MINUTES OF THE ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session January 20, 1995 The Committee on Ways and Means was called to order at 8:00 a.m., on Friday, January 20, 1995, Chairman Arberry presiding in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Morse Arberry, Jr., Chairman 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: None GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mark Stevens, Fiscal Analyst Gary Ghiggeri, Deputy Fiscal Analyst Chairman Arberry reminded the committee members to return the bill books to the committee room at the end of each day. OFFICE OF THE GOVERNOR - PAGE 1 Chairman Arberry recognized Mr. Don W. Hataway, Chief Assistant to the Budget Director, Budget Division, who gave an in-depth overview of the Governor's base budget. He noted the last sentence in the narrative for the Base Budget regarding host and food costs should be moved to the Mansion Maintenance Budget. The Budget Division constructed the budgets based upon definitions which were agreed to by the subcommittee chaired by Mrs. Evans and the Budget Division during the interim service and outlines what should be included in a base budget. Referring to personnel expenses on page 1, Mr. Hataway explained 19 people were authorized by the 1993 Legislature to operate in the budget. He verified the employees were in the proper grades and steps for their particular classification. The computer generated the salaries and benefits for those authorized positions. The only change between the agency recommendation and the Governor's recommendation was a 1.575% vacancy savings factor built into the budget. The budgets of elected officials were treated the same as any other executive branch budget regarding vacancy savings. In terms of out of state travel and in-state travel, actual expenses were used in the construction of the 1996 and 1997 base budget and were adjusted for such things as one-time expenses as a deduction and changes in maintenance contracts for copy machines and rent. He pointed out there are pluses and minuses in the budgets. Out-of-state travel and in-state travel were identical to the 1994 actuals for both years 1996 and 1997. Operating expenses increased slightly. When the operating expense was reviewed, certain things developed. Rent increased approximately $10,000 annually from 1994 actuals, which was primarily due to the new office space the Governor has in the Las Vegas office building. Rent expense included the Carson City and Las Vegas offices' square footage multiplied by the state rent rate. Mr. Marvel asked if there would be much out-of-state travel by the Governor. Mr. Hataway responded the Governor would not be traveling much more than the $10,228 recommended in the budget. Mr. Hataway explained operating expenses were adjusted by plus additions to rent, contracts on copy machines, and a decrease in one-time remodeling expenses in the Governor's office, totaling approximately $7,300. By the time all of the pluses and minuses were done, the Budget Division recommended the actual operating expenses in 1994 increase from $252,000 to approximately $260,000. Mr. Hataway explained all equipment, all one-time expenses by rule, whether office equipment or computer equipment, were reduced from the budget. There were no expenditures recommended in the base budget for equipment. Mr. Hataway stated Information Services expense was primarily related to services received from the Department of Information Services. There was a small amount of hardware eliminated; therefore, Mr. Hataway recommended the $8,900 expended in FY 1993-94 be adjusted down to $8,500. He assured the committee members there was a detailed line-by-line examination of every expense item in the Office of the Governor account for 1994 which was available to fiscal staff. Mr. Hataway recommended the total expenditures in the base budget for the Governor's office increase from $1,136,284 in FY 1993-94 to $1,190,030 and $1,193,479 in both years of the biennium. He believed the base budget for the Governor's office was mutually agreed to by the Governor's office and the Legislative Counsel Bureau fiscal office. Mr. Hataway pointed out there were very few budgets which stand alone and were not impacted by some other budget account. For example, if Information Services charged either an increase or decrease in the upcoming biennium, a budget that received those services would be impacted. He pointed out the Administrative Services Division of the Department of Administration, referenced throughout the Executive Budget, for example on page 577, provided accounting, fiscal and personnel services to divisions within the Administrative Services Division budget. However, the Administrative Services Division also provided fiscal services to some small budget accounts, including the Governor's budget, the Governor's mansion budget, the Lieutenant Governor's budget and the ethics commission. The only revenues that came into the Administrative Services budget were administrative charges to the agencies they served. So on page 577, the $744,000 base recommendation for 1996, the Governor's office contributed $11,672, based upon services rendered on a time allocation basis for 1994 actual time spent. Mr. Hataway summarized by pointing out changes in one aspect of the Executive Budget will affect other aspects of the budget which provide services from Administrative Services. Note should be made on page 577 Administrative Service charges which were built into the Governor's budget to support the Administrative Services Division of the Department of Administration. Mr. Hataway commented the whole theory of following strict rules on the base budget was to allow the elimination of lengthy discussion and to allow concentration on decisions which impacted the drivers of how the budget was put together, which were maintenance and enhancement decision units. He expressed his desire to continue working with committee members to resolve any differences that might occur. Mr. Close expressed his appreciation for Mr. Hataway's background