MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session April 10, 1995 The Committee on Government Affairs was called to order at 9:32 a.m., on Monday, April 10, 1995, Chairman 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 Mr. Pete Ernaut 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 STAFF MEMBERS PRESENT: Denice Miller, Senior Research Analyst OTHERS PRESENT: Andrew Urban, Assistant City Attorney, City of Henderson; Michael Pitlock, Executive Director, State of Nevada Department of Taxation ASSEMBLY BILL 428 - Makes various changes to charter of City of Henderson. (BDR S-748) Andrew Urban, Assistant City Attorney for the city of Henderson, testified on behalf of the bill. He explained the bill section by section. Section one of the bill incorporates a requirement under state law making the charter gender neutral throughout all the different phrases. Section two makes changes concerning ward boundaries so they can obtain a more accurate figure in balancing the number of residents and voters in each ward. Paragraph three of the charter prohibits changing boundaries of wards during an election year, except for annexations. Section three of the bill makes changes throughout replacing the word "must" with "shall". The significant change requested deals with an appointee to fill a vacancy for city council or a municipal judge, it moves the time period up from the first of July to the middle of June. This serves a twofold purpose; it puts the elected individual in their seat sooner and gets them on-line prior to the start of the next fiscal year. Section four eliminates some appointed positions the city has not had filled for at least ten years; city Treasurer and city Auditor. The city Treasurer's position is handled by the Finance Director and the auditing is done by outside entities rather than internally. Section five makes changes concerning special meetings and states they will be conducted pursuant to the open meeting law, NRS 241. Section six eliminates the reference to adjourned meetings. Section seven was requested by their finance department. It takes out the restriction against mortgaging, pledging or apothecating any city property. Section eight eliminates the ability of the council to create a health board as the city of Henderson belongs to the Clark County Health Board. Section nine requests a language change for the simplification of the adoption of ordinances and regulations pursuant to NRS 278. The word "may" in line 35 of section nine will be changed to "must" or "shall". Section ten addresses the same issue currently pending in the form of S.B. 23, that is acquisition of private property for the purposes of creating off street parking. At the present time, land cannot be condemned to create parking facilities. There is little or no parking in the downtown area. The language used in S.B. 23 is a bit more restrictive than that used in this section. In the original section of the charter, 2.220, subparagraph two, the word "except" has been deleted and "including" has replaced it to enable the city to obtain property by any lawful means, including eminent domain, for establishing off street parking facilities. Section 12 and 13 address the same issue as A.B. 45. This eliminates the Nevada Racing Commission and incorporates it into the gaming commission. It also refers to purchasing computer software from their land fund proceeds and allows the city to sell city-owned land for less than appraised value. Section 14 eliminates the requirement that the city manager's salary be set by formal resolution. Currently, the council holds a hearing annually concerning the performance evaluation of the city manager. As a result of that, a closed meeting is held and discussion takes place on whether the city manager should be given a raise or not, and then it is voted on at the next public meeting. Sections 16 and 17 eliminate the exemption for residency. Members are now required to be city residents. Section 18 makes a change concerning the city Treasurer to Finance Director. Section 20 deals with fines and forfeitures and says simply that they now be paid into the city treasury. Sections 21-25 are all mandated by the election law that was adopted last session. Section 26 addresses the same issue as S.B. 24, regarding public versus private bond sales. Section 27 again makes changes relative to the Finance Director. Section 29 removes the ability of the civil service board to appoint the Personnel Director. The Personnel Director is appointed by the city manager and the decision is ratified by the city council. Section 30 does all the repeals and that is set forth to eliminate their regulation over prostitution, city cemeteries and the qualifications for the city's different appointed officials. There were two suggestions from the council for amendments to the bill (Exhibit C). Assemblyman Ernaut wanted to know if the suggestions were compiled by a charter review committee. Mr. Urban stated they were done by a staff charter review committee chaired by Mrs. Bell, City Clerk, and other city officials. Mr. Ernaut cautioned in section one, subsection three, NRS provides the fact that references in the masculine do include both masculine and feminine genders. He was not sure the new language worked. Mr. Ernaut has seen this before due to lack of familiarity with NRS. Their personnel director wanted it included anyway. Mr. Ernaut