MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session March 6, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:08 a.m., on Monday, March 6, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator Bob Coffin Senator William R. O'Donnell Senator Bernice Mathews COMMITTEE MEMBERS ABSENT: Senator Dean A. Rhoads (Excused) STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Dee Crawford, Committee Secretary OTHERS PRESENT: Robert E. Erickson, Research Director, Research Division, Legislative Counsel Bureau Nancy A. Becker, District 2, Eighth Judicial District, Las Vegas, Nevada Michael E. Fondi, Department 2, First Judicial District, Carson City, Nevada Thomas L. Steffen, Chief Justice, Supreme Court John F. Mendoza, Chairman, Public Service Commission of Nevada William H. Vance, Secretary, Public Service Commission of Nevada Jere Schultz, Budget Analyst, Budget Division, Department of Administration Michael A. Pitlock, Executive Director, Department of Taxation Pamela A. Case, Deputy Director, Department of Information Services Christina Chandler, Administrator, Family Division, Eighth Judicial District, District Courts Senator Raggio asked the committee to consider a bill draft request (BDR) submitted by the Department of Transportation. BILL DRAFT REQUEST 43-831: Abolishes highway patrol special account. SENATOR RAWSON MOVED FOR COMMITTEE INTRODUCTION OF BDR 43- 831. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR RHOADS WAS ABSENT FOR THE VOTE.) * * * * * SENATE BILL 16: Increases compensation of supreme court justices and district judges. Robert E. Erickson, Research Director, Research Division, Legislative Counsel Bureau, distributed copies of a report prepared by the Commission to Review Compensation of Certain Elected Public Officers, Legislative Counsel Bureau (LCB) Bulletin No. 95-19 (Exhibit C. Original is on file in the Research Library.). Mr. Erickson explained three bills are being presented to the Legislature as a result of the study by the nine-member "salary" commission appointed in 1993. He said members were appointed by each of the three branches of government and none of the members were government officers or employees. He named the members of the committee, published in the report, and informed the committee that staff for the commission had been provided by the LCB. Mr. Erickson provided a summary of S.B. 16 (Exhibit D). He said the salary increase for Supreme Court justices referred to in section 1 would commence in 1997. Salaries would climb from $85,000 per year to $107,600 as justices become eligible. He reported the commission recommended a raise in salaries for judges in the district courts from $79,000 per year to $100,000, as provided in section 2 of S.B. 16. Senator Raggio recalled all 39 district court judges are elected at the same time, all seven family court judges are elected during a subsequent election year, and Supreme Court justices are elected during three alternating election years. He asked if Section 2 would apply to both district and family court judges. Mr. Erickson replied it would do so. In response to a query by Senator Raggio, Mr. Erickson stated the law makes provision for Supreme Court justices to be remunerated for service on the State Board of Pardons Commissioners in order to provide equivalent compensation because some of them were in the middle of a term of office when salary increases went into effect. He explained justices are not entitled to salary increases during the middle of a term. At one time, a similar mechanism provided district judges with compensation for service on a law library board of trustees which was changed by action of the Legislature in 1985. Mr. Erickson pointed out section 4 of S.B. 16 would repeal additional compensation for members of the Supreme Court for service on the State Board of Pardons Commissioners. He noted the salary commission recommended the change in response to a 1994 ballot initiative which indicated the public disapproved of midterm salary increases for any judges regardless of the disparity of salaries. He acknowledged total compensation to judges and Supreme Court justices will be uneven as a result of staggered terms if S.B. 16 is enacted. Senator Raggio asked if S.B. 16 would change longevity provisions of the statute. Mr. Erickson replied under section 3, district court judges would become eligible for longevity pay in 5 years rather than 6 years, as at present, while the period at which longevity would take place for Supreme Court justices would remain at 6 years. Mr. Erickson pointed out the salary commission had first made the recommendation for salary increases for district court judges, and from that had derived a percentage used as a basis for salary increase recommendations for Supreme Court justices. Senator Raggio asked how the commission decided upon a 26.6 percent raise. Mr. Erickson said the commission agreed upon a $100,000 threshold for district court judges based upon testimony presented by district courts at two hearings that $100,000 is an appropriate salary. Senator Raggio asked if judicial salary increases are prohibited during a term of office by the Nevada Constitution. Mr. Erickson affirmed the query. Nancy A. Becker, District 2, Eighth Judicial District, Las Vegas, Nevada, endorsed the salary raises in S.B. 16 on behalf of the Nevada District Judges Association, the Nevada Judges Association and the district court judges in Clark County. She explained the lower court judges' salaries are affected by salaries for judges in the higher courts. Referring to prepared notes (Exhibit E) Judge Becker addressed the legislative audit of the courts. She declared, "There's some inferences in there with regard to the district court and the courts as a whole that I think do not reflect well on the judiciary." She protested it may be difficult for auditors who have never worked within the legal system to understand the working processes of the courts. Judge Becker asserted, "There is no statewide judicial system in Nevada - neither the Constitution nor ... NRS 1.360 [Nevada Revised Statutes Chapter 1 Section 360] authorized that." She said as a result the funding for local courts must be provided from local entities. She declared Clark County funded local courts with a budget of $6.8 million, while the state funded Clark County district courts with $10 million in Fiscal Year (FY) 1994 and $13 million in FY 1995. Judge Becker said local jurisdictions are expending large sums and it is understandable that opinions of city attorneys and district attorneys would differ from opinions of the Legislative Counsel Bureau in regard to the disposition of citations from the Nevada Highway Patrol (NHP) and similar issues. She declared: Even in the Legislative Counsel Bureau ... well-written opinions make it clear