MINUTES OF THE JOINT SUBCOMMITTEE MEETING OF SENATE COMMITTEE ON FINANCE AND ASSEMBLY COMMITTEE ON WAYS AND MEANS Sixty-eighth Session April 20, 1995 The joint subcommittee meeting on Higher Education/C.I.P. of the Senate Committee on Finance and the Assembly Committee on Ways and Means was called to order by Chairman William J. Raggio, at 8:00 a.m., on Thursday, April 20, 1995, in Room 321 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. SENATE COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Bob Coffin ASSEMBLY COMMITTEE MEMBERS PRESENT: Mr. Morse Arberry, Jr., Chairman Mr. John W. Marvel, Chairman Mrs. Vonne Chowning Mr. Joseph E. Dini, Jr. Mr. Thomas W. Fettic Mr. Lynn Hettrick SENATE COMMITTEE MEMBERS ABSENT: Senator Raymond D. Rawson (Excused) Senator Dean A. Rhoads (Excused) STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Mark Stevens, Fiscal Analyst Marion Entrekin, Committee Secretary OTHERS PRESENT: Colonel Miles Celio, Nevada National Guard, Office of the Military Richard Jarvis, Ph.D., Chancellor of Finance, University and Community College System of Nevada Tom Anderes, Vice-Chancellor for Finance and Administration, University and Community College System of Nevada Robert Daugherty, M.D., Dean, School of Medicine, University of Nevada, Reno Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration Joseph Crowley, Ph.D., President, University of Nevada, Reno Ashok Dhingra, Vice President of Finance, University of Nevada, Reno John Richardson, Ph.D., Vice-Chancellor for Academic Affairs, University and Community College System of Nevada Anthony Calabro, Ph.D., President, Western Nevada Community College Ronald Remington, Ph.D., President, Northern Nevada Community College James V. Taranik, Ph.D., President, Desert Research Institute Richard Moore, Ph.D., President, Community College of Southern Nevada Rita Gubanich, Ph.D., Interim President, Truckee Meadows Community College Military - Page 2031 Southern Nevada Armory - CIP Project 95-C8 - Page A-67 Washoe Armory - CIP Project 95-C9 - Page A-67 Senator Raggio reported on April 19, 1995, the Senate Committee on Finance received information from the Office of the Military with respect to expediting matching funds from the state for construction of armories in Clark and Washoe counties. For the edification of the joint subcommittee, Senator Raggio invited representatives from the Office of the Military to brief the subcommittee regarding the need for the expeditious processing of the projects. He said the Senate Committee on Finance authorized a bill draft that will excise the (two) projects from the overall Capital Improvement Project (CIP) list, and commit the funds at an earlier date. Colonel Miles Celio, Nevada National Guard, Office of the Military, referenced Exhibit C, a memorandum dated April 13, 1995, from the Office of the Military, and spoke about the issue of expediting the verification of state matching funds for armories. Although the funding for military construction projects is a 5-year appropriation, Colonel Celio said the Clark County armory complex project is a congressional add-on granted in Fiscal Year (FY) 1993 - 1994, and the authorization is only a 3-year appropriation. He pointed out if a particular state is unable to contractually obligate the funding within the 3-year time frame, other states that have projects ready to award can still benefit from the appropriation, and Nevada's 3-year contract will expire on September 30, 1995. Since all unexecuted congressional add-on projects are at risk of being rescinded, Colonel Celio said the sooner the state can grant the Nevada National Guard state matching funds, the lesser the risk the state will lose the project. Colonel Celio reported although the design and construction for the Washoe County armory is 100 percent federally funded, the Office of the Military is anticipating a delay in getting the construction contract awarded. Therefore, the Washoe County armory project is at risk of being rescinded by congressional action requiring immediate verification of state support, Colonel Celio said. Senator Raggio stated the aforementioned testimony is for information purposes only for the benefit of the joint subcommittee, and no action will be taken at this time on the Office of the Military's CIP project requests for armory construction. At the request of the University and Community College System of Nevada (UCCSN), the review and consideration of some issues developed at previous meetings termed "technical adjustments" will be discussed at today's hearing, Senator Raggio said. University of Nevada System Administration - Page 283 Richard Jarvis, Ph.D., Chancellor of Finance, UCCSN, distributed Exhibit D, a summary sheet and overview of the UCCSN's priority technical adjustment requests, and reported permission was received from the Board of Regents to increase the registration fees the UCCSN will be raising in the next biennium. Dr. Jarvis reassured the joint subcommittee the fee increase was done with the recognition the Governor's Executive Budget made significant advances in critical areas of need for the UCCSN, while leaving the UCCSN with areas that can be addressed by student funds. Dr. Jarvis said the increases generated during the current biennium will be earmarked specifically for equipment and support services, and for the areas of the budget that are not covered in the Governor's Executive Budget. He stated plans are in the process of development on each campus in consultation with students. In order to persuade the students to participate in the exercise, Dr. Jarvis said the administration made it clear to them their voice regarding priorities for equipment for support services will be carefully considered. Dr. Jarvis pointed out the funds are not subject to the deduction for student access funds as was the fee increase in the last biennium. Therefore, the entire funding raised through the increase will be used for the unmet needs in the request for equipment and support services. While dealing with the students, Dr. Jarvis said it is important to stress the acquired funds will not be a substitute for funding already recommended in the budget. Referring to page 1 of Exhibit D, Dr. Jarvis commented on the UCCSN's requests for consideration, Items 1 - 4. Senator Raggio asked if the long-term plan of the administration, including the Board of Regents, is for student fees for credit hours to remain consistent on each campus. He indicated he would not want to see students at the University of Nevada, Las Vegas (UNLV) pay a different fee per credit hour than those attending the University of Nevada, Reno (UNR) or similarly with the community colleges, and asked for an expression from the UCCSN regarding the issue. Dr. Jarvis responded it is definitely the policy of the UCCSN that the two universities will retain constant fees between them, and the four community colleges will also retain a constant fee structure. Senator Raggio understands student fees are allocated in a different fashion by the universities and community colleges, but stressed the subcommittee does not want fees to become different at the similar institutions which might lead to a request for additional funding. He said, "We do not want the whipsaw approach. That is an internal decision we have allowed the campuses to address." Referring to page 1 of Exhibit D regarding the registration fee increase, Mr. Arberry noted a fee of $3 per credit hour in school-year 1995 - 1996 will generate $3.1 million. He asked if there is a history of a downturn in student enrollment that occurred after a fee increase. He also asked how the $3.1 million was