MINUTES OF THE JOINT MEETING OF ASSEMBLY COMMITTEE ON WAYS AND MEANS AND SENATE COMMITTEE ON FINANCE Sixty-eighth Session January 19, 1995 The joint meeting of the Committee on Ways and Means and the Senate Committee on Finance was called to order at 8:30 a.m., on Thursday, January 19, 1995, Chairman Arberry presiding, in Room 119 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. ASSEMBLY COMMITTEE MEMBERS PRESENT: Mr. Morse Arberry, Jr., Chairman Mr. John W. Marvel, Chairman Mrs. Jan Evans, Vice Chairman Ms. Sandra Tiffany, Vice Chairman Mr. Dennis L. Allard Mrs. Maureen E. Brower Mrs. Vonne Chowning Mr. Jack D. Close Mr. Joseph E. Dini, Jr. Mr. Thomas A. Fettic Ms. Chris Giunchigliani Mr. Lynn Hettrick Mr. Bob Price Mr. Larry L. Spitler SENATE COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Lawrence E. Jacobsen Senator William R. O'Donnell Senator Dean A. Rhoads Senator Bernice Mathews Senator Bob Coffin COMMITTEE MEMBERS ABSENT: Senator Raymond D. Rawson, Vice Chairman (Excused) STAFF MEMBERS PRESENT: Mark Stevens, Fiscal Analyst Dan Miles, Fiscal Analyst Gary Ghiggeri, Deputy Fiscal Analyst Bob Guernsey, Deputy Fiscal Analyst OVERVIEW OF THE 1995-1997 Executive Budget Chairman Arberry explained the meeting had been called to hear an overview of the 1995-1997 Executive Budget presented by Mr. John P. Comeaux, Budget Director. Mr. Comeaux noted the Executive Budget was comprised of three volumes, rather than two, as had been the case in the past. He explained much of the additional material resulted from improvements recommended by the interim committee which reviewed possible methods of establishing a legislative budget office. One of those improvements was the inclusion of summary totals at the end of each budget account for both revenues and expenses. In addition, the Budget Division had attempted to improve the narratives, making them as descriptive as possible while still keeping them brief. He expressed the hope that the committee members would find the new format of the Executive Budget easier to work with than the 1993-1995 budget format. He pointed out important areas of the budget were set aside by means of highlighting, underlining, etc. Mr. Comeaux also noted the staffs of the Budget Division and the Legislative Counsel Bureau Fiscal Analysis Division had agreed as much as possible on the adjusted base budget components. Mr. Comeaux said meetings with the interim committee had led the Budget Division to handle transfers or eliminations of positions or programs in the enhancement portion of the Executive Budget rather than the base budget component where they would be more difficult to identify. He explained those items were referred to in the Executive Budget as E-900 decision units. In the case of a transfer, those decision units will appear in both affected budget accounts. Mr. Comeaux stated in constructing the Executive Budget the Budget Division had begun by funding the growth in school enrollments, social service caseloads, and the prison population, including the opening of Lovelock prison. Secondly, the Budget Division attempted to fund the Governor's priorities. He noted the Governor wished to address the very serious problem of violent crime and of isolating violent criminals from society and trying to assure Nevada had sufficient prison beds to accomplish that objective. The Governor's second priority was class-size reduction for the third grade, which is recommended in the second year of the biennium; enhancements in funding for the University and Community College System, particularly in the areas of student-faculty ratios and scholarships; and salary increases for teachers, university personnel, and state employees. Mr. Comeaux said, finally, the Budget Division had attempted to correct deficiencies in existing programs and fund them at levels which would allow provision of a reasonable level of services. He noted, for example, the Governor recommended the re-establishment of satellite rural clinics for Mental Health and Mental Retardation in Battle Mountain, Lovelock, and the Fernley/Silver Springs areas. The Governor also recommended additional funding to reduce waiting lists below the 1994 levels for Mental Health and Mental Retardation clients and funding to continue the tuberculosis program for the Health Division at the level necessary to address dramatic increases in cases. Mr. Comeaux explained the Governor also recommended reductions, consolidations, or elimination of programs where possible. He noted the Executive Budget included a recommendation to combine the mail room services of the Employment Security Department, the Department of Motor Vehicles, and the State Industrial Insurance System with the state mail room to better utilize existing bar-coding equipment and staff. In addition, the Governor recommended the Public Service Commission staff be reduced by 26 positions due to the pre-emption of economic regulation of interstate transportation. It was also recommended the Commissions on Economic Development and Tourism be combined in order to provide a more focused and efficient marketing effort for Nevada's business and recreational resources. Mr. Comeaux directed the committee's attention to the Executive Budget in Brief, a copy of which is on file in the Research Library of the Legislative Counsel Bureau. He explained the Budget in Brief presented highlights of the various budgets and reflected the costs or savings involved in meeting the needs previously mentioned. He noted a net additional appropriation of $76.9 million was included in the Executive Budget for the Distributive School Account to provide for forecasted growth in school enrollments in excess of 6 percent per year which would add 31,247 students over the course of the biennium. A $20.7 million appropriation