that there are two sides to this issue and that undoubtedly different opinions could issue depending upon the results you wish to reach. So I think that there's a difference between saying that the courts are inclined to follow an interpretation of the law that allows a percentage of the fines and fees to remain with the local jurisdictions who fund them as opposed to doing something deliberately or willfully, ... I think that the report tends to imply that there's something deliberate or willful as opposed to ... a valid legal interpretation of statutes for the benefit of the local jurisdiction that funds them. Senator Raggio asked who made the determination to bring a charge under local ordinances in a situation where someone originally is cited under a state statute. Judge Becker replied that is provided under state statutes. She said: In the case of the justice court, I am aware from the report that apparently there's some justice courts throughout the state who change it to a local county ordinance, and that would be done by the prosecutor doing so and the court approving it.... That is not done in the ... Las Vegas Township of the justice court in Clark County, and I would think that it shouldn't be done. They should stay as state offenses. Senator Raggio expressed concern that state fines go into the education fund, while a change to local ordinances would decree the fines be disbursed to local entities. Judge Becker concurred such actions are the source of constant disputes between the state and the local jurisdictions. She declared: To the extent that on county ordinance I think they should be under the state because the justice courts have authority over state infractions. The municipal court is a different situation, however. The municipal courts do not have jurisdiction over state infractions, so all of the highway patrol tickets that are going into the municipal courts have to go in as a local municipal ordinance, and therefore they're local fines. Judge Becker asserted the LCB failed to point out a provision in NRS Chapter 484 section 803 that specifies when a citation is issued within a municipal jurisdiction the case should be tried in the municipal court. She suggested all violations of NRS 484.803 should be treated under municipal court ordinances. She averred the municipal courts have a vested interest in retaining those funds because the courts are funded by local jurisdictions. Judge Becker expressed her opinion that auditors would want the district courts to be fee collectors from a fiscal standpoint. She countered, "The reason for us enforcing the collection of fines is the fact that may be part of the punishment." She acknowledged the real punishment meted out by district courts is jail time for gross misdemeanors and felonies. She submitted fees paid by probationers are not just assessment fees, from which $20 is disbursed to the Office of the Attorney General (AG) and $5 is disbursed to the district court. She said probationers must pay fees to reimburse the budget of the Division of Parole and Probation for supervision as well as fees for extradition costs, restitution, counseling and child support, and vocational and educational fees. Judge Becker noted many of those on probation earn minimum wages and often are not capable of earning a substantial amount of money. She said the Division of Parole and Probation attempts to set up a realistic schedule of payment and will hold a hearing for those who honestly cannot keep up with the payments, in spite of good efforts, prior to revoking probation and sending the person to jail. She explained the hearings include people from the district attorney's office, the public defender's office and witnesses regarding the financial ability of the person. She questioned whether that procedure was cost-effective. She asked, "Do you really want to put them in prison for the $25 fee if they've completed all of the other conditions of probation?" Judge Becker acknowledged the issue should be studied by the district courts even though the courts must devote time to the study of other issues she feels are of greater consequence. She suggested the court could determine that the $25 fee should be paid in advance of probation, or a list of priorities could be made as to which fees and assessments should be paid first. Senator Raggio asked if it would be feasible for the judges of the Eighth Judicial District to set some policies regarding those priorities. Judge Becker replied it might be possible to build a consensus. She declared, "In all honesty, when $20 goes to the AG's office and $5 goes to the court, the judges get a bit annoyed." She declared Clark County would not provide the court with funding to act as a collector of fees, although the county was considering setting up a county collection unit which would include court fee collections. Judge Becker recalled a bill was presented during the last legislative session by the Office of the Attorney General to allow fees to be taken from prisoners' accounts because once people are incarcerated they are no longer under the jurisdiction of the courts. She expressed the belief a similar measure would be introduced to the sitting legislature. She offered the opinion the measure would be cost-efficient because it would prevent the necessity of re-incarcerating people for nonpayment of fees after they had been released from jail. Senator Raggio asked Judge Becker to comment on S.B. 16. Judge Becker made reference to information on judicial salaries prepared by The Nevada Judges Association (Exhibit F. Original is on file in the Research Library.). She called attention to figures which indicate each Clark County district court judge has 2,247 cases, approximately 1,000 more cases than the national average for counties of similar size and jurisdiction. She stated the criminal caseload has been growing by 9 percent per year, and the family caseload has been growing by 8 percent per year. Judge Becker pointed out there are 120 pending homicide cases in Clark County, 40 of which may involve the death penalty and thus will require longer periods for trial. She indicated civil litigation is becoming more complex and thus is requiring longer trials. Senator Raggio asked how much time elapses between the date of filing and the date when the case actually goes to trial in Clark County. Judge Becker replied the time varies with each judge. She asserted some judges do not work as hard as others. She said the average time in her court is 1 1/2 years for a jury trial and 6 months for a bench trial as compared to 2 to 3 years under the national average. Judge Becker declared the recommendation to raise district court salaries to $100,000 was made because raises only take effect every 6 years and a raise from $79,000 in 1991 should result