MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session February 28, 1995 The Committee on Government Affairs was called to order at 8:00 a.m., on Tuesday, February 28, 1995, Chairman Douglas A. Bache presiding in Room 330 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Douglas A. Bache, Chairman Mrs. Joan A. Lambert, Chairman Mrs. Deanna Braunlin, Vice Chairman Mr. P.M. Roy Neighbors, Vice Chairman Mr. Max Bennett Mrs. Marcia de Braga Mrs. Vivian L. Freeman Mr. William Z. (Bill) Harrington Ms. Saundra (Sandi) Krenzer Mr. Dennis Nolan Mrs. Gene Wines Segerblom Mrs. Patricia A. Tripple Mr. Wendell P. Williams COMMITTEE MEMBERS ABSENT: Mr. Pete Ernaut GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Denice Miller, Senior Research Analyst OTHERS PRESENT: Mr. Dean Heller, Secretary of State, State of Nevada; Mr. George Pyne, Executive Officer, Public Employees Retirement System; Ms. Dana Bilyeu, Operations Officer, Public Employees Retirement System; Mr. Eric S. Cooper, Nevada Sheriffs and Chiefs Association; Sheriff Jerry Maple, Douglas County Sheriff's Department; Mr. Paul McGrath; Mr. Vince Swinney; Chief Robert L. Songer, Elko Police Department; Chief John Dotson, Sparks Police Department; Mr. Steve Elliott, City Attorney, city of Sparks; Mr. Andy Anderson, Nevada Conference of Police and Sheriffs and Las Vegas Police Protective Association; Ms. Stephanie Tyler, city of Sparks (see also Exhibit B attached hereto). ASSEMBLY JOINT RESOLUTION NO. 19 OF THE 67th SESSION - Proposes to amend Nevada constitution to prescribe additional restrictions on public employees' retirement system. Mr. Dean Heller, Secretary of State, State of Nevada, testified. He advised A.J.R. 19 of the 67th session was passed by the legislature, unanimously, during the last legislative session. He explained the resolution was based on retirees' concerns about pension funds being used to balance budgets and manipulation of the retirement system. He stated the resolution strengthened the independence of the public employees' retirement system. He said he, again, wholeheartedly supported A.J.R. 19 of the 67th session. Assemblyman Marcia de Braga, District 35, left her chair in the committee and testified from the witness table. She stated, throughout the country, public employees' retirement funds had been raided by various means, such as loans to "...bail out government..." and manipulation of interest rates in order to cause less money to be placed in retirement funds. She said she and Secretary of State Dean Heller, who was at the time a legislator, had cooperated in generating the provisions of A.J.R. 19 of the 67th session and advised the provision requiring an independent actuary was proposed by Mr. Heller. She said both she and Secretary of State Heller believed it was necessary to pass the resolution in order to protect the public employees' retirement system. Mr. George Pyne, Executive Officer, Public Employees' Retirement System, testified. He reiterated A.J.R. 19 of the 67th session was passed, unanimously, during the last legislative session and said, if approved by the present legislature, the constitutional amendment proposed by the resolution would be submitted to a vote of the citizens of Nevada at the next general election. Mr. Pyne provided some background on the Public Employees' Retirement System. (hereinafter referred to as PERS). He advised the purpose of PERS was to provide public employees in the state of Nevada with reasonable incomes when they retired and to encourage public employees to remain in public service. He advised PERS presently had 60,000 active members and approximately 18,000 benefit recipients. He advised PERS paid out approximately $2 million per year in benefits and had assets of approximately $6 billion. Mr. Pyne explained members of PERS were promised that when they retired they would receive a benefit based on both their years of service and their average wage at the time of their retirement. He declared it was very important retirement benefits be funded on an actuarial reserve basis, which meant contributions were set aside at the present time to pay for future benefits. He said, as the assets of public pension funds grew, many states had ignored the fiscal responsibilities associated with funding retirement benefits on a current basis and had used a variety of means "...to balance their budgets on the backs of public employee retirement systems." He advised some states had directly transferred assets of their public employee retirement systems to their states' general funds while other states had indefinitely postponed making the actuarially determined contributions needed to fund their retirement systems. He said still other states had adopted unrealistic assumptions about investment returns in order to lower their contribution rates. Mr. Pyne cited various states as examples of the activities he had described. He declared A.J.R. 19 of the 67th session was submitted to the 1993 legislature for the purpose of protecting the fiscal stability and integrity of PERS. Mr Pyne advised A.J.R. 19 of the 67th session constituted a constitutional amendment which would amend Section 2 of Article 9 of the constitution of the state of Nevada. He read lines 17 through 20, on page 1 of the resolution and contended the language contained on those lines would protect PERS funds from being used to balance the state of Nevada's operating budget. Mr. Pyne referred to the provision of A.J.R. 19 of the 67th session which provided the public employees' retirement system must be governed by a public employees' retirement board. He pointed out A.J.R. 19 of the 67th session also required the board employ an executive officer, who would serve at the pleasure of the board, and employ an independent actuary. He discussed a situation in the state of California in which the governor had employed his own actuary to arrive at an assumption regarding investment returns which would permit lower rates of contribution into California's public employees' retirement system, thereby allowing funds to be used to balance the state's budget. He contended the citizens of California were outraged and caused Proposition 162 to be passed in order to eliminate such a practice. Mr. Pyne explained A.J.R 19 of the 67th session also required the board of the public employees' retirement system to adopt actuarial assumptions based on recommendations by the independent actuary employed by the board. He said the provisions he discussed would ensure neither the board of the public employees' retirement system nor the actuary employed by the board would be pressured to alter long range assumptions in order to deal with short term budget crises. Mr. Pyne stated PERS believed A.J.R. 19 of the 67th session enhanced the state of Nevada's structure of checks and balances and urged the committee to support the resolution. Chairman Bache asked if monies contributed to the retirement system were in lieu of salaries which employees would otherwise receive. Mr. Pyne explained there were two contribution plans in which members of PERS could participate. He said one was the joint employer-employee contribution plan, under which plan an