MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session June 21, 1995 The Committee on Government Affairs was called to order at 8:00 a.m., on Wednesday, June 21, 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 Mr. Dennis Nolan Mrs. Gene Wines Segerblom Ms. Patricia A. Tripple Mr. Wendell P. Williams COMMITTEE MEMBERS EXCUSED Ms. Saundra (Sandi) Krenzer STAFF MEMBERS PRESENT: Denice Miller; Research Analyst OTHERS PRESENT: Larry Jepson; So. Nevada Foundation for Fair Contracting, Mac Hamlen; Teamsters Union Local 631, Kurt Fritsch; City of Henderson, Rob Trenkle; Laborers Local #872, Glenn O'Cull; Laborers Local #872, Jesse C. Paulk; TAB Contractors, Inc., Bob Seale; Nevada State Treasurer, Chris McKenzie; L.V. Paving, Brian Krolicki; State Treasurer's Office, Madelyn Shipman; Washoe County District Attorney, Tom Grady; Nevada League of Cities, Dallas Conrad; Carson City, Michael Pitlock; Department of Taxation, Marvin Leavitt; City of Las Vegas, Douglas Thunder; Director Fiscal Services. SENATE BILL NO. 543- Exempts certain public works projects from provisions governing local government and public works. (BDR 28- 1911). FIRST REPRINT Irene Porter, Executive Director of Nevada Homebuilders Association, testified on S.B. 543. She stated this was a companion bill to A.B. 138. S.B. 543 applies to NRS Chapters 332, 338 and 339, basically competitive bid and prevailing wage. All the initial construction costs would be paid by the developer or builder then they would not have to comply with competitive bid and prevailing wage. She pointed out in lines 10 through 13, "...if pursuant to the provisions of the contract they do with the builder, the developer is not responsible for paying the initial construction costs, then competitive bid and prevailing wage would apply.." If that builder does not have the opportunity to do it in this fashion, the builder can go ahead with the project, building a smaller line to serve just their project, then the utility or local government will have to come back at a later date, put in a larger pipeline and this would have to be paid at those rates by the rate payers or the utility. They will have to pay for replacing all those pipelines to be put in. The builder would have the right to put in smaller pipeline. All building must be in accordance with ordinances of city, sanitation, sewer, etc. Mrs. Segerblom asked if another project goes beyond this project and the city wants to use the existing lines, will the contractor be reimbursed. Ms. Porter replied this is done by local ordinance. Several local governments have refunding agreement ordinances. At the time of the building of a project, the builder would enter into a refunding agreement ordinance and after the project is completed, the builder would receive a portion of the oversizing only. Never for his basic pipeline. Most of those agreements go on a seven to ten year basis. Many people do not get their money back. She stated this has been a practice for almost thirty years. It is out of the oversizing connection fees that a person would receive their money back. They are not receiving money back from the base rate payer. Ms. Tripple asked if this puts into print what is now being done. Ms. Porter replied "yes," it puts into the statute when subdivisions are extending out to large developments. This has been a practice for twenty five years in southern Nevada. Ms. Tripple asked if this encourages the builder. Ms. Porter said she did not think so. It does not encourage the small or mid-size builder because it is quite expensive for them. Ms. Tripple asked if in the long run it helps the taxpayer. Ms. Porter replied in the long run it helps the rate payer of the utility. Kurt Fritsch, City of Henderson, testified this has been in place for thirty years. If they did not have this in practice, the master plan communities in Henderson would be "dead in the water." Henderson acts as the "pass through" for the major developers as they are building and extending these lines. He stated North Las Vegas has six projects on hold waiting for this legislation. Mrs. Segerblom asked if Henderson has an ordinance to reimburse. Kurt Fritsch replied "yes," they do have the refunding agreements use frequently.Madelyn Shipman, Assistant District Attorney Washoe County, spoke on behalf of Marvin Leavitt. They are in support of S.B. 543. She stated the only issue they have is a policy question on the oversizing portion. There has never been an issue about the basic utilities that are being put in place by the developer at their own expense. The monies utilized are not public monies. The reimbursement agreements that are utilized by local governments are monies that literally come in through future connection fees and are passed back to the developer. She mentioned this is a confirmation of past practice. Tom Grady, Nevada League of Cities, testified they "echo" the testimony of Irene Porter, and urged the committee passage of S.B. 543. Michelle Gamble, National Association of Counties spoke in support of S.B. 543. Jack Jeffrey, Southern Nevada Building and Construction Trades Council, testified that A.B. 138 was a piece of compromise legislation. This bill is also a compromise. He stated his part was to narrow the scope of this legislation to be sure that the exemptions did not go beyond what they were attempting to accomplish. He stated the bill needs a further amendment. Line 6 after the word "sewer," "main" should come out and the words "..line extension.." should go in. This was the intent of the original legislation and it was also the compromise they had agreed to. Kurt Fritsch interrupted to say they would agree to the amendment proposed by Mr. Jeffrey. Larry Jepson, Executive Director of Southern