MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session January 31, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Tuesday, January 31, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator Bob Coffin Senator William R. O'Donnell Senator Dean A. Rhoads Senator Bernice Mathews STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Ronald T. Steele, Program Analyst Debbra J. King, Program Analyst Marion Entrekin, Committee Secretary OTHERS PRESENT: Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry Deborah A. Erickson, Budget Analyst, Budget Division, Department of Administration John P. Comeaux, Director, Department of Administration Patrick Cameron, Accountant, Real Estate Division, Department of Business and Industry Charles Horsey, III, Administrator, Housing Division, Department of Business and Industry Lon DeWeese, Chief Assistant, Housing Division, Department of Business and Industry Charles S. Eldridge, Deputy Administrator, Housing Division, Department of Business and Industry James P. Hawke, Director, Division of Emergency Management, Department of Motor Vehicles and Public Safety Ray Blehm, Jr., State Fire Marshal, State Fire Marshal Division, Department of Motor Vehicles and Public Safety Charles W. Owen, Director, State Emergency Response Commission, Division of Emergency Management, Department of Motor Vehicles and Public Safety Senator Raggio indicated a number of bill drafts from agencies and other entities have been brought before the Senate Committee on Finance for introduction, and he pointed out they would not automatically be introduced. In the future, he requested the sponsor of the bill draft to appear before the committee to make a presentation prior to introduction of the bill draft, and instructed the other committee members to advise associations and agencies accordingly. Real Estate Administration - Page 771 Joan Buchanan, Administrator, Real Estate Division, Department of Administration, testified the Real Estate Division is charged with enforcing all real estate license laws and protecting the public in real estate transactions. The division licenses and regulates real estate companies and individuals including real estate agents, escrow agents and appraisers. In addition, the division regulates time-share, subdivided lands and campground membership sales. Ms. Buchanan said the division currently operates with 23 employees split between the Las Vegas and Carson City offices. There are also five real estate commissioners and five appraiser commissioners assigned to the division. In order to have a better understanding of the division's performance, Senator Raggio inquired regarding the turnaround time for addressing complaints and inquiries received. He specifically asked for statistical information to be provided for the committee's review. Ms. Buchanan stated there presently are 70 cases awaiting legal action that are before the Office of the Attorney General, and these cases have slowed down their response time. The Office of the Attorney General has assured the division they are attempting to dedicate more time to these cases by assigning a new staff member to the Real Estate Division. Ms. Buchanan added that due to a shortage of staff, the division has only processed four cases in the current fiscal year. For clarification, Senator Raggio asked if the lack of staff is in the Real Estate Division or the Office of the Attorney General. Ms. Buchanan responded there is a problem in both agencies. She stated there are 14 major cases that require attention, but she does not have adequate staff to process the cases. Senator Raggio asked the nature of the cases. He also asked if they are cases prepared for legal action by the division that the Office of the Attorney General has not been able to file. Ms. Buchanan replied the issues vary, but she can prepare a list of the cases for review by the committee. Although there are 350 cases in Las Vegas and 35 in Carson City that are in process, they can only advise the public they are doing the best they possibly can to resolve the issues involved. Ms. Buchanan said the division has proposed a statute that will allow the administrator to assess fines, with due process of the licensees to go before the commission if they are not satisfied with the assessment imposed. The fines would be for minor things such as advertising violations and office abandonment. Senator Raggio noted the Governor's Executive Budget recommended a one-shot appropriation of approximately $31,000 for telephone and computer upgrades. He asked how this will benefit the public. Ms. Buchanan replied there are four telephone lines in their Las Vegas office where 70 percent of the division's licensees are located. She stated the telephone company conducted a survey and determined 64 percent of the time the lines in that office are busy, making it difficult to place and receive calls. It also causes the clerks in that office to spend the majority of their time on the telephone. Ms. Buchanan said telephone upgrades would help to provide better service to the public by eliminating some of these problems. Senator Raggio asked how many new positions the division wished to add. He also asked if a position is being transferred to the Office of the Attorney General. Ms. Buchanan replied they have requested an Administrative Assistant position for both the Las Vegas and Carson City offices for a total of two new positions. However, in December 1993, a Management Assistant was transferred to the Attorney General's Office, making this a gain of only one position. Senator Raggio asked if there will be sufficient staff to properly conduct agency business, and Ms. Buchanan replied the division would have to do the best they can in light of what was approved. Senator Raggio asked why the budget item Licenses /Fees is substantially less in the proposed budget than in the approved base budget for Fiscal Year 1995. Ms. Buchanan did not have this information immediately available, but will provide it for the committee at a later date. Senator Raggio referred to the division's Maintenance budget, and noted they are asking for increased authority to collect and disburse appraiser fees to the federal government. He asked why the state sends appraiser fees to the federal government. Ms. Buchanan responded any state that registers appraisers must send a $50 fee to the federal government for each licensee. Senator Raggio noted a recent audit conducted by the Legislative Counsel Bureau (LCB) disclosed the Real Estate Division did not monitor and collect all appraiser fees, resulting in the loss of over $45,000 to the General Fund. He asked for an explanation. Ms. Buchanan said in 1991 the examination fee was changed from $55 to $100, but the administration did not implement the increased fee right away resulting in approximately a $10,000 loss. Additionally, a $100 application fee that was to be collected from each applicant was only being collected by the examination service on new applications which resulted in another loss. Finally, a $100 fee imposed on transfers of examinations from another jurisdiction were not being collected. The total of the omissions resulted in a $45,000 loss. Ms. Buchanan said as of March 1994, internal controls have been implemented that will guard against a repeat of such occurrences. Senator Raggio asked how total quality management (TQM) will work in the division's budget. Ms. Buchanan replied there are offices in Las Vegas and Carson City, and TQM brings the management and function individuals together on a semi-annual basis to review strategies to improve performance. She added approximately nine employees are involved in TQM efforts. Senator Raggio asked what controls the division uses to oversee outside contractors. He explained the LCB audit performed in 1993 also reported a number of problems with the division's oversight of outside contractors. Ms. Buchanan said the division used a