employee paid an after-tax contribution to PERS of approximately 9.31 percent of his gross salary, which contribution was matched by his employer. He advised the second contribution plan was known as "the employer pay contribution plan." He said, under the employer pay contribution plan, the employer made the entire retirement contribution to PERS and the employee either took a pay reduction equivalent to one-half of the total contribution or "...they went in lieu of a pay raise equivalent to one-half of the entire contribution..." Assemblyman Freeman asked what rate of return PERS received on its investments. Mr. Pyne replied, during the previous year, investment markets were not very generous and PERS received a rate of return of approximately three and one-half percent for the fiscal year which ended June 30, 1994. He said, over the past five years, PERS had earned money at the rate of approximately 10 percent. Ms. Rita Hambleton, Vice Chairman, State Legislative Committee, American Association of Retired Persons (hereinafter referred to as AARP) testified. She stated one of AARP's priorities for the current legislative session was to protect retirement benefits. She declared AARP, once again, supported A.J.R. 19 of the 67th session. Mr. Marty Bibb, Executive Director, Retired Public Employees of Nevada (hereafter referred to as RPEN), testified. He introduced Patricia Fladager, First Vice President of RPEN. He declared protecting retirement benefits was the primary concern of RPEN as an organization and of its members as individuals and was the reason RPEN was created in 1976. He advised RPEN had nearly 6,500 members and more than a dozen chapters. Mr. Bibb stated RPEN urged the committee to approve A.J.R. 19 of the 67th session and would work aggressively to obtain voter approval of the constitutional amendment proposed by the resolution.. Ms. Patricia Fladager, First Vice President, Retired Public Employees of Nevada, testified. She advised the matters covered by A.J.R. 19 of the 67th session were of great concern to all members of RPEN. She stated RPEN urged the committee to support the resolution and RPEN promised its support in educating voters. Mr. Al Edmundson, Past President, Retired Public Employees of Nevada, testified. He declared protection of public employees' retirement funds was extremely important. He advised he had prepared income tax returns for retirees over the past nine years and suggested, without their retirement incomes, many retirees would be in dire straits. He urged A.J.R. 19 of the 67th session be adopted. Mr. Don Crosby spoke from the audience, saying only that he supported A.J.R. 19 of the 67th session. Mr. Andy Anderson, Nevada Cops (hereinafter referred to as NCOPS), testified. He advised NCOPS represented more than 2,500 active and retired police officers throughout the state of Nevada. He indicated PERS represented the future of those officers and their families. He declared NCOPS supported A.J.R. 19 of the 67th session and urged the committee to support it. Ms. Debbie Cahill, Nevada State Education Association, testified. She said A.J.R. 19 of the 67th session was of great importance to members of the Nevada State Education Association and urged the committee to support the resolution. Chairman Bache called upon Mr. Bob Gagnier who, from the audience, responded by saying, "Ditto." Ms. Michell Gamble, Nevada Association of Counties, testified. She stated both the Nevada Association of Counties and the Nevada League of Cities strongly supported A.J.R. 19 of the 67th session and urged it be passed by the legislature. Mr. Mark Balen, Professional Firefighters of Nevada, testified, saying only that the Professional Firefighters of Nevada supported A.J.R. of the 67th session. Chairman Bache closed the hearing on A.J.R. 19 of the 67th session. ASSEMBLYMAN LAMBERT MOVED DO PASS A.J.R. 19 of the 67th session. ASSEMBLYMAN DE BRAGA SECONDED THE MOTION. Mr. Neighbors disclosed he was a retired county employee but said he was affected by A.J.R. 19 of the 67th session no differently than any other retired employee of Nevada was affected and he would vote. Mr. Ernaut stated he had wholeheartedly supported A.J.R. 19 of the 67th session during the last legislative session and would vote do pass. Ms. Tripple disclosed she was a retired state employee but would be affected by A.J.R. 19 of the 67th session no differently than any other retired public employee in Nevada and would vote. Mrs. Segerblom disclosed she also was a retired state employee and said she would vote. Mr. Bennett declared A.J.R. 19 of the 67th session was the kind of responsible legislation he liked to see come before the Assembly Committee on Government Affairs. Chairman Bache advised he was a teacher, employed by the Clark County School District, but said A.J.R. 19 of the 67th session affected him no differently than it affected any other teacher of the Clark County School District and he would vote. Chairman Bache called for a vote on the motion before the committee. THE MOTION CARRIED UNANIMOUSLY BY ALL MEMBERS PRESENT. ASSEMBLY BILL NO. 16 - Revises provisions governing calculation of compensation of sheriff or chief of police for purpose of determining retirement benefits. Mr. Eric S. Cooper, Nevada Sheriffs and Chiefs Association, testified. He explained A.B. 16 consisted of two parts. He said the first part involved adjustment of retirement benefits for sheriffs of Nevada's counties and the second part dealt with participation in the police and firefighters' fund of PERS by those chiefs of police of Nevada's cities who were hired from out of state. Sheriff Jerry Maple, Douglas County Sheriff's Department, testified. He advised, in approximately 1985 or 1986, when the public employees' retirement system changed to a fully employer-paid system, all county employees came under that system. He explained this was accomplished by employees either taking a reduction in their pay or foregoing a pay raise. He advised the pay reductions were seven and one half percent or, in the case of employees who came under the law enforcement retirement fund, were eight percent. He said, at the same time this change in the retirement system occurred, all elected officials of the state of Nevada, including sheriffs, came before the legislature to request a raise in their pay. He explained the pay raise which was to have been given to sheriffs was a 27 percent raise. He said, instead of the proposed 27 percent raise in pay, sheriffs received a pay raise of 19 percent, and the difference constituted a salary reduction for purposes of fully employer-paid retirement contributions. Sheriff Maple advised, at the present time, sheriffs' retirements were handled differently than the retirements of their employees. He advised, when one of his employees was ready to retire, an amount equal to approximately 14.2 percent of the employee's base salary was added to the employee's salary and his retirement benefits were computed based upon the total amount. He said, when a sheriff retired, his retirement benefits were based upon his base salary without adding to his salary the additional 14.2 percent, which he said was referred to as "the