Nevada Foundation for Fair Contracting, testified that he was notified of this hearing and was asked by members of his organization that he speak in opposition to the bill. They feel anytime public funds, whether from connection fees or users, it is still public monies and they should always have the competitive bid process when dealing with public money. Chairman Bache asked Mr. Jepson why he was not here for the parallel bill, A.B. 138 at the beginning of session. Mr. Jepson replied it slipped by him. They were too involved with other matters. He reiterated anytime you are dealing with public money you have to have competitive bidding. Mr. Bennett asked if it was his opinion that it was cheaper for the taxpayer to have a developer build a four inch line to suit his needs, than for a developer to go ahead and build a twelve inch line which will meet the future needs. And it is cheaper for the developer to build a four inch line than for taxpayers to come in and rip up the street take out the existing line and run a twelve inch line. He feels this is cheaper than the competitive bidding. Mr. Jepson said he did not say that. If you demand a twelve inch line to go to a development and the developer pays for that twelve inch line........ Mr. Bennett interrupted saying he does not know how you could demand a developer put in more than is needed to suit his project. Mr. Jepson responded he did not feel it is out of line. Anytime you deal with public monies it should be competitive bidding. If it calls for a twelve inch line to a developer and the developer wants to develop the property then he should put in a twelve inch line. There are restrictions on developing property. Mr. Bennett stated he would have to disagree, if he is fronting the money, then he has the right to put in what would suit his development. Mr. Jepson commented that if he is paying one hundred percent of the project and is not receiving any public monies on the back end of the project, he can do whatever he wants to do. If there are requirements to be met, then he must follow those restrictions. Mrs. Krenzer stated she was an advocate of competitive bidding. She said she did not understand the interfering of the public sector. By nature the private sector is going to get a competitive bid because of the profit. Mr. Jepson replied that someone would be interfering with the private developer when it is demanded that an oversize be put it in and pay with for it with public monies. Mrs. Krenzer replied she believes it is reimbursement. Mr. Jepson interrupted to say it is co-mingling public funds with the developer's funds. Whether it is reimbursement at the time of the bid or at the end of the bid, it still involves public monies. Mrs. Krenzer stated she did not see the incentive for the developer not to get the lowest bid. Mr. Jepson stressed if it is competitive bid, they will use the lowest bid. Mrs. Krenzer stated she did not see a point in the developer not trying to get a competitive price even if it is not open bid. Mr. Jepson explained when you do not have competitive bidding, you can have negotiated and collusion bidding. Mrs. Krenzer stated she does not think negotiating bidding is necessarily not competitive. Vice Chairman Neighbors took the gavel. Mr. Mac Hamlen, Teamsters Local 631 of Las Vegas, testified against the bill. He feels this bill is a "fix-all" for developers wanting to front money to construct water and sewer to a private development. In realty the bill will ultimately destroy the prevailing wage laws of the state of Nevada. High quality construction standards are enforced and area wage standards known as "prevailing wages" are mandatory. In this way bids are won through efficiency and competence not wage cutting. State laws have kept careful control of this industry. This bill will promote unscrupulous developers and contractors to cause the costs of these projects to be higher than through the bidding process. The public body responsible for reimbursing the private contractor for the extra costs of the project will have to pass the higher costs on to the taxpayers of the state through taxes and higher utility rates. He said lower wages mean "shoddy" work, more accidents and more repairs. This is a direct affect on the local government and the industrial insurance commission. Rob Trenkle, Laborers Union Las Vegas, testified describing a water extension project in Las Vegas. He suggested these water extensions could come off the prevailing wage rate. This is why he is against the bill. Mrs. Krenzer stated she said she does not see any relationship between this bill and lowering wages. Where is the parallel and why would wages be lowered. Rob Trenkle drew attention to the line extension. Where does it end? If this has been done for thirty years why do we need it now. Mrs. Krenzer inquired if this confirms what has been done in the past, why not do this and where is the relationship to the length of the line and the wages. Rob Trenkle replied that line extension is wide open. What does it mean, and how far is it going to go. If it is private money it will be paid for one hundred percent and they will not be reimbursed. His fear is that public money is going to come back in and it will not be under prevailing wages. Mrs. Krenzer requested to know if this has hurt the prevailing wage so far. Rob Trenkle replied "that is correct." Mr. Bennett stated he had a series of questions. The line extension question was answered on line 5 of the bill, where it clearly limits it to what happens inside the private development. This does not have anything to do with what is on the outside of the private development. Mr. Bennett stated the Davis Bacon Act, does not say someone is required to pay union wages, but