MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session May 2, 1995 The Committee on Government Affairs was called to order at 6:00 p.m., on Tuesday, May 2, 1995, Chairman Lambert 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 COMMITTEE MEMBERS ABSENT: None GUEST LEGISLATORS PRESENT: Senator O'Connell, Senator McGinness STAFF MEMBERS PRESENT: Denice Miller, Research Analyst, Brenda Erdoes, Legal Division OTHERS PRESENT: Carole Vilardo; Nevada Tax Payers Association, Michael Pitlock; Nevada Tax Payers Association, T.J. Grady; Nevada League of Cities, Karla Hansen; White Pine County School District, Bob Hadfield, NACO, Marvin Leavitt; local advisory committee. Marvin Leavitt, Chairman of the Local Advisory Committee, testified regarding the meeting that was held regarding the issues relating to the White Pine County School District. One issue was the proposed budget for this next fiscal year, another, was getting a financial manager to oversee the transactions of the district as well as prepare for the final report that is due to the committee on May 17, 1995. Mr. Leavitt drew attention to some things that have offsetting effects such as property tax assessed evaluation has risen dramatically in White Pine County between the fiscal year we are in and the next fiscal year. The schools levy seventy-five cents for operating purposes. Twenty five cents of the seventy-five cents is an offset against the amount the state contributes to the state contributive school fund. What happens is, there is a huge increase in assessed evaluation which tends to decrease the amount of the state contribution going into the district. One of the factors considered in determining the amount of per pupil guarantee, is the wealth factor of a district. When property taxes rise rapidly, the fifty percent portion of the property tax is considered as the wealth and cause the per pupil guarantee to go down. When they get involved in doing budgets they are dealing with factors yet to be determined. Because of the huge rise in assessed evaluation, there is a possible decrease in the per pupil guarantee which reduces the revenue going into the district. The discussion included how they would treat payments on loans, what funds they will use, and try to come up with a balance. He stated the committee, as they put this budget together, regardless of the financing mechanism, they want to balance between the revenues and expenditures for the next fiscal year. He said when they speak of revenues they are talking about actual revenues, not loan revenues. He noted they presently have a negative fund balance. They have to work out some way to get a legitimate fund balance, where they are not up against their last dollar to make expenditures. Chairman Lambert asked if they were planning on getting the operating revenues and the expenditures balanced so there will not be an increasing deficit every year and then pay off the debt aside from that. Mr. Leavitt replied as an example if they gauge their revenue, which is legitimate revenue for the district for the next fiscal year, plus the loan for July, they could spend considerably more money for the year they could if they considered the revenue for the year as being the total revenue they are going to receive. Otherwise they would have to borrow again next year. Both have to be in balance. Douglas C. Thunder, Director of Fiscal Service for the Department of Education, served on the local advisory committee and testified he was involved with the preparation of the budgets for the next fiscal year for White Pine County School District. He stated the chairman for the subcommittee was Mike Alstoy. They presented a rough draft of the budget to the committee. If the nine hundred fifty thousand dollars they anticipate will be left of the "borrowing power" in 1996, they could come up with a balanced budget. He stressed that is really not what they want to do because it would put the district "behind the eight-ball" in the following years. He stated they want to get them out of debt, and make them solvent at the same time. He expressed they do not wish to see the school district struggle behind this financial "eight ball" any longer than they absolutely have to. Mr. Thunder concluded by saying they are putting together a budget of approximately eight million dollars, which is less than what was expended in fiscal year 1994, and less then fiscal year 1995. He testified the subcommittee has solicited information from the district and from the administrator and teachers where cuts can be made doing as little damage as possible. He stated they will be presenting their work at the next meeting on the eleventh of May. They hope to have it ready for the legislature by the seventeenth of May. The general fund is the budget they are concentrating on. There are a couple of other budget accounts that come into play. Last session the legislature required the local school districts to keep their special education in a separate account. He indicated it requires a substantial transfer from the general account. He said the work is just beginning and asked the committee for any input they might have. He noted the cut will be approximately ten to fifteen percent over what the budget would have been, if they could have used all of the nine hundred and fifty thousand left in the loan. See (Exhibit C). Mr. Neighbors asked if the cuts would cause the kids of White Pine County to be without benefits compared to the other kids throughout the state. He questioned also the status of the teachers renewing their contract. Mr. Thunder replied in terms of the teachers, letters of intent have been sent to them with a clause indicating the financial difficulty the district is in and indicates the district preference would be to hire them for the coming year. As far as the students, there will be some effect. They would maintain the minimum requirements of the