kicker" and was an increased retirement benefit given because of the employer-paid contribution system. Sheriff Maple contended this difference in computation of retirement benefits greatly affected sheriffs' departments. He advised, if he was to leave office, his undersheriff would have to take an $18,000 cut in pay and retirement benefits in order to assume the job of sheriff. He suggested such a loss in pay and retirement benefits removed incentive to seek the position of sheriff. Sheriff Maple advised the committee of his background in law enforcement. He declared, because his career goal was to become a sheriff and make a difference in his community, he would be penalized upon his retirement. He indicated chiefs of police of Nevada's cities received "the kicker." He stated Chief Kirkland of the Reno Police Department retired as Chief of Police, rather than seek the position of Sheriff of Washoe County while still employed as a chief of police, because he would have lost the 14 percent additional retirement benefit had he not retired before becoming sheriff. Sheriff Maple declared, although he was a law enforcement officer, just as his lieutenants, his undersheriff and his deputy sheriffs were, and was in the same retirement system as those individuals, they would receive a higher retirement benefit than he would receive. He indicated he took a salary reduction, at the time the employer-paid contribution system was initiated, just as everyone else did but would not receive the increased retirement benefit others received. Assemblyman Segerblom asked Sheriff Maple if he was elected to his position. Sheriff Maple responded he was. He contended, if he was appointed to his position, he would receive the additional retirement benefit but, because he was elected, he would not. Assemblyman Harrington asked what costs A.B. 16 would impose on local governments. Sheriff Maple replied he did not know. Mr. Harrington asked, with respect to Sheriff Maple's retirement benefit, how much money the additional 14 percent benefit would amount to in one year. Sheriff Maple advised it would amount to $4,200 per year. Assemblyman Neighbors said he recalled, at the time the employer-paid contribution system went into effect, employees had an option of either participating in that system or participating in the previously existing system, in which employers matched the retirement contributions of their employees. He suggested, by participating in the employer-paid system, employees in effect received a bonus because they had more take home pay. He asked if Sheriff Maple was allowed an option as to which system he wished to participate in. Sheriff Maple replied, "It's my understanding that we were, because, at the same time the legislature was enacting that and doing that, we were in for a salary increase, and that salary increase was cut because we went on employer-paid like everyone else did. We were in, as I said, for a 27 percent pay increase and they made it 19 percent because we went on employer-paid." Mr. Paul McGrath testified. He advised he was a retired sheriff of Carson City. He explained, in 1983, when the legislation which established the employer-paid contribution system was enacted, that legislation made it mandatory that county officials participate in the employer-paid contribution system. Assemblyman de Braga asked if the 14 percent "kicker" applied only to employees of Douglas County or applied to public employees throughout the state. Sheriff Maple answered it applied to public employees throughout the state. Assemblyman Ernaut indicated he believed the fiscal note on A.B. 16 applied only to those provisions of A.B. 16 which pertained to police chiefs. Mr. McGrath advised his not receiving the 14 percent additional benefit resulted in his not being credited with approximately $7,000 per year for purposes of computing his retirement benefits. Mr. Vince Swinney testified. He said he was a retired sheriff of Washoe County and had served in the sheriff's office for 24 years, 12 years as undersheriff and 12 years as sheriff. He advised he became a member of PERS, in 1959, when he joined the Reno Police Department. He indicated several things had an impact on retirement benefits over the years. He stated, several years ago, the legislature put into effect "the 95 percent rule," which provided undersheriffs, captains and lieutenants of a sheriff's office could not earn a salary greater than 95 percent of the sheriff's salary. He contended this rule had an impact on the amount those individuals could contribute to the retirement system. He reiterated Sheriff Maple's testimony concerning the pay reduction taken by sheriffs, at the time the employer- paid contribution system was created, and the fact sheriffs did not receive the additional 14 percent retirement benefit received by other public employees. Mr. Swinney urged that the legislature pass A.B. 16. Chief Robert L. Songer, Elko Police Department, testified. He provided his background in law enforcement and advised he held an associate's degree in police administration, a bachelor's degree in administration of justice and a master's degree in criminal justice and was a graduate of the Federal Bureau of Investigation's national academy and of a basic law enforcement academy in the state of Washington. He declared he could match his qualifications with those of anyone who had risen through the ranks of law enforcement in the state of Nevada. Chief Songer advised, when he applied for the position of Chief of Police of the Elko Police Department, in order to qualify for that position, a candidate was required to have held a position as a lieutenant and was preferred to have a bachelor's degree in administration of justice. He advised, when he was hired as Chief of Police of the Elko Police Department, both he and the city were under the impression he automatically qualified for the police and firefighters' retirement fund. He stated, when the city submitted his retirement contributions to PERS, the city was advised he did not qualify for the police and firefighters' retirement fund because he came to his position as Chief of Police from outside the state of Nevada. He explained, if he worked for a small police department in which his primary duty was patrol work, he would qualify for the retirement system but, because he worked for a large agency and his duties were primarily administrative and, also, because he had not worked for two years as a patrolman in the state of Nevada, he did not qualify. Chief Songer said he understood concern about the fact hiring individuals from out of state as chiefs of police in the state of Nevada prevented promotion from within Nevada's police departments. He contended, however, elected city officials should have the right to select the most qualified individuals to serve as the chiefs of police of their cities, whether those individuals rose through the ranks of the cities' police departments or were hired from out of state. Chief Songer discussed the stress involved in serving as a chief of police. Chief Songer contended he and similar law enforcement professionals should be permitted to be members of the police and