John O. Swendseid, State Bond Counsel, Swendseid and Stern:
I have an outline with brief explanations of S.B. 495 (Exhibit D).
Senator O’Connell:
Can you tell me why you did not go into redevelopment law for this?
Mr. Swendseid:
We wanted to have the special assessment made against the property before we pledge the sales tax increment. If the sales tax increment did not happen or did not happen as fast, the property would be used to pay back the bond. Therefore, the bond is secured by more than a potential increase in sales taxes next year. If something happens to sales tax, the property owner has to pay their assessments or the governing body can foreclose on the property. The primary reason was bond security.
Senator O’Connell:
If you can go into chapter 372 of Nevada Revised Statutes (NRS) and use any portion of this sales tax, does that take money away from the State?
Mr. Swendseid:
Our belief is it would not. It is an increment that you would not have without the project you are constructing. We have gone through efforts to have different entities, such as the board of county commissioners, the Commission on Tourism, and the Governor, make findings to that effect. Our belief is additional revenue would not happen without this bill and the bill provides the State with the 25 percent that does not get pledged, we only pledge 75 percent because of the increment.
Senator O’Connell:
Is there a time frame on the project?
Mr. Swendseid:
The maximum time for the pledge of the sales tax is limited to the term of assessments thatunder existing law is a maximum of 20 years. The assessment frequently gets paid early, especially when property changes hands, the tax will go back to the original taxing entities under this bill.
Senator O’Connell:
Maybe I did not make myself clear. Is there a plan for this project to begin at a certain time?
Mr. Swendseid:
I will have to let the people involved in this project answer that question; I do not have an answer.
Chairman McGinness:
You spoke of entering into an agreement with the Department of Taxation. Have you been in conversation with them to find out what the procedure would be?
Mr. Swendseid:
I have not spoken with anyone in the Department of Taxation. I have discussed the provisions with Legislative Counsel Bureau and I do not know if they have spoken with the taxation department.
Chairman McGinness:
This is being proposed for a specific project. Do you see any other long-term advantages for other entities?
Mr. Swendseid:
Yes. I think the bill is not limited to projects anywhere. If we have projects that can draw tourists into Nevada who will bring more sales tax revenue to the state, this bill will be a mechanism the government could use to encourage that type of project and not one they have to use.
Chairman McGinness:
I am assuming the board of county commissioners would ask themselves if the construction of the project will result in retailers locating their businesses in the district, we are not going to vandalize another shopping center to have someone come in and have all the streets and sewers put in and paid for by this district.
Mr. Swendseid:
This is the hope and why we have the procedure and the three different approvals to try and prevent this. If someone thought this was happening, we would have hearings so they could come in and object and also have the Commission on Tourism and the Governor take a second look at the findings.
Chairman McGinness:
We have dealt with preponderance of the evidence in some of the bills I have heard in the Senate Committee on Judiciary. What do you think your definition is of preponderance of the increase in sales tax?
Mr. Swendseid:
I think it would be just like Judiciary. It is probably a majority of the sales tax.
Pat Coward, Lobbyist, Economic Development Authority of Western Nevada:
We have reviewed this bill, taken it to the government affairs committee, and feel it will be a good vehicle to help promote the State of Nevada.
Michael D. Pennington, Lobbyist, Reno-Sparks Chamber of Commerce:
We are here to support the efforts Washoe County, the city of Sparks, and others are considering relative to this legislation. We believe this would be an innovative approach to assist northern Nevada, as well as the State, and we encourage your support.
Chairman McGinness:
You are aware this is for a specific project? What are your assessments for long-term advantages?
Mr. Coward:
I think long term, it will have some advantages and not only in northern Nevada, but the Las Vegas area as well. Some of the local governments have looked at this and feel they can use it as well.
Charles Chinnock, Executive Director, Department of Taxation:
I have written testimony for S.B. 495 (Exhibit E).
Senator Tiffany:
If we decided we wanted to do this as policy and it would not be available for 2 years, then as we are looking at defining another system we could roll these provisions in and at that point it would not be so overwhelming. Would you not agree?
Mr. Chinnock:
Yes, I agree. If we had time to implement this and work the issues out, and provided we acquired a new unified tax system, we could incorporate the approach. If not, we could make the desktop system work overtime, although I am not sure about the Automated Collection Enforcement System (ACES).
Senator Tiffany:
There is no question you are not going to be able to do it with ACES. It can be done if we like the policy and just delay the distributions so we did not have to do them on a monthly basis. This is my point.
Mr. Chinnock:
Yes, I agree.
Senator Tiffany:
New Mexico has a gross receipts tax formula and put $46 million into their computer system, then scrapped it and bought an off-the-shelf package for $6 million with which they are satisfied. Have you spoken with the people in New Mexico?
Mr. Chinnock:
We have spoken with the New Mexico people and the same consultant who worked that system has also been part of the request for information (RFI) we sent out for the new system.
Senator Tiffany:
We do not want to go down that road; the more specifications we have ahead of time, the better off we will be.