was recommended in the second year of the biennium to reduce third grade class size to a ratio of 1 teacher for every 16 students. Approximately $1 million in each year of the biennium was recommended to increase the number of counselors at high-risk schools, doubling the amount included in the current budget. Mr. Comeaux stated $32.1 million was recommended in the University and Community College System of Nevada budget account to cover projected growth in enrollment of 2.8 percent in the first year of the biennium and 2.7 percent in the second year and to add 360 additional professional and classified employees, which would allow the universities to achieve approximately the student-faculty ratio recommended by Bulletin 87-30 published by the Legislative Counsel Bureau. The Governor also recommended $11.2 million for operational support formulas and $1.6 million for student grants-in-aid programs identified in Bulletin 87-30. Senator Mathews inquired whether funding for the Desert Research Institute was included in these figures. Mr. Comeaux responded the additional $32.1 million included only the instructional component of the University and Community College System, which did not impact the Desert Research Institute. Mr. Comeaux added the Governor recommended nearly $2 million to increase the merit pool for eligible professional employees from the current level of 2 percent to 2.5 percent. That recommendation was made to provide equity with the merit salary funds available to state employees. The Governor also recommended over $1.3 million for the Medical School to enhance service delivery in Las Vegas, which included $40,000 for minority student scholarships and $80,000 for library acquisitions. Mr. Comeaux stated in the Welfare Division account it was recommended the monthly benefit for Aid to Families With Dependent Children (AFDC) be maintained at $348 per month for non-public housing recipients and $272 per month for public housing recipients. He noted caseload projections reflected increases in average monthly caseloads from 37,343 recipients in Fiscal Year 1994 to 47,371 recipients in Fiscal Year 1996, an increase of 26.9 percent over that two-year period. In Fiscal Year 1997 an additional 11.2 percent increase in caseloads was projected, bringing average monthly caseloads to 52,665. The additional cost to the General Fund was forecast at $16.3 million for the biennium. Ms. Giunchigliani questioned whether the maintenance portion of the Executive Budget actually reflected 1990 benefit levels. Mr. Comeaux responded the benefit levels were recommended to increase in 1991 but those increases had been precluded by budget cuts. Mr. Comeaux indicated a managed care program was recommended to begin enrolling the AFDC components of Medicaid on January 1, 1996, which should save the General Fund $10.8 million in claims payments for Fiscal Year 1997 and over $700,000 in fiscal agent and utilization review contracts over the course of the biennium. He added $97 million of the 1995-97 provider tax revenues and $45 million carried forward from 1993-95 would be placed in the Medicaid budget to help offset General Fund support. Of the $97 million estimated to be generated in provider tax revenues, the net state benefit was estimated at slightly over $26 million for the biennium. The remainder would be returned to the providers as disproportionate share payments. Ms. Giunchigliani asked where the $10.8 million savings was reflected in the Executive Budget. Mr. Comeaux responded while final rates had not yet been determined, the current estimates of managed care savings ranged from approximately 1 percent to 7 percent. The Welfare Division's actuary estimated savings of approximately 3 to 5 percent. A 3 percent savings was built into the Executive Budget. Senator O'Donnell stated it had been his impression the provider tax was to be discontinued. He asked for the status of the provider tax. Mr. Comeaux replied the Welfare Division had been adjusting the provider tax formula to allow it to continue to function on a diminishing basis. He said legislation would be proposed to revise the provider tax to conform with federal regulations. He explained it was likely this issue would be revisited by the federal government and future revisions could be necessary. Senator O'Donnell questioned whether the Budget Division was confident the $97 million was an accurate figure. Mr. Comeaux stated the Welfare Division was confident the $97 million would be available over the coming biennium. Mr. Comeaux said it would be proposed that health maintenance organizations (HMOs) would participate in a tax program similar to the provider tax in connection with the managed care program for Medicaid. He noted similar programs were operating in other states which the federal government had found acceptable. He explained this would reduce Medicaid's General Fund need by $3.2 million over the biennium. Mr. Spitler asked how the HMOs would be taxed. Mr. Comeaux explained the tax would be similar to the insurance premium tax but it would operate like the provider tax in that funds would be collected from the HMOs and those funds would be used to generate the federal match, and then be returned to the HMOs. Mr. Spitler questioned whether health care costs to citizens would be increased. Mr. Comeaux replied costs would not be increased for citizens. Mr. Comeaux stated the Governor had recommended $1.5 million in the Children, Youth and Family budget for 27 positions to accommodate growing caseloads and to case manage youth in out-of-state facilities and in the higher levels of in-state care. He said $449,000 was recommended to increase child clothing allowances, monthly payments to foster parents, and foster parents' liability protection. He explained it was becoming