firefighters' retirement fund. He suggested, if the legislature passed A.B. 16, it would compel law enforcement officers in the state of Nevada, who sought promotion to chief of police, to do their best in order to compete with candidates from out of state. Assemblyman Lambert asked whether the issue brought before the committee by A.B. 16 had been brought before the legislature, previously, with respect to the city of Elko. Chief Songer replied it had. Assemblyman Neighbors asked whether or not, at the time he was hired by the city of Elko, Chief Songer had investigated the state retirement system and was aware of "... this current law." Chief Songer replied neither he nor the city was aware. He said, in the state from which he came, when an individual was hired to work for a police department, whether as a police officer or as a police chief, that individual automatically qualified to be a member of the police and firefighters' retirement system. He said, therefore, he assumed he was qualified to be a member of the police and firefighters' retirement system in Nevada. Assemblyman Ernaut advised he was not acquainted with Chief Songer and had no conflict of interest with respect to A.B. 16. Mrs. Segerblom asked if Chief Songer had the ability to buy into the police and firefighters' retirement system. Chief Songer replied he did not. Mrs. de Braga asked if an individual could be eligible to receive retirement benefits from more than one state. Chief Songer replied affirmatively and indicated he had vested his retirement in the state of Washington after 20 and one-half years of service. He contended he should not be penalized because he qualified for retirement benefits from another state. Assemblyman Nolan asked Chief Songer to clarify whether or not the requirement that an individual in law enforcement must have two years of patrol duty in order to qualify to be a member of the police and firefighters' retirement fund applied to everyone in police law enforcement. Chief Songer replied he understood it did and contended the requirement was detrimental. Assemblyman Harrington said he concurred it was desirable to obtain the most qualified individuals for positions in Nevada and he was aligned with Chief Songer on the issue before the committee. Chief Songer provided copies of a letter, a resume and a memorandum (Exhibits C, D and E, respectively). Chief John Dotson, Sparks Police Department, testified, with a large portion of his testimony being substantially the same as the testimony given by Chief Songer. In addition, Chief Dotson testified regarding early retirement for police officers. He said the issue was whether or not out-of-state recruitment should be considered with respect to early retirement benefits. He suggested considering out- of-state recruitment in connection with retirement benefits penalized those individuals (hIred from out of state) who were under age 50. He advised, under the PERS fund which did not pertain to police and firefighters, an individual who had 10 years of service could retire at age 60 and, under the PERS fund which did pertain to police and firefighters, an individual who had ten years of service could retire at age 55. He said he was 46 years old when he commenced public employment in the state of Nevada and, under the existing retirement system, he would be required to serve an additional four years in order to retire without being penalized. Chief Dotson stated Chief Mullin of the Boulder City Police Department was unable to be present and had asked him to speak on his behalf. He advised Chief Mullin was 49 years old when he commenced public service in the state of Nevada. He contended Boulder City would save approximately $50,000 in retirement contributions to PERS, on behalf of Chief Mullin, because the city was "...only contributing at the 18 and one-half percent rate rather than the 27 percent rate." He stated, if Chief Mullin chose to retire at age 60 and the present law was not changed, Chief Mullin would receive approximately the same retirement benefit as he would receive if he was a member of the police and firefighters' fund of PERS, however, during the 10 year period before Chief Mullin retired, PERS would lose the opportunity to receive a significant amount of money, approximately $50,000, which it could have invested on behalf of all potential retirees. Chief Dotson advised, when he was going through the selection process for his position with the city of Sparks, he sought information about the retirement system and was advised he would be covered by the retirement system (for police and firefighters). Mr. Bennett asked Chief Dotson and Chief Songer if, on their behalf, the Nevada Sheriffs and Chiefs Association or anyone else had sought the Attorney General's opinion with respect to PERS rejection of Chief Dotson and Chief Songer as members of the police and firefighters' fund. Chief Dotson replied the city of Sparks communicated with PERS through various means, including the city attorney's office. He suggested Mr. Steve Elliott, the city's attorney, might be able to answer Mr. Bennett's question better than he was able to answer it. Mr. Steve Elliott, City Attorney, City of Sparks, testified. He advised the Attorney General of the State of Nevada supported PERS' position with respect to Chief Dotson and Chief Songer. He said the city of Sparks initiated litigation on the issue but was advised, by the court, a subdivision of the state could not sue the state in federal court over the constitutionality of a state statute. Chief Dotson declared he had no desire to sue the state on his own behalf and believed the provisions of A.B. 16 represented the most equitable means of remedying the situation. Mrs. Segerblom asked if Chief Dotson would have to have 10 years of public service in the state of Nevada in order to be able to retire. Chief Dotson replied, as the law now existed, he would have to serve 14 years to be eligible to retire because PERS, as it applied to employees other than police and firefighters, required an employee both to have 10 years of service and to be age 60 in order to retire and he was 46 years old at the time he entered the system. Mrs. Segerblom asked if Chief Dotson could not retire at age 55 with 10 years of service. Chief Dotson replied he could retire at age 55, with his retirement contributions vested, but he would be unable to draw retirement benefits until four years after he retired unless he subjected himself to a four percent per year penalty. Mr. Nolan asked if chiefs of police, during negotiations on salary and benefits, did not negotiate with regard to the inequity in their retirement benefits. Chief Dotson replied, as a department head for the city of Sparks, he was controlled by a management resolution which governed working conditions, salaries and benefits and which established an approximate parity among department heads. He contended he did not have a realistic opportunity to negotiate additional salary and benefits in order to remedy his situation. Chief Songer responded, when the city of Elko realized he did not qualify to be a member of the police and firefighters' fund of PERS, the city, voluntarily, provided