State Department of Education, and also provide the basis for the school district in the future. Mr. Neighbors asked if it was a possibility the students would have less benefits. Mr. Thunder commented he could not rule that out at this time. Mr. Leavitt stated they had discussed the position of the Superintendent or Financial Manager, and now have applications and an interview process has begun. Mr. Leavitt mentioned there was one item not mentioned. Questions have arisen over the past weeks regarding technical matters relating to education, specifically that the Department of Taxation does not feel competent to answer those questions raised by citizens of White Pine County. The advisory committee has requested the Department of Education to assist in the answering and deliberation on those "education" type questions. Mrs. de Braga asked Mr. Leavitt what the status was of the two assistant superintendents said to have been hired. Mr. Leavitt stated it was his understanding the two people were currently on board out there. Mr. Thunder stated they have been asked to serve in an interim capacity. One will be concerned with the student and faculty staffing situations. Virginia Terry has agreed to serve as the other interim superintendent who will address programmatic education issues. Mrs. Segerblom was glad of the name change. She asked if they were going to change advisory. Mr. Leavitt replied it will be changed to finance. Mr. Neighbors asked if the two point eight million dollars being borrowed was in a lump sum from the lender, and what was the interest rate. Mr. Leavitt replied the loan has already been made. The first proceeds were received a week ago, used to pay the teachers and other employees of the district. They borrowed four hundred thousand draw down. It is being used similar to a letter of credit. The federal law requires they cannot borrow money for operating purposes under the arbitrage interest requirements unless the bank account is down to zero. The have to follow it carefully to keep in agreement with the law. The interest rate on the loan was five point seven four percent. Mrs. Lambert requested to know if the Department of Education had agreed to help with the local advisory committee. Mr. Thunder stated they are strapped for budget and staff. With the means they have available they will do everything they can. They had met with the superintendent previously and attempted to give him advice. ASSEMBLY BILL NO. 536 - Provides procedure for financial administration of local government in severe financial emergency. (BDR 31-2013). Marvin Leavitt presented the bill A.B. 536 stating the bill does several things. Mr. Leavitt proceeded to go through the bill section by section. The first section of the bill changes the name of the Local Government Advisory Committee to Finance Committee. This particular section deals with economic forum. On the technical committee to that economic forum, the chairman serves as a member of the technical committee. Wherever the "Advisory Committee" is mentioned it is now changed to "Finance Committee." Section two is introductory to Section three. Section three has definitions. And Section four is the "meat" of the bill. It provides the legislature declare a severe financial emergency existing as to any local government, the department shall take over the management of the local government. Mr. Leavitt noted there is already statute on financial emergency. He felt financial emergency provisions are essential if you have a governmental organization located in a community which is dependent upon one industry. If that industry leaves, as a result they have a financial emergency. When you have a situation where the staff has not done whatever could be done to preserve the financial integrity of the governmental unit, then the board has been negligent. This is a severe financial emergency. It provides a roll for the local finance committee as well as a role for the Department of Taxation. Appointments will be made to oversee the fiscal affairs. It gives the Department of Taxation authority for day to day operation and management of the government and provides ways they can get out of debt. On line thirty two, page three it provides the body of the local government, which is being managed by the department, may make recommendations to the department. Section six provides the Nevada Tax Commission can approve them being removed from this condition of severe financial emergency, when they find the conditions have improved and no longer require them to be involved. If request is denied, then they must wait three months for reapplying. Section seven is "advisory" to "finance." Section eight is "advisory to finance." Section nine is "advisory" to "finance." Section ten provides immunity from cause of action against the Local Government Finance Committee, based on the powers given. Section eleven is again name change. Sections twelve through sixteen are again name changes. Section seventeen is the declaration by the Legislature that the White Pine County School District is in the condition of severe financial emergency. This provides difficulties which have been happening there. Section eighteen ratifies what has gone on to date. Section nineteen subsection one of 354.599 is the provision enacted last session, mandate provision. Section twenty is the enactment section and provides it goes back to January 1, 1995 and relates to recent occurrences. Section twenty one essentially says if one of the name changes has been missed, it would automatically be changed. Chairman Lambert suggested they change it from Governmental to Government. Chairman Lambert had a question on Section four, whether there was a separation of powers problem the way it was drafted. Brenda Erdoes, Legislative Counsel, replied it is an issue they may want to look at but suggested it is not a separation of powers problem based on the fact