more and more difficult to recruit foster parents and this recommendation was an attempt to enhance recruitment efforts. Ms. Giunchigliani asked if the state paid for liability insurance for foster parents. Mr. Comeaux responded the foster parents were required to provide their own liability insurance and the state would reimburse them for the cost. Ms. Giunchigliani pointed out some foster parents had experienced difficulty locating liability coverage. She suggested the state play some role in helping them acquire the required insurance. Chairman Arberry inquired whether any of the $1.5 million would be used to return youths currently housed at out-of-state facilities to Nevada. Mr. Comeaux explained out-of-state placements would not be decreased. The increased funding was to allow the Division to better manage the existing out-of-state placements. Senator Rhoads asked where the boot camp for juvenile offenders was to be located. Mr. Comeaux said he believed the boot camp would be located in Elko utilizing existing facilities. Mr. Comeaux stated $7.1 million was recommended in Fiscal Year 1996 to operate Phase I of the Lovelock Correctional Center, beginning in October of 1995. An additional $10 million was recommended in Fiscal Year 1997 to continue operations of Phase I and to add Phase II in January 1997. Additionally, it was recommended that the Jean Conservation Camp and a portion of the Silver Springs camp be converted to alcohol and drug addiction treatment, adding a Substance Abuse Coordinator, Counselors, and Clinical Social Workers to those locations. Part of that recommendation was to move the existing DUI treatment program from Indian Springs Conservation Camp to Jean Conservation Camp. The Governor recommended $158,000 to expand the Regimental Discipline Program (boot camp) at Indian Springs Conservation Camp, effective January 1, 1997. Senator Raggio questioned why the date for expanding the boot camp advanced to January 1, 1997. Mr. Comeaux explained the effective date was established to allow for the construction of additional facilities rather than simply the addition of modular buildings. Senator Raggio noted there would, in fact, not be much enhancement to the boot camp during the 1995-1997 biennium. Mr. Comeaux said operating costs would have to be added to the Executive Budget in order to advance the effective date. Mr. Spitler asked if the Governor's recommendation to reduce minimum security inmate populations was similar to the Facilities Capacity Act. Mr. Comeaux answered he did not believe it was. He explained proposed legislation was being drafted with the intent of expanding the use of residential confinement from DUIs only to other non-violent offenders. Ms. Giunchigliani requested a comparison of the cost of modular units at the boot camp versus the cost of constructing new facilities. Mr. Comeaux agreed to provide the comparison. Senator Rhoads asked if there were plans to expand the Lovelock prison beyond 1,000 beds. Mr. Comeaux indicated there was an item included in the Capital Improvement Program budget to review Phase II construction to determine how many additional beds the core facilities will support. It was expected the facility could accommodate up to 1,500 beds. Senator Mathews requested a report of life expectancies of modular units. Mr. Comeaux agreed to provide the information. Senator Jacobsen noted Prison Industries activities were not included in the Governor's recommendation. Mr. Comeaux responded Phase II included completion of at least one building for Prison Industries. Mr. Spitler expressed concern for the construction of prison sites so far from the Southern Nevada area, where over 80 percent of the inmates originate. He asked if there were any future plans to build a prison facility closer to Las Vegas. He referred to rehabilitation considerations as well as the direct expense of transporting prisoners great distances. Mr. Comeaux responded there was an item contained in the Capital Improvement Program for design, site selection, and site work on an additional institution. It was assumed that institution would be sited in the Indian Springs area. Mr. Marvel pointed out the counties had been polled regarding site selection of prison facilities in 1985. At that time, every local government indicated they were reluctant to have a prison facility in their county, and therefore, Ely and Lovelock were selected as sites for future prisons. Mr. Comeaux reported the Governor proposed the reduction of minimum security populations by 158 inmates through the establishment of Lifeskills Centers in Reno and Las Vegas and by an annual average of 138 inmates through expansion of the residential confinement program from DUIs only to other non-violent offenders. Mr. Spitler asked for an explanation of the Lifeskills Program. Mr. Comeaux responded the Lifeskills Program would be an intensive supervision program operated by the Department of Parole and Probation and would be an alternative to probation. An offender placed on probation would be given intensive assessment and supervision to determine what might be preventing him from becoming a productive member of society (e.g., job skills, substance abuse problems, etc.) Once the assessment is completed, existing community resources could be utilized to help that probationer in an attempt to keep him out of the criminal justice system. Mr. Spitler inquired whether legislation would be required to implement the Lifeskills Program. Mr. Comeaux said legislation would probably be required and would be drafted if required. He added these programs were being recommended on a test basis. They were small pilot programs. Similar programs had proven successful in other states. Senator Raggio commented there would be an appropriation request and proposed