testing service for examinations. The testing service abstracted their fees from monies collected at the point of application. The balance of fees collected were then sent to the division along with a list of the individuals who took the examination. The contract with the testing service has been revised and they must now send the total of all fees collected directly to the division. After verification, the testing service is then reimbursed for their work. Senator Raggio asked if the division has accepted all of the recommendations contained in the LCB audits, and Ms. Buchanan answered, "Yes we have. Everything has been addressed." Referring to Enhancement Category 912 Program Transfers (E-912), Senator Raggio asked Ms. Buchanan to comment on the suggested transfer of one Information Specialist to the Department of Information Services (DIS). Ms. Buchanan indicated the division will have to reassign work that had been performed by this individual to someone else. Senator Raggio asked if the division's budget presented before the Senate Committee on Finance will allow her office to perform their duties in a responsible manner. Ms. Buchanan replied receiving the $13,000 computer allocation should assist the division to function better, as it will allow them to place a license printer in the Las Vegas office. She added the division has always strived to do the best job possible with whatever resources they have available to them. Since Senator Raggio surmised Ms. Buchanan's response was not spoken with a great deal of confidence, he echoed the committee must know if the budget presented will be sufficient for the division to operate in the coming biennium to responsibly perform the duties of the office. Ms. Buchanan said the division's investigative staff members in Las Vegas are stressed out, and if they had additional assistance in that area it would be helpful. She suggested they could use an individual to be assigned to the compliance staff to set up files and organize cases. Senator Raggio asked Ms. Buchanan if she had made this suggestion to the Budget Division, and she replied the division did ask for a compliance assistant as well as a clerical worker. Senator Raggio asked the Budget Division to provide their opinion regarding the division's request for two positions. Deborah A. Erickson, Budget Analyst, Budget Division, Department of Administration, responded upon review of all the budgets and taking into account the resources available to them, it was their determination not to fund these positions. She commented the Real Estate Administration acquires funding through licensing and fees and their other revenue sources, but the balance is taken from the General Fund. Senator Raggio admonished it is the responsibility of the Budget Division to make certain the agency is able to function properly. Ms. Erickson said she understood but the Budget Division must manage with resources available, and during preparation of the budget for the Real Estate Administration, it was determined not to fund the two positions requested. Senator Raggio commented the Budget Division must also answer to the public who may not be receiving the service they deserve. He then asked John P. Comeaux, Director, Department of Administration, if additional General Fund revenue had been requested for this budget. Mr. Comeaux replied additional General Fund revenue has not been requested for the Real Estate Division because when the Budget Division closed their budget, they believed they had done so at an adequate level. To his knowledge, the Budget Division did not close any budget at what they felt would be an inadequate level. Senator Raggio responded the committee needed to have this assurance. Senator Coffin asked Ms. Buchanan the actual number of real estate agents and brokers there are in the State of Nevada, and Ms. Buchanan replied there are 15,000 licensees. He then asked how much each licensee must pay in fees each year. Ms. Buchanan stated all of the fees collected by her office are shown as a total in the budget, but she could provide the separate figures if the committee needed to have the information. Senator Coffin asked the approximate amount an agent and broker pays in fees on an annual basis. Patrick Cameron, Accountant, Real Estate Division, Department of Business and Industry, responded a broker pays $170 for a 2-year renewal, or $85 annually. The fee for a real estate agent is $130 for a 2-year renewal, or $65 annually. Senator Coffin stated the amount of fees collected from agents and brokers probably far exceeds the amount of the appropriation from the General Fund. He commented this budget reminds him of the Division of Insurance's budget that has been under- funded by the Budget Division, while the individuals in the insurance profession must pay fees and not receive the service they deserve. He suspected the same problem exists in the Real Estate Division. He declared he does not like it when a fee-based- regulatory agency does not receive appropriations needed, because not only is the agency being poorly served, but the public ends up not being protected as well. Senator O'Donnell asked Ms. Buchanan how many licenses the division has "on ice" and Ms. Buchanan replied approximately 4,000. He then asked if the division must maintain records, keep their names on the computer, and store their records. Ms. Buchanan replied in the affirmative to all of these questions. She also said that although these individuals may not be actively involved as agents or brokers, they must continue to pay the regular fee to maintain their license. Senator O'Donnell commented he is familiar with the budget of the Division of Insurance wherein the insurance fund is used as a subsidy to the General Fund, and remarked the same thing is happening in the Real Estate Division. He complimented Ms. Buchanan for her dedication and her ability to perform her duties with limited resources. He recalled seeing her work while on crutches in order not to take time off from her duties. He pointed out if the Las Vegas office is going to expand to 3,000 square feet there is a need for additional staff in the division. Senator Jacobsen remarked while reviewing the LCB audit report, he noted the Real Estate Division had functioned without an administrator for a long period of time. He asked why that occurred. Ms. Buchanan replied she was appointed administrator in 1993, but the division had been without an administrator for approximately 3 years, although there was an acting administrator for part of that time. Real Estate Education and Research - Page 777 Senator Raggio asked how many continuing education courses the agency has at the present time. Ms. Buchanan replied there are currently 1,100 approved and continuing education courses involved with real estate, and approximately 200 approved appraisal courses. Senator Raggio asked why the applications for Fiscal Year 1994 fell short of the 1994 projections. He clarified there were 145 actual applications for continuing education, but 250 had been projected. Ms. Buchanan responded she had continued in her capacity as the Education Director after her appointment as Administrator in 1993, and believed the stringent requirements placed on applicants has made the profession less appealing. However, there is an educational task force which is providing new direction for continuing education courses that should make the profession more appealing in the future. Senator Raggio referred to page 778 of the Governor's Executive Budget, and noted $20,347 is recommended for Fiscal Year 1996 and $25,683 for Fiscal Year 1997 to address growing administrative needs relating to the increase in the number of realtors. He pointed out funding has been recommended for one Administrative Aide and a 10 percent increase in operating costs relating to growth in the program. Senator Raggio remarked funding for the additional position is recommended from reserves