MINUTES OF THE ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session January 23, 1995 The Committee on Ways and Means was called to order at 8:05 a.m., on Monday, January 23, 1995, Chairman John Marvel 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 STAFF MEMBERS PRESENT: Mark Stevens, Fiscal Analyst Gary Ghiggeri, Deputy Fiscal Analyst Chairman Marvel announced the committee would first consider the Department of Personnel budget. He then introduced Larry Peri, a new Analyst with Fiscal staff. PERSONNEL - Page 653 Barbara Willis, Director of the Department of Personnel came forward to testify, together with Ms. Judy Holt, Administrative Services Officer and Jim Manning, representing the Budget Division. Ms. Willis explained the Department of Personnel was responsible for administering the state's merit system for classified state workers and the 14,000 classified employees in the executive branch and the University system. She stated the Department's 67.5 staff members provided comprehensive personnel services related to the classification of jobs, compensation, recruitment, examination, training, employee records, payroll, employee assistance programs and equal employment opportunity programs. Their responsibilities to the merit system, she added, included performance reports, attendance and leave records, appointments to jobs, separations from service and disciplinary procedures and grievances. Ms. Willis explained her division was organized into three divisions, i.e., the Field Services Division, providing day to day services to agencies; the Technical Services Division, providing long-term research in job classification, compensation studies, test construction and policy development; and the Administrative Services Division which handled statewide training, central payroll and internal administrative support to the department. The Equal Employment Opportunity (EEO) and Employee Assistance programs were also in the Director's office; and a Las Vegas branch provided recruitment, testing, classification and training. The Division's mission, Ms. Willis stated, was to establish and administer an efficient, comprehensive system delivering the highest level of service possible to state agencies and the public. Additionally, the Division's goal was to provide equality of opportunity to all persons for employment and promotion and to encourage the development and retention of a quality work force in the state's classified service. Continuing, Ms. Willis stated the budget had been tied to the five key goals which had been identified in their strategic plan. These were as follows: 1. To provide an acceptable, flexible, efficient and responsible system that was responsive to its customers; 2. To actively advocate and implement fair and equitable personnel policies, programs and practices; 3. To offer an environment which valued all employees and encouraged innovation, team effort and quality performance; 4. To promote a personnel system which maximized the employment, development and retention of a quality work force; 5. To encourage and assist agencies to attain a work force composition which reflected the cultural and ethnic diversity of the state's labor force. Overall, she indicated that the Department's budgets for the next biennium were quite conservative, with no significant changes to the base budget. The recommended maintenance items, including adjustments for caseload and demographic increases, compliance with the Americans with Disabilities Act (ADA) and the Family Medical Leave Act, totaled approximately $65,000 in fiscal year 1996 and $72,000 in fiscal year 1997. Also included in the maintenance budget was a new Administrative Aid position for the Las Vegas office. The enhancement portion of the budget, Ms. Willis continued, contained items detailed in the Strategic Plan, such as contract monies for Business Process Re- engineering, strengthening the statewide Management Training Program, contracting for Employee/Employer Relations expertise and various replacement and new equipment items. Two new training positions were requested, she noted, which was in concert with their Strength in Management Training Program. She proposed to discuss the enhancement items individually when she covered the budget details. Chairman Marvel asked Ms. Willis if she thought the performance indicators were adequate. She answered yes. He also questioned the number of days it took to fill a vacancy, and opined this would be a reasonable performance indicator. Ms. Willis agreed. In response to his question, she said it took an average of 52 to 53 days to announce a job vacancy, recruit, administer employment examinations, score the examinations and certify the list. Once that was done by Personnel, the agency then interviewed from the list and made their own selection. The Chairman asked Ms. Willis if she believed they got the best candidates to fill the positions. She allowed very good candidates applied, and the response from the agencies had been favorable. However, there were times when the recruitment was difficult and the candidates were not as good as could be expected. Mrs. Evans pursued the issue of performance indicators, saying this was a concern she had with the Personnel budget. She suggested the performance indicators illustrated the output, but did not clearly illustrate the results. Mrs. Evans said in the future the Ways and Means Committee would expect the performance indicators to more accurately reflect those kinds of process measurements. Ms. Giunchigliani asked if cross-training was performed, making it easier for an employee to move from one state agency to another. Ms. Willis said the state did not have a cross-training program, although this was exercised by individual departments; and in response to Ms. Giunchigliani's request, said she would try to find out which departments these were. Additionally, Ms. Giunchigliani asked Ms. Willis to provide the committee with a flow chart showing the hiring process, the points given to individuals for special status, etc. Ms. Willis said she would be happy to provide this. Also commenting on the performance indicators, Mrs. Tiffany said if Business Process Re-Engineering was approved, she believed the committee should look at the steps required from the moment a person decided they needed an employee until that employee was actually hired. Mrs. Tiffany believed it was inappropriate for it to take much longer than two weeks to recruit, verify and provide a qualified candidate. Ms. Willis said their process was primarily dictated by law which required extensive efforts be made to ensure equal employment opportunity for everyone. It had been deemed critical for them to recruit for at least two weeks. Following the recruitment, she said, there was a comprehensive testing process. Mr. Fettic asked if Ms. Willis' estimate of 52 to 53 days meant 52 days until the person was hired or 52 days to go through Personnel's process. She explained this was 52 days to go through Personnel's process. If there was an existing hiring list in place, the list went out within two days. Although this appeared to be an inordinate amount of time to Mr. Fettic, Ms. Willis reiterated the procedures were dictated by certain laws. She pointed out it physically took Department staff about one week to create the job announcement and then go through the state printing process. In response to Mr. Fettic's question, she said yes, she believed there was a way to reduce this time, but this would be the role of the Business Process Re- Engineering (BPR) program they hoped would become available. Mr. Close requested a copy of Ms. Willis' testimony before the committee as he was impressed with Personnel's strategic plan. He suggested Personnel provide expansion in the program description of the Strategic Plan next time in order to see the measurement indicators. She said they would be pleased to provide that. Mr. Marvel asked Ms. Willis to explain Indicator #3. She explained the item "Written Examination Completed" referred to examinations developed by their staff Industrial Research Psychologist. These were validated, written multiple choice examinations which began with a comprehensive job analysis wherein critical tasks, necessary knowledge, and skills and abilities to perform those tasks were identified. This, she asserted, was a time-consuming, labor-intensive, statistical process which determined the validity of those exams. The exams, she said, were developed for high-volume job classifications which involved a large number of applicants. In these situations they could test effectively using a written test, as opposed to other types of exams such as oral exams, or performance indicators. In response to Mr. Marvel's question, she said exams were constantly upgraded. With no further questions forthcoming, Ms. Willis proceeded to the details of the adjusted base budget. She noted the recommendation continued funding for 65 classified positions, one half-time classified position, two unclassified employees, the longevity pay increase, in-state and out-of-state travel, operating and building expenses, rent requests, training courses, subscription training and travel, data processing and staff training costs. Under "Personnel Expenses," Ms. Willis said this denoted anticipated full staffing. Currently, the Department had two vacant Equal Employment Opportunity (EEO) positions and one testing position vacant. The out-of-state travel was not changed, and was for attendance at a national conference. The in-state travel differences were due to anticipated full staffing. The "Operating Expenses" were adjusted downward $175,000 for a one-time consultant who was studying their payroll system. Mr. Marvel asked if another printing of their rules was anticipated in 1997. Ms. Willis responded yes, these were included with a recommendation of $10,000. She said the last time the rules were printed was in 1995, and previous to that they were printed in 1991. Judy Holt explained these were typically printed every other year, however, they had not been printed in 1993. "Equipment," she noted, would be shown in the Enhancement budget. The "Subscription Training" was a pass-through account for a contractor who provided training -- Personnel billed the participants and passed the money on to the contractor. The "Employee Management Committee - In-State Travel" contained no change. "Information Services" was primarily one-half to the Personnel system and one-half to the payroll system. It also included the applicant tracking system. There was no change in this budget except for the elimination of the cost for new equipment which was purchased in 1994. The "Training" category of the statewide Management Training Program "reserve" was a bookkeeping category, and was an item wherein they carried