legislation connected with these pilot programs. Mr. Allard asked if the Lifeskills Program included any type of electronic home monitoring. Mr. Comeaux replied the program involved intensive supervision by a parole officer. Funding for electronic home monitoring was requested in the Executive Budget as part of the expansion of the residential confinement program. Mr. Comeaux noted the reduction in the inmate population achieved as the result of the Lifeskills Program and the expansion of the residential confinement had led the Governor to recommend the saving of $1.8 million of General Funds through the elimination of 33 conservation camp crew supervisor positions. He explained the legislatively-approved crew-to-supervisor ratios (i.e., 12 to 1) would be maintained. He stated a reduced number of crews would become available in the conservation camps as the result of lower prison populations. Senator Rhoads said this appeared to be a first step in phasing out the honor camps. Mr. Comeaux reiterated the reduction in the camp crew supervisor positions were the direct result of the Department of Prisons' forecasted population and estimates of the various custody classifications. There were fewer minimum custody inmates available for assignment to conservation camps. Senator Rhoads pointed out if the prison population was growing it would seem the percentage of minimum custody inmates should be growing as well and the need for honor camps would be greater, not less. Mr. Comeaux said the inmates who would otherwise be sent to conservation camps would be diverted to the Lifeskills Program and the residential confinement program. He explained the Governor was attempting to utilize programs which would divert non-violent offenders from the prison system in order to make prison system resources available to deal with violent offenders. Mr. Marvel asked if the prison system was finding a place for the sick, lame, and lazy in the conservation camps. Mr. Comeaux replied he would not say there were no sick, lame, and lazy inmates in the conservation camps but he did not know the extent of the problem. Senator O'Donnell noted the honor camps performed several functions for the rural counties. He questioned whether the Executive Budget included replacement funding to accommodate those needs. Mr. Comeaux replied there would still be inmate crews at the existing conservation camps. He did not know if those crews would be sufficient to provide the same level of services to rural counties. Senator O'Donnell said an educated guess would indicate that fewer crews would mean a reduced level of services to the rural counties. He asked again if any money was included in the Executive Budget to replace those lost services. Mr. Comeaux said there was no provision in the Executive Budget to provide those services in any fashion other than through the conservation camp crews. He noted it was unknown where the reduction in work crews would occur or whether the existing crews had been devoting all their efforts to providing rural services. Therefore, he was unprepared to say there definitely would be a reduction in services. Mr. Spitler noted the current ratio of staff to prisoners was very small, i.e., 1 to 3. The Legislature was trying to restore the 1 to 12 ratio to restore the level of service. Mr. Comeaux added the number of inmates in the camps has been low. Further, 17 or 18 of the camp supervisor positions were already vacant and had been for some time. Ms. Giunchigliani reminded the committee to look at the policy issue of whether or not it is the responsibility of state government to subsidize local government services. Senator Jacobsen pointed out the conservation camps were one of the best of the Prison System's programs. Part of the current problem was that the prison was placing inmates in the camps who would not work. He said it would be wrong to close the Jean conservation camp since it produced more revenue than other camps. He pointed out the veterans' cemeteries in Jean and Silver Springs would not be able to survive without the help of the conservation camp work crews and the rural counties would fight to maintain the camps. He added the conservation camps were not intended to compete with private enterprise but to perform jobs not performed by private enterprise. He suggested there could be state capital improvement projects which could be performed by prisoners. Mr. Allard asked if there were too few inmates to keep supervisors busy. Mr. Comeaux responded there were too few minimum custody inmates to satisfy the 12 to 1 ratio. Mr. Allard questioned why, with crime on the upswing, there were not enough prisoners. Mr. Comeaux answered the percentage of minimum custody inmates was decreasing. Additionally, the reductions in inmate population resulting from the programs proposed by the Governor were at the minimum custody level. Mr. Allard asked if the non-violent criminal element was shrinking. Mr. Comeaux said it was decreasing as a percentage of the total prison population but was increasing overall. Mr. Allard expressed his belief in alternative sentencing for non- violent criminals but questioned why if numbers were increasing overall inmates could not still be diverted to the conservation camps as well as the new programs. Mr. Comeaux reiterated it was unknown how the populations at the conservation camps would be affected. Mr. Hettrick inquired whether the problem was one of having too few inmates who were willing or able to work. Mr. Comeaux responded affirmatively. He said if the Governor had not recommended the new diversionary programs, the Department of Prisons would have requested the construction of an additional 150-bed honor camp. The problem was not that the camps were not full but that the inmates were inappropriate candidates