are required to pay prevailing wages. Prevailing wages are not hurt in this case, because it is confined to bounds of the private project. Competition is going to force a good contractor to pay prevailing wages. Mr. Trenkle stressed that this bill tears down that structure. If public money comes back to a developer, any extension or any part of a project should be under prevailing wages. This is a worker's issue, not a union versus non-union. Mr. Bennett interrupted to say this is a taxpayer issue, and to save a great deal of money this overrides any union issue. Mr. Trenkle maintained this is a worker's interest, a wage interest. Mr. Jesse Paulk, President of Tab Contractors Incorporated, testified in opposition of S.B. 543 as amended. He presented a fact sheet to the committee. (Exhibit C). Mr. Neighbors asked Mr. Paulk to please summarize his testimony. Mr. Paulk stated this bill would deteriorate the competitive bid process. The amount of time they say this has been done, twenty five to thirty years is true, but the scope is now being broadened. It will delve into oversizing, facilities to water mains, could include reservoirs, pump stations that are presently constructed by the developer. He is reimbursed a short period of time after completion. Public funds will be used. It will not necessarily be connection fees. He mentioned oversizing will be under a different reimbursement agreement. He then gave an example of how the reimbursement process works with the water district. They may not receive the whole amount in the reimbursement, but it essentially covers the cost of the main extension. It was his opinion that he did not believe a developer would install these size mains without knowing he is going to receive public funds. The oversizing and connection fees are two different reimbursements along with two different time frames of repayment. He stated there are two different issues here. This has been done for many years for certain size main extensions up to a certain size. This bill will change this. It will cover bigger projects and he feels oversizing would not happen if public funds were not used. He mentioned it was his understanding that there was to be an amendment to be developed that would address this issue that if any public funds were used for the construction of a public works project, then it would be competitively bid and follow the statutes now in place. He said a great deal of the work involved is not within the developer's realm, it is more encompassing than that. He reiterated he is strongly opposed to the bill as amended. Mrs. Krenzer asked a theoretical question. She asked if currently there is an open competitive bid process. Mr. Paulk replied, not on what has been done in the past twenty five to thirty years. Mrs. Krenzer stated she does not understand. If it is a private developer and a private development, it's going to save public money in the long run to oversize in the beginning, and they are being reimbursed, then why do you want to impose the open competitive bid process on private development. Mr. Paulk replied the competitive bid process is the safeguards of what the bill exempts the developer from. It is put out and advertised for public bid, and it eliminates the collusion. Mrs. Krenzer asked if he felt there is collusion going on now with the process that has been going for thirty years. Mr. Paulk replied "no", he was not saying that. Mrs. Krenzer suggested it has not been open competitive. Mr. Paulk insisted he did not know, and who knew what happens behind closed doors. Mrs. Krenzer stated they are asking because public money is coming in to reimburse because of the oversizing, that they demand open competitive. Mr. Paulk remarked he did not consider it a demand. It is part of the development process. Mrs. Krenzer asked if the developer kept the prices high and not go open competitive and not bid to the lowest, is it because they are getting reimbursed by public money. Mr. Paulk declared this could be a possibility. The way he understands it will not allow many companies open to the bid process. Presently they are required to get three bids. Even if you bid low, it does not always mean you will get the contract. Mr. Paulk stated sub section 2, of S.B. 543 was supposed to address their concerns. He feels it is a "smoke screen," because the developer is always going to have to come up with the initial construction cost, primarily because he wants to do the development. It will not be his funds up front. Chris MacKenzie, Las Vegas Paving, testified in opposition to S.B. 543. He stated this is public money that is being spent even if it is in a deferred manner. It is the public who will be paying for the oversizing. In doing this, there is the possibility for collusion. By taking away any restrictions there may be on these reimbursements is only endorsing any of the actions that have gone on in the past. This is legislation to allow prices to be raised, and not allowing oversight for collusion. He stated this bill will not allow sub-contractors any lien rights. Any work that is done will be without recourse for nonpayment. It is the public entities that will be approached for this recourse. There are no bonds posted under this legislation, so there is no protection. Dallas Coonrod, Las Vegas Associated Contractors, testified that S.B. 543 deteriorates the competitive bid process. He stressed that the competitive bid process has historically protected tax payers dollars. They have no problem if the developers are spending their own funds, and that they should not have to follow public work statutes, but these they feel are public funds. They have had no problem with oversizing to date. They feel the provisions in the bill could expand