MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session May 10, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Wednesday, May 10, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. COMMITTEE MEMBERS ABSENT: Senator Raymond C. Shaffer (Excused) STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Vance Hughey, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Ray Bacon, Lobbyist, Nevada Manufacturers Association John Madole, Lobbyist, Executive Director, Associated General Contractors, Nevada Chapter Marvin Leavitt, Lobbyist, Legislative Coordinator, City of Las Vegas Douglas Dirks, General Manager, State Industrial Insurance System (SIIS) Carolyne Edwards, Lobbyist, Clark County School District Max Christiansen, Lobbyist, Sheet Metal-Air Conditioner Contractors Association Harvey Whittemore, Lobbyist, Nevada Resort Association Danny Thompson, Lobbyist, Nevada State American Federation of Labor/Congress of Industrial Organizations (AFL-CIO) Jack Jeffrey, Lobbyist, Southern Nevada Building Trades Council, Southern Nevada Central Labor Council One bill draft request (BDR) was introduced. BILL DRAFT REQUEST 52-122: Provide franchises with protection against certain unfair business practices of franchisors. SENATOR REGAN MOVED TO INTRODUCE BDR 52-122. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS AUGUSTINE, LOWDEN, AND SHAFFER WERE ABSENT FOR THE VOTE.) ***** Senator Townsend read Exhibit C. Ray Bacon, Lobbyist, Nevada Manufacturers Association, discussed Exhibit D. Senator Townsend stressed it is imperative to pick up the people who are a part of the system for at least 1 day. Mr. Bacon stated that issue is addressed in the formula. Mr. Bacon pointed out issue 1F will allow "annually" to be used as a determination for insolvency. He stated the insurance commissioner still has flexibility, but cannot take the short term view of the situation. Mr. Bacon discussed issue 2 and issue 3. He discussed the bonding issue and indicated it may have impact on the self- insured school districts and small, local governments. He stressed there could be substantial difficulties for local governments if the bonding regulations are changed. Senator O'Connell stated the school districts will be speaking on the issue. John Madole, Lobbyist, Executive Director, Associated General Contractors, Nevada Chapter, stated for the record their support of the proposed amendments in Exhibit D. He stated the Las Vegas attorney general's office is in support of the language in the amendment. Senator Townsend questioned the necessity for issue 3 of Exhibit D. He asked if the auto groups are in favor of the language. Mr. Madole stated they are, to the best of his knowledge. Marvin Leavitt, Lobbyist, Legislative Coordinator, City of Las Vegas, is very concerned that SIIS remain solvent, but there are many unknown factors in the new language. He commented these unknown factors concern the city of Las Vegas. He expressed his apprehension that the solvency bond will be a sizable expense to the city. Senator Townsend asked how long it will take the local government to develop a budget to add the bond solvency formula to the budget. Mr. Leavitt stated the budget process starts in October in Las Vegas. Then the tentative budget is filed on April 15 of the following year. The final budget is filed on June 1. On June 25, the Nevada Tax Commission meets to certify the property tax levies. He pointed out it is all tied into how the property taxes are levied. Senator Townsend stated if the formula was given to the city before Christmas, it could be put into the budget. Senator Neal asked if the city of Las Vegas has any indemnification bonds. Mr. Leavitt stated they have bonds to indemnify them. He pointed out they are different bonds from those required by the solvency formula. He stressed he will want more information as to what the costs are for these bonds. He stated he understands there is a need to do something to stabilize the system. Senator Regan pointed out there are different types of bonds issued. He stated the solvency bond will require a certain amount to be paid by the city to be protected. Senator Regan stated: This is what we are thinking of, a bond for insolvency in the sense of a bond of an insurance company. I think that it is a less cost, and not even a budget figure. You carry indemnification bonding, now, for omission and errors on the part of the city . . . We are talking of an insurance policy. Is that such a major cost to the cities and the counties? Mr. Leavitt responded this a guarantee to the state that if something happens there will be money available to pay the bills. He stated if the bonding company pays on a claim, then the bonding company will turn to the city for payment of that bond. He expressed his concern there will be a great, undetermined cost on this bond. He stated: There is a huge number of organizations going out to the market and getting bonds to fund one big obligation. The market is going to react somehow or other to that and if they are