MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session January 30, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 4:00 p.m. on Monday, January 30, 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, Deputy Fiscal Analyst Ron Steele, Fiscal Analyst Sue Parkhurst, Committee Secretary OTHERS PRESENT: Patricia Morse Jarman, Commissioner, Consumer Affairs Division, Department of Business and Industry Deb Erickson, Budget Analyst, Budget and Planning Division, Department of Administration Margaret Stannish, Senior Deputy Attorney General, Telemarketing and Consumer Fraud Unit, Office of the Attorney General Rose McKinney-James, Director, Department of Business and Industry Lise L. Wyman, Administrator, Office for Hospital Patients, Department of Business and Industry Birgit K. Baker, Administrative Services Officer, Department of Business and Industry Travis Wall, Executive Director, Office of Protection and Advocacy Senator Raggio announced there were several bill draft requests (BDRs) from the Budget Division for bills included in the budget that were proposed for committee introduction. BILL DRAFT REQUEST S-1473: Makes supplemental appropriation to commission on ethics for certain expenses. SENATOR JACOBSEN MOVED TO INTRODUCE BDR S-1473. SENATOR RHOADS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * BILL DRAFT REQUEST S-1474: Makes supplemental appropriation to department of education for expenses related to residential and educational needs of children with disabilities. SENATOR COFFIN MOVED TO INTRODUCE BDR S-1474. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * BILL DRAFT REQUEST S-1479: Makes supplemental appropriation to state board of parole commissioners for retroactive retirement contributions. SENATOR JACOBSEN MOVED TO INTRODUCE BDR S-1479. SENATOR MATHEWS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * BILL DRAFT REQUEST S-1480: Makes supplemental appropriation to office of the military for additional utility expenses. SENATOR JACOBSEN MOVED TO INTRODUCE BDR S-1480. SENATOR RHOADS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * BILL DRAFT REQUEST S-1569: Makes appropriation to state board of examiners to restore balance of certain accounts. SENATOR COFFIN MOVED TO INTRODUCE BDR S-1569. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * BILL DRAFT REQUEST S-1570: Makes appropriation to contingency fund. SENATOR JACOBSEN MOVED TO INTRODUCE BDR S-1570. SENATOR COFFIN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. * * * * * Consumer Affairs - Page 811 Patricia Morse Jarman, Commissioner, Consumer Affairs Division, Department of Business and Industry, presented the budgets for several divisions of the department. Ms. Jarman said the Consumer Affairs Division was created in 1973 to protect consumers in Nevada and throughout the country against deceptive trade practices and to promote fair trade in the business place within the state. The agency is headquartered in Las Vegas. There are 13 staff members in the deceptive trade unit and five staff members in the telemarketing unit. The division also houses the Office for Hospital Patients, which has a staff of two, and the auto insurance advocate. Ms. Jarman called attention to the measurement indicators, "number of complaints opened" (page 811) which shows 4,827 actual complaints in the Fiscal Year (FY) 1994 column. She said the figure should be 6,580. The discrepancy occurred as a result of several massive computer problems experienced by the division throughout the year which caused the loss of some data. The number of cases subsequently had to be manually counted. The revised figures projected for FY 1996 and FY 1997 are about 25 percent higher, or 8,225 each year. One measurement indicator not shown in the program description for this budget is the number of telephone calls received, Ms. Jarman said. The division receives more than 50,000 telephone calls annually, over 70 percent of which are complaints about automobile repairs and used car sales in the State of Nevada; this is a major problem area. Other complaints received concern telephone solicitation, charitable donations and chance promotion schemes. Senator Raggio inquired what the turnaround time, or response time, is for handling these complaints. Ms. Jarman replied the time ranges from 21 days to 180 days or longer, depending on the complexity and nature of the case, whether other state or federal agencies are involved and other factors. At times the agency conducts undercover activities to obtain evidence in deceptive trade cases. The targeted maximum turnaround time is 30 days. Many cases can be resolved over the telephone, or by obtaining assurances from the person suspected of deceptive trade practices that such practices will be discontinued. Senator Raggio asked how the auto repair and used auto sales complaints are handled. Ms. Jarman said many times consumers have already legally committed themselves beyond the scope of jurisdiction of the Consumer Affairs Division by the time they contact the agency; for example, the consumer may have signed a blank work order. The senator asked what percentage of the 6,580 figure for "number of complaints opened" dealt with auto repair shops and used car sales. Ms. Jarman stated such cases represent slightly more than 50 percent of the figure for "complaints opened," translating into 3,000 to 4,000 complaints per year in this area. Senator Raggio inquired how the agency handles cases involving a large volume of complaints against a single establishment. Ms. Jarman explained the procedures involved. In response to further questions from the senator regarding the agency's investigative capabilities, how recurring complaints about specific businesses are handled and what the division has done to deal with what appears to be a significant problem area, Ms. Jarman said there are currently only five investigators for the entire state, two in Reno and three in Las Vegas. The agency has limited capability and resources to conduct undercover activities. Senator Raggio inquired why the division does not have the necessary capability to deal effectively with the large number of auto repair and used car sales complaints. Ms. Jarman responded she had requested four additional positions in the proposed budget for the purpose of setting up an automotive unit within the Consumer Affairs Division to address such complaints. The agency's request was not recommended for funding, although