information. He asked whether the indirect costs and cost allocations of the maintenance portions of the budget were strictly based upon experience from previous years or a standard percentage for each department. Mr. Hataway responded it was his understanding the Administrative Services Budget was based on a historic time record served to the various divisions within the Department of Administrative as well as smaller budget accounts, so the same percentage of time cost that appeared in the base budget was then applied to maintenance and decision items for the Administrative Services Budget. Mr. Hataway pointed out there were different methodologies to determine allocations; for example, full-time equivalency (FTE) and time-and-records basis for the staff providing the service, but it was his understanding this particular budget was based on the actual time Administrative Services served the Governor's office. Mr. Close asked whether the allocations had some relationship to both FTE and experience. Mr. Hataway responded it was his understanding the allocations were a time and materials basis, based on 1994 actual services. Mr. Hataway continued his explanation of the maintenance and enhancement areas of the budget. He mentioned although some items may appear minor in a small budget like the Governor's budget where inflation may generate a small dollar amount, in a larger budget inflation may generate several hundreds of thousands of dollars. Mr. Hataway requested committee members turn to page A18 of the Executive Budget, identifying the specific categories comprising M-100. He pointed out every agency's budget should only include those items identified on pages A18 through A20. He urged the committee members to become familiar with the definitions of the Executive Budget on pages A14 through A21. Mr. Hataway further explained the M-100 decision unit of the Governor's budget was not only the Administrative Services inflationary share the Governor was responsible for, there were also insurance and postage built into the $1,064 in 1995-96 and $1,106 in 1996-97. Mr. Hataway said the same principles applied to M-200, demographics caseload changes. In addition to the Administrative Services Division's share the Governor contributed, the primary cost was the Governor's share of the property and contents insurance for the new state office building in Las Vegas. Property and contents was reflected in the M-200 category for all budgets impacted by the new state office building. Mr. Hataway went on to the M-300 decision unit of the Office of the Governor account, which is used to show net savings or increases in expenses for personnel. Mr. Hettrick explained the Department of Personnel each biennium does occupational studies, as outlined in Definitions, which included fringe benefit changes and merit salary adjustments. He pointed out there were certain positions within the state government where merit salary increases were frozen because of high turn-over rates. He stated in their opinion it was inappropriate to build in merit increases if the turn-over rate was such that the employee would not be employed long enough to be eligible for a merit increase. He mentioned the Budget Director looked at the turn-over rate report from the Department of Personnel and made certain modifications in the number and type of positions eligible for merit salary increases. Mr. Hataway noted the Budget Division concurred with Legislative Counsel Bureau fiscal staff for the need to isolate costs to show benefits or expenses to positions on the list. He pointed out the only impact on the Office of the Governor account was for fringe benefit adjustments because SIIS rates decreased, which resulted in a net savings of $4,195 in 1995-96 and an increase of $1,209 in 1996-97 related to medical insurance premiums being adjusted upward. Mr. Marvel questioned whether Mr. Hataway found the new budget format to be more expeditious than the old system. Mr. Hataway responded there were three primary reasons for changing the budget format: 1) to make it more user friendly, 2) to reduce micro management of small budget items, and 3) to speed up the legislative process. If the third reason for the budget format change was realized, it would be a success. As evolutionary changes unfolded, Mr. Hataway felt reasons one and two would aid committee members in their decision-making process. Mr. Hataway drew attention to the difference between agency requests and Governor's recommendations due to certain items being eligible for inflation factors, which in this case ended up being postage, utilities, and other items. He suggested because the budget was a dynamic process, committee members might apply more or less inflation factors when making their decisions and query all M-100 decision units in the budget and follow the total fiscal impact. Mr. Hataway indicated inflationary increases had not been applied since the 1991 session. Mr. Hataway requested the committee members turn to page A14 and drew their attention to the functional goals which the Program Enhancement component of the budget is based. He pointed out every agency had to look at these goals and apply those decision units which would allow each agency to best perform their duties. Referring to the Enhancement portion of the Office of the Governor account, functional goal E-125, accessible, flexible, responsive government, three positions were proposed for consideration. An executive assistant was proposed for the Las Vegas office due to growth, number of inquiries and services provided by the Governor. An administrative assistant was proposed as a restoration position which had been eliminated in the previous biennium from the Carson City office. An administrative secretary was proposed for the Carson City office due to workload increases. The E-125 decision unit also included the Office of the Governor's portion of the Administrative Services Division for additional computer and software enhancements. Chairman Arberry questioned why only one position was being requested for the