MINUTES OF THE ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session January 18, 1995 The Committee on Ways and Means was called to order at 8:03 a.m., on Wednesday, January 18, 1995, in Room 352 of the Legislative Building, Carson City, Nevada, Chairman John Marvel presiding. Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. John W. Marvel, Chairman Mrs. Jan Evans, Vice Chairman Ms. Sandra Tiffany, Vice Chairman Mr. Dennis L. Allard Mrs. Maureen E. Brower Mrs. Vonne Chowning Mr. Jack D. Close Mr. Joseph E. Dini, Jr. Mr. Thomas A. Fettic Ms. Chris Giunchigliani Mr. Lynn Hettrick Mr. Bob Price Mr. Larry L. Spitler COMMITTEE MEMBERS ABSENT: Mr. Morse Arberry, Jr. (Excused) STAFF MEMBERS PRESENT: Mark Stevens, Fiscal Analyst Gary Ghiggeri, Deputy Fiscal Analyst Jeanne Botts, Program Analyst Tax and Budget Background Information Chairman Marvel announced the committee would normally meet from 8:00 a.m. until 10:45 a.m. Monday through Friday. He requested members arrive promptly for all scheduled meetings. The Legislature will be in recess from February 4 through February 19 and during this period the committee will meet jointly with the Senate Finance Committee to hear major budgets. Mr. Marvel indicated subcommittees had not yet been formed but would be soon. The interim study committee, S.C.R. 46, developed a format to expedite budget hearings through extensive use of joint Assembly/Senate subcommittees. Chairman Marvel thanked Mrs. Evans for her excellent work in chairing the committee. Ms. Tiffany asked about the S.C.R. 46 subcommittee's work. Chairman Marvel requested Mrs. Evans give a brief synopsis of the accomplishments and goals of the S.C.R. 46 subcommittee. Mrs. Evans reported the subcommittee began with goals of improving the budget process and of the Legislature taking a more active role in construction of the budget. She said the committee investigated western states most like Nevada. The states studied were able to complete budget hearings in a much shorter time than Nevada. Two major differences were discovered: other states did much of the work in joint subcommittees and a time-limited schedule for hearings was set and adhered to. She indicated the S.C.R. 46 subcommittee felt strongly this would work for Nevada. Consequently, joint subcommittees would play an integral role in the hearing process this session and hearing schedules would be adhered to, if necessary scheduling early morning or evening hearings toward a goal of completing the work on the major budget bills in May. A schedule for joint subcommittee hearings is being organized with the Senate. She said the S.C.R. 46 subcommittee's report would be distributed as soon as it was completed. Mrs. Evans complimented Mr. Perry Comeaux of the State Budget Office for his cooperation and helpfulness. Chairman Marvel noted another goal of the committee was the creation of a legislative budget office to allow more input into drafting the Executive Budget. He informed the committee their copies of the Executive Budget would be distributed Thursday morning. Chairman Marvel then offered some basic organizational information for committee members. Each member has a four-drawer file cabinet in the committee room. Committee members were reminded to have their personal secretaries do their filing and not to ask committee secretaries. Chairman Marvel stated any member not present at a committee hearing would be marked absent. He added breaks would be brief and members were asked to return on time. Chairman Marvel asked which members of the committee would like a minute book. He informed the committee a minute book would be kept in the committee room. Mr. Allard, Mr. Close and Mr. Fettic requested minute books. Chairman Marvel then introduced the committee secretaries, Linda Corbett, Dale Gray, Johnnie Sue Hansen, Susie Hult, Y Martin and Deborah Salaber. Chairman Marvel said budget highlights would be distributed at the end of the meeting for the next day's hearings. He emphasized budget highlights are extremely confidential and are for committee use only. Chairman Marvel mentioned Mr. Stevens and Mr. Ghiggeri could make arrangements for any committee member desiring a tour of state agency facilities during the session. Chairman Marvel requested Mrs. Evans and Ms. Tiffany be in charge of collecting money for the committee coffee fund. Chairman Marvel reviewed the Assembly Ways and Means Committee Preliminary Committee Rules for the 1995 Session which had previously been distributed (see Exhibit C). He reminded the committee members to treat one another and all witnesses with courtesy. Chairman Marvel discussed rule number 12 which states votes in committee will be consistent with votes on the floor. Any committee member wanting to change his or her vote should first confer with either chairman. Chairman Marvel called for approval of the rules. ASSEMBLYMAN PRICE MOVED