Ms. Jarman had discussed the need for the additional positions with her supervisor, Rose McKinney- James, Director, Department of Business and Industry, who had supported her request. Asked to explain why the division was not recommended for the funding given the size of the problem, Mrs. McKinney-James told the committee the agency has historically had insufficient resources. She said the department had apparently failed to substantiate the division's need for additional resources within the boundaries of what was required by the budget office for its analysis. Senator Raggio emphasized the need for drastic action given the number of complaints in this area. Deb Erickson, Budget Analyst, Budget Division, Department of Administration, explained the rationale she used in the budget decisions related to the Consumer Affairs Division concerning additional resources. She said the budgets for the division itself and for the telemarketing unit are impacted with respect to this area of concern. Ms. Erickson said there has been a problem with regard to the Consumer Affairs Division's ability to receive $140,000 in funds that are intended for transfer from the telemarketing unit. This is being addressed in the Executive Budget as a recommendation to change the funding source from fee-based to General Fund. Ms. Erickson said she took this into account when considering the agency's request for additional personnel. She also expressed doubt the actual volume of complaints in the auto repair/used car sales had been specifically identified by the agency. Senator Raggio stated the budget should be reworked to address what the Consumer Affairs Division has indicated is a substantial problem. Referring to the "number of complaints resolved" for FY 1994 in the measurement indicators, Senator Raggio inquired if the number shown is accurate. Ms. Jarman said this figure is below the actual number by about 25 percent; the number of cases resolved exceeds 5,000. After ascertaining more than 50 percent of these cases were related to auto repair and used car sales complaints, the senator requested an overview of how the cases were resolved. Ms. Jarman explained the processes and procedures involved. She said she and the new deputy attorney general (DAG) assigned to this case hope to more aggressively pursue businesses that continuously promote deceptive trade practices against consumers. Asked by Senator Raggio if a deputy attorney general is assigned to the Consumer Affairs Division, Ms. Jarman said such a position is not specifically assigned to the deceptive trade unit. Two full-time DAG positions have been requested by the agency in the new budget just for this unit. Senator Raggio asked why so few legal actions on behalf of consumers were filed in FY 1994. Ms. Jarman said the reason is the division does not have the full-time DAG positions. The senator asked if there were other cases that properly should have been filed had the DAG resources been available. Ms. Jarman deferred to Margaret Stannish, Deputy Attorney General, Telemarketing and Consumer Fraud Unit, Office of the Attorney General, to respond. Ms. Stannish told the committee the Office of the Attorney General has four attorneys who work in the Telemarketing and Consumer Fraud Unit. By virtue of the budget, all four of the positions are within the telemarketing budget; however, approximately one and one-half DAG time is devoted to the deceptive trade practices area. Regarding the number of lawsuits, Ms. Stannish said the division's efforts in processing legal actions involving auto-related complaints are hampered by having only five investigators to handle a crushing work load of complaints. Consequently, Ms. Stannish continued, there are insufficient resources from the Consumer Affairs Division to put together cases for litigation. Senator Raggio said his question is, "How many of the 6,580 complaints should have had legal action filed had the capability existed?" Noting she assumed her position as commissioner in June 1994, Ms. Jarman estimated the number of cases that could have gone to court at an additional 25 percent or more. She said the division has done as much as it can do without the necessary DAG back-up and related resources. The senator pointed out it is the agency's responsibility to ask for the necessary resources. Ms. Jarman averred, "I came in asking, I put it in writing, I requested, for the [upcoming fiscal year], two full-time deceptive trade attorneys." Senator Raggio said what immediately catches the committee's attention when reviewing this budget is that apparently a large segment of the state's population may be victims of deceptive trade practices, and the state has no effective agency to deal with the problem. Ms. Jarman indicated agreement and reiterated she has attempted to obtain additional resources. Senator Raggio restated his concern for the victims of the deceptive trade practices involving auto repair/used car sales whose complaints are not being resolved. Senator Coffin raised the subject of whether a "lemon law" for used cars should be put forth to give the Consumer Affairs Division the additional authority and resources necessary to address consumer complaints. Ms. Jarman strongly supported the proposal, noting one of the most frequently asked questions of the agency is why new cars, many of which have extensive warranty coverage, are subject to a lemon law while there is no protection for used car purchases. Senator Coffin inquired if part of the division's problem is that because the state has no lemon law, such cases are not resolved to the satisfaction of the consumer. Ms. Jarman replied affirmatively. The senator invited Senator Raggio's participation in developing a lemon law. Senator Raggio emphasized the agency should at least have the capability to investigate cases to determine the validity of the complaints, especially in those cases involving numerous complaints against particular businesses. Ms. Jarman said the agency not only does not have the necessary investigative capabilities, but also does not have the capabilities to warn the public against businesses that are continually deceiving them. The senator stressed the primary need was first to be able to determine the validity of the complaints. Ms. Jarman concurred. Pertaining to the M-200, Demographics Caseload Changes decision module (page 812), Ms. Erickson inquired if the funding mechanism indicated in this module, which is