him with deferred compensation in an amount equal to the difference between "...regular PERS and police/fire." He advised, even though he received this additional benefit from the city of Sparks, he was fighting for the provisions of A.B. 16 because law enforcement professionals who came into public service in Nevada, in the future, might not receive that same benefit. Mr. Elliott gave further testimony. He said, prior to the current statute being adopted, if a chief of police was hired from out of state, he would receive the same benefit, under PERS, as he would have received had he been promoted to chief of police from within the department of which he was hired to be chief. Mr. Elliott contended PERS benefits should be based on an employee's position and not be based on whether or not the employee was hired into public employee service in Nevada from out of state. He suggested employees who held identical positions should be entitled to equal retirement benefits. He stated the city of Sparks believed it was a violation of the constitutional right to equal protection (to treat public employees hired from out of state differently) and that everyone in the same category should be treated equally unless there was a compelling state interest against treating them equally. He declared the city of Sparks saw no compelling state interest which would be a basis for treating Chief Songer or Chief Dotson differently than any other police chief in the state of Nevada was treated. Mr. Eric Cooper, Nevada Sheriffs and Chiefs Association, gave further testimony. He said, "I'd like to go on record as objecting to state law being used or the PERS system being used as a tool to enforce promotion from within agencies." He said, across the United States, many cities not only sought chiefs of police from within their own police departments but also advertised outside their states in an attempt to seek the best candidates. Mr. Harrington commented, in the field of medicine, those who trained medical residents did not wish to hire such residents to be part of their medical faculties but preferred to hire staff members from outside their medical facilities in order to gain "...a cross germination of ideas..." and to make their faculties diverse. He asked whether or not Mr. Cooper could provide an example of how chiefs of police who were hired from out of state brought with them new ideas which were helpful to Nevada. Mr. Cooper replied there were many, very progressive executives outside Nevada who applied for positions as police chiefs in Nevada. He said one drawback in recruiting police chiefs from out of state was the fact they could not become members of PERS' police and firefighters' fund. He suggested individuals who came to Nevada from other states brought new ideas and fresh approaches. Mr. George Pyne, Executive Officer, Public Employees Retirement System, testified. He contended, by inflating their compensation for retirement purposes, A.B. 16 would confer upon sheriffs and police chiefs a benefit which was not afforded to other members of PERS. He said A.B. 16 would also revise the definition of "police officer" to one which would be contrary to the legislative intent of the original definition. Mr. Pyne said some misinformation was provided to the committee regarding the manner in which elected sheriffs came to be under the employer-paid contribution plan. He advised, in the 1981 legislative session, all police and firefighters were required to participate in the employer-paid contribution plan and were required to take a reduction in pay or to forego a pay raise equivalent to one-half of the total contribution rate. He stated, in 1983, the legislature passed a law, set forth in NRS 286.421, subsection 3, which provided persons chosen, either by election or by appointment, to serve in an elective office of a political subdivision of the state were not required to take the salary reduction required by the 1981 legislation. He advised, thereafter, PERS received an opinion from the Attorney General which advised PERS "...had to go back and increase their pay to the statutory amount of pay that is really determined by this legislature." He stated it was PERS' understanding those elected officers were receiving their statutory salaries. He indicated, in 1981, sheriffs' departments employees were also required to participate in the employer-paid contribution plan and to take a reduction in pay but those employees were not "...excepted out..." in 1983. He said NRS provided, if a public employee was required to participate in the employer-paid contribution plan and took a reduction in pay or forewent a pay raise, when such an employee retired, his pay would be increased to what it would have been had he not been placed under the employer-paid contribution plan. He indicated this was done so that no public employee would receive a lesser retirement benefit than he would have received had he not been placed under the employer-paid contribution plan. He declared, "We factor up the pay for those people who took a reduction; we don't do it for those people who didn't." He said elected sheriffs did not take a reduction in their pay, however, they were requesting, under A.B. 16, their compensation be increased by 27 percent (for the purpose of computing retirement benefits). He contended this would result in those sheriffs receiving a benefit which was not given to other members of PERS. Chairman Bache asked if Mr. Pyne's testimony, thus far, pertained only to lines 20 through 23 on page 1 of A.B. 16. Mr. Pyne replied affirmatively. Mr. Pyne said PERS interpreted lines 20 through 23, on page 1 of A.B. 16, to mean sheriffs' compensation, for retirement purposes, would be increased by 27 percent, which was double the amount by which other policemen' and firefighters' salaries were increased for retirement purposes. He suggested, if it was not intended sheriffs actually be paid that additional salary but, rather, only that PERS receive retirement contributions based on the additional compensation, then the language in lines 20 through 23, on page 1, of A.B. 16, appeared to conflict with the language contained in lines 2 and 3, on page 1, of A.B. 16. Mr. Pyne said, furthermore, if the additional salary was not actually paid, PERS, potentially, would be placed in violation of Section 415 of the Internal Revenue Code, which limited the amount of benefits a member of a retirement system could receive to 100 percent of his taxable compensation, and PERS could lose its tax exempt status as a qualified retirement plan under Section 401A of the Internal Revenue Code. He explained, if PERS lost its tax exempt status, its members would be subject to being taxed on the contributions their employers made to PERS on their behalf and the earnings of the retirement fund would be subject to being taxed. Mrs. Lambert asked if it was Mr. Pyne's testimony, unless local governments paid sheriffs and chiefs of police their actual salaries, increased by the 27 percent to which Mr. Pyne had referred, those sheriffs and chiefs of police would receive retirement benefits based on more than 100 percent of their salaries and the entire public employees' retirement