MINUTES OF THE ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT Sixty-eighth Session April 4, 1995 The Committee on Labor and Management was called to order at 3:30 p.m., on Tuesday, April 4, 1995, Chairman Saundra Krenzer presiding in Room 321 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Ms. Saundra (Sandi) Krenzer, Chairman Mr. Dennis Nolan, Chairman Mr. David Goldwater, Vice Chairman Mr. Lynn Hettrick, Vice Chairman Mr. Bernie Anderson Mr. Douglas A. Bache Mr. John C. Carpenter Mr. Pete Ernaut Mr. Mark Manendo Mr. Brian Sandoval STAFF MEMBERS PRESENT: Mr. Vance A. Hughey, Senior Research Analyst Mr. Fred W. Welden, Chief Deputy Research Director OTHERS PRESENT: Mr. Dennis Kist, President, International Alliance of Theatrical Stage Employees and Moving Picture Machine Operations, Local 720 Mr. Barney Rawlings, Gebara Enterprises, Inc. Mr. John Sande, III, Harrah's Hotel & Casinos Mr. Jack Jeffrey, Southern Nevada Building and Construction Trades Council Mr. Max Christiansen, Southern Nevada Air Conditioning and Sheet Metal Contractors' Association Ms. Cecilia Colling, Assistance General Manager, SIIS Mr. Bill Ezell, Assistant to the Actuary, SIIS Chairman Krenzer opened the hearing on A.B. 383. ASSEMBLY BILL NO. 383 - Requires security for payment of wages of all persons employed in productions in entertainment industry. Mr. Danny Thompson, representing Nevada State AFL-CIO, introduced Dennis Kist and Barney Rawlings, who would be testifying in support of this bill. Mr. Barney Rawlings, Owner and CEO of Gebara Enterprises, Inc., explained his corporation is engaged in national television and production. He is a producer- promoter in the context of A.B. 383. Mr. Dennis Kist, President of IATSE Local 720, stated the proposed amendments originated primarily because the state of the art of television production in Las Vegas has changed since the original law was enacted. Originally, television production consisted of occasional sporting events, game shows and in-hotel stage entertainment. Since then, the industry has developed and now revolves around sports; major championship boxing, televised football events and major league weekends at Cashman field. The suggested amendment developed last year during a shoot at Cashman field. Local employees were hired by Southwest Mobile Productions out of Phoenix and the question was raised as to whether or not they would need to have a producer-promoter's bond to secure the wages for the local employees. The labor commissioner contacted the attorney general's office and they made an initial interpretation of the existing statutes. In that context, baseball players were neither actors, musicians nor dancers or artists and therefore no security was needed for the employees' wages. This promoted the change in language, specifically, changing "actors, musicians, dancers" to the general term "artists". This would cover the whole spectrum of personnel. He remarked there could be some exclusions such as, "celebrity talent, executive personnel, managers and supervisors". It would not be fair for HBO to have to put up a bond to cover for example, George Forman, but you would want to make sure the "below-the-line talent"; employees such as camera operators and technicians would be covered. Mr. Rawlings expounded on his opinion of the intent of the bill. When companies come into the state, they assume the role of producer for the entire production. This bill if properly enforced would insure payment of wages to all working on the production. Due to the growth of the industry playing a larger role in the Nevada economy, he feels this has become necessary. Assemblyman Nolan inquired if this occurs in any of our neighboring states, California, Utah or Arizona. Mr. Rawlings explained they have an account set up in California for industrial insurance which covers the Nevada workers they would bring with them. They would make additional payments for any personnel hired in California. All of the laws governing California would apply to them. He stated he believes this would be a reciprocal situation among the states. Chairman Krenzer questioned where would they like to insert their suggested exclusions in the bill. Mr. Kist replied in any one of the sections as long as it was an overall exclusion to the statute. Ms. Krenzer further inquired if hotels are covered by a promoter bond when they bring in a major event. Mr. Kist stated yes, if they were the actual employer. He explained in some cases, a number of the technical personnel are employed by the hotel. They would be exempt from this. He pointed out the problem is, referring again to the situation at Cashman field, a facility from Phoenix who was the actual employer, some of the employees did not get paid for three to four weeks. On the other hand, a producer like Mr. Rawlings is required to pay immediately upon termination otherwise he is subject to wage claims by the state labor commissioner. The intent is to put them on the same level. Mr. Kist further explained a local producer who is just starting up hopefully has enough assets to secure the wages. The law states now, if an employer has a five year period in which they have not had any wage claims they are exempt. This applies primarily to out of state employers coming in. Chairman Krenzer asked if there were any other questions for these witnesses. There were none. Mr. B.J. Thomas, Assistant to the President, IATSE Local 720, was to testify but stated he would only be repeating previous testimony. Mr. John Sande, representing Harrah's and authorized to speak in behalf of Nevada Resort Association, testified. He said they do not take a position regarding A.B. 383 but would like to recommend that the committee consider exempting non- restricted gaming licensees. He pointed out they are already heavily regulated. Before a license is even granted, they are required to show financial capabilities of performing as a non-restricted gaming licensee and therefore have established assets