General Fund, is consistent with the committee's desires regarding this particular budget. Senator Raggio replied the committee will consider whatever the Governor chooses to recommend in this regard, but said there appears to be nothing in the proposed budget that addresses the problem. Commenting on the historical aspects of the current situation regarding telemarketing, Senator O'Donnell reminded the committee what had occurred in the 1993 session with respect to a bill in the Senate Committee on Commerce dealing with a proposed tax on telemarketers. The telemarketers convinced the commerce committee the tax was unnecessary, and the provision was stripped from the bill. The bill was sent to the Senate Committee on Finance, whose members were assured by the telemarketing industry there would be enough funds generated by fees and penalties to properly fund the telemarketing unit of the Consumer Affairs Division. The Federal Bureau of Investigation (FBI) had two attorneys assigned to work with the state's Office of the Attorney General. When the two FBI attorneys were pulled from the assignment due to lack of funding, the complaint calls received by the FBI were funneled to the telemarketing and fraud unit of the Consumer Affairs Division. Because the telemarketing unit lacked sufficient staff to deal with the large volume of complaints, "nothing was getting done." Subsequently the FBI launched its own investigations in the telemarketing arena and made some arrests "on a major bust" in Las Vegas. Senator O'Donnell complained the committee was hoodwinked by the telemarketers during the last session because the telemarketing and fraud unit of the Consumer Affairs Division was not properly funded. He voiced the opinion the Governor's recommendation to fund the unit out of General Fund dollars was "a tragedy." Responding to the senator's remarks, Ms. Erickson said the reason she had not recommended funding the requested additional positions was that she did not believe the use of additional General Fund dollars was appropriate. Senator Raggio affirmed Senator O'Donnell's comments regarding the funding arrangements agreed upon during the last session and said the funding arrangements have apparently failed. Addressing the senator's remarks, Ms. Stannish voiced the opinion the primary reason the intended funding has not occurred is twofold: (1) There has been a significant reduction in the number of registered telemarketing companies since the state began prosecuting and litigating against telemarketers, from 84 registered companies to 34, representing a 65 percent reduction; and (2) those companies that are still registered are primarily sports information services. Consequently, the telemarketing industry as it existed in 1993 has significantly changed. Many of the telemarketers have gone underground and are not registered, therefore they are not within the purview of the state statute; but that does not mean the problem has disappeared, Ms. Stannish stressed. Pointing out that telemarketing fraud is a crime, she said it would be disastrous to eliminate the telemarketing and fraud unit, which she noted works very closely with the FBI on this matter and has played an instrumental part in that agency's actions concerning telemarketing busts and prosecutions. Mrs. McKinney-James also responded. She stated that while she had not been involved in the debate during the last session, she spent a great deal of time, in her early tenure in this position, exploring with the former Commissioner of Consumer Affairs issues related to this budget. She said it is her understanding the manner in which the current budget has been constructed, with respect to the telemarketing fraud unit, has created problems that have led to a shortfall in this budget. Mrs. McKinney-James said the agency has attempted to obtain funding for this program because of its commitment to provide consumer projection. Although the request for a General Fund appropriation is recognized as the least desirable choice, she stated, it will enable continuation of the telemarketing fraud program. Senator O'Donnell remarked the committee was not assigning blame, but questioning the adequacy of the previous budget in this area with respect to anticipated revenues. He said the telemarketers of whom he has been aware are now calling themselves advertising agencies, so they now "advertise" their products instead of telemarketing them. The senator noted the selling processes are exactly the same, and that while the number of registered telemarketers is diminishing, the number of operations that are, in effect, telemarketing operations remains the same. He suggested it might be necessary to redefine and reassess these operations with regard to the fees they are being assessed by the state. Mrs. McKinney-James said that based on the fairly aggressive enforcement efforts of the attorney general's office, there has been a movement away from the parameters currently set forth in the statute, to other activities; the bottom line is that consumers are being hurt. Senator O'Donnell voiced the opinion the situation with regard to telemarketing fraud gives Nevada and its residents a black eye. Mrs. McKinney-James commented that since Nevada registers telemarketers, they are attracted to this state. There are many complaints from sister states because of activities that take place outside the state by entities registered in Nevada. Ms. Jarman noted some telemarketers are using the term "telefunder" and are operating under that label rather than continuing to be registered as telemarketers. Their activities are virtually the same, she pointed out, but the state has no jurisdictional authority over them and collects no fees, and the problem has grown significantly. Ms. Jarman said the state is considered the illegal telemarketing haven of the nation. She said aggressive action must be taken to address the problem because people all over the country are being hurt. Senator Raggio said the committee has been informed by the fiscal staff the Deceptive Trade Revenue is projected to increase from $36,000 in FY 1994 to $150,000 in each year of the biennium, and he requested confirmation the information is correct. Ms. Jarman said it is. The senator commented the projected increase seemed rather high and asked the justification for the projection. Ms. Jarman indicated the projection is based on the substantial settlements obtained against businesses