to a whole lot of areas which presently are not affected. Irene Porter, Southern Nevada Homebuilders Association, clarified her testimony in regard to a builder in Las Vegas, who put up one million dollars for a project, whose pipeline share was one hundred thousand. She stated in Mr. Paulk's testimony he had stated the contractor she spoke of had received nine hundred thousand dollars back. She insisted this was not true, she had just spoken to the contractor Mr. Lewis, and he has not received one penny of that money back. Mrs. Lambert asked for clarification on when a developer gets paid back from hook- up fees from future developers, does he get paid back directly his costs so he can make more money if he made his costs higher or does he get paid back on some type of formula. Ms. Porter replied it depends on how that ordinance is done on refunding at the local government level. Normally there is a formula that they are paying back on the capacity of the line. The developer never gets paid back for the "base line" that he had to build for the development. Mrs. Segerblom asked if he would have to pay for the small line. Ms. Porter replied "yes," he always pays for that. If there is a local ordinance on refunding it is only for the additional capacity. Mrs. Segerblom asked if he would never get what he would have had to do without this. Ms. Porter replied "correct," there is no such ordinance in existence today. Mr. Harrington asked if the developers get any interest for the amount of time their money is tied up in the oversizing. Ms. Porter stated she would like the local governments to answer. She felt there is some interest in some and in others there is not. She stated she would provide further information to the committee at a later date. Jesse Paulk testified he did not mean to infer on the million dollar project that the contractor had been paid. Under the information he has received by the water district this is how it would normally be reimbursed on an oversizing. Chairman Bache closed the hearing on S.B. 543. ASSEMBLY BILL NO. 728- Revises provisions governing local financial administration. (BDR 31-1978) Michael Pitlock, Executive Director for the Department of Taxation, summarized A.B. 728 and indicated that it represents the sum total of everything they learned within the last five months on how to deal with a local governmental entity that finds itself in severe financial difficulty. He then went through the bill section by section. He stated during the situation with White Pine County, the department had limited ability to force an entity to comply with the law. Section 3 allows to seek from the State Treasurer the withholding of certain funds from that local governmental entity if they do not respond to written communication from the department. This is a way of assuring the department is informed in advance of severe problems. In section 2, NRS 387.325 needs to be deleted from the bill. This appears to be a drafting error. Page two, section 3, lists circumstances which may exist, that would lead the department to believe that a finding of severe financial difficulty should be made. They have attempted to identify any potential set of circumstances they believe would require intervention by the Department of Taxation. It also sets forth in section 3, a procedure to be followed by the Department of Taxation whereby they would first investigate the local governmental entity to try to determine the source of the financial difficulty. The legislation would allow them to hold one or more hearings to determine the facts surrounding the situation. It then calls for the Department to go before the Tax Commission, and the Tax Commission to hold another hearing where all sides are represented before the Tax Commission would make a finding of severe financial difficulty. Once this procedure has been completed, and the commission makes their finding, this allows the Department of Taxation to take over the management of the local governmental entity. Section 4, in conjunction with section 14,.which starts at the bottom of page nine and on to page ten, sets forth the kinds of actions that the department can take in order to remedy the situation with the local government. Section 4 establishes a procedure whereby once the department has determined what the available sources of revenue are for the local government entity and compare it to the operating expenses that are required to provide the minimal level of service, if the department finds the revenues are insufficient to provide that level of service, the bill provides for a procedure where they can go before the tax commission and make a recommendation that certain taxes or fees be increased. In order to do that the Tax Commission would be required to hold a hearing in the area of the local entity. Based on the evidence generated through the hearing, it could require the local governmental entity to adjust certain taxes or fees. It also provides some relief from the property tax cap, of three dollars and sixty four cents, by allowing an additional levy up to a maximum of four dollars and fifty cents if found necessary. Section 5 of the bill deals with the less severe situations. It provides a procedure whereby a local governmental entity that is having trouble, but is not in the severe financial difficulty as set forth in prior sections, can come before the Department of Taxation and request technical assistance. This will provide a procedure where they can help avoid severe financial difficulty by getting involved early on with the entity that believes they may be on the verge of some difficult problems. Also contained in this section is a procedure for allowing the department to recover any additional costs that may be