Las Vegas office in light of the increased workload. Mr. Hataway pointed out in his presentation he would draw the committee members' attention to a one-shot appropriation to enhance the computer hardware and software needs of the Governor's office which would intertie between the Carson City and Las Vegas offices. The employees assigned to the Las Vegas office coordinate information provided to the Carson City office, where the Governor spent most of his time and key decisions were made. Although the Las Vegas office would not be a full- service office, the Governor felt more representation was needed there because of the increased number of inquiries and requests for services. Mr. Hataway discussed decision unit 710, replacement equipment, which reflected the Office of the Governor's portion of the Administrative Services Division budget. He indicated the $13 was a key item in that if the replacement equipment was not approved in the Administrative Services Division budget, the $13 item would not be needed. He emphasized again the interrelationship between the budgets. Mr. Hataway drew the attention of the committee members to the Budget Summary portion of the Office of the Governor which consolidated the base, maintenance and enhancements portions of the budget. He pointed out the approval of the Governor's budget would increase the number of personnel from 19 to 22, the total budget would increase 9.8% from FY 95 and would increase .7% from FY 96. Mr. Fettic asked for clarification of the Governor's agency request and Governor recommendation. Mr. Hataway responded the Executive Budget shows what the agency requested versus what the Governor recommended. Mr. Fettic pointed out the agency in this particular case was the Office of the Governor. Mr. Hataway responded affirmatively, but explained agency requests may materially differ from the Governor's recommendations based upon dollar availability. He explained a great deal of work had been done to create unanimity in aligning agency requests with definitions before moving into the Governor's recommendation phase. Mr. Hataway summarized how the draft copy of the General Appropriations Act for 1995-97 on page A74 tied in with the Office of the Governor's account on page 3. He further explained expenditure authority would be authorized after the act was adopted, at which time a work program would be formulated. Mr. Hataway then drew the committee members' attention to page A30 and explained the operating budgets represent ongoing expenses, while supplemental appropriations and one-time appropriations primarily came out of the 1993-95 biennium excess reserves. He said his staff recommended a $67,220 one-time appropriation for the Governor's office to enhance their hardware and software package. Ms. Giunchigliani asked what percentage of the budget constituted the "rainy day" fund. Mr. Hataway responded the balance was a dollar value statutory maximum rather than a percentage value, which represented approximately 10% of the budget. MANSION MAINTENANCE - PAGE 5 Mr. Hataway noted host and food costs were higher in the second year of the biennium because of additional expenses incurred by the Governor during the legislative session, so FY 1996 host and food expenses should be compared to those of FY 1994 and FY 1997 should be compared to FY 1995. Mr. Hataway pointed out travel expenses included allowances for the first lady to travel to official functions both in state and out of state. Mr. Close asked if information was available for FY 1994 in the area of indirect cost allocations. Mr. Hataway stated the Administrative Services Division would provide that type of information. Mr. Close asked where in the Executive Budget he would find actual expenses from previous years. Mr. Hataway drew attention to page 577 where he summarized expenditure items and remarked Administrative Services would outline how the 1993- 94 actual expenditures relate to the 1995-96 recommendations. Mr. Stevens noted fiscal staff had detailed printouts of the budget which would be made available to the committee members. He noted fiscal staff received detailed information which was rolled over into the new format, but the detailed information was not available to the committee members in the new format of the budget documents. Mr. Hataway agreed detailed base budget adjustment reports were provided to fiscal staff delineating increases and decreases from 1994 actual to 1996 recommendations. Mr. Allard inquired whether the $12,199 personnel expense under the M-200 decision unit was a salary adjustment for two employees. Mr. Hataway responded there were two non-classified personnel at the Governor's mansion, one cook and one housekeeper. The salaries for each was $15,676. The Governor recommended an adjustment to $21,000 each, resulting in the $12,199 and $12,750 difference in salary and fringe benefits. Mr. Allard questioned whether that would be an increase approximating 10%. Mr. Hataway responded the increase was more than 10%, and pointed out the two mansion employees had not had adjustments since at least 1991. Mr. Allard pointed out the Governor was recommending a 4% and 3% salary increase for public employees, which prompted his initial question. Mr. Hataway explained there were unusual circumstances for each individual case. He pointed out the unclassified pay bill for unclassified employees may go beyond 4% and 3% when merit and cost of living factors were taken into consideration, and the Governor felt based upon the competency of the employees, the level recommended was justified. Mr. Allard inquired when public employees last received a pay raise, and Mr. Hataway responded in 1991. Mr. Allard concluded the Governor was recommending a 4% increase for public employees and a 10% increase for the mansion employees. Mr. Hataway emphasized public employees had not received cost of living increases since 1991 but half or more had received merit increases through that period. Mr. Fettic inquired of Chairman Arberry whether the mansion employees work at the pleasure of the