in a salary of $95,000 in 1995 and by 2002, the next time judges would be eligible for a raise under Nevada statutes, the salary should be $116,000. She pointed out salaries would rise to $100,000 through normal cost-of-living raises by July 1, 1997. She asserted any less than the raise proposed in S.B. 16 would put Nevada judges' salaries behind those in other state jurisdictions with lower caseloads. Judge Becker averred lower salaries will make it difficult to attract qualified people to the bench because a senior associate in a law firm in Clark County can make $100,000 per year. She declared many states give raises every 1 or 2 years. She said if raises were given annually in Nevada there would not be the necessity for such large increases every 6 years. Judge Becker said reducing the required number of years of service for judges to receive a 1 percent raise in salary for longevity still will not keep up with growth in the cost of living. She reiterated $100,000 is justified and appropriate and will help entice people to enter the judiciary. She admitted the longevity provision encourages people to remain in the court system because some will make more than $100,000. Judge Becker pointed out only seven people applied for the last vacancy in the district court. She alleged that did not give the Governor a good choice of candidates who would be dedicated to the job. She declared any judge should be willing to work at least 40 hours per week, and many judges work for 60 to 70 hours each week. Judge Becker said counties in surrounding states with similar populations pay a higher base salary than Nevada along with yearly increases, which is why the commission feels $100,000 is fair pay. She reiterated the proposed raise for Supreme Court justices is based on the same percentage. She pointed out Nevada has the highest number of appellate case filings per judge of any state in the nation. Senator Jacobsen stated he reviewed the audit several times and found several failures in the system. He voiced disbelief the collection practices have been so fractured that only $500,000 had been collected from fines and assessments totaling $4 million imposed by judges. He expressed hope the judges would present some practical suggestions on how collections could be improved and not ask the Legislature to resolve the problem. Judge Becker responded: The problem with the gray areas in the staff sheet you would have to correct. I am not going to tell you that a lower court judge or that the city attorneys or district attorneys are going to agree with the Legislative Counsel Bureau's opinion. They won't. I think they will disagree with it very much, and it is an area we could [resolve] either way. And the reason is because they would like to keep the money there locally because that's who has to pay for it.... With regard to the collection practices, remember that in order for me to institute collection practices, I have to ask for the personnel to be able to do that from Clark County. Clark County is not going to do that for $25 administrative assessments, $5 of which goes to the court and $20 of which goes to the attorney general's office. They just don't see that as a cost-effective use of Clark County's money to do that. Judge Becker suggested there could be a number of remedies, including asking that the $25 be paid before probation is granted. She said the Division of Parole and Probation has a policy that an honorable discharge will not be granted unless all fees are paid or there has been a determination the person has done his best to attempt to pay them. Judge Becker pointed out that half of those who owe the $4 million are sent to prison where the courts have no jurisdiction. She reiterated that is the reason it has been suggested a bill should be enacted which will allow those fees to be deducted from prison accounts. She suggested the payment of fees should be a condition of parole, which at present it is not. Michael E. Fondi, Department 2, First Judicial District, Carson City, Nevada, informed the committee he is chairman of the legislative committee of the Nevada District Judges Association. He said the association offers support for S.B. 16. He called attention to the page ranking judges' salaries throughout the United States in the middle of Exhibit F. He pointed out salaries for judges in Nevada, excluding longevity pay, rank 35th, and pay for the Nevada Supreme Court justices ranks 37th. Judge Fondi pointed out the figures in the last column on the page showing the last date of salary change were compiled as of July 1994, making the figures over a year old. Thomas L. Steffen, Chief Justice, Supreme Court, endorsed the comments made by Judges Fondi and Becker regarding salary increases for district court judges. He said he and his colleagues on the Supreme Court are fully in support of the recommendations made by the salary commission. In the absence of further testimony, Senator Raggio closed the hearing on S.B. 16 and opened budget hearings on the Public Service Commission of Nevada (PSC). Public Service Commission - Page 681. Public Service Commission Administrative Fines - Page 690 John F. Mendoza, Chairman, Public Service Commission of Nevada, said the PSC regulates all intrastate utilities, telecommunication providers, some railroads, activities of motor carriers, pipelines, electricity, liquified petroleum, natural gas and water. Judge Mendoza compared rates in Nevada to those in surrounding western states and said Nevada rates are generally lower for electricity, natural gas and telephones, while water rates are higher. Judge Mendoza said the commission attempts to balance the interests of shareholders with those of the ratepayers by allowing the shareholders to earn a fair rate of return while providing customers with reasonable rates. He indicated the commission tries to resolve issues that arise between them by urging cooperation or by providing due- process hearings. Judge Mendoza declared the commission certifies utilities and carriers to engage in their activities, establishes service areas and rates, reviews the quality of service, evaluates planning and investigates consumer complaints. Judge Mendoza pointed out the public hearings on contested rates amount to full- blown trials in which issues are strenuously litigated by the parties. He said duties of the commission include the assessment of fines, and attorneys for the commission appear before federal bodies including the Interstate Commerce Commission (ICC), the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commission (FCC). Judge Mendoza stated as a result of the National Energy Act of 1992 electric utilities have become more competitive which has increased the work load of the commission. He said the commission is also engaged in rule-making for