MINUTES OF THE JOINT SUBCOMMITTEE MEETING OF SENATE COMMITTEE ON FINANCE AND ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session March 1, 1995 The joint subcommittee meeting on General Government of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman William R. O'Donnell at 8:00 a.m., on Wednesday, March 1, 1995, in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the agenda. Exhibit B is the Attendance Roster. SENATE COMMITTEE MEMBERS PRESENT: Senator William R. O'Donnell, Chairman Senator Lawrence E. Jacobsen Senator Bernice Mathews ASSEMBLY COMMITTEE MEMBERS PRESENT: Ms. Chris Giunchigliani, Chairman Mrs. Jan Evans Mrs. Maureen E. Brower Mr. Bob Price Mr. Dennis L. Allard Ms. Sandra Tiffany STAFF MEMBERS PRESENT: Bob Guernsey, Principal Deputy Fiscal Analyst Mark Stevens, Fiscal Analyst Ron Steele, Program Analyst Pamela Jochim, Committee Secretary OTHERS PRESENT: Deborah Erickson, Budget Analyst, Budget Division L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry Rose McKinney-James, Director, Department of Business and Industry Coni Longero, Administrator, Division of Unclaimed Property, Department of Business and Industry Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry Greg Kreis, Education Director, Real Estate Division, Department of Business and Industry Renee Diamond, Administrator, Manufactured Housing Division, Department of Business and Industry Lise' Wyman, Administrator, Office for Hospital Patients, Division of Insurance, Department of Business and Industry Financial Institutions - Page 761 L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry, noted during the joint budget hearings, he was asked to present additional information to the joint subcommittee regarding measurement indicators, specifically addressing examination results. He said the examination results for depository institutions by law cannot be disclosed. Mr. Walshaw stated he has requested an Attorney General's Opinion on whether examination ratings for non- depository institutions are also considered confidential. The division presently logs and tracks all complaints. A review is being conducted to ascertain the amount of time it takes the division to resolve complaints. Senator O'Donnell asked what types of complaints the division receives from mortgage companies. Mr. Walshaw replied the number one mortgage complaint involves the length of time it takes to process a mortgage loan. Senator O'Donnell questioned if there has been any complaints regarding bait and switch tactics involving mortgage companies. Mr. Walshaw said he has not seen a pattern of bait and switch among the mortgage companies. Generally, if a loan is not processed in a timely manner, it is because the loan papers have not been filled out completely or employment verification was provided too late. Mrs. Evans noted the audit report recommended tighter controls over escrow agencies and questioned what the division is doing to resolve the problem. Mr. Walshaw explained the division had just begun licensing escrow agencies, when the audit report was completed. He said the licensing program which was transferred to the division from the Real Estate Division was a "real mess." He related most of the problems initially encountered have been resolved. The escrow companies are presently being examined on an annual basis. Licensing of escrow agents and agencies is being handled in the same manner as licensing for other institutions. Mrs. Evans asked if escrow agencies are included within the division's measurement indicators. Mr. Walshaw responded escrow agency performance measurements are included within indicator 5 on page 761 of the Executive Budget. Mr. Walshaw noted the figures designated within indicator 5 also include collection agencies, installment loan companies and various other licensees. He will segregate the escrow figures and provide the committee with the requested information. Mr. Walshaw pointed out the funds listed in the Training category are to be utilized to train two new requested Financial Examiner positions. New staff members are usually inexperienced trainees and need more intense training than seasoned staff. The division's portion of training costs are 40 percent and the federal government or the Conference of State Bank Supervisors pays the difference. Senator O'Donnell noted the division is requesting 1.5 new positions, but the Governor recommends two new positions and asked why the two figures differ. Deborah Erickson, Budget Analyst, Budget Division, interjected funding for the two positions allows the division the flexibility to hire more staff when needed. If the two positions are not necessary, the funds revert back to the General Fund. Mr. Walshaw clarified the division's budget has the authority to carry vacant positions in case a need arises, such as the opening of new financial institutions. He explained the division hired two new Financial Examiners last biennium because three new banks were chartered. The