MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session January 23, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Monday, January 23, 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 Bernice Mathews COMMITTEE MEMBERS ABSENT: Senator Dean A. Rhoads (Excused) GUEST LEGISLATORS PRESENT: Assemblywoman Marcia deBraga, Assembly District 35 Assemblyman Pete Ernaut, Assembly District 37 STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Mary Matheus, Fiscal Analyst Marion Entrekin, Committee Secretary OTHERS PRESENT: Don Hataway, Chief Assistant Budget Director, Budget Division, Department of Administration Frankie Sue Del Papa, Attorney General Paula Quagliana, Chairman, Nevada Commission for Women Robert L. Seale, State Treasurer Brian K. Krolicki, Chief Deputy Treasurer, Office of the State Treasurer John Adkins, Deputy of Cash Management, Office of the State Treasurer George Pyne, Executive Officer, Public Employees Retirement System Janet Johnson, Deputy Budget Analyst, Budget Division, Department of Administration Jim Manning, Deputy Budget Analyst, Budget Division, Department of Administration Office of the Governor - Page 1 Don Hataway, Chief Assistant Budget Director, Budget Division, Department of Administration, stated the Base Budget for the Governor's Office has not drastically changed from the 1994 actual expenditures. The Governor will continue to support having 19 full-time equivalent positions as currently authorized. Onetime operating expenses were eliminated from the Base Budget, but rents and administrative service charges were adjusted, which caused an increase in the Operating Expenses category. Also, there was a minor one-shot item in the category Information Services that was eliminated. Senator Jacobsen commented that on occasion he has had the privilege of serving as Governor, and noted the Office of the Governor is in need of improvement. He does not believe the office properly reflects the status of the Governor of the State of Nevada, and expressed concern funds were not allocated in the budget to enhance the appearance of the Governor's office. Mr. Hataway stated he would mention Senator Jacobsen's concerns to the Governor. Senator Raggio asked Mr. Hataway for an explanation of the maintenance portion of the budget as it pertains to Category 300 Occupation Studies/Fringe Benefit Adjustment (M-300). Mr. Hataway said the M-300 category is comprised of three basic units that must be considered. The first pertains to an occupational study performed by the Department of Personnel each biennium. Mr. Hataway encouraged the committee members to review the Definitions beginning on page A15 of the Governor's Executive Budget identifying four occupational studies already performed. Mr. Hataway said the second issue the committee should consider involves positions reflecting frozen (salary) merit increases. He said the Budget Division routinely identified certain positions that, because of high turnover rate, did not have merit increases built into the salary level. During the previous biennium, Mr. John P. Comeaux, Director, Department of Administration, reviewed the list, coordinated the turnover rates with the Department of Personnel, and determined changes would be necessary. Consequently, some frozen positions were unfrozen and vice versa. He commented the fiscal impact of doing this is reflected within decision module M-300. Mr. Hataway remarked the third and final issue pertains to Fringe Benefit Adjustments. Through the entire budget process, the Budget Division worked on the current fringe benefit rates up to the last moment and developed new benefit rates to reflect the difference between the old and new fringe benefit rates in the M-300 category. He explained the adjusted rates were due to the State Industrial Insurance System (SIIS) driving the cost down. He pointed out in the Governor's Executive Budget there is a negative $4,195 savings reflected in the new versus the old fringe benefit rates as well as a $1,209 increase for Fiscal Year 1996-1997 for fringe benefit rates projected for medical insurance coverage for employees. Senator Raggio asked if that kind of factor will be contained in all of the agency budgets to be discussed, and Mr. Hataway replied in the affirmative. He said every budget containing the category Personnel Expenses will include decision module M- 300 reflecting at least one of the issues above described. Senator Raggio asked for an explanation regarding three new positions being requested for the Office of the Governor. Mr. Hataway responded the major change in the budget is the Governor's request to add three positions. The first is an Executive Assistant scheduled for the Las Vegas office. Currently there is one Executive Assistant and three Administrative Secretaries in the Las Vegas office, but due to workload increases the Governor has proposed an additional Executive Assistant position be added. If filled, Mr. Hataway said one of the positions requested will restore an Administrative Assistant position lost from the Carson City office during a voluntary cut by the Governor during the 1993 biennium. There are presently six Administrative Secretary positions in the Carson City office, but the Governor has requested one additional position due to increased workload. Senator Raggio noted page A-30 of the Governor's Executive Budget recommends a one-shot appropriation of $67,220 for the Office of the Governor. He asked Mr. Hataway