to pay any amounts for these type of productions. Chairman Krenzer, seeing no others wishing to testify in favor or in opposition to A.B. 383, closed the hearing. She then opened the hearing on A.B. 384. ASSEMBLY BILL NO. 384 - Revises manner in which premiums for industrial insurance are determined for employment designated as construction. Mr. Jack Jeffrey, Southern Nevada Building and Construction Trades Council, stated the main issue of A.B. 384 has been addressed before. Last session, it passed through the Assembly but was hung up in the Senate. He summarized the history of the bill stems from insurance premiums being determined by the contractor's total payroll. In the construction industry, there is a wide variance in what contractor's pay their employees and those that offer higher wages will pay a higher SIIS premium. Those who have a lower total payroll amount will pay less in premiums. This bill attempts to base the premium on exposure for hours worked rather than total payroll. He explained several years ago a two-tier system was set up based on an arbitrary figure. This did not work either. Currently, this problem is the reason many contractors are considering leaving the system. If they go with group self-insurance they can establish an hourly rate as well as solve some of the other problems talked about. If a contractor pays a lower rate he probably has a younger work force which is not as well trained as compared to those who pay a higher wage. Statistically, in Nevada, the younger, untrained worker has more accidents than the older trained worker and yet the contractor with the more highly trained work force is paying the unfair rate. Max Christiansen, Southern Nevada Air Conditioning and Sheet Metal Contractors' Association, interjected as long as the contractors are receiving the same benefits they should be paying the same amount. Mr. Jeffrey added the problem becomes very apparent in the bidding process. He referred to Mr. Christiansen's contractors, pointing out because they pay a higher rate they have an unfair disadvantage against the contractors who pay less. The contractor who pays less not only receives a break as far as wages are concerned but they also receive a break as far as the SIIS premium is concerned. This was not a problem 15 to 20 years ago because this was not a lot of money but presently, this is not the case. When figured into the bid this is a substantial amount. Chairman Krenzer asked for those wishing to testify in opposition to A.B. 384 to come forward. Ms. Cecilia Colling, Assistant General Manager for SIIS, testified. She introduced Bill Ezell, Actuary for SIIS, and stated he will discuss the problems they have with this bill in terms of an administrative approach and ratings. This bill portends not to have a fiscal impact but referring the committee to Exhibit C., she stated it does. Mr. Ezell, explained this proposed bill is an extremely complex and complicated issue, one which strikes at the very heart of the rate making process for the entire state of Nevada, not only the construction industry. Referring to the old two-tiered system, he pointed out they did do that in lieu of this particular bill which was introduced in 1985, becoming effective in 1987. Ultimately, the insurance commissioner disallowed the two-tiered process claiming it was unfairly discriminatory. The issue of man hours as it is written here is not the problem but that it takes four to five years to develop a reliable rate making database from the man hours. There are no tracking records or legitimate circumstances which require employers to maintain long range records of man hours. Everything is consolidated in payroll. He stressed converting to man hours from a payroll perspective would require converting $1.2 billion of our $8.6 billion to a man hour basis and retaining the rest of the state on a payroll basis. From the systems perspective, it not only has to maintain the existing system but create a new system within the system and merge those two systems in order to work together. This is not an independent situation whereby the construction operations are separate and independent as a different state might be. It is all part of the same rating pool. The division would make it extremely complex to make it work. Mr. Ezell declared the real problem with either rating system is that you must have good, reliable long term data in order to produce rates through employers. Assemblyman Goldwater stated he does not understand what data is needed based on the computation between man hours and dollars. He questioned would that not be a simple gauge, to which Mr. Ezell responded man hours are not necessarily directly convertible from dollars. There are commissions, contract work, piece work and many other pay variances which enter into the situation and are not convertable to man hours. He further explained man hours is the key that generates all the experience relative to loss. If they convert to man hours they are still looking at man hours relative to loss because the loss does not change. The same amount of dollars still needs to be collected regardless of what database is used. The database they would be looking at would have to generate the same amount of premium. The subtlety is there may be a slightly different distribution in the use of man hours, pointing out the key word is slight. The problem is converting the data and accumulating acurate and reliable information. For a point of clarification, Assemblyman Anderson stated Mr. Ezell's first concern is he does not have enough data to complete his actuarial table on a predictable base due to the lack of a four year history. Mr. Ezell replied it is one of his primary concerns along with the fact that they would have two separate databases which would have to be merged together, payroll for all other than construction and man hours or hours worked for the construction industry. Mr. Anderson stated he was going to inquire if that was his second concern to