system would lose its tax exempt status. Mr. Pyne replied the possibility of such a result existed. He advised, when the Internal Revenue Service determined whether or not an individual's retirement benefit exceeded 100 percent of his pay, it considered the individual's gross income before he made any contribution to any pretax account. He suggested, if a retirement benefit was computed based on an individual's actual salary plus the proposed 27 percent augmentation, it was possible the individual could receive a benefit greater than 100 percent of the amount the Internal Revenue Service considered to be the individual's taxable income. Mr. Pyne declared there were yet other problems with A.B. 16. He pointed out A.B. 16 required the definition of "compensation" be changed to include both the basic retirement contribution made by an employee and his employer's matching contribution. He said, because all those employees being discussed were presently under the employer-paid contribution plan, PERS interpreted this change would require those employees' compensation to be adjusted upward by 27 percent a second time. He contended, if retirement contributions were included in the definition of "compensation," not only would A.B. 16 cause those employees' compensation to be increased by 27 percent but would also cause their retirement contributions to be increased by 27 percent. Mr. Pyne referred again to lines 20 through 23, on page 1, of A.B. 16, and said, because police chiefs were not elected officials, their salaries already were factored upward when they retired and they should not be included with sheriffs in the proposed augmentation of compensation. Mr. Pyne referred to the language on page 2 of A.B. 16, commencing at line 46, which proposed police chiefs be allowed to participate in the employer-paid contribution plan without taking a reduction of their salaries or foregoing a pay raise. He suggested this provision would require police chiefs' salaries to be increased by 14 percent when they retired and, thereafter, to be increased by an additional 27 percent as a result of the language on lines 20 through 23, on page 1, of A.B.16. Mr. Ernaut suggested NRS 286.481 and NRS 286.487 must be addressed if A.B. 16 was to pass. Mr. Pyne asked Mr. Ernaut if his concern was based on the testimony of Chief Songer and Chief Dotson which indicated they were not eligible to participate in PERS. Mr. Ernaut responded affirmatively. Mr. Pyne explained chiefs of police did participate in PERS, whether they were recruited from within or from without Nevada. He said, however, except in some small communities, the position of chief of police was one which was largely administrative and, therefore, although chiefs of police participated in PERS, they did not participate in the police and firefighters' fund of PERS. He indicated chiefs of police could retire at age 65, with five years of service, at age 60, with ten years of service, or at any age, with 30 years of service. He stated members of the police and firefighters' fund could retire at 65, with 5 years of service, but also could elect to retire at age 55, with 10 years of service, or at age 50, with 20 years of service. He suggested the issue before the committee was whether or not chiefs of police should be allowed to participate in the police and firefighters' fund. Mr. Ernaut suggested Chief Songer's and Chief Dotson's argument was they should receive credit for their service in law enforcement prior to their entry into PERS in determining whether or not they were eligible to participate in the police and firefighters' fund. Mr. Ernaut said, in order for their argument in support of such consideration to be valid, NRS 286.481 and NRS 286.486 would have to be addressed. Mr. Pyne advised PERS had made some computations regarding costs to cities, as public employers, of the compensation increases proposed by A.B. 16 and could work with the Legislative Counsel Bureau to confirm those computations in order to provide them to the committee. Mr. Pyne addressed those provisions of A.B. 16 which dealt with modifying the definition of "police officer." He explained, prior to 1985, there was a list of those individuals who could participate in the police and firefighters' fund but there was no real rationale for the list. He advised, in 1985, the legislature requested PERS to conduct a comprehensive study regarding who should and who should not participate in the police and firefighters' fund. He said, in 1987, PERS provided the legislature with a proposal as to how "police officer" and "fireman" should be defined by the legislature and who should and who should not be allowed to participate in the police and firefighters' retirement fund. He indicated as a result, "...the statute got away from that enumeration of positions...and came back to more of a functional definition." Mr. Pyne suggested the basic issue was why an individual should be allowed to take an early retirement. He said the PERS study reflected the basis for allowing an individual to take an early retirement was recognition of the fact an individual's physical ability declined with age. He indicated there were public employees who served in positions involving public protection in which it was essential to maintain physical ability and emotional fortitude. He suggested those public employees were the ones who should be permitted early retirement and said PERS conducted its study from that perspective. He advised it was not the individual but rather the position the individual occupied which was considered when determining eligibility for early retirement. He reiterated, in large communities, the position of chief of police was largely an administrative position which did not involve "...front line police work..." Mr. Pyne referred to earlier testimony that cities were unaware their chiefs of police were ineligible to participate in the police and firefighters' fund. He contended many notices were given and many hearings were held regarding the issue and suggested those cities should have been aware. Mr. Pyne gave further testimony regarding the study conducted by PERS. He advised PERS determined, by granting early retirement to those involved in positions of public protection, "...a youthful, more vigorous front line public safety work force could be maintained." He indicated this determination was the basis for granting early retirement to police officers and firemen. He advised NRS 286.042, subsection 2, and NRS 286.061, subsection 1, provided for "...continued coverage if a member in an approved police/fire position is promoted within a chain of command of a police or fire department and the position is related to firefighting or public protection." He suggested, without that provision, many policemen and firemen would not seek promotion, which would deprive their employers of having employees with valuable experience in higher positions and would result in an older front line work force. He contended the position of chief of police was excepted from those positions eligible for early retirement. Mr. Pyne read lines 26 though 32, on page 2, of A.B. 16. He indicated the provision contained