to explain the request to the committee. Mr. Hataway replied the appropriation will be used for computer hardware and software upgrades in the Governor's office to permit his office to be connected by computer to Las Vegas and other state agencies. Mr. Hataway said if the budget is approved as presented, the number of authorized employees would increase from 19 to 22. Mansion Maintenance - Page 5 Mr. Hataway remarked the entire budget shows no real growth from the current biennium, but pointed out expenses shown for travel, both out-of-state and in-state, are for the first lady's travel expenses while on official business with the Governor. The rest of the activities for Operating Utilities and Personnel Expenses are for the actual operation of the mansion. Mr. Hataway stated the only major change in the budget is reflected under Maintenance Category 200, Demographics Caseload Changes (M-200) to include salary adjustments for a housekeeper and a cook at the mansion. He said the (two) employees have not had a cost-of-living adjustment or a merit increase since Fiscal Year 1991. Their current salary level is $15,676 per annum. The Governor has proposed the level be increased to $21,000 per annum. M-200 includes $12,199 in Fiscal Year 1996 and $12,750 in Fiscal Year 1997, and is the salary and fringe benefit differential between what the employees are currently receiving and what the Governor has proposed. Mr. Hataway called attention to the budget for the Highway Patrol reflected on page 1757 of the Governor's Executive Budget that will cause an impact on the budget for the Governor's mansion. He explained the Governor proposed a security force to provide around-the-clock service for the mansion. Although testimony regarding the Highway Patrol budget will be provided when it comes before the committee at a later date, Mr. Hataway said the committee should be aware the issue of a security force at the mansion will be discussed. Mr. Hataway called attention to page A-30 of the Governor's Executive Budget reflecting a one-shot appropriation of $258,773 to provide the equipment and security system necessary to support the new personnel being proposed in the Highway Patrol budget. Senator Raggio asked that comments concerning the Highway Patrol budget be deferred until it is discussed. At that time, he suggested the committee members be prepared to address the question regarding why Highway Patrol personnel should be used at the mansion rather than capitol police. Commission for Women - Page 11 Mr. Hataway stated the Nevada Commission for Women was established in 1991 to study the changing and developing roles of women in society, and to recommend proposed legislation. Their primary source of revenue is from gifts and grants or from any source that offers financial support. The commission is comprised of 10 members appointed by the Governor to meet quarterly to present an annual report to the Governor and the Legislature by January 31 of each year summarizing their activities, needs and recommendations. Mr. Hataway said according to statute, the commission was designed to sunset effective July 1, 1995. The Governor recommended the life of the commission be extended, and they be funded from the General Fund. Recommended expenses would include personnel expenses of $14,850 each year and $7,000 annually for part-time help. The Governor's Executive Budget proposes a part-time director, a receptionist and necessary equipment to support a very basic operation. Senator Raggio asked if the commission has been active, and if an annual report was submitted. Mr. Hataway replied he has not seen an annual report yet, but suggested representatives from the commission should present their testimony and respond to questions by the committee. Assemblywoman Marcia deBraga, Assembly District 35, testified in support of funding for the Nevada Commission for Women. Her remarks were read from prepared text (Exhibit C). Ms. deBraga said because the majority of single-parent households in Nevada are headed by women, and the majority of victims of domestic crime are women, the state established a commission solely for women and not for men. Frankie Sue Del Papa, Attorney General, indicated she had been a past chairman of the Nevada Commission for Women and is still an active member. She believes this commission is very worthwhile and their accomplishments will speak for themselves. One of the problems encountered by the commission regards the lack of continuity and stability, because the chairmanship must change each year and there is not a permanent home from which their business can be operated. Because of what has occurred on a national level, and what is expected to be done in the State of Nevada regarding domestic violence and other important issues, Ms. Del Papa strongly supports funding for and the continuance of the Nevada Commission for Women. She pointed out Senator Bernice Mathews is presently a member and very familiar with the functions of the commission. Ms. Del Papa introduced Paula Quagliana, Chairman, Nevada Commission for Women, who stated the commission is comprised of several committees, assigned as follows: Frankie Sue Del Papa - Domestic Violence Committee Cheryl Lau - Education and Economic Parity Committee Senator Bernice Mathews - Legislative Committee Helen Rumph - Child Care Committee Justice Charles E. Springer - Handbook Committee Paula Quagliana - Judicial Committee Ms. Quagliana remarked when