really concerned about the potential exercise of that, I assume they will respond to that by charging a high rate of premium. We have hundreds of organizations here that are going to be going the market to look for this same bond. That is the concern . . . I have a financial background, and I hate to have about six unknowns here and each one could have a huge effect. Senator O'Connell referred to testimony from the previous hearing and asked Mr. Leavitt to explain bond ratings. Mr. Leavitt stated a bond rating agency looks at the fiscal picture of an entity when they provide a rating. Douglas Dirks, General Manager, State Industrial Insurance System (SIIS), stated they have done a preliminary estimate on the impact of the $1.4 billion premium deficiency and where the obligation will lie. He stated 8 percent of total will be related to public entities. The remainder will be related to private entities. He stated his number includes school districts. He stated it is important to understand what the impact will be on the state's bond rating if SIIS collapses. He pointed out the impact will not be favorable. Mr. Dirks discussed Exhibit D. He read issue 1A, the elimination of a solvency bond. He stated for the record, "We believe that the action this committee took in putting the solvency bond requirement into the proposal, is a step in the right direction. We will be opposed to removing that from the bill." Mr. Dirks commented issue 1B does not have an impact. He stated it is not a critical issue. He questioned if issue 1C is an attempt to defeat the joint and several liability of the group for an assessment under the solvency surcharge. He questioned, "if the members will not be jointly and severally liable for the surcharge as well?" Senator Townsend said if they take out "C" and "D," will it defeat the joint and several liability responsibility for assessment. Mr. Dirks stated he questions if that is the intent. He is not certain if it is the intent to hold the group jointly and severally liable for this assessment. Senator Townsend asked if the group will be the first line of responsibility? Mr. Dirks stated the group will be the first responsible. Mr. Dirks commented he does not feel issue 1F of Exhibit D is necessary. He stated he does not feel the word "annually" changes the provision of that section. He stated he does not have a disagreement with issue 2. He suggested taking inflation into account when considering net worth. Senator Townsend posed the question to Mr. Dirks if a business or individual left the group, then became self-insured and is no longer related to the group, does the business or individual have the individual responsibility as a self-insured? There is, then, a shift in category under the surcharge formula from an individual with a responsibility to the group, to an individual responsibility. Mr. Dirks agreed. Senator Townsend stated the goal is if a person is in the system for any day during those 14 years when SIIS was underfunded, then the person has a responsibility under that formula, no matter where you are, once it is triggered. Mr. Dirks stated, "It would be an individual responsibility, and not one we would impose on a group. Removing this language, . . . does not have that impact." He stated he reads the language as making the group jointly and severally liable for those assessments. Senator Townsend commented: That is what [Senate Bill] 316 [of the Sixty-seventh Session] says and what we believe [Senate Bill] 458 says. That they are joint and severally liable as well as the claims liability. I think that is the intent of everyone on this committee. It is not to change that responsibility even though [Mr. Bacon] has that language in here for other reasons, . . . deletions. What do you think you are accomplishing by deleting 2c and 2d? SENATE BILL 316 OF THE SIXTY-SEVENTH SESSION: Makes various changes to provisions governing industrial insurance. SENATE BILL 458: Makes various changes to provisions relating to industrial insurance. Mr. Bacon stated he feels the language clarifies those sections. He indicated he does not suggest changing the joint and several language. He stated if someone leaves a group, then returns to SIIS, he feels the assessment must carry on to the employer and not onto the association. Mr. Dirks stated the joint and several liability travels with the individual when he leaves the group. Senator Townsend agreed. Mr. Dirks explained the joint and several liability provisions of the groups Nevada Revised Statutes (NRS) 616.3791 addresses payment of compensation only. He stated the current provisions in the law do not allow SIIS to make payments of the surcharge a joint and several liability of the association. A new provision in the law will be required to address that situation. Carolyne Edwards, Lobbyist, Clark County School District, stated the school district understands its responsibilities and expressed the districts uncertainties and fears about the bonding issue. She suggested the issue of bonding be placed