without a request for additional fees. He asked if there will be sufficient funds to sustain the position in the future. Mr. Comeaux replied the budget summary on page 780 indicates an anticipated reserve of $394,724 at the end of the biennium. Therefore, he believes the answer to the question is yes. Senator Raggio asked what the actual reserve amount is at the present time, and Mr. Cameron replied the reserve amount is now approximately $750,000. Senator Raggio asked Ms. Buchanan to address the Enhancement Category 275 Consumer Treatment (E-275). Ms. Buchanan responded the Governor recommended $94,500 for Fiscal Year 1995 - 1996 and $66,500 for Fiscal Year 1996 - 1997 for the costs relating to instructional supplies, travel, contractual services, and special equipment associated with conducting real estate educational seminars. The recommendation includes new types of programs for continuing education. Real Estate Investigative Fund - Page 781 Ms. Buchanan commented this is a pass-through account to hold developers' deposits for travel to conduct inspections of land sales, timeshares and to perform campground inspections. It is a non-General Fund account. Real Estate Recovery Account - Page 783. Ms. Buchanan said the budget account is associated with the Real Estate Education and Research budget on page 777, and provides for monetary recovery resulting from court-awarded damages for persons defrauded by any real estate licensee. The recovery provision was established in lieu of previous bonding requirements for real estate licensees. The fund also provides revenue to offset expenses incurred in the administration of educational programs for the benefit of real estate licensees. Ms. Buchanan reported $38,679 was paid out of the budget account in Fiscal Year 1994. She anticipates $60,000 will be needed for Fiscal Year 1995, $40,110 for Fiscal Year 1996, and $41,314 for Fiscal Year 1997. Senator Raggio asked if the projections for renewal or new licensees of 3,707 for Fiscal Year 1996, and 4,078 for Fiscal Year 1997, are realistic. Mr. Cameron replied the division projected these figures from polls conducted in the real estate industry and population growth over the last few years. He believes the estimates are accurate. He added the division is only about 1 percent below their overall projection of 3,370 licensees for the current fiscal year. Senator Raggio noted there is a requirement the reserve amount be maintained at $50,000, and he asked if the budget account satisfied the requirement. Ms. Buchanan responded in the affirmative. Senator Coffin asked Ms. Buchanan regarding intermediaries and fraud that might be committed by an individual who is an intermediary. He could not recall the industry term for the individual. Ms. Buchanan clarified the term is "qualified intermediary" or "facilitator." Senator Coffin said he has a constituent who was defrauded by such an individual, and the $50,000 retained in the reserve account would be insufficient for this particular type of claim. Ms. Buchanan said this fund is not applicable for those individuals. The division only registers qualified intermediaries or facilitators and requires they be bonded for $25,000. There are mechanisms for recovery under civil procedures, and she will provide the procedures for Senator Coffin's information. Senator Coffin remarked if the state would undertake to protect individuals such as his constituent who was defrauded, what kind of fund would it be necessary to maintain. He said a $25,000 bond is not adequate. He asked who had proposed the state maintain a $25,000 bond, as the amount should be far greater. Although she agreed $25,000 is a low amount and most transactions would cost at least $100,000, Ms. Buchanan said the $25,000 was set by regulation by the Real Estate Commission in February 1994. Housing Division - Page 833 Senator Raggio noted the page number reflected in the Agenda (Exhibit A) was misnumbered as page 883. Charles Horsey,III, Administrator, Housing Division, Department of Business and Industry, introduced Lon DeWeese, Chief Assistant, Housing Division, and Charles S. Eldridge, Deputy Administrator, Housing Division. He commented Mr. Eldridge supervises the Federal Home Program as well as the account for Low Income Housing. Mr. Horsey wished to recount two events that transpired in 1994 that had immediate impact on the budgets before the committee today. In 1994, Nevada's Housing Division was the first housing finance agency in the history of the United States to achieve a AAA rating on a bond issue without benefit of an outside credit enhancement. The significance of this is the higher the ratings the division is able to obtain, the lower the mortgage rate they can offer to the state's low and moderate income first-time home buyers. That occurrence, which was a milestone in the division's history, directly impacted the other item. After all of the figures are in for 1994, he estimated the division will have made approximately $135 million in mortgages to the state's first-time home buyers. At $90,000 to $100,000 on the average per mortgage, the division probably assisted in excess of 1,400 families to achieve the American dream of home ownership. He remarked this is a phenomenal number given the size of the division's staff, which he believes is the lowest in the United States. Mr. Horsey said the two major events were the cornerstone to run their budget. Mr. Horsey referred the committee to the division's Performance Indicators, and said what drives the division's budget is their anticipated loan demand and the number of mortgages that will be created, as well as the number of bonds needed to be issued in order to accomplish the goals. For Senator Mathews' benefit, Mr. Horsey remarked the Nevada Housing Division received no General Fund support and is entirely self- sufficient. In both years of the coming biennium, the division anticipates approximately $125 million in bonds will be issued to accomplish their purposes. He indicated $75 million will be used for their very successful single-family program, and approximately $50 million in both years of the biennium for the division's multi-family program. Mr. Horsey referred to line 3 of the Measurement Indicators and said it should read "New multi-family bonds," which are apartment type projects, and not "New mutual bonds" as reflected. In 1994, Mr. Horsey said another major development impacted the division's budget. For the first time since 1985, there was substantial interest from developers throughout the State of Nevada to utilize tax-exempt bond financing for apartment type projects. Consequently, the division realistically believes the $50 million projected in the budget will be reached Mr. Horsey mentioned the 1994 accomplishments because there are a number of enhancement items that appear within the division's budget that, with one exception, are not the result of new programs. Instead, they are the result of a more adequate and realistic reflection of the anticipated demand the division will have in this biennium. Senator Raggio noted in view of Mr. Horsey's statement regarding the division's accomplishments in 1994, the LCB audit performed that same year indicated the participation in Nevada's Single Family Affordable Housing Program for Fiscal Years 1992 and 1993 was the lowest of six western states surveyed. The six states provided an average of 2,721 mortgages during the 2-year period ending June 30, 1993, while Nevada only processed 376 mortgages. Mr. Horsey referred to Item 2 of the Measurement Indicators for mortgage payoffs processed, and said throughout the country, but especially in Nevada, loans were paid off in record numbers. He remarked more loans were paid off in 1 week than in some years in the past. Home owners took advantage of the decline in the interest rates to refinance their home mortgages making the sale of their home a secondary consideration, and Nevada went from a