in those lines could create a significant administrative expense because PERS' staff would have to make the determination of whether or not previous positions, held out of state, met the criteria for "...approved position coverage." He suggested members of PERS' staff might have to travel across the country in order to determine if an individual should be covered under the police and firefighters' retirement fund. Mr. Pyne said, based on the reasons he had stated, the board of PERS opposed A.B. 16. Ms. Dana Bilyeu, Operations Officer, Public Employees Retirement System, testified. She advised, prior to holding her present position, she was a Deputy Attorney General and represented PERS. Ms. Bilyeu referred to Mr. Elliott's testimony and said the city of Sparks approached the Attorney General, informally, and requested the Attorney General review the perceived inequity in the retirement system. She indicated she conducted the review and issued a letter, directed to one of Mr. Elliott's deputies, in which she indicated she agreed with PERS' contention the system was fair and equitable. She stated the city of Sparks then filed a lawsuit, on behalf of Chief Dotson, and she defended PERS against that lawsuit. She advised she filed a motion to dismiss the lawsuit based on the city's lack of standing to sue on behalf of Chief Dotson. She said the court found the suit should be dismissed and in a footnote to its decision said, "...like Nevada, the federal government allows its law enforcement officers the option of early retirement and those officers transferred to supervisory duties do not lose this option. Even if the Nevada statute were construed as imposing some sort of residency requirement, it seems far removed from any realistic infringement of the right to travel, and it is unclear how the claim made here differs from a claim that any civil service statute that bases promotional decisions, in part, on seniority within the state's civil service creates a de facto residency requirement." Ms. Bilyeu contended the key issue was not whether or not Chief Songer and Chief Dotson had been discriminated against but, rather, was whether or not everyone was treated alike. She advised she herself was qualified to be a sheriff in the state of Nevada but said, were she a sheriff, even as a resident of Nevada, she would not qualify to be covered by the police and firefighters' retirement fund because she lacked the two years of front line service required to qualify for that fund. She contended the determination of whether or not an individual qualified to be covered by the police and firefighters' retirement fund was not based on whether or not the individual came from out of state but was based on the individual's job. Mrs. Segerblom commented, if a teacher became a member of PERS and worked for 10 years, he would not be permitted early retirement but could retire at age 65. Mr. Pyne indicated Mrs. Segerblom's statement was correct. Mrs. Segerblom asked, "So, what you're saying is that you just don't want them to have early retirement. You don't mind if they come into the system and work 10 years under the system." Mr. Pyne replied, at the present time, individuals such as those being discussed participated in PERS, as regular members, their retirement was vested after five years of service and they could retire at age 65. He advised, in order to retire at age 60, regular members of PERS were required to have 10 years of service, while police and firefighter members who had 10 years of service could retire at age 55. He reiterated his prior testimony regarding the requirements to qualify as a member of the police and firefighters' retirement fund. Mrs. Segerblom commented they (Chief Songer and Chief Dotson) were not asking for credit for their services outside of Nevada. Mr. Pyne concurred with Mrs. Segerblom's comment. He indicated Chief Songer and Chief Dotson were basing their contention they should qualify to be members of the police and firefighters' retirement fund on their out-of-state experience. Mr. Bennett commented Ms. Bilyeu's contention was, because a chief of police did not have two years of front line service in the state of Nevada, he was not eligible for pension and retirement benefits. He stated all he heard in the testimony of the chiefs of police was their desire to participate in PERS and declared he was having difficulty accepting Ms. Bilyeu's argument as it related to those chiefs of police. Ms. Bilyeu responded her point was not that chiefs of police should not participate in PERS. She advised they did participate in PERS, in the same manner as any public employee in the state of Nevada participated, but were not subject to the early retirement provisions of the police and firefighters' retirement fund. She reiterated earlier testimony that it was not the individual but, rather, the individual's position which was considered in determining if an individual was eligible for the police and firefighters' retirement fund. She advised Chief Dotson's position, because of its duties, was not eligible for police and firefighters' retirement coverage. Mr. Bennett asked Ms. Bilyeu why Chief Dotson's and Chief Songer's retirement contributions were returned by PERS. Ms. Bilyeu replied it was not their entire contributions but only their excess contributions which were returned. She advised PERS accepted those portions of Chief Dotson's and Chief Songer's contributions which were equivalent to contributions for regular membership in PERS. She explained there was a difference in the contribution rates required for regular membership and those required for membership in the police and firefighters' fund, which contribution rates were approximately 18 percent and 27 percent, respectively. Mr. Neighbors asked Mr. Pyne if he would identify the members of PERS' board of directors. Mr. Pyne identified the members of the board. Mr. Neighbors asked what position the board took on A.B. 16. Mr. Pyne replied the board was opposed to A.B. 16. Mrs. de Braga asked if she was correct in her understanding dispatchers were not included under the provisions for early retirement. Ms. Bilyeu replied Mrs. de Braga was correct. Chairman Bache asked if chiefs of police and sheriffs were able to buy five years of credit towards retirement as other public employees were able to do. Mr. Pyne responded they were. He said any public employee with five years of service could purchase up to an additional five years of service. Mr. Andy Anderson, Nevada Conference of Police and Sheriffs and Las Vegas Police Protective Association, testified. He explained early retirement provisions were intended to apply to front line policemen and front line firemen. He suggested early retirement was provided for those individuals because physical and emotional abilities waned with age and elderly individuals were not physically capable of performing the functions of front line policemen and firemen. He indicated the reason an individual who had two years of front line service did not lose his eligibility for early retirement when he was promoted was such a loss would discourage front line policemen and firemen from seeking promotion, thereby causing