forward a reserve from year-to-year. The "State Cost Allocation" and the "Attorney General Cost" allocation were transfers to the General Fund. Ms. Willis ascertained for Chairman Marvel Personnel had one Deputy Attorney General assigned to their agency. Chairman Marvel asked Perry Comeaux, Director of the Department of Administration, to explain why there were no vacancy savings recommended in the account. Mr. Comeaux said the Budget Division had made a decision during the process of putting the Executive Budget together, to only include vacancy savings in General Fund budget accounts. At the time, he had not realized this was a change in policy, although he believed, overall, it was a good policy change. However, he did believe they probably erred on the accounts that assess General Fund agencies. Mr. Comeaux proposed to review all the budgets in which they had not included vacancy savings and assess General Fund agencies. He said they would provide the Fiscal Division with information on adjustments which could be made on that. Explaining vacancy savings, Mark Stevens, Legislative Counsel Bureau Fiscal Analyst, said this was an item not seen in the budget documents before the committee, but which was included in the detailed information provided to staff. It was a negative amount, he explained, in the salary category which was placed in the budget for position turnover. Typically, he stated, agencies did not spend all the salary dollars that were budgeted. Therefore, if an agency spent only 95 percent of its salary dollars, due to turnover or other unforeseen factors, the Budget Division would place a 5 percent vacancy savings factor in that agency's budget, as a negative. Thus, the Budget Division usually scrutinized the factors they could consider for vacancy savings. This freed dollars which could be allocated for other purposes. Mr. Close asked someone to explain the "Reserve" category. In response, Ms. Holt explained the Department was funded through assessments, and each year billed the agencies they provided personnel and payroll services to. This money was ordinarily totally expended. In 1992 the Department underspent leaving a small reserve in the data processing category. This developed the "balance forward" reserve. Each year's underspending had led to a fairly significant reserve which they planned to use a portion of to fund the Business Process Re-Engineering. Mr. Stevens interjected a portion of these monies were General Fund monies, thus 40 to 50 percent was General Fund dollars. He also told the committee the reserve fund was normally provided for non-General Fund accounts in order for them to have a cash flow to begin a new fiscal year. Questioning the reserve category process, Mr. Allard asked why this did not revert back to the General Fund. Ms. Holt replied that in the past, effort was made to appropriate that amount back to all the budget accounts which were assessed, however, the law had been changed to allow the Department to carry this forward. Ms. Willis continued with the budget: Decision Unit M 200, she explained, anticipated workload increases and included a new Administrative Aid position to handle the reception functions in the Las Vegas office. In the last year, this office had received an 84 percent increase in the number of job applications filed, which meant a heavy increase in phone calls and examination scheduling. Currently, all of this was performed by one person in the reception area. She said the 84 percent increase had been determined by a computerized applicant tracking system, and told Mr. Arberry she would be happy to provide him with the logs and tracking records which justified the position. The additional "in-state travel" expense was for additional travel connected with the opening of the Lovelock Prison, as well as for additional travel necessary between Carson City and Las Vegas. Operating costs referenced were supplies for the new position, increased advertising and forms that related to those employment functions, as well as payroll functions and office furniture for the new employee requested. The statewide training program costs included travel for trainers between Las Vegas and Carson City, and between rural Nevada and Carson City. This reflected an additional three days travel per year. Referenced data processing supplies included such things as mailers to applicants, scantron forms used to score tests, and support from the Department of Information Services for the local area network. The micro-computer referenced was for the new position; and the additional training costs for staff included upgrades in training for such things as WordPerfect, spreadsheet programs and other software which would accommodate the department wide network. Mr. Marvel asked Ms. Willis to explain how occupational surveys and studies were funded. In response, she said occupational studies were job classification studies of major occupational groups, such as all agriculture and conservation groups or all clerical groups or social services. The total statewide cost for this session, she said, was $1,001,415. Mr. Marvel suggested this was probably spread throughout many of the budgets. Ms. Willis agreed. This project was started in 1983, she remarked, as a result of a legislative study done on the Department of Personnel. In this study Personnel was severely criticized for not having conducted classification studies of many state positions in over 20 years, and they had been asked to review all state government jobs. Once a change was approved by the Personnel Commission, the adjustments or proposals were brought to the Legislature for funding. Mr. Marvel reminded the committee that the total cost of occupational study recommendations was approximately $3.5 million in the 1993 Session. For the last three sessions, Mr. Arberry observed, Personnel had told the money committee that the new payroll study was outdated, and would soon fail. Thus, $355,000 had been authorized for a contract with Price Waterhouse, and the study had been completed. Ms. Willis explained a new payroll system was being deferred until the 1997 Session. By that time, it was hoped the BPR and the Integrated Financial System Study would be completed. This year they had requested a one- time $5.4 million for a new payroll system. The most recent study had included three parts: 1) A feasibility study of consolidation, and the determination had been yes, it was feasible; 2) a definition of systems requirement; and 3) a look at study system alternatives. Mr. Marvel conceded Mr. Arberry had made a good point, and noted the committee had heard two sessions past, the payroll system would fail unless the Legislature purchased certain computer equipment. However, the Department had struggled through without it for two bienniums. In defense, Mr. Comeaux stated the Department of Personnel had included in their budget request, over $5 million to replace the payroll system. In talking to the Department of Information Services (DIS), and considering all the requests for replacement equipment, technology, upgrades, etc., the decision had been made not to recommend the replacement of the payroll system at this time. Since they felt it would last another two years, it could be placed at the top of their priority list for the 1997-1999 biennium. Explaining the reasoning, Mr. Comeaux said the study which had already been done was still valid, and indeed, they could wait another two years. Also, the Governor had not recommended the new payroll system in the budget. Karen Kavanau, Director of the Department of Information Services, came forward to make comments regarding the payroll system. She said, yes, the payroll system had not suddenly gotten better and it was, indeed, in dire condition. The question was, could they keep it going until the best possible time to get a new system. Since she had been the one to raise the warning, she said she felt qualified to tell the committee there were risks involved. The reason the Department of Information Services recommended waiting was to take advantage of a new software program called Integrated Financial Systems. This type of program was most effective and cost efficient if installed as a single unit. Many state entities, Ms. Kavanau observed, were looking at new automation. At the end of the last session, these entities had cooperatively created an Integrated Financial Systems group composed of all agencies that touched financial data, especially the same common data, and this included Personnel and Payroll. It was their determination that the best, most cost-efficient route would be to go forward with an integrated approach during the 1997-1999 biennium instead of going at it piecemeal, which led to high costs and lack of conformity within the agencies. Mr. Arberry questioned how many times the Department intended to study the problem. Ms. Kavanau stated they were finished studying. The first study defined in detail both the technical and functional specifications of the payroll system. Ms. Kavanau said she believed about 90 percent of those study results could be incorporated into the Integrated Financial System, which would be proposed through the Department of Administration and their budget. Mr. Arberry expressed some doubt. He referred to previous predictions of dire consequences and wondered if it would just come in some other form next session. Ms. Kavanau acknowledged his doubts, but said this was the first time the agencies had worked together, and she believed in the end the people would benefit. Mr. Arberry also expressed concern regarding consolidation of the majority of the state's five separate payroll systems, and commented on State Controller's request for the Central Payroll function to be transferred to his office for the 1995-1997 biennium. Ms. Kavanau said she had been told there currently was some statutory language that the payroll system might, in fact, belong to the State Controller. She believed the Controller was suggesting that the payroll operation be assigned to his office. She added, the purpose of the new system was to consolidate the Department of Transportation, SIIS, the University Classified Service, PERS and Payroll all into one system. Explaining the reference to "dire consequences" for Ms. Tiffany, Ms. Kavanau said right now there were so many manual processes which could be automated, that the margin for error was great. She went on to describe some of the problems they had. Ms. Tiffany asked who had been the consultant on the Integrated Financial System. It had gone out to bid, Ms. Kavanau reported, but this was the initial BPR the state entered into with IBM Professional Services. Ms. Tiffany also wanted to know how the question between the State Controller's office and Personnel would be resolved. She was told by Chairman