during the last biennium. Senator Raggio asked Ms. Erickson if the $150,000 per year in projected revenue was regarded by the Budget Division as realistic. Ms. Erickson responded she was assured the difference between base year and projected years is that the collection process would be more efficient than in the base year, and that the projection is not related to caseload growth or increased fees. Based on this information, she believed the projected revenue to be "more realistic." In relating this to funding mechanisms of past years, Ms. Erickson stated, it is probably more realistic to have the agencies that are receiving the "benefits of the actions" also perform the revenue projection for their agency. This is in contrast to what occurred in the last biennium, when one agency was performing the projections, another agency was performing the actions and yet another agency was receiving the revenue. Ms. Erickson stated her belief that if the agency performing the projection "receives the benefit of the action," the projections tend to be somewhat more realistic. Senator Raggio asked the reason for the proposed transfer of three positions supported by the General Fund to the Director's Carson City Office, as recommended in decision unit E-900. Ms. Jarman deferred to Mrs. McKinney-James, who noted the budget for the Director's Office reflects the receipt of these transfers. She said the three positions had been assigned to the Director's Office of the former department of commerce. Through the state government reorganization, the positions were placed in a budget account in the Consumer Affairs Division. The recommended transfer is simply an effort to reconcile the actual staff activities of the three individuals, who have been performing duties for the Director's Office since the creation of the Department of Business and Industry. Senator Raggio requested assurance by the agency that transferring the three positions would not impact the operations of the Consumer Affairs Division. Mrs. McKinney- James answered the positions in question have never provided services to the Consumer Affairs Division, and she could therefore assure the committee the proposed transfer would not impact the status of the division. At Senator Raggio's request, Ms. Jarman agreed to provide a detailed report on the operation of the Consumer Affairs Division to assist the committee in gaining a better understanding of how the agency functions. Senator Rawson inquired if there are currently any legislative measures proposed to address the issues under discussion. Ms. Stannish said a bill draft request has been submitted by the attorney general's office to amend NRS 599b by adding language to include telefunders as well as recovery services within the definition of "seller," thereby providing that such entities be required to register. Ms. Jarman said another bill draft request, BDR 52-882, addresses the issue of confidentiality and would enable the Consumer Affairs Division to inform consumers of problem areas involving businesses suspected of deceptive trade and fraudulent business practices. In addition, a proposed assembly bill would address such practices with regard to auto repairs. Senator Coffin noted there is a bill pending that would provide a lemon law for used cars. Senator Raggio questioned how such a measure would help if the Consumer Affairs Division does not have the capability of dealing with the complaints it already has. Ms. Jarman said she agreed the agency must first have the mechanism to address existing complaints, but more staff is necessary to accomplish this. Senator Raggio pointed out such needs were supposed to be addressed by the budget office through the Executive Budget. Ms. Jarman said the agency's budget would be reworked. Consumer Affairs, Restitution - Page 817 Ms. Jarman noted this is a pass-through account with no fiscal impact on the General Fund. Bond money collected from companies as certificates of deposit (CDs) for surety bonding purposes are transferred to a restitution account if a business is found to be practicing deceptive trade practices, resulting in forfeiture of the firm's surety bond. Consumers who have been found to have valid complaints regarding the unfair trade practices may receive restitution from this account. Senator Raggio asked why the agency has projected the amount of refund or restitution from telemarketing- related activities at $2.35 million for FY 1995. Ms. Jarman said the projections are based on pending cases that are expected to yield the projected revenue. Consumer Affairs, Telemarketing - Page 819 Ms. Jarman provided background information on the Telemarketing and Fraud Unit. She reminded the committee the unit was created in 1989. At that time Nevada was regarded as the illegal telemarketing haven of the nation. Through very aggressive activities within the Consumer Affairs Division as well as through assistance from the Office of the Attorney General, a number of the telemarketers were driven underground. Some of them have "collapsed their business" as telemarketers and now call themselves "advertisers" or "telefunders." They may still engage in fraudulent or deceptive trade practices in the telemarketing arena, but they do not become licensed, registered telemarketers. The number of registrations of telemarketers is therefore significantly lower than what was projected for FY 1994. Continuing her budget review, Ms. Jarman noted the substantial shortfall in the revenues projected for the Consumer Affairs - Telemarketing budget for the current biennium. Senator Raggio inquired why the agency did not approach the Interim Finance Committee (IFC) regarding the shortfall. Mrs. McKinney-James indicated the agency attempted to gain an understanding of why a shortfall situation existed, rather than going to the IFC. When it was determined the manner in which the budget was constructed had caused the problem, the agency chose to have the Consumer Affairs Division and the attorney general's office deal with the shortfall until the next legislative session. The decision not to take the matter to the IFC was a strategic decision and a policy decision made by the department, Mrs. McKinney-James continued, and was made after consultation with representatives from the budget office, the attorney general's office and the fiscal analysis staff of the Legislative Counsel Bureau (LCB). Senator Raggio asked when the potential for a large shortfall