the legislature is in the roll of directing all the agencies and could make that determination. If the wish is to avoid the problem totally, another entity could make the designation. Chairman Lambert questioned Section seventeen on page nine. Special legislation. Brenda Erdoes stated the question goes to Article four section twenty, in which certain special and local laws are prohibited. The provision was the prohibition against regulating township business. They felt it is an issue, and a challenge could possibly happen. Because this ties back to the general provision which applies to all of the local governments and these two provisions are the declarations needed to tie into that general law that it would not bring section 20 provision "to light" what it would do is the other provision would apply; section 21. She testified in this case it would be impossible to enact a general law stating White Pine County has now been declared to have an emergency. She remarked these two issues are tied and they are the only challenges they could think of when they drafted them. She told the committee if they are concerned about being challenged they could go with another entity or executive branch agency. She suggested there are no cases that could be used to say this is absolutely unconstitutional. Mr. Harrington asked if Section twenty where it says..."section ten and the other sections apply retroactively..." Is this a violation of the "ex post facto" resolution in the U.S. Constitution. Ms. Erdoes replied she did not believe it was. The "ex post facto" provisions apply to making something a crime before it actually happened. What they are doing is going back and making provisions which authorize the Local Government Advisory Committee to act under this law. Mr. Bennett asked if there should be a provision in Section 17 to relieve the Governmental Finance Committee. Ms. Erdoes replied it happens by these changes. As soon as these changes occur in the statute, as of the effective date, the advisory committee goes away and the finance committee would stay. Mr. Bennett requested the answer as to when the finance committee comes in to take over the management of the school district, when is the finance committee relieved of its duties. Ms. Erdoes stated the Tax Commission could on its own motion, or at the request of the local government, terminate management. Mrs. de Braga stated when she expressed opposition to the name "Local Advisory Committee", it was because when you use the term "local" people interpret it to be local to the area that is affected. If it is an actual committee that this is their actual title, people would interpret it wrong. Her question was if there were specific parameters established and would the debts be different for different areas of population. Mr. Leavitt replied the bill now provides when a financial emergency situation exists, they should possibly have an outline under certain conditions. They then could have some administrative body declare someone to be in one of these. The bill in its present form provides that the declaration comes from the legislature itself. Mr. Leavitt suggested on a later date there be a bill to provide some circumstance by which they could get into this situation. Mrs. Lambert summarized there is an intention among many members of the legislature to have another bill to provide administrative remedy early in hopes to prevent this sort of thing in the future and then have the financial difficulty statute as it happens, and in very severe situations, such as White Pine County School District, they would have criteria and an administrative body outside the legislature that could be triggered at any time. With the constraints of the problem facing White Pine County now, this was done very quickly in order to take immediate action. Carole Vilardo, Nevada Taxpayers Association, speaking in support generally of the bill, testified they know they are going to need to run another bill providing an exemption of that district from the provisions of the one hundred six percent revenue cap on property tax, and the three dollar and sixty four cents statutory cap. Until the budgets are done they have no way of knowing if that is needed. There has also been another suggestion made that they allow for the use for a specified time period of an increase in sales tax by a quarter of percent or half percent, so they get the additional revenue when it is needed so the district can be made whole as was testified by Mr. Leavitt and Mr. Thunder. Ms. Vilardo stated this was created to handle this very severe situation, and in all probability they will need to raise revenue from those taxpayers beyond the normal screen of revenue anyone else would have to pay. She asked the committee to consider not putting in the bill, on page three line 12, two sections to eighteen, if they start at line twelve...."Approve all contracts entered into....." She said this language was taken out of existing financial difficulties statute. She did not know that the Department has to approve them, because the way it is generally written, the Department is the controlling factor. She asked they be able to identify if that is the correct language. She said the other one she would like to see specifically removed is lines fifteen to eighteen. Collective bargaining and binding arbitration. If they are in a major problem, and allow for reduction in forces, which on a contract, should be identified in the contract. To be on one hand reducing forces by a contract and also having taxpayers paying more than what would otherwise be allowed, she does not think as a taxpayer in that district given all of these problems that not only would there be additional sales tax or additional property taxes above what is established to get out of the problem, that more had to be paid because of negotiating. There is some language that could be put in as