TO APPROVE ASSEMBLY WAYS AND MEANS COMMITTEE RULES, 1995 SESSION, AS DRAFTED. ASSEMBLYMAN TIFFANY SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. Chairman Marvel yielded to Mr. Mark Stevens, Fiscal Analyst, and Mr. Gary Ghiggeri, Deputy Fiscal Analyst. Mr. Stevens summarized the upcoming committee schedule. Thursday, January 19, the committee will meet jointly with the Senate Finance Committee for an overview of the Executive Budget by Mr. Perry Comeaux, State Budget Director. Friday, January 20, the committee will begin state agency budget hearings for the Governor, the State Controller and State Treasurer. Next week, hearings include the Department of Personnel, the State Budget Division, the Department of Museums, Libraries, the Council on the Arts, and most of the general services accounts. Meetings will be at 8 a.m. each weekday morning. Mr. Stevens then explained the organization of the Fiscal Analysis Division. He and Mr. Ghiggeri attend each Ways and Means Committee hearing. The division has seven program analysts who are assigned specific state agencies. He explained the analysts would attend budget hearings when an agency assigned to them appeared before the committee or a subcommittee. Mr. Daniel Miles, Fiscal Analyst, and Mr. Robert Guernsey, Deputy Fiscal Analyst, are assigned to the Senate Finance Committee. Mr. Stevens said daily joint meetings with the Senate Finance Committee would be held in Room 119 during the two-week period the Legislature was in recess. Joint subcommittee hearings are being considered for Las Vegas on Friday, February 10. Mr. Stevens discussed the Interim Finance Committee. All members of the Assembly Committee on Ways and Means and the Senate Finance Committee are members of the Interim Finance Committee. The Interim Finance Committee meets approximately every six weeks between sessions. It provides a mechanism for supplying emergency funds to state agencies when the Legislature is not in session, thus avoiding the need to call special legislative sessions. Approximately $8 million is available in a contingency fund for allocation by the Interim Finance Committee between sessions. The Interim Finance Committee also approves transfers of funds between state agency budgets, gifts over $10,000 and grants over $50,000, and certain position reclassifications. Any action taken by Interim Finance Committee involves a dual authority. The Executive Branch must propose a change and Interim Finance Committee must approve it. A separate dual majority of the fourteen members of Assembly Ways and Means and the seven members of Senate Finance Committee is required for items to receive approval. The Interim Finance Committee does meet during session, however many of its functions, such as allocating monies from the contingency fund, cannot be exercised during the legislative session. Mr. Stevens then told the committee each member has a file cabinet in the room at the back of the committee room. Names are on the side of the top drawer in each cabinet and cabinets are set up in the different functional areas of state government, Education, Human Resources, etc. Mr. Stevens said committee members would receive budget highlights for information on the next day's hearings. Two binders will be placed in the bookshelf behind the upper row where budget highlights may be filed. In addition, he said all state agencies have been requested by Chairman Arberry and Chairman Marvel to provide a more detailed explanation of their budget than contained in the Executive Budget. These are called expanded program narratives and binders for them will also be placed in the bookshelf. Committee members may want to read through these narratives for general information on performance indicators, an agency's mission and accomplishments before each day's hearing. Mr. Stevens then informed the committee staff provides a brief explanation of each bill that passes out of the Committee on Ways and Means. A binder will be placed on each member's desk on the floor where bill explanations will be kept. Chairman Marvel added a member of the committee is normally assigned responsibility for explaining a bill on the floor and these bill explanations can be helpful to the member making the explanation. Mr. Stevens said manuals that provide information on state general fund revenues would also be stored in the bookcases in the committee room. In addition, the Audit Division supplies committee members with a book summarizing the major findings of each audit conducted during the interim period. He said Gary Crews from Audit Division would explain that book next week. Chairman Marvel recommended committee members read audit reports as they can be a source of valuable information for agency budget hearings. Mr. Stevens said the Fiscal Analysis Division produces a fiscal report which provides information on the Governor's recommendations for