two new positions will most likely not be filled in the next biennium, but the division needs the flexibility to hire more staff if the need arises. Financial Institutions Investigations - Page 765 Mr. Walshaw noted the budget does not include a mission statement, because the mission statement given for the Financial Institutions' budget also encompasses the activities of the investigations' budget account. The budget account was established to handle funds that would be used on an ongoing basis to fund the costs for investigations of: new licensees; change of ownership; special investigations; liquidations; and receiverships. Senator O'Donnell observed the Governor Recommends column indicates a significant decrease in Investigative Expense from that requested by the division. The senator asked for an explanation regarding the discrepancy. Mr. Walshaw explained the budget is funded by application fees and does not receive an appropriation from the General Fund. The program has taken in more funds than it has expended. Mr. Walshaw said the division wishes to continue building a reserve, so they do not have to approach the Interim Finance Committee (IFC) for additional funding. Ms. Erickson commented the Budget Division subtracted $146,221 from Reserves for Fiscal Year (FY) 1996 and $116,682 for FY 1997 and placed the funds in the Investigative Expense category. She noted reserve accounts are generally not depleted, but the investigations' division must be able to act quickly in some instances to institute special investigations. Ms. Erickson said if the committee was not comfortable with depleting the division's reserves, then the Budget Division and the committee need to agree on how much should be left in the account. She suggested once the reserve account reached a "trigger point" the division could approach IFC. Senator O'Donnell stated he supports Ms. Erickson's suggestion. Mr. Walshaw related the account was established in 1985 in order to allow the agency to conduct thorough investigative background checks and to allow for additional funds to deal with receivership liquidations. The application fees are used to pay for the cost of investigating the applicants. The division has an interagency agreement with the Gaming Control Board, whereby, a Gaming Investigative Agent is assigned on a permanent basis to assist the division in investigating license applications. The Gaming Control Board is reimbursed for the personnel and associated costs incurred on behalf of the division. The division must act quickly when a company goes into receivership, therefore, the reserve is needed because the division cannot always secure funds immediately from IFC. Mr. Walshaw said the Budget Division must first give its approval before any funds are taken out of the account. Senator O'Donnell requested the fiscal staff to work with the Budget Division and the Financial Institutions Division to determine the optimal amount of reserve funds. Mr. Walshaw noted the fund has grown rapidly during the last biennium, due to the large amount of applications the division has received. He explained applicants, who are already licensed, are not reinvestigated. Ms. Erickson, referred the committee to page 766 of the Executive Budget, and explained if the $246,794 in Investigative Expense is not completely utilized, then the funds are treated as a balance forward. Senator O' Donnell stated: This gives them [Division of Financial Institutions] the authority to expand....Before we want to let the Division of Financial Institutions spend large amounts of funds investigating things that IFC and the Legislature has no idea of what is going on, I think there is a little bit more control here if we reduce the number of dollars in that account. Then the Legislature and IFC has a better idea of what is going on in that agency....I think we need to know. By giving them higher than normal funds, we are essentially giving them an open hand to do whatever they want and we [Legislature] will never know about it and we want to know about it. Mr. Walshaw noted the committee, at an earlier meeting, had requested more detailed information regarding budget measurement indicators. He stated the division has the information available and will provide it to the members of the joint subcommittee on General Government. Financial Institutions Audit - Page 767 Mr. Walshaw testified the budget was created to pay for the costs associated with hiring a Certified Public Accountant (CPA) who would be available to review financial statements and perform "trouble shooting" work for the division. He stated the mission statement for the Financial Institutions budget would encompass the functions carried out by the CPA. Mr. Walshaw related in previous testimony he requested that In-State Travel and Training costs be reinstated to the amount funded last biennium. He explained all the expenses associated with the CPA's duties are funded by the budget. The assessment fees