Governor so when the Governor leaves office, the mansion employees might also leave their positions, to which Chairman Arberry responded in the affirmative. Mr. Hataway explained there were three classifications of employees: 1) Classified employees operating under the personnel system; 2) Unclassified employees who were part of the formal process approved by the legislature; and 3) Non-classified employees under the judicial branch of government, the legislative branch of government, and occupational licensing boards who were technically state employees but were subject to appointment. Mr. Hataway noted on page 1757 in the Highway Patrol budget, decision unit E-325 proposed a security force for the Governor's mansion which would provide six additional personnel and on page A30 a one-time appropriation in the amount of $258,773 that would equip the security force, both of which benefited the mansion budget. Mr. Hataway reiterated although the mansion budget was relatively small, there were other elements elsewhere in the Executive Budget which benefited the mansion budget. He also stressed the Governor felt quite strongly additional security needed to be provided in the future. Mr. Marvel asked what was included in the existing security system. Mr. Hataway responded the existing security system included one Highway Patrol officer, who escorts the Governor, and basic security equipment. Mr. Marvel inquired whether capitol police provided security for the mansion. Mr. Hataway stated capitol police as well as the Sheriff's Office for Carson City patrol the Governor's mansion. Mr. Marvel asked if there had been any threats to the Governor's family or the mansion itself, to which Mr. Hataway replied he was not aware of any. Chairman Arberry questioned why there was a request for increased security if there had not been any threats. Mr. Hataway explained concern was increasing for the Governor's mansion just as it had for the Legislature and there was no comparison of present security to that of years ago. He also pointed out more detailed explanations could be given at the time the Highway Patrol budget was presented to the committee. Ms. Tiffany asked if the security level was going from bare bones to maximum. Mr. Hataway responded a staff of six would provide a very basic, midrange level of service. Ms. Tiffany questioned whether there would be additional costs if the security system were implemented which had not been addressed. Mr. Hataway indicated the budget included all costs in addition to the one-time appropriation for equipment such as cameras. Ms. Tiffany asked who would operate the cameras, to which Mr. Hataway responded the Highway Patrol. Mrs. Brower questioned the number of guards at the mansion on a daily basis and if there was going to be additional cost in preparing a work area for the guards. Mr. Hataway replied the area was existing but had to be enhanced for the additional monitors and communication equipment. He noted an analyst would provide a staffing schedule, but 6 people working 24 hours a day 7 days a week would not require more than one guard at any one time. Mrs. Brower inquired again about the cost of enhancing the guard area being included in the one-time appropriation, and Mr. Hataway assured the committee the one-time cost included all equipment and operating procedures necessary for startup. Mr. Close asked if the personnel expense and the one-time appropriation were tandem expenditures. Mr. Hataway said they were. Mr. Close commented there would be a million dollar expenditure for personnel and security equipment. Mr. Hataway agreed the amount would be a million dollars for the current biennium. Mr. Allard asked the type and number of vehicles included in the narrative on page A30. Mr. Hataway answered 3 four-door sedans and 1 four-door station wagon for use by personnel. Mr. Allard noted there was one existing Highway Patrolman on staff and asked if five new positions would be created. Mr. Hataway responded six positions were identified, one existing and five new positions. Mr. Allard queried whether the cost of training the five additional personnel was covered in the budget. Mr. Hataway responded the cost was built into the decision unit. Chairman Arberry requested an introduction of BDR 27-1103 which exempts purchase by local government from industry program in correctional institution in this state from local government purchasing act. * * * * * * * * * * ASSEMBLYMAN EVANS MOVED TO INTRODUCE BDR 27-1103 WHICH EXEMPTS PURCHASE BY LOCAL GOVERNMENT FROM INDUSTRY PROGRAM IN CORRECTIONAL INSTITUTION IN THIS STATE FROM LOCAL GOVERNMENT PURCHASING ACT. ASSEMBLYMAN MARVEL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * * * * * * STATE TREASURER - PAGE 91 Chairman Arberry recognized Mr. Robert L. Seale, State Treasurer. Mr. Seale distributed to the committee copies of his expanded program narrative (Exhibit C). Mr. Seale commented Orange County on December 8, 1994, filed for bankruptcy. He explained this was the single largest bankruptcy of a municipal entity that has ever occurred. They lost $2 billion of their $7 billion portfolio. Nevada had different policies and different approaches to investing than did Mr. Citron, former treasurer of Orange County. Nevada had not lost any money from its portfolio because of a team of professionals which had been assembled in the Treasurer's office. Mr. Seale introduced Chief Deputy Treasurer Brian Krolicki and Deputy Treasurer of Cash Management John Adkins. Those not present included Diana Vasey, who was in charge of day-to-day investment activity, and also Mr. Alvin Kramer, who has since been elected as Carson City's Treasurer. Mr. Seale pointed out four years ago there was one professional on the staff and at this time there were seven or eight professionals, with a decrease of 22% in personnel and a decrease in real dollars to run the State Treasury, and at the same time more and better services were provided. The portfolio of the prior four years was about $800 million. The existing portfolio was $1.4 billion. The number of