Marvel that she would have an opportunity to question the Controller when he appeared before the committee in a few days. This would be investigated more thoroughly in subcommittee meetings, Mr. Marvel pointed out. Mr. Allard questioned, whether any projections were available of what a system consolidation would save the taxpayers. Ms. Willis explained the system being considered was both a payroll system and a personnel system. Within the Central Payroll system, which, she noted, paid approximately 10,500 employees, there was a redundance of effort. The consultants believed a minimum of $300,000 to $400,000 per year could be eliminated in that area. There was an additional $500,000 to $600,000 savings if the Department of Transportation and Payroll did not have to implement new tax tables and put in new deduction codes. On the conservative side, Ms. Willis believed the expense would be recouped in about ten years. In response to a question from Ms. Giunchigliani regarding the consolidated system, Ms. Willis told her they had considered including the University system, but their needs were different. Although the University system employed as many people as the entire state system, the majority of these individuals were professional employees. A system which the University system was to implement during February 1995, would accommodate all professional positions. Since the classified work force was such a small part of their business, it was decided to develop an interface with the University system, rather than have them utilize the common data base. Mr. Marvel asked to have the justification for changing the assessment rates. Mr. Comeaux explained these rates were changed to reflect the amount it was necessary to collect from the various agencies served, in order to fund the Department's operation. When asked if it produced the same amount of money, Mr. Comeaux stated it produced the amount required to fund the Department's operation. Ms. Willis suggested he was referring to the fact the Personnel assessment was recommended to increase, and the Payroll assessment had recommended to decrease. During the last study, she indicated, they had tried to isolate the true cost of Payroll. In the past the cost of the Payroll operation had been an approximation, but as a result of the study this had been greatly refined. In response to Mr. Marvel's request, she said they would be happy to provide staff with the analysis that was used to determine the total cost of the Payroll function. Continuing with an analysis of the budget, Ms. Willis said decision unit M300, "Occupational Studies for the Department of Personnel," reflected only merit salary increases. Personnel's responsibilities in the area of the "Americans with Disabilities Act," (M525) was to train supervisors in Title I of that Act. The "In-State Travel" item was to accommodate their trainers going to Las Vegas, to Reno, and to the rural areas to provide the training. "Professional Services" was being requested for such things as hiring a reader or someone to accommodate an individual who had a disability. The "Equipment" request was for replacement equipment which would be assessable to the disabled. The "Remodel of the Reception Area" was to make the reception area assessable to individuals in wheelchairs. A review of the concept of BPRs was made by Chairman Marvel. He noted this was a new concept which had not been completely accepted by everyone. He asked Karen Kavanau to briefly explain. Ms. Kavanau told the committee that at the end of the 1993 Session, Senate Concurrent Resolution 5 of the Sixty-Seventh Session (S.C.R. 5) had directed the Department of Information Services to consider the status of information resources within the Executive Branch and to submit recommendations and a plan. A copy of the plan, she said, had been sent to each Legislator, but additional copies would be available the following week when the Department of Information Services would have an hour or more before the joint money committees to more completely discuss the details. Personnel was the first agency with a BPR to be scheduled for a budget hearing, Ms. Kavanau said, and she was purposely there to explain the concept. Ms. Kavanau then read the following definition of Business Process Re-Engineering: It is the fundamental analysis and radical redesign of everything -- business processes and management systems, job definitions, organizational structures, beliefs and behaviors, also laws, rules, regulations, to achieve dramatic performance improvements to meet contemporary requirements. Information technology is the key enabler of this process. Most agencies in the Executive Branch have not looked at the way they do business since inception. For some that's 34 years. BPR is being employed across the nation in the private sector equally as much as in government. It is not technology based. Benefits can be derived from performing BPR within an agency even if you don't automate. Ms. Kavanau asserted if an agency using inefficient processes was planning to automate for productivity gains, which was typically the reason, even if they spent millions of dollars was spent for automation, they would have just automated an inefficient process. Thus, the Department of Information Services (DIS) had recommended to the Governor as one of its ten major statewide strategies for agencies that those agencies, particularly those that were large and appeared to be somewhat unwieldy in terms of communications, as well as those asking for large dollar amounts for automation, be required to go through a Business Process Re- Engineering review. This was not a task-oriented system, Ms. Kavanau stated. Business Process Re- Engineering objectively considered the entire organization, every other organization it had a relationship with and all the laws affecting it -- it was basically an enabler of paradigm shift. It asked the organization to look at everything it did and ask: 1) Why are we doing this; 2) is there someone else doing it who we can benefit from; and 3) do we have to do it. Although most people, when confronted with these questions, said, "Well, that's the way we've always done it," it was really a question as to whether they should be doing it. Ms. Kavanau asserted this was definitely good business management, and the taxpayers would not realize the gains to expect from deploying technology without doing a Business Process Re- Engineering. She said the DIS had recommended BPR even if technology was not going to be approved. This had received the Governor's agreement, however, he had not agreed with the number of BPR endeavors DIS had recommended. The driving force would be the agency itself, and DIS would be there as the provider of technology. In response to Mr. Marvel's question regarding the cost of BPR's included in the Executive Budget, Mr. Comeaux said he would have to provide the committee with the exact number, but for the General Fund it was somewhere between $1 million and $2 million. A major portion would be paid by the federal government, Ms. Kavanau declared, and the Governor had asked DIS to prioritize its recommendations in light of immediate benefit to the taxpayer; thus, the Department of Motor Vehicles was at the top of the list for Business Process Re- Engineering. Mr. Marvel again asked what the cost would be. In reply, Ms. Kavanau said it would be approximately $4 million for the agencies DIS had identified as being in the most dire condition. Mr. Comeaux told Mr. Marvel he would provide the list of agencies ranked for BPR. Mr. Arberry asked Ms. Kavanau if the DIS had consultants they used on a regular basis for Business Process Re-Engineering. She replied no. They were proposing this be done through a competitive bid process. Currently, they did not have BPR expertise was not available in-house, although she believed each agency would develop a person who would provide maximum support for DIS staff, and who would sit in on that effort without charge. They would then submit Requests for Proposal (RFP) in order to focus in on the company with appropriate expertise. Ms. Kavanau told Mr. Arberry the consultants were typically paid $100 to $150 per hour. Defending the use of outside consultants, Ms. Kavanau insisted this was a one-time exercise for an agency which would probably not be done again for 20 years. To hire permanent staff for Business Process Re-Engineering would not be the wisest use of money. Mr. Arberry stressed it was absolutely necessary for the Department of Information Services to provide the committee hard figures on anticipated costs, which included the cost for consultants. Mr. Close asked Ms. Kavanau to describe the process -- how they would determine which consultant to use, how long the consultant would be on-site, and how long the automation process would take. He agreed that outside source input was necessary, but wondered what guarantee there would be that once the system was in place this would occur. Ms. Kavanau believed this would come about through the competitive bid process in the appropriate area of expertise. Ms. Tiffany suggested in the subcommittee meetings she would be looking at the Integrated Financial Software vendor, versus a consultant, versus the agency, all equaling staff to put it together, and she strongly objected to paying a consultant $100 to $150 per hour. Ms. Kavanau replied there was no vendor at this point for the Integrated Financial Software, and if Ms. Tiffany could find the necessary expertise less expensively, they would be very happy to hear how to do that. If implemented, who had the last word on the recommendations, Mr. Allard asked. Ms. Kavanau said the contractor would make all the information available, but it was primarily the participating agency itself who determined what the contractor would do to facilitate the process, what should be changed about the agency, and what processes could be improved. Ms. Kavanau reported the DIS had conferred with every agency administrator and elected official, and without exception, they were excited about the process and about the opportunity to improve the way their agency operated. Mr. Allard observed that after having spent a great deal of money, the agency head could then reject the recommendations. Ms. Kavanau agreed this was feasible, but not very probable. Mr. Spitler said he believed the committee would benefit if agency administrators would come before the committee to apprise them of how the BPR would improve their operations, their financial demands and generally, what the taxpayer should expect out of it if this was approved. Although he was in favor of the concept and said he had had some experience in the process, he had found it did not always have the glowing results in private enterprise that many people purported it to have. For