calculated. He pointed out if there is a downturn in enrollments, this might significantly reduce the amount of anticipated revenue. Dr. Jarvis replied although there is often an initial reaction after a fee increase, the UCCSN feels the increases are modest and should not be an unreasonable burden on the students. He stated the additional demand for places on the campuses will more than make up for any loss of potential enrollment. He stated the administration is attempting to judge the growing demand of student growth from high school graduates, returning students, and new immigrants to the state versus the impact of increased fees. Dr. Jarvis conjectured the demand will be enough to maintain the enrollments. In response to the second part of Mr. Arberry's question, Dr. Jarvis said the administration determined additional funding would be needed in the area of equipment and support services, and arrived at a fee increase of $3 per credit hour to generate $3.1 million in school year 1995 - 1996, and $6.3 million in student year 1996 - 1997, which the UCCSN believes are amounts sufficient to begin moving tuition and fees in a reasonable direction to maintain costs. Mr. Arberry asked if the revenue derived from the increased registration fees will be ongoing, and Dr. Jarvis replied it will be. Senator Coffin asked if revenue from increased fees will revert back to the campus of origin. He qualified it is understood a portion of the revenue will be used system wide. Tom Anderes, Vice-Chancellor for Finance and Administration, UCCSN, replied the revenue generated from the registration fee increase will be used on the campus of origin. He stated each campus will develop a report, to be monitored by the administration, reflecting how the revenue is used. School of Medical Sciences - Page 305 Robert Daugherty, M.D., Dean, School of Medicine, UNR, stated there are two issues he would like to bring to the attention of the joint subcommittee which are listed on page 2 of Exhibit D. He referred specifically to a reduction of $224,416 in each year of the biennium for budget item School of Medicine Residents, and $134,622 in each year of the biennium for budget item School of Medicine Salary Savings. Dr. Daugherty said during Fiscal Year 1994 - 1995 the code used to record the costs associated with stipends for the School of Medicine Residents was changed from the graduate-assistant code to a professional-salary code in order to accommodate a change in the residents' retirement benefits. In so doing, the actual expenditure report for Fiscal Year 1994 - 1995 reflected the total cost of the residents' stipends split between the graduate-assistant and professional-salary object codes. Dr. Daugherty said the budget for Fiscal Year 1994 - 1995 was established with 100 percent of the medical resident stipends in the graduate assistants' category. Therefore, when the actual expenditures that are split between the two codes are compared to the budget, it appears the School of Medicine did not spend the funds that were allocated for the residents. Because of this, the Governor's recommendation for the residents' stipend was short by $224,416, the approximate cost for five residents. Dr. Daugherty stated this shortage places the School of Medicine in dire circumstances because the school has residents that are currently in a 3-year training program, and once a commitment is made, the program must be completed. Don Hataway, Chief Assistant Budget Administrator, Budget Division, Department of Administration, believes the graduate-assistant and professional-salary categories should operate in tandem, and if the graduate-assistant category is to be increased, the professional-salary category should be reduced by a like amount. He stated this information was relayed by memorandum on February 17, 1995, to Mr. Mark Stevens, Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau. Senator Raggio asked the amount of the actual increase over the budget for the biennium with reference to professional-salary. Mr. Hataway responded it is approximately 7 percent in the first year, and 2 percent in the second year of the biennium. Senator Raggio asked Mr. Hataway to indicate the actual amount of professional-salary that was utilized during the current biennium. Mr. Hataway responded since personnel for the UCCSN is not reflected in the state's system, the Budget Division used information provided by the administration that of the approximately $500,000 spent for professional salaries, approximately $200,000 was used for graduate assistants. Mr. Hataway said he would have no problem adjusting the graduate-assistant category to the level recommended by the School of Medicine, but the professional salary funds should be reduced by the same amount. Mark Stevens, Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, echoed Mr. Hataway's comments. He stated if both the professional position line item and resident salary line item are viewed together, additional funding is provided in the Governor's Executive Budget. Senator Raggio advised Dr. Daugherty the issue must be viewed in that manner. He inquired, "Was all of the funding allocated for professional salaries used for professional salaries, or was some of it used for other operating expenses?" Mr. Anderes replied the UCCSN can provide the components of what the change was for the 1993 - 1994 Base Budget through the 1995 - 1996 Base Budget and identify where there were changes involving reductions. He suggested a meeting with Mr. Hataway and Mr. Stevens to "iron out" the details so that a report can be furnished to the joint subcommittee. Senator Raggio agreed the meeting should be held, and the resulting information provided, to the subcommittee by April 24, 1995. Dr. Daugherty repeated the school's budget is short by approximately $224,000, and to compensate for this, residents would have to be laid off. Senator Raggio stated it is not the intent of the Legislature to create problems for the School of Medicine, but before a funding decision can be made the subcommittee will require additional information as requested. Continuing his discussion, Dr. Daugherty stated the other issue is a salary-savings assessment issue. He said in the last biennium the school budgeted professional and classified salaries on a net basis rather than on a gross basis, and did not use a salary savings reserve. Instead of budgeting salaries on a gross basis and drawing to the appropriate level with a negative reserve, the School of Medicine reduced its faculty and classified full-time equivalency (FTE) funded from state funds to compensate for the salary savings assessment. Dr. Daugherty indicated the problem with the netting approach is that when the salaries are rolled forward into the next biennium they already contain a salary savings assessment, and when another salary savings adjustment is assessed, the salaries are reduced a second time. A "second hit" of 1 percent on the salary savings reserve is the result, Dr. Daugherty stated, and the agency request is for restoration of the 1 percent to the school's base budget which amounts to approximately $134,622. He asked for the subcommittee's consideration to restore the $134,622. Mr. Hataway stated the UCCSN has a comprehensive listing of all of the salaries for all positions in their budget, and the salaries listed for the School of Medicine are the salaries that are paid to those individuals from the dean on down. He said he does not understand Dr. Daugherty's explanation regarding "net versus gross," but all of the salaries are budgeted in the Governor's Executive Budget. Mr. Hataway said he does not understand the "second hit" because all of the salaries for all of the positions in the School of Medicine are the salaries that are paid to the faculty which is reflected in the Executive Budget. He explained the Budget Division merely applies a vacancy factor, as was done in the current biennium, to the School of Medicine budget. Mr. Anderes stated the salaries should have been built at the gross level instead of the net level like all of the other activities, and that is part of the confusion. Senator Raggio requested the issue of the school's salary savings reserve be added to the list of information requiring clarification for the subcommittee through discussion with Mr. Hataway and Mr. Stevens. Referring to priority item 1, Internal/External Audit, reflected on page 3 of Exhibit D, Dr. Jarvis explained this is a request for additional funding and is not a technical adjustment and should not have been listed as a priority add back. Mr. Anderes called attention to item 1, Instruction Formula, and item 2, Retirement Increase, as shown on page 2 of Exhibit D. He stated these two items are the same and are areas where too much revenue was placed in the budget and the amounts requested should be reduced. Mr. Anderes said the UCCSN recognized the over- funded areas should be addressed as well as areas requiring additional funding. Continuing, Mr. Anderes said item 3, Group Insurance, is a statewide issue involving group insurance increases. The actual per capita increase was not included in the higher education budget, and the administration feels very strongly the UCCSN should be treated the same as other state agencies. The amount reflected for this item (Exhibit D) is the amount the administration determined will meet their needs. Mr. Hataway still takes the position the UCCSN will be impacted, but the Budget Division's records indicate they have not spent all of the fringe benefit allocations that have been approved, even after taking into consideration the fringe benefit vacancy savings built into the budget of approximately $587,000 for Fiscal Year 1995 - 1996. Mr. Hataway said an appropriate compromise might be to remove the vacancy savings for fringe benefits and not approve the group insurance rate. Senator Raggio noted there has historically been sufficient fringe benefit funds to compensate for the cost of an increase for group insurance, but suggested this is another item the fiscal analysis staff will need to discuss with the budget office. Without making an actual commitment, since the joint subcommittee will have to make their own determination, he opined some adjustment may be made to prevent underfunding. Referring to item 4, Occupational Studies, Mr. Anderes said through a statewide study there have been identifications of funding related to various jobs for increases that have not been included in the administration's budget. Senator Raggio reminded the staff this is probably an issue that should be included, and Mr. Stevens agreed a technical adjustment will probably be recommended if funding is available. He said funding is provided for occupational studies in all agency budgets, but was omitted from the university budget. Mr. Hataway agreed with Mr. Stevens, but said the budget office has not routinely budgeted for occupational studies. He stated in 1989, the Legislature did appropriate funding to the university budget for clerical occupational studies, but during the 1991 and 1993 sessions, no additional funding was granted. Senator Raggio stated he believes some consistency should be established, and Mr. Hataway responded the Budget Division did attempt to be consistent because they have never recommended funding be appropriated for occupational studies. Mr. Anderes indicated item 5, System Computing Operating, reflected in Exhibit D refers to operating support for a lease purchase for computer equipment located at the central office. The revenue for this equipment was reflected in the Equipment category and later eliminated with the belief the amount would be replenished in the form of a one-shot appropriation. He stated the administration believes the lease purchase for equipment such as large mainframes must extend beyond, and not be conditioned to, a 2-year period. Mr. Anderes believes the UCCSN's request for $360,879 for each year of the biennium is a valid add back in terms of a continuing operating expense. Mr. Hataway said if the Budget Division would have known the amount requested was for an ongoing lease purchase for equipment, the required amount would have been included in the budget. Mr. Stevens remarked if a lease purchase agreement is involved as stated by the university system, that would be an ongoing operational cost and should be included in the budget. Mr. Hettrick asked if the amount requested will come out of a one-shot appropriation, and Mr. Anderes answered no. He explained the administration would never have budgeted the request for the computer equipment as part of a one-shot appropriation since they view the amount as a necessity to go back into the operating base budget. He added, "We have to continue support of the mainframe so it would come from somewhere, which would be the one-shot....We have a lot of other plans for those dollars we do not think should be focused on a continuing expense." Mr. Anderes referred the subcommittee to the items "UNLV Instruc. - Operating", and "Community College of Southern Nevada Instruct. - Operating," both identified as item 6 of Exhibit D. He testified: The items relate to reductions that from our perspective were doubling of reductions. In these cases it relates to equipment where it is our understanding there was an institutional...like at UNLV....reduction of $522,152 that was taken out of the institutional budget and then, at a later point when there was more information made available, those same dollars were then reduced from each of the functional budgets within UNLV. As opposed to eliminating the overall institutional reduction, they both carried on together at both UNLV and the CCSN. Mr. Hataway said he is not convinced an error was made by the budget office, but stated he would discuss the issues with Mr. Stevens. Mr. Stevens said the university has provided him with information outlining the issues, but he has not yet had a chance to review it. Senator Raggio asked that the categories be added to the list requiring clarification for the subcommittee through discussion with Mr. Hataway and Mr. Stevens. Mr. Anderes stated item 7, CCSN Utilities - New Buildings, refers to a timing issue. He stated the Governor's recommendation reflected a point in time when two buildings would be coming on-line. The administration's request for $300,000 in the first year of the biennium and $250,000 for the second year of the biennium will be used for utilities that will be needed in the buildings that will be coming on-line in August or September, 1995. Mr. Hataway stated the Budget Division based their projections on a certain starting date, and the university system is now stating that date has been accelerated. Senator Raggio suggested the funding for utilities for the new buildings at CCSN should be added to the list for discussion by the budget office and staff. Also, confusion was noted regarding the scheduled opening dates of the buildings, and he asked that the projected opening dates be secured. University of Nevada - Reno - Page 299 Senator Raggio asked for discussion pertaining to item 8, UNR Operation and Maintenance (O & M) Reimbursements, on page 2 of Exhibit D, requesting $272,082 in the first year of the biennium and $314,879 in the second year of the biennium. Joseph