the upcoming biennium. That report should be out within the next two weeks. Mr. Ghiggeri distributed copies of Assembly Ways and Means Committee Budget Definitions (see Exhibit D) and briefly reviewed them. In addition, he pointed out reversions do not include funds granted or authorizations to spend from other sources, such as grants and fees. That money is balanced forward and does not revert to the general fund or the highway fund. The Authorization Act and the Appropriations Act are the culmination of the committee's work at the end of the session. Usually the Authorization Act is drafted by the Senate Finance Committee and the Appropriations Act is drafted by the Assembly Ways and Means Committee after all budgets reviewed by the committees are closed and agreed upon. Mr. Stevens then discussed budget format. He explained the budget is divided into three components: base, maintenance and enhancements. The base budget indicates actual expenditures for the fiscal year ending June 30, 1994. The maintenance budget is designed to provide the same level of service as fiscal year `93-94; for example, if an agency's caseload went up additional money would be required to maintain the same level of service. The enhancement budget outlines new funding requests. Mr. Stevens then discussed each budget component in greater detail. He explained certain adjustments were allowable to the base budget from actual fiscal year `93- 94 expenditures. He referred to a sheet entitled "Definitions" (Exhibit E), which summarizes what types of items are incorporated in each budget component. He then discussed allowable adjustments to the base budget. If a position was effective halfway through the fiscal year, the agency is allowed to annualize that salary for twelve months rather than the six months provided in fiscal year `93-94. One-shot appropriations for large one-time expenditures such as equipment are removed because they do not recur. Merit salary increases are included in the base budget. He explained state classified employees are paid on a grade and step system which provides merit increases based on satisfactory performance. He then reviewed the maintenance budget and explained the different decision units. The M100 series is for inflationary factors, such as utilities, food and medical expenses. The M200 series is the decision unit designated for demographics and caseload changes. M300 is occupational studies and also includes fringe benefit adjustments. Occupational studies are done by the Department of Personnel to see if certain classifications of state employees are paid at the correct salary level. M600 reflects the cost of new federal mandates. Existing federal mandates would be included in each agency's base budget. Mr. Stevens indicated Perry Comeaux, Budget Director, was compiling a schedule outlining the total cost of mandates by agency for distribution to committee members. Mr. Stevens discussed the enhancement component of the budget, referring to Exhibit D which contains a list and brief description of enhancement decision units, adding these were based on the Governor's Strategic Plan. Mr. Stevens distributed and discussed a sample budget for Internal Audit (Exhibit F) which outlines the format used in the Executive Budget. Program descriptions and performance indicators are now at the front of the budget instead of the back. The base budget appears next and indicates what revenue sources would finance the agency. Chairman Marvel noted the change in the number of revenue sources reported. Mr. Stevens commented revenue line items were previously limited to five but had now, in response to recommendations of the S.C.R. 46 committee, been expanded to a total of nine individual revenue sources. Expenditure categories are displayed next in the budget. The most frequently used expenditure categories include personnel expenses, in-state travel, operating expenses and equipment. Additional categories would be particular to individual agencies. The last item in the base budget is the number of positions recommended. He then reviewed decision units in the maintenance area which, in the sample, consisted of M100 Inflation, M200 Demographic Caseload Changes and M300 Occupation Studies/Fringe Benefit Adjustment. The enhancement area included E125 which provides funding for the Internal Audit Unit assuming a bill is approved removing the sunset on the agency which is effective July 1. Decision unit E175 requests additional office space for the agency. Replacement equipment has been included in E710 enhancement area in all budgets. This was done so all state agencies would be treated consistently. E711 is also an equipment replacement decision unit. A budget summary appears at the end of each budget account. Mrs. Evans expressed her appreciation to Mr. Stevens and his staff whose work in conjunction with the State Budget Office was reflected in