telecommunication concerns. Judge Mendoza recognized the impact of the public utilities initiative in California that will have the effect of providing customer choice for electric service. He declared that initiative has caused a great deal of controversy in the electric industry. According to Judge Mendoza, resource planning is becoming more complicated and lengthy and there have been a number of mergers of utility companies, all of which add to the PSC's duties. Judge Mendoza stated funding comes from a number of sources. The Motor Carrier Division funding is derived from highway fund appropriations, PSC application fees, taxicab license fees, part of PSC copy service fees, tow truck license fees and warehouse permit fees. He said utility regulation activities are funded through assessments of up to 3.5 mills on gross intrastate revenues as well as application fees, federal funds for natural gas pipeline safety, part of PSC copy service fees and a transfer from the Nevada Environmental Protection Agency (EPA) to support the railroad safety program. Judge Mendoza indicated budget account 224-3920 would be specifically addressed by William H. Vance, Secretary, Public Service Commission of Nevada, who handles budget matters on a daily basis for the PSC. Senator Raggio remarked the major issue is the removal of the states' authority to regulate trucking company pricing by the federal government. He asked Mr. Vance to comment on decision unit M-650 which would delete 26 positions and 2 commissioners. Mr. Vance responded the Governor is making the recommendation to remove those 26 positions with corresponding reductions in non-salary expenses as a result of the federal government preemption of PSC regulation of transportation. He said the Executive Budget also recommends that one of those positions, the Transportation Hearing Officer, be transferred to the Nevada Department of Transportation (NDOT). In response to a query by Senator Raggio, Judge Mendoza replied the transportation industry has accepted the deregulation mandated by the federal government. He said the commission has informed the transportation industry of the effect of deregulation through statewide hearings. He declared the commission still regulates safety, controls route size and weight limitations, regulates a minimum financial responsibility sufficient to comply with insurance requirements, and requires the filing of a certificate of operation, but the commission is now prohibited from economic regulation of trucking for other than the insurance compliance. Mr. Vance interjected the commission duties cited by Judge Mendoza relate to property carriers. He said passenger carriers, household goods movers and tow trucks are subject to the same PSC regulations they have been in the past. Senator Raggio asked if those could be turned over to the Motor Carrier Bureau of the Department of Motor Vehicles and Public Safety. Judge Mendoza replied: I think those properly belong to this [PSC] agency. As you know, we have a long history of regulating taxis and motor carriers. I think ... the remaining staff that we have ... are very competent, qualified. I don't think it's duplicitous because they regulate just a little differently than we do. Senator Raggio inquired why the state should continue to maintain a taxicab authority for Clark County and an independent division of the PSC to regulate taxicabs in the rest of the state. Judge Mendoza voiced his belief that is due to a legislative determination. He asserted taxicab regulations differ between the two jurisdictions. Senator Raggio repeated his query whether the responsibilities remaining under the authority of the PSC could not be handled more efficiently under the Motor Carrier Bureau. Judge Mendoza reiterated, "I believe that they are handled very adequately here and I don't see any need for change." Senator Raggio asked Mr. Vance what amount of highway funding would remain in the Public Service Commission budget with the reduction in staff. Mr. Vance replied the Executive Budget recommendation would reduce the PSC highway fund appropriation by 63 percent or $1.4 million. He said the amount remaining would be approximately $600,000. When asked if that amount could be justified as an appropriate use of highway funds, Mr. Vance answered, "I believe so." Senator Raggio asked for an explanation of the request for the addition of a Utility Engineer I position under M-200 on page 684. Mr. Vance responded the position would inspect small water utilities. He explained the PSC engineering division is falling behind in required annual inspections due to lack of staff and the position would relieve the backlog. Senator Raggio inquired if any fee increases are recommended in the budget. Mr. Vance replied none are recommended. Judge Mendoza told the committee the request for $175,000 under E-176 would be used to hire a consultant to conduct an analysis of the PSC's organization and operational structure. He recalled there had been a similar request 2 years earlier which failed to obtain approval of the Legislature. Judge Mendoza declared there has not been an organizational study of the PSC for 14 years, and the commission feels one is necessary due to dramatic changes in the entire utility industry, especially telecommunications and the restructuring of the electrical industry. He said in April he would be attending a national conference of commissioners to deal with the very issue regarding the makeup of commissions. He suggested the PSC might need more auditors and less engineers or other structural modifications due to industry changes. Senator Raggio asked what type of entity could be found to conduct the study. Judge Mendoza replied the commission would solicit recommendations from the National Association of Regulatory Utility Commissioners (NARUC). He said similar studies are conducted regularly by the various commissions. Judge Mendoza said E-177 would add a Legal Case Manager position, a paralegal, to prepare documentation and files to assist attorneys in the growing number of cases being brought before the commission. He explained often there will be 200 or 300 exhibits in major cases, and the addition of the position would make it unnecessary to hire another attorney. Senator Raggio asked why $12,582 in E-326 is necessary in each year of the biennium for out-of-state travel for commissioners when the number of commissioners is being reduced by two. Mr. Vance responded the original budget was submitted before the commission learned of the federal mandate. He said the $1.4 million reduction would include a reduction of $6,000 in out-of-state travel in each year of the biennium if the two commissioner positions are deleted, thus the out-of-state travel budget should be reduced to $6,582 each year. Mr. Vance said the request