Public Meeting Notice and Agenda

PUBLIC MEETING NOTICE AND AGENDA

Name of Organization: TECHNICAL ADVISORY COMMITTEE

ON FUTURE STATE REVENUES

Date and Time:November 29, 2016, 1:00pm

Location:Legislative Building,

401 S. Carson St., Room 3137

Carson City, Nevada

Video Conference Location: Grant Sawyer State Office Building

555 E. Washington Avenue, Room 4412

Las Vegas, Nevada 89101

MINUTES

1. Call To Order/ Roll Call

Members:

Bill Anderson

James R. Wells

Mark Krmpotic

Cindy Jones

Vic Redding

Jeff Hardcastle

John Sherman

Others Present:

Russell Guindon, Legislative Counsel Bureau, Fiscal Division

Susanna Powers, Governor’s Finance Office, Budget Office

Jeremy Hayes, Department of Taxation

Jeff Mitchell, Department of Taxation

1. Public Comment ( No action may be taken upon a matter raised under public comment period unless the matter itself has been specifically include on an agenda as an action item)

There was no public comment.

1. Approval of the November 1, 2016, Minutes(For possible action)

Mr. James Wells made a motion to approveal the November 1, 2016 minutes as written. Mr. Jeff Hardcastle seconded the motion. Mr. John Sherman abstained from the vote as he was not present at the meeting. The motion was passed unanimously.

1. Review and approval of revenue forecasts for selected General Fund sources for presentation to the Economic Forum at their December 6, 2016, meeting(For possible action)

Mr. Guindon detailed the 12 revenue streams noted in the revenue forecasts for selected General Fund sources for presentation to the Economic Forum at their December 6, 2016 Meeting.

Mr. Anderson asked Mr. Guindon to re-explain the Governmental Services Tax and asked if it would end up getting zeroed out.

Mr. Guindon further explained that under the law that was approved during the 2015 Session, effective this Fiscal Yyear, it is a 50/50 split for every dollar of GST of the portion that comes from the 10% change in the depreciation factors that was completed approved in the 2009 Session. He adds, effective July 1, 2017, beginning FY 2018, 100% of the proceeds go to the Highway Fund under current law. This body, just like the Economic Forum, is required to prepare a forecast under current law.

Mr. Krmpotic asked, with respect to Budget’s forecast, for an explanationregarding the downward adjustment of the Business License Fee. According to the difference sheet, Table 3 – Difference Sheet, Budget revised their forecast downward for the Business License Fee in FY ’17 by approximately $2.8 million, $1.4 million in FY ’18 and about the same amount in FY ’19.

Ms. Powers with the Governor’s Finance Office noted that she was aware that it is cheaper for corporations to incorporate in Wyoming instead of Nevada and was trying to understand why the year-to-date data was weaker than forecasted. After discovering this, she reconsidered her forecast and that resulted in the downward revision.

Mr. Guindon noted that this is one that was also affected by the actions of the 2015 Legislature and approved by the Governor. It was a $200 fee for all types of business entities, then effective July 1, 2015, it’s a $200 fee for all entities except corporations. Corporation fees went up to $500. He addeds that staff from the Budget Office, as well as Fiscal, are monitoring this to see what is going on, as Ms. Powers wondered if Nevada has possibly priced itself out with the $500 license fee on corporations because it is cheaper to incorporate in another state. The other point isan entity could decide to stay in Nevada and change from a corporation to an LLC.

Mr. Guindon continued, stating that they still get the $200 fee but what they do not know is how many people switched from a corporation to an LLC or.t They either decided not to incorporate in Nevada or decided to leave. He pointed this out as the reference behind what Ms. Powers was discussing discussion about getting a handle on what is going on with this revenue source given that they are still annualizing against the tax changes even though they have a few months in FY ’17 compared to FY ’16.

Mr. Krmpoticmoved to the second revenue source- Live Entertainment – Non-Gaming. He addeds that in this case the adjustment from the Budget Division increases this revenue source for each of the three fiscal years, while in the first year of the Fiscal forecast it decreases by about $200,000. The Agency and Fiscal forecast decreases in the subsequent two years in FY 2018 and 2019. Mr. Krmpotic asked for further explanation of that adjustment.

Ms. Powers statedsthat she made a year-to-date adjustment on that revenue. The latest month of revenue came in much higher than forecasted, so it was just across the board revision.

Mr. Guindon noted that in regard to Fiscal, it is the same thing- they have the last month, butover forecasted - this is one of the taxes that was affected by 2015 Legislationlegislation. He addeds that it is probably one that had the most substantial impact because they it went from a tax on admissions f 10% on emissions plus 10% on food and beverage. If He explained if you are under a certain C-threshold there’s and5% tax ademissions, but there is no tax 5% on food and beverage if you are above a C-threshold. Then itthey went to a flat 9% and took food and beverage are out. He noteds that that is a pretty substantive change to a tax structure. This was effective October 1stand there has yet to be any observation year-over-year on this tax to know what is going on.