Justice Charles E. Springer was the chairman of the Nevada Commission for Women, his major focus was to include other women and women's organizations interested in participating in the commission, and said she has an 18-page list of women's organizations presently participating in some of the committees. Ms. Quagliana remarked the list would be sent to the Senate Committee on Finance for their review since it contains the names of the individuals serving on the above listed committees. Ms. Quagliana displayed Exhibit D, Domestic Violence, A Handbook for Victims and Professionals that has been distributed throughout the State of Nevada. She said the publication is intended to be a guide for victims and professionals in dealing with domestic violence in their communities, and other states have indicated a desire to have a similar publication available for their use. A copy of Exhibit D was provided for each committee member. Ms. Quagliana remarked the commission has been instrumental in the collection and dissemination of essential information to women and their advocates about their legal and economic rights and protection. She distributed Exhibit E, Nevada Commission for Women Informational Sheet, from which she read. For further information, she also distributed to the committee members Exhibit F referencing a presentation by Kathryn D. Rettig, Ph.D., and a Professor from the University of Minnesota, concerning the cost of raising children. Ms. Quagliana stated the goal of the projects of the Nevada Commission for Women is not only to help women and children, but to also provide preventive guidance. She believes a $50,000 budget is a small price for Nevada to pay, considering the probable savings it would achieve in many critical areas, such as job training, and to get people off welfare. She remarked it is illogical for Nevada not to be in step with the rest of the country, where similar commissions are funded. Ms. Quagliana also declared of all of the boards and commissions in the state, the Nevada Commission for Women is the only unfunded commission. Senator Raggio noted there has been considerable debate about the creation of the commission. The creation of the commission without utilization of revenue from the General Fund was the compromise position of the Legislature. He further stated the representation was made that if established, there would be funding available through private donations. He asked, "Why are we now going to fund the commission with taxpayers' money?" Senator Raggio also wished to know how the commission plans to use $3,200 reflected in the line item Information Services. Ms. Del Papa said when the commission was created, the compromise arrived at was the most appropriate thing at the time. However, she now believes Nevada would benefit by funding, to achieve continuity and stability. Through a national crime bill, each state will be in the position to obtain a one-shot appropriation of about $500,000 for law enforcement, victim groups, and domestic rights groups. Personnel and equipment will be needed to perform the duties associated with the one-shot appropriation. Senator Raggio asked how much was raised for the operation of the commission during the biennium. Ms. Del Papa said she would provide the committee with a complete breakout of funds raised at a later date. She believed in excess of $40,000 was accumulated through fund raising activities, and spent for travel and the costs associated with the publication of Exhibit D as well as a woman's legal handbook the commission is preparing to publish. Ms. Del Papa commented the commission believes part of their mission is to help provide information in a number of different categories, and funding activities have been ongoing for this purpose. In response to Senator Raggio`s question concerning informational services, Ms. Del Papa reminded him the person previously in charge, Teddyanna Keele, passed away in 1994. She accomplished a great deal of work when the commission was first created to provide informational services, and there has continued to be a concerted effort to carry on her efforts. Senator Raggio said if the Nevada Commission for Women is funded through the General Fund, it will obviously become a state agency. He asked where the office for the commission is proposed to be located. Ms. Del Papa said there has not been an office designated, but agrees there needs to be a central repository somewhere. She expressed the difficulty the commission has had, since records are kept in the homes of some of the members or in the Attorney General's office. She said none of the committee members are interested in building a bureaucracy, but a central repository is needed. Mr. Hataway referred the committee to the Operating Expenses item of the budget and said the $11,100 reflected includes $6,000 to be used for space rent, and it will be up to the commission to decide where to locate. Mr. Hataway clarified the $3,200 shown for Information Services will be used for a computer and work station. Senator Raggio asked for another explanation regarding the Personnel Expenses item of the budget, and Mr. Hataway replied there will be a part-time director and a full-time receptionist. Both of the positions will be unclassified. Mr. Hataway pointed out the commission members will receive no salary although their travel expenses will be paid. Senator Raggio asked if the commission would continue with fund raising activities should