questioned section 11 and wondered if there was a problem with chickens running wild in the streets in Henderson. Mr. Urban answered that section was eliminated because they do not tax any animals and thought the language was arcane. The reference to poultry was indeed strange. Assemblyman Harrington queried about section seven, lines 19-21, allowing more flexibility in disposing of land in Henderson. He asked if this would remove some of the safeguards dealing with the disposition of land that might affect people on the council who own property in and around Henderson. Mr. Urban did not believe that to be so. He said there were specific sections in the charter dealing with the sale of city lands. Mr. Hanson, Finance Director, wants to finance purchases of equipment and additional buildings which would allow them to mortgage the underlying property, build a public building on it and repay it at a more favorable rate. Every one of these would be done through a public meeting with an agenda item of either an ordinance or a resolution. On section ten, Mr. Harrington wanted to know if there had been a problem with a landowner or a homeowner. Mr. Urban replied it was an individual who owned a rental property. Three out of four owners agreed to sell their land for the construction of off street parking but the fourth did not want to. He wanted too much money. The council wanted the property condemned anyway, but they could not do it so they had to pay the extra charge to obtain the land. Assemblyman Neighbors commented he hoped he was never stopped out in the field by one of his constituents questioning the meaning of lines 20-25 on page one and have to explain it in a hurry. Mr. Urban said they did not put in that exact language, but the Legislative Counsel Bureau suggested it to prevent having to go through changing every single line with gender references. Assemblyman Nolan requested the deletion of the amendment to section 10 because S.B. 23 would be coming through which addressed the same issues and the amendment was redundant. Mr. Urban stated S.B. 23 was more restrictive but if the amendment were eliminated they would nevertheless be satisfied with S.B. 23. Assemblyman Bennett questioned section 5.080, watchers and challengers; was that covered by the county. Mr. Urban answered that section was part of the last legislative session dealing with election law reforms. It is now covered by the state statute. Assemblyman Segerblom wondered if wards could be redistricted without an official ten year census. Mr. Urban said the charter has taken the ten year census and updated it by county figures and the demographer's figures which enables them to redistrict the wards accurately. Mrs. Segerblom asked if there was a residency requirement for candidates to run for city council. One year, Mr. Urban replied. Chairman Bache indicated reapportionment of the wards could result in some people not ever getting to vote and others voting every two years according to the way section two is written. He said Las Vegas does this but is only allowed to reapportion once every ten years. Mr. Urban had to look further into the situation as he did not know all the details. In Henderson, Assemblyman Lambert questioned, the voting took place city wide, did it not. Yes, Mr. Urban affirmed. The city councilmen represent a particular ward; there are four of those, but they run at-large. The city of Las Vegas runs on a ward basis. Mr. Bache saw the only difference to be the restriction of switching from one ward to the other and then back again. Mr. Urban stated that was true. In section four, Mr. Bache said,why not replace city treasurer and city auditor with finance director. Mr. Urban indicated they could do that; he thought they had. It would be appropriate. Mr. Bache closed the hearing on A.B. 428. Mr. Bache invited Gary Crews, Legislative Auditor and Michael Pitlock, Executive Director of the Nevada Department of Taxation, to testify on the financial condition of White Pine County. Michael Pitlock spoke first. In accordance with S.B. 305, the department was there to report on their efforts in dealing with the financial crisis in White Pine County school district. He passed out a report developed jointly by the Department of Taxation and the Legislative Auditor (Exhibit D). S.B. 305 put certain requirements on the department to go out and perform certain analyses which would then be reviewed by the Legislative Auditor. Because of the short time frame involved, it actually became beneficial for the Legislative Auditor and the department to work jointly on these reports. The format was agreed on in advance in order to meet the strict deadline. On page two of the report, Mr. Pitlock referred to a summary by fund that represented the projected deficits and cash balance for White Pine. Even though S.B. 305 called for this review to be done through June 30, it was necessary to extend the analysis through July 31 because there are significant expenditures that are required to be made in July and there is no significant revenue inflow into the district until August. The cash deficit increases by almost a million dollars between June and July. At this time, the district is unable to meet its debt obligations for the months of April, May, June and July of 1995 in the amount of 2.6 million dollars. That number does not solve the whole problem. The last page of the report