example, without reducing the workload, staff was immediately cut. This might have led to short-term savings, but as time went on, the remaining staff was overburdened and working 14 hours a day. Continuing with the budget, Ms. Willis said Decision Unit E175 was primarily for two new training officer positions which were tied into the Strategic Plan. Personnel currently had three trainers statewide who were dedicated to providing basic management supervisory training. Employees, she added, were also trained in drug testing, equal employment opportunity, disciplinary procedures, employee evaluation and work performance standards. She said it was necessary to continually assess agencies' changing needs, develop new training curriculum, and provide for an increase in training offerings. They anticipated the two new trainers would initially develop and conduct training which focused on areas such as strategic planning, new management and leadership methodology, team building and employee development. Over the last year, 3,000 employees had been trained in 199 different offerings. With the two new trainers they anticipated increasing the number of classes to over 330 and they would train about 5,000 employees. She commented there was no legislation required to implement the program enhancement, and the funding would be derived from the Personnel assessment. Decision Unit E-177 was recommended to pay for the licensure of a Department Certified Industrial and Organizational Psychologist. Mr. Marvel objected to this item as he felt it would establish a precedence for all state government people in this category to be licensed; and this would lead to a sizable fiscal impact. In responding, Mr. Comeaux said he could not argue with Mr. Marvel, but there were no other instances of this in any other budget. The cost for equipment was simply for replacement or repair of existing equipment, Ms. Willis said. Mr. Arberry asked Mr. Comeaux if there was any budget recommendation to take care of all the old furniture in the state offices. Mr. Comeaux said many agencies had a one-time appropriation recommendated to replace various equipment and furniture. Was this a planned and organized process, Mr. Arberry asked. He mentioned the merit of providing a good working environment for state employees. No such plan currently existed, Mr. Comeaux said, however, they had relied on agency requests in those areas. Certainly they could develop such a plan, but currently, had not. Ms. Giunchigliani asked if the state had a data base of what they had in the way of furniture, etc. Secondly, she suggested there should be an opportunity to either sell or contribute, without liability, outdated furniture and equipment. Referring to decision unit E-710, "Replace Microcomputers," Mr. Hettrick asked how this was accomplished, and whether a new board could be purchased rather than purchasing a new computer. Ms. Willis said in 1986 they had purchased four Compac portable computers, Model 8088, which were not compatible with their network. With these replaced, all their computers would be compatible. Also commenting on Mr. Hettrick's question, Mr. Comeaux said when a state agency requested a piece of equipment, the request could not be approved until the DIS had reviewed and determined whether the agency really needed it, whether they could do with less, or whether they needed more. No further questions were forthcoming on the budget for the Department of Personnel. CHILD CARE - Page 661 Mr. Marvel observed the Governor had recommended no money for this budget item. Ms. Willis noted, however, the Child Care Program had actually been initiated by the Governor's office, but as the budget process developed, it was apparent there was insufficient funding. It was therefore not included in the recommended budget. Ms. Giunchigliani asked if the fact that the Administrative budget did not include Child Care, precluded exploration and work with local governments for this program. The city of Las Vegas and Clark County had been interested in a partnership with the state in order to ease the cost of providing child care. Basically, this was correct, Mr. Comeaux said. Ms. Giunchigliani suggested perhaps other, less costly ways of implementing child care could be explored. Perhaps the private sector would be willing to help. Mrs. Evans commented on the history of the Child Care Program, and asked Mr. Comeaux about funding. Mr. Comeaux said he did not remember specific details, but generally, the original plan considered involved a child care site both in Carson City and Las Vegas. In Carson City they were looking at renovating a portion of the old Fremont School. In Las Vegas they were considering the construction of a separate structure on the grounds of the new state office building. He commented there was a great deal of exploratory work done in terms of getting support from the private sector to help fund and establish the program. The general purpose was to provide a quality child care service at a competitive cost, and this, of course, would take a subsidiary to begin the program. He offered to get more detail for Mrs. Evans. Mr. Close wondered if there was data on the potential number of state workers who would use the service. Ms. Willis told him they anticipated the Carson City facility would hold 80 children and the Las Vegas facility would hold 100 children. A survey of state workers had indicated there would be a sufficient number of children to use the facility. Mr. Allard questioned the impact a state Child Care Program would have on the private sector day care centers. Although this might be true in Carson City, Ms. Willis said, it would not involve such an impact in Las Vegas. Both Western Nevada Community College and the Community College of Southern Nevada were currently operating very effective not-for-profit child care centers. It was hoped these could be expanded through inter-local agreements, so the colleges would be actually running the child care centers in Carson City and Las Vegas, as an extension of their existing programs. Ms. Willis agreed with Mr. Allard, however, that the state child care programs would ultimately be in competition with the private sector child care systems. BUDGET AND PLANNING - Page 461 Perry Comeaux, Director of the Department of Administration, told the committee the Budget and Planning Division of the Department of Administration was responsible for a variety of functions. Primary responsibility included budget review and management. This function included the preparation of the Executive Budget, participation in the legislative review process of that budget, development of annual agency work program documents (based on a legislatively approved budget), modifications to approved work programs, review accounting documents of the various agencies where necessary, and participation in the fiscal year closing and budget reconciliation process. Another important function, he indicated, was to serve as staff to the Board of Examiners which required review and recommendations on most items which went before the Board of Examiners. The Division provided a variety of procedures that the Board had delegated to the Clerk of the Board which included approval of moving and interview expenses, state vehicles, approval of stale claims under $1,000, request for refunds under $1,000, approval of contracts under $2,000, approval of emergency contracts under $5,000 and numerous other items which had been delegated to them by the Board. Another important area of responsibility was the preparation of forecasts of future state revenues. The 1993 Legislature approved the addition of an Economist to their Division who had been on board since March, 1994, Mr. Comeaux reported. This individual had developed a Nevada econometrics model which was used to help forecast sales tax and gaming revenues. These forecasts were provided to the Economic Forum this year for their consideration. The Economic Forum was discussed by Mr. Comeaux. The other major area of responsibility was operating the state clearing house program. In previous years, Mr. Comeaux said, the clearing house had not received the emphasis he thought it should. He said he had tried to return some emphasis to the clearing house program which was mainly responsible to coordinate the review of federally required environmental documents. The federal departments, such as the Bureau of Land Management, the Department of Defense, the Department of Energy, and others, sent projects -- more or less environmental impact type statements on Nevada, to the Department of Administration when they were planning an activity inside Nevada which would affect the state. Mr. Comeaux's office was the single point of contact. The reports came in to the appropriate individual who reviewed them and determined what other state agencies should review them, collected comments as to the accuracy of factual statements made in the report and comments as to the expected impacts. The budget for the Budget and Planning Division, continued Mr. Comeaux, included the continuation of the 19 existing positions in the budget which included the two additional budget analysts the Interim Finance Committee approved in June, 1994. It also included a request for six additional positions in some decision units which he said he would explain. The base budget for the Division, Mr. Comeaux explained, was based on the 1994 expenditures with a number of adjustments. The most significant adjustments were to revenues: 1) The highway fund appropriation and the transfer from Industrial Relations was eliminated. These costs were now covered in the statewide cost allocation plan, so it was no longer appropriate to provide for it directly in the Budget and Planning budget; and 2) the transfer from the Human Resources Director's Office budget was no longer included. Those funds were basically State Legalization Impact Assistance Grant (SLIAG) dollars and were used to fund the Economist's position. The SLIAG dollars were no longer available, therefore, they were requesting General Fund support for the Economist's position. The expenditures had been adjusted to reflect the addition of the two new budget analysts which were approved on June 27, 1994, which was shown in the salary category. There were adjustments in the out-of-state travel category, one of which would transfer expenditures actually made in fiscal 1994, out of the training and the special studies category, and into out-of-state travel where they belonged, Mr. Comeaux concluded. Ms. Tiffany noted that prior to the 1993 Session, there had been allocations for a huge personal computer (PC) network to bring the budget system on-line. It appeared that system failed, and the budget office went on-line to the mainframe again. Now there appeared to be a request for