period of the lowest demand in their history to a period of highest demand in their history. Additionally, Mr. Horsey said the influx of new residents into the State of Nevada was the greatest in the country. As a result of the influx, especially in southern Nevada, the price of existing homes exceeded the limits the division is authorized to finance. He explained the state has purchase-price limitations imposed on the division by the United States Congress. Mr. Horsey also explained in the early stages of economic growth cycles, the first priority of a developer is to produce houses for the more upscale markets. He said It is much easier to qualify individuals in the $150,000 to $200,000 range, because those borrowers usually have the down payment. There is also more profit in the upscale units to the developer. Mr. Horsey summarized the two occurrences that caused the shortage in Nevada's single-family housing was the influx of people into the State of Nevada, causing the existing housing stock to exceed the limits the division is allowed to finance, and the new housing stock produced at an upscale level. In 1994 and 1995, that has reversed itself, and the division is now finding entire subdivisions have homes available within purchase price limits. All of the state's major developers have observed there is a profit to be made in the units, and the state is experiencing a large increase in new housing stock for low to moderate income people. Mr. Horsey referred the committee to Exhibit C, a graph illustrating the Housing Division's loan demands on a monthly basis. He explained the areas above the line depict the increased demands experienced by the division. He stressed there was a product available in 1994 and 1995 that people in the low to moderate income area could afford, which was not available in 1993 when the LCB audit was performed. Senator Raggio asked if the Housing Division still maintained the policy of a $250 non- refundable application. Mr. Horsey said as a result of the LCB audit, the non-refundable application fee was reduced to $75. He explained the purpose of the non-refundable application fee is to make sure applicants are bona fide. He interjected the division had a very good relationship with the LCB auditors, and many of their recommendations have already been implemented. Senator Raggio also noted in addition to the $250 non-refundable application fee, the division also required payment of a 2 percent loan discount fee at the time the loan closed, rather than offering the option of rolling the fee into the loan amount. Mr. Horsey said in addition to the down payment, one of the largest obstacles a borrower must overcome are the costs associated with a home. The division then decided rather than offer various interest rates and various point structures, they would implement a format eliminating a charge for discount points. He admitted the interest rate charged under the new format is slightly higher, but the individuals borrowing money no longer have to come up with discount points. This format has been in place for about 2 years and has been helpful to the borrowers. Senator Raggio said it would be useful in the division's Measurement Indicators to speak in terms of numbers of units rather than dollars. He explained the dollars mean little to the committee if they are unable to measure the division's program. He asked Mr. Horsey to submit to the full committee the number of units and the number of families that are served in the state. Senator Rawson referred to Exhibit C and noticed a peak in the month of October. He asked if the peak was caused by home purchases around the start of a normal school year. Mr. Horsey replied in the affirmative. He said most people look for homes in February, March, or April with the idea of moving in during the summer months or prior to the start of the school year. Senator Rawson asked if the division supplied financing for people who recently moved into the state, or for Nevada citizens that have lived in the state for a long period of time. Mr. Horsey said he was not certain of the answer, however, the applicants are required to have a work history in Nevada and, therefore, cannot be individuals who have just moved into the state. He was able to recall a statistical analysis done a few years ago that revealed Nevada has the largest number of single-parent household borrowers of any housing-finance agency in the country. Senator Raggio referred to Maintenance Category 200 Demographic Caseload Changes (M-200) recommending an additional $1,698,702 for operating and bond issuance costs in each year of the biennium in order to provide financing for the expected increase in the demand for single family and multi-unit housing. Mr. Horsey commented the only source of capital the Housing Division has available is their ability to access the national money markets. To do this, they must issue tax- exempt bonds. The M-200 category is the division's Cost of Issues Program and a pass-through mechanism where all of the various expenses are charged. Through the bond market in future years the expenses will be returned to the division. He explained the Cost of Issues Program might involve trustee fees, legal fees, printing charges for official statements, and all of the fees associated with the state's ability to access the National Bond Market. Senator Raggio asked if this funding was derived from proceeds of the bond sales, and Mr. Horsey replied, "That is correct." Mr. Horsey said the budget presented today is predicated upon the division's issuance of $125 million in bonds. Due to abuses that occurred in certain parts of the country, the United States Congress imposed a 2 percent limit on the issuance costs. He stated Nevada is closer to l.5 percent. Senator Raggio asked what tax-exempt bond authority the division has available to them. Mr. Horsey said there is a statutory limit of $1.25 billion that was imposed on the total amount of debt the Housing Division can have outstanding. The State of Nevada is now at approximately $600 million, leaving a substantial bond authority that is still available. Senator Raggio asked for an explanation regarding Enhancement Category 125 Accessible, Flexible Responsive Government (E-125). Mr. Horsey responded the LCB audit confirmed a suspicion the division had for a number of years regarding the need for down payment assistance. The division then developed a pilot program in southern Nevada they refer to as "The Good Neighbors Program", and entered into a joint venture down payment component with the First Interstate Bank of Nevada. It became readily apparent the division needed a Down Payment Assistance Program statewide at a cost of approximately $2,500 to $3,000 per loan. Because the division does not receive General Fund support, they determined a revenue center would be needed in order to have a Down Payment Assistance Program statewide. To do this, the division decided a loan servicing department would be needed to receive mortgage payments. Instead of using a financial institution such as Weyerhaeuser Mortgage Company to process mortgage payments, the servicing department within the Housing Division would process the loan. If such a department is created, Mr. Horsey predicts within 2 years it will be a profitable operation to the state, and 25 percent of the profits would then be available to fund a Down Payment Assistance Program. Senator Raggio asked if this program were implemented with a loan service officer, how much would this program fund. Mr. Horsey replied it would go up over a period of time. The division would not take the present mortgage payment servicing away from the existing lenders in the state if they prefer to keep it. He estimated the division would operate in the red in the first year, but by the end of the second year they should start to make a profit. Lon DeWeese, Chief Accountant, Housing Division, Department of Business and