the sample budget. She indicated the budget format was a monumental change and improvement in the display of the budget, allowing for much easier reading and understanding. Chairman Marvel concurred with Mrs. Evans's remarks and indicated he felt this new format would expedite the hearings and the entire budget process. Ms. Tiffany thanked Ms. Evans and the entire S.C.R. 46 committee for its work in improving the budget format. Chairman Marvel introduced Jeanne Botts, Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, who discussed the Distributive School Account. She distributed three documents: a two-page handout entitled "Distributive School Account" (Exhibit G) giving a history of basic support per pupil; a handout called "Nevada School Districts, General Fund Resources" (Exhibit H) giving an overview of school funding; and "Nevada Reference Manual" (a copy of which is on file in the Research Library of the Legislative Counsel Bureau). Ms. Botts read from a prepared statement (see Exhibit I). In addition, she noted local school support tax revenues this biennium are far greater than expected, resulting in a smaller amount of money needed from the Distributive School Account. Chairman Marvel said he understood the surplus was about $90 million. Ms. Botts concurred. Ms. Botts referred to page 2 of Exhibit G, a history of basic support by county which gives a reference of how greatly the dollar amounts guaranteed per pupil vary by county. As an example, she mentioned Eureka County, deriving considerable wealth from mining and having few students, is guaranteed a very small amount and received virtually no state aid for basic support. Lincoln County, as one of the poorer counties in terms of generating money locally, received more money per pupil. Ms. Botts referred the committee members to Exhibit H, stating page 4 contained a narrative of the Nevada Plan and page 5 contained an example of the Nevada Plan for a hypothetical school district. Ms. Giunchigliani asked if the cap was 4% with a growth increment beyond that. Ms. Botts replied there was a bonus available to school districts if they experienced extraordinary growth after the second month of the school year: if enrollment grew more than 3% after the second school month an additional 2% of basic support was provided; if enrollment grew more than 6% an additional 4% of basic support was provided. She said every year two or three districts qualified for bonus growth payments; however, they were always the small rural districts and the cost impact on the Distributive School Account was usually small. Ms. Giunchigliani asked what growth was budgeted for this biennium. Ms. Botts answered growth was budgeted at 5.15% and 5.46%. Actual growth was 5.76% and 6.3%, however the growth in local school support taxes offset growth in enrollment. Ms. Giunchigliani also asked if the surplus reverted. Ms. Botts replied the surplus in the Distributive School Account has always reverted to the State General Fund at the end of the biennium. Ms. Giunchigliani asked if there had ever been a second enrollment count in the school districts other than the count routinely done in September. Ms. Botts answered attendance is kept daily and monthly reports are submitted to the department. She said many years ago funding was based on average daily attendance; however, she did not believe a second count had been done in recent years. She indicated the theory was teachers were hired for the entire school year and if enrollment drops, the school district is still responsible for that financial obligation through the school year. Ms. Giunchigliani asked what was included in roll-ups and if utilities were included. Ms. Botts replied for the last ten years roll-ups have included only the cost of teachers advancing on the salary scale and a concurrent increase in fringe benefits. Ms. Botts said many years ago roll-ups were basically considered the adjusted base budget, the amount required to continue the same level of service, but for the last several years roll-ups have been confined to salary changes. Under the new budget format, roll-ups would be part of the adjusted base, so the average 2% roll- up cost would be considered part of the adjusted base and utilities would be a maintenance item. Ms. Giunchigliani disclosed for the record that she is a school teacher on an unpaid leave of absence, and therefore, she will be participating in discussion and voting on the budget. Ms. Tiffany asked about the lack of stability in school funding. Ms. Botts said Nevada depends heavily on unpredictable sales tax revenues compared to other states which generally rely on more stable property tax revenue. She said last biennium sales tax revenues did not meet projected levels, and a $51 million supplemental appropriation was needed. This biennium local sales tax greatly exceeds estimates with a resultant $90 million