approximately $2 million for a PC network that was not working. She asked for an explanation of the Integrated Financial System as well as the PC expenses previously requested. Explaining, Mr. Comeaux said what was included in the base budget for Data Processing was the ongoing operation of the Executive Budget system. There was a one-time appropriation shown on page A34 for some additional enhancements to the Executive Budget system. Some of these enhancements would involve moving the data from the PC network to the mainframe, which then moved to the Budget Office network, and then moved back. He deferred to the Department of Information Services to better explain the process, and it was agreed this would be more carefully scrutinized at a later time. Referring again to Personnel, Mr. Arberry noted a request for an additional person to seek federal and private grant opportunities. He asked if this was a duplication of effort as Human Resources and Training had requested a position, or, indeed, had a position such as that. Mr. Comeaux said he had no knowledge of that. They had requested the position because a report had come to their attention in 1994 that Nevada ranked 49th in per capita grant funds received. This led to a series of meetings which had been held with grant analysts from various state agencies. The grants people stated their problem was simply having the time to research available grants. Thus, Mr. Comeaux maintained, they believed a centralized position to coordinate with existing grants personnel in the various agencies would be beneficial. Mr. Arberry questioned whether the Department of Human Resources had already contracted with a firm to develop a public/private partnership for additional funding to enhance all the departments. Mr. Comeaux appeared to be unaware of this, but said he would certainly look into it. Mr. Arberry noted the Budget Department was also asking for two positions to work with consultants involved with various BPR's, and wondered why they sought to hire two additional people when consultants were hired to perform these activities. Mr. Comeaux explained that even though an agency went through a BPR perhaps once in twenty years, rather than always having to hire a consultant, state employees working with the consultants on the larger BPRs would be trained to perform the smaller BPRs in the future, as well as to protect the state's interests during the process. Mr. Arberry expressed some doubt that the persons being trained would, indeed, stay with the state forever, but would, in all likelihood, eventually leave for higher paying positions. Referring to decision unit M100, Mr. Spitler questioned the provision for a 15 percent inflationary increase over the adjusted amount for the Electronic Data Processing (EDP), and wondered if this truly reflected inflation or whether it had more to do with demographics. This was the estimate of costs received from the Department of Information Services, Mr. Comeaux replied, and added he did not believe it was related to an increased workload. Mr. Spitler pointed out he had not seen 15 percent inflation anywhere, and asked Mr. Comeaux to check this out. The other adjustments to the base budget, Mr. Comeaux stated, mainly concerned those made to the Operating category, the Travel category and some of the other line items, as a result of the addition of the two analysts positions. These would be position-driven costs. The adjustment made to the "Economic Forum" category was to reflect travel and associated costs for meetings the Economic Forum was expected to have in the next biennium. Based on an estimate from the DIS, the "Information Services" category shown in the adjusted budget, reflected the anticipated cost to maintain the Executive Budget system. The major portion of this took place in the second year of the biennium. Referring to Decision Unit E-425, Mr. Comeaux explained this was a recommendation to add two permanent staff, a Sentencing Reform Analyst and a Statistician, to the Budget and Planning Division. These individuals would serve as permanent staff for the Sentencing Commission the Governor referred to in his State of the State address. The function of the two positions would be to gather data from inside the state of Nevada as well as at the national level which would include: 1) Information on existing sentencing structures in the various states, and 2) time served for sentences imposed inside Nevada as well as other states. This information would be particularly important in determining the effectiveness of the point system the Governor spoke about, the crimes to which those points should be attached, how many points should be attached and how many points should result in a life prison sentence. Mr. Marvel asked Mr. Comeaux how this Commission had been used in the past. In reply, Mr. Comeaux said he believed the Commission statutorily created in 1985, recommended some sentencing structure changes for various criminal offenses. The present Commission would operate in the same manner, as well as carrying out the specific responsibilities mentioned by the Governor. Mr. Marvel queried whether there would be any change in the composition of the Commission. In reply, Mr. Comeaux said he was not sure, but his last conversation with the Governor's office had indicated the existing composition was, at least, close to what they had in mind. He added the Governor's office was drafting the appropriate legislation now and would be available by the end of the week. At that time he would know for sure whether a change in the composition of the Commission was proposed. Both the Deputy Fiscal Analyst, Gary Ghiggeri, and Assemblyman Spitler wanted to know whether the Sentencing Commission would be perceived as a one-time project over the biennium or whether it would continue indefinitely. Mr. Comeaux replied the Governor proposed the staff would be permanent in order to continuously gather statistics on the sentencing structure, time served and related matters. Mr. Spitler then questioned whether this information was available somewhere within the prison system. To this Mr. Comeaux commented it was probably available in pieces, but he did not believe it was available in an aggregated, usable form. Mr. Spitler asked him to investigate whether perhaps Robin Bates, in the Prison Director's Office, could supply those statistics. Mr. Fettic questioned the Governor's reference to a "complete revamping of the criminal code system," and whether the request for two additional positions was part of that revamping. If the request was to be part of a complete revamping, it might make more sense, Mr. Fettic stated. Mr. Comeaux answered this was definitely tied to the Sentencing Commission, and he was certain the Commission would be directly involved in the process of changing the entire sentencing structure. The only other decision unit involving staff was E-129 requesting a clerical position which was tied to the positions recommended in decision units E-127 and E-128. Only if those were approved by the committee, would decision unit E-129 need to be considered. Decision unit E-900 was a recommendation for a transfer of contract costs for both the Statewide Cost Allocation Plan and the Attorney General Cost Allocation Plan into Budget and Planning which was where Mr. Comeaux believed it belonged. Referring to Purchasing's budget on page 530, Mr. Comeaux said a corresponding reduction was reflected in that budget account of $34,500. INTERNAL AUDIT - Page 474 Pat Eischeid, Chief of Internal Audit, offered background information on her agency. In 1993, she said, they had come into operation based on a Legislative mandate creating the office of Internal Audit. Ms. Eischeid submitted a packet consisting of the Annual Report of the Chief of Internal Audit, a report to the Governor through June 30, 1994 (Exhibit C), a report showing the audits her office anticipated for the 1995-1997 biennium (Exhibit D), a report showing allegations against the Nevada Division of Forestry (Exhibit E) and a report regarding an investigation of the Nevada Department of Transportation (NDOT) (Exhibit F). She indicated there was also a report on the audit of the Agricultural Division which would be supplied on January 31, 1995. Additionally, a seminar had been completed on December 8, 1994, which had brought together all the various agencies to inform them what internal audit was, what was expected of them, and what the Internal Audit Division would do for the agency. Mr. Marvel asked if the Nevada Department of Transportation (NDOT) had their own internal audit team. Ms. Eischeid said they did, however, in this particular instance, it was considered the use of the NDOT's internal auditors would present a conflict of interest. Mr. Price asked if NDOT had cooperated with Internal Audit. Ms. Eisheid indicated NDOT had certainly opened all the records and the auditors were allowed to record interviews with employees, although not all comments had been favorable to the agency. All this was documented in the final report, she stated. Referring to the conflict of interest mentioned by Ms. Eisheid, Mr. Arberry asked why the agencies had internal auditors on staff if, indeed, the office of Internal Audit had to be called in to perform the function. In reply, Ms. Eisheid said the purpose of the agency's internal auditors was to maintain a basic overall monitoring of all the activities within the Department of Transportation. In this way they ensured that such things as inventories, stock piles and the handling of appropriation payments were being performed according to the policy and procedure manuals established by the DOT. Therefore, she concluded, the internal auditors were needed because of the size of that department. Ms. Eischeid then deferred to Tracy Raxter, head of the Administrative Services Division. She informed the committee that Mr. Raxter had aided her greatly in developing the figures in the Internal Audit Division budget, and wished the committee to direct any questions they had to him. Returning to the question Mr. Arberry had posed, Ms. Tiffany asked when the Legislative Counsel Bureau had last audited NDOT. Ms. Eischeid said she did not have the figures readily at hand, but believed it was in 1988. A performance audit had been conducted within the last four years, Mr. Marvel noted; however, Ms. Eischied said she was not privy to that. The main problem her office had seen at NDOT was in the control of inventories and stockpiles, she added. Ms. Tiffany opined it appeared Internal Audit was being sent in by the Governor under a crisis basis. Mr. Comeaux interjected his office was very concerned, also, that the Internal Audit office not become a crisis intervention measure. He said he had spoken to the Governor's staff about the danger of diverting the