Crowley, Ph.D., President, UNR, stated this is a request to restore UNR to a standard practice whereby the total costs for O & M are budgeted in the instructional budget for UNR and a revenue stream is directed to the other budget areas such as the medical school, cooperative extension office, university press and agricultural extension office. He explained the funding to provide the revenue was not placed in the other budgets leaving UNR with a $600,000 O & M shortfall. Senator Raggio pointed out the budget is funding 20 percent for support services for UNR, which is the difference between what is currently funded and the amount that was requested for full funding. He said there is an additional amount appropriated of $679,741, and asked why this additional amount is not sufficient to meet their request. Dr. Crowley said there has always been increased revenue made available for the cost of O & M, and there has always been a line in the budget for furnishing those services to the other budget areas. Senator Raggio repeated the $679,741 is additional revenue available to be used towards full funding in order to compensate for their shortfall. Dr. Crowley disagreed. He stated there is an actual $600,000 shortfall. He said, "It is a matter of giving with one hand and taking away with the other. If we are going to be asked to do business differently, we will not be able to service the other areas." He pointed out whenever UNR had increases in support formula funding in the past for O & M, they still received the reimbursement lines for the other budgets mentioned. Dr. Crowley articulated even with the additional ($679,741) funding appropriated, the requested revenue is necessary and will be used for O & M. Mr. Anderes commented the increase in the formula would be to support the formula- related activities within the institution. He indicated the funding provided that relates to the state funding of the formula also pertains to the state entities, and for the activities regarding maintenance and plans of the state activities. At the current time, there is a relationship that exists between the state entities and non-state entities that involves an amount beyond what is contained in the regular formula. Mr. Hataway said all of the state budgets had increases for O & M built into the M-100 category, and when the direction came down to eliminate everything but postage, insurance, and other basic items, the UNR budget was reduced as were other budgets on the expenditure side. He stated this would have to be taken into consideration at the same time UNR's request for additional money is reviewed. The Budget Division reduced UNR's M-100 account by the amount of revenue reflected for maintenance funding. He confirmed O & M for UNR is a unique operation, and in the future consideration should be given to breaking it out into a separate budget account to be operated as an enterprise fund. Mr. Marvel asked if the M-100 category is the same in all of the budgets, and Mr. Hataway replied in the affirmative. He said the M-100 category now reflects the same dollar increases as all of the other budgets being recommended for funding. Dr. Crowley professed to be mystified by the explanations provided. He stated he could see no relationship between the additional support dollars in O & M and the subject at hand. Mr. Hataway interjected there is no relationship between the support appropriation granted to UNR and the transfers from the other accounts. He said the way UNR constructed the budget, the amounts were shown in the inflationary category budget that were no longer recommended for funding in the final Executive Budget. Continuing, Dr. Crowley said it is his understanding there is a line in the UNR budget for a source of revenue for O & M reimbursements, and this has been reflected in the budget for as long as he can recall, and is the line that has always received the reimbursements from the other areas for which they have O & M responsibility. Since there is no similar line of revenue in the other budgets, Dr. Crowley said he does not understand how UNR will be able to furnish the other budget areas with the O & M responsibility the university is supposed to provide, unless the requested operating budget add back is approved. Senator Raggio attested if there is going to be consistency in the UNR budget for occupational studies, there will have to be consistency adopted throughout all the system's budgets without creating havoc to the formulas that have been established in constructing the university budgets. Ashok Dhingra, Vice President of Finance, UNR, gave an example of UNR's previous practice with respect to O & M to illustrate why present practice has to be continued. He said a speech pathology building was added to the School of Medicine in the current biennium's budget, and the cost of providing the physical plant's services is included in the UNR budget because the medical school does not have such a budget. That service is approximately $130,000, and to provide it, there is revenue included in the UNR instruction budget that must be collected from the medical school. He said the revenue is included, but the corresponding amount the medical school must have is not included. He asked, "How are we going to collect this revenue if it is not budgeted in the School of Medicine budget? This is the way the business has been done for years and years." Mr. Dhingra said there is no explanation as to why this expense should not be budgeted in the medical school budget to provide the revenue to the UNR instruction budget. With regard to item 9, System Computing Classification, for which $64,377 was requested as an add back for the first year of the biennium, and $58,069 for the second year of the biennium, Mr. Anderes said this pertains to unfunded position reclassifications at the system's computing center. He said the position increases were approved, but no funding was provided. Mr. Stevens stated he has not yet had the opportunity to read the justification report furnished by the university system, but what he has reviewed would indicate the reclassification is a legitimate expense the system will incur. He stated he will complete his review of the summary, and report back to the subcommittee. Senator Raggio stated this item will be added to the list requiring clarification for the benefit of the subcommittee. Senator Raggio returned the subcommittee's attention to item 9, UNR Classified Position, reflected on page 2 of Exhibit D and asked for an explanation of the add back request indicated. Dr. Crowley stated the administration took some funds that had been set aside in institutional support in the UNR budget for costs pertaining to salary equity reviews. The administration decided not to proceed with the salary equity reviews and used the funds, in the same functional area, to place a position into the system's planning and budget area to take care of program reviews, a major assessment activity performed by the system to make themselves more accountable, and a part-time secretary assistant in another area of institutional support. Dr. Crowley stated UNR was penalized for doing this because the two positions are not reflected in the Base Budget although the change did not cost the state additional revenue. Dr. Crowley explained the university system was attempting to be honest with respect to how the revenue was spent, but instead lost $80,000 as a consequence. Mr. Hataway stated the budget office interpreted the costs associated with the positions as a one-time expenditure not eligible for continuation, and omitted the cost. Dr. Crowley pointed out he does understand why the cost would be