for work crews. Mr. Hettrick expressed concern that so many minimum custody inmates were unwilling to work and those inmates were being housed in the conservation camps. He suggested the sick, lame, and lazy be diverted to the Lifeskills Program. Mr. Close requested a report showing the numbers of prisoners in each category as well as the success rate and a cost/benefit analysis of the programs. Mr. Comeaux agreed. Mr. Comeaux reported the Governor recommended the Department of Motor Vehicles be separated from the Department of Public Safety. The Governor also recommended adding 34 new positions to the Department of Motor Vehicles to help resolve and maintain no more than a 30-day turnaround time for titling and to reduce the long lines in registration by offering additional service. He explained this additional staff was primarily to accommodate the growth in Southern Nevada. Mr. Comeaux stated the costs of the Lifeskills Program and the residential confinement program were contained in the Department of Public Safety budget account. He noted the Governor was also recommending an additional Parole Board member for support of the Lovelock Correctional Center and to accommodate projected growth in the overall prison population. Mr. Comeaux said the Executive Budget included a recommendation for $232,000 to add three positions in the Forestry Division's fiscal group to improve fiscal integrity and accountability. In addition, the Executive Budget contains a supplemental appropriation request for funding for those three positions in the current fiscal year. Mr. Comeaux reported the Governor recommended $201,000 for two additional positions and seasonal positions to staff the Big Bend state park and the Lincoln County visitor center. Mr. Comeaux stated the Department of Transportation budget account included a recommendation for 68 new positions to support increased highway construction and maintenance. Mr. Comeaux reported the Governor recommended eliminating 68.5 positions in the State Industrial Insurance System. He explained many of those positions were located in the rehabilitation center. Mr. Comeaux referred to Volume One of the Executive Budget and called the Committee's attention to page A1 which reflected the General Fund unappropriated balance for two historical years (1992-93 and 1993-94) and three estimated years (1994-95, 1995-96, and 1996-97). He said generally the information displayed for Fiscal Year 1994-95 was identical to the information provided by the Fiscal Analysis Division in its pre-session report, with the notable exception of the Governor's recommendations. Mr. Comeaux explained the Governor was recommending total supplemental appropriations of $2,869,000 and $99,174,287 from the General Fund to support the Capital Improvement Program. The Governor recommended one-time appropriations of approximately $108,905,000, including, for example, appropriations for startup costs for facilities to come on-line during the course of the biennium (e.g., the Lovelock Correctional Center and the boot camp expansion, the juvenile boot camp, and funding for business process re-engineering). Mr. Comeaux informed the committee it would be hearing about business process re-engineering frequently. He explained business process re-engineering constituted an examination of existing business processes in the agencies. The Governor recommended funding of a number of such studies based on information from the Department of Information Services indicating a number of agencies are in great need of automating or upgrading automation systems. The premise of business process re-engineering is to examine the business processes in place to insure their efficiency and effectiveness prior to spending money automating them. In cases where the business process re-engineering can be completed early enough in the biennium to implement automation, amounts were also recommended for the estimated costs of that automation. Mr. Comeaux explained a substantial amount was recommended in the one-time appropriations for replacement and new equipment. He reminded the committee that appropriations for equipment in the 1991-93 budget had been eliminated due to budget cuts and few appropriations had been made for equipment in the current budget. He noted the Governor had not recommended all of the equipment requested by the agencies. Chairman Arberry asked Mr. Comeaux to explain the difference in the unappropriated balances for Fiscal Year 1995-96 and 1996-97. Mr. Comeaux responded appropriations recommended for 1995-96 were approximately $50 million less than current revenues and reversions. In Fiscal Year 1996-97 the situation was reversed. The recommended appropriations were approximately $44 million higher in the second year than the current year revenues and reversions. He explained this situation was caused by continued growth in caseloads, the compounding effects of programs started after the first of the fiscal year, the recommended second year pay increase for state employees, the recommended class-size reduction in the third grade, etc. He said the difference represented approximately 3.5 percent of the revenues for that year. Senator Rhoads asked if it was dangerous to incur a $50 million deficit in the first year of the biennium. Mr. Comeaux explained expenses would be $50 less than revenues in the first year. The deficit would occur in the second year. He noted he would prefer not to make such a recommendation because while there would be money from the first year to carry over to the second year, he was concerned about the third year (Fiscal Year 1997-98). He noted some things were happening which would alleviate the problem, however, including anticipated continued growth in revenues. In addition, the Medicaid managed care program was