in the telemarketing budget was first identified. Mrs. McKinney-James said it was brought to her attention in July 1994. The senator noted the shortfall situation was scheduled for presentation to the IFC at that time, but the request for consideration was withdrawn with the explanation it was no longer a problem. Mrs. McKinney-James apologized for the false impression conveyed at the time, because she said the problem was indeed a major one, and the agency was searching desperately for a solution. It was felt, however, the agency should attempt to determine the reason for the dilemma and to bring a comprehensive picture of the situation to the Legislature in 1995. Senator Raggio inquired as to the increase in state funding that is being recommended in the Telemarketing budget. Ms. Erickson said the increase does not fall within this budget account, but in the budget for the Consumer Affairs Division, budget account 3811. The impact is shown in decision unit E-907, Program Transfers, in the Consumer Affairs-Telemarketing budget (page 821). Ms. Erickson further stated a work program from the agency that will "de-augment 1995" will be presented to a subsequent IFC. Senator Raggio asked what the net result would be in terms of state funding for the telemarketing unit. Ms. Erickson said the net result would be $57,116 in FY 1996 and $61,860 in FY 1997. Mrs. McKinney-James offered the following comments for the record. She said part of the difficulty faced by the agency in July 1994 was that when the shortfall problem surfaced and was determined to have been the result of the budget having been built to include a transfer from the Consumer Affairs Division to the attorney general's office, the question arose as to which of the two entities would be best suited to approach the Interim Finance Committee. The agency was faced with the dilemma of approaching the IFC to request an appropriation from the contingency fund on behalf of an agency that was not a General Fund agency. Mrs. McKinney-James further stated the agency was advised it was not in a position to make such a request. Senator Raggio asked what impact the shortfall had on the operations of the Telemarketing and Fraud Unit of the Consumer Affairs Division. Ms. Stannish answered the attorney general's office had attempted to realize some salary savings and had lost some investigative staff for a time. The office is still short one investigator but hopes to be up to full staffing by the end of February 1995. The senator reiterated his question regarding the impact of the shortfall on the telemarketing unit during the last biennium. Ms. Stannish replied the operations involving the attorney general's office were impacted to the extent the office had to reduce its investigating efforts. Addressing Senator Raggio's question, Ms. Jarman explained the efforts in telemarketing were split in 1993. Consumer Affairs was charged with collecting fees and registering the telemarketing firms, while the attorney general's office was charged with enforcement. The impact has been that the Telemarketing and Fraud Unit has not been able to aggressively pursue the companies in the way it should have, due to insufficient staff. Senator Raggio summarized the impact of the shortfall as follows: All of the funding anticipated to be provided for the operation of both the Deceptive Trade Practices Unit and the Telemarketing and Fraud Unit did not materialize, resulting in a major shortfall. Neither operation was therefore able to operate very effectively during the biennium. The senator asked if this was a fair statement. Ms. Stannish replied it was not, with respect to the enforcement efforts. She said the attorney general's office had formed a task force with federal and county agencies to compensate for understaffing, which has helped deal with the problem. She reiterated the office anticipates being fully staffed at the end of February 1995, but was unable to say how this would be accomplished. Ms. Stannish attributed the reduced telemarketer registration in part to the aggressive enforcement efforts of the attorney general's office. Ms. Jarman said the telemarketing unit has been continued to perform its functions with a reduced staff. Senator Raggio said the committee needs to know what solution is being recommended to make the consumer affairs entities effective, because they serve no useful purpose if they are not efficacious. He told the agency representatives to return to the committee with a recommended solution to the problems so the agency can perform as intended and as the public expects. After further discussion on the actual amount of the shortfall in the telemarketing budget and the resulting impact on the General Fund, Senator O'Donnell noted the shortfall was significantly more than the amounts mentioned in the agency's testimony ($57,116 in FY 1996 and $61,860 in FY 1997). Regarding the resulting impact on the General Fund, Senator O'Donnell stated the following: So the truth is that where we had put all of our eggs, essentially, in that basket of Consumer Affairs to enforce this industry, it is $500,000 short of where it should have been in both years... And the problem here is that the transfer over to the attorney general's office is going to require a half million dollars from the taxpayers, per year...to fund the telemarketing fraud unit. That is the problem. Office for Hospital Patients - Page 823 Ms. Jarman provided background information on this agency, which was called the Commission for Hospital Patients before being renamed in the state government reorganization of 1993. The new agency was created in 1991 but the office was not officially opened until February 1992. From February 1992 to December 31, 1994, the office has handled 1,091 cases, consisting of the overcharging of patients on their hospital bills or involving disputes over hospital bills, arbitrating such disputes and if necessary proceeding to judicial review. Of the 1,091 cases there have been no judicial reviews. In June 1994, Lise Wyman was appointed administrator of the agency. Following her introduction to the committee, Ms. Lise L.Wyman, Administrator, Office for Hospital Patients, Department of Administration, drew attention to a packet of material she had provided containing copies of newspaper and magazine articles about the Office for Hospital Patients (Exhibit C). She described the function and operations of the office. There are two persons