incurred in providing this technical assistance from the local governmental entity itself, thereby relieving any pressure on the department's budget. At the bottom of page 6, there is a change in time frames dealing with how long a local governmental entity has to take corrective action when recommendations are made in their audit that changes be made. They felt six months currently in the statute is too long a period of time. They want to make sure all parties are on a "tight" time line and to make sure actions are taken at an appropriate time. This is now to be reduced to three months. Section 11 deals with making changes to S.B. 305 which was one of the emergency measures passed earlier in the session. It deals specifically with White Pine County and makes an amendment that allows White Pine to incur certain kind of obligations, but only if they receive prior approval from the Department of Taxation. Section 12 makes reference to S.B. 367 which was also passed earlier in session. It allows for the extension of the payment time on the 2.8 million dollar line of credit out from five years to ten years. This was a change necessary in order to solve the problems in White Pine County and pay all the bills without raising taxes above their current level. There are also changes in respect to the definition of what operating expenses are in reference to S.B. 367. Section 13 provides definitions. Section 14 makes changes to the additional language that was put into A.B. 536 which allows the Department of Taxation to get reimbursed for the costs associated with providing this assistance to the local governmental entity. Section 15 is amendments to the language contained in A.B. 536 which sets forth the circumstances to be considered by the Department of Taxation and the Tax Commission when they remove an entity from a finding of severe financial difficulty. Mr. Pitlock pointed out there are certain sections that are being repealed that is the current language dealing with financial difficulty. This bill replaces the current process with a two-stage process. One for severe financial difficulty, where the Department of Taxation takes over management of the local governmental entity, and the second stage is the technical assistance to help out a local governmental entity that is not in severe financial difficulty but is still having problems in managing their fiscal affairs. He stated there has been a great deal of people involved in this process for many months and he feels this bill represents the best solution to the kinds of problems they have seen occur in the last five months dealing with White Pine County. He mentioned that Marvin Leavitt is responsible for most of the drafting that went into A.B. 728. Mr. Harrington questioned section 4, increasing the cap from three dollars and sixty four cents to four dollars and fifty cents. He stated he has concerns that could become a permanent type of thing, and would it be wise to put in a time limit it could last, and what specifically the increased money could be spent for. Mr. Pitlock replied there is a five year time limit contained in there. Part of the increase would be contingent upon a development of a plan and the tax commission approving that plan. It must set forth how long that increased tax would be in place. In no event would it exceed five years. Mr. Harrington asked if this applied to all taxes mentioned. Mr. Pitlock replied "yes." Mr. Neighbors asked in the case of White Pine County, assuming they went to the four dollar tax rate to pay it off, are we penalizing the county as opposed to the district. Mr. Pitlock replied it could pose problems for some of the other entities that are contained in a county, particularly if the local governmental entity that has the problem is either the county or the school district. This would mean taking the entire assessed evaluation of that particular area. There are other safeguards in the statute that would allow for negotiations between the different governmental entities. Mr. Neighbors asked if this bill would have been in place prior to the White Pine County incident, they never would have gotten to where they are today. Mr. Pitlock replied the department would have been aware much sooner that White Pine County was in difficulty. This combined with other legislation that has already passed, would go a long way in preventing similar situations happening in the future. Mr. Neighbors asked if the Nye County hospital district would be covered under this bill. Mr. Pitlock stated they are currently investigating the extent of their financial difficulty. There will be a briefing item on the tax commissions agenda. Depending upon the results of their investigation, they may on their motion go for a finding where they can provide technical assistance. If they find the financial condition is much more severe, obviously the other provisions would be available to them. Mr. Bennett asked if the four dollar and fifty cent tax rate number was arrived at because of the unique situation in White Pine or was it an arbitrary number selected. Mr. Marvin Leavitt, City of Las Vegas, replied the numbers attempt to provide some room between there and three dollars and sixty four cents, and at the same time provide a difference between that and five dollars in case of some other emergency on a statewide basis that could occur so there would still be fifty cents available tax rate that could be used. Mr. Bennett asked if they thought White Pine would run it up to four and a half. Mr. Leavitt replied he did not think so. Mrs. Lambert asked if the Department of Taxation can comply with the time frames in section 2 with the staff they have. Mr. Pitlock replied the Department of Taxation will do everything in