Internal Audit Division, particularly with the sparse staff they presently have, from their schedule of audits. By statute, the Internal Audit Division was required to do a risk assessment, and to produce an audit plan based on that risk assessment. Therefore, Mr. Comeaux believed they would avoid, to the maximum extent possible, those crisis type interventions. Most of Ms. Eischeid's activities would be based on a systematic review of various areas of state government which were based on a risk assessment. There was a break in testimony for the members to attend General Assembly. Following this the committee reconvened, and continued with Ms. Eischeid's and Mr. Raxter's testimony. In response to Mr. Arberry's query, Ms. Eischeid described an investigative report as being one prepared upon request by an agency and which focused on one area. She continued to describe the functions they performed for the Forestry Division report and the Department of Transportation report. When her auditors went into an agency to perform an audit, she said, they looked at all the various things done by other outside auditors and where there might be deficiencies. When this was finished, an audit work program was set up. Thereafter, this program was used by the auditors to address those deficiencies. She reported there were only two auditors and she was in the field part time. They did not have the staff to audit large agencies, therefore, they had to narrow down a given operation which might be creating a serious risk problem. By doing that, they could adjust the area in focus and possibly make the corrections which would answer questions within the total agency. Their audit report would go to Gary Crews, Legislative Auditor, to Perry Comeaux in the Department of Administration for review and one copy for the Internal Audit file. She stated they did not file these reports with the Governor, but rather filed a report with his office at the end of the fiscal year. Mr. Arberry then asked Ms. Eischeid how many investigations the Internal Audit Division had performed since she was in her position. She answered they had performed two investigations, and they were nearly finished with an audit for Agriculture. Also, a review of the cost center for the University of Nevada system had been done last year. Although the University system had an excellent internal audit control unit, because it was under Legislative appropriation it was the responsibility of the Internal Audit Division to review what they paid and how they paid it. A long range plan had been developed, Ms. Eischeid told Mr. Arberry. This list was shown on Exhibit D, and with each agency designated for internal audit was shown a reason why that audit was chosen. Those audits were the ones her Division considered to be creating a problem or risk because either no one had looked at them in a while, or there was something they had been alerted to through a report of some kind. Originally, Mr. Arberry said, they were told the Internal Audit Division would perform audits on agencies which were too small to justify audit staff. Mr. Marvel interjected that usually the recommendations made by the Legislative auditors were to set up internal controls. He asked Ms. Eischeid if she believed the Division had helped these agencies with their internal controls. She said, yes, they were finding the agencies were now approaching the Internal Audit Division. Internal Audit could only show them what the deficiencies were, and then discuss with them the ways to reach a feasible solution. The list she had submitted, Exhibit D, merely listed the true audits, not the guidance being given to many of the smaller agencies. Mr. Arberry questioned the increase in rent for different offices within the same building. The Chief of Administrative Services, Tracy Raxter, informed the committee the new offices would provide an additional 500 square feet. This was needed for the increasing volume of documents they had to maintain. The Internal Audit Division, he added, was the archival repository for all documents related to state claims. Ms. Eischeid explained they were presently considering the feasibility of installing a microfilming system, but this involved a large start-up cost, the need for reader-printers, and the need to know they would have a proper best evidence document if an original was shredded. While this would reduce the needed space, not enough investigation had been done to determine if it was a feasible alternative. Mr. Arberry said it appeared to be the creation of another large agency. He wondered if the Legislature could place all the agency auditors within the Internal Audit Division, and disperse them to the various agencies as needed. Ms. Eischeid did not believe it was desirable "to be all things to all people." The audits performed by the Internal Audit Division were entirely different from those performed by the agency auditors. Her Division, she explained, considered matters occurring over a period of time, and were therefore, somewhat narrow in focus. It was noted by Mr. Marvel that Mr. Comeaux had requested the sunset clause be removed. He wondered if Mr. Comeaux believed this would be a helpful function in the future. Mr. Comeaux said he did believe it would be helpful. It appeared the Internal Audit Division within the Department of Administration could do a variety of things: 1) To provide valuable assistance to agencies having no internal audit function or expertise which allowed them to develop the kinds of internal control systems necessary to function properly; and 2) to close the loop on the other audit services, particularly legislative audit services, which were already in effect. Presently, when the Legislative auditors audited an agency, a report was filed, the agency responded, and the agency then filed a report of corrective action. This was followed by a six-month follow-up report provided by the Department of Administration. Until they had the Internal Audit Division, the Department of Administration did not have the ability to assess the effectiveness of the corrective action the agencies proposed or really a way to physically follow up on it. Additionally, Mr. Comeaux said, when Ms. Eischeid had reviewed audit reports from the Legislative auditor, she had selected certain agencies for audit because of findings made by the Legislative auditor. Referring to testimony heard earlier regarding BPRs, Mr. Close noted this was put forward as an aid to agencies to make their systems more productive. Although he believed Ms. Eischeid had a grasp on what was happening, it appeared to him there were a number of things going into the agencies to help them be more efficient. How could all this be coordinated. In response, Ms. Eischeid explained a guideline had been written especially for agency heads, which led that person through an awareness and understanding of what his office was doing. Additionally, they had developed a Division guideline which became a reference resource for the agency head. These guidelines had then become the basis for the internal control seminar which all the agency heads had attended. Upon completion of the seminar, agency heads assessed their operation with a different view. The Internal Audit Division's limited staff focused on a very narrow aspect, while the Department of Information Systems looked at the entire agency, the inter- relationship between agencies, and duplications which could be eliminated. Addressing the question to Mr. Comeaux, Mrs. Evans noted his reference to closing a loop. However, in her perusal of the report of the Department of Transportation (Exhibit F), she found seven pages of comments, remarks and findings, and twenty- one pages of response from Mr. Garth Dull at NDOT. How did closure occur, and if there was a dispute, who settled the dispute, she asked. In reply, Mr. Comeaux said to make the process effective, Ms. Eischeid would have to follow-up on the Department of Transportation to see if noted deficiencies had been corrected, and this "closed the loop." Without follow-up, the effort would be worthless. On the Legislative side, he said a dispute would probably be settled by the Legislative Commission to determine whether the Legislative Auditor was correct or whether the agency head was correct. On the Administration side, he believed the Governor would be the one to resolve a dispute. Responding to questions from Mr. Allard, Ms. Eischeid reiterated the role of the Internal Audit Division. The bottom line, Mr. Allard said, was how much money the function would save the taxpayers. This was hard to determine, Ms. Eischeid replied, as their role could not always be tied to dollars. Speaker Dini opined the testimony illustrated good reason for creating the Division during the 1993 Session. For one thing, he said, the Legislative auditors were not able to audit often enough to provide the needed services. Secondly, he said, new people were coming into the agencies all the time. A new director had no idea of the rules and procedures until such time as the Internal Audit Division was able to come in and train the new administrator. On the same subject, Ms. Eischeid noted the guidelines referred to earlier were written and prepared based on the International Association of Internal Auditors. Therefore, the Internal Audit Division was not asking an agency head to do anything that was not an accepted program with accepted usage throughout the world. Mrs. Chowning commended the Internal Audit Division and suggested perhaps the sunset clause should be extended. Briefly commenting, Mr. Raxter told the committee the base budget reflected continued funding of the Pre-Audit Section, and the decision unit E-125 was continued funding for the Internal Audit Section of the office. MERIT AWARD BOARD - Page 479 Again coming forward to testify, Perry Comeaux, Director of the Department of Administration, drew attention to page 479 which was the recommended budget for the Merit Award Board. This program, which had been in existence since 1967, had been created to recognize and reward state employees for suggestions and ideas that increased efficiency and productivity and saved the state money. In previous years a small appropriation of $5,000 had been provided from the General Fund for these awards. In this budget cycle, because of the economic situation, this funding had been neither recommended nor approved by the Legislature. However, during the 1993-1995 biennium private sources had stepped in and provided the funding. Because the economic situation for the 1995-1997 biennium showed improvement, they were recommending General Fund support for this program be included. Mr. Spitler asked if this was funded at one time by private enterprise. Mr. Comeaux answered during the current biennium the State of Nevada