into an interim committee. She expressed their desire to protect their bonding ability to build new schools. She asked for time to study the issue. Max Christiansen, Lobbyist, Sheet Metal-Air Conditioner Contractors Association, referred to Exhibit D and stated they are concerned about issue 2. He stated issue 2 is a problem for some of the smaller groups. Senator Townsend commented on the suggestion made by Mr. Bacon that inflation should be taken into consideration when addressing this section. Senator Townsend suggested this could be handled in the interim committee to address the figures listed. Senator Lowden stated the insurance commissioner has commented there have been no problems at this level. Senator Townsend pointed out that the information on the second page of Exhibit D has nothing to do with the bonding issue on the first page of Exhibit D. He stated one is on liabilities for claims; the other is on the surcharge. Harvey Whittemore, Lobbyist, Nevada Resort Association, stated his support for the process and for the product as developed in Senate Bill (S.B.) 458. He stated there are sections within the bill which his client does not support, but, on the whole, they support the bill. He stated SIIS is insolvent at this time. He referred to Exhibit D, section 1a. He stated there is no need for a solvency bond from municipalities, local governments, school districts, or anyone else. He pointed out those entities cannot leave the state and their obligations will be paid. By not requiring the solvency bond for these entities, it solves the issue of bond ratings. He stated the Nevada Resort Association supports that portion of issue 1a. He stated if the committee wishes to cap the bond amount for a short period of time, the Nevada Resort Association does not oppose that. Mr. Whittemore stated moving the date in section 33, subsection 2, will not have any impact. He stated they do not object to the language in subsection 2 as long as employers who are in one of those categories going to a private carrier would also be subjected to the assessment. He stated all employers must be subjected to the potential that they may have to pay. He agreed with Mr. Dirks' statement on issue 1d. He cautioned the new language may accidentally replace the language which already exists in section 70 1(d)(2). He suggested changing the number to section 70 1(d)(3). He stated section 70 1(d)(2) will remove the bond requirement and wondered if that is the intent. Mr. Whittemore concluded with positive comments about S.B. 458. He stated: It is not our intent, today, to avoid our legitimate responsibility, that our member institutions have. I want to make it clear for the record, that many members of our institutions left the system before the insolvency started. Therefore, the suggestions that somehow we are attempting to place or blame or transfer responsibility is an unfair characterization and one which I would hope the committee recognizes. We have tried to make it clear that each of our member institutions who are self-insured are stepping up to the plate and are going to pay their fair share for their institutions . . . , and those member institutions who are still with the system certainly cannot avoid that responsibility . . . We have told you in testimony that the voc[ational] rehab[ilitation] provisions do not dramatically impact our member institutions. That is an accurate statement. The self-insured employers who are members of our association do not have any windfall with respect to that provision . . . We appreciate the policy issue this committee made with respect to lump sum. It does not impact our ability under the existing law to do that which we now do. In those instances where we believe lump sum payments are appropriate, we can do so. The flexibility is appropriate. Mr. Whittemore recommended retaining the Falline provisions. Danny Thompson, Lobbyist, Nevada State American Federation of Labor/Congress of Industrial Organizations (AFL-CIO), spoke against S.B. 458. Mr. Thompson indicated his organization has collected 5,200 names indicating they do not wish to have their benefits cut and he has 1,600 more names to add to the list. He stated the people in the lists will be sent letters by his organization stating how each member of the committee votes on each issue in the bill. He pointed out the faults he finds with the bill. He disagreed with the elimination of lump sum payments. He emphasized his organization will never agree to that elimination. He stated he does not support the elimination of vocational rehabilitation. He stated there may have been previous problems with vocational rehabilitation, but there are problems with everything. He emphasized this bill is not the answer. He said the elimination of "bad faith" is unacceptable. He said it is the job of the third-party administrators to deny benefits. He said the bill insures the right to act in "bad faith" with immunity. Mr. Thompson said the bill makes it harder to make a claim. He stated his organization