considered a one- time expenditure since it is a part of the base budget. Senator Raggio asked if the positions were authorized. Mr. Hataway said no, the positions were newly created. Dr. Crowley said for the current biennium, the administration understood the support formula, and all other formulas, were suspended and they should adjust to a flat appropriation after the reduction experienced in previous biennium. In an attempt to do the right thing, the limited funding was placed in an area where it was believed the most benefit would be derived. He remarked, "If every time we make a modest change like this we are going to lose funds, then we are not going to make any changes, and the state, students, and university will not be well served." Mr. Stevens believes the issue is whether one-time revenue was used to create ongoing positions, and is an issue that has previously been discussed at length in a number of bienniums. He said if the funds were ongoing to create ongoing positions, the request would be viewed from a staff level. The request would be viewed differently if it involves a one-time salary savings or revenue generated in a single fiscal year "that are continued forever." Again, Mr. Stevens stated he would like the opportunity to review the university system's reports and report back to the subcommittee. Mr. Dhingra emphasized the funds in question are ongoing, included in the base budget, and are being used for ongoing purposes. Senator Raggio stated the issue would be added to the list requiring clarification for the subcommittee. Turning to page 3 of Exhibit D, Dr. Jarvis spoke about priority item 1, Internal/External Audit, that is considered the university's top priority since it is recognized the school's activities must be continuously audited. Referring to priority item 1, Senator Raggio noted the university requested $155,000 in the first year of the biennium and $175,000 for the second year of the biennium for audit purposes and asked if this is a new request, and Dr. Jarvis replied yes. Senator Raggio then asked how this would tie to their proposal for the performance audit that is being funded by the university in the approximate amount of $60,000. Dr. Jarvis responded the request is not tied to the performance audit, but is to increase audit capability, add an electronic data processing auditor, and to increase the scope of the university's external audits. Mr. Hataway said two internal audit positions were requested, and the Budget Division has recommended funding one of them. He said the administration is referring to a second position which, according to an audit report, is needed. He stated the second position could not be filled due to a depletion of funds. Regarding the external audit, Mr. Hataway stated the budget office received instructions that unless there is a contractual relationship established, current costs were to be used. He recommended to the system that if documentation could be provided, he would have no problem honoring their request. Senator Raggio asked if there had previously been a specific appropriation for external audit purposes, and Mr. Hataway said included in the chancellor's budget is a line item for expenses for external audit. He stated although this has been ongoing, the current budget reflects the system's actual costs at the present time. If documentation can be provided on a new contractual cost, the request should be considered, Mr. Hataway said. Senator Raggio referenced the $155,000 requested for the first year of the biennium, and asked what is the actual amount associated with the additional internal auditor position. Mr. Anderes replied in the first year of the biennium the salary, including fringe benefits, is $80,000. The remaining $75,000 is for external audit purposes which is in addition to $140,000 already being used in this area. In the second year of the biennium the salary, including fringe benefits, is $100,000. Senator Raggio asked why there is a need to increase the external audit funding by $75,000 in each year of the biennium, and Mr. Anderes replied some of the system's revenue producing activities are in the tax-code area, and external help is needed to interpret the Internal Revenue Service (IRS) code, and to provide specific guidance and direction regarding tax issues. Senator Raggio asked how far along is the external audit negotiation process. Mr. Anderes said as of yesterday (April 19, 1995) the audit committee made a preliminary finding in regard to the contract extension for one audit firm, and offered a 3-year contract to another audit firm. It is hoped the external audit costs will be finalized before the end of May, 1995. Senator Raggio asked the total amount available for external audit over the biennium. Mr. Hataway replied the actual expense for Fiscal Year 1994 - 1995 is $156,300. Based upon information available for Fiscal Year 1995 - 1996, $160,500 has been budgeted. For the biennium, this would amount to in excess of $491,000. Senator Raggio asked if the costs associated with the external audit would be a one- time expense. Mr. Anderes said the issue of engaging an external firm for tax purposes would not extend beyond a 2-year period. Mr. Marvel opined with all of the discussion currently going on in Washington, D.C. regarding changes in the tax laws, an ongoing expense may be involved. Dr. Jarvis explained the UCCSN's major change is reflected as a two-part priority and referenced in item 2, Replace Support Formula Request: Distance Education Networking, and DRI Operating Support. Regarding education networking, Dr. Jarvis said their add back funding request (reflected on page 3, Exhibit D) is the first part of a three biennium plan to establish a distance education network covering the State of Nevada by the year 2000 to enable the UCCSN to be established on-line with facilities and services available in surrounding states. Dr. Jarvis said the plan is also intended to extend capability to the rural parts of the state that are presently underserved, and to reach out to additional populations which will be seeking the help of the university system. Dr. Jarvis explained a substantial portion of the UCCSN's original request for $9.4 million for distance education networking requested at an earlier hearing before the joint subcommittee included operating and personnel costs. However, several members of the joint subcommittee and other legislators expressed discomfort with the inclusion of continuing costs in the one-shot appropriation, and those items were removed. Dr. Jarvis explained the entire amount reflected at the bottom of page 3 (Exhibit D) is the equipment portion of the distance education network, and the original support formula increase request was removed due to the revenue that is anticipated from increased student fees. The operating and personnel requests associated with the distance education network were moved into the system's second priority item request. Dr. Jarvis stressed that distance education will be a fundamental and normal part of higher education in America, and if the UCCSN is not able to move in this direction in the current biennium, other university systems will be operating within the State of Nevada. He commented,"You will be finding Boise State all over your cable television." Dr. Jarvis referred the subcommittee members to pages 4 - 6 of Exhibit D which provides in-depth information, including a map of proposed networking areas, of distance education/networking initiatives. Dr. Jarvis highlighted page 4 of Exhibit D regarding two-way interactive television currently being provided between campuses and the community colleges