MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session January 18, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 9:00 a.m., on Wednesday, January 18, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator Bob Coffin Senator William R. O'Donnell Senator Dean A. Rhoads Senator Bernice Mathews STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Mary Matheus, Local Government Fiscal Analyst Pamela Jochim, Committee Secretary Senator Raggio opened the hearing and welcomed Senator Mathews as a new committee member. Senator Mathews would be filling the vacant seat left by the resignation of Senator Callister. Senator Raggio reviewed how bills would be considered for committee introduction. He noted it would be standard practice for the person submitting a bill to give a brief explanation regarding the purpose of the bill. The committees this session will be trying to keep down the number of bill draft requests (BDRs) in order to end the session at an earlier date. Senator Coffin requested committee introduction of Bill Draft Request (BDR) S-1359. BILL DRAFT REQUEST S-1359: Authorizes financing of parking facilities with certain revenue bonds of University and Community College System of Nevada. Senator Coffin explained BDR S-1359 was proposed by Kenny Guinn, Interim President, University of Nevada Las Vegas, to correct a problem regarding 1991 bonds dealing with student housing. Mr. Guinn discovered not all of the bond funds had been expended and he recommended the funds be utilized for increased parking facilities at the University of Nevada Las Vegas. SENATOR COFFIN MOVED TO INTRODUCE BDR S-1359. SENATOR RHOADS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Senator Raggio called Mary Matheus, Local Budget Government Analyst, Legislative Counsel Bureau, forward to give an overview of statewide local government finances (Exhibit C. Original is on file in the Research Library.). Ms. Matheus related this report was first compiled in 1984 in response to a need for total revenue and debt statistics on local governments. Since that time, the report has added categories such as, Special Districts, Towns, and increased the statistical data collected. She explained the report summarizes the statistical data provided by the counties, cities, school districts, towns, and special districts. She stated the report is only a summary of all the information provided by these entities and more detailed information could be obtained from the Fiscal Analysis Division's data base. The report is divided into six sections: 1) State Total Resources; 2) Counties; 3) Cities; 4) School Districts; 5) Towns; and 6) Special Districts. It contains 10 years of data, as well as, estimates for 1993 and 1994 and budget amounts for 1994-1995. Ms. Matheus referred the committee to page 3 of Exhibit C and described how this section of the report is broken down. She explained the funds listed under Total Other Resources are further broken down into transfer funds, bond proceeds, federal grants, and short term financing. The funds classified as Total Other Resources do not come from a "certain ongoing source." Senator Raggio interjected the committee should be aware opening fund balances are also included in the category of Total Other Resources. Ms. Matheus noted page 7 of the report referred to the percentage of increase or decrease over prior years in county resources. These statistics provide the user with a history of percentage increases and revenue levels. The revenue schedules on pages 14-15 break down county resources identified in "other reports as Other Resources." An explanation of what is included in the category of "Other Resources" is provided on page 13 of the report. Senator O'Donnell asked for an explanation as to why page 11 of the report indicates a decline in revenues from 1992-1993 to 1993-1994a. Ms. Matheus explained the 1993-1994a figures are a conservative estimate. Ms. Matheus continued with her review of Exhibit C and referenced pages 20-21. These pages indicate the dollar amounts for each expenditure type, as well as a graph showing expenditures in each category. Ms. Matheus pointed out pages 36-64 pertain only to the General Fund and provides the most valuable comparable information in the report. Senator Raggio inquired if the report reflects the new application of the way sales taxes are reported. Ms. Matheus replied the counties were aware of the change, but she was not sure if the information they supplied for the report took that into consideration. Senator Raggio clarified for the committee that the new reporting application "would result in a onetime windfall" then the reporting period would go back to a 12 month computation. Senator Raggio asked if the "Blue Book" (Ad Valorem Tax Rates for Nevada Local Government), formerly known as the "Red Book" would be available to committee members. Mr. Miles responded any committee member could locate the "Blue Book" in the taxation committee room or they could contact Ms. Matheus. Ms. Matheus pointed out pages 66-67 of Exhibit C covers the county debt repaid with ad valorem taxes. Senator Raggio questioned if the figures include school bond debt. Ms. Matheus indicated that section did not include school bond debt, since the subject was covered separately. Senator Raggio referred the committee to page 71 of the report and asked why Fiscal Year 1992-1993 shows such an increase over previous years. Ms. Matheus answered she understands the increase is due to new debt issued by Clark County. She explained the resources available in the debt services fund reflect "only what is needed to pay the current payments on the debt." Senator Raggio asked Ms. Matheus to research the issue and to let the committee know why the debt is so much higher in 1992-1993. Referring to pages 74-77 of Exhibit C, Ms. Matheus noted the data shows the actual