Employees' Association and another private source provided funds for the operation of this award program. Mr. Spitler also questioned whether there had been an effort to enlarge the fund through private donations. Mr. Comeaux said he had not considered this, and could not say whether it had ever been proposed. The $200 request for in-state travel was questioned by Mr. Hettrick. In response, Mr. Comeaux said this would enable a member of the board to travel to the meetings. The Executive Director of the State of Nevada Employees' Association (SNEA), Bob Gagnier, came forward to urge the committee to fund the merit award board. When it had been omitted from the 1993 budget and the Legislature had not approved reinstatement, SNEA made the offer to fund half of the amount for this biennium, at which point Patricia Becker, from the Governor's office, had researched and found the other half from the Nevada Resort Association. Part of the problem with the merit award board, Mr. Gagnier said, was they had never had enough funding for any publicity, and there were perhaps thousands of state employees who were not aware of the merit award system. He believed the Merit Award Board should have funding for advertising, for quality brochures and for disseminating the material to all state employees. Mr. Marvel questioned whether Mr. Gagnier believed this had helped employee moral. In response, Mr. Gagnier said although there had been some problems, he believed overall it did. Mr. Gagnier went on to describe some of the problems they had encountered when an agency challenged an employee on the grounds that certain meritorious actions were part of the employee's job. An example of the merits, on the other hand, had to do with the PVC barricades used by the Department of Transportation and used throughout the West. These were designed by a Nevada state employee from Elko, and had led to thousands of dollars in savings over the last 20 years. Nonetheless, the Department of Transportation had opposed a merit award for the employee, saying it was merely part of his job. When asked, Mr. Comeaux said he did not believe the total $5,000 was used in the merit award budget. The budget indicated total expenditures in fiscal year 1994, of $1,503. Mr. Marvel noted that eight awards were granted in 1994. The makeup of the Board, Mr. Comeaux explained consisted of two members from SNEA, one member from the Budget Division, one from the Department of Personnel and one member appointed by, and representing, the Governor. Brochures were discussed, with Mr. Gagnier saying SNEA had volunteered to produce these, but the Department of Personnel had advised the Merit Award Board they could not use the brochure printed by SNEA. When asked why the Department of Personnel had objected, Mr. Gagnier said: 1) He had been told it had to be printed by the Nevada State Printer; 2) they had objected to the very small print which stated "Printed by State of Nevada Employees' Association"; and 3) there was a minor difference in the form shown on the brochure as opposed to the form Personnel used. Mr. Marvel asked Mr. Comeaux to investigate this and get back to the committee with an answer. Chairman Marvel adjourned the morning portion of the meeting at 11:00 a.m. and announced they would reconvene at 4:30 p.m. HIGH LEVEL NUCLEAR WASTE - Page 1893 Robert Loux, Executive Director for the Agency for Nuclear Projects, came forward to explain their budget. The budget supported four primary activities of the agency, he reported, which included: 1) The Commission on Nuclear Projects; 2) the Division of Technical Programs; 3) The Division of Planning; and 4) the Public Information Program. Their primary function, was the oversight and evaluation of the Department of Energy's activity in southern Nevada related to investigating whether Yucca Mountain would prove suitable as a high-level nuclear waste repository. Through funding from the National Governors' Association they were also involved in some activities connected with the clean-up of certain defense nuclear sites around the country. Additionally, the agency examined the transportation of lower level radioactive waste to a facility in Carlsbad, New Mexico with waste isolation pilot plants. Through the Western Governors' Association they were helping coordinate activities within western states relative to preparedness for those kinds of shipments if and when this occurred. In response to Mr. Marvel's question whether Nevada was currently receiving shipments from Carlsbad, Mr. Loux said some of the materials had historically come from such places as Lawrence Livermore Labs and the Nevada Test Site, for temporary holding until the facility at Carlsbad opened. This facility had been scheduled to open in 1988, but it was still not open, and some people predicted it would never open, which would leave Nevada as the holding site for some time. Mr. Marvel asked if the Nevada Agency for Nuclear Projects was involved at the test site. Mr. Loux replied they were involved only to the extent of some clean-up activities going on there. The Commission's activities and role was primarily in the area of policy guidance to the Legislature and the Governor -- relative to high level radioactive waste disposal -- and to the agency which the Commission oversaw. The Division of Technical Programs was primarily concerned with the Geotechnical aspects of site suitability at Yucca Mountain -- was it safe, could it be made safe, would it meet federal radiological health standards, etc. In that program they were also looking at the likelihood of being involved with licensing hearings before the Nuclear Regulatory Commission if the Department of Energy decided to proceed with the Yucca Mountain site. Mr. Marvel asked for the status of the study. In response, Mr. Loux said there was one primary activity going on and this was a large diameter tunnel at Yucca Mountain. The Department of Energy was some 300 feet into the tunnel which, as Mr. Loux recalled, had cost approximately $2,000 per inch. Some borehole and trenching work was being done, samples were being examined. The work in the last year or two was a revision of their whole approach to looking at how they would assess and consider the site suitability issues. There was a greater focus on administration rather than actual field work. The GAO had estimated only approximately 22 percent of their money was spent on science and technical studies with the rest going to such things as planning and infrastructure. Mr. Marvel asked if Yucca Mountain was one of the areas being characterized right now. Mr. Loux said it was. Mr. Loux pointed out in 1984 they had instituted a Division of Planning which studied the social and economic impacts that might result if the site went forward in Nevada. If this occurred, Mr. Loux said, under federal law the state was entitled to be compensated for the identifiable social and economic impacts. Mr. Arberry asked if the state would automatically receive the compensation. To this, Mr. Loux said the Secretary was obligated to honor and compensate the state for any identifiable impacts caused by the federal presence or federal program in the state. Whether the federal government made good on that remained to be seen, but Mr. Loux said they were trying to establish expert witnesses and a process to go into effect if, in fact, the state had to go to court to enforce the obligation. Mr. Arberry asked Mr. Loux to explain the $50 million the federal government wanted to give Nevada. Mr. Loux said this was in current law, and had been labeled a benefit. If the state became involved with that proposal there were a number of obligations attached. As currently written into law, the amount was not $50 million, but rather $10 million while the facility was being studied, and another $20 million if, in fact, the facility went forward. However, in order to receive any of those funds: 1) The state would have to forfeit its right to object to the program in the future; 2) Nevada would have to become, in a sense, co-partners with the Department of Energy; and 3) it would have to give up the right to claim any further impact in the future. In response to Mr. Arberry's further question, Mr. Loux said they were in the process of assessing the impact of Yucca Mountain becoming a nuclear repository. They believed they could possibly document as much as a 5 to 10 percent drop-off in the gaming and tourism industry; and currently there was the traditional impact of the number of workers coming in, the impact on the school system, highways, etc. Mr. Allard ascertained that Mr. Loux had said if the federal dollars were accepted, Nevada would forfeit its right of veto. In his conversations with the Nuclear Waste Study Committee, Mr. Allard said he had been told this was not the case. Mr. Loux responded he would be happy to quote from the law requiring the forfeiture of those rights if the state entered into the agreement earlier spoken of; and he would be happy to copy the law to the entire committee. In response to Mr. Marvel regarding this being changed, Mr. Loux said Senator Johnson had proposed legislation in Washington, D.C., which eliminated all the benefits agreement issues because no one had participated since 1987 when it was first introduced. Referring to a resolution being suggested to Congress by Lincoln County and the City of Caliente, Mr. Spitler asked if any entity, other than the state, could enter into negotiations for either the high level transfer of nuclear waste or interim storage. "No," Mr. Loux said. Under current federal law only the Governor could do that. Lincoln County and Caliente could devise any sort of resolution they chose, but it would still not be effective. Regarding benefits, Ms. Tiffany asked what pool of funds these were drawn from. Mr. Loux answered, essentially, there was one source of money Congress had appropriated for the Department of Energy, made up of a one mill per kilowatt hour tax levied against the consumers of electricity from nuclear generator plants. The issue of federal monies was further discussed. Mr. Allard asked Mr. Loux if there was any way Nevada could accept funds while the process was going on, without implying consent. Mr. Loux answered there were two different categories of money. One was the entitlement of receiving the money by the mere fact the program was effective in Nevada. However, once the state stepped over that line and entered the category of benefits, they also entered the area of implied consent for the project. So in a word, Mr. Loux said, "no," he could see no way. Mr. Marvel questioned whether the $10 million included in the Executive Budget for the next biennium was in jeopardy, to which Mr. Loux said he did not believe so. The monies had been consistent over the last five years, and had averaged