which Mr. Ezell reiterated this is part of the problem. Mr. Ezell explained this separation forces their processes to be duplicated in regards to having to maintain a completely separate database for each type of operation. This requires two types of payroll reports or the ability to merge the information of the reports. He expounded many construction employers have clerical, outside sales and many other different classes which are not associated with the actual construction and therefore are not on the man hour basis. A payroll report would have to be devised and a system established which would calculate the various levels both in man hours and in payroll. Mr. Ezell emphasized the amount of statistical data and the length of time needed to acquire it would be overwhelming. Mr. Anderson further inquired if it is possible that what we are doing in the labor market, in our endeavor to try to provide a common database, we have created an equitable step system that is not reflective of the true dollar value of the people who work in the construction field. Mr. Ezell responded no, basically the system that we have, in spite of all the problems that go on with rating systems and all the criticisms that can be made of it, is amazingly accurate at predicting the ultimate development relative to losses. "Currently a situation exists where the differences that Mr. Jeffrey referred to, on the surface they appear to be material but, as the system washes out through the various processes, an experience rating is applied for example, a construction employer whether they be low pay or high pay, if he controls his losses and has significant low loss exposure he will have a very substantial experience mod that deviates downward from the published rate. Many of the contractors pay 20% of the rate, 30% of the rate, 31%, 50% percent of the rate. Many of the good contractors are on that rate and they have a very good loss history. The loss history is reflected in their claims experience and in their rate." Chairman Krenzer questioned if he was not still discussing loss referring to his statement concerning ultimate data related to losses, i.e., wage and hours relate to losses. She pointed out Mr. Ezell even referred to experience related to loss. Mr. Ezell clarified the premium charged to the employer is commensurate with the loss experience over time. He explained if you are in the construction industry, for example, we have to charge a rate that will over time pay the losses that occur in that industry. From the perspective of individual employers, they would like to pay only for their losses and this is also what he would like to see. Unfortunately the insurance premium paid has to be a pooling process and in fact has to generate enough money to pay all losses within the industry and ultimately all losses that occur within the state. The losses, whether you are talking payroll or man hours, are what determine the rate in opposition to those characteristics that you are collecting premium on. Mr. Ezell explained if your loss is one dollar per one hundred a payroll, as your payroll goes up you pay more premium but you also generate more claims loss based on historical projection. That is what generates the rate development. They are not independent. If you have payroll and you have coverage then that premium is associated with "x" amount of loss because "x" amount of loss is what determines how much premium you have to pay. Ms. Krenzer asked for further clarification in regards to why it cannot be related to hours rather than payroll dollars. Mr. Ezell said it can be related to hours but the problematic issue is getting it converted to hours. In order for him to have reliable and aged data to calculate rates on he has to have an absolute minimum of five years of activity. In order to generate the activity that will create rates relative to losses or man hours, he has to have a very substantial conversion of payroll to man hours. Then they would be able to get good clean calculations for the employer so that they could properly price his exposure. He emphasized this would take a lot of time and effort and cost a lot of money. Ms. Krenzer questioned if he started now, in five years, would he have that conversion and would he be able to properly calculate premiums. Mr. Ezell answered yes. Ms. Colling interjected regardless of what data is used the premium will be based on your losses and will have to cover the losses for that category and eventually for the experience of an individual employer. She believes it is a lot of trouble to go through for what she sees as little benefit in terms of premium. Mr. Ezell referred the committee to Exhibit C, a fairly substantial write up on this issue. He explained to the members with any rating system the equity adjustments occur either after the fact or during the time it is occurring. Employers achieve a certain level and become experience rated. Those experience ratings mitigate how much they pay in the form of premium whether it is based on man hours or payroll. The employer will continue to have an experience rating and continue to have, hopefully at some point in time, a dividend plan. There are special plans which are retrospective rating plans, both association retros and individual retros, which are based very closely on the actual performance of the individual employer. Clarifying, Mr. Ezell stated no matter whether they use the payroll system or the man hour system there will be the advanced and perspective stabilizers that are addressed to each employer which do in fact adjust their rate up or down based on his total loss activity. There are some issues where the employer is smaller and where the experience rating because of credibility concerns does not reach down far enough to give them full advantage of his good or bad experience. For the most part it calculates very close to what the expected loss for the industry is going to be or for that employer in general. Mr. Ezell, afraid he had not