surplus. Ms. Tiffany asked how funding could be considered unstable when there is a guarantee of school funding. Ms. Botts replied if sales tax projections are not met and a supplemental appropriation is necessary to meet the guarantee, such funding comes from the State General Fund, which also depends on sales tax revenues. Last session the Legislature retroactively reduced basic support so there was a reduction in the guaranteed level of funding. Ms. Tiffany commented the reversion was a very substantial amount. Ms. Botts said the $90 million estimate of the reversion that might occur at the end of this fiscal year was due to local revenues exceeding estimates and less state aid being needed. Mrs. Evans asked if the same funding methods were applied to schools on Indian Reservations and if these schools were included in local districts. Ms. Botts answered the schools at Schurz and Wadsworth were county schools while the Nixon school was federally run. Generally, schools on Indian Reservations are county schools and are handled like other schools. Mrs. Evans said some teachers at Native American schools told her the once a year count adversely affected them. For example, at one school enrollment more than doubled after the count was taken. Ms. Botts responded if this happened in a school in a large county the effect on the district would be negligible. If enrollment doubled in a small rural county, it might be enough to trigger additional support. However, the bonus growth payment is not made until August after the school year is completed. Mr. Fettic asked for clarification on the $90 million surplus in the Distributive School Account. Ms. Botts responded this was a prediction. Mr. Fettic inquired what would happen to that money. Ms. Botts responded it would revert to the State General Fund. Mr. Stevens added money reverted from the Distributive School Account was included in the General Fund balance projection as of June 30, 1995. Ms. Giunchigliani stated this was part of the argument regarding the stability of funding mentioned by Ms. Tiffany. Some school districts perceived the money as theirs and and felt they should be allowed to use it wherever local government thought appropriate. Ms. Giunchigliani said she considered the Distributive School Account as a thermometer because its balance rises and falls as the state's obligation changes with local revenue changes. Chairman Marvel added when local economies are strong, local support plays a larger part and the state guarantee goes down. Ms. Giunchigliani indicated Nevada is one of the few states really reliant on state funding as most other states can raise revenues at the local level. Ms. Botts said this also has the effect of making Nevada one of the most equitable states in terms of school funding. Chairman Marvel asked if there were any further questions for Ms. Botts. Mr. Close indicated he was impressed with Ms. Botts's knowledge and requested a copy of her testimony. Chairman Marvel suggested copies be made for all committee members. Copies were provided. Mr. Close noted constituents were concerned about accountability. He asked for a brief description of what financial accountability legislators could expect from the school districts. Ms. Botts answered in the last ten years school districts were increasingly being asked to provide financial information to policy makers about how money is spent and Senate Bill 511 requires accountability reports by school. Part of the accountability report is a depiction of the amount of money spent per pupil. There were some problems with the first set of reports produced in that the Clark County and Douglas County School Districts were not coding expenditures to the site; however, this is being corrected. The accountability reports are due every March. She pointed out the Legislature was provided with expenditures of all school districts combined in aggregate and information was available for any committee member interested in how each district spent their money. She did say, however, if the Legislature decided to spend, for example, $50 per child on textbooks and $8 for library books, there was no guarantee that was actually done because expenditures are the responsibility of the local school district. Chairman Marvel mentioned this was a somewhat sensitive area as the Legislature should not become too involved at a local level. Mr. Close indicated his concern was how much money was spent directly on education versus administration. Ms. Botts said school district expenditures are shown in categories: instruction, including classroom teachers and teacher's aides; instructional support, including librarians and counselors; administration; and other, including bus drivers and food service workers. Mr. Close requested further clarification of total guaranteed support and resources in addition to basic support on page 5 of Exhibit H. Ms. Botts