Industry, said the initial amount of money the division will be drawing out of (line item) Loan Servicing will be small by the end of the second fiscal year, and is the $10,000 reflected for this category along with $30,000 that will be available from Reserves to fund some of the loans statewide. Senator Raggio asked if federal home funding will be available to fund the loans. Mr. DeWeese responded the division will be approaching both the Federal Home Program as well as the Account For Low-Income Housing for additional sources. He stated the problem they will have with down payment assistance coming from those two sources is the extreme income limitations that have been imposed. Mr. DeWeese said people entitled to funds from the programs are in the 50 to 80 percent of medium income bracket, and these individuals really are not borrowers since they do not have the economic wherewithal to support a standard mortgage. Senator Raggio asked if this would mean there would not be a large volume of requests for this type of assistance. Mr. DeWeese answered the division feels there is already an increasing amount and they project it will continue. The problem is the sources of funding. The division must generate the funds short of coming before the Interim Finance Committee to ask for a funding appropriation from the General Fund, and that is why they suggested the revenue center to derive the funds needed. Senator Raggio questioned if the state would be justified to spend $127,000 to fund a $20,000 assistance program. Mr. DeWeese said the issue would be who starts the business and makes the profit the first year. He said, "We are talking about literally starting a business to generate profits, and I do not think anybody would generate the kind of profits to meet the demand for down payment assistance." Mr. Horsey interjected the division determined it would have been to their advantage to have the in-house ability to service their loans. Currently, the state is using participating financial institutions to service them, but they have had companies whose parent companies went broke or bankrupt. Mr. Horsey pointed out the division has been fortunate in Nevada to have a good working relationship with financial institutions who have taken over loan servicing. However, it is his feeling the division should have the ability to process the loans directly in case of such an event. Senator Raggio asked if the Housing Division were granted the authority to service their own loans, would this provide additional monitoring capability to reduce potential losses. Mr. Horsey responded, "Absolutely." He indicated although Nevada's Housing Division probably has the lowest foreclosure and delinquency rates in the country, and the amount of funds lost in a repossessed unit is very low, he feels there have been instances where his staff would have been better able to serve Nevada's first-time home buyer than some loan service in Texas or Oklahoma. Senator Raggio asked for comments on Enhancement Category 126 Accessible, Flexible Responsive Government (E-126), which recommends the authority to spend $567,330 in Fiscal Year 1996, and $571,176 in Fiscal Year 1997. Mr. Horsey responded the $567,330 as an enhancement added to $2,339,919 federal funds shown under Resources on page 833 of the Governor's Executive Budget amounts to close to $3 million in federal home funds the Housing Division will receive as a pass-through. The funds would then be distributed to Clark and Washoe Counties as well as to the rural areas throughout the state. Senator Raggio asked if the funds are disbursed to nonprofit organizations. Charles S. Eldridge, Deputy Administrator, Housing Division, Department of Business and Industry, replied the Home Investment Partnership Program, commonly referred to as the "Home Program," generally funds three types of operations. One is project funding and another is administrative. The third is a separate category referred to as the Community Housing Development Operation (CHDO). All of these are nonprofit organizations with special treatment under the home program. He said if the operating expenses of the administrative part of the home program are combined with the CHDO operating expenses of the home program, it would amount to funds that can be set aside and not have a time element for disbursement. It is a continuing program. Senator Raggio asked why this is reflected in the E-126 category. Ronald T. Steele, Program Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, replied it appeared this is an expansion of the division's existing program. Mr. Horsey said the $3 million each year was not committed to projects within time frames originally expected. Because it was not directed to projects within that time frame, the accounting treatment reflected by the Budget Division was shown as an enhancement. The amount not expended in a given year will not be lost as it will be used for various projects while the unspent amount will be carried forward. Senator Rawson asked if a group wanted to put together something like Habitat for Humanity, would there be funding available for this group as long as they do not develop restrictions and can meet the terms set by the Housing Division. Mr. Eldridge responded in the affirmative. He added the only restriction by the division pertains to income. The Home Program limits assistance to 80 percent of median income. Senator Rawson asked what group of home buyers would qualify under this guideline, and Mr. Eldridge responded he could not provide a specific answer to the question because under the Home Program rules, the division must go by what is called "area median," and the income amounts would be different depending upon the part of the state involved. Mr. Horsey commented most of the problems the division encounters in qualifying home buyers are due to federal restrictions that have been imposed regarding income limitations, purchase price limitations, and the fact the borrower has to be a first-time home buyer. With reference to Nevada's Housing Division, Senator Raggio asked how other states manage a similar enterprise. Mr. Horsey said Nevada's Housing Division is the only housing-finance agency in the United States that is a state agency. He admitted the agency would have a great deal more flexibility if they could function like the business they really are, without all of the restrictions imposed by the state and federal government. Low Income Housing Trust Fund - Page 841 Mr. Horsey said the account for this budget was originally created in 1989 by the Legislature, but there was no funding provided for it. In 1991, the Legislature increased the Real Estate Property Transfer Tax to allow some funding for this account. The primary purpose for the creation of this account was to provide funding for low income housing projects. Funding is supported with a rural property transfer of 10 cents for each $500 of value, or fraction thereof. Mr. Horsey distributed Exhibit D, a chart regarding low-income housing, and called attention to the illustration concerning the average budget request for Clark, Washoe, and other counties in the state. Senator Raggio asked for the definition of "average budget request." Mr. DeWeese referred the committee to the Housing Assistance line on page 841 for the budget account, and replied the amount reflected on the chart (Exhibit D) is the average of the Agency Requested amount for Fiscal Year 1995 - 1996 of $1,136,717 and $1,134,924 for Fiscal Year 1996 - 1997. He said the division averaged these figures and reflected the distribution throughout the Nevada counties. Senator Raggio noted the statute specified of the remaining revenue allocated to this account, 15 percent must be distributed to the Welfare Division. Mr. Horsey concurred when the funding source was identified, it was determined of the amount generated each year, 15 percent should go directly to the Welfare Division for emergency assistance. Mr. Horsey