its power to comply with the time frames. In dealing with White Pine, the division within the Department of Taxation that deals with local governmental entities is extremely overworked and when a situation like this happens, it makes things almost impossible. There have been many discussions about finding another funding source for an additional person in that division. Once the provisions are allowed to let them get reimbursed for any cost, it opens up the possibility to bring in an outside person to run the local entity. The normal review would be done by the Department of Taxation. Mrs. Lambert asked in section 4, if the plan would be reviewed annually. Mr. Pitlock stated he did not believe there is any specific language dealing with that. Through the normal budgeting process all revenues and expenditures would be reviewed on at least an annual basis. Mrs. Lambert asked if this was sufficient language to cover that. Mr. Pitlock replied he thought it to be sufficient. If the committee would feel more comfortable to having language added, he would have no problem with it. Once the department takes over the operation of a local government, and they are responsible for putting together the budgets, the department would make the review as part of the budgeting process. Ms. Tripple stated when you change the tax base you are affecting the county. She feels the county commissioners should be apprised of what is going on. She does not see this in the bill. Mr. Pitlock replied he would have no problem adding language into this bill that would either notify the board of county commissioners for the county within which the local governmental entity that these proceedings are going forward. If they wish to go further, they could also be required to appear before the tax commission anytime there is a discussion dealing with potential tax rate changes within their county. He agreed the county should be involved. Mr. Harrington asked if there is a provision that they notify the school superintendent. Mr. Pitlock replied "yes." There is definitely a need for an interface between the Department of Taxation and the Department of Education. They have relied on the Committee on Local Government Finance for technical expertise dealing with a particular kind of local government. They play a very intricate part in this whole process. Mr. Harrington asked if this was in statute. Mr. Pitlock replied it was referenced in A.B. 728. Marvin Leavitt believed they have included that committee as they have gone through the various bills as they relate to this subject. They are adequately covered based on the definition of the committee. Mrs. de Braga asked if the sanctions in the bill now are strong enough that problems can be avoided. Mr. Pitlock replied the language in section 2, subsection 3, where they have the ability to and request the state treasurer withhold funds, that will get the attention of local government if they know they are not going to get those funds from the state treasurer. Mrs. de Braga asked if the local entity in trouble have to request assistance or is there anything that would "trigger" the Department of Taxation coming in to give assistance. Mr. Pitlock replied it depends on whether or not you are talking about the provision for providing technical assistance or the severe financial difficulty. The severe financial difficulty is something the Department of Taxation can begin a proceeding if they find that any of the items listed in section 3 has occurred. These are the severe situations where the local government is not doing their job. The less severe situation would be a request from the local entity for assistance. Mrs. de Braga asked if they now have the authority to stop the members of a local board to stop their activities. Mr. Pitlock replied A.B. 728 allows the Department of Taxation to physically take over the management of the local governmental entity and that in fact is what was done with the White Pine County School District. All the decisions are being made through the Department of Taxation. Mrs. Lambert asked how or when someone is called to appear before the tax commission, when it would be the best time to notify them. Mr. Pitlock replied "the earlier the better." It is best to get all parties involved at the earliest possible date. Mrs. Freeman asked what was the other local governmental entity in trouble. Mr. Pitlock stated the hospital district in Nye County was the only other one. Mrs. Freeman stated she saw a permanent structure for oversight of local government and how they tax themselves. Mr. Pitlock expressed this is a safeguard to ensure a local governmental entity does not "go off the deep end." Mrs. Segerblom asked if in White Pine they will be ready for school in September. Mr. Pitlock responded saying Mr. Purcell just returned from Ely and he has been involved in discussions with the contractors dealing with the school. Mr. Neighbors asked if any final decision to exceed the statutory limit of three dollars and sixty four cents will rest with the tax commission. Mr. Pitlock replied "that is correct." Mr. Neighbors stated his reason for the increase is due to population, and all the entities in that particular county would be considered by the tax commission. Mr. Neighbors asked the status of the elected positions in the White Pine County School District. Mr. Pitlock replied it was his understanding that two members of the board have resigned and there is still a recall initiative in place. Mr. Neighbors asked if the members still there have any "say" in the operation. Mr. Pitlock replied from a practical standpoint, "no." Marvin Leavitt expounded upon the legal situation in Section 14, eliminating the language there. He stated they need clarification