they be funded by the state. He drew attention to the fact this point is not reflected in the proposed budget, and authorization has to be included if the commission becomes a state agency Both Ms. Del Papa and Ms. Quagliana responded the commission would continue their fund raising activities. Senator Raggio then asked if a budget had been prepared for the biennium based on a General Fund appropriation and other resources. Ms. Quagliana replied she and Ms. Del Papa plan to meet with the Budget Division regarding the funding issue. Mr. Hataway interjected the Base Budget only contains the General Fund appropriation at this time, but the budget has been an account of the state since the inception of the Nevada Commission for Women. The Budget Division is proposing the commission become an official part of the Governor's Executive Budget. As the commission generates additional revenue, they will be treated the same as any other state agency. The commission will be required to program revenue into the budget and come before the Interim Finance Committee as required. Assemblyman Pete Ernaut, Assembly District 37, testified in support of funding for the Nevada Commission for Women on which his mother, Nancy Ernaut, is presently a member. He said domestic violence and child protection is a paramount issue at this time, and the Nevada Commission for Women will be of great value to legislators as the repository and catalyst through which very important legislation can be filtered. He said their services are of great value not only to Clark and Washoe Counties, but also to the rural communities where problems of domestic violence and child protection has had dramatic growth. Senator Jacobsen commented he did not vote for the Nevada Commission for Women. Although he strongly supports women's rights and their efforts in matters concerning domestic violence and child protection issues, he does not want the commission to decide "men running for offices are bad". Politically, he believes the commission is of great value, but he does not want it used against men. Senator Jacobsen remarked: You want taxpayers to fund the commission but I am not so sure I want to do this, realizing you have the capability of raising funds by your own means. I see that and I have contributed. I think every time you start to emphasize something it often goes off on the wrong track. Senator Raggio asked if the Nevada Commission for Women itself engages in any political activity, and Ms. Del Papa responded they do not. Mr. Ernaut responded to Senator Jacobsen by stating he understood his concerns but emphasized the commission's request for funding was for only the basic tools that will allow them to operate in an efficient manner. He assured the committee he would be one of the first legislators to argue against further funding should the commission not use the funds that may be provided in a judicious manner. He added, "Being male and being in politics, I certainly do not want to see this group become so political that all men are on the outs. This would not be good for my career . . . " Senator Raggio asked the Fiscal Analysis Division to obtain the information concerning funding being done in other states in order for the committee to make some comparisons. He also mentioned the committee should bear in mind when the commission originated it was not intended to expand and grow at a cost to the state. Ms. Quagliana assured Senator Jacobsen women's commissions have been in existence in other states for many years, and she has not heard of any throughout America that have become so political they have tried to take over. Senator Mathews remarked: Whatever helps women and children will also help men. I also have not known of any of the commissions across the nation that have become so political they would want to exclude men from the process. We cannot expect the public to take on all of our ills. We need to do this also. Science, Engineering and Technology - Page 17 Mr. Hataway said this budget is identical to the one approved for the 1993 - 1995 biennium and is proposed to be extended for the current biennium. He explained the Office of Science, Engineering and Technology was established in 1993 as part of the Governor's Office. The office is to be funded by federal grants, but no grants have been forthcoming. Since its' establishment, the Governor`s Office has been moving toward the establishment of funding and staffing for the program. Mr. Hataway stated the agency did receive a $50,000 private donation in Fiscal Year 1993 - 1994 which was brought forward to the current Fiscal Year 1994 - 1995. Also, within the last few months a commitment was made by the National Science Foundation for a grant of $115,000 that will require a dollar for dollar match by the state. In addition to the $50,000 gift already received, they have received another $50,000 pledge from the same source to help match the National Science Foundation's grant. Mr. Hataway feels the funding base for Fiscal Year 1996 is in place. By spring of 1995, through recruitment efforts now going on, Mr. Hataway said the Technology Advisor position will be filled, and in addition to his regular duties the individual will be responsible for obtaining additional funding for the agency. Senator Raggio asked if a balance forward should be reflected in the budget. Mr. Hataway responded in the affirmative. He pointed out the 1994 actual column reflects a negative $50,000 because the