protection so the contract is held harmless, and the provisions extended. She asked the committee for consideration also on page two line 47 after ... approval of the committee... to add "cause to be" so they have the flexibility in determining whether they are going to do it, work with another agency, or contract with outside help. Mr. Bache stated as far as extending a present contract that had expired, he does not have a problem doing that, but if in this case, if the contract has expired, they only can negotiate the amount of money there. If there is no money for raises, there are no raises. He does not necessarily see a problem. Ms. Vilardo replied she was looking at binding arbitration. She has seen some awards that have taken local governments down in their ending fund balances. She thinks when you have a situation where it is trying to be corrected, this becomes a little restrictive. At the very least they should not have binding provisions or the fact finding. She said where does the good faith break in NRS 288? The faith in the school district situation is going to be to provide the education to the children. Mr. Bache stated one of the items subject to negotiations is the employee groups represented by White Pine County, as opposed to taking a reduction in force, they can negotiate for a lower salary. This is something they would have to negotiate with the Department of Taxation. Ms. Vilardo testified because of the way these budgets will be handled for at least five years, if in negotiations and trying to solve the tax rate, and you go along with the same scheme as 288, you will be beyond that budget year for trying to determine what money you will need. At some point, it has to be made sure those provisions, if you don't eliminate this, tie in with the provisions that allow the tax rates to be set to cover the operating. Mr. Bennett asked for clarification on Section four, subsection two lines f and g lines twelve through eighteen. He asked if the committee should enter into the contracts, and if they do, would it be a violation or a problem with the "hold harmless" clause. Carole Vilardo said there needs to be more appropriate language and flexibility due to different situations which may arise. Michael Pitlock, Executive Director, Department of Taxation, testified in respect to the bill saying as far as it pertains to the existing situation the Department finds itself in dealing with White Pine County, they support the bill. If you look towards the future, and the possibility of this happening again, he suggested additional provisions that may be required under those circumstances. When the local governmental entity in trouble is a school district it takes on a whole different perspective. The Department of Taxation does not have the resources or expertise to deal with some of the education related issues. He indicated that a trigger should be put in, if the local governmental entity being dealt with is in fact a school district, certain responsibilities be placed upon the State Board of Education to take actions related to the education side of the entity. He remarked the provisions dealing with the financial side are adequate in terms of the department's participation. He brought up the potential impact on the department's budget cannot be ignored in these kinds of situations. Although they anticipate this kind of occurrence will be rare in the future, they need to provide some mechanism to allow the department to either get a supplemental appropriation or some means to get additional funding into the budget. With respect to the "cause to be" language, it would be very helpful, due to quick action having to be taken and the department not having the resources immediately available, to carry out some of the responsibilities. He testified it would also be helpful if they were able to "contract out" for any additional help needed. On page three, line 12 he did not have any significant concerns with the language, he suggested for Subsection "F" they should add "negotiate and approve" as opposed to just "approve." Mr. Pitlock stated in discussing this matter with other people a suggestion was made that might be worthy of consideration. In Section six it brings the Nevada Tax Commission into the process. He stated it may be a situation where the Local Government Finance Committee is up to speed or more knowledgeable with the particular circumstances and may be in a better position to make these determinations as opposed to the Tax Commission. If the intent is to find a disinterested, unbiased party to determine if the emergency is over, then the language should remain the same. Tom Grady, Nevada League of Cities, complimented the committee, the Senate Government Affairs, the LGAC, and the Department of Taxation for their spirit and cooperation in trying to solve this problem. He testified their comments on amendments follow along the same line as Mrs. de Braga had mentioned and he would agree with Mr. Pitlock's suggestion of the State Board of Education being included when it comes to the educational part of the bill. With those amendments the League of Cities would support this legislation. Mrs. Lambert acknowledged the presence of Senator O'Connell and Senator McGinness. Karla Hansen, White Pine County, asked the committee for clarification on the bill. On page three line 15 "..to negotiate and approve all collective bargaining contracts.... " They are in the middle of the bargaining contract presently, and asked if this meant someone from the Local Government Advisory Committee would actually come to the district and participate in negotiation for the contracts for teachers. Chairman Lambert asked Mr. Pitlock to answer the question. Mr. Pitlock, Executive Director, Department of Taxation, said his interpretation of the bill would be in fact a representative from the Department of Taxation would participate in the negotiation