county ending fund balances compared with the budgeted ending fund balances for the General Fund. Historically, actual numbers have been higher than the budgeted amounts. Senator Raggio, referencing page 77 of the report, questioned why actual fund balances were not shown for Fiscal Year 1993-1994. Ms. Matheus explained they have not received audited financial statement from all reporting entities. Senator Raggio inquired whether any preliminary figures could be utilized in that category. Ms. Matheus stated the only figures she was provided were the estimates submitted by the entities in their original budgets. The senator requested the fiscal division to collect the preliminary numbers for the actual ending fund balances for the cities, counties, and school districts. Ms. Matheus called the committee's attention to pages 81-95 of Exhibit C and explained that section of the report covered the basic county/city relief tax distribution increase and/or decrease over the prior year. Senator Raggio asked what counties were using the optional 1/4 cent sales tax. Ms. Matheus replied that information could be found on page 86 of the report. Ms. Matheus noted the rest of the report addresses the cities, towns, special districts, and school district accounts in the same format as discussed above, regarding the counties. She then referred the committee to pages 357-375 of the report and pointed out the schedules demonstrate the history of assessed values for the counties and the population ratios used for cigarette and liquor tax distribution. Senator Raggio questioned why the assessed values for Redevelopment Agencies were declining. Ms. Matheus did not know, but would look into the matter and get back to him. In addition, the senator asked her to research whether the depreciation factor applies to both residential and commercial valuations. Senator Coffin opined values were down because fewer properties were changing hands. He further stated there would be a big increase in the Redevelopment Agencies' assessed valuation when the "Fremont Experience" is completed in Las Vegas. He surmised the project would add $70 million to assessed values. Senator Raggio asked Ms. Matheus to follow up on the matter and find out how the project would impact redevelopment districts and assessed valuations. Ms. Matheus stated Nevada is one of only 15 states publishing the type of information listed in the report. She has contacted several of these states to compare notes and see how the report could be improved. Senator Raggio stated Dan Miles, Senior Fiscal Analyst, Fiscal Analyst Division, Legislative Counsel Bureau, would give the committee an overview of the new budget format. Mr. Miles provided the committee with several examples of programs listed in the Executive Budget and the terminology used (Exhibit D). He stated pages 1-3 of Exhibit D, contain definitions instructing agencies on how to construct their budgets. The definitions describe in detail what would be included in the base budget, maintenance section, and enhancement section. The adjusted base budget includes: actual year expenditures, less one-time expenditures, annualized salaries, merit salary increases, across-the-board pay increases, adjustments for the number of working days in a fiscal year, new legislative programs/deletions, transfers in/out, and supplemental appropriations. Mr. Miles indicated one-time expenditures or non-recurring expenditures were subtracted out of the base budget. Salaries were annualized for positions that have been phased in over the biennium to reflect the total annual cost. He noted since there were no pay increases approved by the 1993 legislature there would be no adjustments made to the category of across-the-board pay increases. If a supplemental appropriation was needed in FY 1994-1995, then it would be adjusted into the base budget calculation. Senator Raggio questioned how a supplemental appropriation needed only in the current year would be treated. Mr. Miles responded it would be handled as a one-time expenditure and would not be adjusted into the base budget. The adjusted base budget is calculated once all adjustments have been made. Mr. Miles explained the program maintenance takes into account: inflation factors, demographic/caseload changes, occupational studies/rate adjustments for fringe benefits, federal mandates, court orders, and consent decrees. The Budget Division determines what items will be affected by inflation and then the agencies must apply the factors when formulating their budgets. Inflationary items usually include utilities, medical care, etc. Senator Rawson inquired what inflationary factors the Executive Budget considered when it formulated the budget. Mr. Miles answered, in the original budget instructions there was a list of items the Budget Division said it would be considering for inflation factors. Senator Raggio interjected the inflation factors are "dictated by the budget office to the agencies and they must use those factors." Mr. Miles continued to highlight pages 2-3 of Exhibit D. He pointed out incremental increases caused by federal mandates would go into that section, but the current cost of federal mandates would remain in the base budget. The budget director provides a separate report to the legislature regarding the total cost of federal mandates. Mr. Miles explained the enhancement section of the budget pertains to improvements in the level of services, such as new programs or expansion of existing programs. All equipment expenses have been removed from the base budget and inserted into the enhancement section. Senator Coffin stated he felt the inclusion of routine maintenance under the enhancement section would cause some difficulties. He observed the practice might cause agencies to fall behind in routine maintenance which, in the long run, would end up costing