was locked out of negotiations on S.B. 316 (of the Sixty-seventh Session) until the last days of the session. He stated there is no need for benefit reductions, now. He stated his position will never change and he will continue to contact people about this issue. Jack Jeffrey, Lobbyist, Southern Nevada Building Trades Council, Southern Nevada Central Labor Council, agreed with Mr. Thompson. He stated they did not agree with the actions taken by the committee during the previous session. He stated the primary- cause language is an issue. He expressed his concern over the automatic stay provision in the bill. He stated there are no time limits. He indicated the list of people against the bill will be updated as it continues to grow. He emphasized that savings to the system means reductions in benefits to the injured worker. He stated they do not object to most of the administrative changes. Senator Lowden expressed her irritation with the lists given to the committee by Mr. Thompson. She stated she did not appreciate being threatened and that Mr. Thompson has done all that he can do to her. Mr. Thompson apologized and stated he did not intend for his statements to be considered a threat. He stated it was not intended as a personal attack on her. Senator Townsend commented on Mr. Thompson's allegations that there will be benefit reductions. He asked him to prove his allegations. Mr. Thompson stated he does not agree with having hearings for 5 months on a bill which is not, yet, a bill. He stated the public has been cut out of this issue. He said the public has not been able to see the proposals which were discussed during the hearings. He said the majority of people cannot afford to come to the hearings. He said he has told people to call and say they are against the State Industrial Insurance System (SIIS) bill, but they cannot because the bill does not have a number. He stated he does not think the workers should have to pay 8 cents a day to support the preferred worker program. He stated without vocational rehabilitation the injured worker has nowhere to go. He is opposed to any reductions to the injured worker. Mr. Jeffrey added that the figures represented in the media are 3 years old. He stated SIIS is recovering so there is no reason to change the system. He stated the injured worker must, now, prove his case. He stated the system should stay in the middle, being fair to both the injured worker and the insurer. Senator O'Connell asked Mr. Thompson and Mr. Jeffrey if they informed the people to whom they have spoken of the positive aspects of the bill. She asked if they mentioned the increase across the board of the Permanent Partial Disability (PPD) awards, the change in mileage which increases the accessibility of the managed care organizations (MCOs) to the injured worker, the fines being paid directly to the injured worker instead of to their lawyers, and that the preferred worker's program is only 8 cents a day and will benefit many people. Mr. Thompson stated he believes requiring injured workers to pay anything is wrong and erodes exclusive remedy. He stated the increase in the PPD awards is not really an increase to the worker, because it was decreased in 1993, then raised back up to the previous level. He stated his organization does not support giving the fine to the injured worker. He stated it is improper that a political appointee should decide what a fine should be. He stated filings of "bad faith" have not occurred very many times. Mr. Jeffrey expressed his concerns about the fines being given to the injured worker. He stated the fines are not always supported by the supreme court. Senator Townsend defended the process used to draft this bill. He stated the committee has crafted a large policy bill based on input from many people including Mr. Thompson and Mr. Jeffrey. He stated the process was completely open to any who wanted to testify. He stated when the bill draft was released there was opportunity by all to testify again as to their feelings for the bill. He stated no special interests went into a back room and worked on this bill with any committee members. He stated: The crafting of this bill was the most open process known to mankind and to take the kind of hits that this committee and myself have had to take because people think it is different and therefore they cannot accommodate for the openness, I will defend until the day I leave this process. No one has greater access to this than the public, at all. I cannot help it that they cannot get here all the time. Neither can you. You are paid to come here, do your job. You do it well . . . that is why we have this process. That is why there are seven of us up here, not one. When you add up the numbers that are in this bill, including the unfreezing which was in [chapter] 316 [of NRS], when you add up the additional PPD [permanent partial disability] which was 11 percent, that no one ever bothers to talk about, no one writes about, those are two benefit increases. The debate can rage