in the Office for Hospital Patients (OHP), the administrator and a clerical position, both bilingual. The agency handles several areas, including assisting patients with hospital billing concerns. The issues in this category primarily concern billing errors such as potential overcharges and double billings, payment arrangements between patients and hospitals, and the needs of indigents who require financial assistance with their hospital bills. In indigent situations hospitals in many instances "write off" the bills. Ms. Wyman stated the OHP's caseload continues to increase with population growth and the addition of new hospitals in the state. She cited the authority for the office as deriving from two statutes in the Nevada Revised Statutes (NRS) 679b.500 and NRS 439b.260. The administrator of this office is also statutorily authorized to arbitrate cases involving disputes between hospitals and patients relating to hospital charges. The office is funded by annual assessment fees to hospitals with 49 or more licensed beds in the State of Nevada. This precludes federal and state hospitals. The assessment amount is based on the Consumer Price Index (CPI) and on the total number of patient care days. In response to questioning from Senator Raggio, Ms. Wyman affirmed there is a statutory cap of $100,000 and referred to NRS 679b.50, section 7, to explain the formula for assessment of the 24 hospitals covered by the office. Regarding the request for one half-time FTE compliance investigator in decision module M-200 (page 824), Ms. Wyman said the position is needed because of the increased caseload resulting from population growth and the addition of four new hospitals in Nevada. She stated it is virtually impossible, with the existing staff of just two persons, to properly handle the work load which involves visiting every hospital, examining every case, and reviewing and auditing all of the records. With the potential increase in caseload the requested part-time position is definitely needed and would help tremendously, Ms. Wyman told the committee. Senator Raggio inquired if the Office for Hospital Patients was originally in the insurance division. Ms. Wyman deferred to Mrs. Rose McKinney-James, who explained the office is statutorily required to report to the Division of Insurance. In her earlier review of the Department of Business and Industry, she discussed with the former commissioner of insurance, as well as the commissioner for consumer affairs, the possibility of a transfer of the office in an effort to consolidate all consumer services into a single agency. The department entered into an interagency agreement for purposes of facilitating the transfer and has submitted a bill draft request to formalize the transfer. Senator Raggio asked if this request is accommodated in the proposed budget. Mrs. McKinney-James replied yes. Senator Raggio questioned the OHP administrator regarding whether there are any particular hospitals that are notable with respect to the number of complaints lodged against them and the recourse available to the agency in situations involving repeated complaints of a similar nature against the same hospital. Ms. Wyman responded she could not single out one hospital as having engendered the largest number of complaints because it varies from quarter to quarter. The office has no authority of a punitive nature, but utilizes arbitration hearings to deal with individual complaints. Office of Protection and Advocacy - Page 933 Mrs. McKinney-James reminded the committee the Office of Protection and Advocacy (OPA) has rather unusual responsibilities. It is primarily federally funded, but does enjoy a General Fund appropriation which is dedicated primarily to the personnel cost for the agency. Mrs. McKinney-James said the Governor announced late in 1994 his attention to pursue redesignation of this agency, which was created through an executive order and is a system referred to technically as protection and advocacy. There are certain federal mandates that establish its operation. The redesignation effort was brought to the attention of the Interim Finance Committee for guidance as to how the General Fund appropriation would be handled following redesignation. Mrs. McKinney-James said the redesignation effects privatization of the protection and advocacy function by removing it from the status of a state agency and transferring its responsibilities to a nonprofit entity. Mrs. McKinney-James indicated for the record the new structure for the protection and advocacy function is quite common throughout the U.S. but had not been considered for Nevada until Mrs. McKinney-James assumed her position as director of the department. She recommended the Governor explore the possibilities of redesignation, based on her experience which suggested the quality of service to the constituent group was questionable. Mrs. McKinney-James said the Governor made his decision, public hearings were held and public testimony was taken across the state, and it was determined the community overwhelmingly supports the notion of redesignation and privatization. The Governor subsequently sent correspondence to the federal agencies with principal responsibility for funding this entity, and the Legislature now must decide on the fate of the General Fund appropriation for the agency. Mrs. McKinney-James further stated that based on the manner in which the redesignation process is structured and guidance is provided by the federal government, if a state has a protection and advocacy system and maintains it in any form (whether as a state agency or as a nonprofit agency) and if a commitment has been made for an appropriation, the federal government has determined the funding must accompany the program upon redesignation. Mrs. McKinney-James deferred to Travis Wall, Executive Director, Office of Protection and Advocacy, to present the budget for this agency. Mr. Wall noted he has been appointed director of the pending protection and advocacy program, the Nevada Disability Advocacy and Law Center (NDALC). Referencing a letter from Governor Miller to Robert Williams, Commissioner, Administration for Children and Families dated January 19, 1995, in which the commissioner indicates his decision to redesignate Nevada's protection and advocacy system from the present designee to the Nevada Disability Advocacy and Law Center (NDALC), Senator Raggio stated the letter will be included in the record