must cover budget expenditures. The division has tried to allocate a contingency amount for training and travel related to CPA duties. If the accountant does not travel as much in 1 year, then the travel expense in the base budget is calculated by the Budget Office on the lower amount which can create a problem, because funds are not available if more travel time is required in the next biennium. Mr. Walshaw noted the funds need to be restored to ensure the CPA position is able to perform its statutory functions. Senator O'Donnell asked why the Budget Office reduced the division's budget in the areas of In-State Travel and Training. Ms. Erickson said she reviewed the division's Actual Fiscal Year 1994 budget expenditures and utilized the figures from that budget year. The division never provided the Budget Office with justification for the requested increase. She related if the Budget Office is supplied with additional data supporting the increase, there would be no opposition to an adjustment. Senator O'Donnell stated if the director or the staff needs to travel in an emergency situation, then sufficient funds should be budgeted. Ms. Erickson agreed with the senator. Mr. Walshaw interjected the requested information on the budget categories has been provided to the Budget Office. He related the budget instructions require that expenditures be based on the amount of expenditures in the prior year. The budget account does not function like a General Fund account because funds need to be left in the budget for contingency purposes. The account is designed to carry forward from year to year, with any unspent funds forming the basis of a credit to the next year's assessment base. Ms. Giunchigliani suggested the division work with the fiscal staff in determining a mission statement for the budget. Mrs. Brower commented mission statement's are very helpful to new legislators. Unclaimed Property - Page 703 Coni Longero, Administrator, Division of Unclaimed Property, Department of Business and Industry, testified there was a question in a previous meeting regarding forecasted General Fund deposits of $3.5 million for FY 1996 and $3.75 million for FY 1997. The division's forecast is $1 million less than what the agency received in FY 1994 collections. Ms. Longero explained deposits increased in FY 1994 because of stock sales, unclaimed funds from a $700,000 estate, an audit of Clark County, and successful collection actions. She stated it is difficult to determine the amount of funds the division will receive each year from unclaimed property. Ms. Longero stated another question asked from a previous meeting concerned how the division determines which businesses should be audited. She related not enough business are being audited. In the past, businesses were audited if they did not report to the division within 2 years. Presently, if a business reports to the division, but the report is not complete, then the business will be subject to an audit. She said the division is limited in the number of audits it can perform because the budget only funds two Auditor positions. Ms. Giunchigliani asked how the division identifies which business would most likely have unclaimed property. Ms. Longero explained most businesses have unclaimed property in the form of unclaimed wages, layaways, utility deposits, checking accounts, and savings accounts. Ms. Giunchigliani questioned what the division's audit penetration is at this time. Ms. Longero replied, "It is very low." Ms. Giunchigliani noted the division is requesting another Auditor position in FY 1997 and asked how many more audits will the division be able to perform if the new position is granted. Ms. Longero responded the division should be able to triple the number of audits the division performs. Ms. Giunchigliani asked if it would be more beneficial to perform a risk audit. Rose McKinney-James, Director, Department of Business and Industry, interjected the division was recently audited by the Legislative Counsel Bureau (LCB) and the audit recommended the implementation of more risk based audits. Ms. Longero stated she would like to also implement a system whereby a business would be contacted about non-reporting and then given 60-90 days to comply with the regulations. Ms. Giunchigliani questioned if the division was included within Assembly Bill (A.B.) 153 of the Sixty-seventh Session. ASSEMBLY BILL 153 OF THE SIXTY-SEVENTH SESSION: Directs coordination of governmental collection of money and information from business. Mrs. McKinney-James responded the division was not mentioned specifically in the statute as a program participant in A.B. 153 of the Sixty-seventh Session. Once the division realized it was not included in the program, the division asked to participate and worked with the Department of Taxation. Staff from the Department of Business and Industry have been involved in the development of the "one-stop shop form." Ms. Giunchigliani suggested the information