from LCB before processing the bill. He stated it is a technical problem. Mr. Bob Seale, Nevada State Treasurer, stated this is an excellent piece of legislation and he congratulated Mr. Pitlock and Mr. Leavitt for their efforts. He stated the role the treasurer plays in this legislation is relatively small but critical when they have to intercept payments from either the distributive school fund or from other tax sources in order to remove some of the problems. The treasury is ready and willing to do this. Section 16 repeals other pieces of statutes that exist, specifically NRS 354.680 and 354.700, which relate to the board of finance and the role they play in these emergency situations. This is being removed and could be a safety gap. Mr. Nolan asked if this would cover a county investment situation that goes bad. Mr. Seale replied there is an example of investments on page 2, line 29. This covers part of it. Mr. Neighbors asked to what statute being repealed he was referring to. Mr. Seale replied NRS 354.680 and NRS 354.700, they remove the provision of the board of finance being involved in an emergency situation. Carole Vilardo, Nevada Taxpayers Association, asked the committee to look at page 2, section 3, line 4. She thinks in the first part,"....severe financial emergency.." needs to be removed and have it reworded to say"...if a financial difficulty exists.." She also stated she was concerned about the four dollars and fifty cents. She feels four dollars would have been more prudent, and still provided a substantive increase if needed. There is a bill in taxation which would allow in certain circumstances for the cap to be exceeded by the local governments beyond and apart from what is provided in this bill. This would at least provide a measure of consistency. Doug Thunder, Director of Fiscal Services, Department of Education, testified in support of this bill. He stated he knew of situations in other states where school districts ran into problems similar to this and ended up closing the schools. He suggested when it came to withholding funds from the distributive fund account, they are only distributed four times a year. This causes a problem if a report is due in the interim and the distribution is not going to happen for another two or three months afterwards. The deadlines lose their clout. He suggested looking at the possibility of the distribution of the local school packs. This is done monthly, and there would be a far greater impact. The NRS 387.303 report is due to the Department of Education, and they would submit notice to the Department of Taxation if these reports were not met timely. He is not sure the bill as written recognizes that. If some of the current people are no longer there, this may become an oversight. If a school district has problems because of a fall off in revenue, there are provisions in statute that deal with those type of emergency situations, and that should still be included in this process. The district should be allowed to come back and ask for some relief through the distributive school account. Mr. Neighbors asked what is the distributive school account. Mr. Thunder gave an example if the ad valorem taxes do not come in, if there is money left in the distributive school account, the school district can appeal to have some additional funding. The process is to prepare a very formal request that is then reviewed by the state school board, then by the Department of Administration, Board of Examiners and IFC. If it passes those, and funding is available, additional monies can be granted. Mr. Neighbors interjected he did not think White Pine County qualified for this. Mr. Thunder replied, "no," it was on the expenditure side. Mrs. Lambert asked if he thought the state department received adequate notice during this process and if the report in NRS 387.303 went to both taxation and the Department of Education. Mr. Thunder replied he thought it only went to Education. Mrs. Lambert interjected they must put that mechanism in to allow the Department of Taxation to be noticed. Mr. Thunder replied with this current situation, they were involved very early on. In the future they need to put in some more formal type of relationship with regard to school districts to ensure there is that type of relationship. Chairman Bache mentioned he reviewed NRS 387.303 and it did not include the Department of Taxation and they would need to amend it allowing the report to be made available to them. Mr. Pitlock interjected that in White Pine County one cent is equal to $16,000.00. Obviously in every county it makes a difference on how much you can generate by moving the ad valorem rate around. Mr. Neighbors asked Mr. Pitlock to respond to Carole Vilardo's request in regard to changing the language. Mr. Pitlock replied he had no problem in removing the words"...severe financial emergency.." Clearly the finding is not made until after the investigation and hearing. Mrs. Segerblom asked Dave Purcell to approach the committee. Mr. Dave Purcell, Department of Taxation stated he had attended the White Pine County School Board meeting where they presented the 1995/96 budget to the board which was approved. He pointed out there were two board members who submitted their resignations. The recall petition effort is alive and proceeding. In the budget there are two items in the bill which they predicated the budget on. One was changing the payback on the 2.8 million dollars lent to the district, from five years to ten years. This makes a difference to the general fund of approximately $335,000 dollars. The intercept from the treasurer would be $722,000 dollars. By expanding that to a ten year amortization on the 2.8 million dollars it is approximately $388,000 