for $108,000 in E-710 should be reduced by $65,000 because fewer vehicles will have to be replaced and less furniture will be needed with the federal reduction. Pointing to the budget summary on page 688, Senator Raggio asked if the $455,000 fee in the first year of the biennium and $280,000 in the second year for expert consultants includes the funding for the proposed organizational survey. Mr. Vance confirmed that it does. Senator Raggio opined, even allowing for the study, the figures still indicates a significant increase for expert consultants while the authority of the commission was being limited. Judge Mendoza responded many applicants have increased the number of experts they employ and it has become necessary for the commission to engage more experts to match their testimony. Senator Raggio asked why the reserve item on page 688 is projected to grow to $2 million. Mr. Vance replied the PSC makes a point of setting the mill assessment below the maximum of 3.5 mills in order to target an actual reserve of between $600,000 and $900,000 by the end of the year. He asserted the PSC would never allow the reserve to grow to $2 million, the mill assessment had been set at 10 percent below its maximum for the past 4 or 5 years, and if it appears the reserve is going to grow too large the mill assessment would be set even lower. He suggested the Budget Division might be able to explain the figure. When queried about E-900, Mr. Vance explained administrative citations included in budget account 224-3921 have dropped considerably below expectations. He said the commission had been using the authority in that budget to pay expenses related to enforcement in the transportation industries. As a result, he said, in order to reduce the authority in that budget it would be better to transfer the charge to budget account 244-3920 to reflect a correct base budget. Mr. Vance acknowledged fines are no longer sufficient to cover the expenses supported by the Administrative Fine budget. He attributed the reduction to the success of enforcement of the system with the result that fewer administrative citations are being issued. Senator Raggio inquired if the present staff is adequate to handle the matters before the commission in a timely fashion. Judge Mendoza replied in the affirmative. He acknowledged it is difficult to determine when the work load will be highest because on occasion a series of large cases may be filed, while there can be slow periods. Senator Raggio pointed out the statutes provide mandates that the cases must be decided within 3 1/2 months. He asked if the commission is having difficulty meeting that deadline. Judge Mendoza replied the commission either accepts or rejects resource plans. If the commission rejects the plan, it is indicative the applicant did not fulfill the obligation to prove to the commission that the applicant was entitled to the requested relief. In those situations, he said, sometimes portions are accepted while other portions are rejected. Judge Mendoza cited one long case in which the information in the application was insufficient to grant the major portion of the request and had to be reheard. He said there were so many attorneys and others involved that it took a long time to hear all of them and there was no way to speed up the process. Senator Raggio recalled it had taken over 11 months to decide the case and wondered if the statutory deadline is appropriate. Judge Mendoza agreed to provide more information on the case, but said the deadline applies as to whether the commission will accept or reject the case, it does not apply to the date of conclusion of the case. Senator Raggio brought to mind another case involving the telephone industry in which the PSC blocked approval of an agreement to which approximately 15 companies and the Consumer's Advocate had stipulated agreement. He asked why the PSC blocked approval of the stipulated agreements. Judge Mendoza responded the PSC opened the door to the problem when it determined the telecommunications industry might need reorganization and rules should be established. He declared the PSC advised members of the industry to present the PSC with their concerns, then waited 9 months for documents to be filed. After that time, he said, the industry organized an omnibus group of people that did not include cable companies, the resellers, the general public or the universities. Judge Mendoza related at that time a hearing was set in which the PSC heard the group proposal, but the cable companies complained that they had not been included. He indicated the hearings had to be continued in order to provide the other interests an opportunity to present their cases, after which the matter was placed on the agenda. He explained there was a difference of opinion among the commissioners as to whether the proposal should go forward, so the PSC decided to submit it to staff to meet with the various parties. Judge Mendoza declared the commissioners cannot become involved in the matter due to their status as quasi-judicial officials, and also the agreement of the parties did not necessarily signify it was in the best interest of the public and the commission did not feel the stipulation was acceptable. He said since that time another hearing has been held in which a preliminary telecommunications bill has been formulated which has received good comments from the industry. He said the hearing would last for another 3 or 4 days. Judge Mendoza conceded not all the facts have come forward in the matter because, after preliminary approval by the parties, the parties reversed their opinions during a hearing before the Senate Committee on Commerce and expressed disapproval. Senator Raggio said legislators become mindful of the problems during the legislative session because they are brought to the Legislature seeking resolution. He declared the telecommunication matter and others, including one regarding deferred energy regulations, properly belong before the PSC, but he said there is an expectation that the PSC will function in a timely manner. Senator Coffin inquired whether the remaining commissioners of the PSC have discussed the reduction to three commissioners, and he asked if any of the commission members were delegated solely to transportation matters. Judge Mendoza answered all commissioners share responsibility for transportation work. He said there is one commissioner who has served in the transportation field and thus has more interest in that specific field, but no one person is assigned to transportation. He acknowledged each case is assigned to a commissioner, but that is done on a temporary basis. Mr. Vance said 20 percent of the support staff time is devoted to transportation issues indicating the probability transportation accounts for all of the time of