needed by the Division of Unclaimed Property be included on the "one-stop shop form" in order to simplifiy the paperwork for businesses. Ms. Giunchigliani asked if the division has an office in Carson City or Reno. Ms. Longero responded, no, and related it would be beneficial to the state if an office was located in the northern part of the state. She commented a large part of northern Nevada has not been audited because the two southern Nevada auditors are not able to travel to the northern part of the state due to their work load. Ms. Giunchigliani questioned if Auditors from the Department of Taxation look for information regarding unclaimed property. Ms. Longero replied the Department of Taxation will inform the division if a company has unclaimed property listed on the books. Ms. Giunchigliani inquired if there is any formalized method to ensure that the Department of Taxation looks for unclaimed property during an audit. Ms. Longero said, no, because the taxation division reviews different records than the Division of Unclaimed Property. Ms. Giunchigliani requested Ms. Longero to prepare a report for the fiscal staff indicating the funds needed to provide for a staff person in the northern part of the state and an estimate of the amount of funds the position would generate. Mrs. Evans questioned what gain could be realized from increased audit activity. Ms. Longero replied a new auditor would be expected to generate at least $200,000 in additional revenue. Mrs. Evans noted the division is requesting the Auditor position in the second year of the biennium. Ms. Longero said the Auditor position is needed sooner, but she mistakenly requested it for FY 1997. Mrs. Evans asked how the division disposes of safety deposit box contents. Ms. Longero explained the contents of a safety deposit box are inventoried and verified. Tangibles items in a safety deposit box are stored in the division's safe until an auction is held. Once the items are sold, the division credits the owner's account. She noted firearms are not auctioned, because she does not "believe in putting them back on the street." If a previous owner came forth, the firearm would be returned. Senator O'Donnell asked what authority allows the division the right to destroy firearms. Ms. Longero replied the Nevada Revised Statutes provide instructions on how unclaimed property is to be treated. The division is not responsible for items which have no monetary value. Senator O'Donnell questioned whether the law requires the division to convert unclaimed property into cash. Ms. Longero replied the division auctions any salable items. Senator O'Donnell inquired, "Wouldn't a gun have value?" Ms. Longero responded, "The Governor does not believe in selling the items [firearms] and I do not believe in selling the items, so they are in the division's safe...." Mrs. Evans asked the committee to consider hiring additional auditors for the division. She noted there is a great deal of unrealized income which could be generated by hiring the additional auditors. Senator O'Donnell asked if the division verifies firearm identification numbers with the police department. Ms. Longero related the identification numbers are always supplied to the police department to ensure the firearm has not been used in a crime. Senator Jacobsen questioned if an underaged heir is able to claim their relative's property. Ms. Longero responded the guardian of the heir would probably be responsible for making the property claim. Real Estate Administration - Page 771 Real Estate Investigative Fund - Page 781 Real Estate Recovery Account - Page 783 Senators O'Donnell and Mathews disclosed they are both real estate salespersons. Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry, testified in a previous meeting, the division was asked to provide the joint subcommittee with additional information regarding the types of complaints and inquiries the division receives and the amount of time it takes to resolve the complaints. Ms. Buchanan provided the committee with the following three handouts: Exhibit C - Age Tracking Report; Exhibit D - Analysis of Complaint Types Memo; Exhibit E - Average Timeframe of Investigations Memo. She referred the committee's attention to Exhibit C and noted the number of open cases from 1992 through February 1, 1995. In referencing Exhibit D, Ms. Buchanan explained a gross negligent complaint encompasses: failure to disclose a flood zone; poor record keeping; up charging without disclosure; earnest money failure; deposit trust monies; signing principal's name to documents without authorization; failure to confirm building permits; inducement to break contract for personal gain; and altering contract without consent of principals. Misrepresentation complaints address such things as: misrepresentation of lot size; property condition; age condition; roof and heating; quality of neighborhood; land sales; and time shares. Ms. Buchanan noted the division treats trust