Mr. Hayes noted, similar to what Mr. Guindon stated, that his previous forecast was over-forecasted as well and that it was revised down and that is what is seen in the sheets.

Mr. Krmpotic asked for clarification on the Agency forecast or the Agency adjustment for Short Term Car Rental Tax, where the Agency’s adjustment in FY ’18 decreases by $2.5 million approximately and- a downward adjustment of approximately $4.8 million in FY ’19.

Mr. Hayes notedit is much of the same as it was for the previous tax. He stated he felt the he overshot and chose to revise that down.

Mr. Anderson had questions for the Budget Office and Department of Taxation. With respect to Business License Fees from the perspective of the Budget Office, Wyoming was mentioned and if it is understood correctly, because it’s cheaper to incorporate there, that is what is attributing to your the downward revision in your the forecast.

Ms. Powers confirmed and added that that led her to believe that it could be one of the reasons to explain why her forecast was over projected than expected in the most recent month. She addeds that is not to say that that is the reason but that is what issuspected.

Mr. Bill Anderson askeds,if there is access to any information which would provide insight into the flow of licensing activity from Nevada to Wyoming. It is a trend that seems consistent with the downward revision.

Ms. Powers stated that she is not aware of a record that provides such data. She noted she did various web searches and came up with the information on pricing that way.

Mr. Anderson asked for clarification on the Live Entertainment Tax, with respect to the Department of Taxation. He stateds that Mr. Hayes made significantly larger revisions to the two out years, minus $1 million, $1.1 million, and $1.6 million. He askeds,why the out years and not the current year?

Mr. Hayes stated that he felt that the forecast that he submitted for Fiscal ’17 was sufficient to pick up the revenue. He felt that he was overly bullish in ’18 and ’19, hence the revision.

Mr. Wells asked in regards to theTransportation Connection Tax- it was mentionedthat FY ’16 was softer than expected. Was he correct in hearing that it was the FY ’16, September revenues thatdecreased or was there just a softer increase than what was expected?

Ms. Powers stated that she actually has some data that shows the exact year-over-year decline in Transportation Tax Revenue. It was negative 16.4% year-over-year.

Mr. Wells stated, if he recalls correctly, it was not a September 1st implementation date, it was a mid-month implementation orit was predicated on the date in which Uber became licensed. It was not exactly a 09/01 start date if he recalls correctly.

Mr. Guindon added that it was September 1st for taxicabs. It was actually P&A [JEM1]for Uber and Lyft, but it was somewhere in that second to third week that Uber and Lyft actually got approved to be operating. He explaineds that is why it is even more of a surprising month that September ‘15 should’ve been a weaek, because it was not the full 30-days. He addeds that they do get information from the Transportation Authority and the taxicab’s revenue was down about 2.1% and so, taxicabs are more than likely still having some degradation from having a competitor in the market. He thinks it really was a surprising month for them as forecasters and he thinks maybe that is where the observation is going.

Mr. Wells noted that he would have expected that to go up from September ’15 to September ’16. Given that, the revisions, do you think the revisions to the forecast are sufficient given that that was weaker, or is it just not big enough of a difference or not enough data points to tell at this point?

Mr. Guindon stated,for Fiscal’s forecast, that it is a tough question to answer but yes, the downward revision that they did is probably sufficient. They lowered their forecast by about $400,000 in FY 2017 from where it was. Also, they don’t know enough about any kind of special events that brought more people in that used Uber. He stateds, that is why this one is tough. Almost like Short Term Car Rental and Live Entertainment - was there something that did something to demand one month versus the same month a year ago.

Mr. Wells asked, on the net proceeds of Mineral for FY ’17. There’s almost a 50% difference or 100% difference in the Agency forecast versus the Budget forecast with Fiscal coming in roughly in the middle. Where is the big difference in the Agency’s forecast being so low?

Mr. Mitchell added, when theytrued up the actual disbursements with their prior forecast, then with the disbursements out to the Counties, they did not see a big jump between their prior forecast and this forecast. That is where their forecast came in with those numbers. When the mines projected back in March and the difference of what the gold price is currently, they are currently projecting on what that difference is for the 2017 Fiscal Year. That is why it is a big decrease from the prior year, but they also felt between their last forecast and this one that there was not that big of a jump.

Mr. Wells stateds Budget and Fiscal are up significantly from November. Fiscal was at $10.9 million and now they’re at $14.6 million and Budget was at $9.7 million and now they are at $17.2 million. The Agency really only went from $7.8 million to $7.9 million but there were very significant jumps in FY ’17 from Budget and Fiscal’s standpoint. It is probably the biggest differential of all the revenue sources between the three forecasters. He asked why there was that big of a gap.