forever on voc[ational] rehab[ilitation], but it is you and your organization [who] have testified time-and-time again, along with management, that vocational rehabilitation has been an unmitigated failure. Is this the right answer? Well, it is the answer we came up with. But we are only one of three legs of this stool, and it is going to go to the Assembly and they are going to attack it. This committee has complete respect for the knowledge and the interest that side shows. The fact that fines are now going to go directly to the claimant who has been injured and has been abused, I think is a major step forward. Why should they have to go to court to get money that they deserve? Senator Townsend concluded by asking Mr. Thompson and Mr. Jeffrey to look at the entire bill and if they, then, disagree, let those disagreements be accurate in their portrayal of the points in dispute. He commented the bill is now in the Assembly and they are doing a tremendous amount of work and putting in many hours to work on this issue to keep the system from becoming insolvent. Senator Townsend stated: The problem is we have $100 million of cash flow surplus and we still have $2 billion of unfunded liability. That has not changed in 2 years. . . . I do not think that some of the hits the people on this committee have taken have been very fair. Some of them have come from you and your organization. Some of them were aimed at our committee, collectively, and some at us, personally as individuals. That is not right . . . those are not necessary. They do not accomplish anything. I would like to see more constructive criticism, and less personal attack. Mr. Jeffrey stated the campaign has been against the bill. He stated no one can take responsibility for what an individual says or does. He stated there are 125,000 people in organized labor. He stated no one was specifically named in any of the literature sent out to their members. Senator Townsend commented there are video tapes of members of Mr. Jeffrey's organization who verbally attacked two members of the committee personally. Mr. Thompson stated his campaign has been against the bill. He stated he will continue to fight against the bill. He commented he was pleased the freeze on benefits has been removed from the bill. He repeated his feelings that it is unfair that the average person cannot come to Carson City to see what is in the bill during the process of drafting of the bill. Mr. Jeffrey commented his organization which is a "grass roots" organization has difficulty in communicating with its members. He commented that last session there was no time to send their members letters to let them know what was in the bill so they could be told whether to oppose the bill or to be in favor of it. He stated they started earlier this session and gave their members the first draft proposals when they became available in February. He stated they sent out faxes and mailers to various unions throughout the state as soon as changes were made to the first proposals. Senator O'Connell pointed out that from 1983-1993 the benefit increase to the injured worker was about 48 percent. Removing the freeze increases the wage by 8.5 percent. She stated this does not include the increase to the PPD awards. She stated this adds up to a 56.5 percent increase in benefits since 1983. Mr. Jeffrey agreed there has been an increase in benefits along with the cost of living. He stated he objects to the overall philosophy of the system. Senator Neal commented: We are being confronted with a situation which has not been of our own choosing, but has been brought upon us by other forces, and now we have to deal with it in such a fashion whereby the rights of injured workers as we have known them, prior to S.B. 316 of the Sixty- seventh Session, are being somewhat curtailed to bring about solvency of a system that was created . . . and put into insolvency through political decisions . . . Now when we come to such issues as dealing with lump- sum payments, as Mr. Jeffrey has stated . . .we have affected those [lump-sum payments] in a way that benefits can be affected to the injured worker. When we eliminate voc[ational] rehab[ilitation], that is an effect. When you deal with section 5 . . . it was not the action of the injured worker, that caused the bad faith action which we are attempting to utilize here . . . About automatic stay, I thought we have taken care of that. It was noted in the bill and made it so that cannot apply. I do not see that as being a problem . . . I can understand the frustration that one would have about this particular measure of not knowing what is in here, and even I have fears after sitting here for 5 months, because each time I read it over, I find something that I probably should have caught, but did not. But it is there, and I do not know what will happen in the future . . . I think the surcharge is necessary . . . Senator Townsend adjourned the hearing at 10:50 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor May 10, 1995 Page