covered the issue, offered an example. He began, "I pay my carpenter $16 an hour. There is another contractor around who pays his people $8 an hour. Do I pay the same rate as he does or am I being accused of charging the same rate for both?" The truth of the matter is the rate may be improper for each employer but proper on the average for all contractors in that particular class of employment. The guy that receives $16 an hour receives benefits predicated on his wages, he gets more benefits. He receives about 90% more benefits than does the guy who gets $8 an hour. The benefits structure is related to total earnings as opposed to hours worked. The people who pay higher wages will have higher benefits for their employees therefore by definition they will continue to pay more money in premium. There is no avoiding that issue and it does not matter whether you charge man hours or payroll, the circumstance will still exist. There are discrepancies because it is based on amount of earnings per laborer not whether the labor is high paid or low paid. Mr. Goldwater noted they can always debate whether SIIS is social insurance or whether it is going to function like an insurance company. He stated if SIIS is to recover and the taxpayer is not to be burdened with a bailout it needs to start functioning more like an insurance company and be flexible, able to do these calculations. Private insurance companies have the flexibility to actuarialize these things and when they have variables introduced they are able to adapt. He inquired, "Do we lack some sort of infrastructure to come up with these rates, are we understaffed, do we not have the computer systems necessary?" Ms. Colling replied most other checks are based on payroll. There is only one state in the union that does their calculations based on man hours, which is Washington state. All others have rejected that idea finding it too difficult to administer in comparison to payroll. Currently, Nevada's system is used by most people in the country including insurance companies. She believes the proposed system does not have the benefits that are being projected. Mr. Ezell added Washington state started out as a payroll state. In 1933 they had a legislative referendum which changed it to man hours. He has spoken with their actuaries and they have told him you have to use the system that you have. There have been numerous attempts to change their man hours approach to a payroll approach because many of their benefits are also based on wages as opposed to hours worked. In Nevada, when we look at the operation, the benefits of compensation or indemnity that are paid to the claimant are based on his earnings. They are not based on the number of hours worked. There is a different kind of set up when one talks about wages and man hours for benefits as opposed to man hours and reportable payroll for premium purposes. But one cannot be divorced from the other. Mr. Ezell reiterated once he has the data, he could make rates but the issue is the complexity of changing because it requires a lot of detailed data. Ms. Colling interjected referring to Mr. Goldwater's earlier question, it would require them to search the many employers' records for five years in order to develop the database, looking at a multitude of things more complicated than how their people are working than just their payroll. Once the data was acquired and entered then a program would have to be developed for the computer to calculate it and somehow mix it with another payroll base system to come out with an equitable rate. Mr. Ezell further added another area of concern is, from the rate making perspective and from the ancillary development of experience modification factors and special plan factors, all of the activity has to be looked at in its aggregate development. At some point in time you still have to deal with all of the construction payroll as being part of the whole. To have a separate identifiable database where all construction is under man hours and all the rest of the state is under payroll would be extremely complex. Again, Ms. Colling interjected for clarification purposes, for each category it is based on how they score up next to another category, i.e., what are the risks as a carpenter compared to a secretary. They must look at the overall picture to set the rates or the class. Assemblyman Ernaut called attention to the fact this is actually a simple concept. The rate that one pays at SIIS is not based totally on one's payroll. It is based on another thing, important to this discussion, called "mod rate", i.e., your experience, your loss over time. "Regardless of whether it is calculated on payroll or man hours you are still going to need that factor, the mod rate, which you can say from the outset, someone who is paid more money would "common sensically" be more experienced and less prone to loss. That is an assumption until you put it to the statistical nature of the mod rate which then shows you whether or not it is true or not. This is the great evener of the whole thing." Summarizing, he remarked would it be justified to overhall the entire system when it is going to be modified by the mod rate regardless of the system used. Mr. Ernaut stated the second main point is the benefits are paid on sixty-six and two-thirds of one's wage and so this is a factor for someone who is getting paid more money. Potentially, they could receive more benefits and therefore, they have to pay incrementally higher premiums to cover that potential loss. Again, he asked why overhall a system when it will still be effected by a mod rate and when you go to pay the benefits it would be substantially harder to do that when the benefits are based on payroll. Mr. Ezell stated Mr. Ernaut was correct. Mr. Jack Jeffrey commented as far as the mod rate is concerned he believes there is some validity to that point but he stated there is no validity to the benefits being paid based on one's wage because the benefits are based on