Letter to Keystone Board from
John Tsarpalas, President
Nevada Policy Research Institute

July 29, 2019

Dear Keystone Board Member,

Since Keystone is officially one of the plaintiffs in the unconstitutional extension of the Modified Business Tax by the Democrats in the last legislative session, you as a Keystone member, should have a basic understanding of the issues (see points to the right). 

See the Nevada Policy Piggy Book story (below) that explains why the DMV is short on money.

The DMV: It’s all foreign to me 
The Nevada Piggy Book
Nevada Policy Research Institute, 2018

One has to hand it to the DMV: For being the poster-child for government inefficiency, the agency has recently been making some bold attempts to modernize. 

It likely won’t shock anyone to learn that the agency’s computer system is less than modern. To fix this problem the Legislature approved a $75 million contract to upgrade the Nevada DMV’s outdated and inefficient computer system in 2015. 

It had until 2020 to get with the times, and implement a “new and improved” computer system. 

The $75 million comes directly from an added fee tacked on to all DMV transactions — so yes, you’re paying for it. 

But at least we’re paying to modernize government, right? 

For reasons that are still unclear, the Legislature awarded the contract to Tech Mahindra — a multinational technology company headquartered in Mumbai, India. 

In hindsight, choosing a firm a bit closer to home would have been a much smarter move. 

According to an audit released in late 2017, it was revealed that the program was months behind schedule. The audit cited the DMV’s failure to “ensure compliance with requirements, protocols, and procedures” — aka providing basic oversight — as the primary cause for the delays. 

(Of course, the DMV didn’t have any trouble implementing the new fee. But that’s not really surprising.) 

There were a few other failures, however, that rested solely with the Indian-based multinational firm. First, Tech Mahindra had only delivered 6 employees to begin work, despite originally promising that 25 members of its so-called “A-Team” would be deployed on the project. 

The second, and admittedly much larger problem, was that not all of the employees could speak English. 

Naturally, the language barrier caused some issues. 

Under the section of the audit entitled, “Contractor Did Not Provide Personnel Proficient in English,” we learn that the “DMV had to edit project documentation and meeting minutes provided by the contractor for grammar and spelling because they were not written in a clear manner and were not useable.” 

Imagine awarding a $75 million technology contract to a foreign company, then receiving the meeting minutes written as if they were translated through Google — because that’s basically what the DMV seemed to be facing.

After the audit was made public, Tech Mahindra was finally fired.

One thing the DMV readily admitted would be a complete waste of taxpayer funds, was the $25,000 spent on a customized communications plan between the Nevada DMV and Tech Mahindra. 

That’s right: A $25,000 communications plan with a firm that couldn’t even provide reports in a language that DMV personnel could read! Ensuring someone at Tech Mahindra was fluent in basic English probably would have been a better place to start. 

“The $75 million comes directly from an added fee tacked on to all DMV transactions” Of course, that wasn’t the only loss. 

By the time the state had terminated the contract, roughly $17 million had already been spent with the firm. 

Of that, about $12 million is considered a complete loss. Another $4.7 million is considered “salvageable” and will be usable by a future contractor for the modernization project. 

“We are also still working to sell back some of the remaining equipment, although of course the return value isn’t as much as the paid value,” DMV spokeswoman Alex Smith told The Nevada Independent. 

So, for now, the DMV continues to use antiquated technology, the project continues to miss deadlines and we continue to pay an extra fee every time we are required to make a transaction with the Department of Motor Vehicles. 

But at least they give us our bills in a language we can understand.

Modified Business Tax Extension Facts

Nevada Policy
Research Institute

Under Article 4, Section 18, subsection 2 of the Nevada State Constitution,
“…[A]n affirmative vote of not fewer than two-thirds of the members elected to each House is necessary to pass a bill or
joint resolution which creates, generates, or increases any public revenue in any form, including but not limited to taxes,
fees, assessments and rates, or changes in the computation bases for taxes, fees, assessments and rates.”
• This provision was added to the Constitution via ballot initiative in 1994 and 1996 (Question 11). It passed by an
overwhelming majority in both years.
What is the Modified Business Tax?
The MBT is a payroll tax on (taxable) wages above $50,000 for private business.
• The current rate of 1.475% was set during the 2015 Legislature. (The MBT itself had existed for years prior, at a
lower rate.)
• However, that 2015 legislation contained a provision which automatically lowered the MBT rate if certain tax sources
brought in more revenue that what was projected by the state’s Economic Forum.
Thus, due to robust tax revenues over the past biennium, the Modified Business Tax rate
was set to decrease to 1.378%.
• But, instead of allowing the partial sunset to occur, Democrats passed SB551, which eliminated the sunset provision from
law, effectively maintaining the current rate of 1.475% in perpetuity.
• Eliminating the sunset provision is expected to produce an additional ~$100 million over the next biennium.
• SB551 also eliminated ESAs from law
Why the lawsuit?
• Democrats passed SB551 without a 2/3 majority vote, as required by the Nevada State Constitution.
• They relied on a legal opinion from the Legislative Counsel Bureau which suggested a 2/3 vote was not required because
a tax “extension” did not constitute an increase.
• The plain text of the Constitution is unambiguous. Seemingly, the LCB lawyers did some mental gymnastics to arrive at
their preferred conclusion.
• Sen. Settelmeyer called the LCB opinion “a work of legal fiction.”