checks run through the State Treasurer's office increased substantially, which was done on a budget of approximately $900,000. The State Treasury occasionally asked for one-shot appropriations, which had been granted. The Orange County failure pointed out how important and critical the job of the treasury was. Mr. Seale suggested his job was a matter of managing risk. The Treasurer's office was responsible for both investing the portfolio in a safe way and for issuing some of the debt in the State of Nevada. What was asked for in this budget was not much different than was asked for in the past. There were some minor changes, but Mr. Seale drew the committee members' attention to the area of services in the Executive Budget. He emphasized the need to know on a daily basis what the markets were doing. The current equipment utilized in his office allowed certain pieces of information to be obtained on a timely basis. Mr. Seale believed this equipment was not adequate for the times. Financial markets were moving rapidly. He emphasized the fixed income markets had been a roller coaster, and they were being monitored carefully with the existing equipment available. Mrs. Evans asked what criteria was available statutorily for the kind of professionalism pointed out by Mr. Seale to guide investment policies and strategies that would preclude the bankruptcy in Orange County from happening in Nevada. Mr. Seale responded NRS 355 defines the kinds of investments the State Treasurer may make, and those were, in keeping with the philosophy of Nevada, very conservative. In addition, the Nevada State Treasurer's Investment Policy was submitted to the Municipal Treasurer's Association in the United States and Canada for review, which resulted in the first Certificate of Excellence to a state. The Nevada State Treasurer's investment policy was in place for both the General Fund and the local government investment pool. The investment policy was also distributed to other municipalities throughout the state, and those municipalities were urged to follow the investment policy. Beyond that, the State Board of Finance, Chaired by the Governor and included Controller Daines, State Treasurer Seale and two outside members, reviewed every quarter the investment of the state's portfolio. Mrs. Evans inquired if there were a requirement the Treasurer perform a peer review. Mr. Seale stated there was and the Treasurer had to have a policy in place with the State Board of Finance. Mr. Evans asked whether the State of Nevada was adequately covered statutorily, and Mr. Seale felt it was. Ms. Tiffany questioned whether the State of Nevada surplus was invested, and if so, was it invested by the State Treasurer. Mr. Seale confirmed it was. Ms. Tiffany asked if the surplus was invested in a short-term investment and was making a profit. Mr. Seale explained all the money from the state came to the Treasurer's office and went out through the Controller's office by warrant. The warrants returned to the Treasurer's office, Mr. Seale signed them, and they became checks. The time between when the money came in and when it was disbursed was the time the money was invested. Mr. Seale outlined out the average maturity was approximately 241 day when he took his position, which he felt needed to be longer in light of the existing market conditions. Consequently, the average maturity was extended by about 100 days to approximately 370 days. When the market changed, Mr. Seale felt the average maturity needed to be shorter because of rising interest rates. Ms. Tiffany asked what investment return was actually being accumulated with the surplus. Mr. Seale responded the portfolio produced a varying rate of interest. The current rate was 5.65% to 5.67% but would change with the higher interest rates predicted for the following week and again in March 1995. Ms. Tiffany inquired whether a dollar figure could be provided. Mr. Seale replied it was probably in the neighborhood of $26 million to $27 million. Ms. Tiffany queried how the 5% increased investment to the "rainy day" fund would be invested. Mr. Seale stated the existing policy would be continued. He pointed out to the extent money could be anticipated to stay in the portfolio for a long period of time, the investment would be longer, but it was a market-driven question. The state did have long-term investments of three to five years' duration. Mr. Seale requested the budget he submitted stand without change. He pointed out in the past he had asked only for those items he felt were absolutely necessary. All the things he said would be accomplished in each biennium in fact were accomplished and were performed in a superlative fashion. Mr. Marvel asked if Mr. Seale had a bill draft request to amend NRS 356.010 to allow a more cost effective method of paying bank service charges. Mr. Seale replied the bill draft request was a modification. The banking services had been put out to bid. The payment of the banking services was a compensating balance and the bank account balance carried $18 million to $20 million at all times. The interest the bank received on the balance is how the payment was made. This had created a fair amount of competition and a significant reduction in the cost of banking services, which in the previous four years was $600,000 and $700,000. Mr. Seale felt there was room for improvement in those relationships if they had the ability to make direct payments in addition to doing the compensating balance, which they would seek. Mr. Close asked for an explanation of the goals for the Las Vegas office and what was anticipated from the Las Vegas office versus the Carson City office. Mr. Seale pointed out the capital markets, custody activity, trust activity, and major bank personnel for Nevada were in Las Vegas; consequently, he wanted to transfer Deputy of Investments Diana Vasey to the Las Vegas office where the modest cost would be more than offset by the efficiencies of having someone close to those markets. Mr. John E. Adkins, Deputy Treasurer of Operations, Cash Management, commented