Nevada Lawmakers Hear Ideas For Revising Local Government Tax Distribution Formula

CARSON CITY – A consultant hired by the cities of Henderson and Las Vegas to analyze the process used to distribute taxes to the counties and cities told lawmakers today the formula now used to make the allocations has weaknesses.

Jeremy Aguero, principal analyst with the consulting firm Applied Analysis, updated the members of the Legislative Commission’s Subcommittee to Study the Allocation of Money Distributed From the Local Government Tax Distribution Account on efforts now under way to improve the formula.

“What I’m going to try and show you is a couple of areas where I think we believe there is some weakness in that formula and then some ideas that are being discussed relative to how to address some of those weaknesses,” he said. “I don’t want to leave you with the impression that anything here is definitive or perfect or a final answer to anything. It is a work in progress.”

C-Tax formula has generated controversy

The Consolidated Tax, or C-Tax as it is referred to, has generated controversy over how the local government tax revenues are distributed. It affects 175 local government entities statewide. It was established by the Legislature in 1997. It is composed of sales tax, liquor tax, cigarette tax, real estate property transfer tax and government services tax.

Graphic from Free Software Foundation via Wikimedia Commons.

The city of Fernley 30 miles east of Reno, the last city in Nevada to incorporate in 2001, has filed a lawsuit against the state Department of Taxation and state Treasurer Kate Marshall alleging it has been shortchanged in the formula. As reported by Las Vegas Sun columnist Jon Ralston earlier this month, the city has seen population growth of 250 percent since the C-Tax system was established but has not seen significant growth in tax distributions.

Aguero said the expanded working group that is reviewing the C-Tax issues considered several alternatives, including a straight per capita distribution and reverting back to the old formula.

“What if we just threw it all out and started with another formula,” he said. “What if we went back to everybody just gets to keep whatever they collected.”

Each of these ideas presented their own set of problems, Aguero said.

Ultimately the working group decided to proceed by proposing modifications to the existing formula, Aguero said.

“We thought about reverting back to the original C-Tax structure, and there is some merit associated with that,” he said. “But we ultimately landed on this idea of modification to the current formula; that it has strengths, that it has weaknesses; and that we should build on those strengths and minimize those weaknesses as we go forward.”

But Assemblywoman Marilyn Kirkpatrick, D-North Las Vegas, the chairwoman of the panel, asked why the issues raised in the report cannot be resolved by the local governments themselves using a memorandum of understanding.

“I’m not sure why we’re spending tax dollars to have the study if they can already do this and it doesn’t change currently where we’re at,” she said.

Fernley mayor says the city wants equity

Fernley Mayor LeRoy Goodman testified before the panel, saying the city decided to sue after requests for an additional tax distribution were rejected by Lyon County. Other attempts to get relief have also been unsuccessful, he said.

“Our fundamental thing on this is simply equity,” Goodman said. “We’re simply asking for an equitable base amount of money, to be treated just like the other entities in the state of Nevada, whether they be cities, unincorporated towns or counties.”

But a Lyon County official told lawmakers Fernley’s share of the consolidated tax appears low because it does not provide all services. Lyon County, for example, provides law enforcement coverage to Fernley, said Lyon County Comptroller Josh Foli.

If Fernley opted to take over law enforcement or other services, the city could negotiate with the county to receive more consolidated tax, he said.

The report provided to lawmakers by Aguero identifies four major issues with potential solutions that would take into account such issues as rapid growth by some cities and counties.

The preliminary proposals would allow slower-growing jurisdictions to have base adjustments that reflect inflation and share modestly in incremental, growth revenues. They would also allow for faster-growing jurisdictions to benefit from a greater share of incremental growth revenues which are added to their base each year. It would also protect against disproportionate declines when revenues fall.

Issues that are still outstanding include determining what happens if a local government enters into a long-run period of decline and what happens if a new local government is formed.

A new city in Nevada is a possibility. Residents of Laughlin will vote in June on whether to incorporate.

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Audio clips:

Jeremy Aguero, principal analyst with the consulting firm Applied Analysis, says the current tax distribution formula has weaknesses:

043012Aguero1 :30 as a whole”

Aguero says the formula has strengths as well:

043012Aguero2 :22 we go forward.”

Assemblywoman Marilyn Kirkpatrick says she does not know why the local governments cannot modify the formula on their own:

043012Kirkpatrick :10 where we’re at.”

Fernley Mayor LeRoy Goodman says all the city wants is equity:

043012Goodman :18 towns or counties.”