account violations very seriously. The division has been encountering a number of violations involving the licensee operating a trust account outside of the brokerage. She related a new regulation has been proposed to mandate that a real estate firm balance its trust account on a monthly basis. In the states of Utah and California, if a trust account problem is detected, the broker is required to pay for a certified audit of the account. The division is also considering implementing a similar requirement. In the area of unlicensed activity, Ms. Buchanan explained there have been problems in the following areas: out-of-state brokers; property management; resale of time share units; finders fees and consulting fees; and owner developer using unlicensed agents. She noted 5 percent of the complaints concern fraudulent activity. Fraudulent activity covers such things as: converting money to personal use; repairs; embezzlement; money laundering; and selling land without consent of principal. Miscellaneous violations includes office abandonment, commission from someone other than employing broker, advertising violations, falsification of license application, failure to return advance fees; services not rendered; taking advance commissions; failure to notify division of change in license status; and failure to supervise. Ms. Buchanan distributed a list (Exhibit F) detailing various violations and complaints the division receives. Ms. Tiffany asked what is the division's highest priority. Ms. Buchanan related trust account violations and property misrepresentations are the division's top two priorities. Ms. Tiffany questioned how many personnel the division allocates to handle trust account violations. Ms. Buchanan replied one auditor presently investigates the complaints. Ms. Tiffany stated she would like to know the agency's goals, purpose, strategy, and business plan. Ms. Buchanan explained the agency's mission is to license real estate agents, timeshare appraisal, and subdivision reports. Ms. Tiffany asked how many division personnel are responsible for licensing real estate agents. Ms. Buchanan replied, seven staff members are assigned to that duty. Ms. Tiffany noted a Management Assistant position is being transferred to the Office of the Attorney General and an Information Specialist position is recommended to be transferred to the Department of Information Services (DIS). She asked who would provide the services to the division once the positions are transferred. Ms. Buchanan stated the Management Assistant position was assistant to the division's deputy attorney general. Because personnel from the attorney general's office have been centralized, the Management Assistant position also will be moved to the attorney general's office. Ms. Tiffany questioned if the division will be able to handle the duties provided by the Management Assistant position. Ms. Buchanan explained the transfer occurred in December of 1993. The division has reassigned duties, transferred a staff member to Las Vegas, a licensing position was reassigned to appraisal education, and a staff member was reassigned to the duties of the commission. Ms. Tiffany inquired if the agency's clients are affected by the reduction in personnel. Ms. Buchanan related two clerical positions have been requested by the division, which should help fill the gap left by the position transfer. Ms. Tiffany noted the agency requested four new positions, but the Governor only recommended two new positions. She asked where the two positions not recommended by the Governor would have been used. Ms. Buchanan explained the four requested positions included an assistant to the administrator, a Compliance Officer, and two clerical positions. She related 60 percent of the Informational Specialist's work involves duties other than data processing. Ms. Tiffany asked if the division will be able to handle the functions previously performed by the Informational Specialist. Ms. Buchanan responded, "I am not really sure how, but we have worked out those things in the past." Ms. Erickson interjected the DIS intent is to transfer personnel only involved in DIS functions. Ms. Tiffany commented, "Looks like we have a problem here, with having people transferred out and the function remains with the agency." She inquired if Ms. Buchanan has any recommendations on how the situation can be handled. Ms. McKinny-James responded the centralization of the attorney general's office was not anticipated. The Management Assistant position performed functions related to the Real Estate Commission, but the division has been able to address the problem. The DIS centralization has created a problem in terms of support staffing. She stated the personnel requested is the agency's "best guess" at what would be sufficient to replace the personnel being transferred. Three of the department's divisions are requesting an additional half-time deputy attorney general for Las Vegas because of increased work