Mr. Guindon stated, with regards to Fiscal’s forecast, the forecast did not change much from last time to this time but the difference went up because the reference point went down by almost $3 million. So they more than likely only revised theirour forecast up for ’17 by about $1 million but the reference point that theyhad versus when Taxation gave them the stuff information reconciling to the actual amount in the Controller’s system, of. Of the $14.6 million and change, last time it would have been about $10 million. He addeds, almost $3 million of his $4 million is changing the thing we are subtracting from. Not necessarily changing my his view of the world as much.

Ms. Powers added her revision was also due to the fact that she is using a different reference point. The biggest chunk of the revision comes from the reference point correction. She isactually using the actual number from Fiscal ’16, what is posted in the Controller’s system.

Mr. Anderson reiterated, in the current fiscal year, in the consensus forecast that has been delivered, you they have an average, relatively speaking of, two high numbers in the mid-teens, $14 million and $17 million, along with the $9 million from the Department of Taxation.

Mr. Guindon confirmed and added,when you look at it, as Mr. Wells pointed out, the $13.6 million is closer to Fiscal than the others but that is just because we were in the middle or closer to being in the middle. When Fiscal and Budget were looking at this to average, this is a relatively difficult revenue source, especially when you are forecasting a true up. It could be approximately the $9 million that Taxation has. It could be approximately $17.2 million. $13.6 million gives us a cushion on both sides. As we looked at it as Fiscal and Budget, the average gives you a little bit out on the right and left tail that you won’t get beat up too badly if it doesn’t.

Mr. Redding asked about the changes in the Transportation Connection Tax and the one month, September ’16, that seems to be causing a lot of issues. Correct me if I am wrong, this is collections, not when the tax is actually earned. Do you know what the remittance period is, 30 days? 60 days?

Mr. Guindonstated that this tax works like almost all our taxes. It’s for the business activity for that period,. tThe grosswth revenue that was generated for the 30 days of the month, then they are supposed to remit it. He addeds, that there can be what is called leakage in which the end of a month spills over to the beginning of another month or vice-versa.

Mr. Krmpotic asked Mr. Guindon if he could repeat the total changes - the- the bottom line changes that were mentioned at the end of thepresentation.

Mr. Guindon explained, rather than maybe just dwelling with these 12 revenues to go to the other table. Now we’re sort of throwing away some of the others that should not be thrown away. You can see those numbers in the different TAC Table. You want to look at the total taxes before tax credits. There you can see that the net effect of the revised forecast that had been presented to the body to this day,the 12 in the table that we have been going over plus all the other ones that are in this table is the approximately $2.4 million upward revision for FY 2017 - again, looking at the Difference – Technical Advisory Committee Forecast Table. Then it’s approximately $1.5 million downward revision compared to the forecast that was presented to this body and approved on November 1st, then approximately a $1.1 million downward revision in FY 20197. The net effect of all this is really not that much when you look across the total. This body, gross before tax credits, is forecasting numbers out there in ’18 and ’19 that are approximately $526 to $537 million. We are moving things in ’18 and ’19 by approximately $1.5 million and $1.1 million.

Mr. Anderson commented that he is comfortable with essentially everything he sees with one exception - that is the net proceeds forecast for this year. He mentioneds there are considerable differences amongst the three forecasting entities. He is wondering if it would be more prudent on our part to weigh the projection that goes to the Economic Forum more towards the two more consistent ones, from Fiscal and the Budget Office.

Mr. Krmpotic noted he has the same concern but does not have a real comfortable level of going with higher numbers. As one who saw significant changes or variances between forecast’sand in the previous biennium, he is comfortable with the average of Budget, Agency,and Fiscal at this point in time.

Mr. Wells agreed with Mr. Krmpotic. He added, he originally had thought that kind of throwing out the Agency number and using the average of Fiscal and Budget would make a little bit more sense. After hearing the discussion from the three people, he is actually more comfortable with the average of all three.

Ms. Jones moved that the Committee accept the consensus forecast provided by the staff of the various agencies, Fiscal and Budget. Mr. James Wells seconded the motion. The motion passed unanimously.

1. Review and approval of forecasts for various tax credit programs that may be taken against certain General Fund sources for presentation to the Economic Forum at their December 6, 2016, meeting(For possible action)
   

Mr. Russell Guindon detailed the various tax credit programs that may be taken against certain General Fund sources for presentation to the Economic Forum at their December 6, 2016 Meeting.

Mr. Wells stated, before we get to the Economic Development Credits, the New Market Tax Credits, didn’t they have a maximum amount that they could take? Wasn’t it like $200 million of investment and they got 58% of it. If we subtract out the FY ’15, ’16 and then what we’re carrying on the books for ’17, ’18 and ’19, 2020 will be the end of that tax and it will not be the whole $22 million that you see in FY ’19, it will be some creditsmaller number, is that correct?