Mr. Chinnock:
Yes, I agree.
Senator O’Connell:
If you have your comments in writing, I would appreciate it if the committee could get a copy. Do we have any idea of the dollar figure on this project?
Mr. Chinnock:
I do not know what the cost is for the project and as far as cost to the department, there were no costs involved.
Senator O’Connell:
I am thinking about the tax dollars we are going to lose for schools and possibly the State that the 75 percent would take if they wanted to do bonding over the next 20 years. Are we talking about a project that is $75 million?
Chairman McGinness:
No one offered that information during testimony.
Mr. Chinnock:
I think under this concept there was the assumption made that this would provide new opportunities for expansion and growth not otherwise available. This is why it is not looked at as loss of revenue, but a different form of revenue generation.
Senator O’Connell:
As I am looking at the various NRS statutes and impacts on those particular areas, the school district would not be receiving any revenue from those projects for the duration of the bonds.
Mr. Chinnock:
With the definition focusing on the tourists providing much of the revenue in the sales tax, I think they were looking at less impact on that particular infrastructure.
Chairman McGinness:
Senator O’Connell struck at the heart of my question. The board of county commissioners would have the authority to look at the proposal. It would then go to the Commission on Tourism and on to the Governor for review to ensure you would not be taking retailers from other locations to put them in an island.
Carole A. Vilardo, Lobbyist, Nevada Taxpayers Association:
With Mr. Swendseid’s testimony, two concerns have been raised. The first concern is with the bill changes being in the local improvement district law; we have a long list, it is conceivable by setting up this precedent you will have a number of these areas coming in next year and asking for expansion. If you choose to process S.B. 495, I wonder if the Legal Division could find a way to specifically restrict it to Washoe County so we do not have this kind of expansion. If you look at the number of items authorized by the local improvement districts, and you had a series of them come in here, you would suddenly start to have an impact on state revenues before actually receiving the revenues. This would also have an impact on your local school support tax, again before receiving revenues from the project. The committee knows this because we have had discussions about the exemptions and the erosions the more it is used and it needs to be tightened up.
I do not have a problem with page 3, item (b), line 1, but I think the Commission on Tourism should have a little more latitude for fact-finding by allowing additional testimony and not assuming the determination is based on information received.
Chairman McGinness:
The way this is stated, they either approve the county commissioner’s determination or they do not.
Ms. Vilardo:
It is the way I am reading it and I think it should be more, unless I am reading it wrong. It is another item that needs to be clarified if the committee processes this bill. I have advised Mr. Berkich and Mr. Humke and also informed them that I would like for the Governor to hold an open meeting to take additional input.
Chairman McGinness:
If there is no further testimony on S.B. 495, we will take testimony on A.B. 361.
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)
Chairman McGinness:
We have heard this bill previously, but thought we needed further explanations of the amendments.
Mr. Swendseid:
I have passed out a three-page summary explanation of the amendments, the same thing as distributed last time (Exhibit F), but highlighted in green with the changes made in the proposed amendments from the last time this committee met on these issues.
Chairman McGinness:
In reference to the utility part of the proposed amendment, if the Southern Nevada Water Authority acquired Nevada Power Company, then they would not have to pay these in-lieu taxes?
Mr. Swendseid:
No. This particular exception would not apply to any property acquired from an entity that pays taxes. If property was acquired from someone who paid taxes, Nevada Power or any other private generator of electricity and the property is on the tax rolls, then it stays on the tax rolls. There is no exception.
Chairman McGinness:
This would only apply if the acquisition was not paying taxes.
Mr. Swendseid:
If a local government bought a new generator from Nevada Power Company or were to take over Nevada Power, either way, if the generator was on the tax rolls, it stays on the tax rolls. If they built a new generator to serve their own mode, then it would be exempt.
Chairman McGinness:
If Southern Nevada Water Authority built a power plant, would this be exempt?
Mr. Swendseid:
It would be exempt if they built a power plant to serve their own load, but if they built the plant to serve people presently being serviced by Nevada Power, it would be subject to applicable taxes. Again, the exception would be a plant serving its own load, if new, or servicing the water or sewer load of a member of Southern Nevada Water Authority. Therefore, a new generator plant helping to serve the water pumping needs of the city of Henderson, which is a member of the Southern Nevada Water Authority, would be exempt from taxes. If the new power plant they acquired also served southern Nevada or the city of Henderson’s Police Department, it would not be exempt from taxes. Under the new amendment, it would be exempt only by serving Southern Nevada Water Authority or a members’ water or sewer electric load needs.
Chairman McGinness:
What if the generator only served a portion of the members? Are we going to start portioning them out?
Mr. Swendseid:
Yes. That is correct.
Senator O’Connell:
It is my understanding that Southern Nevada Water Authority has recently bought a part of Apex and I assume they are buying part of Duke Energy? Is this correct and would the language be applicable to that purchase?