throughout the state. He pointed out a complete business administration program is being delivered in Elko cooperatively between UNR and NNCC, and medical and nursing education programs are being delivered to sites in rural and urban portions of the state. Within 2 years, the UCCSN's objective is to provide 160 full courses through distance education/networking to serve in excess of 3,200 students which will be a substantial outreach to underserved populations in the state. Senator Raggio asked if revenue would be acquired through the networking system, and Dr. Jarvis replied yes, through additional enrollments. Senator Raggio asked if UCCSN's long-term objective would be to serve the high schools throughout the state. Dr. Jarvis answered the UCCSN would like to serve the high schools as a short-term objective as well. If the initiative is funded in the first biennium, this would establish a connection to 20 high schools within the next 2 years. Senator Raggio asked if the funds requested will accommodate the university system's objectives, and Dr. Jarvis answered yes. He then inquired, "If you are granted the funds for operating budget add backs of $2.3 million and $1.7 million, will this also require a one-shot appropriation for equipment of $2.7 million and $2.6 million." Dr. Jarvis responded in the affirmative. Senator Raggio asked what capability the state will have with respect to the UCCSN's objectives outlined in Exhibit D. Dr. Jarvis responded the state will secure the equipment listed on page 6 of Exhibit D, for each campus identified, and purchase the equipment to transmit instruction between the various high-use sites while developing programs to fulfill needs in the sites as demand for instruction builds. Additionally, Dr. Jarvis said the UCCSN will be able to deliver partial and complete degree programs at the community colleges. Senator Raggio asked if all of the objectives can be accomplished with existing faculty, and Dr. Jarvis replied yes. Senator Raggio inquired if his statement was a commitment the existing faculty will accomplish the objectives. He said, "We are not going to get a request that, since we put this in place, we now have to add faculty." Again, Dr. Jarvis answered yes. Senator Coffin opined distance education/networking is a good revenue source. John Richardson, Ph.D., Vice-Chancellor for Academic Affairs, UCCSN, indicated during the current spring semester, the UCCSN is offering 20 courses over the existing network at no additional cost to the state. He said the UCCSN calls this "in load" for the faculty. For example, at WNCC lower division nursing courses are being offered simultaneously in Fallon, Winnemucca, and Hawthrone, and small groups of students are enrolled in the (three) sites that are connected to an ongoing class in Carson City. Between the four sites, Dr. Richardson said, the UCCSN generates enough students to make it an economically viable operation. He explained that is the principle that would be used throughout the state. He said the UCCSN would be offering "in load" with the faculty as well. Dr. Richardson continued to explain the UCCSN would generate full-time equivalency (FTE) through the system, and the UCCSN would be remiss if they did not come to the Legislature for reimbursement for those FTEs. However, given the population projections in the state, Dr. Richardson opined high numbers of FTEs will be generated whether the system has acquired the network or not, and it is a cost-effective mechanism to extend services throughout the state. In the long run, he explained, it will be a front-end investment that the UCCSN believes will reduce the cost of higher education services throughout the state. Senator Coffin said he has reviewed the system in other states, and does not believe distance education/networking should be discouraged in Nevada. He conjectured with today's satellite capabilities, this will afford Nevada an excellent opportunity to extend the influence of the university and the state beyond its borders. Anthony Calabro, Ph.D., President, Western Nevada Community College (WNCC), stated the WNCC is producing their first graduates from the electronic system when 14 rural nursing students who have completed the program will be graduating in the spring. He boasted the WNCC's nursing program accreditation has been marked as a model by the Northwest Association of Community Colleges. Senator Raggio is intrigued by the concept of televised educational programming throughout the state's rural communities, and the resulting educational gains that will be achieved. He believes the UCCSN's goal to provide service to 20 high schools throughout the state will be of tremendous educational value. Dr. Richardson pointed out there is already a connection to high schools, and one of the purposes of the network would be to provide worldwide Internet access for high schools, libraries, and state agencies. Senator Raggio queried if the university system is already connected to high schools, then what is meant by their objective to connect with 20 high schools by the year 1997. Dr. Richardson clarified there are only a handful, not 20 high schools, that are already connected to the educational network and are charged $7,500 per annum to connect to Internet. He envisions expanding service by offering collegiate-level courses in the high schools through this medium which will generate increased FTEs. He pointed out there are a number of students currently prepared to perform collegiate work while still in high school. Senator Raggio asked what would be provided by the $2.3 million and $1.7 million operating budget add back request. Dr. Richardson answered the aforementioned appropriation would provide for personnel to run the system on the campuses and throughout the state to perform the technical maintenance for the network and equipment, and provide instructional services and support for the faculty and staff who will be engaged in the process. He emphasized no additional staffing will be required, but the system's present faculty will require training. Senator Raggio asked that a budget for distance education networking be provided to the joint subcommittee for its review, and Dr. Richardson agreed to do so. Ronald Remington, Ph.D., President, Northern Nevada Community College (NNCC) spoke in favor of a distance education network. He stated the foundation of the NNCC raised $100,000 to equip and furnish an interactive classroom, and the UNR invested another $80,000 for a second interactive classroom. As a result, Elko, Nevada now has a bachelor's program for individual's that are "place bound" who can benefit from the technology. Senator Raggio said he is interested in a connection to the high schools, and asked if the cost for the system provides the equipment necessary for the high schools. Dr. Richardson replied the high schools will have to furnish the cost for the necessary equipment that will be needed in the classroom. The appropriation requested by the UCCSN for the distance education network will be used for the higher education portion of the program. Currently the charge for a computer hookup for Internet is $7,500 per site per high school. If a high school wants an interactive classroom with interactive television, Dr. Richardson said it will cost approximately $80,000 to prepare a room, depending upon the sound conditioning that must be accomplished. Senator Raggio asked if anyone from the university system has spoken to the State Department of Education regarding the program, and Dr. Richardson replied there has been preliminary discussion only. Senator Raggio then inquired what the continuing operating