amount was carried forward to 1995 as a positive $50,000. Also, the agency did not receive the additional $50,000 that had been pledged. Senator Raggio asked, "What about for 1995. Is there a balance forward to go into Fiscal Year 1996?" Mr. Hataway replied the Budget Division does not have the information yet because salaries will start in 1995 as soon as the Technology Advisor position is filled, and will require funding. Senator Raggio suggested the committee should take another look at the budget as soon as the position is filled. Senator Jacobsen asked for a list of activities accomplished by the Office of Science, Engineering and Technology in the last 2 years, due to concerns he has had regarding the test site and waste repository facilities. Mr. Hataway reiterated the only thing that occurred was the establishment of at least the base funding source and the recruitment of the Technology Advisor position. As far as the charges that are outlined in the statutes regarding the functions of the office, nothing of a major nature has been done. State Treasurer - Page 91 Robert L. Seale, State Treasurer, remarked it would be difficult to discuss the budget without commenting briefly on an occurrence that happened on December 8, 1994. On that date Orange County, California filed bankruptcy, and was the single largest municipal bankruptcy ever filed. He remarked the event reflected the importance of the treasurer's position. The bankruptcy cost Orange County approximately $2 billion out of their approximately $7 billion portfolio. He reassured the committee in Nevada there has been no such occurrence and Nevada will not ever have such an incident. He said the credit for this should go to the team of professionals he has assembled over the last 4 years. Mr. Seale introduced Brian K. Krolicki, Chief Deputy Treasurer and investment banker, and John Adkins, Deputy of Cash Management and Certified Public Accountant (CPA). When he took over the position of State Treasurer 4 years ago, Mr. Seale pointed out there was one professional on staff. He now has seven professionals in the Office of the State Treasurer. Mr. Seale said during the last 4 years his office decreased staffing by 22 percent leaving vacant four positions. This was done in light of tighter budgets and in light of certain economies of skill that could be achieved. He requested the positions be reinstated. Although his office may not use all of the positions, he said it is crucial for Mr. Adkins, in his role as Deputy of Cash Management, to have the assistance of additional staff. Mr. Seale pointed out it is necessary for his office to have information provided in a timely manner, consequently the budget reflected an increase in contractual services to allow acquisition of the Bloomberg Investment Data Base System. Since timing is everything in his office, the equipment presently in use is outmoded. He explained the Bloomberg services will enable his staff to secure complete information and see the markets on line. Mr. Seale reminded the committee he is currently the President of the National Association of State Treasurers, and Darrel R. Daines, State Controller, is President of the National Association of State Auditors, Controllers and Treasurers. Recently Mr. Seale was also appointed to the Executive Committee of the National Association of State Auditors, Controllers and Treasurers on which he had previously served. He explained the necessity to rejoin the organization in order to remain current on financial happenings across the country. In his role as President of the National Association of State Treasurers, and because of the Orange County situation and Nevada's accomplishments, Mr. Seale said he was asked to testify before the United States Congress which caused an increase in the amount of his travel. Although the vast majority of his travel budget is paid by the National Association of State Treasurers, Mr. Seale said it is necessary he be granted the flexibility to attend meetings due to fluctuations in the financial market. Mr. Seale concluded by stating he covered the major points of the budget where there may be some disagreement, but pointed out past appropriations to the State Treasurer's Office were used wisely to increase the revenues for the State of Nevada. He reminded the committee his office had a very unique asset sale several years ago which created a $7.5 million windfall profit for the state. They have also been able to track the markets carefully and increase revenue by enhancing cash flows. The services his office requested and the additional funding for personnel will allow his office to continue the enhancements during his next 4-year term. Senator Rawson wished to compliment Mr. Seale for his accomplishments as State Treasurer. He remarked, "This is the most secure I have felt since the time I have been in office. We have a stable, well-managed fund and Mr. Seale should take credit for this." Referring to the Orange County situation, Senator Rawson said he understood there were professionals who warned Orange County their investments were questionable, and suggested the county make changes. The individual in charge of Orange County's funds, and the Orange County Commissioners, ignored the advice. He asked if that kind of advice were to come before the state, would it go through the Office of the State Treasurer or would it be given to the Legislative branch for an evaluation. Mr. Seale replied it would first