responded total guaranteed support was the minimum a district would receive from the state and local revenue sources inside the Nevada Plan. The school district is allowed to keep resources in addition to basic support (outside the Nevada Plan). Mr. Close then asked if these additional monies were tracked. Ms. Botts said all monies go into the school district general fund. A detailed report, called the NRS 387.303 Report, is available and all school districts are subject to outside audit. This information is available from the Fiscal Analysis Division. Mr. Allard asked if the special education formula was applied evenly to state, federal and local funds. Ms. Botts explained special education unit funding provided by the state is $26,208 a unit, probably slightly more than half the cost of a special education teacher. State and local sources provide 92% of the cost of special education while federal monies cover only 6-8%. She added many school districts and other groups request full funding for special education which means they would like the program unit amount increased from $26,208 to an amount more representative of the average cost of a special education teacher's salary and fringe benefits. Ms. Giunchigliani added this was an unfunded federal mandate and special education programs end up being pitted against regular education programs because districts have to offset the unfunded liability by taking it from regular school funds. Mr. Stevens pointed out in addition to the unit cost of special education, districts also receive the basic support guarantee for each child in the special education unit, so more funding is provided than just the special education unit. Ms. Botts said each of those children is counted as a pupil with special education units and federal funding added. If the unit amount were increased, the basic support available for all pupils would decrease. Mr. Allard asked Ms. Botts for an approximate cost per special education student. She answered nationally it was about twice the cost of a regular education student. Some students who are severely handicapped are sent out of state for education under the NRS 395 program and this cost is even higher. Chairman Marvel suggested any committee member with further questions during the session contact Ms. Botts for any information regarding school funding. Chairman Marvel recognized Mr. Gary A. Sheerin, former State Senator and Assemblyman. Mr. Sheerin addressed the committee regarding the permanent net proceeds fund from taxation on mining. He distributed a memo and materials (Exhibit J). Mr. Sheerin discussed AB 770 which in 1989 created the permanent need proceeds fund and AB 763 which in 1993 temporarily revoked the permanent net proceeds fund, moving that money into the general fund. He requested a new bill to put $3,837,906 back into the permanent net proceeds fund, to raise the amount deposited annually to the fund from 5% to 10% or 15% of the total collections on the mining tax, and to make the fund permanent. Chairman Marvel said AB 763 was scheduled to sunset and the deposits to the fund would begin again July 1, 1995. Chairman Marvel indicated he supported the idea of making the fund permanent as it allowed the counties to take part of their net proceeds and create a so-called rainy day fund or put the proceeds into a capital improvement account. Mr. Price asked if there were any special provisions for drawing the money from that account. Mr. Sheerin indicated a simple majority of the Legislature was required. Chairman Marvel asked if either speaker wished to make any announcements regarding the day's floor session. Mr. Hettrick said Mr. Dini would serve as speaker on the floor. The Assembly would recess after a few minutes and reconvene after the conflict hearing. Mr. Hettrick indicated he had been approached by staff regarding the light panels at the committee chairmen's seats. In some committee rooms it was difficult for both co-chairmen to see the light panels and some committees were considering not using them. Chairman Marvel indicated he felt the light panel worked well for this committee as a staff member sat between the two chairmen. Mr. Price asked if the Assembly would reconvene today. Mr. Hettrick answered yes. Mr. Spitler disclosed for the record he is Vice-President of Human Relations and Corporate Communications for Sprint Central Telephone Company. When budgets such as the Public Service Commission or the Consumer Advocate's Office came before the committee, he would abstain from those issues. Mrs. Evans noted for the record she is an employee of the University and Community College System of Nevada and she would abstain from UCCSN issues. There being no further business, Chairman Marvel adjourned the meeting at 10:27 a.m. RESPECTFULLY SUBMITTED: Deborah Salaber, Committee Secretary Assembly Committee on Ways and Means January 18, 1995 Page