costs will be once the system is in place. Dr. Richardson replied there are two components to the operating costs: one is for personnel which he addressed previously, and the other relates to line charges of approximately $2.4 million for the biennium to the commercial carriers from which lines will be rented to provide communication services. In addition to a budget proposal for the program, Senator Raggio requested detailed information be provided to the joint subcommittee pertaining to continuing operating costs. Mr. Marvel commented one of his objectives is to keep Nevada students in the state, and he believes distance education programming will provide the opportunity for many Nevada students to secure higher education opportunities from Nevada's university system. Mr. Hettrick reviewed the proposals for the Nevada network that he believes will be a hard-wire ground system, and said an interconnected loop-system within the state is being considered. He asked if the costs should be combined so they are not incurred twice. He inquired if programs sent to Nevada from out-of-state facilities will be sent through some kind of up-link to a satellite from a hard-wire ground system that he opined would be expensive. He asked if the state has considered another method of providing educational communication that would be less costly. Dr. Richardson replied the proposal does not envision satellite hookups that are expensive. The system involved is a fiber-optic ground system that is already coordinated with the rest of the state. The UCCSN already runs computers on the same lines as other state agencies, and because the system involves compressed video it is possible to send programs long distances at a reduced cost. Senator Raggio closed the discussion on the distance education network issue, but proposed a subcommittee comprised of two members each from the senate and assembly be appointed to discuss the issue further. He appointed Senator Coffin and himself from the senate, and Mrs. Chowning and Mr. Marvel from the assembly to meet with representatives from UCCSN to arrive at a firm recommendation to present to the joint subcommittee. Senator Raggio wishes to arrive at a manageable program, and suggested the UCCSN review cost savings and build in revenue to arrive at a realistic budget. The committee's attention was returned to priority item 2, Desert Research Institute (DRI) - Operating Support, shown on page 3 of Exhibit D, requesting a $300,000 appropriation for each year of the biennium. Dr. Jarvis said this is the last remnant of the support formula request that was omitted because of student revenues which were targeted to the area of support services and equipment. He explained the DRI portion of what would have been the original support formula request was retained since DRI does not have student revenues. James V. Taranik, Ph.D., President, Desert Research Institute, provided an explanation regarding funding for O & M of DRI facilities by reading from prepared text (Exhibit E). Mr. Hataway stated the DRI request goes beyond the new facility located in southern Nevada. He said the operation and maintenance of all of the DRI facilities have been funded by indirect costs to date, but the budget office decided not to fund the (new building) request because of the precedent it will set for all other DRI facilities. He remarked, "If you make a decision here, then you are probably making a decision of a multi-million dollar nature for all DRI facilities." Mr. Stevens echoed the comments made by Mr. Hataway. He reminded the subcommittee in the past the cost for O & M has been taken out of indirect cost revenues generated by the DRI. Dr. Taranik asserted the revenue the DRI uses to fund the operation of state constructed facilities is revenue used by the faculty for the acquisition of grants and contracts. If the revenue is withdrawn, the university will be unable to acquire the grant and contract funding, and the DRI will have to service the facilities. Senator Raggio asked for comments regarding the university system's priority item 3 request for $1,100,000 in each year of the biennium for Part Time Faculty - Community Colleges as reflected in Exhibit D. Dr. Jarvis said it has become increasingly difficult to attract part-time faculty and maintain staffing levels the university system must have within the community colleges. He pointed out in future years of increased demand, the community colleges will suffer the most severe impact. The UCCSN is attempting to move the base salary funding for the part-time personnel in the community colleges to a more realistic level to the markets in which they compete. Dr. Remington maintained Nevada's community colleges are a good investment, and have provided quality service at a modest cost while considering cost containment. He asked for the subcommittee's consideration of the UCCSN's appropriation request, but reminded the subcommittee an increase in this area will impact the various community colleges differently. He opined the rural community colleges may require a richer proportion of full-time faculty members, while urban colleges may require an increase in salary for part-time faculty members. Senator Raggio asked why the community colleges have not addressed faculty issues themselves. He pointed out the 1993 - 1995 actual expenses for the UCCSN reflected an increase in institutional support of 13.2 percent, but only a 9.2 percent increase was reflected for instructional support. The institutional support for the TMCC was increased by 25.7 percent, but instructional support decreased by 3.2 percent. WNCC's institutional support increased by 50.4 percent, while instructional support decreased by 7.1 percent. Finally, he reminded Dr. Remington the institutional support at the NNCC increased by 20.6 percent while instructional support only increased by 1.9 percent. The chairman asked why some of the revenue that went into institutional support was not diverted to instructional support. Dr. Remington responded part of what is reflected as an increase in institutional support at the NNCC occurred because one staff member funded in the Instructional category was serving as the NNCC's chief business officer, and was converted to the Other category resulting in the percentage change. He reminded the subcommittee the movement of one or two individuals in a small college will reflect that kind of percentage change. Richard Moore, Ph.D., President, Community College of Southern Nevada (CCSN), said the college is located in a rapidly growing area and is in direct competition with UNLV in the recruitment of instructors. He clarified the community college cannot pay an adequate salary to recruit an individual to teach one night per week at the college, when the individual can teach the same course at the university for a higher level of pay. He stressed the CCSN requires funding to enable them to offer a competitive rate of pay. Mr. Marvel asked if there is a formula that will be used to distribute funds throughout the community college system of Nevada, and Dr. Moore acknowledged the university system has arrived at a formula determination he will provide to the subcommittee. With respect to priority item 4 of Exhibit D pertaining to Radiation Safety/SIIS Shortfall, Mr. Anderes commented the university system's SIIS account currently has a reserve of approximately $700,000, but an external audit recommendation specified at least $2 million should be in this account. He pointed out there should be no relationship between radiation safety and workmen's compensation because the revenue used for radiation safety is diverted away from the