estimated to reduce costs between 1 percent and 7 percent. In the 1997-99 biennium the managed care program would be expanded to the more expensive disability component of Medicaid. Welfare reform measures will begin in January 1997 and continue into the following biennium. Those measures are expected to reduce caseloads by increasing the employability of recipients. He noted the implementation of reform measures would be delayed until 1997 because the Welfare Division was currently involved in the installation of the NOMADS data processing system and it would be difficult to undertake any type of reform until the system was in place. The proposed tax revenue on HMOs will also grow as managed care expands. Finally, the Governor's proposals for the Lifeskills Program, increased use of residential confinement, and for a sentencing commission were designed to make the most effective use of prison resources and keep costs down. Mr. Comeaux stated the Governor also recommended $7,484,418 to restore the balances in the Interim Finance Contingency Fund, the Statutory Contingency Fund, the Stale Claims Fund, and the Emergency Fund. The Governor recommended the levels of two of those funds be increased slightly. Mr. Comeaux noted the Governor's recommendations would result in an unappropriated fund balance of $89,639,918 at July 1, 1995, which exceeds the required balance of 5 percent of current appropriations. Mr. Comeaux indicated the income projected for Fiscal Year 1995-96 was forecast by the Economic Forum. He said the forecasted reversions of $17 million represented a conservative estimate. He explained $17 million represents 1.4 percent of appropriations. Historically, reversions for the past eight years have averaged approximately 6.5 percent of appropriations, and if the two highest years are excluded, the average is 3.8 percent. The lowest year was 1.3 percent. Mr. Comeaux said the fund balance was estimated to be $139,817,461 at July 1, 1996. The required 5 percent minimum balance would amount to $59.2 million. Senator Raggio asked if the Governor's recommendation for cost-of-living increases for state personnel was in addition to the 2.5 percent merit increase for the University. Mr. Comeaux said it was. Senator Raggio asked the total cost of the proposed 4 percent increase in the first year and 3 percent in the second year of the biennium. Mr. Comeaux answered the total cost for the biennium was approximately $154 million. Senator Raggio inquired what the cost of 1 percent salary increase in the first year would be. Mr. Comeaux replied 1 percent represented approximately $13.5 million. Senator Raggio inquired about the cost of third grade class-size reduction. Mr. Comeaux explained the full-year cost in the second year of the biennium would be $20.7 million. The cost, with roll-ups, would be slightly higher in each year of the following biennium for a total of $40 million to $50 million. Senator Coffin expressed concern with the insurance tax acceleration. He asked what impact it would have on the Executive Budget and in which year of the biennium it would occur. Mr. Comeaux responded it would affect Fiscal Year 1995 since the advance payment is due in March and June 1995. Reversing the estimated advance payment of $35,473,000 from the one-time insurance premium tax adjustment would reduce the funds remaining at July 1, 1995, to close to the 5 percent minimum. Senator Coffin questioned whether the funds could be paid back over an extended period of time. Mr. Comeaux said he expected that could be done. Senator Coffin inquired whether any of the funds had actually been collected. Mr. Comeaux reported the first payment was due in March. Mr. Price asked if the $35,473,000 was the same amount which the Budget Division had estimated prior to the approval of the 1993-95 budget. Mr. Comeaux said the estimate had probably been refined based on recent collections, but the amounts should be close. Mr. Comeaux noted pages A2 through A5 of the Executive Budget provided a summary of revenue forecasts made by the Economic Forum as well as historical information regarding revenue collections. He directed the committee's attention to the category entitled "% Change Over Prior Year" on page A4. He noted the percentage increases forecasted by the Economic Forum for 1995-96 and 1996-97 (5.2 percent and 5 percent, respectively) were the lowest numbers on the page. He pointed out historically revenues have increased by at least 6 percent (in the recession year of 1991-92). He described the 1995-96 and 1996-97 estimates as moderate. Senator Mathews questioned why jet fuel tax revenues disappeared from the budget in 1994-95. Mr. Comeaux replied jet fuel tax revenue was now locally distributed. Mr. Comeaux explained page A5 contained detailed information on sales tax collections. He noted sales tax revenues were forecasted to increase 9.1 percent in the current fiscal year but as of November 1994 collections were up 12.1 percent. Page A6 contained the same information on percentage fees on gross gaming revenue. That revenue was forecasted to increase 7.7 percent in Fiscal Year 1994-95. As of December 1994, collections increased 10.6 percent. Page A7 provides general information on gaming taxes. Page A8 is a summary of revenues collected by the Gaming Control Board. Page A9 reflects collection of the casino entertainment tax. The Economic Forum forecasted a 7.9 percent increase in Fiscal Year 1994-95. Through November 1994 the increase was 22.5 percent. Mr. Comeaux stated pages A10 and A11 provide information on annual slot tax revenue and liquor tax revenue. Page A12 provides information on assessed valuations provided by the Department of Taxation, including both historical and forecasted information. He noted the actual Fiscal Year 1994-95 assessed