one commissioner. Senator Coffin expressed concern that those who leave the employ of the PSC are forbidden by law to go to work in an industry which they have regulated. He stated the Legislature had not contemplated a sudden reduction in the work force due to a federal preemption. He said the legislation had been enacted to prevent someone from doing favors for an industry and then going to work for that employer at a possible increase in salary. He stated the situation now indicates 26 well-trained people will lose their jobs. Senator Coffin asked if there is any pending legislation to allow those people to go to work in the industries with which they are familiar. Judge Mendoza responded he has no knowledge of such legislation. He pointed out the issue is one of ethics versus humanitarianism. Senator Coffin asked if the policy implemented by Nevada Power to shut off electricity at peak periods with consumer approval and with a rebate to consumers had required the approval of the PSC. Judge Mendoza recalled it had been filed with their 1995 resource plan with a request for hearings which have not been held yet. Senator O'Donnell inquired how many positions are going to open up in the Department of Transportation and whether they would provide openings for the 26 people about to be removed from the PSC. Judge Mendoza replied the staff has been working closely with the Department of Personnel to attempt to find positions for the people. Mr. Vance responded so far there are no plans to transfer any of them except the one position to NDOT, but all agencies have been informed the PSC would be cutting back. Recalling that the PSC does not enforce taxicab regulations in Clark County, Senator O'Donnell asked if any of the positions to be deleted are involved in taxicab enforcement or regulations. Mr. Vance replied most of those positions are not specifically assigned to taxicabs. Senator O'Donnell commented if a person wants to take a job with a company that has been regulated by the PSC in the past but is no longer regulated by the PSC due to deregulation there should not be a necessity for a "cooling-off" period. Judge Mendoza responded, "There's a theory of law that says when the reason for the rule evaporates, then you don't enforce the rule." Senator Mathews inquired what percentage of the PSC work load applies to trucking. Mr. Vance replied approximately one-third of the entire work load is related to all transportation, and he estimated two-thirds of that one-third work load would be removed by deregulation. Senator Mathews wondered if the number of commissioners should only be reduced by one position. Judge Mendoza responded the determination to remove two had been made by the executive branch. Judge Mendoza said he would propose the commission re-reference one of the positions being eliminated from the budget. Mr. Vance pointed out the reduction of 26 positions is not reflected in the summary on page 688 and the total position count should read 93.5. Senator Raggio remarked he did not understand why the figures in the budget were depicted as shown. Jere Schultz, Budget Analyst, Budget Division, Department of Administration, explained an agreement was made between the executive and legislative branches to show movement of positions within decision units. He said, "The plan is, if this decision unit is accepted, we would then delete those positions and the true position count will show in the legislatively approved budget." Judge Mendoza stated one of the positions to be eliminated by deregulation was improperly designated and another position is to be eliminated. He noted the change would require correction. Concluding testimony on the PSC, Senator Raggio opened discussion on the Department of Taxation. Department of Taxation - Page 597 Michael A. Pitlock, Executive Director, Department of Taxation, distributed a brief overview of the department's recommended budget (Exhibit G) and the Report of the Governor's Task Force on the Combined Audit Program (Exhibit H). He declared the department is in general agreement with the analysis of the task force but has some concerns relative to the final recommendations of the report. Mr. Pitlock addressed the major changes in budget 101-2361 for the Department of Taxation. He declared the most significant change on the restructuring of the combined audit program which has become a source of difficulty for the department over the past 2 years. He said the Governor's budget called for a phase-down of the combined audit program to what Mr. Pitlock characterized as a pilot program. He projected 50 to 60 combined audits would be performed in the coming years which would enable the program to move forward in a more efficient manner and from which a future program could be developed. Mr. Pitlock suggested by reducing the size of the combined audit program the economic risk to the department would be minimized. He asserted there was a significant risk under the combined audit program as originally conceived, it has not been successful, and it has forced the department to seek a supplemental appropriation from the legislature. Mr. Pitlock stated another significant change from prior years is due to a move out of the development phase of the automated tax collection system (ACES) program into an operational phase. He anticipated the new system would be operational on May 15, 1995, at which time both the old and new systems would work parallel for a month before the final change-over to the new ACES program by the beginning of the new fiscal year. Mr. Pitlock called the growth in the number of sales and use tax registrations in the budget a significant measurement indicator. He noted between 1988 and 1993 the department experienced an annual growth of 7.4 percent in the number of companies that registered, while between 1993 and 1994 the number jumped to 10.8 percent. Mr. Pitlock asserted the work load has increased commensurately and the department is attempting to respond with only an increase of one half-time position. He stated the department was attempting to handle the work load through greater efficiency and better tools such as the ACES program. With the phasedown of the combined audit program, Mr. Pitlock said some positions are being transferred back to the Employment Security Department (ESD) and to the State Industrial Insurance System (SIIS) and two account clerk positions would be eliminated entirely. He explained those would be offset by 8 « positions being added to the department to assist the work load. Four and one-half of those positions will be assigned to the revenue department and four will be assigned to the audit department. He said three of the audit positions will be out-of-state auditors to audit large, national accounts that do business in Nevada. Mr. Pitlock said several