SIIS fund. In the interest of time Senator Raggio declared since the UCCSN has already addressed the issue of radiation safety and SIIS in a memorandum to the Fiscal Analysis Division, this item will be added to the list requiring clarification before the subcommittee. Mr. Anderes said information regarding the UCCSN's request for $l.5 million for each year of the biennium for priority iItem 5, Unfunded Mandates, was previously provided to the subcommittee, but mentioned in Exhibit D as a reminder,it is an issue that should be considered. Senator Raggio reemphasized the necessity for a meeting with representatives of the UCCSN, Mr. Hataway of the Budget Division, and Mr. Stevens of the Fiscal Analysis Division to revisit the items mentioned during today's hearing. He asked for an expeditious response to the aforementioned concerns . Mr. Hataway referred to item 1, page 1, Exhibit D, and addressed the UCCSN's request to increase expenditure authority to accommodate additional fee revenue. He explained he does not wish the subcommittee members to perceive there is a misunderstanding between the university system and the Budget Division because the UCCSN proposal is what he suggested at a previous meeting, and has nothing to do with the methodology used in the Governor's Executive Budget. Mr. Marvel stated he is still concerned about priority item 5, Unfunded Mandates. He asked precisely what are the unfunded mandates. Mr. Anderes clarified the primary areas that are reflected for UNLV and UNR relates to hazardous materials management, the American Disabilities Act (ADA) for renovated facilities, and the Occupational Safety and Health Administration (OSHA) requirements. Mr. Stevens reminded the joint subcommittee to consider whether the Governor's recommendation for state funds should be allocated to the university budget accounts based on the same percentage that existed in Fiscal Year 1993 - 1994 between appropriated and non-appropriated sources of revenue. He said the Budget Division reviewed the percentage of state funds that comprised the entire cost of the UCCSN budgets and applied the same percentage to the total budget for each year of the biennium. Mr. Stevens said this has caused disparity between campuses because each campus will generate different amounts of revenue from student fees which may potentially create some problems. He stated the options are to accept the recommendations of the Governor or project the revenue as traditionally done in the past for each, individual campus. Mr. Anderes commented the UCCSN supports the second option of being able to identify the tuition and fees that relate to each campus, and then adjusting all of the system's budgets accordingly. He stated the problem with using the actual is the disparity that is created between each campus. Senator Raggio suggested Mr. Anderes develop a position paper regarding the issue to be submitted to the joint subcommittee. He reiterated the subcommittee does not want different student fees for each campus. Senator Raggio noted a second issue was previously raised regarding the indirect cost recovery. He remarked: The indication is there was some understanding by the Budget Division that the amount of revenue the state received would be fixed, and would be a static amount that would not change in the future. The committee feels that would be inappropriate for a policy that would be forever and ever. Staff indicated you are nearing the situation where it has now reversed itself, and we are back to where the indirect cost recovery is nearing the low 70 percent for the university system, and the remainder for the state. We can only set this in place for one biennium. It is not going to be something that we can establish forever. I do not think anybody on the committee wants to unduly impact the revenue that is being received in this manner. As a suggestion you can reflect on ....I think we should establish a fixed percentage rather than putting the state in the position it is only going to get "X" dollars forever, that is not appropriate. It seems if we establish 75 percent for the system and 25 percent for the state, that would probably be a starting point for discussion. If you want to comment on it now that will be acceptable, but we do not expect to make a decision on it. Dr. Jarvis said the UCCSN would appreciate an opportunity to reply at greater length. As he recalls, such a percentage would place Nevada in a unique position among the western states to the extent of tax it will represent. Senator Raggio interjected, "Except not every other institution has the same kind of funding formulas we have." Senator Raggio wished to point out that no one on the subcommittee is questioning the recall of those who have presented this matter, particularly Dr. Crowley. He suggests that a plan be established that everybody is aware of that will protect the institutions currently, and not place the state in an untenable position in the future. Dr. Jarvis indicated he wished to reflect on the situation and provide comments at a later date. He also stated he will present information to illustrate what the university system has been able to do with the funds provided to demonstrate the investment the state has realized. Senator Raggio indicated there is concern regarding the lower than anticipated enrollments at both the TMCC and NNCC. He alerted Dr. Jarvis some adjustments may be made to those budgets because of the drop in enrollment rates. Mr. Anderes believed information was already provided to the subcommittee indicating TMCC enrollments have remained at the projected levels. He stated this would be verified and the information would be resubmitted to the subcommittee. Rita Gubanich, Ph.D., Interim President, Truckee Meadows Community College (TMCC), stated the enrollment issue for TMCC was discussed at a previous hearing at which time she indicated a desire to remain at the enrollment projections. She pointed out budget cutbacks impacted greatly on the enrollments, but the growth expected within the Washoe County School District should ease enrollment concerns. Dr. Gubanich also stated new marketing changes have taken place that should result in an increase in student enrollments. Senator Raggio reiterated if student FTE enrollments are to be factored for funding purposes, and increased funding is expected when student enrollments increase, funding should also be expected to decrease when student enrollments decrease. He pointed out the TMCC reflects a 5 percent decrease in student enrollments. A certain level of accountability should be required when the university system transfers instruction funds to other areas of the budget, or new positions are created that increase the base budget, Senator Raggio iterated. Although he did not wish to have a response today, he requested Mr. Anderes meet with the Budget Division and staff to discuss the issue, then provide a report to the subcommittee. Mr. Anderes referred the joint subcommittee members to page 6 of Exhibit D which provides an extended proposal regarding the support formula for personnel and operating expenses. He indicated the proposal was prepared in corroboration with the budget office and the Fiscal Analysis Division and addresses the basic needs for all of the budgets for the UCCSN. Senator Raggio adjourned the meeting at 10:35 a.m . RESPECTFULLY SUBMITTED: Marion Entrekin, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Assemblyman Morse Arberry, Jr., Chairman DATE: Assemblyman John W. Marvel, Chairman DATE: Senate Committee on Finance Assembly Committee on Ways and Means Joint Subcommittee on Higher Education/C.I.P. April 20, 1995