individuals to remain in front line positions when they were no longer physically able to perform the functions of those positions. Mr. Mark Balen, Professional Firefighters of the State of Nevada, testified. He advised the Professional Firefighters of the State of Nevada opposed A.B. 16 for the same reasons as those stated by Mr. Anderson. He said he sat on the police and firefighters' retirement board, which was responsible for making recommendations as to which positions were and which were not eligible for early retirement. He explained a stringent formula was used in determining eligibility for early retirement and the Professional Firefighters of Nevada believed the formula worked well. Mr. Harrington suggested to allow chiefs of police who came from out of state to be eligible for early retirement would assist in effectively recruiting highly qualified individuals from out of state for such positions and contended it would be reasonable to do so. Mr. Balen responded neither firefighters nor police officers who were promoted lost their eligibility for early retirement. He stated, "The problem here and what these police chiefs are trying to do is come in from other states, after they've drawn a retirement from another state, and come vest in our system and leave again; and it's possible for them to work for five years, purchase five years and put a burden on our system. That is fiscally irresponsible for our system to do that." Mr. Harrington asked if Mr. Balen could provide an example of an individual who had done as Mr. Balen suggested. Mr. Balen responded he did not believe anyone ever had done as he suggested but the possibility of doing so would exist if individuals coming to Nevada from out of state were allowed to be eligible for early retirement. Mrs. Segerblom pointed out both Chief Songer and Chief Dotson had spent two or more years as front line policemen. She asked if Mr. Anderson did not believe there was more stress involved in being a chief of police than in being a front line policeman of firefighter. Mr. Anderson responded a chief of police experienced enormous stress but reiterated the purpose of the early retirement benefit was to "...keep the elderly officer off the street because he can't physically do it." He contended physical ability, not stress, was the criterion used to determine eligibility for early retirement. Mr. Bennett asked Mr. Balen what it would cost a fireman to purchase five years of service toward retirement. Mr. Balen replied he would guess it would cost approximately $50,000. Mr. Harrington suggested the real issue before the committee was not the reason for making exemptions to the early retirement benefit but, rather, was to whom those exemptions should apply. Mr. George Pyne gave further testimony. He indicated he concurred with Mr. Harrington's last comment. He referred to the PERS study to which he testified earlier, and said after it was determined only positions which required a higher than normal standard of physical ability and emotional fortitude would be eligible for the police and firefighters' retirement fund, the issue of promoting individuals from such positions was considered. He reiterated earlier testimony regarding the reason for allowing individuals who were promoted to retain their eligibility for the police and firefighters' retirement fund and suggested that reason did not apply to chiefs of police hired from out of state. He contended promoting from within "...allows that front line law enforcement to remain a youthful and vigorous front line law enforcement..." and recruiting individuals from out of state did not. Mr. Neighbors asked if the effect of buying five years of service toward retirement was to increase the amount of an individual's first retirement check by 13 percent. Mr. Pyne replied affirmatively. Mr. Bennett asked if it would bankrupt PERS if A.B. 16 was passed. Mr. Pyne answered it would not. Mrs. Freeman asked if she correctly understood Mr. Pyne's testimony to be, if any governmental entity wished to recruit an individual from out of state, such an entity would increase the salary it offered for the position for which it was recruiting. Mr. Pyne replied Mrs. Freeman's understanding was correct. Mr. Harrington said Mr. Pyne had testified recruiting a police chief from out of state would disrupt the chain of promotion and cause the front line police force to be comprised of older individuals. Mr. Harrington suggested one position at the top of a work force would not make a sufficient difference to cause the work force to be either old or young. Ms. Stephanie Tyler, city of Sparks, testified. She said she wished to respond to Ms. Bilyeu's comments regarding the city's legal standing under current statutory language. She declared the city had no legal standing which was why the city wished to see the law changed. Ms. Tyler, referred to the definition of "police officer" contained in Section 2 of A.B. 16, and said, for retirement purposes, the definition of "police officer" was based upon an individual's entire career in law enforcement. She pointed out the testimony of Chief Songer and Chief Dotson indicated they spent many years working their way up to their present positions and contended they should not be judged, for purposes of retirement, on only the last few years of their careers, spent as chiefs of police. She said she would welcome the opportunity to work with a subcommittee to make A.B. 16 acceptable. Mr. Eric Cooper gave further testimony. He said Mr. Pyne had testified the effect of A.B. 16 would be to give sheriffs a 27 percent increase (in their retirement benefits). He stated doing so was not the intent of A.B. 16 and Nevada Sheriffs and Chiefs Association would be willing to assist in amending A.B. 16 to cause it to accomplish its intent. Mrs. Freeman asked why the two issues covered by the provisions of A.B. 16 were combined in one bill. Mr. Cooper indicated the Legislative Counsel Bureau had chosen to combine the issues in the same bill. Chairman Bache closed the hearing on A.B. 16. Chairman Bache reviewed assignments for making floor statements. BILL DRAFT REQUEST NO. 22-204 - Revises various provisions relating to land use planning. Chairman Bache advised B.D.R. 22-204 revised provisions relating to parcel maps and final maps of subdivisions and to removal of members of the planning commission and other matters properly related thereto. ASSEMBLYMAN NEIGHBORS MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 22-204. ASSEMBLYMAN ERNAUT SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY ALL MEMBERS PRESENT. BILL DRAFT REQUEST NO. 20-432 -Authorizes counties to recover money expended to remove or secure hazardous materials. Chairman Bache read the summary of B.D.R. 20-432. ASSEMBLYMAN LAMBERT MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 20-432. ASSEMBLYMAN BENNETT SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY BY ALL MEMBERS PRESENT. There being no further business to come before the committee, Chairman Bache adjourned the meeting at approximately 10:45 a.m. RESPECTFULLY SUBMITTED: Sara Kaufman, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs February 28, 1995 Page