reflected other expenditures to be made by the school board. When those are added to the 2.6 million, it is in the neighborhood of 3.6 million dollars. Mrs. Lambert asked about the proposed athletic field. She mentioned boosters and other volunteers had completed her son's field and would that not be a possibility. Mr. Pitlock indicated this was the intention of the school board. Upon the finding of financial difficulty, any additional obligations must be approved by the Department of Taxation who would take a much different view of these expenditures. It would certainly not be the department's intention to approve spending half a million dollars on an athletic field when there is barely enough money to complete the school in the first place. Obviously, expenditures are going to have to be prioritized and the first one would be the education of the students themselves. Mrs. Lambert recognized the Department of Taxation had incurred a great deal of expense and the local government advisory committee will have expenses along with Mr. Crews' department; will there be a refunding mechanism? Mr. Pitlock understood a series of bills would have to be drafted and enacted in order to implement some kind of solution for White Pine. He said provisions are being considered in subsequent legislation to take care of the added expenses for the department to be involved in this project. Mr. Nolan questioned whether the cost of paving the parking lot was included in the cost of the landscaping. Mr. Pitlock answered no, it was not. That had been an expense included in the month of June. He indicated because of the school district's inadequate accounting system and because of the short time frame for the production of the financial analysis, the true cost of that project is not known. Mr. Nolan wondered if that cost was based on estimates from private contractors or if it would be something government agencies could provide at some type of cost savings. Mr. Pitlock stated the cost was based on a contractor's estimate in the area doing other work. Mr. Ernaut queried if Mr. Pitlock cared to speculate on where White Pine County would get 3 « million dollars. Mr. Pitlock understood that through the local government advisory committee there have been discussions with some financial institutions who have expressed a willingness to look at the situation. Those types of issues would be discussed in an upcoming meeting. Mr. Ernaut wanted to know what was on the plate of options. Mr. Pitlock said the investment in White Pine County by financial institutions through bond issues was a positive indicator. He felt the real key to finding an investor would come up in subsequent legislation where the assurances of repayment will also come from. If that bill is structured appropriately, takes the actual payment mechanism away from the school district and funnels it through the state Treasurer, there will be some assurance there that the repayment will come about. Mr. Ernaut guessed that assurance would come from the legislature. Mr. Pitlock said the legislature would be able to provide the ultimate guarantee of repayment and some of the lenders would require that ultimate guarantee before they would be willing to put up that kind of money. Gary Crews, Legislative Auditor, pointed out staff of the Legislative Counsel Bureau had accomplished a lot of work on the White Pine County financial report. They reviewed everything through the year and had estimated 3.6 million dollars as the total needed to eliminate the deficit. There were some contingencies that could propel the cost upward, but the current estimate was as close as they could come at this time. Mrs. Lambert asked if there was any hope of proper controls being put in place to prevent this type of situation from happening again. Mr. Crews stated it would be premature at this point. All controls are messed up; everything has to be restructured and it will take a major endeavor to do so. Mrs. Lambert questioned co-mingling of accounts. Was that true? Mr. Pitlock indicated it was true in the case of cash accounts. There were no controls to prevent fraudulent spending out of those accounts. The figures are current and projected only from this point on. There could be a classification problem with some of the numbers but the overall cash figure is fairly accurate. Mrs. Lambert asked when the last time the State Department of Education audited White Pine County. Mr. Pitlock did not know. Mr. Crews indicated they would find out. Mr. Ernaut questioned if there were a lot of other counties that had the same lack of safeguards and applicable standards for financial record keeping and disbursements with the state ultimately being responsible for their mistakes. He needed to know what was being done from the state's standpoint or from the tax department's standpoint so this situation was not revisited in another county in the future. Mr. Pitlock said you have to take a step back and question why the situation got so bad and no one did anything about it. It will be necessary for the Departments of Education and Taxation both to examine other counties to ascertain whether similar situations were imminent. The procedures currently in place would also need to be reviewed for adequacy and to see they are being followed. The Department of Education needs to participate more fully because they have a lot of requirements that need to