come before his office. He added the state has had dealings with the firm Senator Rawson referred to, and suspended trading with them because of the situation in Orange County. He reiterated that was an indefinite suspension, and the state will not be trading with them in certain types of securities until this problem has been resolved. Mr. Seale assured the committee the way the State of Nevada's investment program is set up, and the process it has to go through, would prevent such an occurrence in Nevada. He remarked the state has statutes prohibiting investments in certain instruments such as reverse re-purchase agreements. Further, he must prepare a report to be presented on a quarterly basis to the State Board of Finance comprised of the Governor, State Controller, State Treasurer, and two outside members, and this report is carefully scrutinized. His office has also proposed legislation that would allow them to create regulations. The regulations within the Office of the State Treasurer should further guarantee a treasurer would not accidentally do something inappropriate. Should a similar event occur, Mr. Seale did not know at what point in time the Legislature would become involved. Senator Rawson commented there had been times prior to Mr. Seale's administration when he worried about the issue. He remarked the State of Nevada is far stronger and better off because of the recommendations Mr. Seale has put into effect. Mr. Seale said his office has a policy that was rewritten about a year ago and submitted to the Municipal Treasurers Association of the United States and Canada for which they received a commendation of excellence. This policy is in place and would not be easy to change by the Board of Finance without good reason, other then to just strengthen it. Senator Coffin noted when Orange County's problems became known, he asked the Fiscal Analysis Division to telephone Mr. Seale's office to obtain the names of the securities. After reviewing the list, Senator Coffin identified a few questionable securities and wondered if they were derivative investments of some kind. He asked Mr. Seale if his office was given the authority to borrow money to purchase securities, as was done in Orange County. Mr. Seale said the State of Nevada does not leverage their portfolio. He believes this to be unconscionable and not something the state should do. He cautioned against focusing on the word "derivatives" in a negative sense because derivatives in and of themselves are not dangerous and can be a mechanism to be used by a thoughtful investor to increase the return on a portfolio. Overusing them can be dangerous, he cautioned, but the state does not do this. However, he stated the state does invest in an insignificant number of derivatives and there are some in the portfolio today, but no revenue has been lost. As of today, the state's portfolio is approximately $l.4 billion of which the derivative investment is approximately $12 million. Referring to the municipalities within Orange County, Senator Coffin asked if the state is doing all of their investments directly in securities or purchasing investments in some funds of other municipalities or state governments. Mr. Seale replied: No, we are investing in the office directly ourselves. We buy our own instruments directly either through a broker or going directly to the federal window ourselves because of our size and because of the economies of scale. We are not invested in anything that has any Orange County products in it. Senator Coffin then said he was not just referring to Orange County. He asked if the state had purchased through convenience, or perhaps through friendships and knowledge, any pieces of an investment pool managed by someone else. Mr. Seale emphatically replied, "No." Brian K. Krolicki, Chief Deputy Treasurer, Office of the State Treasurer, interjected this is one of the primary reasons the Office of the State Treasurer wished to purchase the Bloomberg investment device. He pointed out SIIS and the Public Employees Retirement System (PERS) manage their funds through other managers, but the Office of the State Treasurer manages funds directly making it critical for them to see the inside of the market exactly as the traders do on Wall Street. Referring to the Enhancement Category 125 Accessible, Flexible Responsive Government (E-125), Senator Raggio asked if the contractual services previously referenced are included in this decision module. John Adkins, Deputy of Cash Management, Office of the State Treasurer, clarified the particular item Senator Raggio referred to can be found in the line item Operating Expenses on page 91 of the Governor's Executive Budget. He stated it is a variance between the agency request of $98,076 and $69,793 recommended by the Governor, and is reflected in this line item rather than in E-125 that refers primarily to the establishment of a Las Vegas office for investment purposes. Senator Raggio asked why the Governor did not concur with the $98,076 agency request to be used for the purchase of equipment. Mr. Hataway replied there must have been a lack of communication between the Budget Division and the Office of the State Treasurer. At the time their budget was prepared, he believed the treasurer's office only wished to upgrade present equipment to the Bloomberg system in their Carson City office, and he consequently moved their request from the Base Budget to the E-125 category. He only showed the