also pointed out it was made very clear in 1993 the division should use revenue from this account for projects and not for bureaucrats. As a consequence, the division has been running the program with existing staff. The budget outlined honors this cap. Senator Raggio asked for additional information regarding the welfare set-aside portion of the account, and Mr. Eldridge responded the division has already started distributing revenue for the projects involving low-income housing and the welfare set-aside account. He said part of the administration of the program was to set up written agreements with the local city and county governments to accept and distribute the funds within the rules for this account, and the local government entity determines which nonprofit organization shall be the recipient of the funds. To date, the division has committed $307,000 for nonprofit organizations from the welfare set-aside portion of the account. Of the $307,000, the division has expended approximately $80,000 to a Clark County social services agency used for emergency housing assistance for families with children. The division does receive a list of the families for whom assistance was provided. Senator Raggio said he wanted some assurance the $80,000 was used specifically for that purpose and did not end up in some administrative cost somewhere. Mr. Eldridge answered he would furnish a report today reflecting the distribution of $30,000, and by the end of the month another report reflecting the distribution of the remaining $50,000. He explained an arrangement has been made with a social services agency in Clark County to provide a list of all the assisted recipients before additional funding is released. Senator Mathews asked if any portion of the $80,000 or $307,000 will be used for administrative costs. Mr. Eldridge replied at the present time, the division does not allow for any administrative costs to be taken out of the welfare set-aside funds or the project funds. The only administrative funds taken from the budget account are those the division must use to actually administer the funds. Senator Mathews asked if northern Nevada has been a recipient of any of the funds through the Community Service Agency (CSA). Mr. Eldridge said CSA is one of the applicants to receive the funds. He told the committee the CSA is further behind in setting up a process similar to that already established in Clark County. However, the division has dedicated the funding for Washoe County to use, and it has been placed in reserve in an interest bearing account until such time as the county is ready to use it. Senator Raggio assigned Senator Mathews to follow through with the budget account to make certain Washoe County receives funding for housing for their needy families. Fire Marshal - Page 1819 James P. Hawke, Director, Division of Emergency Management, Department of Motor Vehicles and Public Safety (DMV), stated he is also the Chief of the Special Services Division of the DMV created in 1993 by the Interim Finance Committee (IFC) as an outgrowth of the reorganization efforts. He introduced Ray Blehm, Jr., State Fire Marshal, DMV, to discuss this budget account. Mr. Blehm said the State Fire Marshal is responsible for enforcing all laws and adopting all regulations regarding the use, storage and distribution of flammable or otherwise hazardous materials. Safety inspections are conducted on all state buildings, schools and hospitals as well as other public facilities in the 14 rural counties. Mr. Blehm acknowledged the program contains an audit exception. During the current biennium, the LCB audit division completed an audit of the office and reported the agency had not implemented the Nevada Uniform Fire Incident Reporting System (NUFIR) as required by statute. Consequently, in August 1994, a grant application to request federal funding of $14,844 for computer equipment needed to implement NUFIR was made. Additionally, Enhancement Category 425, Safety of Citizens and Visitors (E-425), recommends a Management Assistant I to implement the NUFIR system to obtain comprehensive fire statistics for Nevada and involve the state in the national system. Senator Raggio asked the status of the grant application for federal funding for equipment, and Mr. Blehm responded the agency is getting very close to making the purchase of the computer equipment. The funds have been transferred to the budget, and they are ready to do the final purchase as soon as the bid specifications are completed. In response to an inquiry by Senator Raggio, Mr. Blehm stated it is his belief the agency will be ready to comply with the LCB audit request as soon as the computer equipment is installed and the Management Assistant I position has been filled. He conceded the lack of equipment and personnel prevented the implementation of the NUFIR. Mr. Blehm referred the committee to Exhibit E, a 3-page Senate Committee on Finance Analysis of Deputy Activity, Office of the State Fire Marshal, Summary Data for Fire Service Agencies, and Summary Data for All Responders, which he reviewed in depth. Referring to Exhibit E, Senator Mathews asked if any of the numbers regarding fire service within the 17 Nevada counties represent duplicated head counts. Mr. Blehm called her attention to page 2 of Exhibit E and said the fire service summary is included within the data provided on page 3 of the summary for all responders. However, he personally compiled the data for the summary and stated the figures reflected are accurate and not duplicated numbers. Mr. Blehm pointed out M-200 recommends an additional Deputy State Fire Marshal. The agency had been holding this position open due to budgetary constraints. However, due to the illness of the agency's Chief Deputy State Fire Marshal, Mr. Blehm believes it will be imperative to fill the position to perform needed inspections and investigations. At the present time, the position has been filled on an emergency basis by an individual outside of Carson City. This individual has been assigned to Clark County where there is a tremendous caseload of state building inspections and licensed facility inspections. Additionally, this individual performs services in portions of Nye and Lincoln Counties that had previously been serviced by responders in other counties necessitating excessive travel time by automobile or airplane. Once again, Mr. Blehm referred the committee to Exhibit E, page 1, that graphically illustrates inspection and fire investigation activities by the Fire Marshal's office. He pointed out the graph indicated the Deputy State Fire Marshal spends close to 50 percent of his time dealing with fire investigations. Mr. Blehm reported the agency recently negotiated with the Nevada Highway Patrol (NHP) to have access to NHP vehicles that, due to high mileage, will be discontinued for use by the patrol. Mr. Blehm has authorized four of his staff to take the vehicles home for storage to respond to emergencies. He explained about 71 percent of a deputy's time is involved in travel for inspections and emergency calls, making it crucial to have a vehicle accessible for such calls. Senator Raggio asked if the storage and subsequent use of the vehicles is in compliance with Budget Division policy and included in the budget. Mr. Comeaux stated he could not immediately respond to the question pending the receipt of information he has requested from various state agencies. However, other than travel funds, there is nothing specifically provided in the budget for the operation of the vehicles. Senator Raggio noted the division has held the position of Chief State Fire Marshal open, and asked Mr. Blehm if he anticipated the return of the individual now holding the position. Mr. Blehm stated the division would definitely like to have the employee return to work, but due to the seriousness of his condition, it is highly unlikely he will be able to do so. To date, this individual