of this meeting (see Exhibit D). Mr. Wall summarized the structure and history of the current system. He told the committee the program is federally mandated and has existed for about 14 years. Through executive order Governor O'Callaghan created the first office, which was called the Developmental Difficulties Advocacy Office and was established in response to the federal Developmental Disabilities Assistance Act passed in 1978. About ten years later Governor Bryan restructured and reorganized the office, moving it to the Department of Commerce through another executive order and expanding the program in keeping with an additional mandate attached to the first one, through the federal Protection and Advocacy for Individuals with Mental Illness Act. The office remained where it was until the recent reorganization of state government, at which time it was folded into the Department of Business and Industry. Mr. Wall said the reason the program has been housed within first the commerce department and then the Department of Business and Industry is that federal law is very explicit in its requirement the protection and advocacy agency must exist independent of any provider of services to people with disabilities so there is no conflict with its watchdog responsibilities on behalf of people with disabilities. There have been two subsequent mandates passed by the federal government and in turn attached to the agency, although the agency has yet to begin to carry them out. One is called the Protection and Advocacy for Individual Rights, which is under the federal Rehabilitation Act. The more recent mandate is a requirement for protection and advocacy services for disabled people who have "assisted technology needs." That mandate attaches to the Rehabilitation Act and provides that certain federal monies received by state agencies must be passed through to a state's protection and advocacy system to provide protection and advocacy services. Mr. Wall said the agency's mission is to protect and advocate for the rights, interests and welfare of Nevadans with disabilities and, as federal law states, "through legal, administrative and other appropriate remedies and approaches." Federal mandates require the agency to provide information, training and education to people with disabilities regarding their rights; to investigate suspected or alleged incidents of abuse and neglect against a person with a disability; to monitor, analyze and comment on governmental affairs that affect the rights of people with disabilities, and to provide technical assistance and representation of people with disabilities in mediation, negotiation, administrative proceedings and legal proceedings. Continuing his summary, Mr. Wall said the agency has two offices in the state, one in Las Vegas and one in Reno. Historically, the administrative offices have been in the north. The agency historically has had from 10 to 12 staff positions. Currently, seven of the positions are professional, three are clerical and administrative. Because of the anticipated redesignation, the agency is considerably understaffed at this point. In addition to Mr. Wall's position, there are two professional positions in the program: one compliance investigator in the south and one in the north. Mr. Wall added the other personnel will not be accompanying the program after the transition leading to privatization of the agency. Senator Raggio inquired how the agency will be able to function with the limited staff. Mr. Wall indicated the staffing will be increased following the transition. The senator requested clarification of the reason for the downsizing. Mr. Wall replied the downsizing occurred very recently and was necessitated by the transfer to other agencies within the state, those personnel who elected to remain in state service rather than accompany the program. Senator Raggio asked the number of persons who would accompany the program "on a privatized basis." Mr. Wall said three individuals, including himself, will "go with" the privatized program. Senator Raggio asked whether there would be an additional cost to the state as a result of the redesignation, with the state having to find jobs for those employees who chose to remain in state service. Mrs. McKinney-James addressed the question, stating the employees who chose to remain in state service are "protected individuals" and the state is required to give them the option of remaining as state employees. Fortunately, she stated, each of the employees has been able to secure a position either through a vacancy in state government or, in one instance, in the private sector. It was believed therefore the state did not incur any additional costs through the redesignation. Mrs. McKinney-James said the other option was for the individuals to be placed on layoff lists for future employment consideration. Mr. Wall proceeded with his review of the budget for the Office of Protection and Advocacy. Referencing page 934 of the Executive Budget, he noted the budget contains no General Fund appropriations and the federal funds were "zeroed out" because the funds are to flow directly to the program. He said the reason for this decision is that in discussing the situation with federal officials and seeking clarification of the statutes, it became apparent federal law requires federal funds to flow directly to the agency. Federal law is explicit about this, Mr. Wall stated, and in fact a sister agency in Kansas was cited in September 1994 for being out of compliance with federal law because of failure to route the funds properly. Senator Raggio commented one of the conditions the Interim Finance Committee had imposed in its action related to the redesignation was that the committee would continue to receive budgetary documentation or overview of the program. Mr. Wall answered it was the agency's intent to comply with the conditions. An expenditure plan has been prepared, and the agency intends to follow through in the future and provide the committee with regular expenditure plans for the private, nonprofit organization which will include an accounting of both the federal and the state funds involved. He assured Senator Raggio the committee will be provided the annual audit report as well as the annual program performance reports required by the federal government for each grant. Senator Raggio inquired whether the Governor, having redesignated the agency, has the authority to change the