valuation increased 8.2 percent over the previous year. The Department of Taxation estimated increases of 4.7 percent in 1995-96 and 5.8 percent in 1996- 97. Mr. Comeaux said page A13 contained general Nevada and United States economic information obtained from various sources. Mr. Comeaux noted pages A14 through A21 contained definitions of terms and designations used throughout the Executive Budget. A list of functional goals developed by the Administration in the strategic planning process appears on pages A14 and A15. He pointed out the enhancement decision unit numbers used in the Executive Budget were tied to each of those goals. He explained the M-100 decision unit defined on page A18 would appear in most budget accounts. He stated M-100 decision units contained inflationary increases. The Governor recommended increases for various types of insurance, utilities, medical inflation, inflation for food, and adjustments for uniform allowances. A change for Motor Pool vehicle rates was also recommended. Mr. Comeaux explained the Motor Pool was changing its billing method based on the results of a legislative audit, and the costs associated with the change were included in the M-100 decision unit. Mr. Comeaux stated the M-300 decision unit also appeared in most budget accounts. He said the M-300 unit consisted of three types of salary adjustments. The first was for merit salary adjustments. Mr. Comeaux noted the Governor was not recommending funding for merit salary increases for positions whose turnover rate is 20 percent or greater. He said fringe benefit changes were also included in the M-300 unit. He explained the Retirement Board had approved increasing the retirement rate. In addition, the Governor recommended increasing the state contribution for group insurance as well as fringe benefit adjustments for the SIIS premium, payroll and personnel assessments, and the unemployment benefits. Senator Raggio asked what the Governor was recommending as the state contribution for group health insurance for state employees. Mr. Comeaux responded he did not recall the percentage increase. Senator Raggio questioned whether the contribution would increase from the present rate. Mr. Comeaux said the Governor recommended increasing the contribution. Mr. Comeaux said the third adjustment included in the M-300 decision units was occupational studies. He explained the Department of Personnel completed and the Personnel Commission approved five occupational studies. Mr. Comeaux stated E-805 decision units covered significant reclassifications. He said the only reclassifications which would be found in the base budgets would be a reclassification occurring as the result of the natural progression of a position from a level I to a level II to a level III. All other reclassifications should appear in an E-805 decision unit. Mr. Comeaux explained program transfers and changes would be located in the E- 900 decision units. Chairman Arberry asked Mr. Comeaux to explain how the SIIS premium was handled in the Executive Budget. Mr. Comeaux responded the Budget Division had calculated the assessment rates for each affected payroll center using the best estimate available on what the required premium would be for the two years of the biennium. The calculation for Central Payroll was modified to account for an existing reserve used to pay those premiums. In addition, the Budget Division anticipated a fairly sizable refund for the premium paid in 1994. Ms. Giunchigliani asked if premium rates were being assessed in a different manner than had been assessed in the past, i.e., were high risk agencies assessed differently than low risk agencies. Mr. Comeaux replied the current assessment method was different in that individual premiums were assessed to the various payroll centers. He noted, however, there were various departments in each payroll center, some of which were higher risk than others. While consideration had been given to assessing each agency individually, the assessment process had not been taken that far. Costs, however, would be tracked for each agency in order to highlight the high risk agencies. Ms. Giunchigliani stated that she appreciated the Budget Division was moving in the right direction. She asked that reconsideration be given to assessing the agencies individually based on risk factors. Mr. Comeaux referred to page A22 containing the Governor's Report on Staff Perquisites and to pages A23 through A28 containing the details regarding the restoration of fund balances mentioned previously. He explained slightly less than $7.5 million was necessary to restore the fund balances to the levels recommended. The Governor recommended the Emergency Fund be restored to $400,000, the Stale Claims Fund to $1 million (an increase over the current approximate $900,000 fund balance), the Reserve for Statutory Contingency Fund to $1.2 (an increase over the current $1 million fund balance), and the Interim Finance Contingency Fund to $8 million. Mr. Comeaux indicated the supplemental appropriation requests, totaling approximately $2.9 million, were listed on pages A29 and A30. Senator Raggio asked Mr. Comeaux to comment on the $1.5 million suggested supplemental appropriation for the Department of Taxation. Mr. Comeaux replied the Budget Division had received a request for the supplemental appropriation based on the Department of Taxation's estimates of revenue to be received from the Employment Security Department and the State Industrial Insurance System for the combined audits versus what it was budgeted to receive. Additionally, the Department of Taxation required additional funds as the result of a delay in implementing its new automated collection system. Senator Raggio stated this information seemed to fly in the face of information previously