load. Ms. McKinny-James related the Real Estate Division is a very active agency with a large range of responsibilities. She stated the administrator of the division has requested the transfer of a number of positions to the Las Vegas area in order to address increased activity. If the Legislature approves the division's request for additional legal help, some positive returns should be realized. Ms. Tiffany commented the agency is very valuable to Nevada citizens and she would like the division to have adequate staffing to perform its duties. Ms. Giunchigliani interjected Ms. Tiffany's concerns are viable for all state agencies. She stated: We have had a patchwork budget in many of the agencies for years and we never properly staffed the actual job that needed to be done. We've had other people assume those responsibilities. It is not cross training. It's assuming another responsibility because we did not provide the staff in the first place. Ms. Giunchigliani requested the division to provide the committee with a flow chart indicating the number of staff members and their duties. She related the Legislature has a responsibility to the public to provide the agencies with the most direct public contact the necessary personnel to carry out their functions. Mr. Allard asked if the one-shot equipment appropriation has been approved by DIS. Ms. Buchanan replied the equipment and the concept was reviewed by DIS before the request was made. She distributed a handout (Exhibit G) detailing the division's computer upgrade request. The system will provide a case tracking system for the compliance staff. In addition, the upgrade will allow the agency to scan files and send them electronically between offices which will save the agency $15 per day. Ms. Tiffany commented: What I think we are looking for here...is where are you impacted the most. What can we do to help you. Is it legal, is it audit, is it licensing, is it training, is it automation. Because I am real concerned about this agency...this is public interface agency....Take a look at your business plan. Get out of a reaction mode and let's try to make you capable of doing your job and your service. Ms. Buchanan stated over the years the division has been given additional duties to oversee, but in most cases did not receive additional staffing. Real Estate Education and Research - Page 777 Greg Kreis, Education Director, Real Estate Division, Department of Business and Industry, came forward and distributed two handouts, Exhibit H - Education Program Information and Exhibit I - Nevada Real Estate Survey. Mr. Kreis testified the continuing education program began in 1979 and has approved 1,881 courses since that time. Presently, the program has 910 active courses and expects another 240 course approvals by July 1, 1995. Course approval decreased in 1994 because the Real Estate Commission hearing was delayed until July which affected 35 courses. Currently, the program has 221 sponsors of continuing education, of which, 123 are from out-of-state. The program has audited to date, only 53 courses. Mr. Kreis stated his concern regarding the number of course audits conducted. When he joined the program in March of 1994, filing had not been done since January of 1993. In tracking his work activities, he discovered 6« hours of his day is spent doing secretarial duties. Mr. Kreis explained the Reserve budget category balance is high because the program has not had the manpower to develop educational programs. The continuing education program has grown at an average rate of 160 courses a year. Pre-licensing education is a required 90-hour program for individuals applying for a license. Eleven private schools and three schools within the university system provide pre-licensing education. Approximately 2,000 students per year attend the pre-licensing education classes. Mr. Kreis related the program also administers the appraiser education program. Appraisers are required to take 20 hours of education every 2 years. The program offers 112 courses a year, with 650 licensees participating. In addition, a Real Estate Education Task Force was implemented in October, 1994 to review the entire scope of real estate education, remarked Mr. Kreis. The task force will review all existing programs and recommend changes as required. He noted real estate laws have not changed in the last 10 years. Mr. Kreis referred the committee's attention to Exhibit I and related the survey was completed by the University of Nevada, Las Vegas (UNLV). The survey's results are currently being utilized by the task force in its review of the education program. He stated one of the program's highest priorities is to enhance and increase course quality through audits and evaluations. Ms. Giunchigliani asked why the program is funding the Administrative Aide position from the Reserve account. Ms. Buchanan explained the budget transfers $10,000 to the Real Estate Administration budget to cover general operating