more. Mr. Miles replied the agencies were also concerned about the treatment of that category and the budget director held a number of meetings with agency representatives to go over the issue. The budget director "promised the agencies, he would clearly indicate to the money committees those enhancement items, in many case were not actual enhancements, but were required maintenance items," Mr. Miles emphasized. Senator Coffin asked Mr. Miles to advise the committee which agencies are in need of funds for routine maintenance, in case their requests did not make it through the budget process. Senator Rhoads questioned if anyone is monitoring the actual funds spent by each agency. He stated, "It looks like it forces them to spend in their budget as much money as they possibly can, so they can justify a bigger budget the following year." Mr. Miles replied this has always been a concern especially when incremental budgeting is utilized. The Budget Division does monitor the budget on a day-to-day basis and has been able to put an end to some of these practices. Senator O'Donnell asked if the Economic Forum used an inflation factor in deriving its estimates. Mr. Miles responded they used an inflation factor as "one of the drivers to consider." Basically, the Economic Forum utilized 5-6 different revenue estimates from a variety of sources and then they chose what economic factors they felt were appropriate to consider for the next biennium. Senator Raggio pointed out the Economic Forum is interested only in establishing revenue projections and not costs. Mr. Miles also explained the law requires the Economic Forum to revisit the revenue estimates before May 1. Mr. Miles referred the committee to page 4 of Exhibit D and continued his review of the document. He indicated the document is a sample agency budget. The category entitled "Measurement Indicators" provides performance indicators in every budget account and measures how well an agency performs its function. The Senate Concurrent Resolution (S.C.R.) 46 of the Sixty-seventh Session Interim Study committee identified 11-12 agencies needing help from the Budget Division on improving performance indicators and the selected agencies would serve as a pilot group for the study. SENATE CONCURRENT RESOLUTION 46 OF THE SIXTY-SEVENTH SESSION: Directs Legislative Commission to conduct interim study concerning method of establishing Legislative Budget Office. Senator Raggio asked Mr. Miles to explain to the committee the differences between the budget categories of Actual, Work Program, Agency Request, and Governor Recommends. Mr. Miles responded the Actual Program is the amount actually spent in FY 1993-1994. The Work Program is the current year budget, which is the budget approved by the 1993 legislature. The Agency Request column designates what the agency has requested for the next biennium and the Governor Recommends category pertains to the amount the Governor feels should be budgeted for each agency in the next biennium. Mr. Miles noted a new section called the Budget Summary was added to each budget account this year. The new section gives a summary of the following three budget items: resources, expenditures, and positions. Senator Raggio turned the committee's attention to S.C.R 46 Interim Study committee's findings. The chairman stated he and Senator Rawson met with the fiscal analysts and the Assembly leadership to discuss the recommendations made by the interim study committee. Senator Raggio said he indicated at the meeting it would be extremely difficult for the Senate Committee on Finance to staff six joint subcommittees. He and Senator Rawson suggested the tentative formation of four joint subcommittees which are illustrated in Exhibit E. The proposal would also allow for minority representation on each subcommittee. Each Senate Committee on Finance member would be assigned to two joint subcommittees. Two of the joint subcommittees would meet at the same time on their assigned day. Senator Raggio indicated the full joint committee would meet during the February recess and hear major budgets. He suggested the proposal be implemented after the February recess and see how it progresses. In order for the proposal to go forward, the membership from both the Senate Committee on Finance and Assembly Committee on Ways and Means must agree to it. The chairman stated, if after implementing the proposal, the needs of the committee are not being fully addressed, they will recede from the understanding and revert back to regular committee meetings or separate subcommittees. Senator Coffin thanked Senator Raggio and Senator Rawson for their efforts in examining the proposal and for allowing minority representation on each joint subcommittee. Senator Jacobsen questioned if there would be other subcommittees besides the joint subcommittees. Senator Raggio stated the procedure would not preclude either committee from having its own subcommittees, but if the procedure as outlined is not followed, then it would not function as intended. The chairman noted he has some misgivings about the proposed changes, but stated the committee has an obligation to try and implement the interim study committee's recommendations. He said unless the committee objected, he and Senator Rawson would notify the Assembly leadership the Senate Committee on Finance would like to participate in the new process as outlined in Exhibit E. Mr. Miles distributed a copy of the Economic Forum's report (Exhibit F) on future state revenues dated December 1, 1994. The report describes the methodology the forum used in arriving at the estimated General Fund revenues. There being no further business before the committee, Senator Raggio adjourned the meeting at 10:30 a.m. RESPECTFULLY SUBMITTED: Pamela Jochim, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance January 18, 1995 Page