different enhancement decision units relate to the combined restructuring program. He indicated E-325 provides for a reduction of the phasedown as do decision units E-360 and E-361. Calling attention to the summary, Mr. Pitlock noted the recommended budget for 1995-1996 represents a less than 1 percent increase over the work program for 1994- 1995. He asserted the low increase is a reflection of increased efficiency in the department. Senator Raggio inquired what steps are planned by the department to make up for the lost revenue and other deficiencies pointed out by Mr. Pitlock due to the difficulty with the combined audit program. Mr. Pitlock replied there are two areas that will require extra attention in the coming fiscal year. He said the phasing down to 50 or 60 audits under the combined audit program should allow the program more efficiency without causing a drain on other duties of the department. He asserted much of the problem will be resolved when the combined audits are reduced to a manageable number. Mr. Pitlock declared the number of sales and use tax audits and recoveries from those audits fell dramatically as a result of department efforts to attempt to implement the combined audit program. Senator Raggio agreed the significant drop from a 6 year average of $13 million to $9.6 million in FY 1994 is of particular concern. Mr. Pitlock averred one of the largest failures resulting from the combined audit program was due to the fact department resources were directed away from sales and use tax audits. He declared instead those resources were directed toward the attempt to make the combined audit work. Since his transfer to the department 4 weeks ago, he said, he has been attempting to analyze the combined audit program and its subsequent effects. He asserted there may have been too much attention focused on the one program at the expense of the other functions of the department. Mr. Pitlock declared, "One of my goals ... is to get the auditors back to what they do best, and what those people do best is sales and use tax audits." He asserted the auditors will be successful if they are allowed to spend time on the sales and use tax audits and to select the types of audits which generate the greatest recovery. He stated the collections made as a result of efforts by Nevada auditors compare favorably with those in other states. Senator Raggio commended Mr. Pitlock for being forthright. He said the legislature has been cognizant of the problem even though problems were not previously indicated by testimony before the overview committee. Senator Raggio inquired into the intended use of the requested supplemental appropriation in the amount of $1.5 million. Mr. Pitlock replied it would be used to offset a $1.5 million shortfall in revenue due to the low number of audits that were completed. He said the department estimates it will complete just 1,216 SIIS audits and generate $360,000 instead of the projected 4,704 audits which would have generated $1.2 million, resulting in a shortfall of $925,000. He indicated the same situation applies to other audits. Mr. Pitlock affirmed Senator Raggio's query that $1.5 million was needed to fund the cost of operation due to the lack of audit production. Mr. Pitlock said the department had projected another $300,000 in revenue from ESD which also would not be realized. Senator Raggio said the initial concept projected $2.5 million in savings which has since been reduced to $1.5 million. Mr. Pitlock suggested the program was very ambitious and it should have been conducted as a pilot program to minimize economic risk to the state. He said the program in the current budget is designed as a pilot program. Senator Raggio requested clarification on the staffing and asked whether another major supplemental appropriation would be requested at the next legislative session. Mr. Pitlock responded it is poor policy to have to request supplemental appropriations, but he feels it is unavoidable at the present time due to the large deficiency. He declared the Department of Taxation is one area where services cannot be stopped. Mr. Pitlock said positions are being added on one side while positions are being transferred to ESD and SIIS on the other side with a net increase of one half-time position. He reiterated the 10 positions being removed are two audit positions to be returned to SIIS, six audit positions to be returned to ESD and two account clerk positions to be eliminated. He said of the 10 1/2 positions the department will gain, 4 « will be in the revenue department and four in the audit division. Of those to be added in the audit division, one will be located in Atlanta, one in Kansas City, one in Chicago and the other will be a clerical position in the Las Vegas area. Senator Raggio noted the task force recommended that the business tax issue should be transferred to ESD. He asked if that has been done. Mr. Pitlock said the majority of the combined audit function for ESD is being transferred back to ESD, but he stated the department disagrees with the recommendation to move the business tax function back to ESD. He averred there could be danger that the same thing could happen as occurred with the combined audit program. Mr. Pitlock explained: The report seems to come to the conclusion that ... a payroll based audit is a payroll based audit no matter what you're doing it for. One thing we have learned from the combined audit program is that an audit is not an audit. You have to look at the goals behind doing the audit. An ESD audit and a SIIS audit are compliance driven, they're not revenue driven. Tax audits, whether it's a sales tax audit or a business tax audit, are revenue driven. Mr. Pitlock added the main focus of those audits is to detect evasion and to collect tax, whereas those are not the reasons to perform ESD or SIIS audits. He recommended business tax audits not be removed from the Department of Taxation because he is concerned many of the same problems would appear that were present when the department attempted to implement the combined audit program. Mr. Pitlock voiced his belief the department could continue to perform business tax audits in an efficient manner. He recommended the administration of the business tax be handled as a pilot program by ESD to test the program before placing it at too much risk if the Legislature determined to follow the recommendation for the task force to move business tax audits out of the Department of Taxation. Senator Raggio inquired if audit recoveries could be restored during the coming biennium. Mr. Pitlock replied he has noticed a significant increase in monthly recoveries from sales and use tax audits indicated in the monthly reports. He stated he also is aware of several audits pending review which have significant revenue associated