redesignation. Mr. Wall said he does have such authority, although he must show cause (failure of the program to meet the requirements and assurances provided under federal law). Senator Raggio said the committee considers the agency to be an important one with an important mission, and if it does not fulfill the mission the committee does not want to have to rely solely on the federal audit, but wishes to continue receiving the information as specified previously. Referencing the budget handouts provided by the agency (Exhibit E, a summarized revenue and expense list for the Office of Protection and Advocacy for FY 1993-94 and for FY 1994 through January 1995; and Exhibit F, the projected expenditure plan for the new agency, NDALC, beginning February 1995 and continuing through the succeeding 3 years), Senator Raggio said the committee would review the material later due to time constraints. Directing the committee's attention to Exhibit F, Mr. Wall made note of the fact the first source of revenue identified on this document represents previously available grant funds. He said there are federal grant funds still available to the program, and these are carried through the budget in succeeding years, although in declining amounts. He also noted the program currently has 10 positions; under the projections for the new agency there could be as many as 17 positions. Senator Raggio inquired if the budget shown in Exhibit E supports 10 positions. Mr. Wall answered yes. Senator Raggio requested Mr. Wall to address the state funding component of the budget, which Mr. Wall noted is contained in the budget for the Mentally Ill Individuals Program. Mentally Ill Individuals Program - Page 937 Mr. Wall noted there are federal funds in this budget, although the budget indicates no federal funding. This is because the funds are to flow directly to the agency, in keeping with the federal requirements. What remains in the budget is the state General Fund appropriations, which the agency is requesting to be allocated at the same level as in the past. The funds have been used to support personnel positions and will continue to be used for the same purpose. The recommendations regarding maintaining the funding at the existing level are based on compliance with the federal requirements that nonfederal funds be used to supplement and not to supplant the federal funds received for advocacy services. Mrs. McKinney-James drew attention to the second page of the letter from Governor Miller to Robert Williams, the commissioner of the Administration for Children and Families (Exhibit D), which states the Governor will review the redesignation in 1 year. Mrs. McKinney-James reiterated the previously noted ability of the Governor to change the redesignation if necessary. Senator Raggio inquired who makes the determination of whether cause exists to take such action. Mrs. McKinney-James replied the Governor makes the determination, which could in part be based on input from the legislative committees and from the community served by the protection and advocacy program. Remarking on the situation that occurred during the last session when the head of the agency spoke out in behalf of the mentally ill and subsequently came under fire for doing so, Senator Coffin voiced the opinion the agency must be insulated from heavy political pressure in similar situations. Mr. Wall said the reason for the trend toward privatization is to assure the program has the autonomy to carry out its mandates. He said federal law requires, among other things, that if the agency is private and nonprofit, at least half of its governing board must be made up of people with disabilities and their family members, to insure the program is accountable to the constituency it serves. The law also requires the program to have various advisory committees that represent the different disability communities in whose behalf it is responsible for advocating, and also that the program engage annually in a public priority-setting process which provides the disability community, as well as the public, with the opportunity to suggest to the agency what its priorities should be. Senator Coffin requested that Mrs. McKinney-James, as the intermediate appointing authority, also respond to the concerns he had expressed on this matter. Mrs. McKinney-James said it became clear to her, upon review of the statutes that enforce this office, a certain degree of independence is required. She said one of the reasons she decided to support the staff suggestion to privatize the agency, and subsequently recommended such action to the Governor, was the realization that no matter how diplomatic she might be, she could not avoid the appearance the administration might be influencing her decisions. She stated the opinion all parties are committed to ensuring the constituency group of this agency receives the best quality service, and it was her belief the redesignation is the way to accomplish this. She noted the state funds will flow to the nonprofit agency through a contract with the Director's Office, which means the department will continue to have a connection with the program although it will be limited to budgetary oversight. The new arrangements will alleviate the concern she has had "in terms of the appearance of having influence...from a policy standpoint," Mrs. McKinney-James said. She expressed confidence in Mr. Wall and the future prospects for the nonprofit agency. She pointed out there is an advisory board, as well as a board of directors to which the executive director reports, and it has been structured to balance some of the concerns raised by Senator Coffin. Mr. Wall clarified for the record that with respect to the Mentally Ill Individuals Program budget, the agency has prepared a contract for the transfer of the existing state funds to the current budget that will go to the Board of Examiners through the Director's Office. Senator Raggio commended Birgit K. Baker, Administrative Services Officer, Department of Business and Industry, for her loyal service during her tenure with the Legislature prior to her transfer to the executive branch of state government. The meeting was adjourned at 5:55 p.m. RESPECTFULLY SUBMITTED: ___________________________ Sue Parkhurst, Committee Secretary APPROVED BY: __________________________________ Senator William J. Raggio, Chairman DATE:____________________________ Senate Committee on Finance January 30, 1995 Page