difference between what is being spent on their present equipment and the cost of the new system, and that difference was reflected. He later determined a second Bloomberg system was requested for Las Vegas. Senator Raggio asked Mr. Hataway if the Budget Division will now concur with the agency's request for a second system. Mr. Hataway said they probably would look at the request positively since Mr. Seale has proposed an independent office in Las Vegas, and his office should have a parallel system in Carson City to operate in tandem. In order for the committee to clearly understand the agency's budget requests, Senator Raggio asked that additional information be provided. Mr. Seale reminded the committee a narrative was provided outlining his budget request (Exhibit G) that should answer Senator Raggio's questions. Senator Raggio suggested the committee file the handout in their budget books and disregard his request for additional information. Mr. Hataway pointed out an oversight in decision unit E-125 for Operating Expenses. He explained in each year of the biennium $2,650 was included for rent, but this amount should be subtracted since all of the rent for the Office of the State Treasurer in Las Vegas and Carson City was built into the Base Budget. Senator Coffin noted an individual will be moved to the Las Vegas office, and asked why this is necessary since investment decisions are made in the Carson City office. Mr. Seale answered Carson City is not the location of the active markets. In Nevada, the capital markets are in Las Vegas where all of the state's trust and custody activity is situated in the major banks. Since the documents are in Las Vegas, it was decided the individual should be located where the major activity is, and this would enhance the office's ability to deal with the banks. Also, by having an individual stationed there, much of the travel now going on between Carson City and Las Vegas will be curtailed. Municipal Bond Bank Revenue - Page 99 Mr. Adkins testified both resources and expenditures for this budget are directly attributable to the principal and interest payments of general obligation bonds and the receipt of interest and payments from municipalities. The budget as presented by the agency and the Governor are identical. Senator O'Donnell inquired about the usefulness of the bond bank. Mr. Seale responded the performance of the Municipal Bond Bank has been very successful for municipal entities. By using the services of the Municipal Bond Bank, municipalities can utilize the AA rating of the state and save significant amounts of money. Over the past 4 years alone municipalities have saved approximately $2 million. He hopes to expand the Municipal Bond Bank to offer further services to local entities which pay all of the costs of issuing the debt and then pay the state for the servicing of the debt 15 days early. The state takes the revenue derived for 15 days, invests it, and uses the interest earnings to pay for the cost of the Municipal Bond Bank. Therefore, there are no costs to the state. Senator Jacobsen asked if there is an indication the state's rating may be in jeopardy, and Mr. Seale replied it is not. He explained he spends much of his time talking to rating agencies and others who are pleased with the conservative fiscal posture Nevada has acquired, and he hopes to talk to the rating agencies in the future about enhancing the state's AA rating. Presently, there is no question about the safety of Nevada's AA rating. Senator Rawson noted legislation may be proposed during the current session of the Legislature to revise the provisions relating to the distribution of the uncommitted balance in the Municipal Bond Bank, and he asked what impact this will have on the operation of the Municipal Bond Bank program. Mr. Seale confirmed there has been some conversation about taking the extraordinary earnings out of the Municipal Bond Bank and distributing it to the municipalities that participate in the Municipal Bond Bank. He stated he is on record as opposing the plan because the state will be at risk with the Municipal Bond Bank and will stand behind the local entities. He explained the reason this became an issue is the state created a $7.5 million profit from asset sales. Asset sales will not occur again because in the process, the state annoyed the (United States) Internal Revenue Service (IRS) which, in turn, developed regulations to preclude asset sales from happening again. He further stated, had they wanted to, the state could not distribute the $7.5 million to the local entities. After discussion with bond counsel about the matter, it was determined IRS regulations would forbid this action. Senator Mathews commented she recently served in city government, and she is aware the City of Reno wants to manage their own assets. She stressed the City of Reno believes they are entitled to manage their own assets. Mr. Seale hoped the municipalities pushing the issue can meet with him and his staff and discuss why the action would be impractical. He remarked, "Who do you distribute it to? There are many players in the Municipal Bond Bank program and they come and go. In what way would you distribute it?" Municipal Bond Bank Debt Service - Page 101 Mr. Adkins stated the budget is the debt service account for the Municipal Bond Bank, and the funds reflected were transferred from the previous account to meet principal and interest payment requirements of the