there were two items the State Treasurer did not concur with the Governor's recommendations in the base budget: 1) Vacancy savings of $43,786; and 2) Operating expenses reduction of $24,000, which represented the enhanced financial information system requested for the Carson City office, and the reduction of $2,000 from dues and regulations specifically related to membership in the National Association of Auditors, Controllers, and State Treasurers. Mr. Adkins pointed out Mr. Daines, State Controller, was elected president of the association, and Mr. Seale was appointed to the executive board of the association. He emphasized Nevada needed two representatives at the national level with respect to regulation changes and municipal bond disclosure laws that were being written. With the exception of the two items mentioned, he agreed with the Governor's recommendations. Ms. Giunchigliani asked where to find the $2,000 dues item. Mr. Adkins directed her attention to page 92, out-of-state travel, $5,474 compared to $3,134. Mr. Dini inquired whether $1,485 was the correct figure for dues and registration. Mr. Adkins indicated the $1,400 figure was the difference between $2,000 and $564 under operating expenses. He pointed out $2,000 was eliminated but $560 was returned. The $1,400 was the amount added to bring the figure to $2,000. Mr. Hataway made one modification to decision unit E-125 under operating expenses. He eliminated $2,650 for rent from each year of the biennium, as the full cost of rent was built into the base budget. Mr. Allard asked if rent was a separate item. Mr. Hataway responded rent was not a separate item in the operating line. There were a number of items built into the base budget that made up the operating expenses, one of which was building rent. The $29,511 figure for FY 1996 could have been reduced by $2,650. Chairman Arberry requested information on the State Treasurer $19,068 one-shot appropriation listed on page A31. Mr. Hataway indicated the appropriation was basically replacement equipment for a letter folding and check stuffing machine used for check distribution in the amount of $5,300, a copy machine for the basement office in the amount of $2,500, a computer software backup system in the amount of $1,000, a continuous feed printer, computers in cash management activities and investment activities. Chairman Arberry asked Mr. Hataway to send written breakdown information to staff regarding the one-shot appropriation. Mr. Fettic asked if Mr. Hataway was inferring the $1,485 figure would be covered by adding rent back into the budget. Mr. Hataway responded no, the original request by the agency had built rent into the budget for the Las Vegas office building in anticipation that was the proper thing to do, and he had failed to remove it when adjusting the base budget for square footage and rent per square foot. Mr. Fettic asked if the Governor's recommendation to reduce $1,485 took rent into consideration. Mr. Hataway stated the reduction of $2,650 was still included and needed to be removed. MUNICIPAL BOND BANK REVENUE - PAGE 99 Mr. Adkins explained revenues and expenditures were computed by arriving at the actual principle and interest received from municipalities. The State Treasurer acted as a conduit and paid revenues back out as expenditures. The numbers were in agreement between the State Treasurer's office and the Budget Office. Mr. Seale stated the municipal bond bank was set up in the early 1980s to provide a mechanism for local governments to finance their infrastructure projects, particularly water and sewer projects. A local government may come to the State Treasurer's office and indicate they want to build a new sewer system. They would ask the State Treasurer, through the administrator of the municipal bond bank, to finance the project. Because Nevada had a AA rating, the debt would be sold into the marketplace and the savings would be passed on to the local government. Mr. Marvel inquired whether the account was charged for actual expenses of investment. Mr. Seale replied that was the way it was done in the past. He pointed out there had been a sale several years prior of some of the assets in the municipal bond bank which generated a little bit over $7.5 million which went directly to the General Fund on July 1 when the sweep was done on the odd years. There was also in place a mechanism that better matched the cost of running the municipal bond bank for the local entities on a current basis. Mr. Marvel asked if the State Treasurer's budget had been charged in the past for actual expenses. Mr. Sealed replied that was correct. He remarked the charge was in the State Treasurer's budget but was somewhat separate. The earnings and charges made to the local governments moved back to the General Fund to cover the costs. Mr. Brian K. Krolicki, Chief Deputy Treasurer, explained the outstanding amount under the state debt cap of general obligation bonds was about $430 million. The state had issued through the bond bank about $614 million since the inception of the program. The current outstanding amount was just under $200 million. The $400 million difference was the asset sale mentioned by Mr. Seale, which netted the state about a $9 million profit, took the debt and liability off the books and made a new capacity for the state to use. The cap for issuance at any one time on the bond bank was $600 million. Mr. Close asked if the charges to the county in reference to the bond bank were negotiable or were a standard amount based on the services provided. Mr. Seale pointed out the costs of issuing the debt was born by the municipality. The municipality in turn made their payment to the State Treasurer 15 days before the due date of the bond payment on behalf of the state. The State Treasurer would invest that money for 15 days. The interest earned during the 15 days was generally adequate to cover the costs. If the interest was not adequate to cover the cost, then other mechanisms would be looked at to make sure the municipalities were carrying their load. MUNICIPAL