and approval of any of those contracts set forth in the statute. Ms. Hansen then asked about Line nineteen ".... to approve all expenditures of money of any fund....." she commented they have several student funds, which the students raise themselves, which are a part of the school district and wanted to know if they would have to comply under that direction. Mr. Pitlock stated he did not believe it would fall under the definition of the funds they are looking at. With the other pieces of legislation they have dealt with which directed the department and the legislative auditor to go out and determine the extent of the financial difficulty of White Pine, they did not look at any of the student funds as part of that review. Ms. Hansen questioned Line 21"... employ such technicians as necessary...." Does "employ" mean they would actually do the hiring and pay for those positions. Mr. Pitlock replied the Department of Taxation would select the individual and assign the responsibilities to said individual. Payment for services would come from the local governmental entity. Ms. Hansen stated they do see a need for this, and agree with it. They hope there is continued legislation to proceed with safeguards throughout the state, as questions come up, and reports are not filed, more people be notified. She hopes as this proceeds, legislation could be presented to give education to all public elected officials. Mrs. de Braga asked if the student funds were in separate accounts from other monies. Ms. Hansen replied they are in separate checking accounts, at the same local bank. If there are fund transfers, she was afraid they would be picked up to cover other things. Mr. Harrington asked how much money she estimated to be in those student fund accounts. Ms. Hansen said figures approximately in the thirty to forty thousand range. Mrs. Lambert asked Ms. Hansen for her input in regards to resolving this problem. Bob Hadfield of Nevada Association of Counties stated their support and added as a point of information, the University of Nevada has a training program and will get the information to the White Pine County School District. Mary Peterson, Superintendent of Public Instruction, agreed fully on Mr. Pitlock's suggestion, that the State Board of Education must take overall in correcting the problem. She stated there also needs to be a piece of legislation that would set off triggers earlier. They will be fully cooperative in seeing it is put in place for school districts in particular. This kind of financial emergency has put strains on all departments. There needs to be some kind of mechanism that would allow whatever department has responsibility to access contingency funds to address this immediately. In conclusion she stated the issue of retraining needs to be addressed. Douglas Thunder, Director of Fiscal Services of the Department of Education, stated the State Board of Education needs to be involved in the process. The local school district finances are very much intertwined and they would like to play a roll in it. They have worked very close with the Department of Taxation and if in the future something of this nature should happen, they would like this same type of relationship to continue. The fiscal and staffing impact is also a concern. Chairman Lambert asked Mr. Thunder if he had any ideas for Section 4. She asked him to get back to the committee with any information. Mr. Neighbors asked if they thought the children and teachers of White Pine County would receive the same benefits and educational opportunities as the rest of the state. Ms. Peterson replied with the kind of cuts, ten to fifteen percent, it is clear there has to be reduction in the types of programs offered. The basic minimum can be offered, but not much beyond that. Brian K. Krolicki, Chief Deputy Treasurer of the State addressed the committee and stated the Board of Finance is composed of the Governor, who is Chairman, State Treasurer, State Controller, and two appointed members by the Governor, one of whom must be active in the commercial banking industry in the state of Nevada. He stated Nevada Revised Statute, Chapter 354.680 which specifically talks about the Board of Finances' role in situations where local governments are enduring financial duress. This does not distinguish duress manufactured internally, or events they cannot control. Those statutes say when a situation is identified where government is in a financial pressing situation, the Department of Taxation holds hearings, and at that time they impose their remedies only after approval of the State Board of Finance. The State Board of Finance has been actively watching and discussing this situation behind the scenes. The distinction is the Legislature was convened in session, and it was determined the action was not being taken by the Department of Taxation per se, it was action taken legislatively by the State Legislature to impose these conditions and remedies. It was at that time determined by the Governor's office and Margaret Springgate, that the Board of Finance did not need to convene to address this situation at this point. Speaking on behalf of the Governor's office, the State Treasurer and the State Controller, Mr. Krolicki felt their role is being removed in addressing these situations ongoing. He testified on Section 6 page three perhaps an unbiased objective "new piece of blood" could be the Board of Finance. He stated they would be happy to work with everyone involved. Chairman Lambert closed the hearing on A.B. 536. There was a work session among the committee. ASSEMBLYMAN NEIGHBORS MOVED AMEND AND DO PASS ON A.B. 536 ASSEMBLYMAN HARRINGTON SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. There being no further business before the committee, the meeting adjourned at 7:55 p.m. RESPECTFULLY SUBMITTED: Kelly Liston, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs May 2, 1995 Page