expenses. In addition, the program also transfers funds received for accreditation and renewal fees to the Real Estate Administration budget. She stated there has never been a set allocation for operating costs, but in the future, education costs will be segregated from the Real Estate Administration budget. Ms. Erickson said the Administrative Aide position was funded from the Reserve account due to the account's large balance. She explained the Budget Division felt it was wiser to fund the position from the Reserve account than to increase fees. Ms. Giunchigliani asked if it was typical to fund a position from a Reserve account. Ms. Erickson replied, generally this is not done, but the Reserve account is so high, it would not have been prudent to fund it from any other source. Ms. Giunchigliani questioned, since the Reserve is so high, why the program is not utilizing the funds to pay for more auditors. Mr. Kreis said a number of new programs are being developed and budget category E275, Research and Education, demonstrates the estimated costs of the programs. Ms. Giunchigliani requested a breakdown of the new programs and associated costs. In addition, she asked for justification of why the position request in M200 was reduced. The requested information can be supplied to the committee at a later date. Senator Jacobsen inquired if the Real Estate Division has addressed the Audit Division's recommendations. Ms. Buchanan assured the senator that internal cash controls have been implemented and the other recommendations are also being addressed. Ms. Tiffany noted the statutory authority for the program does not prohibit utilizing Reserve funds for expenditures in the Real Estate Administration budget. Ms. Buchanan interjected statutory authority requires that the funds be utilized for education and research. Ms. Tiffany stated the Reserve account is too high. The program needs to lower its fees or provide better service. Mr. Price asked if the Real Estate Division had moved its offices to the Bradley Building. Ms. Buchanan said the final figures have been submitted to the Buildings and Grounds Division. Currently, the Real Estate Division's office space is 1700 square feet and will be increased to 3200 square feet when it moves into the Bradley Building. She related an Auditor position is presently vacant because of a lack of office space. The projected opening of the building is July 1, 1995. Manufactured Housing Fund - Page 787 Mobile Home Parks - Page 793 Lot Rent Trust Subsidy - Page 799 Renee Diamond, Administrator, Manufactured Housing Division, Department of Business and Industry, stated in a previous meeting, she had been asked to provide the joint subcommittee with an explanation regarding the increase in Reserve account funding. She related the division was audited in 1994 and the audit results indicated a decline in revenues for 4 consecutive years and revealed the division's expenditures exceeded its revenue. The audit recommended an increase in fees which would maintain an adequate reserve of $300,000. The Reserve account covers unbudgeted expenditures such as unforseen equipment repair or replacement and loss of revenue subject to economic changes. The Reserve account has decreased from $310,000 in 1990 to $116,000 in 1993. Ms. Erickson noted the agency needs Reserve funds to function because another fee increase may not occur for a number of years. Senator O'Donnell questioned whether fee increases are built into the budget. Ms. Erickson replied, "Yes." Ms. Diamond related the proposed fee increase for mobile home parks will average $10 - $15. The increase only affects mobile home owners when their certificate of ownership is changed. All the other fee increases will be absorbed by the industry. Fees for the division have not been increased for 10 years. Mr. Allard said he is concerned the increases will be passed on to the public. Ms. Diamond explained the competitive market will take care of some increases, but the public will bear some of the costs. Mr. Allard asked if the division has considered any other options besides fee increases. Ms. Diamond stated, since the division lost a position last year, the turnaround time to process titles has increased from 3 weeks to 3 months. She has used senior volunteers to help with filing and other clerical duties because the staff is already working at its maximum level. She maintained the budget could not be cut without affecting the quality of the program. Mr. Allard questioned if title costs will be increased from $15 to $20 and seal costs increased from $30 to $40. Ms. Diamond replied Mr. Allard's figures are correct. The increased fees will help fund two new positions which the division needs to perform titling functions. Mr. Allard noted the Reserve account increases from $127,000 in FY 1996 to $237,000 in FY 1997 and asked if the two requested positions will be funded from the $237,000. Ms. Erickson responded the requested personnel are funded in budget category M200. She said the funds were transferred from the Reserve account into M200 to fund the positions. Mr. Allard indicated the Reserve account is very high and suggested the fee increase be reduced. Ms. Erickson explained the division does not increase fees very often, so the proposed increase would probably remain constant for the next 10 years. Ms. Diamond interjected, over the last 10 years, the Reserve account has decreased by approximately $200,000. The fee increase would allow for economic downturns and changes. Mr. Allard stressed the voters are not in favor of any fee increases. Ms. McKinney-James stated the Legislative Counsel Bureau audit recommended the agency review its fee structure. She related the fee increase has been discussed with mobile home park owners and mobile home owners to determine a reasonable rate. Ms. Tiffany asked how the division notifies eligible mobile home owners about the subsidy rent program. Ms. Diamond said notices are mailed to park owners and posted on bulletin boards. She related the program has not been promoted to a great extent because there is already a long waiting list of pre-approved applicants. Hearings have been held to change the rent subsidy threshold in order to give everyone the same percentage of subsidy. Ms. Tiffany commented she would like the division to address the problem of the yearlong waiting list and the Reserve account increase. Ms. Diamond stated the Reserve account is not expected to increase as indicated in the budget because of the following reasons: the amount of subsidy payments carried forward is not reflective of the adjusted base for 1995; the amount in FY 1997 of $257,562 is not indicative of a full 12-month subsidy. The program began July 1, 1993, but did not reach maximum subsidy until October, 1993. The 1995 subsidy payments totaled $295,555 and not $240,000 as indicated in the Executive Budget. The division is requesting an additional $60,000 in the Work Program for 1995, in order to meet subsidy payments due in 1995. Funding for the $60,000 request will come from the Reserve account and reduce the Balance Forward in 1996 to $334,709. The division projects subsidy payments will cost $307,000 for FY 1996 and FY 1997. Because of subsidy costs, the Reserve account will be reduced by $160,000 at the end of 1997. The Reserve account is projected to decrease each year at a rate of $50,000 to $60,000 until depleted, unless additional funding is provided. Manufactured Housing Education/Recovery - Page 803 Ms. Diamond testified, in 1994, the program held five 3-hour titling classes which were attended by 106 people. In addition, two education classes were held on installation regulations. Classes were held in both the northern and southern regions of the state. Due to lack of personnel in the program, the former administrator held the minimal number of classes. Ms. Diamond related the former administrator had the technical expertise to teach the classes, but Ms. Diamond stated she is not experienced enough to continue the practice. The program is requesting a Staff Professional Trainee position to take over these duties. Presently, staff from other areas of the agency are taking time away from their regular duties to teach the classes. Commission on Hospital Patients - Page 823 Lise' Wyman, Administrator, Office for Hospital Patients, Division of Insurance, Department of Business and Industry, came forward and distributed an agency handout (Exhibit J) depicting quarterly reports from July 1, 1994 through December 31, 1994. Ms. Giunchigliani noted the commission had requested a half-time Compliance Investigator and asked if the half-time position was adequate enough to enable the commission to perform the required hospital audits. Ms. Wyman related, "We will try and do the best that we can with this position." Ms. Giunchigliani questioned if the commission's caseload is skewed toward particular hospital providers. Ms. Wyman said the commission's caseload varies from month to month. Ms. Giunchigliani inquired if the state has any recourse against repeat offenders. Ms. Wyman replied, "Not to my knowledge." Ms. Giunchigliani asked the commission to review its policy regarding repeat offenders. She suggested punitive measures should be implemented against hospitals who repeatedly overcharge patients. Employee Management Relations Board - Page 923 Office of Protection and Advocacy - Page 933 Mentally Ill Individuals Program - Page 937 Chairman O'Donnell asked the committee if there were any questions regarding the three budgets. No questions were raised, so the chairman adjourned the meeting at 10:45 a.m. RESPECTFULLY SUBMITTED: Pamela Jochim, Committee Secretary APPROVED BY: Senator William R. O'Donnell, Chairman DATE: Assemblywoman Chris Giunchigliani, Chairman DATE: Assemblywoman Sandra Tiffany, Chairman DATE: Senate Committee on Finance Assembly Committee on Ways and Means Joint Subcommittee on General Government March 1, 1995