has not fully severed his employment with the division. Senator Raggio asked what the interaction is between the Fire Marshal on fire investigations in the urban counties and the local departments. Mr. Blehm responded in the counties where population exceeds 35,000 the division is generally not the agency of first choice called in an emergency. Most of their investigations occur in the 14 rural Nevada counties. Additionally, Assembly Bill (A.B.) 194 of the Sixty-seventh Session authorized the Fire Marshal to delegate plan reviews to smaller local governments, if they could meet education and experience requirements specified by the State Fire Marshal Division. ASSEMBLY BILL 194 OF THE SIXTY-SEVENTH SESSION: Requires state fire marshal to delegate his authority and duties to local governments under certain circumstances. Mr. Blehm stated as of this date, the division has accomplished the statewide transfer of plans review authority for fire inspections in Douglas County, and the Minden- Gardnerville area has also joined together to hire personnel and meet necessary standards. Additionally, the division has recently completed an agreement with Storey County to hire a fully trained individual who had performed plan reviews in the past. Senator Rhoads asked for a copy of the regulation pertaining to A.B. 194 of the Sixty- seventh Session. Senator Mathews asked what falls under the jurisdiction of state licensed facilities. She specifically wished to know if this included nursing homes and hospitals in the rural counties. Mr. Blehm replied the division's licensed activity is with licensing companies working in the fire protection industry who are fire protection contractors, such as fire sprinkler installers, fire extinguisher system service people, and fire alarm installers. Senator Mathews noted the division's budget requested funding for safety equipment such as fire clothing and self-contained breathing apparatus. She asked if the division had some of this equipment that no longer meets safety regulations. Mr. Blehm responded the agency does have a certain level of equipment. He remarked the Chief Deputy Fire Marshal, who is presently unable to work due to a serious illness, may have been subjected to contamination caused by an asbestos type fire. The possibility is currently being investigated by the division and the State Industrial Insurance System (SIIS). The equipment being requested will better protect individuals dealing with fires of this nature. Hazardous Materials Training Center - Page 1825 Mr. Blehm said the mission of the State Fire Marshal is to reduce the loss of life and property from fire and hazardous materials incidents statewide through field and centralized training, investigations, inspections, licensing, permitting, information programs, plans review and adoption of regulations designed to minimize injury and exposure of injury to the general public as well as the emergency responder. Mr. Blehm said the agency received funding from a surcharge fee on chemical wastes at the Beatty, Nevada dump. The fees are collected by the Division of Environmental Protection and transferred to the budget account. The other source of funding is from fees charged for hazardous material storage permits and renewals. Senator Raggio asked what funding amount is associated with the Beatty Dump. Mr. Blehm answered the Governor has recommended funding for Fiscal Year 1996 - 1997 of $250,000. The dump is programmed to cease operation in December 1997, or when the dump is full, whichever happens first. Mr. Blehm said it is possible before the end of the biennium that funding from this source will end, which amounts to about 60 percent of the revenue. Senator Raggio noted the State of California has reduced the fees charged for hazardous waste disposal making it less attractive to ship the waste to Nevada for disposal. He asked if this will reduce the volume now being handled in Nevada. Mr. Blehm replied it does not appear to have impacted the quarterly transfers at this point. However, due to fluctuations that occur it is difficult to obtain accurate data regarding the volume of shipments. Mr. Blehm reported that an LCB audit performed in August 1994 indicated the division had not established a system of controls to identify nonrenewal of hazardous materials. Many businesses and other facilities operated without hazardous material permit renewals during 1992 and 1993, which resulted in a loss of approximately $220,000. He said the division has accepted all of the recommendations made as a result of the audit, and a system to identify hazardous materials facilities has been implemented. Emergency Response Commission - Page 1831 Charles W. Owen, Director, State Emergency Response Commission, Division of Emergency Management, Department of Motor Vehicles and Public Safety, testified the commission is the executive agency for Nevada's compliance with the Federal Emergency Preparedness and Community Right to Know Act. The act requires states to take an active role in managing hazardous materials. The commission is comprised of 17 members appointed by the Governor from state agencies, local entities, and from industry. He noted Senator Jacobsen is also a member of the commission. The commission continually seeks to enhance public safety by developing a working relationship among state agencies. Local emergency planning committees in each county are responsible for preparing emergency response plans for hazardous materials. Mr. Owen said planning committees and state agencies come to the Emergency Response Commission with requests for projects, training, equipment, and planning, and the commission funds those projects from fees and permits received from fixed facilities within the state that use, manufacture and store hazardous materials. The projects have been particularly successful in the last year making it possible for the commission to redistribute almost $400,000 to fund projects that deal with hazardous materials for the local emergency planning committees. Senator O'Donnell asked if the commission is aware of the shipment of hazardous nuclear materials. Mr. Owen responded in the affirmative. He said the commission recently established a standing committee composed of nine state agencies that deal with hazardous materials, including radioactive material. This committee must coordinate all activity within the state dealing with hazardous materials. Previously, all movement of radiological materials, and associated plans and activities, have not been a technical concern of the commission. The commission was more concerned with chemicals transported in mass amounts around the state. Senator O'Donnell asked how many nuclear or radiological shipments, other than to the Beaty Dump, took place in 1994. Mr. Owen replied he did not have this information readily available, but would furnish a written report. Mr. Owen did say such shipments are taking place and being deposited somewhere in the state. Senator Raggio asked Mr. Owen to address module E-425. Mr. Owen said in addition to some of the funding the commission received from fixed facilities submitting fees for permits, they also have income from at least two federal funds that are administered by the Department of Transportation and the Division of Environmental Protection. E-425 funding has been requested for travel to those conferences dealing with the Hazardous Materials Transportation Uniform Safety Act (HAMTUSA) of 1990. He explained it is important for a commission member to attend the HAMTUSA conference to maintain activities involved with administering the federal grant funds. Senator Raggio also noted module E-425 requested funding of approximately $45,000 in the Operating category to be used each year, and asked if this deals with contractual services. Mr. Owen responded in the affirmative. He said rather than hire a state employee to assist the local emergency planning committees with their