Mr. Swendseid:
The authority last year entered into an agreement to acquire a partial interest in a plant from a company called GenWest, LLC, a subsidiary of Pinnacle West Capital Corporation, formerly Arizona Public Service, and not Duke Energy. It is a plant located in Apex and I do not believe it has been constructed, but once constructed they will acquire a 25 percent interest. That proposal will be covered by another amendment, which will say the bill will not apply to anything entered into contract prior to January 2003. The agreement to acquire the GenWest, LLC plant was signed in January 2002 and therefore would be exempt. But if they enter into an agreement to acquire a Duke Energy plant next year, it would not automatically be exempt, it would only be exempt if it served the load of Southern Nevada Water Authority or one of their member agencies for water and sewer.
The present bill does not allow an exception for acquisitions currently under contract. The final amendment we will propose exempts any property acquired under a contract signed before January 1, 2003, and this Legislation Session. It would cover the existing GenWest, LLC contract Southern Nevada Water Authority has and some contracts other public entities have in Nevada, but would not cover any new contracts signed since January 1, 2003.
Chairman McGinness:
The proposed acquisitions signed in January 2002, are they currently paying taxes in the State of Nevada?
Mr. Swendseid:
In reference to the proposed acquisition signed in January 2002, no taxes have been paid or collected. The proposed acquisition was to be exempt from the bill because it was acquired pursuant to a contract signed before January 2003, therefore there are no taxes to collect.
Ray Bacon, Lobbyist, Nevada Manufacturers Association:
I want to focus on the last section Mr. Swendseid addressed. It appears to me the way the language is worded, if Southern Nevada Water Authority acquires Nevada Power, then decides to sell power not only to themselves, but also to Clark County, Lincoln County, and so on, all of this acquisition would potentially be off the tax roll. Otherwise, if Nevada Power was acquired by a private utility, it would be on the tax rolls. I am not sure if this was the intent, but it is the potential implication of this bill and considering our tight budget, I am not sure if this is the type of policy you want to put into place.
Mr. Swendseid:
Mr. Bacon’s interpretation of the amendments of the bill is what we previously proposed. The correct amendments would not apply to assets Southern Nevada Water Authority acquired to serve Clark or Lincoln Counties; they would only apply to assets acquired to serve itself or members’ water or sewer needs. Neither Clark nor Lincoln County is a member of the Southern Nevada Water Authority. The members are the people who provide sewer services in southern Nevada, such as the water districts in the cities of Henderson, North Las Vegas, and Boulder City. It would not cover Lincoln or Clark Counties.
Senator O’Connell:
Is there anything in here that requires you to pay the universal service charge?
Mr. Swendseid:
I do not know the answer to that question, Senator O’Connell.
Rick Combs, Fiscal Analyst:
I believe the definition of local government put into place last session, when the universal energy charge was adopted, already covers a utility owned by a local government entity. Whether or not it specifically applies to Southern Nevada Water Authority, I am not sure, but there was an effort to make sure it covered local government.
Senator O’Connell:
I wonder if you could clarify this for us since they are not a local government.
Ms. Vilardo:
We testified 2 weeks ago in support for the bill in its original form. Since that time, amendments were made and I disagree with the latest set of amendments, particularly when expanded to the member agencies. I understand the need for the water district wanting to accommodate needs between themselves and Southern Nevada Water Authority and not knowing which way it would go.
It would appear in the amendment language, section 7, subsection 3, lines 23 through 24, an insert in paragraph (d), subparagraph (II) speaks to the member agencies. I think there are multiple problems with this and it goes beyond what was discussed in the interim tax distribution committee and the work of the chairman, Linda Ritter.
We had a number of meetings and this went before the legislative members of the committee with a very specific policy issue in mind that was approved by members of the committee. I believe these amendments do a great disservice to what both the working group and the people who attended that meeting accomplished. It does a further disservice to the Legislators who approved the policy to make sure we did not erode the revenue stream from a local government. I realize there has been an attempt to restrict the exemption down to water and sewer, but once you start looking at the member agencies, you start eroding impending revenue in the future.
I would urge you to take care of the amendments having the bonds subordinate with the new date for contracts entered, but there is a serious policy issue of reversing of the policy decided by the interim committee and the working group, and I would urge you to oppose that part.
Senator O’Connell:
Ms. Vilardo, do you have the same copy of the amendments we do? I think it is section 7, subsection 3, under paragraph (d), subparagraph (II), and then there is the same language in section 8, subsection 3 under paragraph (d), subparagraph (II). Are you asking us to strike those two areas because of the loss of tax dollars?
Ms. Vilardo:
Yes, it would be in both sections, and yes, I am asking you to strike the two sections. This is a policy issue that should have been presented to the interim committee. I have a major concern with this.
Chairman McGinness:
Is there anyone else to testify on A.B. 361? We will close the hearing on A.B. 361. Members of my committee, this is a substantial amendment, and we may want to wait until our work session later this week.
The meeting is adjourned at 3:26 p.m.
RESPECTFULLY SUBMITTED:
Gale Maynard,
Committee Secretary
APPROVED BY:
Senator Mike McGinness, Chairman
DATE: