MINUTES OF THE ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session April 5, 1995 The Committee on Ways and Means was called to order at 7:40 a.m., on Wednesday, April 5, 1995, Chairman Morse Arberry, Jr., 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 STAFF MEMBERS PRESENT: Mr. Mark Stevens, Fiscal Analyst Mr. Gary Ghiggeri, Deputy Fiscal Analyst ASSEMBLY BILL 387 Makes various changes concerning sale, lease or exchange of state land. Pamela Wilcox, Administrator, State Lands Division, remarked A.B. 387 had not been requested by the division. It was assumed all the transactions addressed in the bill would be approved by the Board of Examiners and the Interim Finance Committee. Because of some problems, legislative support was needed to approve the transactions included in the bill. Ms. Wilcox provided to the committee members a copy of a memorandum from herself to Mark Stevens (Exhibit C) requesting amendments to A.B. 387. There were six leases and one land sale to be addressed. She introduced Mike Meizel, who would present the first lease in order as presented in the bill. Michael F. Meizel, Administrator, Division of Buildings and Grounds, Department of Administration, stated the division was leasing space in the purchasing warehouse to Washoe County at the market rate of 23 cents per square foot. Washoe County was given an option to lease additional space over the next ten years, and it was hoped they would act on the option. As reflected in the lease dated November 4, 1994 (Exhibit D), Washoe County committed to lease the space as of January 1, 1995. As soon as the legislature approves the lease, the state will receive revenue from January 1, 1995, to the present date. The process required to execute leases was slow and cumbersome. He urged support of A.B. 387 so the state could start receiving revenue on the lease. Mr. Spitler inquired why a concurrent resolution was necessary as opposed to the lease being approved through the Interim Finance Committee. Mark Stevens, Fiscal Analyst, Legislative Counsel Bureau, explained the Interim Finance Committee was not legally authorized to perform a number of functions when the legislature was in session. When the question of approval of leases came up during the legislative session, research was performed to determine whether the Interim Finance Committee had authority to act on leases when the legislature was in session. Each NRS which the Interim Finance Committee was authorized to act on when the legislature was in session was in statute, and approval of leases was not included in those authorized activities. Mr. Spitler stated the Interim Finance Committee had acted on leases in the past. Mr. Stevens pointed out that was during the time the legislature was not in session. The Committee on Ways and Means could amend the statute so the Interim Finance Committee would have authority when the legislature was in session to act on leases. There had been discussions regarding the scope of authority the Interim Finance Committee should have when the legislature was in session, which was a policy decision that needed to be addressed by the Committee on Ways and Means. Mr. Spitler requested that leases be provided to the committee members prior to the meeting for which they were adgendized so the members had an opportunity to review them. Mr. Stevens indicated Ms. Wilcox provided a copy of two leases to the Fiscal Analysis Division of the Legislative Counsel Bureau, but the leases were not forwarded to the committee members. Ms. Wilcox commented the next lease was the Benchmark lease (Exhibit E) and introduced John Sarb, who presented testimony regarding the lease. John Sarb, Administrator, Division of Child and Family Services, read from prepared testimony which is attached as Exhibit F. Ms. Giunchigliani asked why there was such a difference in rates. Mr. Sarb responded one was a hospital setting compared to transitional services. Youth in the hospital received necessary services but not services which were limited only to a hospital. Mr. Spitler inquired if the lease had been approved by the Board of Examiners. Ms. Wilcox responded the lease was approved by the Board of Examiners in December 1994. However, because of the length of time which had passed, changes were made in the bill which needed to be reviewed by the Board of Examiners. The term of the lease was extended. Because the contract lapsed at the end of June 1995, a provision was added that if the contract lapsed, the lease also lapsed. Mr. Spitler asked when the contract is signed if it would reflect legislative action as opposed to the Interim Finance Committee. Ms. Wilcox remarked that was a procedural problem with all the leases. Mr. Spitler queried how many such leases were affected. Ms. Wilcox said there were two which had already been approved by the Board of Examiners in December 1994. There were four more which were sent to the Legislative Counsel Bureau, and it was expected they would come to final form during the session. There were probably going to be two to four more during the remainder of the calendar year. Susan Vandenplas, Program Director, Benchmark Behavioral Health System of Utah, stated the hospital was waiting on the lease approval. The program was ready to run and would provide a reduction in costs since there were no other transitional homes available in the state of Nevada. Mr. Hettrick asked if the space rented by Washoe County was separated from the remainder of the space in the warehouse. Mr. Meizel stated the space was separate. Mr. Hettrick inquired if the space was separated by a solid wall. Mr. Meizel indicated the space was separated on two sides by a solid wall and the third side would be separated by a chain-link fence. Washoe County had access to the restrooms but not the remainder of the warehouse. It was planned they would store some furniture and paper goods, which was very clean storage. Mr. Hettrick noted the state of Nevada paid the utilities, including heating and air conditioning. He wondered if the utilities included heating and air conditioning the dead space of the building or only the space used as an office. Mr. Meizel explained the warehouse was 60,000 square feet, and the portion rented to Washoe County was 11,600. The warehouse was not heated as if it were an office building, but it was heated minimally. He felt the cost would be greater if the meter was split in an attempt to recover the cost of heating and cooling the rented space and that their use of heating would be negligible since no personnel would be in the warehouse on a continuous basis. Mr. Fettic inquired if Mr. Meizel was comfortable with the language on page 2 of the lease regarding alterations, additions and improvements. Mr. Meizel stated it was standard language, and he was comfortable with it. Ms. Wilcox presented documentation regarding the sale of a piece of commercial property located at the corner of 8th Street and Carson Avenue (Exhibit G). Ms. Wilcox explained the first amendment requested in the attachment to the memorandum (Exhibit C) was to change the ending date of the Benchmark lease; the second amendment was to add four additional leases, the first one being the lease of four residences at the Stewart facility to FISH (Exhibit H) with an accompanying letter from HUD (Exhibit I). Patricia Stephens stated she was an Administrative Law Judge for the State of Nevada Employment Security Division but was not testifying before the committee in that capacity. She was appearing before the committee as the Chairman of the Board of FISH, Friends in Service Helping, regarding a lease between the State of Nevada Department of Human Resources, Division of Mental Hygiene and Mental Retardation, Office of Rural Clinics Outpatient Services as the lessor and FISH as the lessee. The lease involved four wood-frame houses located at 116, 117, 118 and 119 Sierra Avenue within the Stewart Indian School Historic District. The purpose of the lease was to assume the lease from Rural Clinics on a transitional housing program for the homeless. Rural Clinics no longer provided transitional housing programs to the homeless. FISH was assuming a grant from HUD for that purpose. The lease provided for two renewable five- year terms at $150 per unit, totaling $600 per month. FISH was taking over a lease for which the state of Nevada would have been obligated. Rural Clinics received from HUD a $70,495 grant which was used to renovated the four houses in 1989. If the program was not utilized as previously agreed to, the state of Nevada would be liable for the grant amount of $70,495. FISH established a relationship with HUD whereby they would receive funds from an initial three-grant capping at $103,000 per year to be used for a transitional homeless program. The lease process began in April 1994, and HUD alluded to withdrawing grant funds if the lease was not solidified by the end of April 1995. NRS 322.007 required any lease to be approved by the Nevada State Board of Examiners and Interim Finance Committee. A.B. 387 modified that statute by adding the clause "the legislature, by concurrent resolution, when the legislature is in regular or special session." She requested their lease be approved in a timely fashion so the poor were not jeopardized by the bureaucracy one needs to go through to effect one's goals. Ms. Giunchigliani inquired what the hold-up had been in acquiring the lease. Ms. Stephens stated the process which started in April 1994 included the coordination of the HUD grant, documentation, and the transition from rural mental health to FISH. The lease was self-explanatory. FISH was assuming liability that the state of Nevada otherwise would have to pay. Ms. Giunchigliani asked if funding was from a secured three-year grant. Ms. Stephens stated the grant was renewable for an all-inclusive universal period of 15 years. When the lease is signed, FISH will proceed to renovate the buildings. Ms. Giunchigliani asked who would pay for the renovations. Ms. Stephens responded FISH would pay for the renovation. Ms. Giunchigliani stated approximately $70,000 was provided in 1989, which would be lost if another HUD-approved lessor was not found, and the state of Nevada would have to repay that amount. Ms. Stephens responded yes. Ms. Giunchigliani summarized by saying the state would recoup not only the loss but a tenant would provide transition to the homeless. Ms. Stephens agreed and stated the state would also be making money every month from the rental fee, which she felt was high rent for the poor. Ms. Wilcox commented the FISH lease was the only lease before the committee which was not at fair market value. The law required leases to be based on the fair market value of the property. The Stewart property was restricted by the deed and was further encumbered by the HUD grant. As a result, a finding was made that the property could not be rented on the open market and there was no fair market value. The $150 rental rate was set differently than the other leases in order to cover the expenses of managing the Stewart facility. Tom Baker, of Senator Bryan's office, stated Senator Bryan had been requested in March 1994 to help expedite the paperwork regarding the grant. HUD requested Senator Bryan's office to help expedite the lease so HUD could disburse the grant funds, as they were under pressure to give the funds to other programs, and all were waiting for committee approval to proceed with the lease. Mr. Hettrick asked if the homes were not kept as transitional housing or part of the grant program, would the $70,495 be reduced by a sliding scale formula. Monte Fast, Executive Director, FISH, stated the grant for $70,495 was a 20-year period of responsibility. At the end of ten years, it begins to reduce. As of today, it is still in full effect. On the eleventh year it will go down to 90% of the total amount and will be reduced by 10% each year thereafter. Mr. Hettrick read from page 2 of the lease, "WHEREAS, the state agrees that FISH may assume the grant program, fulfilling the state's obligation," and asked if FISH was going to assume the state's obligation of $70,495 or portion thereof if the property was not kept in transitional housing. Mr. Fast responded yes and stated the only caveat contained in the lease was if the state for any reason of its own should decide they wanted to use the houses for another purpose, the state would assume the remaining responsibility. Ms. Wilcox presented a lease regarding water rights between the Nevada Department of Military and Silver Lake Water Distribution Company (Exhibit J) and explained the lease provided water service to the new Army National Guard facility at Stead. Water service was leased rather than being transferred to a water purveyor because water rights are a state asset and at some time in the future the facility may not be needed, at which time the state would want the water rights returned. The state did not make money on the lease because the value of the lease was the value of the service provided. Colonel Miles L. Celio, representing Major General Drennan Clark, spoke on behalf of the Department of the Military. It was planned to add a maintenance shop to the Stead aviation facility and move the Washoe County Armory presently located at the Washoe County fairgrounds to Stead. The aviation facility was served by a well which would not accommodate the maintenance shop and the building needed for the armory. It was decided to buy water rights in the Truckee Meadows area and transfer them through Westpac to the Silver Lake Water Distribution Company. Ms. Giunchigliani inquired if the Silver Lake Water Distribution Company could sell the water rights and for how long would the lease be effective. Ms. Wilcox stated the lease provided for an indefinite extension period. The water rights would continue as long as service was being provided. Should the state not need the facility, the lease would be terminated and the water rights reverted to the state. Ms. Giunchigliani asked if the water could be diverted, and Ms. Wilcox replied no. Ms. Giunchigliani questioned whether trenching had begun, and if so, was funding provided through the regular budget. Colonel Celio indicated trenching and piping to the maintenance shop had begun as part of the maintenance shop construction. The line was large enough to provide water to the maintenance shop and also the armory facility. Maxine Zimmerman, President and General Manager of Silver Lake Water Distribution Company, remarked the water rights would be reserved only for the use of the Nevada National Guard. Ms. Wilcox presented a lease between the state of Nevada and Fleet Call of Utah, Inc., (Exhibit K) and commented the lease was not initiated by the state of Nevada. The state was approached by Fleet Call of Utah, Inc., and asked if they could put some telecommunications equipment on the Jean prison site. The lease was a fair market value lease. Mr. Spitler remarked that another reason he wished to receive copies of the leases in advance of the committee hearing was that he was an employee of Sprint Central Telephone Company, and Sprint Corporation was also in the business of distributing telecommunication signals and therefore would not participate in the discussion and/or vote of this lease issue. Ms. Wilcox indicated staff of the Legislative Counsel Bureau did receive copies of four of the leases before the committee hearing. The last two leases regarding Fleet Call and Washoe Lake State Park were rushed through the process in order to be included in A.B. 387; otherwise, the leases would not have been executed until the end of the legislative session. She apologized for not providing the leases sooner. Bob Malin, of Fleet Call of Utah, Inc., remarked the lease was an upgrade of Fleet Call's existing system in southern Nevada. It provided a link between Las Vegas and the state line for a two-way digital communication system. The structure was a 10- by-20 equipment shelter with 105-foot tower with antennas and served an area six miles south of Las Vegas to the state line. Ms. Giunchigliani asked why the location in southern Nevada was selected as the location for the equipment. Mr. Malin stated it was determined through radio frequency testing that the site fit within the search range. Mr. Fettic questioned the reason for an eight-month written notice clause to terminate the lease. Ms. Wilcox remarked that issue had been negotiated. Fleet Call would need time to relocate if the state of Nevada needed the site. It was reasoned if prisons needed the site, adequate notice would be given through the Capital Improvements Projects process. Mr. Spitler inquired how the public would know that any of the leases were being discussed at the committee hearing. Ms. Wilcox commented state law did not provide for a direct public notice process on state land transactions; however, it did require notice be given to the county. The law specifies that the county may hold a public hearing if they wish, and the county must let the state know if they have any problems with the lease. In all of the present cases the county or local government has been notified and there were no problems with the leases. Mr. Spitler mentioned someone looking at A.B. 387 would have no idea that any of the leases included in the bill were being discussed. He inquired if there had been an opportunity for public input at another stage of the lease process, and Ms. Wilcox responded at the county stage. If the bill is amended as requested by Ms. Wilcox, the four additional leases will show in the bill. Mr. Hettrick pointed out a lease had been approved during the interim session for a communication facility on top of the legislative building. That lease had different terms than the lease being addressed at the committee hearing in that it had an automatic cost-of-living increase built into the rental fee. He suggested the other lease should be looked at to see if an automatic increase would be appropriate in other leases. Ms. Wilcox remarked she had not seen the lease but would be happy to look at it. The $250 fee was a minimum charge for a small piece of land where the value was less than $250 and the state did not want to have the expense of an appraisal to determine the value. Ms. Giunchigliani requested Ms. Wilcox to restate the amendment to A.B. 387. Ms. Wilcox replied the amendment included the FISH lease, the Silver Lake water lease, the Fleet Call lease and the Washoe Lake State Park lease. Ms. Giunchigliani inquired if the appraisal (Exhibit G) took into account the Employment Security Division was in the downtown redevelopment area. Ms. Wilcox said she would provide the information on the appraisal to the committee members. Mrs. Chowning inquired how the public would know the existing servicer lease was put out to bid and were there other companies that chose to do the service. Ms. Wilcox explained the specialized type of lease Mrs. Chowning was referring to where someone wants to use a specific piece of land was generally not put out to bid. It made sense to put leases for grazing and agriculture out to bid. When Mrs. Chowning concluded no one else had requested this type of lease other than the lessor, Ms. Wilcox agreed. Mrs. Brower requested Mr. Malin to compare the value of the subject lease with other leases Fleet Call had entered into. Mr. Malin stated the lease was on the low end. Ms. Wilcox presented the last lease between Washoe Lake State Park and Washoe County for 18,000 square feet of land for the park's use (Exhibit L). Wayne Perock, Acting Administrator, Division of State Parks, explained Washoe County requested the lease of slightly less than an acre at the county boat ramp for the purpose of building a septic system and a trailer pad for a caretaker. Ms. Wilcox commented the bill as drafted would require approval by the legislature only during the session. The normal process since 1989 had been approval by the Board of Examiners and the Interim Finance Committee. The process was instituted in response to one specific lease in Washoe County where some property was leased for free to Washoe County. The legislature in the early 1980's took a dim view of the lease, changed the state law to require that leases be based on fair market value and they also be approved by the Interim Finance Committee. Ms. Wilcox stated she felt it was time to rethink whether that process was still needed. People she had dealt with regarding leases emphasized how difficult it was for them to not know for sure when their lease would become effective. Ms. Wilcox remarked she was not sure how to pull the bills which had been drafted and signed for the Board of Examiners and Interim Finance Committee approval. Mr. Comeaux had expressed concern regarding the Board of Examiners being removed from the loop. Ms. Wilcox shared the same concern and stated the Board of Examiners should be the first approval required for all land transactions. She requested the expeditious approval of the bill regarding the leases, the approval of an amendment to the bill to put the Board of Examiners back in the loop to review all transactions, and to consider the legislature's proper role in approving individual land transactions. It was not intended that the legislature sit as a planning commission or a land board. It made sense to come to the legislature regarding leases which were not fair market value and perhaps regular informational reports on other leases rather than holding up the leases while waiting for specific approval. Chairman Arberry remarked it was his understanding from staff that all the information had been provided to staff approximately one month prior to the hearing and the information was handled in an expeditious manner. From remarks made at the hearing, it sounded as if it was the legislature's fault the leases had not been signed as opposed to the fault lying with the Executive Branch of the government. Ms. Wilcox apologized if it appeared blame was placed with the legislature. The Budget Division had lost the first two leases which were approved by the Board of Examiners in December 1994, which was certainly not the fault of the legislature. Ms. Wilcox stated her comments were more generic in nature regarding the need for a process which allowed for the expeditious handling of leases. Mr. Hettrick noted the language of the leases states, "The state land registrar may, with the approval of the legislature." It did not say "prior" approval. It appeared if a lease stated it was subject to approval, the lessee could move in, and the lease could include an escape clause regarding lack of approval. Ms. Wilcox indicated she did not interpret the law the same as Mr. Hettrick. If the law states a given situation requires certain approvals, a specific condition is included in the lease that the lease is not effective until all approvals are received. Most lessees would not be willing to put their money into improvements as required by a lease without assurance the lease was effective. There also is the concern that the state would not be properly indemnified until the lease is in effect. Mr. Hettrick did not see why the language in the lease could not be changed from "effective upon approval" to "effective upon signing and subject to approval" and it would be the lessee's decision whether or not to wait for the approval. Ms. Wilcox reiterated there would be problems with indemnification and insurance if the lease was not in effect. If the suggestion was that perhaps the statute could be rephrased to say the lease was effective after the Board of Examiners' approval and the legislature reviewed it afterwards, she agreed with that interpretation. Mr. Hettrick stated that was his suggestion. He was not implying the Board of Examiners should be removed from the loop. If legislative approval was the problem, the lease could specify "upon the approval of the Board of Examiners and subject to approval of the legislature," which would provide indemnification. Mrs. Evans inquired what expenses the state would incur as a result of the FISH lease. Mr. Meizel stated the concerns regarding the lease were arriving at a dollar figure for the rental and how the maintenance would be taken care of. The state was responsible for providing water and sewer lines from the street to the facility, which were costs already borne by the state for the entire complex. The rental fee of $150 per unit was a reasonable value since all the maintenance and upkeep would be provided by the lessee. There were expenses involving the entire Stewart complex, i.e., the capitol police. Mrs. Evans expressed concern over the high rental fee charged a charitable organization which could be better spent helping the poor. Mr. Meizel pointed out there were other nonprofit organizations at the site paying the same type of rental fee. In defense of the rates charged, Mr. Meizel stated the complex was fairly expensive to operate. The rates were arrived at so that all the tenants bore the expenses of the infrastructure. Mrs. Evans stressed community-based organizations which were bringing many benefits to the community and were saving the state money should receive every conceivable break so as to encourage more of that type of activity. Ms. Wilcox agreed with Mrs. Evans, but said the state law was not structured in that way. Land was considered and managed as an asset and was leased only at fair market value. Senator Adler was drafting a bill to allow for cut-rate leases in certain cases. Mr. Marvel indicated the reason behind legislative approval of leases was in reference to the Washoe County lease in the amount of $1 a year, which people felt was a give-away. Mr. Spitler remarked the bill was changing the way business was done, as indicated by lines 15 and 16 where it states, "The legislature, by concurrent resolution." He inquired if the thought was concurrent resolution meant ACR's or SCR's, because a resolution was based in the legislative houses as opposed to following the exact pathway of a bill. If that, in fact, was what the bill was trying to accomplish, would not all the issues fall under a resolution as opposed to being inside the bill. Ms. Wilcox stated she did not come up with the language and, in fact, did not like the language. She preferred to provide regular informational reports to the legislature. If the legislature needed to approve the leases, she would prefer to change the Interim Finance Committee statutes so they could address leases during the session as well as between sessions. Mr. Stevens explained the language came from the bill drafters in order to provide a simpler way than a bill to pass this type of business through the legislative body versus the Interim Finance Committee. There were other options: 1) Forego legislative approval; and 2) Change the statute to allow the Interim Finance Committee to approve leases during the legislative session. Mr. Spitler inquired if he was reading the bill correctly that approval would be by concurrent resolution as opposed to legislation. Mr. Stevens replied yes. Mr. Spitler asked why the lease items were included in the bill. Mr. Stevens stated he could not provide an answer. Mr. Spitler queried if future leases or the sale of property would come through on resolutions as opposed to bills, and Mr. Stevens replied yes, based on the language in the bill. Ms. Wilcox suggested the bill be amended to add all the leases so they could go forward on an expedited basis. She offered to work with the members of the committee and staff in order to come up with a resolution to the matter. Mr. Meizel remarked he had two checks from Washoe County from January 1995 which needed to be processed and requested an expeditious resolution to the lease issue. Chairman Arberry called for testimony in favor of or in opposition to A.B. 387. There being none, he closed the hearing on A.B. 387 and opened the hearing on A.B. 256. ASSEMBLY BILL 256 Increases penalty for abuse, neglect or endangerment of child where substantial bodily or mental harm results. Assemblyman Mark Manendo, District No. 18, explained A.B. 256 increased the minimum sentence from one year to two years for certain crimes. The bill passed out of Judiciary unanimously. Assemblyman Manendo was looking at being tough and smart on crime by being fiscally responsible. He provided a copy of a letter from WE CAN, INC., the Nevada chapter of the National Committee to Prevent Child Abuse (Exhibit M). He thanked the committee for opportunity to speak in favor of A.B. 256. Mr. Spitler inquired the average length of a sentence for someone who was in violation of subsection 1. Assemblyman Manendo responded the sentence was more than two years. He stated he would have no problem increasing the minimum sentence for subsection 1. Mr. Close inquired how A.B. 256 fit into the process being discussed in the Senate and Assembly Judiciary Committees in reference to truth in sentencing and was 20 years realistic. Assemblyman Manendo replied he was reviewing the Governor's crime bill and A.B. 256 could fall into that category. Ms. Giunchigliani inquired if the effect on prisons had ever been considered in fiscal notes. Mr. Marvel agreed it was important to consider whether the bill would have an impact regarding prisons. Ms. Giunchigliani remarked the Committee on Ways and Means did number crunching but did not always consider policy. Assemblyman Manendo agreed the bill would affect the prison system, which had been discussed in the Judiciary Committee. When Mr. Allard inquired if Assemblyman Manendo had seen the fiscal note, Assemblyman Manendo responded no. Mr. Allard asked what percentage of the sentences were over two years. Assemblyman Manendo offered to provide the information. Lieutenant Phil Galeoto, of the Reno Police Department, stated he as well as the Reno Police Department supported A.B. 256. There had been a large increase in the number of reported and investigated abuse and neglect cases, of which several had resulted in homicides. Police officials believed the bill would increase accountability at the bottom line. Prosecutors and judges did a good job with serious cases, but A.B. 256 would help the system stay in contact with people sentenced under this bill for a longer period of time at the parole and probation level. He requested the support of the committee members on A.B. 256. Elizabeth Livingston of the Nevada Women's Lobby spoke in favor of A.B. 256. Chairman Arberry called for testimony in favor of or in opposition to A.B. 256. There being none, Chairman Arberry closed the hearing on A.B. 256 and opened the hearing on the Wage and Salary Survey. REVIEW OF WAGE AND SALARY SURVEY Barbara S. Willis, Director, Department of Personnel, provided a copy of an overview of the biennial Wage and Salary Survey conducted by the Department of Personnel (Exhibit N) and introduced Phillip J. Hauck, Certified Compensation Specialist, who supervised and handled the Wage and Salary Survey (Exhibit 0, the original of which is on file in the Research Library of the Legislative Counsel Bureau). Ms. Willis stated the Wage and Salary Survey was required by statute to take into consideration surveys of salaries in comparable jobs in private industry and western state governments. Consideration was to be given to changes in the cost of living, turnover, recruitment difficulty, and the equitable relationship of job classes or internal equity within the state system. The survey helped to determine the state's position in the market place. Most companies conducted their own salary surveys or paid for such information from private consultants. Ms. Willis pointed out the employers surveyed included the western states, Nevada public employers, Nevada private sector employers, and federal government agencies located in Nevada. Seventy-seven employers were invited to respond to the survey, of which 61 employers did respond. Exhibit N listed the identity of each employer contacted and whether or not they responded. Ms. Willis called attention to page 3 of the Wage and Salary Survey booklet which depicts the western states participating in the survey, the number of employers each state had and their dominance in the salary survey data. Page 4 indicates the various employment sectors of the five employment sectors in the state of Nevada. The private sector represented 53% of all Nevada employers surveyed. Nevada employers surveyed represented 12% of the entire labor force employing approximately 83,000 employees. Ms. Willis called attention to the results of the Wage and Salary Survey. The state of Nevada salaries in relation to the total market surveyed lagged by 2.64% as of July 1994. When compared to western state government, the state of Nevada exceeded the market by 1.1%. When compared to the public sector in Nevada, the state of Nevada lagged the market by 22.2%. In comparison to the private sector, which were primarily lower level jobs, the state of Nevada lagged the market by 5.5%. The state of Nevada lagged 13.5% when compared to all Nevada employers, which can be broken down to 20.6% in southern Nevada and 9.8% in northern Nevada. There was a continuous erosion between 1990 and 1994. The state of Nevada lagged the market by 6.7% in 1990, in 1992 it was 11.5%, and most recently by 13.5%. Ms. Tiffany inquired if the survey took into consideration management versus midrange and below. She pointed out it was her experience that private sector loses people to government at the low end of the pay scale whereas management levels in government did not seem to be well compensated. Ms. Willis agreed and pointed out there was an analysis at the end of the report which illustrated precisely what Ms. Tiffany had brought up. Ms. Tiffany wanted to know who was considered in the lump-sum figures. Ms. Willis responded comparable jobs and minimum and maximum salaries were considered. The midpoint of employers surveyed was compared to the state's comparable job and the midrange, or step 8, of the pay grade. Ms. Willis pointed out 45 benchmark classes were selected and were representative of all occupations in state government as listed on page 24 of Exhibit 0. Jobs of the various grade levels are listed on page 25 of Exhibit 0. In addition to the benchmark classes used to assess Nevada's overall standing in the marketplace, included in the survey are occupational study classes and special survey classes. Chairman Arberry inquired if fringe benefits were included in the survey. Ms. Willis stated fringe benefits were not surveyed but comprehensive information regarding fringe benefits could be provided to the committee. Ms. Giunchigliani asked if management surveys were performed. Ms. Willis indicated the charge was for classified service, but some unclassified salary survey information was available. Ms. Giunchigliani inquired if there were plans to shorten the steps in grade levels in order to build money up faster. Mr. Hauck noted state government had a minimum range spread of approximately 31% at the lower grade levels and approximately 38% to 40% at the higher grade levels. It was typical in private sector to have a range spread approximating 20% to 70% at the higher levels. Private sector viewed higher level jobs as taking longer to learn and they want to provide a broader range of flexibility to reward performance within a range. Ms. Giunchigliani questioned whether gender pay equity had been resolved. Ms. Willis commented the average annual salaries for men and women were calculated. The classification structure was such that equal pay for equal work was provided. Mr. Allard inquired if the results of the survey suggest Nevada is overpaying employees by 1.1% compared to government in western states. Ms. Willis stated Nevada was 1.1% ahead of other western state governments, but Nevada was not competing with other states for employees. Nevada was competing with other employers in Nevada, and Nevada was lagging behind other employers, i.e., southern Nevada by 20.6% and 13.5% for the entire state in both public and private sector. Ms. Willis noted information was provided on overall adjustments for cities and counties, which seemed to be driving many of the problems experienced by the state. A chart on page 9 of the Wage and Salary Survey (Exhibit O) depicted a 5-year history of city and county government pay increases. The average salary increase for cities and counties was 17.5% compared to 9% for state government. Listed on page 10 of Exhibit O were school districts, which show an average salary increase of 12.1% compared to state government at 9%. Page 6 of Exhibit N indicates city and county governments have received a 41.1% increase in salaries over the prior 10 years compared to 40% for state government. Mr. Dini inquired if there were specific areas of job classifications where a large disparity in salary existed, i.e., law enforcement versus the Highway Patrol. Ms. Willis noted all salary survey data combined was listed on page 13 of Exhibit O. Comparing the midpoint salary, Nevada lagged the total market by 15.29% for troopers. Chairman Arberry asked if Ms. Willis would like to make closing remarks to the committee. Ms. Willis pointed out the linear regression analysis as represented on page 12 of Exhibit O demonstrated a line of best fit, red representing the salary of the surveyed class in the marketplace, blue representing the salary paid by the state for the job class. The chart demonstrated the lower end salaries of grade 25 and below were exceeding the market, salaries were trailing the market as salaries increased, and the discrepancy increased as salaries increased. Chairman Arberry requested Ms. Willis to address State Unemployment Compensation. STATE UNEMPLOYMENT COMPENSATION - PAGE 663 Ms. Willis introduced Judy Holt, Chief, Administrative Services Division, Department of Personnel, and explained the purpose of the State Unemployment Compensation fund was to provide protection for employees served by the central payroll system. Revenue was generated by a percentage assessment on gross salaries and was budgeted at 0.13% in FY 1996 and 0.14% in FY 1997. Claims expense was anticipated to be approximately $634,000 each year of the biennium. Mr. Close pointed out the Executive Budget reflects expenses at $750,000 for FY 1995-96 and $688,768 for FY 1996-97. Ms. Holt stated the division carried forward more than had been anticipated, which would be reduced by the end of 1997. Mr. Close inquired if the anticipated expense was $688,768, why was $750,000 budgeted for the account. Ms. Holt indicated the anticipated amount for assessments was $463,782 and the remainder was the balance forward. Chairman Arberry inquired about the $10,000 reserve. Ms. Holt explained the division was working toward a one-quarter balance in reserve. What was not reflected in the budget from 1995 to 1996 was a small balance forward. It was anticipated $160,000 would be held in reserve in the event claims expenses increased. Chairman Arberry requested adjusted numbers for the budget. Ms. Holt stated the numbers should not be adjusted at this point. Mr. Stevens indicated if the balance forward was going to be higher from 1995 to 1996, the new figure could be built into the budget. James W. Manning, Budget Analyst, Budget Division, Department of Administration, noted it was expected there would be $150,000 at the end of 1995, but he did not feel it was proper to reflect that amount in FY 1995 because the amount in the account was budgeted to be carried forward. For display purposes $150,000 could be carried forward in FY 1995 through FY 1996 and FY 1997, resulting in a $160,000 balance forward. Bob Gagnier, Executive Director, State of Nevada Employees Association (SNEA), noted the Wage and Salary Survey (Exhibit O) indicated ten western states were surveyed, which was not an accurate statement because not all states responded to the survey, including the number one state of California. Nevada had more in common with the state of California than the state of Wyoming, and California chose not to participate in the survey. Mr. Gagnier felt it was more important to consider in- state salaries. The United States Department of Labor reports that almost all state salaries are higher on the average than local governments in the same state, which is not true in Nevada. The number one reason for the lag of salaries in Nevada was the lack of collective bargaining. Every two years SNEA conducts a small survey (Exhibit P) comparing ten broad classifications within key local governments in Nevada. Each category reflects that state government pays considerably less than comparable positions in local government. A correctional sergeant in state government makes $6.72 less than the average salary for a comparable position in the counties of Las Vegas and Washoe, which represents 26% less at the midpoint salary range. Mr. Gagnier noted the Wage and Salary Survey reflects a state government program assistant II lagged 16%, academic teacher lagged 26.5%, librarian lagged 18.5%, grounds maintenance worker lagged 10%, principal psychologist lagged 12%, ESD office manager II lagged 10.5%, and disability adjudicator lagged 15%. He requested the committee members to keep in mind that California was not included in the survey. In response to Ms. Giunchigliani's question regarding gender pay, Mr. Gagnier stated the average state salary for men was $31,700 and the average state salary for women was $27,700. Twenty years prior the separation was 24%; today the separation is 13%. Most of the gains were made in the late 1970's and the 1980's, but now the progress has stopped. HIGHWAY FUND SALARY ADJUSTMENTS - PAGE 469 John P. Comeaux, Director, Department of Administration, explained the Highway Fund Salary Adjustments budget represented the amounts necessary to fund the Governor's recommended salary increase for positions funded from the highway fund. The increases recommended were 4% effective July 1, 1995, and an additional 3% effective July 1, 1996. The amounts required were recalculated, and it was discovered the original Governor recommended amounts were overstated. The corrected amount for FY 1996 is $3,926,131 and for FY 1997 is $7,066,876. A corrected worksheet was provided to the Legislative Counsel Bureau fiscal staff. GENERAL FUND SALARY ADJUSTMENTS - PAGE 471 Mr. Comeaux explained the General Fund Salary Adjustments budget represented the amounts necessary to fund the Governor's recommended salary increases of 4% effective July 1, 1995 and an additional 3% effective July 1, 1996 for positions funded from the general fund. On March 17, 1995, the detailed calculations of these amounts were forwarded to the Legislative Counsel Bureau, Fiscal Analysis Division, which indicated the original Governor recommended amounts were understated by approximately $2,778,000 for the biennium. The corrected amounts were $18,939,410 the first year of the biennium and $34,750,575 for the second year of the biennium. Also included in the