dollars. The other assumption made in the budget is the use of seventeen cents to pay the debt service on the leases that were being paid out of the general fund. They have moved those to the "pay as you go" fund and it would take approximately seventeen cents to pay the annual $265,000 dollars on the debt service on the leases with Nevada State Bank. They have assumed the $600,000 will be in the budget through legislation enacted. The principals and teachers felt they could make approximately $225,000 dollar cut to the budget in the event those two items do not go through. This is basically the 1993/94 budget, in an area that is growing. The local level felt they could make the cuts if absolutely necessary. It did not affect any teacher positions already filled. There was a custodial position that would be eliminated, again this person was considering employment elsewhere. The other cuts were in the superintendent's office and central office. They were approximately $50,000 dollars in total. In his opinion it would be better to implement the seventeen cents in the tax rate and extend the loan over ten years. He stated it made a tremendous difference in getting Dr. Noonan in as financial manager. He has had previous experience as a superintendent and had been involved in the construction of new high schools. He believes they will be able to open the high school for the upcoming year. The problem has been with the general contractor not being in complete control of all the subs. The school board had decided some of the work was to be done with local contractors, but there was not coordination with that. They have retained approximately $190,000 with Progressive for paving around the high school. He commented there has been some delays with the construction, due to management. He stated they have been in negotiations with Richardson Construction, and they are blaming the school district for the delays. He is hopeful the school district will be able to borrow $750,000 from federal funding, to complete the high-school, minus the athletic field. Mrs. de Braga asked what types of extracurricular activities the students will be left with. Mr. Purcell stated the principal scheduled most events to be at "home." This will eliminate the need for travel. Most of the student fund has remained so they should be able to have the majority of their activities. Mrs. de Braga asked if they will have to pay the city for the use of the athletic fields. Mr. Purcell replied "yes." Mrs. Segerblom asked what was going to happen to the old school downtown. Mr. Purcell stated the middle school would be replacing it. Mrs. Lambert thanked Mr. Purcell for all the work done. Chairman Bache concurred with Mrs. Lambert and thanked everyone for the work on the White Pine County issue. Chairman Bache closed the hearing on A.B. 728. ASSEMBLYMAN LAMBERT MOVED AMEND AND DO PASS A.B. 728 WITH THE AMENDMENT DEALING WITH THE REPORT REQUIRED UNDER NRS. 387.303 CLARIFYING THAT THE DEPARTMENT OF TAXATION BE NOTICED, AND TAKE OUT THE REPORT 387.325, TAKE OUT THE LANGUAGE ON LINE FOUR, PAGE TWO "....OF SEVERE FINANCIAL EMERGENCY..." AND CHECK WITH LCB FOR LEGAL CONFIRMATION. ASSEMBLYMAN FREEMAN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ASSEMBLY BILL NO. 499- Revises requirements for publication of certain information by counties. Mrs. Lambert stated they had an Amend and Do Pass on A.B. 499. The drafters were having a problem drafting a section regarding tax delinquencies. They have now solved this problem with the passage of S.B. 309, which was the language they were going to amend into A.B. 499. She asked the committee to reconsider the action where they amended A.B. 499 and then change the amendment to take out the part dealing with tax delinquencies and leave the remainder. ASSEMBLYMAN LAMBERT MOVED TO RESCIND AMEND AND DO PASS ON A.B. 499 DUE TO TECHNICALITIES. ASSEMBLYMAN HARRINGTON SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ASSEMBLYMAN LAMBERT MOVED AMEND AND DO PASS A.B. 499 AS PROPOSED. ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. SENATE BILL NO. 283- Revises provisions governing confidentiality of certain records of commission on mental health and mental retardation. (BDR 39-856) Chairman Bache asked the committee to review the proposed amendment to S.B. 283. (Exhibit D). He then went over the amendment. Mr. Bennett stated even with the amendments he still opposed it because the bill will exceed the Federal Privacy Act guidelines. Ande Engleman agreed with the amendment . She did have a question regarding "closure" so that an attorney could not subpoena them if someone was denied their rights and wanted to file suit at some point in time. Chairman Bache replied this was something not specifically addressed. Mr. Harrington stated this is a peer review process, where someone is overlooking their peers. This is protected from being subpoenable. Chairman Bache stated he has concerns that an attorney would not be able to address that if it was appropriate. He asked Denise Miller to check on it. Mr. Nolan stated the Senate had a bill dealing with this particular issue, and it had maintained the confidentiality in situations where they were doing peer review. It dealt with the medical agencies. Ande Engleman stated the tendency in the Senate is that these things should be confidential unless at some point somebody needs access to them for good reason. Mr. Harrington surmised that the bill protects the commission's review, and the peer review process would be protected. Chairman Bache stated they presently would not take action on S.B. 283. The meeting adjourned at 10:25 a.m. RESPECTFULLY SUBMITTED: Kelly Liston, Committee Secretary Assembly Committee on Government Affairs June 21, 1995 Page