BOND BANK DEBT SERVICE - PAGE 101 Mr. Adkins explained the budget reflected the amount of money transferred out of the municipal bond bank revenue budget as revenues into the municipal bond bank debt service budget. The money was then transferred out of the municipal bond bank budget to the bond holders on the general services bonds. The revenue and expenditures were identical in the agency request column and the governor's recommendation column. PUBLIC EMPLOYEES RETIREMENT SYSTEM - PAGE 2043 Chairman Arberry recognized Mr. George Pyne, Executive Officer, Public Employees Retirement System (PERS). Mr. Pyne distributed to the committee copies of his request for augmentations (Exhibit D) and his budget testimony (Exhibit E). He explained the agency request for the first year of the biennium, without the augmentation, reflected an annual compounded increase over FY 1994 of approximately 4.4%. With the augmentations requested, the annual percentage increase over FY 1994 actual expenditures was approximately 5.7%. Mr. Pyne called attention to three typographical errors in the measurement indicators: 1) Page 2043, line 9, projected fiscal year 1994 portfolio amount should have been $5.8 billion; 2) Line 11, projected fiscal year 1994 funding ration should have been 74%; and 3) Line 10, actual real rate of return for fiscal year 1994 should have been 1.25%. Mr. Pyne reviewed the maintenance portion of the PERS budget. He pointed out the Budget Office removed approximately half of the requested amount for inflation, which had to do with actuarial consulting service fees projected to be expended in 1995-96 and 1996-97. Mr. Pyne provided to the committee a copy of a letter from The Segal Company (Exhibit F), which reflected their proposed annual fee over the biennium. As a result, PERS requested an additional $10,000 in fiscal year 1996 and $14,000 for fiscal year 1997 be built back into the operating budget for actuarial consulting fees because of a comparison to the base year 1994 of $89,000 actual expenditures to 1995 of $95,000. Mr. Pyne reviewed the highlights of the PERS budget on page 2045. Regarding out-of-state travel, the amount allowed was for each of the five members of the Police and Firemen's Retirement Fund Advisory Committee to attend one national conference per year as opposed to three members. In FY 1994 at least one member of the retirement board did not attend a national conference and one member left a conference early because of illness, resulting in a low actual expenditure. Mr. Pyne pointed out increased expenses may also have been caused from conferences moving around the country from year to year. In- state travel enhancements were made up of several factors, including bureau counseling in the Elko and Ely areas, a retirement counselor in the Las Vegas office, and peak workload staffing of the Las Vegas office. Operating expenses showed $54,931 in the first year of the biennium and $5,244 in the second year of the biennium. The $54,931 figure was a result of an audit of the PERS internal controls, which was performed every five years. The audit was also intended to keep PERS current with industry standards and helped attain the Public Pension Principals Achievement Award for outstanding public pension administration. A financial audit was also performed yearly. Mr. Pyne said the largest portion of the enhancement was for contractual services for a totally integrated information system, which would help alleviate manual processes in calculating benefits, allow processing between systems and reduce probability of error. Ms. Giunchigliani asked who would provide outside contractual assistance. Mr. Pyne replied the figure at that point was only an estimate. Ms. Giunchigliani inquired whether a bid would be let for services. Mr. Pyne stated the bid would go through State Purchasing. Ms. Giunchigliani requested the names of PERS Board of Directors. Mr. Pyne listed Chairman Joyce Woodhouse, Clark County school administrator; Vice Chairman Marvin Leavitt, Las Vegas Department of Finance; Steve Cozine, school teacher; Andy Anderson, Las Vegas Metropolitan Police Department; Fire Chief Bill Bunker, Clark County Fire Department; Albert Johns, retired university employee; and Judy Holt, Nevada state employee. Ms. Giunchigliani asked if there were a potential for new board members being appointed. Mr. Pyne responded Mr. Leavitt's position and the retired position would be up in July. Mr. Pyne called the committee members' attention to page 2046, Unclassified Salary Increases. Increases were recommended for the Operations Officer and Investment Officer. It was intended the Executive Officer, Administrative Assistant and Manager of Information Systems would receive an increase equivalent to that of classified service employees; however, those increases were not reflected in the budget summary and a request was made to add the necessary amounts to the PERS budget. Planned increases for the Investment Officer were 6% in the first year of the biennium and 3% in the second year of the biennium; and for the Operations Officer, 8.5% and 5.5%, respectively. Mr. Pyne pointed out the retirement board established a subcommittee to study executive salaries as part of their annual performance evaluation, and they considered operational advances, investment portfolio performance, increases in cost of living, and salaries for comparable positions in nine western states. The board concluded the increases were appropriate. The reason the Operations Officer increase request was greater than the Investment Officer was because the board felt both positions should be at parity pay level in terms of responsibility and accountability. Mr. Pyne discussed reclassification of the vacant Investment Analyst position to unclassified service. The reason for the change was related to adding additional staff trained to move to an executive staff level. In addition to doing the duties of Investment Analyst, the board felt the position should be broadened in scope to include public information officer duties, supervisorial