planning activities, the commission uses contract services. He said this will be a long-term activity. The commission has anticipated in their measurement indicators to have all of the planning committees complete their comprehensive plans and update them every year. They do have funds from HAMTUSA to continue this activity. Mr. Hawke said the commission is looking for an in-state resource to offer planning guidance to several rural counties. This individual would act as a facilitator to help the rural counties put their plan together. Senator Raggio turned over the gavel to Senator Rawson at 10:30 a.m. Emergency Management - Page 1837 Emergency Management Assistance Program - Page 1843 Emergency Management - Federal Grants - Page 1845 Senator Rawson indicated due to time constraints, it would be necessary to combine discussion on the remaining three budgets reflected above. Mr. Hawke stated the Emergency Management budget account is responsible for administering the Emergency Management Assistance (EMA) Program which provides the pass through of federal funds to local agencies. An LCB audit report issued in March 1993 indicated a lack of management controls hampered the agency's ability to award and provide EMA funds to local agencies in a timely manner. Mr. Hawke said the agency has implemented a data base system that automates the distribution of grant funds. They have also made a number of staff assignment changes that has brought more resources to the accounting process to help the agency with their reporting requirements. Additionally, the agency added additional fiscal and internal controls to their work performance. Senator Rawson asked if the agency has accepted all of the budget recommendations reflected in the Governor's Executive Budget, and Mr. Hawke answered they have done so and have implemented every suggestion they could without adding an additional staff person. Senator Rawson inquired if the agency has been able to coordinate the training that must be provided for the budget accounts. Mr. Hawke responded in the affirmative. They used resources from some of the other division budget accounts to provide assistance and cross training as suggested by the Fiscal Analysis March 27, 1995 Division. Referring to decision module E-710, Senator Rawson asked for an explanation regarding the agency's request for funding of 12 new computers over the biennium. Mr. Hawke explained in addition to 18 state employees currently on duty, the agency also has 10 military employees and a great number of volunteers that work for them at no expense to the state, and this accounts for some of the need for computers. The agency wants to place the computers where they are needed throughout the state to accomplish their mission. Mr. Hawke continued his testimony by explaining the Emergency Management Assistance Program provides a flow-through mechanism for Federal Emergency Management Assistance funds for local jurisdiction on a dollar for dollar matching basis. The funds are then utilized to offset personnel and administrative expenses associated with emergency management operations. The LCB audit affected this budget account as well, but as was explained, the audit recommendations have been implemented. Senator Rawson remarked there is a growing group of individuals in the State of Nevada that have shown concern about the military association and the potential for the President of the United States to issue an order that may set Nevada's Constitution aside. He specifically referred to the incident that occurred in Waco, Texas when the Alabama National Guard went in against private citizens resulting in death and major disturbance. He asked Mr. Hawke if he could provide some assurance this would not happen in Nevada. Mr. Hawke suggested Senator Rawson may want to direct the question to Nevada's adjutant general when he comes before the committee, but said the agreement the agency has in place at this time deals with everything from the use of force to who will command the troops of the Nevada National Guard units if they are in operational command of another state. Mr. Hawke explained when the Nevada National Guard is activated for active duty status, he is the individual that must issue the order to do so. He said this has been done many times within the last year for search and rescue operations, fire fighting, and life-safety situations. When the agency is asked to support law enforcement, the rules are very strict. The state does not send armed troops into a situation; it is left up to the law enforcement agency involved. Senator Rawson asked what the mechanism is for calling a state or national emergency. Mr. Hawke responded there are several ways this is done. When the President of the United States calls for national guard intervention for a situation, the unit is placed under federal control. The state's policy is in case of an emergency or disaster within the State of Nevada, the national guard unit is placed under the control of the Governor. Mr. Hawke used the Crystal Peak, Nevada fire as an example. He explained he issues the request to activate the guard, but the adjutant general gives the actual order. Mr. Hawke distributed Exhibit F, a replacement page for the Emergency Management budget, and highlighted changes to the Measurement Indicators reflected. Additionally, he distributed Exhibit G, Nevada Emergency Response System Annual Report, for the committee's review. Mr. Hawke stated the Emergency Management - Federal Grants budget account is comprised of 100 percent federally funded grants from the Federal Emergency Management Agency consisting of several federal programs. Also included in this budget is a Department of Energy grant which replaces a transfer of funds from the Division of Environmental Protection for emergency preparedness. Senator Rawson commented he is not certain why the Narcotics Program is included in the Emergency Management budget. He said this involvement adds to the paranoia the citizens of Nevada have concerning intervention by the federal government in the state's emergency management status. Mr. Hawke explained the Narcotics Program is a grant program using federal funds provided to local government for training for narcotics control, prevention, and rehabilitation. Senator O'Donnell referenced all of the emergency management type budgets discussed today and asked why all of them could not be combined into one "Emergency All Purpose" budget or agency. He indicated there is repetition within each of the budget accounts that could be avoided by combining them into one. Mr. Hawke concurred this could happen except for the Emergency Response Commission referenced on page 1831. He agreed with Senator O'Donnell that the three Emergency Management accounts referenced above are combined already, and work as a unit located in one place. However, the Emergency Response Commission is physically located elsewhere, has separate staff, and is involved more with hazardous waste concerns than with emergency situations. Mr. Hawke brought to the committee's attention that in 1993 the Legislature approved the transfer of approximately $21,000 from the Emergency Response Commission budget to the Emergency Management budget as matching funds for the Earthquake Protection Program. The Governor has not recommended the transfer in the current budget. He referred the committee to Exhibit H, Western Nevada Earthquake Scenario Project, and pointed out Nevada is listed third, behind California and Alaska, for earthquake risk. Mr. Hawke said the agency will seek funding from the Emergency Response Commission for the Earthquake Protection Program and if successful, he requested when the budgets are closed, the amount be "built in" as a transfer to the Emergency Management budget. Senator Rawson adjourned the meeting at 10:55 a.m. RESPECTFULLY SUBMITTED: Marion Entrekin, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance January 31, 1995 Page