with them. Mr. Pitlock opined once the combined audit program is reduced to a reasonable size during the next fiscal year there will be an immediate jump in recoveries from sales and use tax audits. He asserted it will be possible to return to current levels and he anticipated recoveries for FY 1996 will exceed the record year in FY 1992 due to growth in the state. Senator O'Donnell pointed out the ACES project was started in 1991 with an allocation of $500,000. He inquired if the cost of the project has risen to $1.8 million to date as indicated. Mr. Pitlock responded the Department of Information Services (DIS) would have that information. Pamela A. Case, Deputy Director, Department of Information Services, acknowledged she was unable to provide the total cost of the project but she would provide the information later. She said the cost of the contract came to $831,433 after a change order had been approved. Senator O'Donnell repeated the first phase cost $433,000 and the second phase has cost $397,000 for a total of $831,000. He asked if there have been staff assessment charges made by DIS for $213,000. Ms. Case confirmed the question. He asked for an explanation of the charge for $663,900 for computer usage. Ms. Case replied she would have to check to see if part of the figure is attributable to ongoing systems charges and not specifically associated with ACES. Senator O'Donnell reiterated his concern that $1.82 million had been expended over 3 years while the Automated Collection Enforcement System is still not installed. He compared it to experience with the Nevada Operations Multi Automated Data Systems (NOMADS) and asked for further explanation. Ms. Case responded: While I realize that the funding was made available in `91 on this particular project ... the Department of Taxation was attempting at the time ... to acquire a delinquent collection system only. Our agency, working with the Department of Taxation, decided that it would be more prudent and cost-effective over the long term to approach a revenue management system which would replace both their old existing systems, the business tax system which was kind of thrown together in a hurry, as well as provide for delinquent collections. And so we began the process and the RFPs [requests for proposal] for that process were not even opened until December of 1992. The contract award was not made until April of [1993], and the contract ran through December of [19]94.... Ms. Case explained the contract included two phases with a funding clause for phase two because it crossed bienniums. She said phase one was designed to utilize the funding for the previous biennium while phase two assumed funding would be granted in the present biennium. She indicated there was a subsequent amendment to extend the expiration date of the contract although no additional funds have been allocated to the vendor. She declared the department is demanding the project be completed under the agreed-upon fixed price. Senator O'Donnell inquired how much funding is being withheld. Ms. Case replied the department has a performance bond for the full amount of the contract which could be invoked at any time. She said the consensus of the Department of Taxation and DIS is that the system is complete and it is in the process of being tested. She voiced encouragement over the results although testing is taking longer than anticipated. She asserted it is to the state's advantage to allow completion of the testing before commencing production, which is why the date was extended. Ms. Case added the delay could not be attributed entirely to the vendor because the move of the Department of Taxation from one building to another contributed to the delay. She declared the vendor has been very cooperative and the project could not be compared to NOMADS. She acknowledged the NOMADS project should have been handled differently, and she reiterated her belief the ACES program is more successful and would be a "tremendous system when it is implemented." Senator O'Donnell asked how the software would be affected by changes, such as the transfer of positions. Mr. Pitlock responded the benefits to be derived from ACES would primarily assist revenue officers and tax examiners, although the audit division would also gain some benefit. Mr. Pitlock declared ACES will allow revenue officers to be more efficient in the identification and collection of delinquent taxes as well as assuring there are matches between the various registrations required. He said it will allow identification of those who should be registered for both a business tax and a sales tax. He declared the ACES program will significantly improve the efficiency of the revenue department. There being no further testimony, Senator Raggio closed the hearing on budget account 101-2361. Judge Becker asked the committee to consider a bill draft request (BDR). Senator Raggio invited testimony on the matter. Christina Chandler, Administrator, Family Division, Eighth Judicial District, District Courts, declared the new family court has been in operation for 2 years. She stated the court could use six more judges but has a "dire" need for at least two additional judges. She said negotiations are under way with the county to provide accommodation for six judges over a period of 3 years. Ms. Chandler made a request to the committee for a bill draft to provide two additional judges. Senator Raggio recalled there had been a general discussion on the matter and agreed to consider a bill draft. Ms. Chandler stated the request would add four judges during the next biennium. Judge Becker interjected Clark County judges have requested a bill draft that would add two judges in FY 1996, two judges in FY 1997 and two judges in FY 1998 although approval has not been received from the county. Senator Raggio responded the committee probably would not consider a bill draft that included judges for the following biennium. He asked if requests are being made for additional judges in other districts. Judge Becker replied the Washoe County government indicated funding could not be made available for an additional judge there and had withdrawn their BDR, so the only request for additional judges is the one from the Eighth Judicial District. SENATOR RAWSON MOVED FOR A BILL DRAFT REQUEST WHICH WOULD AUTHORIZE TWO ADDITIONAL JUDGES FOR THE FAMILY COURT IN THE EIGHTH JUDICIAL DISTRICT. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS RHOADS AND COFFIN WERE ABSENT FOR THE VOTE.) * * * * * Senator Raggio pointed out it would be necessary for the county to approve funding before the committee could seriously entertain approval of the bill. The meeting was adjourned at 10:15 a.m. RESPECTFULLY SUBMITTED: Judy Jacobs, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance March 6, 1995 Page