Municipal Bond Bank. Senator Rawson asked what method the state used to distribute funds to the banks throughout the state. Mr. Seale replied 4 years ago the state had 355 bank accounts, but his office reduced the number to 217 bank accounts, and will attempt to eliminate more. Much effort was expended to ensure each of the financial institutions in the state had a portion of the state's portfolio in investments. Mr. Seale pointed out the Office of the State Treasurer must deal with all of the major banks on a daily basis, and the smaller banks on a regular basis. Public Employees Retirement System - Page 2043 George Pyne, Executive Officer, Public Employees Retirement System, presented testimony by reading from prepared text (Exhibit H). Mr. Pyne also distributed an augmentation detail dated December 30, 1994 (Exhibit I) and a letter from The Segal Company dated January 19, 1995 (Exhibit J) that was referenced in his testimony reflecting changes to the budget for the PERS. Senator Raggio asked about the function of The Segal Company, and Mr. Pyne replied they are a systems actuarial firm that performs the annual evaluation of the PERS as well as the retirement system for legislators. They also provide legal advice regarding IRS codes. During his testimony, Mr. Pyne mentioned out-of-state travel for five members of the Police and Firemen's Retirement Fund Advisory Committee to attend one national conference per year. Senator Raggio asked why all five members have to attend. Mr. Pyne responded attendance at national conferences provides information of an educational nature that helps in decision making, and can be used on a day-to-day basis by all of the attendees. Senator Coffin asked why members of an advisory board to the appointed board should have to do a lot of travel. Mr. Pyne responded the committee advises the board on all matters that go before them concerning the police and firemen's fund, and many of the conferences deal specifically with police and/or fire matters. Senator O'Donnell referred to the item Information Services contained in the agency's Base Budget, and said the agency's request and the Governor's recommendation are excessive. Also, in reviewing the enhancements, he noticed the agency requested far more than what the Governor recommended. It appeared to him the agency is requesting what they want in terms of data processing as an enhancement, and the Governor has disagreed with the requests. He asked for an explanation regarding the $18,000 difference between the Base Budget item and the enhancement request. Mr. Pyne attempted to respond to Senator O'Donnell's question. Janet Johnson, Deputy Budget Administrator, Budget Division, Department of Administration, interjected she did not know why this occurred, but she would find out and advise the committee. Senator Raggio indicated the budget summary on page 2047 of the Governor's Executive Budget reflected similar figures in the Information Services line. Senator O'Donnell concurred, the budget summary would not reflect a difference between what the agency requested and the Governor recommended, but the difference is in the accounting mechanism. He said the new budget format will provide a complete description of the Base Budget, and expenditures needed to continue the Base Budget. He remarked, "If we are going to play games with this, we are not really going to get a true picture of what the Base Budget is. What is base and what is enhancement?" Senator Raggio agreed the committee should have an explanation of the $18,000 difference. Mr. Pyne concluded testimony of his budget by reading from prepared text (Exhibit H). Senator Coffin noted two additional positions were being requested, and asked where the positions are reflected in the agency's budget request. Mr. Pyne replied the decision to fill an Auditor II position was made after the budget was prepared. However, he referred the committee members to Exhibit K, a letter he forwarded to John P. Comeaux, Director, Department of Administration, dated December 30, 1994 that provided justification for the position. The second position involved a reclassification of an existing Investment Analyst position to Administrative Analyst, and is shown in category 805 of the budget. Ms. Johnson advised the committee Mr. Jim Manning, Deputy Budget Administrator, Budget Division, Department of Administration, was in the audience and could provide an answer to Senator O'Donnell `s question concerning the $18,000 difference in the Information Services line of the Base Budget. Senator O'Donnell rephrased his question explaining the Governor recommended an increase in the Base Budget for Information Services of approximately $18,000, but in decision module E-125, the agency requested almost the same amount the Governor recommended in the Base Budget. He asked why the Governor's recommendation was included in the Base Budget, and the agency's request in the Enhancement category. Mr. Manning said when he prepared the budget he mentioned to one of the staff members of PERS that some of the adjustments in the Base Budget reflected negative numbers. He recalculated and showed the amounts based on costs, and did not include a negative figure for a cost that did not occur. This caused the difference to be reflected in the Base Budget. Senator Raggio adjourned the meeting at 10:10 a.m. RESPECTFULLY SUBMITTED: Marion Entrekin, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance January 23, 1995 Page