one's wage subject to the state average wage. The state average wage is the cap. Most construction workers in Las Vegas who are at the higher end of the scale, are cut 50% to start with. The last time he looked, the state average wage is around $24,000. It is not unusual for a construction worker in Las Vegas to make twice that and therefore would start with that 50% cap which brings him near what the lower wage earner earns. To say that benefits are paid on salary is inaccurate in regards to the construction industry, maybe in others where the pay is lower but not in construction. Mr. Jeffrey continued as far as medical benefits are concerned they cost the same for everybody no matter what you make. He reiterated he seriously disagrees with this argument. As far as the mod rate factor is concerned, it may be high enough to make up the difference for somebody who is making up to 40- 50% of what the high wage is but he does not really think so. What is interesting to him is this issue has been around now since 1981. SIIS asked for the opportunity to establish the regulation to take care of this problem. In the 12-14 years that he is aware of the only attempt was to try to base a rate on whatever the amount of the payroll was which was really kind of a prostitution of what they were already doing. They just picked an arbitrary figure and said if you are paying below this amount you pay this rate and if you are paying above this amount you pay that rate. It had nothing to do with exposure. What we are trying to get at here is to establish a rate that is based on the exposure in the industry. Mr. Jeffrey feels there have been many things thrown around today that just do not apply. He does not see any possibility of a system that would ever say that benefits should be paid on an hours worked basis. That would be ludicrous because of the difference in some very high rates. In some 14 years there has never been an attempt to do anything to take care of this semantically and that is why we are here today. Mr. Ernaut stated he agrees with Mr. Jeffrey. "In all fairness you could make the same assertion especially in specialty fields, when you figure that a lot of people in the construction trade make at or below the average wage, that you could also make the same point if it was done by hours you really could not keep track of some of the people on the other end of the scale, for example the person remodeling my bathroom. How could you then calculate the hours that he works? He may work two hours a day and make the same amount of money that someone makes that works 40 hours a week. So, again you have an inequity in your system. There are inequities either way. Why overhall the system when there are problems with both." Mr. Jeffrey responded when you talk about specialty workers and people who may make below the state average wage he agrees with Mr. Ernaut. This problem exists today. Although, it is pretty well taken care of because while the premium is based on payroll and the amount of money earned the benefits are paid the same way. Somebody may have worked all year and depending on the circumstances may receive compensation based on whatever they earned the last day they worked because they may only consider that one contractor. There is a big inequity there. There was an attempt to mislead the committee when they spoke about throwing secretaries and clerical people in there. They have always been separate. They do not pay a construction rate. They are not part of the problem. Mr. Jeffrey pointed out again, the problem lies with basic trades people and to try to correct an inequity that the contractors have. As far as he is concerned it does not matter, he represents labor and they will get the same benefits regardless. His concern is what happens to the contractors that "his guys" work for who have a competitive disadvantage because they pay a higher rate. It does not seem to him it should be a big deal to figure out what the construction industry needs especially in 15 years in a particular classification and establish a rate for it. This is the first time this argument has come up. There have been many arguments over the years about why it would not work and they were always the computer would not handle it. Now, this is different, maybe the computer is not the problem anymore, maybe they don't know what to put in it but there is really no excuse for not taking care of this problem in fifteen years if they made a good faith effort to do it. Mr. Jeffrey emphasized he is not blaming the present administration. They were not there when this started and they were not here last session. Somewhere down the line this problem should be attacked and taken care of. Assemblyman Bache pointed out last session this bill was A.B. 772. It was heard three times and he does not recall any of this testimony being made last time as to these problems. They amended the bill and it was passed and it is the same as A.B. 384. He expressed curiosity as to why it passed out of the Assembly 40-0 with two absent. He does not recall the system testifying in opposition last time. Ms. Colling replied there is different management now and they are being asked to do things in a very business like and equitable fashion. She does not know why the Assembly chose to vote that way and she is not going to stand by any commitments made 14 years ago because presently, it is an entirely different situation. Mr. Bache said he was not talking about 14 years ago but two years ago. Ms. Colling answered two years ago they were not here. Chairman Krenzer asked if there were any more questions or anyone else wishing to testify. Hearing none she closed the hearing on A.B. 384. Being no further business to come before the committee, she adjourned the meeting at 4:38 p.m. RESPECTFULLY SUBMITTED: Jennifer Carnahan, Committee Secretary APPROVED BY: Assemblyman Saundra Krenzer, Chairman Assemblyman Dennis Nolan, Chairman Assembly Committee on Labor and Management April 4, 1995 Page