be strengthened as well. Mr. Ernaut questioned if a bill draft was needed to provide guidelines to ensure all entities were thoroughly informed and updated regularly. Mr. Pitlock believed the department's statutes provided adequate guidance for the procedures that should be in place. He was hopeful that through the local government advisory committee they would be able to strengthen their enforcement of those provisions. Mr. Ernaut was concerned about the standardization of procedures and suggested statutes placed for future administration. Mr. Pitlock stated statutory guidance was sufficient and his review would focus on whether or not their administrative regulations were in line with that statutory requirement. Mr. Ernaut mentioned if something like this happened again in another county, there would be such a huge financial burden on the state they would not be able to back up the bail-out measures. Mr. Bennett asked if there was a final date for the payment of the White Pine Teachers. Mr. Pitlock believed the payroll was on the 21st of April. That would be the deadline to pay the teachers. Mrs. Freeman related the need for a system to ensure this situation would not reoccur and was the appropriate software available for such a system. Mr. Pitlock mentioned when he first got the job at Taxation, he was appalled at the lack of computers in the department. Currently, there is a one-shot appropriation allotted for providing the department the computer support it needs. This would be a significant step in assisting the department with the type of system necessary. If the bill is not passed, the department will not be able to perform its directed duties. Mrs. Freeman wondered what would happen to this bill in the money committee. Mr. Pitlock indicated he was happy with the money committee's reception on this measure. His request for the one-shot was granted and he remained hopeful for the future. Mrs. Krenzer questioned the accountability of the school board and others to prevent this type of situation in the future. She said if the department of taxation knew the reports were not submitted but the school board did not, she felt a letter to apprise them of the situation would have been appropriate and inexpensive. Mr. Pitlock knew there was a significant amount of correspondence going back and forth between the department and the superintendent. One of the real failures in reviewing the situation had to do with a lack of communication between the superintendent and the school board. The best system in the world can be circumvented if too much authority is given to a single individual. He felt the superintendent should be the one to explain the mess because he had an awful lot to do with the entire situation. Mrs. Krenzer insisted he did not answer her question. She wanted to ensure the school board would be responsible for the superintendent's actions and could that be done. Mr. Pitlock said rather than communicating through the superintendent to the school board, they would communicate directly with the school board and hopefully this would act as a safeguard to prevent miscommunication. Mrs. Krenzer wondered if it needed to be in the statutes or could it be regulatory. Mr. Pitlock remarked it would be a regulation. Mr. Bache indicated one or two measures dealing with White Pine County would be heard today in the Senate and would arrive in the government affairs committee later in the week. Mrs. de Braga said another part of the problem is that the superintendent was the financial manager which needed to be changed. Another problem was the school board's lack of understanding of their full authority and responsibility. Mr. Pitlock indicated it was difficult to convince the school board of the magnitude of the financial situation. Mrs. de Braga questioned if the tax commission had the authority to remove these people from office or place sanctions on them or the superintendent. Mr. Pitlock mentioned the only authority they had was once there is the finding of financial difficulty, the tax department can step in and must give approval to certain agreements. Basically, they can stop the money from being spent. The school board, however, keeps trying to spend it and the tax department keeps telling them no. Mrs. de Braga asked whether any expenditures had been canceled to save money. Mr. Pitlock reiterated the school board would do what they wanted regardless of the advice given by the tax department. Mr. Bache checked out the payroll and mentioned that did not seem to be the source of their problems. Mr. Pitlock looked at page nine and it showed the payroll for the months of July and August which would be $443,856 per month. Mr. Bache wanted to know what the figure was on page four. Mr. Pitlock indicated it was for capital projects. Mrs. Lambert reconfirmed the school district had a different view of things, but that the department of taxation held the checkbook. Mr. Pitlock confirmed this to be true. Mr. Ernaut wondered how many employees were covered by this payroll. Mr. Pitlock said it was approximately 120 employees. They have requested detailed information on each position. There would be progress reports upcoming in the next few weeks. Mr. Bache indicated who had what bills on the floor. The meeting was adjourned at 10:40 a.m. RESPECTFULLY SUBMITTED: Denise Sins, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs April 10, 1995 Page