March 17, 1995, submission were recommended adjustments to two other general fund budgets, both of which were reductions offsetting the recommended increase. Ms. Giunchigliani inquired what happens to employees who were not paid from the general fund. Mr. Comeaux replied other employee increases would need to be funded by either fees generated to support their position or grants. Ms. Giunchigliani asked if fee increases could be the result of increased salaries. Mr. Comeaux stated that was correct and added it appeared most of the fee-funded agencies had sufficient reserves to cover the recommended salary increases. Ms. Giunchigliani inquired why there was a differentiation in the way employees were paid. Mr. Comeaux indicated that was the way it had always been done, and it made sense because if a board or commission was 100% fee funded, it would not make much sense to appropriate from the general fund to cover salary increases. Ms. Giunchigliani requested a list of agencies whose employees were not covered by the general fund for salaries. Mr. Comeaux commented the way the Department of Administration and the Legislative Counsel Bureau calculated the amount of salaries to be paid from the general fund was to go through the various budgets and determine which ones were supported in whole or in part by the general fund. There were a number of budgets partially supported by the general fund and partially supported by grant funds or fees. Ms. Giunchigliani asked if those employees would be counted in the raise. Mr. Comeaux explained if a budget was 30% funded from the general fund, 30% of the amount required for the pay raise would be provided by the general fund. STATE EMPLOYEES WORKERS' COMPENSATION - PAGE 487 David R. Thomas, Risk Manager, Risk Management Division, pointed out revised work program numbers for fiscal years 1995, 1996 and 1997 were submitted to fiscal staff (Exhibit Q). In FY 1995 revisions were made in the SIIS premium expenditure account and the reserve account. Until the year 1995 State Employees Workers' Compensation worked under the guaranteed cost rating plan with the State Industrial Insurance System (SIIS). The plan was changed to a retrospective rating, which resulted in a significant premium savings of between $3 million and $4 million. The SIIS premium account needed to reflect the change to $10.5 million from $14 million. As a result of the changes made by S.B. 316 (1993 legislative session) and the aggressive implementation of a safety and loss control program, it was anticipated a refund from SIIS would amount to approximately $3 million. The revised budget summary (Exhibit Q) reflects a balance forward of $7.8 million, agency transfers of $3 million, and the premium to be charged to agencies as revenue into the fund of $6.1 million. The current rate charged to all agencies in the central payroll account is $4.65 per $100 of payroll. The revenue requirement will reduce the rate to $1.69 per $100 of payroll. The proposal for the budget over the biennium was to return the reduction in the SIIS premium to the agencies by reducing their premiums. Chairman Arberry inquired what the general fund savings would be. Mr. Thomas responded he would provide the information. Ms. Giunchigliani remarked it was inappropriate to return premiums to agencies who had a higher level of safety problems versus those agencies which reduced their safety problems and it was inappropriate to charge a flat rate without regard to their accident ratio. She asked if it was the legislature's obligation to request a revision on how agencies were charged for workers' compensation or was that something that would come from the Department of Administration. Mr. Thomas voiced his agreement with Ms. Giunchigliani. It was proposed to undertake a cost allocation plan in 1995, but some agencies like prisons would take a tremendous hit in the range of $9 per $100 of payroll. The decision was made to keep a flat rate presently but to work towards a cost allocation plan for the next biennium. Ms. Giunchigliani requested the committee to review the policy issue before rebating the $3 million. Mr. Thomas remarked a draft report had been completed for the Governor regarding safety and early work return program progress by each department and offered to provide a copy to the committee when it is completed. The report will reflect which departments and divisions are responding well to safety efforts. Mr. Hettrick compared the reserve budgets in the Executive Budget and the revised budget (Exhibit Q) and asked if the reserve could be reduced for 1995 and 1996 as a result of the savings. Mr. Thomas replied it was proposed to reduce the reserve over the biennium. The payment to SIIS was a known figure. The figures for 1996 and 1997 were projected out as a result of the 1995 5% increases. He stated the question was whether or not to reduce further the charges to the departments. Mr. Comeaux pointed out what created the situation was using a uniform rate in each year of the biennium. To accomplish what was suggested would be to drop the rate dramatically in the first year and increase the rate considerably in the second year to pay the premium and attain the $1.5 million reserve at the end of the second year. Mr. Hettrick suggested not changing the premium rate but increasing the refund. Mr. Comeaux pointed out refunds were not actually being made. The rate for 1995 was $4.65 and the rate for the two years of the biennium would be approximately $1.69. The refund would be made by charging a much lower rate, which would result in spending down the reserve. The premium collected will be used and the reserve will be spent down to make up the difference for each year of the biennium. Mr. Hettrick noted the Executive Budget reflects the reserve continues at $3.75 million for the term of the budget. It appeared $2 million was being kept for two years which might help somewhere else in the budget. Ms. Giunchigliani suggested before reducing premiums to $1.69 across the board, some agencies with safety problems could be kept at a higher rate to differentiate them from those who have made an effort to reduce their losses. DEFERRED COMPENSATION - PAGE 665 Mr. Thomas, Chairman, Deferred Compensation Committee, explained the budget supported the operations of the State of Nevada Deferred Compensation Committee. He pointed out NRS 287.370 required that no state appropriated funds be utilized to support the program. All resources came from an assessment to the participants of the plan. The committee was requesting through decision unit E-150 the addition of a half-time management assistant II position. There was no staff supporting the program at the present time. He provided the most recent monthly investment summary (Exhibit R) reflecting the fund amount, the various investment funds, and the interest rates paid on the guaranteed fund. There were in excess of 5,000 people involved in the plan. Some of the tasks required by the committee include processing an average of 4 to 6 requests for emergency hardship withdrawals per month, scheduling meetings, taking minutes of meetings, and preparing minutes, which were being handled by the staff of the chairman of the committee in circumvention of state law. The addition of the requested position would require an increase in the assessment to participants from $2 per year to $3.50 per year. Chairman Arberry inquired where the $2 administrative charge was recorded. Mr. Thomas stated the assessment fee was collected annually by ITT Hartford, which was deposited in the Deferred Compensation bank account at Bank of America. Funds were drawn from the bank account to deposit with the Nevada State Treasurer into the Deferred Compensation fund to pay expenses as they arose. The account has approximately $28,000 presently. Mr. Close asked if Hartford invested the $2 assessment fee. Mr. Thomas responded the $2 was an administrative charge to each participant to support expenditures associated with the program. Invested funds were collected by Hartford and invested as directed by the participants. Mr. Close inquired if Hartford was selected through a bid process, and Mr. Thomas replied yes. Mr. Close asked how often bids were solicited. Mr. Thomas stated since his involvement, bids had been solicited once approximately 1« years prior. Hartford had been the sole provider for a number of years. Mr. Close requested a comparison of the growth of the Hartford portfolio to that of the portfolio of the state. Mr. Thomas stated he did not know the growth of the state portfolio, but the guaranteed account was earning 7.2%. Ms. Giunchigliani asked what Deferred Compensation was. Mr. Thomas stated it was a voluntary plan provided through Section 457 of the Internal Revenue Service code that allows an employer to let employees use pre-tax dollars for investment purposes with no employer contribution to be withdrawn on retirement or in an emergency financial hardship. The committee's primary responsibility was to rule on the emergency financial hardship cases. Ms. Giunchigliani inquired how much of the management fee was retained by Hartford. Mr. Thomas explained the $2 assessment did not include fees from Hartford. Up to one year ago the Hartford fee included a significant deferred sales charge of $10 per year per participant plus their management fee. Negotiations with Hartford resulted in the elimination of the deferred sales charge, the $10 annual assessment, and left only the management fee, which varies by the investment fund from 0.75% to 1.25%. Ms. Giunchigliani asked if the members of the committee were agency people who were appointed by the Governor. Mr. Thomas replied yes and stated all members were participants of the plan except one member. Ms. Giunchigliani stated the members should be participants of the plan. Mr. Thomas remarked the Governor made the appointments. Chairman Arberry asked if any participants who requested a refund had been denied. Mr. Thomas stated that happened frequently. He explained the committee understood their fiduciary responsibility to the participants, but the deferred compensation plan was not a savings account. There were significant penalties from the Internal Revenue Service (IRS) should a participant remove his or her investment. If the committee allowed frivolous withdrawal of funds, the Internal Revenue Service treatment of the plan would be jeopardized. According to the IRS, the funds belonged to the state until distributed to the employee. ASSEMBLY BILL 391 Makes supplemental appropriation to division of child and family services of department of human resources for increase in cost of utilities at Caliente youth center. Mark Stevens, Fiscal Analyst, Legislative Counsel Bureau, explained A.B. 391 was a supplemental appropriation in the amount of $76,047 to the Division of Child and Family Service Caliente Youth Center for utility costs. There were questions posed at the last hearing regarding the large increase between fiscal years 1994 and 1995 and that the division was budgeted for less each year of the biennium than FY 1995 if the supplemental appropriation was passed. A meeting of fiscal staff and division staff resulted in a letter from the Division of Child and Family Services indicating the amount could be reduced by $5,564, which would make the appropriation $70,483. The utility costs were not included in the Executive Budget and would be a general fund add. Ms. Giunchigliani inquired if an amount would be built into the budget in the second year of the biennium. Mr. Stevens indicated each year of the biennium would need to be adjusted. * * * * * MS. GIUNCHIGLIANI MOVED TO AMEND AND DO PASS A.B. 391. MR. MARVEL SECONDED THE MOTION. * * * * * Mr. Close expressed concern regarding whether or not the problem could be rectified. He requested the propane problem be analyzed to find ways to reduce the cost. Mr. Stevens stated that could be done for the upcoming biennium. Mrs. Evans inquired if this process had occurred two years prior. Mr. Stevens stated there had been supplemental appropriations in the past at the Caliente Youth Center. Mrs. Evans commented she would like to see the utility costs come through as a part of the budget or as a supplemental appropriation rather than a general fund add. Mr. Stevens remarked a letter of intent had been sent two years prior regarding a potential problem with the utilities and directed the division to approach the Interim Finance Committee or the legislature if there was a problem. During the next biennium most of the expense is built into the base budget. There will not be a $70,000 add in each year of the biennium. The amount would be approximately $4,000 to $7,000 per year. Chairman Arberry called for a vote on the motion. * * * * * THE MOTION PASSED BY VOICE VOTE WITH MRS. EVANS VOTING NO. * * * * * ASSEMBLY BILL 325 Makes supplemental appropriation to department of prisons for unexpected increase in incarcerated offenders. Gary Ghiggeri, Deputy Fiscal Analyst, explained A.B. 325 was not included in the Executive Budget. The bill was brought about as a result of the increase in the prison population. The original request was $1,319,656. This legislation would provide for the addition of 44 beds in unit 7 and 144 beds in units 1 through 3 at the Northern Nevada Correctional Center. There had been discussion of converting the Jean Camp from a female to a male facility, and that will not occur. Ms. Giunchigliani stated she did not support the additional expansion of the Lovelock prison but inquired if consideration had been given to locating beds in the section of the prison allocated to prison industries. Mr. Ghiggeri said he did not believe that had been reviewed. It was estimated to cost $600,000 to $800,000 to finish the building for prison industries and to finish it to house inmates would probably be significantly more expensive than that. Ms. Giunchigliani requested consideration be given to locating beds in the prison industry shop. * * * * * MR. MARVEL MOVED TO AMEND AND DO PASS A.B. 325. MR. FETTIC SECONDED THE MOTION. MOTION CARRIED UNANIMOUSLY BY VOICE VOTE. * * * * * There being no further business, Chairman Arberry adjourned the hearing at 10:57 a.m. RESPECTFULLY SUBMITTED: Jonnie Sue Hansen, Committee Secretary Assembly Committee on Ways and Means April 5, 1995 Page