provided to the Reorganization Committee regarding the combined audit. He expressed surprise at the recommended amount of the supplemental appropriation. Mr. Comeaux stated he was unsure how much of this appropriation was tied to the combined audit and how much to data processing, although he believed a significant amount was for the combined audit. Senator Raggio stated the committee would reserve judgment on this matter at this time. Mr. Marvel inquired how much sales tax revenue had been recovered as the result of the combined audit programs. Mr. Comeaux responded he had not looked at any information on that matter for the current fiscal year. For Fiscal Year 1994, however, sales tax revenue was down considerably from the previous year. Mr. Comeaux reported the Governor's recommended one-time appropriations of various types were listed on pages A30 through A52. He stated the Budget Division was preparing to submit appropriate corresponding bill draft requests to the Legislative Counsel. Mr. Comeaux said pages A53 through A73 included the recommended capital improvement program. He noted the total recommended program cost was $205,891,763, comprised of available General Fund money in the amount of $99,174,287, General Obligation Bonds issued in the amount of $77,579,946, $11,949,710 from Highway Funds, $400,000 from Employment Security Department funds, and $16,787,820 from Federal Funds. Mr. Comeaux noted the Governor proposed issuing approximately $44 million in General Obligation Bonds in late 1995 and the remainder in late 1996. He indicated copies of the General Obligation Debt Plan would be provided to the committee at the Capital Improvement Program hearing scheduled for the first week in February. He stated bonds could be issued at the proposed level without affecting the state's bond rating or increasing the property tax rate necessary to support it. Ms. Giunchigliani asked what the current bond capacity was. Mr. Comeaux answered the debt limitation, as of June 30, 1994, was $574,717,000. Bonds outstanding subject to the limitation totaled $420,850,000. The unused debt capacity was slightly less than $154 million. Mr. Comeaux stated the Capital Improvement Program included a number of renovation projects, several prison projects, the recommended University and Community College System maintenance projects, and major construction projects (including Phase II of the Lovelock Correctional Center, a juvenile treatment facility in Las Vegas, and various University projects, including a new education building at UNR and advance planning and design for a new library at UNLV). In addition, the list contained projects not recommended to the Governor by the Public Works Board but added by the Governor, including a 60-bed housing unit at the women's prison and the design and site costs for the proposed new men's prison at Indian Springs. Following the Governor's projects were listed the recommended highway projects and two small Employment Security Department projects. Mr. Comeaux said the next portion of the Executive Budget contained a summary of the General Appropriations Act which would be necessary to implement the recommended budget (pages A74 through A80). Finally, pages A81 through A92 contained the appropriation summary by function for each year of the biennium. Mrs. Evans expressed thanks to Mr. Comeaux and to the legislative fiscal staff for their combined efforts to improve the new budget document. Senator Coffin asked Mr. Comeaux to explain why the University Board of Regents budget request had been cut significantly but an appropriation of $20 million to the University System was included in the Executive Budget. Mr. Comeaux replied the University System had requested significantly more than $20 million for improvements. The Governor made recommendations according to where the money was available. Mr. Spitler noted the Governor recommended 60 additional beds for the women's prison in Northern Nevada and closing the Jean facility. He asked if there would be any women's facility remaining in Southern Nevada other than the restitution center. Mr. Comeaux said there would not. Mr. Spitler pointed out over 80 percent of the women incarcerated originated from Clark County. He inquired whether the decision to increase beds in the north was still open for discussion. Mr. Comeaux responded the addition was recommended because the Department of Prisons currently had an imbalance between the types of beds available (in terms of custody level) and the types of inmates. The Department of Prisons is short on close and medium custody beds and not on minimum custody beds. He noted the recommendation was still subject to legislative approval. Mr. Spitler stated he understood the needs of the prison but also knew that all studies indicated that no rehabilitation occurred when all contact with children and family units was removed. Statistically, the success rates were much higher when contact with children and family was maintained. Mr. Spitler indicated he would be looking at this issue closely. Ms. Giunchigliani stated the same philosophy held true for young adult offenders. She expressed the opinion that Elko was not necessarily the proper place for a juvenile boot camp. She noted the Governor apparently was trying to maintain a balance between the offenders that need to be kept behind bars versus proper sentencing alternatives. She suggested the committee look at the comprehensive picture of how to rehabilitate offenders when funding boot camp expansions for young offenders who could also benefit from alternatives such as the Lifeskills Program. There being no further business, the meeting was adjourned at 10:34 a.m. RESPECTFULLY SUBMITTED: Dale Gray, Committee Secretary Assembly Committee on Ways and Means January 19, 1995 Page