between $5 million and $6 million per year. In answer to Mr. Marvel's question regarding Mr. Loux's status, Mr. Loux said he was appointed by the Governor, and under the state government reorganization in 1993 his agency was transferred to the Department of Conservation, reporting and serving at the pleasure of the Commission. When questioned regarding the relationship between Mr. Loux and Pete Morros, the Director of the Department of Conservation, Pete Morros stated he believed Mr. Loux had taken the position his agency was independent within the Department of Conservation. This appeared to be an item of controversy between Mr. Loux and Mr. Morros, which was discussed by Mr. Morros. Mr. Marvel noted the Commission had received no money and questioned whether this was because there had been no meetings. In response, Mr. Loux said the Commission had met three times recently, but in the 1993-1994 period they did not meet, principally because of the stroke Mr. Grant Sawyer suffered in 1993. Throughout that period, however, Mr. Loux said he had met with his Commissioners on no less than a weekly and sometimes a daily basis; and with the Executive Committee of the Commission very frequently. Mr. Marvel then questioned the rationale of transferring the Nuclear Agency into the Department of Conservation. To this, Mr. Loux said he really did not know. Mr. Morros said he, also, was confused, and if there was some responsibility on his part for the Nuclear Agency, the director needed to be an appointing authority. This was something to be looked into before the Session was over, Mr. Marvel remarked. The fourth activity the budget supported for their activity, Mr. Loux explained, was the dissemination of public information. In addition, the statute required funding to local governments not directly funded by Congress in this program, namely the cities of Las Vegas, North Las Vegas, Henderson and over time, Boulder City, as well. They were currently not funding any counties in Nevada, and any funding received was directly from the federal government. When asked how many contracts the Nuclear Agency currently had entered, Mr. Loux said approximately 50 to 60. The bulk of their work, he added, was through contracts as they had only a small, 13-member staff. Site investigations were performed by both staff and contractors. There was an on-site contractor's group at the Yucca Mountain site every day, as well as individuals from the Nuclear Agency who were there at a minimum of once every two weeks. When discussing contract employees and IRS considerations, Mr. Loux said they had four contract employees, and an Attorney General's Opinion had stated these people were, indeed, independent contractors. Mr. Marvel believed there was a problem in distinguishing between independent contractors and state employees; however, Mr. Loux said these people currently did not participate in the retirement system, and this distinguished them from state employees. Although they received an hourly rate, were given overall projects and were paid for travel, the state did not regulate their hours or give them specific assignments. Additionally, the contractors were free to engage in outside contracting. Mr. Loux said he would be happy to provide Mr. Marvel with a copy of the Attorney General's Opinion. In reference to the performance indicators, Ms. Tiffany believed Mr. Loux did not indicate any need to show measurements of outcome. Mr. Loux said he would certainly be willing to explore any other type of measurement the committee requested. He said they had discussed the generation of reports which documented the oversight of the Department of Energy's program which was the activity they were primarily engaged in. If there were other performance indicators they were to use, he commented they would be happy to do it, or at least look at them and examine how they could apply. The generation of reports appeared to be the most logical way of documenting the kinds of activities they were engaged in, as required by both federal and state statutes. Ms. Tiffany suggested the next time the committee considered this budget, she would certainly be looking for measurements to justify the Agency's $6.7 million budget. Again questioning the use of contract employees, Mr. Loux told Mr. Allard the contract employees entered into a regular contract with the state, had to pay for their own health care, were not a part of the retirement system and were issued W-1099 forms to fulfill IRS requirements. Mr. Fettic, referring to the High Level Nuclear Waste budget, noted the agency had received $5 million each year from 1992 to the proposed $5 million in 1997. How had this amount been determined? Replying, Mr. Loux said this reflected an activity level which was dependent on the amount of federal money they received, and this level of funding had been a flat $5.5 million since 1989. It followed the Agency's level of activity was flat. Mr. Fettic wondered then if the Agency's mission directly related to the amount of money the federal government gave Nevada. They could only operate within the budget the federal government provided for the Agency, and within that budget, the Agency performed all the state and federal activities specified in the statutes. One of those activities was the generation of the reports which documented the review of the drill hole cores at the Yucca Mountain site, and the means of digging the trenches. With this documentation, the Agency would have, at a later point in time, the needed expertise if the Department of Energy decided to recommend the site, and the Agency was involved in a licensing hearing. Mr. Fettic suggested he and Mr. Loux meet so Mr. Loux could better explain the activities. Mr. Loux said he would be happy to do this. Again referring to the performance indicators, Ms. Giunchigliani suggested Mr. Loux document the number of press releases the Agency had participated in, what kinds of contacts they had made, the number of contractors used, how the contractors were monitored, the hours of oversight, etc., which would give the committee a better picture of the Agency's activities. Mr. Loux expressed his appreciation of her suggestions. It was noted by Mr. Marvel the Agency was currently being audited. As to how they paid for their lobbying efforts in Washington, D.C., Mr. Loux said what little lobbying they did was with a state appropriation contained in their budget. Over the last two bienniums they had received $35,000 each year. Last year they spent only $22,500 and the balance was reverted. They had, indeed, requested the full $35,000 because they anticipated those activities would increase during the coming year. Mr. Marvel asked if this had been one of the exceptions in a previous audit, but Mr. Loux said they had not received an exception for lobbying. The GAO had audited the agency in 1988-1989 and raised the question whether the Agency had been lobbying with federal money. At that time it was determined they had not. Mr. Loux said the Agency had made an error in the revenue side of the base budget when putting it together. Referring to page 1893, he pointed out there were two changes to be made. In the "Other - Non-State" item under Resources of $24,716, this should be reduced $1,886, bringing that amount to $22,830; and the $1,886 should be added to the $5,195,136, in 1996, bringing it to $5,197,022. The same adjustment should be made in the second year, i.e., the $24,716 reduced to $22,830 and the $5,189,148 increased by $1,886 to $5,200,034. Returning to the subject of lobbying, Mr. Allard asked if the Agency was lobbying against bringing the nuclear waste to Nevada. Replying, Mr. Loux said they had not engaged in that activity so far this year, but he predicted they would lobby against the Bennett-Johnson bill currently introduced. Mr. Allard then asked if the Governor directed their lobbying efforts, and Mr. Loux said they followed the state's policy which, at this point, the Legislature had expressed by its resolution in opposition. Indeed, the storing and disposing of radioactive waste was illegal under state law, so they followed the state policy. Mr. Loux explained for each year of the biennium they had requested $35,000 in state funding to engage in those activities prohibited by federal law; they had requested authority to accept in the first year, $7,126,117 and in the second year, $7,827,475, and they were requesting funding in three other non-federal sources such as $16,000 from the National Governor's Association to work on the national policy relative to defense waste cleanup. They participated in several national Governors' Association Committees to coordinate those efforts. They also anticipated receiving approximately $75,000 from the Western Governors' Association to be involved with the planned shipments of transgeranic waste from the Nevada Test Site to the plant in Carlsbad. And finally, he said, they anticipated possible additional funding from the Chairman of the Board of Circus Circus Enterprises, Bill Bennett, to help with some of the technical programs. Possibly they would receive an additional $50,000 from that effort. Regarding expenditures, Mr. Loux said their primary activity was in the contract area, as shown on page 1895. As for enhancements, they had reverted $12,500 of state funds last year. Therefore, a $12,500 enhancement was recommended to bring the budget whole at $35,000. He noted there were also requests for equipment replacement in the first year; and in the second year they were asking for the replacement of a vehicle used to travel back and forth to Yucca Mountain. Mr. Marvel ascertained the Agency could use federal funds for the vehicle expenditure. The other enhancements were primarily in the first year, a report binding machine and in the second year, data processing equipment which they were working on together with Information Services. For personnel, Mr. Loux indicated they were budgeted for 13 state employees, and the travel amounts reflected funds necessary to attend the many DOE and Nuclear Regulatory Commission meetings, as well as other technical meetings. Noting the $300,000 balance brought forward, Mr. Spitler asked if this reflected federal money being brought forward. Mr. Loux said, "yes," and that it had to do with the difference in the state and federal fiscal year. Referring to page 1897, Mr. Spitler noted the Agency had shown the $300,000 as a balance forward, but they had not shown it picked up in the budget. Mr. Loux replied it was rolled into the $7 million. Mr. Marvel asked Mr. Loux to provide an organizational chart for the committee. With no further testimony forthcoming, Chairman Marvel adjourned the meeting at 5:30 p.m. RESPECTFULLY SUBMITTED: Iris Bellinger Committee Secretary Assembly Committee on Ways and Means January 23, 1995 Page