duties, and actuarial program review. Chairman Arberry questioned whether the position would be promoted from within the department. Mr. Pyne responded the position was open, and it was possible the position would be filled from within. Chairman Arberry asked the criteria used in comparing the salary levels. Mr. Pyne stated by way of background information the increases were 6% for FY 1996 and 3% for FY 1997 for the Investment Officer and 8.5% for FY 1996 and 5.5% for FY 1997 for the Operations Officer. During the summer of 1994 the board established a subcommittee to study executive level pay at PERS. The board concluded the increases were appropriate. Chairman Arberry requested the criteria be supplied to the committee. Mr. Allard asked how the investment portfolio had performed. Mr. Pyne responded over the previous ten years money had compounded at an annual rate of 13%; however, in 1994 the figure was 3.65%. The investment objective was basically to meet the financing needs of the system by generating market returns. Both the stock market and bond market were not favorable in 1994, resulting in the returns received. Mr. Close inquired what the national average industry standards were in regard to personnel expenses and overall resources of the fund. Mr. Pyne responded the cost effectiveness compared very favorably and offered to provide available information. The indicators of western states showed Nevada PERS staff was about 25% less, was very productive, had good technology, and compared favorably on administrative expense. Mrs. Evans commented performance indicators 4 through 11 were excellent. She asked one additional performance indicator be added to include PERS' progress toward its unfunded liability. Mr. Pyne indicated those figures were reflected in terms of percentage on line 11, but he would include years and dollars figures. Ms. Giunchigliani inquired whether there were 11 states with their own public employees retirement system. Mr. Pyne indicated there were about eight states, but with a couple teacher retirement systems the figure could be 11, plus there were many smaller local police and fire pension funds not participating in Social Security. Mr. Pyne concluded by stating PERS was requesting the board be allowed to attend one national conference per year and one administrative educational seminar which provided information in areas such as defined benefit plans, defined contribution plans and legal obligations of fiduciaries. PERS was also requesting addition of an Auditor II position to help with internal controls and employer compliance reporting. As audit objectives were assessed, it was discovered the objectives had not been met. PERS wanted to take a pro-active approach in educating public employers on reporting retirement contributions. Chairman Arberry inquired about the 49% out-of-state travel increase over FY 1994 levels and 38% in-state travel increase in FY 1996 and 37% increase in FY 1997 over FY 1994 levels. Mr. Pyne responded the increases were over actual expenditures in FY 1994. The expenditures in FY 1994 were low because of budget reductions. Five members of the Police/Fire Committee had been scheduled to attend a national conference, which they did not attend or went home early. The actual expenditures in FY 1994 were much less than what otherwise had been budgeted. Chairman Arberry asked if the travel budget was being brought back to the level it should have been, to which Mr. Pyne responded for the Police/Fire Committee, yes. Mr. Allard inquired whether the Auditor II position would be traveling to Las Vegas. My Pyne responded the Auditor II position would be included in part of the travel expenses. Mr. Allard asked if the Auditor II position would be a field auditor. Mr. Pyne explained there would be three auditors, one focusing on field audits, one focusing on internal control audits, and one focusing on retiring employees. Mr. Allard questioned the total cost of the Auditor II position. Mr. Pyne answered approximately $50,000. Mr. Allard asked if one field auditor would be stationed in Clark County. Mr. Pyne pointed out all auditors were stationed in Carson City, so they would travel to Las Vegas to perform audits. The employee stationed in Las Vegas was a retirement counselor. Mr. Allard queried whether most field audits were performed in Clark County. Mr. Pyne remarked many audits were performed in Reno and outlying districts and he could not say if most audits were performed in Clark County. Mr. Allard noted the population disparity between Reno and Clark County and felt Clark County would have the majority of audits; therefore, Mr. Allard asked why an auditor was not stationed in Clark County. Mr. Pyne answered auditors were stationed in Clark County for one to two weeks, during which time they could cover three to four audits. He pointed out auditors many times must assist other auditors. For example, a yearly notary function could not be performed by one auditor. Mr. Pyne added PERS administration felt it was best to have all auditors located in Carson City. Mr. Allard inquired whether implementation and current status questionnaires to employers were standardized. Mr. Pyne stated questionnaires were basically standardized except for State of Nevada because many different agencies were reported through central payroll. Record keeping was performed at an agency but reported through central payroll. Mr. Allard asked why all the questionnaires were not completed. Mr. Pyne replied PERS had not completed reviewing all questionnaires. Ms. Giunchigliani noted for the record she was a member of the Public Employees Retirement System; however, she was not required by law to contribute to the system while serving as a legislator so would be voting in regard to PERS. Chairman Arberry welcomed Mr. James W. Manning, Budget Division, to the committee meeting. There being no further business, Chairman Arberry adjourned the meeting at 10:35 a.m. RESPECTFULLY SUBMITTED: Jonnie Sue Hansen, Committee Secretary Assembly Committee on Ways and Means January 20, 1995 Page